<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 23, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders which will be held on May 25, 1999 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 MAY 25, 1999
--------------------
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 May 25, 1999, at 9:00 a.m., for the following purposes:
1. To elect two Class I directors.
2. To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to increase the number of shares of
Common Stock authorized for issuance.
3. To consider and vote upon a proposal to amend and restate the
1989 Stock Plan of The Immune Response Corporation, the
Company's employee stock plan.
4. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors.
5. 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 March 31, 1999
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.
Rand P. Mulford
SENIOR VICE PRESIDENT, CORPORATE DEVELOPMENT,
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
April 23, 1999
<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 May 25, 1999 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 I
director listed in this Proxy Statement and FOR the approval of Proposals 2,
3 and 4 described in the Notice of Annual Meeting and in this Proxy Statement.
Stockholders of record at the close of business on March 31, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had 24,276,137 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 disabled stockholder or stockholder's representative may request
reasonable assistance or accommodation from the Company in connection with
the Annual Meeting 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 10, 1999.
Directors are elected by a plurality vote. Accordingly, the two
director nominees who receive the most votes cast in their favor will be
elected. Proposal 2 will be decided by affirmative vote of a majority of the
outstanding shares of the Company. 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 $30,000.
This Proxy Statement and the accompanying form of proxy are being
mailed to stockholders on or about April 23, 1999.
<PAGE>
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.
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. Two Class I directors are to be elected at the
Annual Meeting to serve until the 2002 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 II and Class III directors expire in 2000 and 2001, respectively.
Currently one Class I director's seat, one Class II director's seat and one
Class III director's seat are vacant and such seats will remain vacant following
the Annual Meeting as the Nominating Committee has not yet identified suitable
candidates for such seats. Shares represented by the enclosed proxy can not be
voted for a greater number of persons than the number of nominees named.
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
James B. Glavin and Philip M. Young as Class I directors. Mr. Glavin and Mr.
Young are currently members of the Board of Directors of the Company. Each of
the nominees has been nominated as a Class I 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 I
director and the continuing directors of Class II and Class III, principal
occupations at present and for the past five years, certain directorships held
by each, their ages as of March 31, 1999 and the year in which each became a
director of the Company.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT DIRECTOR
AND FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
------------------------------------------ -------- ---
<S> <C> <C> <C>
CLASS I
James B. Glavin Chairman of the Board of Directors of the 1987 63
Company 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., Althea Technologies, Inc.,
AVANIR Pharmaceuticals and the Meridian
Fund.
-2-
<PAGE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT DIRECTOR
AND FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
------------------------------------------ -------- ---
<S> <C> <C> <C>
Philip M. Young General Partner of U.S. Venture Partners, a 1987 59
venture capital company, since April 1990;
Director of Vical Incorporated, Zoran
Corporation, CardioThoracic Systems, Inc.,
3Dfx Interactive, Inc. and several privately
held companies.
CLASS II
Melvin Perelman, Ph.D. Executive Vice President of Eli Lilly & 1996 68
Company and 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.
and Cinergy Corporation.
John Simon, J.D., Managing Director of Allen & Company 1988 56
Ph.D. Incorporated, an investment banking company,
since 1972; Director of Neurogen
Corporation, Advanced Technical Products and
Realty Information Group.
William M. Sullivan Chairman of the Board of Directors of the 1987 64
Company 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 of Burroughs Wellcome Co.,
a pharmaceutical company, from December 1981
to January 1986; Director of BioVentures,
Inc., ProCyte Corporation, Research
Corporation Technologies and Sparta
Pharmaceuticals, Inc.
CLASS III
Dennis J. Carlo, Ph.D. President and Chief Executive Officer of the 1987 55
Company since September 1994, Chief
Scientific Officer from April 1987 to
September 1995, and Assistant Corporate
Secretary since October 1987, Chief
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 Therapeutic 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 AVANIR Pharmaceuticals and Vyrex
Corporation.
