V I TECHNOLOGIES INC, DEF 14A, 2000-04-26

V I TECHNOLOGIES INC
DEF 14A, 2000-04-26
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

V.I. TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[X] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:
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V.I. TECHNOLOGIES, INC.

155 Duryea Road
Melville, New York 11747

April 26, 2000

Dear Stockholder:

You are cordially invited to attend the 2000 Annual Meeting of Stockholders
(the "Meeting") of V.I. Technologies, Inc. which will be held at the Huntington
Hilton, 598 Broadhollow Road, Melville, NY 11747 on Friday, May 26, 2000, at
10:00 am local time. I look forward to greeting as many of our stockholders as
possible.

Details of the business to be conducted at the Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement.

Whether or not you plan to attend the Meeting, it is important that your
shares be represented and voted at the Meeting. Therefore, I urge you to sign,
date and promptly return the enclosed proxy in the enclosed envelope so that
your shares will be represented at the Meeting. If you so desire, you may
withdraw your proxy and vote in person at the Meeting.

We look forward to meeting those of you who will be able to attend the
Meeting.

Sincerely,

John R. Barr
President and Chief Executive Officer
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V.I. TECHNOLOGIES, INC.
155 Duryea Road
Melville, New York 11747

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held Friday, May 26, 2000

To the Stockholders of V.I. TECHNOLOGIES, INC.:

NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of V.I. Technologies, Inc., a Delaware corporation (the "Company"),
will be held at the Huntington Hilton, 598 Broadhollow Road, Melville, NY 11747
on Friday, May 26, 2000, at 10:00 am local time, for the following purposes:

1. To elect three Class II Directors to serve until the 2003 Annual
Meeting of Stockholders or until their successors are elected and
qualified.

2. To amend the Company's 1998 Equity Incentive Plan (the "1998 Equity
Plan") to increase the number of shares of the Company's Common Stock
for which awards may be granted under the 1998 Equity Plan from
2,400,000 shares to 3,000,000 shares.

3. To ratify the appointment of KPMG LLP as the Company's independent
accountants for the current fiscal year.

4. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.

Only stockholders of record at the close of business on April 3, 2000 will
be entitled to notice of and to vote at the Meeting and any adjournments or
postponements thereof.

By Order of the Board of Directors

June Heck, Secretary

April 26, 2000

All stockholders are cordially invited to attend the Meeting. To ensure
your representation at the Meeting, you are urged to mark, sign, and return the
enclosed proxy card in the accompanying envelope, whether or not you expect to
attend the Meeting. No postage is required if mailed in the United States. Any
stockholder attending the Meeting may vote in person even if that stockholder
has returned a proxy.

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YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
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PROXY STATEMENT

V.I. TECHNOLOGIES, INC.

GENERAL

This Proxy Statement and Notice of Annual Meeting of Stockholders are being
provided and the accompanying proxy is being solicited by the Board of Directors
of V.I. Technologies, Inc. (the "Company") for use at the Company's 2000 Annual
Meeting of Stockholders (the "Meeting") to be held at the Huntington Hilton, 598
Broadhollow Road, Melville, NY 11747 on Friday, May 26, 2000, at 10:00 am local
time, or at any adjournment or postponement of the Meeting, for the purposes set
forth in this Proxy Statement and the foregoing Notice of Annual Meeting of
Stockholders. This Proxy Statement and accompanying proxy card are being mailed
on or about April 26, 2000, to all stockholders entitled to notice of and to
vote at the Meeting. The principal executive office of V.I. Technologies, Inc.
is located at 134 Coolidge Avenue, Watertown, Massachusetts 02472 and the
Company's telephone number is (617) 926-1551.

SOLICITATION

The cost of solicitation of proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries, and custodians to forward to beneficial owners of common stock,
$0.01 par value per share, of the Company (the "Common Stock") held in their
names. In addition, the Company will reimburse brokerage firms and other
persons representing beneficial owners of stock for their expenses in forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram, and personal
solicitation by Directors, officers and other regular employees of the Company.
No additional compensation will be paid to Directors, officers or other regular
employees for such services.

RECORD DATE, VOTING RIGHTS AND OUTSTANDING SHARES

Only holders of record at the close of business on Monday, April 3, 2000,
will be entitled to notice of, and to vote at, the Meeting. As of April 3,
2000, the Company had outstanding 19,818,614 shares of Common Stock. Each share
of Common Stock is entitled to one vote on each proposal that will come before
the Meeting. A majority of the outstanding shares of Common Stock will
constitute a quorum at the Meeting. Votes withheld, abstentions and broker non-
votes (where a broker or nominee does not exercise discretionary authority to
vote on a matter) are counted for purposes of determining the presence or
absence of a quorum for the transaction of business.

REVOCABILITY OF PROXY AND VOTING OF SHARES

Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised. It may be revoked by filing with the Secretary of the
Company, at the principal
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executive offices of the Company, 134 Coolidge Avenue, Watertown, Massachusetts
02472, an instrument of revocation or a duly executed proxy bearing a later
date. It may also be revoked by attendance at the Meeting and an election given
to the Secretary of the Company to vote in person. If not revoked, the proxy
will be voted at the Meeting in accordance with the stockholder's instructions
indicated on the proxy card. If no instructions are indicated, the proxy will be
voted (I) FOR the election of the Class II Directors described herein; (II) FOR
the amendment to the Company's 1998 Equity Incentive Plan (the "1998 Equity
Plan") to increase the number of shares of the Company's Common Stock for which
awards may be granted under the 1998 Equity Plan from 2,400,000 shares to
3,000,000 shares; (III) FOR the ratification of the appointment of KPMG LLP as
the Company's independent accountants for the current fiscal year, and (IV) in
accordance with the judgment of the proxies as to any other matter that may be
properly brought before the Meeting or any adjournments or postponements
thereof.

STOCKHOLDER PROPOSALS

The Company's Amended and Restated Bylaws require a stockholder who wishes
to bring business before or propose director nominations at an annual meeting to
give written notice to the Secretary of the Company not less than 50 days nor
more than 75 days before the meeting date, unless less than 65 days' notice or
public disclosure of the meeting date is given, in which case the stockholder's
notice must be received within 15 days after such notice or disclosure is given.
The notice must contain specified information about the proposed business or
nominee(s) and the stockholder making the proposal or nomination(s).
Accordingly, to be brought before the Annual Meeting of Stockholders, proposals
must be received by not later than the close of business on May 11, 2000.

Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 Annual Meeting of Stockholders must
be received by the Secretary of the Company no later than December 28, 2000 in
order to be included in the Proxy Statement and form of proxy relating to that
meeting.

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SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's shares of Common Stock as of January 31,
2000, (I) by each person (or group of affiliated persons) who is known by the
Company to own beneficially more than five percent of the Company's outstanding
shares of Common Stock; (II) by each of the Company's executive officers named
in the Summary Compensation Table (the "Named Executive Officers"), (III) by
each of the Company's Directors; and (IV) by all current Directors and executive
officers as a group. Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned by them.

<TABLE>
<CAPTION>
Number of Shares
NAME OF BENEFICIAL OWNER Beneficially Owned (1) PERCENT OF CLASS
- ------------------------ ---------------------- ----------------
<S> <C> <C>

5% STOCKHOLDERS

Ampersand Funds(2) 6,234,143 31.45
55 William Street, Suite 240
Wellesley, MA 02481
New York Blood Center, Inc.(3) 3,434,704 17.33
310 East 67th Street
New York, NY 10021-6295
CB Capital Investors, L.P.(4) 1,801,470 9.1
c/o Chase Capital Partners
380 Madison Avenue
12th Floor
New York, NY 10017
Pall Corporation(5) 1,445,960 7.3
2200 Northern Boulevard
East Hills, NY 11548
Massachusetts Financial Services
Company (6) 996,335 5
500 Boylston Street
Boston, MA 02116

NAMED EXECUTIVE
OFFICERS

Samuel K. Ackerman, M.D. 428,637 2.2
John R. Barr(7) 183,810 *
Thomas T. Higgins(8) 66,222 *

OTHER DIRECTORS

Richard A. Charpie(9) 6,234,143 31.45
Jeremy Hayward-Surry(10) - -
Bernard Horowitz, Ph.D.(11) 268,115
Irwin Lerner 14,416 *
Peter D. Parker(12) 6,234,140 31.45
David Tendler(13) 3,444,454 17.4
Damion Wicker, M.D.(14) 1,801,470 9.1
All Current Directors and Executive
Officers as a Group (10 persons)(15)
</TABLE>
___________________
* Indicates less than one percent

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(1) Beneficial ownership of Common Stock is determined in accordance with the
rules of the Securities and Exchange Commission, and includes shares for
which the holder has sole or shared voting or investment power. Shares of
Common Stock subject to options currently exercisable or which become
exercisable on or before March 31, 2000 are deemed to be beneficially owned
and outstanding by the person holding such options and, in accordance with
the rules of the Securities and Exchange Commission, are included for
purposes of computing the percentage ownership of the person holding such
options, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.

