UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File No. 0-20139
Diacrin, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3016912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 96 13th Street, Charlestown Navy Yard, Charlestown, MA 02129
(Address of principal executive offices, including zip code)
(617) 242-9100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class
Common Stock, $.01 par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES NO X .
--- ---
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the closing price of the Common
Stock on June 28, 2002) was $15,472,000.
As of March 17, 2003, 17,937,204 shares of the registrant's Common
Stock were outstanding.
Explanatory Note
This Amendment No. 1 on Form 10-K/A to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2002 (the
"Report") is being filed to add the information required to be set
forth in Part III of the Report
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding executive officers and directors of the company
is furnished in Part I of this Annual Report on Form 10-K under the
heading "Executive Officers of the Registrant."
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
during the fiscal year ended December 31, 2002, our officers, directors
and ten-percent stockholders complied with all Section 16(a) filing
requirements applicable to such individuals.
Item 11. 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
-------------------------------
Name and Securities
Principal Position Year Salary($)(1) Bonus($)(2) Underlying
Options (#)
------------------ ---- ------------ ---------- -----------
Thomas H. Fraser 2002 $ 277,500 $ 126,750 65,000 $ 6,000
President and Chief 2001 275,000 137,500 - 5,250
Executive Officer 2000 270,000 25,000 25,000 2,625
E. Michael Egan 2002 $ 222,500 $ 95,000 40,000 $ 5,500
Chief Operating Officer 2001 220,000 110,000 - 5,250
2000 200,000 20,000 20,000 2,625
Kevin Kerrigan 2002 $ 98,250 $ 33,375 20,000 $ 2,948
Controller 2001 93,500 46,750 - 2,805
2000 85,000 8,000 10,000 1,275
-------------------------------
(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 Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 2002 to
the Named Officers:
Individual Grants
-------------------------------------------
Number of Percent of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of
Underlying Granted to Exercise or Stock Price Appreciation for
Options Employees in Base Price Expiration Option Term (2)
Name Granted (#) (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------- ---------------- ----------- ----------- ---------- ---------- ----------
Thomas H. Fraser 65,000 22% $2.08 1/14/12 $85,027 $215,474
E. Michael Egan 40,000 13% $2.08 1/14/12 $52,324 $132,599
Kevin Kerrigan 20,000 7% $2.08 1/14/12 $26,162 $66,300
-------------------------------
(1) Options granted in 2002 become exercisable in four equal annual
installments, commencing 12 months after the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for
the respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date
the respective options were granted to their expiration date.
Actual gains, if any, on stock option exercises will depend on the
future performance of the Company's Common Stock and the
date on which the options are exercised.
Aggregated Option Exercises and Year-End Option Table. The following
table sets forth certain information regarding aggregate option exercises
during the fiscal year ended December 31, 2002 and the number and value
of unexercised stock options held as of December 31, 2002 by the Named
Officers:
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at the-Money Options at
Fiscal Year-End (#) Fiscal Year-End ($) (2)
---------------------- -----------------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) (1) Unexercisable Unexercisable
----------- --------------- -------------- --------------- ---------------
Thomas H. Fraser - - 197,500 / 67,500 - / -
E. Michael Egan - - 207,495 / 45,000 - / -
Kevin Kerrigan - - 29,500 / 22,500 - / -
---------------------
(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,
2002 ($1.091 per share), the last trading day of 2002, less the
applicable option exercise price.
Director Compensation
Dr. Horovitz receives $2,000 plus expenses per board meeting he
attends plus an additional $4,000 annually for his work as a Director and
Chairman of the Audit Committee. No other directors receive any cash
compensation for services on the board of directors.
On June 17, 2002, all non-employee directors were granted an
option to purchase 10,000 shares of common stock under our 1997 Stock
Option Plan at an exercise price of $1.62 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.
Employment Agreements
We entered into a letter agreement with Dr. Fraser dated February 6,
1990, providing for an annual salary plus bonus as determined by our
board of directors. We have agreed with Dr. Fraser to continue to pay his
then current salary for a period of six months if we terminate his
employment without cause. Dr. Fraser has also agreed not to compete
with us for one year following termination of his employment. At our
election, this non-competition provision can be extended for an
additional two-year period upon the payment of additional consideration.
Compensation Committee Interlocks and Insider Participation
Henri Termeer served on our Board of Directors until November 2002.
Mr. Termeer resigned from our Board because certain programs at Diacrin
are potentially competitive with programs at Genzyme. While a member
of our Board of Directors, Mr. Termeer also served 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 is
President, Chief Executive Officer and Chairman of the Board of
Genzyme. We have recorded approximately $15.3 million in revenue
from the joint venture since it commenced, approximately $101,000 of
which the Company recognized during 2002.
On February 20, 2003, Diacrin entered into an engagement letter
with SG Cowen Securities Corporation pursuant to which SG Cowen agreed
to serve as Diacrin's financial advisor in connection with the merger.
Pursuant to the engagement letter, we have agreed to pay SG Cowen
$900,000. In addition, we have agreed to reimburse SG Cowen for all
expenses incurred in connection with the services it provides to us
in connection with the merger. Dr. Stelios Papadopoulos, a member
of our Board of Directors and a member of our Compensation Committee,
is a manging director of SG Cowen Securities Corporation.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders Matters
The following table sets forth the beneficial ownership of our
common stock as of March 31, 2003 by:
- each person who is known to beneficially own more than 5% of our
common stock;
- each of our directors;
- each of our executive officers; and
- all of our 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 our common stock subject
to options which are exercisable within 60 days after March 31, 2003. The
shares of our 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
March 31, 2003, there were 17,937,204 shares of our common stock
outstanding.