-3-
<PAGE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT DIRECTOR
AND FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
------------------------------------------ -------- ---
<S> <C> <C> <C>
Kevin B. Kimberlin Chairman of the Board of Spencer Trask & 1986 46
Co., 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>
-4-
<PAGE>
The Board of Directors held 10 meetings during the year ended
December 31, 1998. 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 serve, other than Dennis J. Carlo and Melvin Perelman
who attended 70% of the aggregate number of meetings of the Board of
Directors and of the committees on which such directors serve.
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 1998. Mr. Glavin missed one meeting. 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, Kevin B. Kimberlin and Melvin Perelman. The Stock Option
and Compensation Committee held two meetings during 1998. 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 23 meetings during 1998. 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 1998. Mr.
Simon and Mr. Young each missed one meeting. 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 1998. 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 I DIRECTOR
NOMINEES LISTED ABOVE.
-5-
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 31, 1999 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>
Capital Guardian Trust Company(1)
333 South Hope Street
Los Angeles, CA 90071 ........................................... 1,433,600 5.9
Dennis J. Carlo(2)(3) .............................................. 854,910 3.5
James B. Glavin(4) ................................................. 321,657 1.3
Kevin B. Kimberlin(5)(6)(7) ........................................ 2,148,787 8.8
Philip M. Young(8)(9) .............................................. 108,300 *
William M. Sullivan(5) ............................................. 93,700 *
John Simon(10) ..................................................... 105,000 *
Melvin Perelman(11) ................................................ 25,000 *
Steven P. Richieri(12) ............................................. 189,780 *
Steven W. Brostoff(13) ............................................. 174,034 *
Paula Baxter Atkins(14) ............................................ 106,053 *
All executive officers and directors as a group (11 persons)(15) ... 4,127,221 16.0
</TABLE>
- ----------
* Less than one percent.
(1) Based on its Schedule 13G dated February 8, 1999, Capital Guardian Trust
Company ("CGTC") reported the beneficial ownership of 1,433,600 shares
of Common Stock. The Schedule 13G states that CGTC has sole power to
vote or direct the vote of 1,238,600 of such shares and sole power to
dispose or direct the disposition of all 1,433,600 shares.
(2) Includes 46,453 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 443,060 shares which Dr. Carlo may acquire
within 60 days after March 31, 1999 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.
(4) Includes as outstanding 302,500 shares which Mr. Glavin may acquire
within 60 days after March 31, 1999 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 March 31, 1999 pursuant
to the exercise of options.
-6-
<PAGE>
(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 75,000 shares which Mr. Young may acquire within
60 days after March 31, 1999 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 95,000 shares which Dr. Simon may acquire within
60 days after March 31, 1999 pursuant to the exercise of options.
(11) Includes as outstanding 25,000 shares which Dr. Perelman may acquire
within 60 days after March 31, 1999 pursuant to the exercise of options.
(12) Includes as outstanding 188,180 shares which Mr. Richieri may acquire
within 60 days after March 31, 1999 pursuant to the exercise of options.
(13) Includes as outstanding 154,284 shares which Dr. Brostoff may acquire
within 60 days after March 31, 1999 pursuant to the exercise of options.
(14) Includes as outstanding 105,853 shares which Ms. Atkins may acquire
within 60 days after March 31, 1999 pursuant to the exercise of options.
(15) Includes as outstanding an aggregate of 1,538,877 shares which may be
acquired within 60 days after March 31, 1999 pursuant to the exercise of
options. Also, includes 46,453 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.
