<PAGE>
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
The Immune Response Corporation
------------------------------------------------------------------------
(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:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------
<PAGE>
[COMPANY LOGO]
THE IMMUNE RESPONSE CORPORATION
5935 DARWIN COURT
CARLSBAD, CA 92008
(760) 431-7080
April 27, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held on June 11, 1998, at 9:00 a.m., at the offices of the
Company, 5935 Darwin Court, Carlsbad, California.
The formal notice of the Annual Meeting and the Proxy Statement have
been made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return,
at an early date, the enclosed proxy in the prepaid envelope addressed to
Harris Trust Company of California, our agent, to ensure that your shares
will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND
RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's Annual Report to Stockholders is also enclosed.
The Board of Directors and Management look forward to seeing you at the
meeting.
Sincerely yours,
Dennis J. Carlo
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
THE IMMUNE RESPONSE CORPORATION
____________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1998
____________________
The Annual Meeting of Stockholders of The Immune Response Corporation
(the "Company") will be held at the offices of the Company, 5935 Darwin
Court, Carlsbad, California, on June 11, 1998, at 9:00 a.m., for the
following purposes:
1. To elect two Class III directors.
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors.
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment of the Annual Meeting.
The Board of Directors has fixed the close of business on April 15, 1998
as the record date for determining the stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof. A complete list
of stockholders entitled to vote will be available at the Secretary's office,
5935 Darwin Court, Carlsbad, California, for ten days prior to the meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING. EVEN
IF YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHTS TO
ATTEND OR VOTE AT THE MEETING.
By order of the Board of Directors.
Charles J. Cashion
SENIOR VICE PRESIDENT, FINANCE & ADMINISTRATION,
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
April 27, 1998
<PAGE>
THE IMMUNE RESPONSE CORPORATION
____________________
PROXY STATEMENT
____________________
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of The Immune Response Corporation, a Delaware
corporation (the "Company"), of proxies in the accompanying form to be used
at the Annual Meeting of Stockholders to be held at the offices of the
Company, 5935 Darwin Court, Carlsbad, California, on June 11, 1998 and any
adjournment thereof (the "Annual Meeting"). The shares represented by the
proxies received in response to this solicitation and not revoked will be
voted at the Annual Meeting. A proxy may be revoked at any time before it is
exercised by filing with the Secretary of the Company a written revocation or
a duly executed proxy bearing a later date or by voting in person at the
Annual Meeting. On the matters coming before the Annual Meeting for which a
choice has been specified by a stockholder by means of the ballot or the
proxy, the shares will be voted accordingly. If no choice is specified, the
shares will be voted FOR the election of the two nominees for Class III
director listed in this Proxy Statement and FOR the approval of Proposal 2
described in the Notice of Annual Meeting and in this Proxy Statement.
Stockholders of record at the close of business on April 15, 1998 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had 22,835,115 shares of Common Stock
outstanding and entitled to vote. Each holder of Common Stock is entitled to
one vote for each share held as of the record date.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her
to participate at the Annual Meeting, may request reasonable assistance or
accommodation from the Company by contacting The Immune Response Corporation,
Investor Relations, 5935 Darwin Court, Carlsbad, California 92008 (760)
431-7080. To provide the Company sufficient time to arrange for reasonable
assistance or accommodation, please submit all requests by May 20, 1998.
Directors are elected by a plurality vote. The other matters submitted
for stockholder approval at this Annual Meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on each such matter. Abstentions with respect to
any matter are treated as shares present or represented and entitled to vote
on that matter and thus have the same effect as negative votes. If shares
are not voted by the broker who is the record holder of such shares, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares are not deemed to be present or represented for purposes of
determining whether stockholder approval of that matter has been obtained.
The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation
may be made by certain directors, officers and other employees of the Company
by personal interview, telephone or facsimile. No additional compensation
will be paid to such persons for such solicitation. The Company will
reimburse brokerage firms and others for their reasonable expenses in
forwarding solicitation materials to beneficial owners of the Company's
Common Stock. The Company has retained Beacon Hill Partners, Inc. to assist
in the solicitation of proxies at a cost of approximately $5,000.
This Proxy Statement and the accompanying form of proxy are being mailed
to stockholders on or about April 27, 1998.
IMPORTANT
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT,
WHETHER YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT, YOUR SHARES
CAN BE VOTED. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR VOTE AT THE
ANNUAL MEETING.
-1-
<PAGE>
ELECTION OF DIRECTORS
The Company has three classes of directors serving staggered three-year
terms. Class I and Class III consist of three directors each and Class II
consists of four directors. Currently one Class I director's seat, one Class
II director's seat and one Class III director's seat are vacant. Two Class
III directors are to be elected at the Annual Meeting to serve until the 2001
Annual Meeting and until their respective successors shall have been elected
and qualified or until such directors' earlier resignation, removal from
office, death or incapacity. The terms of the Class I and Class II directors
expire in 1999 and 2000, respectively.