Number of Shares Percentage of
Beneficially Owned 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. ................ 505,988 197,500 3.9
Zola P. Horovitz, Ph.D. ................ 4,000 30,000 *
John W. Littlechild (1)................. 4,482,385 29,000 25.1
Stelios Papadopoulos, Ph.D. ............ 200,000 29,000 1.2
Joshua Ruch (5)......................... 1,759,587 29,000 10.0
E. Michael Egan......................... 4,169 207,495 1.2
Kevin Kerrigan.......................... - 29,500 *
All directors and executive officers as a
group (7 persons)....................... 6,956,129 551,495 40.6
--------------------------------------
* 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 on 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.
On April 14, 2003, we entered into an Agreement and Plan of
Reorganization and related Agreement and Plan of Merger with GenVec,
Inc., a publicly traded company, under which we will merge into GenVec.
Upon completion of the merger, each outstanding share of our common
stock will be exchanged for 1.5292 shares of GenVec common stock. The
merger is expected to close in the third quarter of 2003, subject to
the satisfaction of closing conditions, including receipt of Diacrin
and GenVec stockholder approval.
In connection with the execution of the Agreement and Plan of
Reorganization certain of our stockholders, holding approximately
35% of our outstanding common stock, entered into voting agreements
with GenVec pursuant to which they have agreed (i) not to sell
their shares of Diacrin common stock until our stockholders have
voted to approve the merger of Diacrin with Genvec or until the
agreement has been terminated in accordance with its terms; and
(ii) to vote all of their shares of Diacrin common stock in favor
of the merger.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the securities
authorized for issuance under the Company's equity compensation plans
as of December 31, 2002:
Equity Compensation Plan Information
(a) (b) (c)
Number of securities
Number of remaining available for
securities to be Weighted-average future issuance under equity
issued upon exercise exercise price of compensation plans
of outstanding outstanding (excluding securities reflected
Plan category options options in column (a))
-------------- ---------------- ----------------- ----------------------------
Equity compensation
plans approved by
security holders 1,236,478 $5.60 349,125
Equity compensation
plans not approved by
security holders 225,079 $2.50 --
Total 1,461,557 $5.12 349,125
In December 1993, and June 1994, respectively, in connection with
the provision of services to Diacrin, our Board of Directors approved the
grants of options to purchase 160,579, 57,500, 5,000 and 2,000 shares of
our common stock at an exercise price of $2.50 per share to certain
consultants for services rendered. All of these options are currently
fully vested and expire on December 10, 1993, December 30, 2003,
June 20, 2004 and June 20, 2004, respectively.
Item 13. Certain Relationships and Related Transactions
HCVII, HCVIII and HCVIV owned 17.8%, 5.5% and 1.6% or our
outstanding capital stock as of March 31, 2003, 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 "Security Ownership of Certain Beneficial
Owners and Management."
Rho Management Trust II, which owned 8.9% of our outstanding
capital stock as of March 31, 2003, also holds approximately 18.9% and
54.3% of the outstanding limited partnership interests of HCVII and
HCVIV, respectively. An affiliate of Rho 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. See "Security Ownership of
Certain Beneficial Owners and Management."
Hudson Trust, which owned 7.5% of our outstanding capital stock as
of March 31, 2003, also holds approximately 6.0% and 11.9% of the
outstanding limited partnership interests of HCVII and HCVIV,
respectively. Hudson is also a limited partner of HCPII. See "Security
Ownership of Certain Beneficial Owners and Management."
On February 20, 2003, Diacrin entered into an engagement letter
with SG Cowen Securities Corporation pursuant to which SG Cowen agreed
to serve as Diacrin's financial advisor in connection with the merger.
Pursuant to the engagement letter, we have agreed to pay SG Cowen
$900,000. In addition, we have agreed to reimburse SG Cowen for all
expenses incurred in connection with the services it provides to us
in connection with the merger. Dr. Stelios Papadopoulos, a member
of our Board of Directors and a member of our Compensation Committee,
is a manging director of SG Cowen Securities Corporation.
Item 14. Controls and Procedures
1. Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
and Exchange Act of 1934) as of a date within 90 days of the
filing date of this Annual Report on Form 10-K, the Company's
Chief Executive Officer and Controller have concluded that the
Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and are operating
in an effective manner.
2. Changes in internal controls. There were no significant changes
in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
most recent evaluation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto
duly authorized.
DIACRIN, INC.
By: /s/ Thomas H. Fraser
--------------------------
Thomas H. Fraser
President and Chief Executive Officer
Date: April 29, 2003
CERTIFICATIONS
I, Thomas H. Fraser, President and Chief Executive Officer, certify
that:
1. I have reviewed this amendment to the annual report on
Form 10-K/A of Diacrin, Inc.; and
2. Based on my knowledge, this amendment to the annual report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this amendment to the annual
report.
Date: April 29, 2003
/s/ Thomas H. Fraser
---------------------
Thomas H. Fraser
President and
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS
I, Kevin Kerrigan, Controller, certify that:
1. I have reviewed this amendment to the annual report on
Form 10-K/A of Diacrin, Inc.; and
2. Based on my knowledge, this amendment to the annual report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this amendment to the annual
report.
Date: April 29, 2003
/s/ Kevin Kerrigan
---------------------
Kevin Kerrigan
Controller
(Principal Financial Officer)