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 Materual 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.
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Diacrin, Inc.
Building 96 13th Street
Charlestown Navy Yard
Charlestown, Massachusetts 02129
Notice of 2001 Annual Meeting of Stockholders
To Be Held on July 31, 2001
The 2001 Annual Meeting of Stockholders of Diacrin, Inc. (the
"Company") will be held at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts on Tuesday, July 31, 2001 at 10:00 a.m., local time, to
consider and act upon the following matters:
1. To elect six directors for a one-year term;
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for fiscal 2001; 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 June 6, 2001 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open for the purchase and sale
of the Company's Common Stock.
By Order of the Board of Directors,
Steven D. Singer, Secretary
Charlestown, Massachusetts
June 25, 2001
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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 AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
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Diacrin, Inc.
Building 96 13th Street
Charlestown Navy Yard
Charlestown, Massachusetts 02129
Proxy Statement for the 2001 Annual Meeting of Stockholders
To Be Held on July 31, 2001
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 July 31, 2001 (the "Annual
Meeting") 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.
The Company's Annual Report for 2000 will be mailed to stockholders,
along with these proxy materials, on or about June 29, 2001.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2000, as filed with the Securities and Exchange Commission, except
for exhibits, will be furnished without charge to any stockholder upon written
request of Investor Relations, Diacrin, Inc., Building 96, 13th Street,
Charlestown Navy Yard, Charlestown, Massachusetts 02129.
Securities and Votes Required
At the close of business on June 6, 2001, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote 17,914,704 shares of common stock, $0.01 par
value per share (the "Common Stock") (constituting all of the outstanding voting
stock of the Company). Each share of Common Stock entitles the holder to one
vote.
Under the Company's By-laws, the holders of a majority of the shares of
Common Stock issued, outstanding and entitled to vote at the Annual Meeting
shall constitute a quorum for the transaction of business 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 at the Annual Meeting.
If a quorum is present, 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. If a quorum is
present, 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. For purposes of tabulating the vote,
abstentions will be treated as shares that are present and entitled to
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vote. Accordingly, an abstention will have the same effect as a vote against the
matter. In addition, 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 that particular matter. Accordingly, a "broker
non-vote" on a matter will have no effect on the outcome of the voting on such
matter.
Principal Stockholders
The following table sets forth the beneficial ownership of the
Company's Common Stock as of May 31, 2001 by:
- each person who is known to beneficially own more than 5% of the
Company's Common Stock;
- each director or nominee for director of the Company;
- each executive officer of the Company named in the Summary Compensation
Table under the heading "Executive Compensation"; and
- all executive officers and directors of the Company as a group.
Unless otherwise noted, each person or group has sole voting and
investment power of the shares listed. The inclusion of any shares listed below
as beneficially owned does not constitute an admission of beneficial ownership
of those shares.
The "Options" column reflects shares of the Company's Common Stock
subject to options which are exercisable within 60 days after May 31, 2001. The
shares of the Company's Common Stock which are subject to options are deemed to
be outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed to be outstanding for computing
the percentage of ownership of any other person. As of May 31, 2001, there were
17,914,704 shares of Common Stock outstanding.
Number of Shares
Beneficially Owned Percentage of
----------------------- Common Stock
Name and Address Shares Options Outstanding
HealthCare Ventures II, L.P. (1)........... 3,196,385 -- 17.8%
HealthCare Ventures III, L.P. (1).......... 994,078 -- 5.5
HealthCare Ventures IV, L.P. (1)........... 291,922 -- 1.6
State of Wisconsin Investment Board (2).... 2,658,200 -- 14.8
Rho Management Trust II (3)................ 1,592,887 -- 8.9
Hudson Trust (4)........................... 1,342,680 -- 7.5
Thomas H. Fraser, Ph.D..................... 483,488 158,750 3.6
Zola P. Horovitz, Ph.D. ................... 4,000 19,500 *
John W. Littlechild (1).................... 4,482,385 11,500 25.1
Stelios Papadopoulos, Ph.D................. 200,000 11,500 1.2
Joshua Ruch (5)............................ 1,759,587 11,500 9.9
Henri A. Termeer........................... 7,750 44,500 *
E. Michael Egan............................ 4,169 162,495 1.0
All directors and executive officers as a
group (8 persons).......................... 6,941,379 429,245 40.2
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* Less than 1.0%
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(1) 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, HCPIII and HCPIV, share voting and investment control with
respect to shares owned by HCVII, HCVIII and HCVIV, respectively. Mr.