(2) Consists of 4,632,915 shares held by Ampersand Specialty Materials and
Chemicals III Limited Partnership ("ASMC III"), 75,331 shares held by
Ampersand Specialty Materials and Chemicals III Companion Fund Limited
Partnership ("ASMC III CF"), 1,052,343 shares held by Ampersand Specialty
Materials and Chemicals II Limited Partnership ("ASMC II"), 331,488 shares
held by Laboratory Partners I Limited Partnership ("Lab Partners") and
142,066 shares held by Laboratory Partners Companion Fund Limited
Partnership ("Lab Partners CF"). ASMC-III MCLP LLP is the general partner
of ASMC-III Management Company Limited Partnership, which itself is the
general partner of both ASMC III and ASMC III CF and has voting and
investment control over the shares held by those two entities. ASMC-II
MCLP LLP is the general partner of ASMC-II Management Company Limited
Partnership, which itself is the general partner of ASMC II and has voting
and investment control over the shares held by ASMC II. Ampersand Lab
Partners MCLP LLP is the general partner of Ampersand Lab Partners
Management Company Limited Partnership, which itself is the general partner
of both Lab Partners and Lab Partners CF and has voting and investment
control over the shares held by those two entities. The general partners
of ASMC-III MCLP LLP, who share voting and investment control over the
shares controlled by ASMC-III MCLP LLP, are Richard A. Charpie, Peter D.
Parker, Stuart A. Auerbach, K. Kachadurian, David J. Parker and Charles D.
Yie. Richard A. Charpie, Peter D. Parker, Stuart A. Auerbach and Charles
D. Yie are the general partners of ASMC-II MCLP LLP and Ampersand Lab
Partners MCLP LLP and share voting and investment control over the shares
controlled by those entities. Richard A. Charpie is the Managing General
Partner of each of ASMC-II MCLP LLP, ASMC-III MCLP LLP, and Ampersand Lab
Partners MCLP LLP. Richard A. Charpie and Peter D. Parker are Directors of
the Company.

(3) Mr. Tendler, a Director of the Company, is a member of the Board of
Trustees and Executive Committee of the New York Blood Center, Inc.
("NYBC").

(4) Dr. Wicker, a Director of the Company, is a General Partner of Chase
Capital Partners, which is a limited partner of CB Capital Investors, L.P.
CB Capital Investors, Inc., a wholly-owned subsidiary of Chase Manhattan
Bank, is the general partner of CB Capital Investors, L.P. The Chase
Manhattan Bank is a wholly-owned subsidiary of Chase Manhattan Corporation.

(5) Mr. Hayward-Surry, a Director of the Company, is the President and a
director of Pall Corporation.

4
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(6) Based on the information provided in the Schedule 13G filed by
Massachusetts Financial Services Company ("MFS") with the Securities and
Exchange Commission on February 11, 2000. MFS has sole voting power over
779,375 shares and sole dispositive power over 996,735 shares.
(7) Includes 183,810 shares issuable upon the exercise of outstanding options
exercisable on or before March 31, 2000.
(8) Includes 60,000 shares issuable upon the exercise of outstanding options
exercisable on or before March 31, 2000.
(9) Consists solely of shares described in note (3) of which Dr. Charpie may be
considered the beneficial owner. Dr. Charpie disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(10) Excludes the shares held by Pall Corporation.
(11) Consists entirely of shares issuable upon the exercise of outstanding
options exercisable on or before March 31, 2000.
(12) Consists solely of shares described in note (3), of which Mr. Parker may be
considered the beneficial owner of the shares described in note (3). Mr.
Parker disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(13) Consists of 3,434,704 shares held by the NYBC, of which Mr. Tendler may be
considered the beneficial owner, 3,500 shares directly owned by Mr. Tendler
and 6,250 shares issuable upon the exercise of outstanding options
exercisable on or before March 31, 2000. Mr. Tendler disclaims beneficial
ownership of the shares held by NYBC.
(14) Consists solely of shares held by CB Capital Investors, L.P., of which Dr.
Wicker may be considered the beneficial owner. Dr. Wicker disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(15) Includes 255,713 shares issuable upon the exercise of outstanding options
exercisable on or before March 31, 2000.

PROPOSAL 1

ELECTION OF DIRECTORS

The Board is divided into three classes. One class of Directors is elected
each year for a three-year term. The term of the Company's Class II Directors
will expire at this Meeting. The nominees for Class II Director are Jeremy
Hayward-Surry, Peter D. Parker and Damion E. Wicker, M.D. Messrs. Hayward-
Surry, Parker and Wicker are currently Class II Directors of the Company and are
available for re-election as Class II Directors. The Class II Directors elected
in 2000 will serve for a term of three years which will expire at the Company's
2003 Annual

5
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Meeting of Stockholders or when their successors are elected and qualified.
It is intended that the persons named as Proxies will vote for Jeremy Hayward-
Surry, Peter D. Parker and Damion E. Wicker, M.D. for election to the Board as
Class II Directors.

The affirmative vote of the holders of a plurality of the Common Stock
represented and voting at the Meeting will be required to elect Jeremy Hayward-
Surry, Peter D. Parker and Damion E. Wicker, M.D. to the Board. If Messrs.
Hayward-Surry and Parker and Dr. Wicker are re-elected as Directors at the
Meeting, the Board will consist of a total of nine Directors, seven of whom have
principal occupations outside the Company, one of whom is the President and
Chief Executive Officer of the Company and one of whom is Executive Vice
President, Research and Development.

MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEES

Biographical Information

Biographical and certain other information concerning the Directors of the
Company is set forth below:

CLASS II NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL
MEETING

JEREMY HAYWARD-SURRY, age 57, has served as a Director of the Company since
December 1997. He has been the President of Pall Corporation since July 1994
and a member of its Board of Directors since April 1993. Mr. Hayward-Surry was
also the Treasurer and Chief Financial Officer of Pall from August 1992 until
December 1997 and Executive Vice President of Pall from 1992 to July 1994. Mr.
Hayward-Surry is a Fellow of the Institute of Chartered Accountants in England
and Wales.

PETER D. PARKER, age 49, has served as a Director of the Company since
October 1995. After fourteen years at AMAX, a metals company, Mr. Parker joined
Ampersand in 1989 to lead its first specialty materials venture capital
partnership, Ampersand Specialty Materials Ventures Limited Partnership, and Mr.
Parker is a General Partner of Ampersand Ventures. He currently serves as a
director of Lighting Technologies International, and as the Chairman of
CoPharma, Inc., MicroPack Corporation and Protein Ingredient Technologies. He
holds an M.S. in Chemical Metallurgy from Columbia University.

DAMION E. WICKER, M.D., age 39, has served as a Director of the Company
since May 1997. Dr. Wicker is a General Partner of Chase Capital Partners.
Previously, Dr. Wicker was President of Adams Scientific since July 1991, and,
prior to that, held positions with MBW Venture Partners and Alexon, Inc. Dr.
Wicker was also a Commonwealth Fund Medical Fellow for the National Institute of
Health. He currently is a director of Landec Corporation and several privately-
held health care companies. Dr. Wicker received a B.S. with Honors from The
Massachusetts Institute of Technology, an M.D. from Johns Hopkins University and
holds an M.B.A. from The Wharton School of the University of Pennsylvania.

