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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Rule 14a-6(e) (2))
Diacrin, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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Diacrin, Inc.
Building 96 13th Street
Charlestown Navy Yard
Charlestown, Massachusetts 02129
Notice of 2002 Annual Meeting of Stockholders
To Be Held on August 29, 2002
The 2002 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 Thursday, August 29, 2002 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 PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ended
December 31, 2002; 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 July 5, 2002 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
July 26, 2002
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WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD 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 CARD 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 2002 Annual Meeting of Stockholders
To Be Held on August 29, 2002
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 August 29, 2002
(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 the year ended December 31,
2001 was mailed to stockholders, along with these proxy materials, on or
about July 26, 2002.
A copy of the Company's Annual Report on Form 10-K for the
year ended December 31, 2001, 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. Exhibits will be provided upon written request
upon payment of an appropriate processing fee.
Securities and Votes Required
At the close of business on July 5, 2002, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there
were outstanding and entitled to vote 17,937,204 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 PricewaterhouseCoopers 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 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 June 15, 2002 by:
- each person who is known to beneficially own more than 5% of the
Company's Common Stock;
- each of the Company's directors;
- each of the Company's executive officers; and
- all of the Company's executive officers and directors 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 June 15,
2002. 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 June 15, 2002, there were 17,937,204 shares of the
Company's 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.....................505,988 162,500 3.7
Zola P. Horovitz, Ph.D. .....................4,000 28,500 *
John W. Littlechild (1)..................4,482,385 27,500 25.1
Stelios Papadopoulos, Ph.D.................200,000 27,500 1.2
Joshua Ruch (5)..........................1,759,587 27,500 9.9
Henri A. Termeer.............................7,750 53,500 *
E. Michael Egan..............................4,169 182,495 1.0
Kevin Kerrigan................................-- 17,000 *
All directors and executive officers as a
group (8 persons) .......................6,963,879 518,995 40.5
------------------------------
* Less than 1.0%
(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 our 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 Capital Partners, Inc. ("Rho") may be deemed the beneficial owner of
these shares pursuant to an investment advisory agreement that confers
voting and investment control over such shares to Rho. The address of Rho
Management Trust II is c/o Rho Capital Partners, 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 the Chairman and Chief Executive Officer of Rho and as such
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 or its affiliates.
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 2003 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 2003 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. The Board of Directors unanimously recommends
a vote "For" the election of the nominees.
Director Nominees
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 June 15, 2002, appears above
under the heading "Principal Stockholders." There are no family
relationships between or among any officers or directors of the Company.
Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
---- --- -------- --------------------------------
Thomas H. Fraser, Ph.D. 54 1990 President, Chief Executive Officer and
Director of the Company since 1990.
Zola P. Horovitz, Ph.D. 67 1994 Vice President, Business Development
and Planning from 1991 to 1994 of
Bristol-Myers Squibb Pharmaceutical
Group, a health and personal care
company; Director of Avigen Inc.,
BioCryst Pharmaceuticals, Genaera
Pharmaceuticals, Palatin Technologies,
Paligent and Synaptic Pharmaceuticals,
Inc.
John W. Littlechild 50 1992 Principal, HealthCare Ventures LLC, a
venture capital management company,
since 1992; Director of Orthofix
International N.V. and Dyax.
Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
---- --- -------- --------------------------------
Stelios Papadopoulos, Ph.D. 54 1991 Vice Chairman at SG Cowen Securities
Corporation, a securities and investment
banking firm, since June 2002, prior to
that and since February 2000 a
Managing Director at SG Cowen;
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;
Chairman of the Board of Exelixis, Inc.
Joshua Ruch 52 1998 Chairman and Chief Executive Officer of
Rho Capital Partners, Inc., an
international 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. and AutoImmune Inc.;
trustee of Hambrecht & Quist Healthcare
Investors and of Hambrecht & Quist Life
Sciences Investors.
Meetings of Board of Directors and Committees
During 2001, the Board of Directors held seven meetings. Each
director 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 2001. 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 three times
during 2001. The current members of the Audit Committee are Drs.
Horovitz and Papadopoulos and Mr. Ruch. See "Report of the Audit
Committee" below.
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 11, 2001, all non-employee directors were granted an
option to purchase 6,000 shares of common stock under our 1997 Stock
Option Plan at an exercise price of $2.00 per share. The options may be
exercised on a cumulative basis as to 25% of the shares on the first
anniversary of the date of grant and an additional 25% at the end of each
one-year period thereafter.