Littlechild does not own any shares of the Company's capital stock in his
individual capacity. The address of HealthCare Ventures II, III and IV,
L.P. is 44 Nassau Street, Princeton, New Jersey 08542.
(2) The address of the State of Wisconsin Investment Board is P.O. Box 7842,
Madison, Wisconsin 53707.
(3) Rho Management Partners, L.P. may be deemed the beneficial owner of these
shares pursuant to an investment advisory agreement that confers sole
voting and investment control over such shares to Rho Management Partners,
L.P. The address of Rho Management Trust II is c/o Rho Management Company,
Inc., 152 West 57th Street, New York, New York 10019.
(4) The address of Hudson Trust is c/o Summit Asset Management Co., Inc., 47
Hulfish Street, Suite 420, Princeton, New Jersey 08542.
(5) 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
166,700 shares directly for his own account, for the account of family
members or for the account of other clients of Rho Management Partners,
L.P.
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 six to serve until the 2002 Annual Meeting of
Stockholders.
The persons named in the enclosed proxy will vote to elect as directors
the six 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 2002 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.
Set forth below is the name and age of each member of the Board of
Directors, 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 May 31, 2001, appears above under the heading "Principal
Stockholders." There are no family relationships between or among any officers
or directors of the Company.
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Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
---- --- -------- --------------------------------
Thomas H. Fraser, Ph.D. 53 1990 President, Chief Executive Officer and
Director of the Company since 1990.
Zola P. Horovitz, Ph.D. 66 1994 Vice President, Business Development
and Planning from 1991 to 1994 of
Bristol-Myers Squibb Pharmaceutical
Group, a health and personal care
company; Chairman of hte Board of
Directors of Magainin Pharmaceuticals;
Director of Avigen Inc., BuiCryst
Pharmaceuticals, Palatin Technologies,
Paligent, Shire Pharmaceuticals and
Synaptic Pharmaceuticals, Inc.
John W. Littlechild 49 1992 Principal, HealthCare Ventures LLC, a
venture capital management company,
since 1992; Director of Orthofix
International N.V. and Dyax.
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Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
---- --- -------- --------------------------------
Stelios Papadopoulos, Ph.D. 52 1991 Managing Director at SG Cowen
Securities Corporation, a securties and
investment banking firm, since February
2000; employed as an investment banker
at PaineWebber Incorporated from 1987
to February 2000, most recently as
Chairman of PaineWebber Development
Corp., a subsidiary of PaineWebber
Incorporated engaged in investment
banking and securities brokerage.
Joshua Ruch 51 1998 Chairman and Chief Executive Officer
of Rho Management Company, Inc., an
investment advisory firm with which he
has been affiliated since 1981; Director
of 3-Dimensional Pharmaceuticals, Inc.
Henri A. Termeer 55 1996 President and Director since 1983, Chief
Executive Officer since 1985 and
Chairman of the Board of Directors
since 1988 of Genzyme Corporation, a
biotechnology company; Director of
Abiomed, Inc., AutoImmune, Inc. and
Genzyme Transgenics Corporation;
trustee of Hambrecht & Quist
Healthcare Investors and of Hambrecht
& Quist Life Sciences Investors.
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Meetings of Board of Directors and Committees
During 2000, the Board of Directors held six meetings. Each director,
other than Henri Termeer, attended at least 75% of the meetings of the Board and
of the committees on which he then served.