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CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING

JOHN R. BARR, age 43, joined the Company as President, Chief Executive
Officer and a Director in November 1997. Previously, Mr. Barr served as
President of North American Operations at Haemonetics Corporation from 1995 to
1997 where he had responsibility for Haemonetics' blood bank, commercial plasma
and blood bank services businesses. He also managed the global manufacturing
and North American research and development functions and served as a member of
the Board of Directors of Haemonetics. Prior to joining Haemonetics in 1990, he
held various positions at Baxter Healthcare Corporation. Mr. Barr has an
undergraduate degree in Biomedical Engineering from the University of
Pennsylvania and an M.M. from the Kellogg School of Management at Northwestern
University.

RICHARD A. CHARPIE, PH.D., age 48, has served as a Director of the Company
since October 1995. Dr. Charpie served as the Chief Executive Officer of the
Company from August 1997 to November 1997. He was the Vice President of the
Company from November 1997 until January 1998. Dr. Charpie has been the
Managing General Partner of Ampersand Ventures and all of its affiliated
partnerships ("Ampersand") since he founded Ampersand in 1988 as a spin-off of
the venture capital group of PaineWebber Incorporated. Currently, Dr. Charpie
serves as a director of TriPath Imaging and of several privately-held companies.
Dr. Charpie holds an M.S. in Physics and a Ph.D. in Applied Economics and
Finance, both from The Massachusetts Institute of Technology.

IRWIN LERNER, age 69, has served as a Director of the Company since
September 1996. He is the former Chairman of the Board of Directors, Chairman
of the Executive Committee, President and Chief Executive Officer of Hoffmann-
LaRoche Inc., having retired in September 1993 after being an employee of the
company for over 31 years. Mr. Lerner is the Chairman of the Board of Medarex,
Inc. and serves on the boards of Humana Inc., Public Service Enterprise Group,
Covance Inc. and Axys Pharmaceuticals. He has been a member of the Board of
Project Hope and has chaired the New Jersey Governor's Council for a Drug-Free
Workplace. He served for twelve years on the Board of Pharmaceutical
Manufacturers Association (now PhRMA), including chairing the Association's FDA
Issues Committee and the PMA Foundation. Mr. Lerner has served on the Boards of
the National Committee for Quality Health Care, the Partnership for New Jersey
and the Center for Advanced Biotechnology and Medicine of Rutgers University.
He received his B.S. and M.B.A. degrees from Rutgers University, where he is
currently the Distinguished Executive-in-Residence at the Graduate School of
Management.

CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING

SAMUEL K. ACKERMAN, M.D., age 52, co-founded Pentose in June 1995 and served
as President, Chief Executive Officer and Director of Pentose from February 1997
until the merger with the Company on November 12, 1999. He previously served as
Vice President, Development and Regulatory Affairs of OraVax, Inc. from December
1993 to January 1997. From May 1986 to November 1993 he was Senior Vice
President, Medical and Regulatory Affairs of XOMA Corporation and before that
directed the Investigational New Drug Division of the Center for Biologics
Evaluation and Research of the Food and Drug Administration.

7
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BERNARD HOROWITZ, PH.D., age 55, joined the Company as Executive Vice
President, Chief Scientific Officer and a Director in February 1995. Dr.
Horowitz retired as Executive Vice President and Chief Scientific Officer of the
Company in October, 1999, but continues to serve on the Company's Board. Prior
to joining the Company, Dr. Horowitz was the NYBC's Vice President for
Commercial Development and a Laboratory Head in the NYBC's Lindsley F. Kimball
Research Institute. He is internationally recognized for his research on blood
viral safety and the preparation and characterization of new therapeutics from
blood protein solutions and he holds several U.S. and non-U.S. patents for these
processes. He has extensive experience from his positions at the NYBC and the
Company with the regulatory process including product license and establishment
license applications and administration. Dr. Horowitz has authored over 60
scientific publications and reviews on a wide range of subjects including: virus
inactivation of blood proteins and blood cells, HBV detection, hemoglobin as a
blood substitute and leukocyte interferon as an antiviral and anticancer agent.
Additionally, he has served as a scientific consultant to the National
Institutes of Health, the Food and Drug Administration, the National Hemophilia
Foundation and the International Association of Biological Standardization. Dr.
Horowitz received his B.S. in Biology from the University of Chicago and his
Ph.D. from Cornell University Medical College.

DAVID TENDLER, age 62, has served as a Director and Chairman of the Company
since December 1994. In 1985, Mr. Tendler founded his own international
consulting firm, Tendler Beretz LLC, and has since remained as President and
Chief Executive Officer. In 1981, he was named Chairman and CEO of Phibro
Corporation, which subsequently acquired Salomon Brothers--at which point Mr.
Tendler became Co-Chairman and CEO of Phibro-Salomon. He joined Philipp
Brothers (the predecessor to Englehard Minerals & Chemicals Corp./Phibro Corp.)
in 1960, managed Far Eastern operations for more than seven years, and was
promoted to President of Phibro in 1975. He remains active in the private
equity and consulting businesses, and in various charitable organizations,
including service as a director of BioTechnology General Corporation and a
member of the Board of Trustees and the Executive Committee of the NYBC. Mr.
Tendler has a B.B.A. from the City University of New York.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended January 1, 2000 ("Fiscal Year 1999"), the
Board of Directors held 6 meetings. The Board has two committees: an Audit
Committee and a Compensation Committee. There is no Nominating Committee or any
committee performing the functions of a nominating committee.

The Audit Committee consists of Dr. Charpie and Mr. Hayward-Surry, with Mr.
Hayward-Surry serving as Chairman. Neither Dr. Charpie nor Mr. Hayward-Surry
are current employees of the Company. The primary function of the Audit
Committee is to assist the Board of Directors in the discharge of its duties and
responsibilities by providing the Board with an independent review of the
financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee reviews
the general scope of the Company's annual audit, the fee charged by the
Company's independent accountants and other matters relating to internal control
systems. The Audit Committee met five times in fiscal year 1999.

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<PAGE>

The Compensation Committee of the Board of Directors is currently composed
of Mr. Lerner, Mr. Parker and Dr. Wicker, with Mr. Lerner serving as Chairman.
None of the Compensation Committee members are employees of the Company. The
Compensation Committee determines the compensation to be paid to all executive
officers of the Company, including the Chief Executive Officer. The
Compensation Committee's duties include the administration of the Company's 1998
Equity Plan. The Compensation Committee met once in Fiscal Year 1999.

Each of the Directors attended at least 75% of the Board meetings and
meetings of committees of the Board of which he was a member.

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PROPOSAL 2

AMENDMENT OF THE COMPANY'S 1998 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES FOR WHICH AWARDS MAY BE GRANTED
UNDER THE 1998 EQUITY INCENTIVE PLAN FROM
2,400,00 SHARES TO 3,000,000 SHARES

A proposal will be presented at the Meeting that the Stockholders approve
an amendment to the Company's 1998 Equity Incentive Plan (the "1998 Equity
Plan") to increase the maximum shares of Common Stock for which options may be
granted under the 1998 Equity Plan from 2,400,000 shares to 3,000,000 shares,
subject to adjustment for stock splits, stock dividends and certain other
transactions affecting the Company's capital stock. In order to ensure that
sufficient shares are available for options over the next few years, the Board
of Directors has voted to increase the number of shares for which Awards may be
granted under the 1998 Equity Plan by 600,000 shares.

General
- -------

The 1998 Equity Plan enables the Company to offer competitive compensation
so as to attract and retain top quality personnel, to provide an incentive for
them to achieve long-range performance goals, and to enable them to participate
in the long-term growth of the Company. Stock options granted under the 1998
Equity Plan are a significant element of compensation for the Company, as they
are in the biotechnology industry generally. Competition for the best personnel
in the biotechnology industry is intense. The Board of Directors believes that
it is essential for the Company's future strength to continue to offer
competitive equity compensation to employees.