Unless authority to vote for directors is withheld, it is intended that
the shares represented by the enclosed proxy will be voted for the election
of Dennis J. Carlo, Ph.D. and Kevin B. Kimberlin as Class III directors. Dr.
Carlo and Mr. Kimberlin are currently members of the Board of Directors of
the Company. Each of the nominees has been nominated as a Class III director
by the Nominating Committee of the Company's Board of Directors. In the
event either of such nominees becomes unable or unwilling to accept
nomination or election, the shares represented by the enclosed proxy will be
voted for the election of the other nominee and such other nominee as the
Board of Directors may select. The Board of Directors has no reason to
believe that either such nominee will be unable or unwilling to serve. There
are no family relationships among executive officers or directors of the
Company.
Set forth below is information regarding the nominees for Class III
director and the continuing directors of Class II and Class I, principal
occupations at present and for the past five years, certain directorships
held by each, their ages as of April 15, 1998 and the year in which each
became a director of the Company.
EXHIBIT A
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND DIRECTOR
FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
--------------------------------------------------- -------- ---
<S> <C> <C> <C>
CLASS III
Dennis J. Carlo, Ph.D. President and Chief Executive Officer of the 1987 54
Company since September 1994, Chief Scientific
Officer from April 1987 to September 1995, and
Assistant Corporate Secretary since October 1987,
C h i ef Operating Officer from April 1987 to
September 1994 and Executive Vice President from
October 1987 to September 1994; Vice President of
Research and Development and Vice President of
T h e r apeutic Manufacturing at Hybritech
Incorporated, a biotechnology company that was
acquired in March 1986 by Eli Lilly & Company, a
pharmaceutical company, from January 1982 to May
1987; Director of Vyrex Corporation.
Kevin B. Kimberlin Chairman of the Board of Spencer Trask Holdings, 1986 45
Inc., an investment banking company, since July
1991; Secretary of the Company from November 1986
to September 1989; President of St. James Capital
Corp., an investment company, from July 1991 to
June 1994; Director of Faroudja, Inc.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND DIRECTOR
FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
--------------------------------------------------- -------- ---
<S> <C> <C> <C>
CLASS II
Melvin Perelman, Ph.D. Executive Vice President of Eli Lilly & Company and 1996 67
President of The Lilly Research Laboratories from
1986 to 1993; Director of Eli Lilly & Company from
1976 to 1993; Director of Inhale Therapeutic
Systems, Inc., DataChem Corporation and Cinergy
Corporation.
John Simon, J.D., Ph.D. Managing Director of Allen & Company Incorporated, 1988 55
an investment banking company, since 1972; Director
of Neurogen Corporation, Batteries Batteries, Inc.
and Advanced Technical Products.
William M. Sullivan Chairman of the Board of Directors of the Company 1987 63
from March 1987 to May 1993; Chairman of the Board
of Sparta Pharmaceuticals, Inc. from October 1991
to March 1998 and President and Chief Executive
Officer from October 1991 to March 1996; Chairman
of the Board, President and Chief Executive Officer
o f Burroughs Wellcome Co., a pharmaceutical
company, from December 1981 to January 1986;
Director of BioVentures, Inc., ProCyte Corporation,
R e s earch Corporation Technologies and Sparta
Pharmaceuticals, Inc.
CLASS I
James B. Glavin Chairman of the Board of Directors of the Company 1987 62
since May 1993, Chief Executive Officer from April
1987 to September 1994, President from October 1987
to September 1994, and Treasurer from April 1987 to
May 1991; Chairman of the Board of Directors of
Smith Laboratories, Inc. ("Smith Labs"), a medical
products company, from September 1985 to May 1990
and Acting President and Chief Executive Officer of
Smith Labs from September 1985 to August 1989;
Director of Gish Biomedical Inc., Inhale
Therapeutic Systems, Inc. and the Meridian Fund.
Philip M. Young General Partner of U.S. Venture Partners, a venture 1987 58
capital company, since April 1990; Director of
Vical Incorporated, Zoran Corporation, FemRx, Inc.,
CardioThoracic Systems, Inc., 3Dfx Interactive,
Inc. and several privately held companies.
</TABLE>
The Board of Directors held six meetings during the year ended December
31, 1997. Each of the directors attended at least 75% of the aggregate
number of meetings of the Board of Directors and of the committees on which
such directors served.
-3-
<PAGE>
The Board of Directors has appointed an Executive Committee, a Stock
Option and Compensation Committee, an Employee Stock Option Committee, an
Audit Committee and a Nominating Committee.
The members of the Executive Committee are James B. Glavin, Dennis J.