The Company has a Compensation Committee composed entirely of directors
who are not employees of the Company. The Committee provides recommendations to
the Board regarding compensation programs of the Company, administers the
Company's stock option plans and is authorized to grant stock options under such
plans to officers and directors of the Company. 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 once
during 2000. The current members of the Compensation Committee are Messrs.
Littlechild and Termeer and Dr. Papadopoulos. See "Report of the Compensation
Committee" below.
The Company has an Audit 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 stockholders, oversees the ethical behavior of
management, and considers and recommends the selection of the Company's
independent auditors. The Audit Committee met once during 2000. The current
members of the Audit Committee are Drs. Horovitz and Papadopoulos and Mr. Ruch.
The Company does not have a Nominating Committee or a committee serving
similar functions. Nominations are made by and through the full Board of
Directors.
Director Compensation
Dr. Horovitz receives $2,000 plus expenses per board meeting attended
plus an additional $4,000 annually for consulting work performed on behalf of
the Company. No other directors receive any cash compensation for services on
the Board of Directors.
On June 19, 2000, all non-employee directors were granted an option to
purchase 6,000 shares of Common Stock under the Company's 1997 Stock Option Plan
at an exercise price of $7.88 per share. The options may be exercised on a
cumulative basis as to 25% of the shares on the first anniversary of the date of
grant and an additional 25% at the end of each one-year period thereafter.
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Executive Compensation
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three fiscal years of the Company's Chief Executive Officer and Chief
Operating Officer (the "Named Officers"):
Annual Compensation Long-Term Compensation
Awards
Name and Securities Underlying
Principal Position Year Salary($)(1) Bonus($)(2) Options(#)
Thomas H. Fraser 2000 $270,000 $25,000 25,000
President and Chief 1999 260,000 40,000 25,000
Executive Officer 1998 250,000 35,000 25,000
E. Michael Egan 2000 $200,000 $20,000 20,000
Chief Operating Officer 1999 190,000 30,000 20,000
1998 180,000 25,000 20,000
------------------------------
(1) Amounts shown include cash compensation earned and received by the Named
Officers as well as amounts earned but deferred at the election of these
officers to the Company's 401(k) Plan.
(2) Amounts in this column represent bonuses paid or accrued under the
Company's annual management bonus plan.
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Option Grants Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 2000 to the
Named Officers:
Individual Grants
-----------------------------------------------------------
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term (2)
Options Employees in Base Price Expiration ----------------------------
Name Granted (#) (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- --------------- ----------- ----------- --------- ------------ --------------
Thomas H. Fraser 25,000 16% $4.69 12/27/10 $73,705 $186,785
E. Michael Egan 20,000 13% $4.69 12/27/10 $58,964 $149,428
---------------
(1) Options granted in 2000 become exercisable in four equal annual
installments, commencing 12 months after the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Company's Common Stock and the date
on which the options are exercised.
Aggregated Option Exercises and Year-End Option Table. The following
table sets forth certain information regarding aggregate option exercises during
the fiscal year ended December 31, 2000 and the number and value of unexercised
stock options held as of December 31, 2000 by the Named Officers:
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Fiscal Year-End (#) Fiscal Year-End ($)(2)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($)(1) Unexercisable Unexercisable
------ ---------------- -------------- ----------------- -----------------
Thomas H. Fraser - - 158,750 / 63,750 $299,375 / $7,799
E. Michael Egan - - 162,495 / 50,000 $395,482 / $6,240
--------------------
(1) Represents the difference between the exercise price and the value of the
Company's Common Stock on the date of exercise.
(2) Based on the value of the Company's Common Stock on December 29, 2000
($5.00 per share), the last trading day of 2000, less the applicable option
exercise price.
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Employment Agreements
The Company has entered into a letter agreement with Dr. Fraser 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 it terminates his
employment without cause. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), 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.
Based solely on its review of the copies of such reports received or
written representations that no other reports were required, the Company
believes that, during the fiscal year ended December 31, 2000, its officers,
directors and ten-percent stockholders complied with all Section 16(a) filing
requirements applicable to such individuals.