The 1998 Equity Plan permits the grant of incentive and nonstatutory stock
options, stock appreciation rights, performance shares, restricted stock and
stock units (collectively, "Awards") to employees, directors and consultants of
the Company. No stock appreciation rights or other Awards other than stock
options have been granted to date. The 1998 Equity Plan is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
which determines the persons to whom, and the times at which, Awards are
granted, the type of Award to be granted and all other related terms, conditions
and provisions of each Award. The Compensation Committee may delegate to one or
more officers the power to make awards to employees who are not executive
officers subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934, as amended. The 1998 Equity Plan may be amended or
terminated at any time by the Board of Directors, subject to approval by the
Stockholders when such approval is deemed to be necessary or advisable by the
Board.

Although the Compensation Committee has discretion in granting Awards, the
exercise price of any incentive stock option ("ISO") may not be less than 100%
of the fair market value of the Company's Common Stock on the date of the grant
(and all nonstatutory stock options granted to date also have been at fair
market value). No ISO granted under the 1998 Equity Plan is transferable by the
optionee other than by will or the laws of descent and distribution. Other
Awards are transferable to the extent provided by the Compensation Committee.
The term of

10
<PAGE>

any ISO granted under the 1998 Equity Plan may not exceed ten years, and no ISO
may be granted under the 1998 Equity Plan more than ten years from the Plan's
adoption.

Options are generally granted subject to forfeiture restrictions that lapse
over time during the optionee's employment. Vested options are generally
cancelled if not exercised within a specified time after termination of the
optionee's employment.

Options Granted to Date under the 1998 Equity Plan and Shares Available for
- ---------------------------------------------------------------------------
Future Grants
- -------------

As of March 20, 2000, options to purchase an aggregate of 2,359,263 shares
had been granted (not counting grants subsequently terminated) under the 1998
Equity Plan, 1,554,312 shares were outstanding under the 1998 Equity Plan, and
there currently remain 40,737 shares available for award under the 1998 Equity
Plan. The aggregate number of shares for which Awards may be granted under the
1998 Equity Plan is subject to appropriate adjustment in the event of a stock
split or other recapitalization. Shares also may be issued under the 1998 Equity
Plan through the assumption or substitution of outstanding grants from an
acquired company without reducing the total number of shares available under the
1998 Equity Plan.

Federal Income Tax Consequences Relating to 1998 Equity Plan Stock Options
- --------------------------------------------------------------------------

Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an ISO under the 1998 Equity Plan. If the optionee does
not dispose of shares issued upon exercise of an ISO within two years from the
date of grant or within one year from the date of exercise, then, upon the sale
of such shares, any amount realized in excess of the exercise price is taxed to
the optionee as long-term capital gain, and any loss sustained will be a long-
term capital loss. No deduction would be allowed to the Company for Federal
income tax purposes. The exercise of ISOs gives rise to an adjustment in
computing alternative minimum taxable income that may result in alternative
minimum tax liability for the optionee. If shares of Common Stock acquired upon
the exercise of an ISO are disposed of before the expiration of the two-year and
one-year holding periods described above (a "disqualifying disposition"), the
optionee would realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares at exercise
(or, if less, the amount realized on a sale of such shares) over the exercise
price thereof, and the Company would be entitled to deduct such amount. Any
further gain realized would be taxed as a short-term or long-term capital gain
and would not result in any deduction to the Company. A disqualifying
disposition in the year of exercise will generally avoid the alternative minimum
tax consequences of the exercise of an ISO.

Nonstatutory Stock Options. No income is realized by the optionee upon the
grant of a nonstatutory option. Upon exercise of a nonstatutory stock option,
the optionee realizes ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the shares on the date
of exercise, and the Company is entitled to a tax deduction for the same amount.
Upon disposition of the shares, appreciation or depreciation after the date of
exercise is treated as a short-term or long-term capital gain or loss and will
not result in any deduction for the Company.

11
<PAGE>

Votes Required to Approve the Amendment
- ---------------------------------------

The affirmative vote of the holders of a majority of the shares of Common
Stock represented and voting at the Meeting will be required to amend the 1998
Equity Plan to increase the number of shares of Common Stock for which awards
may be granted under the 1998 Equity Plan from 2,400,000 shares to 3,000,000
shares.

The Board of Directors considers the Company's ongoing program of granting
stock options broadly across the employee base to be very important to the
Company's ability to compete for top talent and a significant incentive to
promote the Company's success and, therefore, in the best interests of the
Company's Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF PROPOSAL 2.

12
<PAGE>

PROPOSAL 3

RATIFICATION OF APPOINTMENT OF AUDITORS

The Board of Directors of the Company has appointed KPMG LLP, independent
accountants, to audit the Company's consolidated financial statements for the
fiscal year ending January 1, 2001, and recommends that the stockholders vote
for ratification of such appointment. A representative of KPMG LLP will be
present at the Meeting and will be available to respond to appropriate
stockholders' questions and to make a statement if he or she desires to do so.

The affirmative vote of the holders of a majority of the shares of Common
Stock represented and voting at the Meeting will be required to ratify the
selection of KPMG LLP.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF PROPOSAL 3.

13
<PAGE>

ADDITIONAL INFORMATION

Management

Officers are elected annually by the Board and serve at the discretion of
the Board. Set forth below is information regarding the current executive
officers of the Company who are not Directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas T. Higgins 49 Chief Financial Officer and Executive
Vice President, Operations
</TABLE>

THOMAS T. HIGGINS has served as Chief Financial Officer and Executive Vice
President, Operations of the Company since June 1998. Prior to joining the
Company, Mr. Higgins was with the Cabot Corporation from 1985 to 1997, most
recently as President of Distrigas of Massachusetts Corporation, a subsidiary of
the Cabot Corporation with revenues of $190 million. Also in 1997, Mr. Higgins
was Executive Vice President and Chief Operating Officer of Cabot's Liquified
Natural Gas Division. From 1989 to 1997, Mr. Higgins served the Cabot
Corporation in Asia, as Vice President and General Manager of the Pacific Asia
Carbon Black Division in Malaysia (1996-1997), Managing Director in Indonesia
(1990-1995) and Director of New Ventures in Japan (1989-1990). Mr. Higgins
holds a B.B.A. from Boston University.

There are no family relationships between any director, executive officer,
or person nominated or chosen by the Company to become a director or executive
officer of the Company.

COMPENSATION OF DIRECTORS

Mr. Tendler receives $40,000 a year for his services as Chairman of the
Company's Board of Directors. Mr. Lerner receives $1,000 for each meeting of the
Board or of any committee of the Board which he attends. Dr. Horowitz receives
$200 per hour for his services as a consultant to the Company. All members of
the Company's Board receive reimbursement of expenses associated with their
attendance of meetings of the Board or of any committee thereof of which they
are a member.

In addition, directors who are not also officers or employees of the
Company receive grants of options under the 1998 Director Stock Option Plan, as
amended. This plan provides for four kinds of option grants, (i) automatic
initial grant of options on October 9, 1998; (ii) automatic grant of options
upon initial election to the Board subsequent to October 9, 1998; (iii)
automatic annual grant of options; and (iv) additional automatic initial grant
of options on October 9, 1998. The term of all options granted under the 1998
Director Plan, as amended, is ten years from the date of grant. The exercise
price for all options granted under the 1998 Director Plan, as amended, is equal
to the last sale price for the Common Stock on the business day immediately
preceding the date of grant. The exercise price may be paid in cash or shares.

14
<PAGE>

Pursuant to the 1998 Director Plan, Mr. Tendler, Dr. Charpie, Mr. Parker,
Mr. Lerner and Dr. Wicker each received an automatic annual grant of options on
May 21, 1999 to purchase 2,000 shares of common stock.

Mr. Hayward-Surry is prohibited by his employer from receiving stock
options from the Company and has not received any grants under the 1998 Director
Plan. In 1999, Mr. Hayward-Surry received cash compensation in the form of a
$14,000 annual retainer and a $2,000 per meeting fee for a total of $28,000.