Carlo, John Simon and Philip M. Young. The Executive Committee held two
meetings during 1997. Subject to the ultimate direction and control of the
Board of Directors, the Executive Committee's function is to exercise, with
certain exceptions, all of the powers and authority of the Board in the
management of the business and affairs of the Company.
The members of the Stock Option and Compensation Committee are William
M. Sullivan and Kevin B. Kimberlin. The Stock Option and Compensation
Committee held three meetings during 1997. The Stock Option and Compensation
Committee's functions are to assist in the administration of, and grant
options under, the 1989 Stock Plan and to assist in the implementation of,
and provide recommendations with respect to, general and specific
compensation policies and practices of the Company.
The sole member of the Employee Stock Option Committee is Dennis J.
Carlo. The Employee Stock Option Committee held twenty-six meetings during
1997. The Employee Stock Option Committee's functions are to assist in the
administration of, and grant options under, the 1989 Stock Plan with respect
to employees who are not officers or directors of the Company.
The members of the Audit Committee are Kevin B. Kimberlin, John Simon
and Philip M. Young. The Audit Committee held two meetings during 1997. The
Audit Committee's functions are to review the scope of the annual audit,
monitor the independent auditor's relationship with the Company, advise and
assist the Board of Directors in evaluating the auditor's report, supervise
the Company's financial and accounting organization and financial reporting
and nominate for stockholder approval at the annual meeting, with the
approval of the Board of Directors, a firm of certified public accountants
whose duty it is to audit the financial records of the Company for the fiscal
year for which it is appointed.
The members of the Nominating Committee are William M. Sullivan and
Philip M. Young. The Nominating Committee held one meeting during 1997. The
Nominating Committee's function is to select and nominate individuals to fill
vacancies in the Company's Board of Directors. The Nominating Committee will
not consider nominees recommended by securityholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS III DIRECTOR
NOMINEES LISTED ABOVE.
-4-
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of April 15, 1998 as to
shares of Common Stock beneficially owned by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares
of the Common Stock of the Company, (ii) each of the Company's directors and
nominees for director, (iii) each of the Company's executive officers named
in the Summary Compensation Table set forth herein and (iv) the Company's
directors and executive officers as a group. Except as otherwise indicated
and subject to applicable community property laws, each person has sole
investment and voting power with respect to the shares shown. Ownership
information is based upon information furnished, or filed with the Securities
and Exchange Commission, by the respective individuals or entities, as the
case may be.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
-----------------------
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS
- ------------------------------------ ----------- ---------
<S> <C> <C>
The Capital Group Companies Inc.(1)
333 South Hope Street
Los Angeles, CA 90071. . . . . . . . . . . . . . . . . . . . . . . . 1,920,000 8.4
Dennis J. Carlo(2)(3). . . . . . . . . . . . . . . . . . . . . . . . 1,096,381 4.7
James B. Glavin(4) . . . . . . . . . . . . . . . . . . . . . . . . . 407,301 1.8
Kevin B. Kimberlin(6)(7) . . . . . . . . . . . . . . . . . . . . . . 2,164,787 9.4
Philip M. Young(8)(9). . . . . . . . . . . . . . . . . . . . . . . . 128,300 *
William M. Sullivan(5) . . . . . . . . . . . . . . . . . . . . . . . 93,700 *
John Simon(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 *
Melvin Perelman(11). . . . . . . . . . . . . . . . . . . . . . . . . 18,750 *
Steven W. Brostoff(12) . . . . . . . . . . . . . . . . . . . . . . . 192,741 *
Steven P. Richieri(13) . . . . . . . . . . . . . . . . . . . . . . . 259,948 1.1
Charles J. Cashion(14) . . . . . . . . . . . . . . . . . . . . . . . 260,536 1.1
Fred C. Jensen(15) . . . . . . . . . . . . . . . . . . . . . . . . . 183,185 *
All executive officers and directors as a group (12 persons)(16) . . 4,900,629
</TABLE>
- ---------------
* Less than one percent.
(1) Based on its Schedule 13G dated February 10, 1998, wherein The Capital
Group Companies, Inc. ("CGC") reported the beneficial ownership of
1,920,000 shares of Common Stock. The Schedule 13G states that the shares
are owned by two subsidiaries of CGC, Capital Research and Management
Company and Capital Guardian Trust Company ("CGTC") which is the beneficial
owner of 1,420,000 shares of Common Stock. The Schedule 13G reports that
CGC has sole power to vote or direct the vote of 1,300,000 of such shares
and sole power to dispose or direct the disposition of all 1,920,000
shares, that CGTC has sole power to vote or direct the vote of 1,300,000 of
such shares and sole power to discuss or direct the disposition of
1,420,000 of such shares, and that neither CGC or CGTC has shared voting or
dispositive power with respect to any such shares.