Report of the Compensation Committee
The Company's executive compensation program is administered by the
Compensation Committee (the "Committee"), which is composed of three directors
who are neither employees nor officers of the Company. The Committee reviews and
approves the salaries and incentive compensation of the Chief Executive Officer
and the other executive officers of the Company.
The objectives of the Company's executive compensation program are as
follows:
- provide an incentive for the achievement of strategic goals and
objectives of the Company;
- support the pay-for-performance concept by tying executive
compensation to the Committee's subjective determination of the
quality of performance for the preceding fiscal year;
- attract and retain key executives essential to the long-term
success of the Company; and
- 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 incentive
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
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basis for compensation decisions is appropriate. However, the Committee
considers the ability to control losses without compromising the progress of the
Company's product development programs.
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 are 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 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 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. The base salary for fiscal 2000 of the President and
Chief Executive Officer of the Company was increased by $10,000 to $270,000. On
December 27, 2000, the Compensation Committee granted Dr. Fraser an option to
purchase 25,000 shares of Common Stock at a per share exercise price of $4.69
for his performance during the 2000 fiscal year. The option was granted at an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant and vests in four annual installments commencing one year
following the date of grant as long as Dr. Fraser remains employed by the
Company. In awarding this option to Dr. Fraser, the Committee subjectively
considered the compensation criteria discussed above as well as its interests in
providing incentives 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 of 1986, as amended, which disallows a tax deduction for certain
compensation in excess of $1 million, will generally have an effect on the
Company.
By the Compensation Committee of the Board of Directors of Diacrin, Inc.
John W. Littlechild
Stelios Papadopoulos
Henri Termeer
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Compensation Committee Interlocks and Insider Participation
Mr. Termeer, a member of the Company's Board of Directors and Compensation
Committee, is President, Chief Executuve Officer and Chairman of the Board of
Genzyme. In September 1996, the Company formed a joint venture with Genzyme
Corporation 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 of
the joint venture agreement which was effective October 1, 1996, Genzyme 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 the Company and Genzyme in accordance with the terms of the agreement.
Any profits of the joint venture will be shared equally by the two parties. The
Company has recorded approximately $14.5 million in revenue from the joint
venture since it commenced, $2,081,795 of which the Company recognized during
2000. Revenues recognized from the joint venture and funded by Genzyme in
accordance with the terms of the joint venture agreement may represent a
substantial percentage of the Company's revenues in 2001.
Certain Relationships and Related Transactions
HCVII, HCVIII and HCVIV owned 17.8%, 5.5% and 1.6% of our outstanding
capital stock as of May 31, 2001, 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 general partner of HCVII, HCVIII and HCVIV, respectively. John Littlechild, a
member of our board of directors, is a general partner of HCPII, HCPIII and
HCPIV and Vice Chairman of Healthcare Vetnures LLC, the management company for
HCVII, HCVIII and HCVIV. Mr. Littlechild is an officer of HealthCare Ventures
LLC. See "Principal Stockholders."
Rho Management Trust II ("Rho"), which owned 8.9% of our outstanding
capital stock as of May 31, 2001, also holds approximately 18.9% and 54.3% of
the outstanding limited partnerships interests in HCVII and HCVIV, respectively.
An affiliate of Rho is also a limited partner of HCPII, HCPIII and HCPIV. Joshua
Ruch, a member of the board of directors, is a controlling person of Rho. See
"Principal Stockholders."
Hudson Trust, which owned 7.5% of our outstanding capital stock as of May
31, 2001, also holds approximately 6.0% and 11.9% of the outstanding limited
partnership interests of HCVII and HCVIV, respectively. Hudson Trust is also a
limited partner of HCPII. See "Principal Stockholders."