15
<PAGE>

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation (including salary, bonuses, stock options, and certain other
compensation) paid by the Company for services in all capacities for fiscal
years ended January 1, 2000, January 2, 1999, and December 31, 1997 to its Chief
Executive Officer and to each of the other persons who served as executive
officers of the Company during Fiscal Year 1999 and whose salary plus bonus
exceeded $100,000 in Fiscal Year 1999 (all three being hereinafter referred to
as the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ ------
- ---------------------------------------------------------------------------------------------------------------
Name and Year Salary($) Bonus Securities All Other
Principal Position Underlying Compensation
Options (1) ($) (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John R. Barr 1999 324,231 122,500 50,000
President and Chief 1998 294,811 22,500
Executive Officer 1997 (3) 16,154 -0- 367,621 6,635 (4)
Thomas T. Higgins 1999 199,231 64,750 40,000
Executive Vice President, 1998 (5) 94,098 -0- 100,000
Operations and
Chief Financial Officer
Bernard Horowitz, Ph.D.(6) 1999 250,708 53,555 25,000
1998 197,058 -0-
1997 182,262 36,960 125,223
Samuel K. Ackerman, M.D.(7) 1999 31,625
Executive Vice President
</TABLE>
________________
(1) All stock options in this column were granted under the 1998 Equity Plan,
which is administered by the Compensation Committee. Each of these options has
an exercise price equal to fair market value on the date of the grant, vests in
four equal annual installments on the first four anniversaries of the date of
grant, and expires either ten years from the date of grant or in four equal
installments ten years from the dates of vesting.

(2) Excludes perquisites and other personal benefits, securities or property
which, in the aggregate, are less than the lesser of $50,000 or ten percent
(10%) of the total of the annual salary and bonus reported for the Named
Executive Officer for the year.

(3) Mr. Barr became President and Chief Executive Officer of the Company in
November 1997. The information shown in this table for 1997 reflects
compensation earned by Mr. Barr from November 24, 1997 through December 31,
1997.

16
<PAGE>

(4) Consists of reimbursement of relocation expenses.

(5) Mr. Higgins became Executive Vice President, Operations and Chief Financial
Officer of the Company in June 1998. The information shown in this table for
1998 reflects compensation earned by Mr. Higgins from June 1998 through
January 2, 1999.

(6) Dr. Horowitz served as Executive Vice President and Chief Scientific Officer
until retiring from such position in October 1999.

(7) Dr. Ackerman's employment commenced on November 12, 1999. The information
shown in this table reflects compensation earned by Dr. Ackerman from
November 12, 1999 through January 1, 2000. His annual salary is $280,000.

17
<PAGE>

STOCK OPTION GRANTS IN FISCAL YEAR 1999

The following table sets forth information concerning individual grants of
options to purchase Common Stock made to each Named Executive Officer during
Fiscal Year 1999. Dr. Ackerman and Dr. Horowitz were not granted any options to
purchase Common Stock in Fiscal Year 1999.

Individual Grants
-----------------------------------------------------------
Percentage
of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of Stock
Securities Granted to Price Appreciation for Option
Underlying Employees in Exercise or Term (4)
Options Fiscal Year Base Price Expiration -----------------------------
Name Granted(#)(1) 1999(2) ($/Share) Date (3) 5%($) 10%($)
- ---- ------------- ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. Higgins 40,000 4.7% 7.75 4/09 $445,200 $710,000
John R. Barr 50,000 5.9% 7.75 4/09 $556,500 $887,500
</TABLE>

_________________
(1) See Note (1) to the Summary Compensation Table.
(2) Options to purchase an aggregate of 847,408 shares were granted to all
employees in Fiscal Year 1999.
(3) Options expire 10 years from grant date unless the individual terminates
employment. At that time, all vested options expire 90 days from
termination date.
(4) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the Company's Common Stock over the term of the options. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the option holder.

18
<PAGE>

1999 AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES

Presented below is information with respect to the number of shares issued
upon option exercises by the Named Executive Officers during Fiscal Year 1999
and the value realized by the Named Executive Officers upon such exercises. The
table also provides information about the number and value of unexercised stock
options to purchase the Company's Common Stock held by each Named Executed
Officer as of January 1, 2000. Dr. Ackerman did not own any option to purchase
shares of the Company's Common Stock as of January 1, 2000.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
January 1, 2000(#) January 1, 2000($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
---- ------------- ----------------
<S> <C> <C>
John R. Barr 183,810/233,810 -/-
Thomas T. Higgins 25,000/115,000 -/-
</TABLE>
_____________________
(1) Based on the difference between the option exercise price and the closing
price of the underlying Common Stock on December 31, 1999, which closing
price was $6.875.

19
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed of three independent, disinterested Directors who are
not employees of the Company. The Compensation Committee regularly reviews and
generally approves all compensation and fringe benefit programs of the Company
and also reviews and determines the actual compensation of the Company's
executive officers, as well as all stock option grants, performance-based stock
options and both long-term and short-term cash incentive awards to all key
employees.

The Company's executive compensation program is designed to be linked
closely to corporate performance and returns to Stockholders. To this end, the
Company has developed an overall compensation strategy and specific compensation
plan that tie a very significant portion of executive compensation to the
Company's success in meeting specified performance goals. In addition, through
the use of stock options, the Company ensures that a part of each executives'
compensation is closely tied to appreciation in the Company's stock price. The
overall objectives of this strategy are to attract and retain the best possible
executive talent, to motivate these executives to achieve the goals inherent in
the Company's business strategy, to link executive and stockholder interests
through equity based plans and, finally, to provide a compensation package that
recognizes individual contributions as well as overall business results.

The key elements of the Company's executive compensation consist of base
salary, annual incentive bonuses and stock options. The Compensation Committee's
policies with respect to each of these elements, including the bases for the
compensation awarded to Mr. Barr, are discussed below. In addition, while the
elements of compensation described below are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by the Company to the individual, including insurance and other employee
benefits, as well as the programs described below.

Base Salary.

Base salaries for new executive officers are initially determined by
evaluating the responsibilities of the position held and the experience of the
individual. In making determinations regarding base salaries, the Compensation
Committee considers generally available information regarding salaries
prevailing in the biotechnology industry, but does not utilize any particular
indices or peer groups. Base salaries are reviewed on an annual basis using
compensation surveys for the biotechnology industry. Mr. Barr's base salary was
determined by the compensation committee as being commensurate with the base
compensation paid to similarly situated officers in comparable companies to the
Company.

Annual Incentive Bonus.

The Committee reviews the Company's annual performance plan for the ensuing
fiscal year and sets specific incentive target bonus awards which are directly
linked to the short term financial and milestone target achievement performance
objectives of the Company as a whole. The executive officers of the Company then
have an opportunity to earn a payout of their

20
<PAGE>

individual target bonuses in each fiscal year provided that the Company meets or
exceeds its performance plan for the year. These bonuses are prorated to the
extent that the Company achieves a portion of its performance plan. The
Committee has complete discretionary authority to award full bonuses or special
bonuses for special achievements. Mr. Barr's bonus reflects the Committee's
assessment of Mr. Barr's performance compared against agreed upon personal and
Company goals, as well as the overall progress of the Company.

Stock Options.

Under the Company's 1998 Equity Incentive Plan, which was approved by
Stockholders, stock options are granted to the Company's executive officers.
Stock options granted to executives have an exercise price equal to the fair
market value of the Common Stock on the date of grant and vest over four years.
Stock option grants are designed to provide incentive for the creation of
stockholder value over the long term, since the full benefit of the compensation
package cannot be realized unless stock price appreciation occurs over a number
of years. In determining the amount of such grants, the Compensation Committee
evaluates the job level of the executive, responsibilities to be assumed in the
upcoming year, and responsibilities in prior years, and also takes into account
the size of the officer's awards in the past. Mr. Barr's option grant in Fiscal
Year 1999 reflects the Committee's assessment of Mr. Barr's performance compared
against agreed upon personal and Company goals, as well as the overall progress
of the Company.

The Committee believes that the foregoing combination of base salaries,
incentive bonuses and stock option incentives have helped develop a Senior
Management Group dedicated to achieving significant improvement in both the
short-term and long-term financial performance of the Company.