(2) Includes 45,453 held in trusts for the benefit of Dr. Carlo's family, as to
which Dr. Carlo maintains shared voting and investment power and includes
as outstanding 673,940 shares which Dr. Carlo may acquire within 60 days
after April 15, 1998 pursuant to the exercise of options.
(3) Does not include 256,410 shares which may be acquired pursuant to the
exercise of warrants which have an exercise price of $14.00 and are
callable by the Company if the stock trades at $28 or greater for 45
consecutive days.
-5-
<PAGE>
(4) Includes as outstanding 296,774 shares which Mr. Glavin may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(5) Includes as outstanding 75,000 shares which Mr. Kimberlin and Mr. Sullivan
may each acquire within 60 days after April 15, 1998 pursuant to the
exercise of options.
(6) Includes 16,000 shares held by a trust as to which Mr. Kimberlin is trustee
and over which he has sole voting and investment power. Also, includes
35,000 shares owned by Mr. Kimberlin's wife, as to which he disclaims
beneficial ownership.
(7) Does not include 1,794,871 shares which may be acquired pursuant to the
exercise of warrants which have an exercise price of $14.00 and are
callable by the Company if the stock trades at $28 or greater for 45
consecutive days.
(8) Includes as outstanding 95,000 shares which Mr. Young may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(9) Includes 2,000 shares held by Mr. Young as custodian for certain members of
his family, as to which Mr. Young has sole voting and investment power and
as to which Mr. Young disclaims beneficial ownership.
(10) Includes as outstanding 85,000 shares which Dr. Simon may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(11) Includes as outstanding 18,750 shares which Dr. Perelman may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(12) Includes as outstanding 172,991 shares which Dr. Brostoff may acquire
within 60 days after April 15, 1998 pursuant to the exercise of options.
(13) Includes as outstanding 258,348 shares which Mr. Richieri may acquire
within 60 days after April 15, 1998 pursuant to the exercise of options.
(14) Includes as outstanding 211,711 shares which Mr. Cashion may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(15) Includes as outstanding 170,959 shares which Dr. Jensen may acquire within
60 days after April 15, 1998 pursuant to the exercise of options.
(16) Includes as outstanding an aggregate of 2,294,692 shares which may be
acquired within 60 days after April 15, 1998 pursuant to the exercise of
options. Also, includes 102,173 shares held by family trusts for the
benefit of family members of directors and executive officers as to which
such directors and executive officers have voting and investment power.
-6-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the compensation for services provided to
the Company in all capacities for the fiscal years ended December 31, 1995,
1996 and 1997, by those persons who were, respectively, at December 31, 1997
the Company's Chief Executive Officer and the other four most highly
compensated executive officers of the Company whose total annual salary and
bonus for fiscal year 1997 exceeded $100,000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------- ------------
AWARDS
------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) TION ($)(1)
- --------------------------- ---- ---------- --------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Carlo. . . . . . . . . . 1997 343,417 92,138 -- 54,000 10,932
President, and 1996 343,333 -- -- 135,000 10,662
Chief Executive Officer 1995 325,000 60,000 430,650(2) 10,200
Steven W. Brostoff . . . . . . . . 1997 177,859 45,122 356,521(3) 36,000 7,288
Vice President, Research 1996 185,488 5,000 -- 62,601 6,018
and Development and Chief 1995(4) 150,000 15,000 31,900(5) 109,515(6) 5,682
Scientific Officer
Steven P. Richieri . . . . . . . . 1997(7) 182,846 51,845 -- 36,000 5,785
Senior Vice President, 1996 190,455 -- -- 60,339 5,566
Operations and Chief 1995(8) 150,000 20,000 4,096(9) 202,903(10) 5,206
Operating Officer
Charles J. Cashion . . . . . . . . 1997(11) 166,224 40,186 -- 36,000 5,361
Senior Vice President, Finance 1996 173,855 -- -- 60,340 5,257
and Administration, Chief 1995 150,000 10,000 -- 111,921(12) 4,688
Financial Officer,
Secretary and Treasurer
Fred C. Jensen . . . . . . . . . . 1997 145,454 30,389 20,792(13) 22,500 2,118
Vice President, Research 1996 152,134 -- -- 44,600 2,917
and Development 1995 131,258 5,000 -- 86,525(14) 7,487
</TABLE>
- ---------------
(1) During fiscal year 1996, the Company made contributions under the 401(k)
Plan for Messrs. Carlo, Brostoff, Richieri, Cashion and Jensen of $2,375,
$2,375, $2,375, $2,375 and $2,118, respectively; and made contributions
under the Company's long-term disability insurance plan for Messrs. Carlo,
Brostoff, Richieri and Cashion of $5,965, $2,223, $2,773 and $2,012,
respectively. The Company also funded a group term life insurance plan in
excess of $50,000. Amounts added to compensation related to this plan for
Messrs. Carlo, Brostoff, Richieri and Cashion were $2,592, $2,690, $637 and
$974, respectively.