Stock Performance Graph
The following graph compares, for the period commencing August 12, 1996
(the date on which the Company's Common Stock commenced trading on the Nasdaq
Stock Market) and ending on December 31, 2000, 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. This graph assumes the investment of $100
on August 12, 1996 in the Company's Common Stock and each of the indices listed
above, and assumes dividends are reinvested. The Company has not paid any
dividends on its Common Stock.
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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 12/31/98 12/31/99 12/31/00
DIACRIN, INC. DCRN $100 $141 $140 $ 82 $ 90 $ 69
NASDAQ STOCK MARKET-US NAS 100 113 139 195 353 219
NASDAQ PHARMACEUTICALS NAP 100 109 112 144 267 335
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 Common Stock
Purchase Warrant) traded on the Nasdaq Stock Market. The trading range of the
Units during this six month period was between $8.00 and $14.75. The Units were
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 Common Stock Purchase
Warrant began to trade separately).
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.
- 12 -
Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting to be available to respond to appropriate questions from
stockholders and to make a statement if they desire to do so.
Report of the Audit Committee
The Audit Committee of the Company's Board of Directors is composed of
three members and acts under a written charter first adopted and approved in
June 2000. A copy of the Audit Committee's charter is attached to this proxy
statement as Appendix A.
Prior to June 11, 2001, the Audit Committee was comprised of Thomas H.
Fraser, Stelios Papadopoulos and Zola P. Horovitz. On June 14, 2001, new rules
of the Nasdaq Stock Market governing audit committees became effective. In light
of these new rules, on June 11, 2001, the Board elected Joshua Ruch to the Audit
Committee in place of Dr. Fraser, the Company's President and Chief Executive
Officer, who is not considered "independent" within the meaning of the new rules
of the Nasdaq Stock Market. The three current members of the Audit Committee are
each independent directors, as defined by the rules of the Nasdaq Stock Market.
At an Audit Committee meeting held on March 2, 2001 (the "March 2001
meeting"), the Audit Committee reviewed the Company's audited financial
statements for the fiscal year ended December 31, 2000 and discussed these
financial statements with the Company's management. At the March 2001 meeting,
the Audit Committee also reviewed and discussed the audited financial statements
and the matters required by Statement on Auditing Standards 61 (Communication
with Audit Committees) with Arthur Andersen LLP, the Company's independent
auditors.
At the March 2001 meeting, the Company's independent auditors also
provided the Audit Committee with the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). The Audit Committee discussed with the
independent auditors the matters disclosed in this letter and their independence
from the Company. The Audit Committee also considered whether the independent
auditors' provision of the other, non-audit related services to the Company that
are referred to below under the heading "Independent Auditors Fees and Other
Matters" is compatible with maintaining such auditors' independence.
Based on its discussions with management and the independent auditors,
and its review of the representations and information provided by management and
the independent auditors, the Audit Committee at the March 2001 meeting
recommended to the Company's Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
By the Audit Committee of the Board of Directors of Diacrin, Inc.
Thomas H. Fraser (audit committee member until June 11, 2001)
Zola P. Horovitz
Stelios Papadopoulos
Joshua Ruch (audit committee member since June 11, 2001)
- 13 -
Independent Auditors Fees and Other Matters
Audit Fees
Arthur Andersen LLP billed the Company an aggregate of $45,000 in fees
for professional services rendered in connection with the audit of the Company's
financial statements for the most recent fiscal year and the reviews of the
financial statements included in each of the Company's Quarterly Reports on Form
10-Q during the fiscal year ended December 31, 2000.
Financial Information Systems Design and Implementation Fees
Arthur Andersen LLP did not bill the Company for any professional
services rendered to the Company for the fiscal year ended December 31, 2000 in
connection with financial information systems design or implementation, the
operation of the Company's information system or the management of its local
area network.
All Other Fees
Arthur Andersen LLP billed the Company an aggregate of $50,400 in fees
for other services rendered to the Company for the fiscal year ended December
31, 2000.
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
employees, without additional remuneration, may solicit proxies by telephone, or
otherwise. 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.