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three fiscal years of the Company's Chief Executive Officer, Chief
Operating Officer and Controller (the "Named Officers"):
Annual Compensation Long-Term All Other
Compensation Compensation(3)
Awards
Securities
Name and Underlying
Principal Position Year Salary($)(1) Bonus($)(2) Options(#)
------------------- ---- ------------ ---------- ---------- --------
Thomas H. Fraser 2001 $ 275,000 $ 137,500 - $5,250
President and Chief 2000 270,000 25,000 25,000 2,625
Executive Officer 1999 260,000 40,000 25,000 -
E. Michael Egan 2001 $ 220,000 $ 110,000 - $5,250
Chief Operating Officer 2000 200,000 20,000 20,000 2,625
1999 190,000 30,000 20,000 -
Kevin Kerrigan 2001 $ 93,500 $ 46,750 - $2,805
Controller 2000 85,000 8,000 10,000 1,275
1999 75,000 8,000 10,000 -
-------------------------------
(1) Amounts shown include cash compensation earned and received by the Named
Officers as well as amounts earned but deferred at the election of these
officers to our 401(k) Plan.
(2) Amounts in this column represent bonuses paid or accrued under a
retention or bonus plan.
(3) Represents matching contributions under our 401(k) Plan.
Option Grants, Aggregated Option Exercises and Year-End
Option Table. No options were granted to the Named Officers during the
year ended December 31, 2001. The following table sets forth certain
information regarding aggregate option exercises during the fiscal year ended
December 31, 2001 and the number and value of unexercised stock options
held as of December 31, 2001 by the Named Officers:
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Fiscal Year-End(#) Fiscal Year-End($)(2)
------------- -------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($)(1) Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
Thomas H. Fraser 22,500 $13,500 162,500/37,500 $11,250/ -
E. Michael Egan - - 182,495/30,000 $44,373/ -
Kevin Kerrigan - - 17,000/15,000 - / -
---------------------
(1) Represents the difference between the exercise price and the value of our
common stock on the date of exercise.
(2) Based on the value of our common stock on December 31, 2001 ($1.85 per
share), the last trading day of 2001, less the applicable option exercise
price.
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 our directors, executive officers
and persons who own more than ten percent of a registered class of our
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. Officers, directors and greater
than ten percent beneficial owners are required to furnish us with copies of
all Section 16(a) forms that they file.
Based solely on our review of the copies of such reports received or
written representations that no other reports were required, we believe that,
except as follows, during the fiscal year ended December 31, 2001, our
officers, directors and ten-percent stockholders complied with all Section
16(a) filing requirements applicable to such individuals. A Form 5, Annual
Statement of Changes in Beneficial Ownership, for Mr. Littlechild reporting
a stock option grant made during 2001 was inadvertently filed late.
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. 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.
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 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 2001 of the President
and Chief Executive Officer of the Company was increased by $5,000 to
$275,000. On January 14, 2002, the Compensation Committee granted Dr.
Fraser an option to purchase 65,000 shares of Common Stock at a per share
exercise price of $2.08 for his performance during the 2001 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.
During 2001, the Committee adopted a retention plan. The plan
provides for a cash payment to each participant if they continue to be
employed by the company at certain dates. Participants in the plan include
the Named Officers.
By the Compensation Committee of the Board of Directors of Diacrin,
Inc.
John W. Littlechild
Stelios Papadopoulos
Henri Termeer
Compensation Committee Interlocks and Insider Participation
Mr. Termeer serves on our Compensation Committee. In September
1996, we formed a joint venture with Genzyme Corporation to develop and
commercialize two product candidates. Under the terms of the joint venture
agreement which became effective on 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 us and Genzyme 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 member of our board of directors, is President,
Chief Executive Officer and Chairman of the Board of Genzyme. We have
recorded approximately $15.2 million in revenue from the joint venture since
it commenced, $737,290 of which the Company recognized during 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 June 15, 2002, 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 Ventures LLC, the management company for
HCVII, HCVIII and HCVIV. Mr. Littlechild is an officer of HealthCare
Ventures LLC. See "Principal Stockholders" above.
Rho Management Trust II, which owned 8.9% of our outstanding
capital stock as of June 15, 2002, also holds approximately 18.9% and
54.3% of the outstanding limited partnership interests of HCVII and
HCVIV, respectively. An affiliate of Rho Management Trust II is also a
limited partner of HCPII, HCPIII and HCPIV. Joshua Ruch, a member of
our board of directors, is a controlling person of Rho Management
Trust II. See "Principal Stockholders" above.
Hudson Trust, which owned 7.5% of our outstanding capital stock
as of June 15, 2002, 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" above.
Stock Performance Graph
The following graph compares the total return of the Company's
Common Stock for the last five years 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 December 31, 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.