(2) Includes options to purchase 406,250 shares that were granted in exchange
for unexercised options granted prior to April 19, 1995 with an exercise
price above $3.25 per share.
(3) Represents the aggregate difference between the purchase price and the fair
market value of 40,000 shares of the Company's Common Stock purchased
between October 9, 1997 and October 21, 1997.
-7-
<PAGE>
(4) Appointed Chief Scientific Officer as of September 29, 1995.
(5) Represents the aggregate difference between the purchase price and the
fair market value of 5,000 shares of the Company's Common Stock purchased
on September 19, 1995.
(6) Includes options to purchase 83,215 shares that were granted in exchange
for unexercised options granted prior to April 19, 1995 with an exercise
price above $3.25 per share.
(7) Appointed Chief Operating Officer as of January 5, 1998.
(8) Appointed Senior Vice President, Operations as of September 29, 1995.
(9) Represents the aggregate difference between the purchase price and the
fair market value of 1,600 shares of the Company's Common Stock purchased
on December 29, 1995.
(10) Includes options to purchase 176,603 shares that were granted in exchange
for unexercised options granted prior to April 19, 1995 with an exercise
price above $3.25 per share.
(11) Appointed Senior Vice President, Finance and Administration as of
January 5, 1998.
(12) Includes options to purchase 85,621 shares that were granted in exchange
for unexercised options granted prior to April 19, 1995 with an exercise
price above $3.25 per share.
(13) Represents the aggregate difference between the purchase price and fair
market value of 1,900 shares of the Company's Common Stock purchased on
December 6, 1997.
(14) Includes options to purchase 64,225 shares that were granted in exchange
for unexercised options granted prior to April 19, 1995 with an exercise
price above $3.25 per share.
COMPENSATION OF DIRECTORS
Outside directors of the Company receive $1,000 per month for their
services as directors, plus an additional $1,000 for each Board meeting
attended and $500 for each committee meeting attended in person or $250 for
each committee meeting attended by telephone. Directors are reimbursed for
their expenses for each meeting attended.
Under the 1990 Directors' Stock Option Plan of The Immune Response
Corporation (the "Directors' Plan"), directors who have never been employees
of the Company receive options to purchase 25,000 shares of the Company's
Common Stock upon election or appointment to the Board of Directors. These
options have exercise prices equal to the fair market value of the Common
Stock on the date of grant. They vest in four annual installments on each of
the first four anniversaries of the date of grant and, if held for at least
six months, vest in full upon the nonemployee director's retirement, death or
disability. The Directors' Plan also provides that each nonemployee director
will receive on the date of each Annual Meeting of the Stockholders an option
to purchase 6,250 shares of the Company's Common Stock with a one-year
vesting period. All options granted under the Directors' Plan also vest in
the event the Company is subject to a change in control as defined in the
Directors' Plan.
On September 19, 1996, Mr. Glavin entered into a one-year consulting
agreement with the Company which replaced a previous consulting agreement
entered into in 1994. Mr. Glavin's consulting agreement provided that Mr.
Glavin would use reasonable efforts to furnish consulting services to the
Company in return for an annual fee of $48,000. For consulting services
rendered in 1997, Mr. Glavin was paid $65,500.
-8-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Company's fiscal year ended December 31, 1997, Messrs. Sullivan
and Kimberlin served as the members of the Company's Compensation Committee.
Messrs. Sullivan and Kimberlin are directors of the Company. Mr. Sullivan
was formerly the Chairman of the Board of Directors from March 1987 to May
1993. Mr. Kimberlin was formerly the Secretary of the Company from November
1986 to September 1989. None of the executive officers of the Company had
any "interlock" relationship to report during the Company's fiscal year ended
December 31, 1997.
CHANGE IN CONTROL ARRANGEMENTS
The Company's 1989 Stock Plan provides that in the event of a merger or
reorganization, the Company shall either continue outstanding options granted
under the 1989 Stock Plan, or shall provide for the exchange of such options
for a cash payment equal to the difference between the amount paid for one
share under the terms of the merger or reorganization and the exercise price
for each option, or shall accelerate the exercisability of each option
followed by the cancellation of options not exercised, in all cases without
the optionee's consent. All options granted under the 1989 Stock Plan also
vest in the event that the Company is subject to a change in control.
PENSION AND LONG-TERM INCENTIVE PLANS
The Company has no pension or long-term incentive plans.
-9-
<PAGE>
STOCK OPTIONS
The following tables summarize option grants to and exercises by the
Company's Chief Executive Officer and the Named Officers during fiscal 1997,
and the value of the options held by such persons at the end of fiscal 1997.