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Proposals for the 2002 Annual Meeting
In order to be included in proxy materials for the 2002 Annual Meeting
of Stockholders, pursuant to Rule 14(a)-8 under the Exchange Act, stockholders'
proposed resolutions must be received by the Company at its offices, Building
96, 13th Street, Charlestown Navy Yard, Charlestown, Massachusetts 02129 on or
before March 2, 2002. The Company suggests that proponents submit their
proposals by certified mail, return receipt requested, addressed to the
Secretary of the Company.
If a stockholder of the Company wishes to present a proposal before the
2002 Annual Meeting of Stockholders (other than a proposal to be included in the
proxy statement pursuant to Rule 14(a)-8 as described in the prior paragraph),
pursuant to Rule 14(a)-4 under the Exchange Act, such stockholder must give
written notice to the Secretary of the Company at the address noted above. The
Secretary must receive such notice at least 45 days prior to the anniversary of
the mailing of this year's proxy materials, which would be May 15, 2002. If a
stockholder fails to provide timely notice of a proposal to be presented at the
2002 Annual Meeting of Stockholders, the proxies designated by the Board of
Directors of the Company will have discretionary authority to vote on any such
proposal.
By Order of the Board of Directors,
Steven D. Singer, Secretary
June 25, 2001
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
- 15 -
Appendix A
AUDIT COMMITTEE CHARTER
I. Membership
A. Number. Effective June 14, 2001, the Audit Committee shall consist of at
least three independent, financially literate members of the board of
directors meeting the requirements set forth in Sections I.B and I.C.
below.
B. Independence. A director is independent if he or she is not an officer or
employee of the Company or its subsidiaries, if he or she has no
relationship which, in the opinion of the Company's board of directors,
would interfere with his or her exercise of independent judgment in
carrying out the responsibilities of a director, and if he or she:
1. Has not been an employee of the Company or any affiliate of the
Company in the current year or in any of the past three years;
2. Has no immediate family member who has been employed by the Company or
an affiliate of the Company in any of the past three years (an
immediate family member includes a person's spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in a person's
home);
3. Is not employed as an executive of an entity other than the Company
having a compensation committee which includes any of the Company's
executives;
4. Did not within the last fiscal year receive from the Company or any
affiliate of the Company compensation -- other than benefits under a
tax qualified retirement plan, compensation for director service or
nondiscretionary compensation -- greater than $60,000; and
5. Has not in any of the past three years been a partner in, or
controlling shareholder or executive of, a for profit business
organization to which the Company made or from which the Company
received payment (other than payment arising solely from investments
in the Company's securities) that exceeds the greater of: (i)
$200,000; or (ii) more than 5% of the Company's or business
organization's consolidated gross revenues.
Under exceptional and limited circumstances, one director who has a
relationship making him or her not independent, and who is not a Company
employee or an immediate family member of a Company employee, may serve on the
Audit Committee if the board of directors determines that the director's
membership on the Audit Committee is required by the best interests of the
Company and its shareholders, and discloses in the next annual proxy statement
after such determination the nature of the relationship and the reasons for the
determination.
- 16 -
C. Financial Literacy. Each member of the Audit Committee must be able to read
and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, or must become
able to do so within a reasonable time after his or her appointment to the
Audit Committee. At least one member of the Audit Committee must have past
employment experience in finance or accounting, professional certification
in accounting, or other comparable experience or background which result in
the member having financial sophistication (such as being or having been a
chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities).
D. Chairman. Unless a Chairman is elected by the board of directors, the Audit
Committee shall elect a Chairman by majority vote.
II. Responsibilities of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling
their responsibilities to shareholders concerning the Company's accounting and
reporting practices, and shall facilitate open communication between the Audit
Committee, board of directors, outside auditors, and management. The Audit
Committee shall discharge its responsibilities, and shall assess the information
provided by the Company's management and the outside auditor, in accordance with
its business judgment. The responsibilities set forth herein do not reflect or
create any duty or obligation of the Audit Committee to plan, conduct, oversee
or determine the appropriate scope of any audit, or to determine that the
Company's financial statements are complete, accurate, fairly presented, or in
accordance with Generally Accepted Accounting Principles or applicable law. In
exercising its business judgment, the Audit Committee shall rely on the
information and advice provided by the Company's management and/or its outside
auditor.