The foregoing report has been furnished by Irwin Lerner (Chairman), Peter
Parker and Damion Wicker, M.D.

21
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On November 12, 1999, the Company completed its acquisition of Pentose
Pharmaceuticals, Inc., a Delaware corporation ("Pentose"), pursuant to an
Agreement and Plan of Merger and Reorganization dated as of July 28, 1999, as
amended November 8, 1999 (the "Merger Agreement"), by and among the Company,
Pentose, and certain stockholders of Pentose. Pursuant to the Merger Agreement,
Pentose merged directly with and into the Company, with the Company as the
surviving corporation, effective as of November 12, 1999. Each share of Pentose
Common Stock, Pentose Series A Preferred Stock, and Pentose Series B Preferred
Stock was converted into the right to receive 0.48937, 0.60222, and 0.77506 of a
shares of the Company Common Stock, respectively. The total number of shares of
the Company's Common Stock issued in the merger was 6,443,731. Each outstanding
option and warrant to purchase Pentose Common Stock was converted into the right
to purchase 0.48937 of a share of the Company's Common Stock. A total of
approximately 500,000 shares of the Company's Common Stock are issuable to
option-holders and warrant-holders of Pentose upon exercise of options and
warrants assumed in the merger.

The principal business of Pentose is the development for commercialization
and novel antiviral products for medical use based on applications of nucleic
acid chemistry. Pentose has developed the INACTINE (TM) technology platform for
the inactivation of viral pathogens in blood components for transfusion, plasma
derivatives, the biopharmaceuticals. The Company intends to continue to use the
assets of Pentose to develop and commercialize antiviral products for medical
use based on applications of nucleic acid chemistry.

Prior to the merger, the Company and Pentose were parties to an Option,
Development, Manufacture and License Agreement whereby the Company was
contracted to perform an initial evaluation relating to a possible collaboration
using the parties' respective technologies and to further develop and
commercialize virally inactivated blood products. The Company paid $500,000 to
Pentose to review and examine Pentose's viral inactivation technology for a
stated period. Upon expiration of the evaluation period, the Company had the
option (the "Option") to acquire the exclusive right and license to the Pentose
technology for a stated amount, subject to certain terms and conditions.
In addition Ampersand Ventures owned approximately 52% of Pentose's Common Stock
(assuming the conversion of all preferred stock to common stock) and 21% of the
Company's Common Stock prior to the merger and, as a result of the merger, owns
approximately 33% of the Common Stock of the Company. Mr. Charpie and Mr. Parker
were members of the board of directors of Pentose prior to the merger. The third
Pentose Director, Dr. Samuel K. Ackerman, who held approximately 16% of
Pentose's common stock (assuming the conversion of preferred stock to common
stock) and who holds approximately 2% of the Company Common Stock as a result of
the merger, has been appointed as a Director and Executive Vice President of the
Company.

The Company has entered into various license agreements with the NYBC.
Under these agreements, the Company has been granted exclusive and non-exclusive
worldwide licenses under the NYBC patents relating to viral inactivation and
other technologies. The Company also has rights of first negotiation for the
license to any NYBC improvements not otherwise exclusively licensed in the field
of viral inactivation for use with certain products, as defined. Under the
license agreements, the Company is required to pay royalties to the NYBC on the

22
<PAGE>

Company's revenues derived from the use of these licenses, as defined.
The Company is required to pay aggregate minimum royalties to maintain its
exclusive licenses of $1,500,000 in Fiscal Year 1999, $1,800,000 in Fiscal Year
2000, and $1,800,000 in each year thereafter. Royalty and milestone payments in
the amount of $1,700,000 were payable to the NYBC during Fiscal Year 1999,
$1,037,000 were payable to the NYBC during Fiscal Year 1998, while $600,000 were
payable to the NYBC in 1997, of which $300,000 was paid in cash and the balance
paid pursuant to a Stock Purchase Agreement, whereby the Company issued 35,778
shares of Common Stock to the NYBC. The Company also is required to meet certain
research and development milestones, as defined, to maintain its exclusive
licenses. Further, the Company is required to spend a minimum annual amounts
towards the further development, evaluation and registration of products, as
defined. If minimum royalties are not paid or if any milestone is not met, as
defined for a given country, the NYBC may terminate the license for that country
and may terminate other such licenses if the licenses in all covered countries
have been individually terminated. The NYBC may terminate any license by
reasonable notice if the Company fails to cure a breach, conform to government
regulations, or sell products within a specified number of years, as defined.
Upon termination, all rights revert to the NYBC. The Company is currently in
compliance with all such obligations and covenants. The NYBC sponsors certain
scientific research at the Company. NYBC made payments of $45,000 to the Company
for Fiscal Year 1999. Mr. Tendler, a Director of the Company, is a member of the
Board of Trustees and the Executive Committee of NYBC.

In February 1998, the Company and Pall Corporation ("Pall") entered into a
series of agreements (the "Pall Agreements") providing for, among other things,
a collaboration on the development and marketing of systems employing the
company's light-activated compounds and Quencher viral inactivation technologies
for red blood cell concentrates. Pall is a leading manufacturer and supplier of
filtration products, including those relating to the collection, preservation,
processing, manipulation, storage and treatment of blood and blood components.
Under the Pall Agreements, Pall receives exclusive worldwide distribution rights
to any system incorporating any of the Company's viral inactivation technology
for red blood cells and platelets. The parties have also agreed to share
research, development, clinical and regulatory responsibilities and will equally
share profits and joint expenses from operations after each party is reimbursed
for its cost of goods. Upon execution of the Pall Agreements in February 1998,
Pall acquired 477,042 shares of Common Stock for $4.0 million or $8.39 per
share. Pursuant to the terms of the Pall Agreements, Pall acquired 448,028
shares of the Company's Common Stock in a private placement, which closed
contemporaneously with, and at the same price, terms, and conditions as the
initial public offering of the Company's Common Stock in June 1998. In
addition, the Pall Agreements provide that Pall will purchase up to $17.0
million worth of Common Stock at the prevailing market price per share in
installments tied to the achievement of specified development milestones in the
development of the Company's red blood cell concentrates. In Fiscal Year 1999,
the Company purchased approximately $742,580 of production related materials
from Pall. Mr. Hayward-Surry, a Director of the Company, is the President and a
member of the board of directors of Pall Corporation.

Dr. Bernard Horowitz, a Director of the Company and formerly the Company's
Executive Vice President and Chief Scientific Officer, is one of the inventors
named in the patents covering viral inactivation technologies owned by the NYBC
and licensed to the Company. Under the terms of arrangements with the NYBC, Dr.
Horowitz will receive a percentage of the royalty

23
<PAGE>

payments made by the Company to the NYBC based on sales of the Company's
products and systems employing the licensed S/D, UVC or LAC technologies.

STOCKHOLDER RETURN PERFORMANCE PRESENTATION

The graph below compares the cumulative total stockholder return of the
Company's Common Stock from June 11, 1998 (the date that the Company's stock
began trading publicly) through December 31, 1999 against the cumulative total
return of the NASDAQ Stock Market Index and the NASDAQ Pharmaceutical Index
during the same period. Management cautions that the stock price performance
shown in the graph below should not be considered indicative of potential future
stock performance.

[THE TABLE BELOW WAS ALSO REPRESENTED IN THE PRINTED MATERIAL BY A LINE GRAPH]

COMPARISON OF CUMULATIVE TOTAL RETURN AMOUNG V.I. TECHNOLOGIES, INC.,
THE NASDAQ STOCK MARKET INDEX AND THE NASDAQ PHARMACEUTICAL INDEX

<TABLE>
<CAPTION>
Base Date
Company/Index Name June 11, 1998 December 31, 1998 December 31, 1999
- ------------------ ------------- ----------------- -----------------
<S> <C> <C> <C>
V.I. Technologies, Inc. $100.00 $ 92.22 $ 61.11
- --------------------------------------------------------------------------------------------------------------
NASDAQ Stock Market Index $100.00 $127.03 $235.71
- --------------------------------------------------------------------------------------------------------------
NASDAQ Pharmaceutical Index $100.00 $126.59 $234.06
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The graph shown above assumes that $100 was invested in the Company's
Common Stock and in each index on June 11, 1998. The total return for the
indices used assumes the reinvestment of all dividends.