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
----------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
DIACRIN, INC. DCRN $100 $ 99 $ 58 $ 63 $ 49 $ 18
NASDAQ STOCK MARKET-US NAS 100 122 173 321 193 153
NASDAQ PHARMACEUTICALS NAP 100 103 131 247 308 262
* $100 invested on 12/31/96 in stock or index - including reinvestment
of dividends.
PROPOSAL TWO: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors of the Company
annually considers and recommends to the Board of Directors the selection
of the Company's independent auditors. Effective July 8, 2002, the Audit
Committee dismissed Arthur Andersen LLP as its independent auditors and
engaged PricewaterhouseCoopers LLP as its independent auditors for the
fiscal year ending December 31, 2002. This engagement is being submitted
to the stockholders for ratification. Although stockholder approval of the
Audit Committee of the Board of Directors' selection of
PricewaterhouseCoopers LLP is not required by law, the Board of Directors
believes that it is advisable to give the stockholders an opportunity to ratify
this selection. If this proposal is not approved at the Annual Meeting, the
Board of Directors will reconsider the selection of PricewaterhouseCoopers
LLP.
Arthur Andersen LLP's audit reports on the Company's financial
statements for each of the two most recent fiscal years ended December 31,
2000 and 2001 did not contain an adverse opinion or a disclaimer of opinion
nor were they qualified or modified as to any uncertainty, audit scope or
accounting principal.
In connection with the audits for the periods ended December 31,
2000 and 2001, and the subsequent interim period through the dismissal of
Arthur Andersen LLP, there were no disagreements with Arthur Andersen
LLP on any matter of accounting principles and practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the satisfaction of Arthur Andersen LLP, would have caused them to refer to
such disagreement in connection with their report. In addition, during such
period there were no "reportable events" as defined in Item 304(a)(1)(v) of
Regulation S-K.
During the periods ended December 31, 2000 and 2001 and the
subsequent interim period through the engagement of
PricewaterhouseCoopers LLP, neither the Company nor anyone on its behalf
consulted PricewaterhouseCoopers LLP with respect to the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the
Company's financial statements nor has PricewaterhouseCoopers LLP
provided a written report or oral advice that was an important factor
considered by the Company in reaching a decision as to any accounting,
auditing or financial reporting issue.
Representatives of PricewaterhouseCoopers 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.
Representatives of Arthur Andersen LLP are not expected to be present at
the Annual Meeting. The Board of Directors recommends a vote in favor
of this proposal.
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.
The Audit Committee is comprised of Joshua Ruch, Stelios
Papadopoulos and Zola P. Horovitz. The three 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 11, 2002 (the
"March 2002 meeting"), the Audit Committee reviewed the Company's
audited financial statements for the fiscal year ended December 31, 2001 and
discussed these financial statements with the Company's management. At
the March 2002 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 for the fiscal year ended
December 31, 2001.
At the March 2002 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 2002 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, 2001.
By the Audit Committee of the Board of Directors of Diacrin, Inc.
Zola P. Horovitz
Stelios Papadopoulos
Joshua Ruch
Independent Auditors Fees and Other Matters
Audit Fees
Arthur Andersen LLP billed the Company an aggregate of $38,000
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,
2001.
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,
2001 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 $12,500
in fees for other services rendered to the Company for the fiscal year ended
December 31, 2001.
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.
Proposals for the 2003 Annual Meeting
In order to be included in proxy materials for the 2003 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 February 25, 2003. 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 2003 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 June 11, 2003. If a stockholder fails to provide timely
notice of a proposal to be presented at the 2003 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.
Householding of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be
participating in the practice of "householding" proxy statements and annual
reports. This means that only one copy of our proxy statement or annual
report may have been sent to multiple stockholders in your household. We
will promptly deliver a separate copy of either document to you if you call or
write us at the following address or phone number: Diacrin, Inc., Building
96, 13th Street, Charlestown Navy Yard, Charlestown, Massachusetts
02129, Attention: Investor Relations, (617) 242-9100. If you would like to
receive separate copies of the annual report and proxy statement in the
future, or if you are receiving multiple copies and would like to receive only
one copy for your household, you should contact your bank, broker, or other
nominee record holder, or you may contact us at the above address and
phone number.
By Order of the Board of Directors,
Steven D. Singer, Secretary
July 26, 2002
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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 CARD 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 PROXY CARD.
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Appendix A
PROXY
DIACRIN, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held August 29, 2002
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 Thursday, August 29, 2002 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 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) John W. Littlechild
Stelios Papadopoulos
[ ] WITHHELD AUTHORITY to Joshua Ruch
vote for all nominees 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 PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ended December, 31 2002.
For [ ] Against [ ] Abstain [ ]
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
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.