A. The Audit Committee shall review and reassess the adequacy of this charter
at least annually.
B. The outside auditor shall be accountable to the Audit Committee and the
board of directors, which together shall have the ultimate authority and
responsibility to nominate the outside auditor to be proposed for
shareholder approval in any proxy statement, and to select, evaluate, and
(where appropriate) replace the outside auditor.
C. The Audit Committee shall ensure that they receive from the outside auditor
the written disclosures and letter from the outside auditor required by
Independence Standards Board Standard No. 1.
D. The Audit Committee shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the outside
auditor regarding any disclosed relationships or services that might impact
the objectivity and independence of the auditor. The Audit Committee shall
take, or recommend that the full board of directors take, appropriate
action to oversee the independence of the outside auditor.
- 17 -
E. The Audit Committee shall review and discuss with the Company's management
the Company's audited financial statements.
F. The Audit Committee shall discuss with the outside auditor the matters
about which Statement on Auditing Standards No. 61 requires discussion.
G. Based upon its discharge of its responsibilities pursuant to Sections II.C
through II.F and any other information, discussion or communication that
the Audit Committee in its business judgment deems relevant, the Audit
Committee shall consider whether they will recommend to the board of
directors that the Company's audited financial statements be included in
the Company's annual reports on Forms 10-K.
H. The Audit Committee shall prepare for inclusion where necessary in a proxy
or information statement of the Company relating to an annual meeting of
security holders at which directors are to be elected (or special meeting
or written consents in lieu of such meeting), the report described in Item
306 of Regulation S-K.
I. The Audit Committee shall annually inform the outside auditor, the
Controller, the Chief Financial Officer (if any), and the most senior other
person (if any) responsible for the internal audit activities, that they
should promptly contact the Audit Committee or its Chairman about any
significant issue or disagreement concerning the Company's accounting
practices or financial statements that is not resolved to their
satisfaction. Where such communications are made to the Chairman, he or she
shall confer with the outside auditor concerning any such communications,
and shall notify the other members of the Audit Committee of any
communications which the outside auditor or the Chairman in the exercise of
his or her business judgment believes should be considered by the Audit
Committee prior to its next scheduled meeting.
J. The Audit Committee shall direct the outside auditor to use its best
efforts to perform all reviews of interim financial information prior to
disclosure by the Company of such information, and to discuss promptly with
the Chairman of the Audit Committee, the Controller and Chief Financial
Officer (if any) any matters identified in connection with the auditor's
review of interim financial information which are required to be discussed
by Statement on Auditing Standards No. 61. The Chairman of the Audit
Committee shall discuss any such matters with the outside auditor, and
shall notify the other members of the Audit Committee of any discussions
which the outside auditor or the Chairman in the exercise of his or her
business judgment believes should be considered by the Audit Committee
prior to disclosure or filing of the interim financial information, or the
Audit Committee's next scheduled meeting.
K. The Audit Committee shall direct management to advise the Audit Committee
in the event that the Company proposes to disclose or file interim
financial information prior to completion of review by the outside auditor.
L. The Audit Committee shall meet privately at least once per year with: (i)
the outside auditor; (ii) the Controller; (iii) the Chief Financial Officer
(if any); and (iv) the most senior person (if any) responsible for the
internal audit activities of the Company.
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Appendix B
PROXY
DIACRIN, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held July 31, 2001
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, Kevin Kerrigan 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,
Boston, MA 02109 on Tuesday, July 31, 2001 at 10:00 a.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, 2 AND 3. 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
INSTRUCTIONS: To withhold authority to vote for individual monimee(s), mark the
box labeled "FOR" and strike a line through such nominee(s) name in the list at
right.
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for fiscal 2001.
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.