24
<PAGE>

EMPLOYMENT AGREEMENTS AND SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

Mr. Barr is party to a letter agreement with the Company, dated
November 10, 1997, pursuant to which he serves as President and Chief Executive
Officer. Under this agreement, Mr. Barr is entitled to annual base compensation
of $280,000, subject to increase by the Board, and is also entitled to a
performance bonus based upon the achievement of financial and other performance
goals.

Mr. Higgins is a party to a letter agreement with the Company, dated
June 15, 1998, pursuant to which he serves as Executive Vice President,
Operations and Chief Financial Officer. Under this agreement, Mr. Higgins is
entitled to annual base compensation of $185,000, subject to increase by the
Board, and is also entitled to a performance bonus based upon the achievement of
financial and other performance goals. In addition, the letter agreement
provided for a grant of an option to purchase 100,000 shares of Common Stock.
This grant will vest in four equal annual installments, with the first
installment vesting one year from the date of grant.

Dr. Horowitz, the Company's former Executive Vice President and Chief
Scientific Officer, is a party to a Separation Agreement and General Release
with the Company, dated September 13, 1999. Under the Separation Agreement, Dr.
Horowitz resigned from his employment with the Company and received a payment of
$198,919. In addition, the vesting of all of Dr. Horowitz's stock options
accelerated. This Agreement superceded the previous employment agreement
between the Company and Dr. Horowitz dated January 15, 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee are Messrs. Lerner and
Parker and Dr. Wicker. No member of the Compensation Committee has at any time
been an officer or employee of the Company. No executive officer of the Company
served as a member of the compensation committee or board of directors of any
other entity which has an executive officer serving as a member of the Company's
Board of Directors or Compensation Committee.

Mr. Parker, a member of the Compensation Committee, is a General Partner of
ASMC-III and ASMC-IIICF, which two funds owned an aggregate of 52% of the common
stock of Pentose Pharmaceuticals, Inc. ("Pentose") prior to the merger of
Pentose into the Company as described above in "Certain Relationships and
Related Transactions".

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Directors, executive officers, and greater than ten percent holders are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.

Based solely on its review of the copies of such forms received or written
representations from certain reporting persons, the Company believes that,
during Fiscal Year 1999 filing requirements under Section 16(a) applicable to
its directors and executive officers were met.

25
<PAGE>

ANNUAL REPORT

The Company's Annual Report on Form 10-K for Fiscal Year 1999 is available
without charge upon request from the Company. Requests for copies of the Annual
Report on Form 10-K should be sent to June Heck at V.I. Technologies, Inc., 155
Duryea Road, Melville, New York 11747.

OTHER MATTERS

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

The Board hopes that stockholders will attend the Meeting. Whether or not
you plan to attend, you are urged to complete, sign and return the enclosed
proxy in the accompanying envelope. A prompt response will greatly facilitate
arrangements for the Meeting, and your cooperation will be appreciated.
Stockholders who attend the Meeting may vote their shares even though they have
sent in their proxies.

By Order of the Board of Directors

June Heck, Secretary

Melville, New York
April 26, 2000

26
<PAGE>

Appendix A

[X] PLEASE MARK VOTES AS IN THIS EXAMPLE

- --------------------------------------------------------------------------------
V.I. TECHNOLOGIES, INC.

RECORD DATE SHARES:

1. Election Of Class II Directors.

Nominees: Jeremy Hayward-Surry
Peter D. Parker
Damion E. Wicker

[ ] For All Nominees [ ] Withheld From All Nominees

[ ]
---------------------------------------------
For all nominees except for the nominees
listed in the space above.

2. Amendments to the Company's 1998 Equity Incentive Plan (the "1998 Equity
Plan") to increase the maximum number of shares of the Company's Common
Stock for which awards may be granted under the 1998 Equity Plan from
2,400,000 to 33,000,000.

[ ] For [ ] Against [ ] Abstain

3. Ratification of appointment of KPMG LLP as independent accountants.

[ ] For [ ] Against [ ] Abstain

Mark box at right if an address change or comment has
been noted on the reverse side of this card [ ]

Please be sure to sign and date this Proxy.

Date
------------------------

- --------------------------------------------------------------------------------
Stockholder sign here Co-owner sign here
<PAGE>

DETACH CARD DETACH CARD

V.I. TECHNOLOGIES, INC.

Dear Stockholder,

Please take note of the important information enclosed with this Proxy
Ballot. There are a number of issues related to the management and
operation of your Company that require your immediate attention and
approval. These are discussed in detail in the enclosed proxy materials.

Your vote counts, and you are strongly encouraged to exercise your right
to vote your shares.

Please mark the boxes on this proxy card to indicate how your shares will
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.

Your vote must be received prior to the Annual Meeting of Stockholders,
May 26, 2000. Thank you in advance for your prompt consideration of these
matters.

Sincerely,

V.I. Technologies, Inc.
<PAGE>

V.I. TECHNOLOGIES, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Thomas T. Higgins and June Heck and each of
them as Proxies of the undersigned, each with the power to appoint a substitute,
and hereby authorizes each of them to represent the undersigned at the 2000
Annual Meeting of Stockholders to be held on May 26, 2000, or any adjournment
thereof, and there to vote all the shares of V.I. Technologies, Inc. held of
record by the undersigned on April 3, 2000, as directed on the reverse side
hereof. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR
CLASS II DIRECTOR AND FOR PROPOSALS 2 AND 3. If a nominee for director is
unable or unwilling to serve, the shares represented hereby will be voted for
another person in accordance with the judgment of the Proxies named herein.

In addition, in their discretion, the Proxies are hereby authorized to vote upon
such other business 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.

- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Please sign this proxy card exactly as your name or names appear hereon. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

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

(To be signed on the reverse side)
<PAGE>

Appendix B

V.I. TECHNOLOGIES, INC.

1998 EQUITY INCENTIVE PLAN

AS PROPOSED FOR SHAREHOLDER APPROVAL AT MAY 26, 2000 ANNUAL MEETING

Section 1. Purpose
-------

The purpose of the V.I. Technologies, Inc. 1998 Equity Incentive Plan
(the "Plan") is to attract and retain key employees and directors and
consultants of the Company and its Affiliates, to provide an incentive for them
to achieve long-range performance goals, and to enable them to participate in
the long-term growth of the Company by granting Awards with respect to the
Company's Common Stock.

Section 2. Definitions
-----------

"Affiliate" means any business entity in which the Company owns
directly or indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee.

"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan.

"Board" means the Board of Directors of the Company.

"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor to such Code.

"Committee" means a committee comprised of not less than two members
of the Board appointed by the Board to administer the Plan or a specified
portion thereof. If the Committee is authorized to grant Awards to a Reporting
Person or a Covered Employee, each member shall be a "Non-Employee Director" or
the equivalent within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934 or any successor provision, as applicable to the Company at the time
("Rule 16b-3"), or an "outside director" or the equivalent within the meaning of
Section 162(m) of the Code, respectively. In the event no such Committee is
appointed, then "Committee" means the Board.

"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of
the Company.

"Company" means V.I. Technologies, Inc.

"Covered Employee" means a person whose income is subject to Section
162(m) of the Code.

"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's

<PAGE>

death. In the absence of an effective designation by a Participant, "Designated
Beneficiary" shall mean the Participant's estate.

"Effective Date" means January 25, 1996.

"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.

"Incentive Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.

"Nonstatutory Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 that is not intended to be
an Incentive Stock Option.

"Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.

"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.

"Participant" means a person selected by the Committee to receive an
Award under the Plan.

"Performance Cycle" or "Cycle" means the period of time selected by
the Committee during which performance is measured for the purpose of
determining the extent to which an award of Performance Shares has been earned.

"Performance Shares" mean shares of Common Stock, which may be earned
by the achievement of performance goals, awarded to a Participant under Section
8.

"Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.

"Restricted Period" means the period of time during which an Award may
be forfeited to the Company pursuant to the terms and conditions of such Award.