The Company does not grant Stock Appreciation Rights.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
---------------------------------------------------------- -------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Granted(#)(1) Fiscal Year(2) ($/Sh)(3) Date(4) Present Value($)(5)
------------- -------------- ----------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Dennis J. Carlo.............. 54,000 9.35 8.19 2/3/07 $348,273
Chief Executive Officer
Steven W. Brostoff........... 36,000 6.23 8.19 2/3/07 232,182
Steven P. Richieri........... 36,000 6.23 8.19 2/3/07 232,182
Charles J. Cashion........... 36,000 6.23 8.19 2/3/07 232,182
Fred C. Jensen............... 22,500 3.90 8.19 2/3/07 145,114
</TABLE>
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(1) Options granted in 1997 vest ratably on a daily basis over a four-year
period commencing on the date of grant. The options vest immediately in
the event that the Company is subject to a change in control.
(2) The Company granted options representing a total of 577,590 shares of the
Company's Common Stock to employees in 1997.
(3) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(4) The options have a term of ten years, subject to earlier termination in
certain events related to termination of employment.
(5) The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997: risk free interest rate of
5.72%, expected option life of five years, expected volatility of .8288
and a dividend rate of zero. Option valuation using a Black-Scholes-based
option-pricing model generates a theoretical value based upon certain
factors and assumptions. Therefore, the value which is calculated is not
intended to predict future prices of the Company's Common Stock. The
actual value of a stock option, if any, is dependent on the future price
of the stock, overall stock market conditions and continued service with
the Company, since options remain exercisable for only a limited period
following retirement, death or disability. There can be no assurance that
the values reflected in this table or any other value will be achieved.
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<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND OPTION VALUES
AT END OF FISCAL YEAR 1997
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares End of Fiscal 1997(#) End of Fiscal 1997($)(1)
Acquired Value ------------------------- -------------------------
on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
-------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis J. Carlo . . . . . . -- -- 632,167/112,483 $4,552,642/$571,793
Chief Executive Officer
Steven W. Brostoff . . . . 40,000 356,521 155,020/55,446 1,027,217/227,554
Steven P. Richieri . . . . -- -- 239,474/58,168 1,707,529/255,052
Charles J. Cashion . . . . -- -- 193,621/56,840 1,336,094/234,271
Fred C. Jensen . . . . . . 1,900 20,792 159,150/35,749 1,136,651/150,537
</TABLE>
- --------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1997, the fiscal year end ($11.13 per share),
minus the exercise price.
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<PAGE>
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of outside directors and is responsible for developing
and making recommendations with respect to the Company's executive
compensation policies and practices, including the establishment of the
annual total compensation for the chief executive officer ("CEO") and all
executive officers. The Committee has available to it an outside compensation
consultant and access to independent compensation data. The consultant
provides input to assure compensation is consistent with market conditions.
The Company has a history of using a traditional total compensation
program that consists of cash and equity-based compensation. The Committee
has developed a compensation policy which allows the Company to attract and
retain key employees, enhance stockholder value, motivate technological
innovation, foster teamwork and adequately reward employees. In developing
this policy, the Committee has concluded that it is not appropriate to base a
significant percentage of the compensation payable to the executive officers
upon traditional financial targets, such as profit levels and return on
equity. This is primarily because the Company's products are still in either
development or clinical testing phases, and the Company has not yet realized
any significant revenues or product sales. The Committee has based its
decisions upon the following three principal compensation elements:
- Base salary levels which are commensurate with those of comparable
positions at other biotechnology companies given the level of seniority and
skills possessed by the executive officer and which reflects the individual's
performance with the Company over time.
- Annual bonuses tied to the achievement of corporate and individual
performance objectives and the Company's stock performance.
- Long-term stock-based incentive awards intended to strengthen the
mutuality of interests between the executive officers and the Company's
stockholders.
EXECUTIVE OFFICER COMPENSATION PROGRAM COMPONENTS
The Committee reviews the Company's compensation program to ensure that
salary levels and incentive opportunities are competitive and reflect the
performance of the Company. The Company's compensation program for executive
officers consists of base salary, annual cash incentive compensation and
long-term compensation in the form of stock options. In addition, certain
executive officers may also be provided supplemental long-term disability
insurance and life insurance.