"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.

"Stock Appreciation Right" or "SAR" means a right to receive any
excess in value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.

"Stock Unit" means an award of Common Stock or units that are valued
in whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.

2
<PAGE>

Section 3. Administration
--------------

The Plan shall be administered by the Committee, provided that the
Board may in any instance perform any of the functions delegated to the
Committee hereunder. The Committee shall select the Participants to receive
Awards and shall determine the terms and conditions of the Awards. The
Committee shall have authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time to time consider advisable, and to interpret the provisions of the
Plan. The Committee's decisions shall be final and binding. To the extent
permitted by applicable law, the Committee may delegate to one or more executive
officers of the Company the power to make Awards to Participants who are not
Reporting Persons and all determinations under the Plan with respect thereto,
provided that the Committee shall fix the maximum amount of such Awards for all
such Participants and a maximum for any one Participant.

Section 4. Eligibility
-----------

All employees and, in the case of Awards other than Incentive Stock
Options, Directors and consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be awarded only to
persons eligible to receive such Options under the Code.

Section 5. Stock Available for Awards
--------------------------

(a) Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 3,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited, the shares subject to such Award, to the extent of such expiration,
termination or forfeiture, shall again be available for award under the Plan.
Common Stock issued through the assumption or substitution of outstanding grants
from an acquired company shall not reduce the shares available for Awards under
the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.

(b) In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make provision for a cash payment with respect to an outstanding Award,
provided that the number of shares subject to any Award shall always be a whole
number.

3
<PAGE>

Section 6. Stock Options
-------------

(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The
Committee may impose such conditions with respect to the exercise of Options,
including conditions relating to applicable federal and state securities laws,
as it considers necessary or advisable. The terms and conditions of Incentive
Stock Options shall be subject to and comply with Section 422 of the Code or any
successor provision and any regulations thereunder, and no Incentive Stock
Option may be granted hereunder more than ten years after the Effective Date.

(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options. Nonstatutory Stock Options may be granted at such prices as the
Committee may determine.

(c) Until the completion of an initial public offering of the Common
Stock, each optionholder shall execute a Stock Purchase and Right of Repurchase
Agreement, substantially in the form of Exhibit 1 hereto, prior to the purchase
---------
of any Stock pursuant to the exercise of Options. Each Option shall be
exercisable at such times and subject to such additional terms and conditions as
the Committee may specify in the applicable Award or thereafter. The Committee
may impose such conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.

(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.

(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.

Section 7. Stock Appreciation Rights
-------------------------

(a) Subject to the provisions of the Plan, the Committee may award
SARs in tandem with an Option (at or after the award of the Option), or alone
and unrelated to an Option. SARs in tandem with an Option shall terminate to
the extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. The Committee shall
determine at the time of grant or thereafter whether SARs are settled in cash,
Common Stock or other securities of the Company, Awards or other property, and
may define the manner of determining the excess in value of the shares of Common
Stock.

(b) The Committee shall fix the exercise price of each SAR or specify
the manner in which the price shall be determined. SARs granted in tandem with
Options shall have an exercise price not less than the exercise price of the
related Option. SARs granted alone and unrelated to an Option may not have an
exercise price less than 100% of the Fair Market Value of the Common Stock on
the date of grant, provided that such a

4
<PAGE>

SAR granted to a new employee or consultant within 90 days of the date of
employment may have a lower exercise price so long as it is not less than 100%
of the Fair Market Value on the date of employment.

(c) An SAR related to an Option, which SAR can only be exercised upon
or during limited periods following a change in control of the Company, may
entitle the Participant to receive an amount based upon the highest price paid
or offered for Common Stock in any transaction relating to the change in control
or paid during the thirty-day period immediately preceding the occurrence of the
change in control in any transaction reported in the stock market in which the
Common Stock is normally traded.

Section 8. Performance Shares
------------------

(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares
shall be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.

(b) The committee shall establish performance goals for each Cycle,
for the purpose of determining the extent to which Performance Shares awarded
for such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.

(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.

Section 9. Restricted Stock
----------------

(a) Subject to the provisions of the Plan, the Committee may award
shares of Restricted Stock and determine the duration of the Restricted Period
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.

(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Notwithstanding the foregoing, in the Committee's
discretion, Awards in the form of Restricted Stock may be made transferable to a
limited liability company controlled solely by the Participant. Shares of
Restricted Stock shall be evidenced in such manner as the Committee may
determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and unless otherwise
determined by the Committee, deposited by the Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the

5
<PAGE>

Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.

Section 10. Stock Units
-----------

(a) Subject to the provisions of the Plan, the Committee may award
Stock Units subject to such terms, restrictions, conditions, performance
criteria, vesting requirements and payment rules as the Committee shall
determine.

(b) Shares of Common Stock awarded in connection with a Stock Unit
Award shall be issued for no cash consideration or such minimum consideration as
may be required by applicable law.

Section 11. Other Stock-Based Awards
------------------------

(a) Subject to the provisions of the Plan, the Committee may make
other awards of Common Stock and other awards that are valued in whole or in
part by reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.

(b) The Committee may establish performance goals, which may be based
on performance goals related to book value, subsidiary performance or such other
criteria as the Committee may determine, Restricted Periods, Performance Cycles,
conversion prices, maturities and security, if any, for any Other Stock-Based
Award. Other Stock-Based Awards may be sold to Participants at the face value
thereof or any discount therefrom or awarded for no consideration or such
minimum consideration as may be required by applicable law.

Section 12. General Provisions Applicable to Awards
---------------------------------------

(a) Limitations on Grants of Options and SARs. Subject to adjustment
under Section 5(b), the number of shares subject to Options and SARs granted to
any one individual during any fiscal year may not exceed 223,613 shares.

(b) Reporting Person Limitations. Notwithstanding any other provision
of the Plan, to the extent required to qualify for the exemption provided by
Rule 16b-3, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution or, if then
permitted by Rule 16b-3, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and are exercisable during such person's lifetime only by
such person or by such person's guardian or legal representative.

(c) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.

6
<PAGE>

(d) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type
of Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.

(e) Settlement. The Committee shall determine whether Awards are
settled in whole or in part in cash, Common Stock, other securities of the
Company, Awards or other property. The Committee may permit a Participant to
defer all or any portion of a payment under the Plan, including the crediting of
interest on deferred amounts denominated in cash and dividend equivalents on
amounts denominated in Common Stock.

(f) Dividends and Cash Awards. In the discretion of the Committee,
any Award under the Plan may provide the Participant with (i) dividends or
dividend equivalents payable currently or deferred with or without interest, and
(ii) cash payments in lieu of or in addition to an Award.

(g) Termination of Employment. The Committee shall determine the
effect on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.

(h) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company, the Committee
in its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the Award, (ii)
provide for the purchase of the Award upon the Participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.

(i) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with any Award under the Plan, which
loans may be secured by any security, including Common Stock, underlying or
related to such Award (provided that such Loan shall not exceed the Fair Market
Value of the security subject to such Award), and which may be forgiven upon
such terms and conditions as the Committee may establish at the time of such
loan or at any time thereafter.

(j) Withholding Taxes. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. In the Committee's discretion, such
tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value on the date of delivery. The Company and its Affiliates
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the Participant.

(k) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the

7
<PAGE>

Committee considers necessary or advisable to achieve the purposes of the Plan
or to comply with applicable laws.

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

Section 13. Miscellaneous
-------------

(a) No Right To Employment. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Company expressly
reserves the right at any time to dismiss a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.

(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to
whom Common Stock is awarded shall be considered the holder of the Stock at the
time of the Award except as otherwise provided in the applicable Award.

(c) Effective Date. The 1996 Equity Incentive Plan became effective
on January 25, 1996. Subject to the approval of the Stockholders of the
Company, this 1998 Equity Incentive Plan, which amends and restates the 1996
Equity Incentive Plan, will become effective on February 18, 1998. Prior to
such approval, Awards may be made under the Plan expressly subject to such
approval.

(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to any stockholder approval
that the Board determines to be necessary or advisable.

(e) Governing Law. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of Delaware.

_________________________________________