BASE SALARY
The Company has established salary ranges for employees by reviewing the
aggregate of base salary and annual bonus for competitive positions in the
market in the biotechnology industry at a similar stage of product
development comparable to the Company and at other companies which compete
with the Company for executive talent. Base salary levels for 1997 for the
Company's executive officers were based on the concept of pay for
performance. Extensive salary survey data is available on the industry (for
example, the annual "Biotechnology Compensation and Benefits Survey"
conducted by Radford Associates and other surveys depicting regional
compensation information) and is utilized by the Committee in establishing
annual base salaries. Generally, the Company sets its competitive salary
midpoint for an executive officer position at the median level compared to
those companies surveyed. The Company then creates a salary range based on
this midpoint. The range is designed to place an executive officer above or
below the midpoint, according to that officer's overall experience and
individual performance, corporate performance and progress in the
immediately-preceding year, specific issues which are relevant to the Company
and general economic conditions. Overall individual performance is measured
against short-term business goals, long-term strategic goals, development of
employees and the fostering of
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<PAGE>
teamwork and other Company values. The base salary of the CEO and all other
executive officers is reviewed annually.
ANNUAL INCENTIVE COMPENSATION
Annual cash bonus payments are discretionary. Bonus payments, if any, to
executive officers are based on two principal factors: corporate performance
as compared to the Company's annual goals and objectives and individual
performance relative to corporate performance and individual goals and
objectives. For 1997, bonus payments were generally in recognition of the
satisfaction of several significant corporate objectives during the year,
including increased stockholder value based on a 35% increase in stock price,
the continued clinical development of the Company's leading therapy,
REMUNE-TM-, as well as autoimmune disease and cancer treatments, and the
continued preclinical development of the gene delivery technology.
The achievement of corporate goals by executive officers is evaluated by
the CEO, the results of which are submitted to the Committee for review and
approval. Bonus payments for the CEO are evaluated and approved by the
Committee after its review of the CEO's achievement of corporate goals.
Total base salary and any bonus payments are compared to "total
compensation" as reported by the previously noted industry surveys. Such
total compensation for the executive officers of the Company is consistent
with the averages of such data.
STOCK OPTION PROGRAM
To conserve its cash resources and to align the interests of the
executive officers with the stockholders, the Company places special emphasis
on equity-based incentives to attract, retain and motivate executive officers
as well as all other employees. Under the Company's stock option plan,
options are granted at the fair market value on the date of grant, generally
vest over a four year period and have a term of ten years. Grants are made to
all employees annually and are based on salary level and position. All
employees, including executive officers, are eligible for subsequent,
discretionary grants which are generally based on either individual or
corporate performance. It is the Committee's intent that the best interests
of stockholders and executives will be closely aligned and provide each
executive officer with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Based on
external surveys, mentioned previously, the amount of option grants to each
executive officer in 1997 remains competitive to similar positions in the
biotechnology industry.
DISCUSSION OF 1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Dr. Dennis J. Carlo is the Company's President and Chief Executive.
During 1997, Dr. Carlo's base salary of $341,250 was based on individual and
corporate performance and was consistent with the updated industry data for
base salaries of CEOs at biopharmacuetical companies at a development stage
comparable to the Company's. Dr. Carlo's bonus and future salary increases,
if any, will be based upon successful completion of corporate goals,
including the advancement of clinical trials, the recruitment of business and
scientific collaborations and the successful commercial market introduction
of products under development. Dr. Carlo's annual compensation is calculated
to be commensurate with the average salaries paid by other companies in the
biotechnology industry which are within the survey information available.
In recognition of the satisfaction of several significant corporate
objectives during 1997, Dr. Carlo received a stock option grant for 54,000
shares of common stock priced at the fair market value on the date of grant
with a four year vesting period.
Although all objectives for the Company were not met in 1997, and
recognizing the Company's share price remained volatile, the Committee
believes that Dr. Carlo made a significant contribution in 1997 in
establishing a sound base for enhancing stockholder value through his
skillful business efforts. The Committee recognizes that
-13-
<PAGE>
the Company's operations resulted in a net loss and expects that losses will
continue until one or more of the disease treatments under development is
commercialized.
MISCELLANEOUS
Section 162(m) of the Internal Revenue Code was enacted in 1993 and
became effective in 1994. Section 162(m) disallows the deductibility by the
Company of any compensation over $1 million per year paid to each of the
chief executive officer and the four other most highly compensated executive
officers, unless certain criteria are satisfied. In 1994, the Board of
Director approved the amendment of the Company's 1989 Stock Plan to, among
other things, qualify for exemption from the $1 million limit on deductions
under Section 162(m) with respect to option grants under the 1989 Stock Plan.
This Compensation Committee Report shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this report by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Kevin B. Kimberlin
William M. Sullivan
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of the
Company's Common Stock with the Center for Research in Securities Prices
("CRSP") Total Return Index for The Nasdaq National Market (U.S. and Foreign)
(the "Nasdaq Composite Index") and the CRSP Total Return Index for Nasdaq
Pharmaceutical Stocks (the "Nasdaq Pharmaceutical Index")(1) over a five-year
period. The comparisons in the graph are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's Common Stock.
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Immune Response Corporation $100.00 $ 53.25 $ 31.17 $ 28.88 $ 42.86 $ 57.82
Nasdaq Composite 100.00 115.76 112.28 157.69 193.09 236.22
Nasdaq Pharmaceutical 100.00 89.10 67.06 122.68 123.04 127.15
</TABLE>
Assumes a $100 investment on December 31, 1992 and subsequent
reinvestment of dividends in each of the Company's Common Stock, the
securities comprising the Nasdaq Composite Index, and the securities
comprising the Nasdaq Pharmaceutical Index.
- -----------
(1) The Nasdaq Pharmaceutical Index includes all companies on Nasdaq within SIC
code 283. A copy of the list of companies which comprise the Nasdaq
Pharmaceutical Index may be obtained upon request by contacting The Immune
Response Corporation, Investor Relations, 5935 Darwin Court, Carlsbad,
California 92008 (760) 431-7080.
-15-
<PAGE>
CERTAIN TRANSACTIONS
During 1997, the Company completed a $16.0 million private placement of
units consisting of common stock and warrants to purchase common stock of the
Company. These units were separately purchased at a price of $7.80 per unit
by two directors of the Company, Mr. Kimberlin and Dr. Carlo. Dr. Carlo is
also the Company's President and Chief Executive Officer. The units sold in
the private placement consisted of 2,051,281 shares of common stock plus
warrants exercisable for 2,051,281 shares of common stock. The warrants,
with an exercise price of $14.00 per share, are callable by the Company if
the Company's common stock trades at $28.00 per share or greater for 45
consecutive days. The warrants expire on April 17, 2001. The Company has
agreed, upon request, to register with the Securities and Exchange Commission
the resale of the common stock issued in the private placement and the common
stock underlying the warrants issued in the private placement. In connection
with the closing of the private placement in April 1997 Dr. Carlo borrowed
$1,484,232.75 bearing interest at 5.73% per annum from the Company and Mr.
Kimberlin borrowed $10,389,623.40 bearing interest at 5.73% per annum from
the company. These loans were repaid in full in September 1997.
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
has appointed the firm of Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ended December 31, 1998, subject to ratification
by the stockholders. Representatives of Arthur Andersen LLP are expected to
be present at the Company's Annual Meeting. They will have an opportunity to
make a statement, if they desire to do so, and will be available to respond
to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement for presentation
at the Annual Meeting of Stockholders to be held in 1998, a stockholder
proposal must be received at the offices of the Company, 5935 Darwin Court,
Carlsbad, California 92008, not later than December 27, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) under the Securities and Exchange Act of 1934, as
amended, the Company's directors, executive officers and any persons holding
more than 10% of the Company's Common Stock are required to report their
initial ownership of the Company's Common Stock and any subsequent changes in
that ownership to the Securities and Exchange Commission. Specific due dates
for these reports have been established and the Company is required to
identify in this Proxy Statement those persons who failed to timely file
these reports. All of the filing requirements were satisfied in 1997. In
making this disclosure, the Company has relied solely on written
representations of its directors and executive officers and copies of the
reports that have been filed with the Commission.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
at the Annual Meeting. If any other business is properly brought before the
Annual Meeting, it is intended that proxies in the enclosed form will be
voted in accordance with the judgment of the persons voting the proxies.
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<PAGE>
Whether you intend to be present at the Annual Meeting or not, we urge
you to return your signed proxy promptly.
By order of the Board of Directors.
Charles J. Cashion
SENIOR VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER
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<PAGE>
THE IMMUNE RESPONSE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON JUNE 11, 1998.
DENNIS J. CARLO and CHARLES J. CASHION, or each of them, each with the
power of substitution, are hereby authorized to represent as proxies and vote
all shares of stock of The Immune Response Corporation (the "Company") the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at the offices of the Company, 5935 Darwin Court,
Carlsbad, California on Thursday, June 11, 1998 at 9:00 a.m. or at any
postponement or adjournment thereof, and instructs said proxies to vote as
follows:
Shares represented by this proxy will be voted as directed by the
stockholder. IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE
AUTHORITY TO VOTE FOR THE ELECTION OF THE TWO NOMINEES FOR CLASS III DIRECTOR
AND FOR ITEM 2.
(continued and to be signed on reverse side)
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO
NOMINEES FOR CLASS III DIRECTOR AND FOR ITEM 2.
Please mark
your votes as
indicated in
this example. /X/
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as to vote for all
marked to the contrary) nominees listed below FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS 2. To ratify the appointment of Arthur
Andersen LLP as the Company's
independent auditors:
Nominees Dennis J. Carlo
Kevin B. Kimberlin 3. In their discretion, upon such other
business as may properly come before
the meeting.
(INSTRUCTION: To withhold authority to vote for
any individual nominee, write that nominee's name
in the space provided below.)
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
Signature(s) Dated: , 1998
Please sign exactly as your name or name(s) appear on this proxy. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