-7-
<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, 1996, 1997
and 1998, by those persons who were, respectively, at December 31, 1998 (i) the
Company's Chief Executive Officer, (ii) the other three most highly compensated
executive officers of the Company whose total annual salary and bonus for fiscal
year 1998 exceeded $100,000 (the "Named Officers") and (iii) the Company's
former Senior Vice President, Finance and Administration, Charles J. Cashion,
who resigned effective December 11, 1998 and the Company's former Vice
President, Research and Development, Fred C. Jensen, who remains an employee of
the Company but resigned as an executive officer effective October 5, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------
AWARDS
-----------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(1)
- --------------------------- ---- ---------- --------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Carlo................ 1998 359,560 65,690 1,029,700(2) 60,000 11,746
President and 1997 343,417 92,138 -- 54,000 10,932
Chief Executive Officer 1996 343,333 -- -- 135,000 10,662
Steven P. Richieri............. 1998 201,187 49,116 1,005,044(4) 40,000 5,370
Executive Vice President 1997 182,846 51,845 -- 36,000 5,785
and Chief Operating 1996 190,455 -- -- 60,339 5,566
Officer(3)
Steven W. Brostoff............. 1998 191,997 37,159 523,696(5) 40,000 7,220
Vice President, 1997 177,859 45,122 356,521(6) 36,000 7,288
Research and Development 1996 185,488 5,000 -- 62,601 6,018
Paula Baxter Atkins............ 1998 115,835 23,557 540,411(7) 25,000 3,722
Vice President, 1997 105,275 28,298 204,100(8) 22,500 3,622
Administration 1996 110,109 -- -- 39,199 3,508
Charles J. Cashion............. 1998 182,343 43,417 690,733(9) 40,000 5,101
Former Senior Vice 1997 166,224 40,186 -- 36,000 5,361
President, Finance and 1996 173,855 -- -- 60,340 5,257
Administration, Chief
Financial Officer,
Secretary and Treasurer
Fred C. Jensen................. 1998 152,476 28,940 417,725(10) 25,000 2,500
Former Vice President, 1997 145,454 30,389 20,792(11) 22,500 2,118
Research and Development 1996 152,134 -- -- 44,600 2,917
</TABLE>
- -----------------
(1) During fiscal year 1998, the Company made contributions under the 401(k)
Plan for Dr. Carlo, Mr. Richieri, Dr. Brostoff, Dr. Jensen, Mr. Cashion
and Ms. Atkins of $2,500, $2,500, $2,500, $2,500, $2,500 and $1,756,
respectively; and made contributions under the Company's long-term
disability insurance plan for Dr. Carlo, Mr. Richieri, Dr. Brostoff, Mr.
Cashion and Ms. Atkins of $5,252, $2,155, $1,733, $1,509 and $1,348,
respectively. The Company also funded a group term life insurance plan
in
-8-
<PAGE>
excess of $50,000. Amounts added to compensation related to this plan
for Dr. Carlo, Mr. Richieri, Dr. Brostoff, Mr. Cashion and Ms. Atkins
were $3,994, $715, $2,987, $1092 and $618, respectively.
(2) Represents the aggregate difference between the purchase price and the
fair market value of 90,000 shares of the Company's Common Stock
purchased on June 17, 1998 and 15,000 shares of the Company's Common
Stock purchased between December 1, 1998 and December 3, 1998.
(3) Mr. Richieri was appointed Chief Operating Officer as of January 5, 1998
and served as Chief Financial Officer and Treasurer from December 10,
1998 to March 2, 1999.
(4) Represents the aggregate difference between the purchase price and the
fair market value of 102,150 shares purchased between October 27, 1998
and November 3, 1998.
(5) Represents the aggregate difference between the purchase price and the
fair market value of 13,000 shares purchased on June 29, 1998 and an
aggregate of 37,000 shares purchased between October 7, 1998 and
November 5, 1998.
(6) 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) Represents the aggregate difference between the purchase price and the
fair market value of 50,000 shares of the Company's Common Stock
purchased on September 11, 1998 and 25,000 shares purchased on November
11, 1998.
(8) Represents the aggregate difference between the purchase price and the
fair market value of 20,000 shares purchased between October 9, 1997 and
October 14, 1997.
(9) Represents the aggregate difference between the purchase price and the
fair market value of 67,200 shares purchased between November 2, 1998
and November 3, 1998.
(10) Represents the aggregate difference between the purchase price and the
fair market value 0of 41,274 shares purchased on November 2, 1998.
(11) 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.
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.
-9-
<PAGE>
On September 19, 1996, Mr. Glavin entered into a one-year consulting
agreement with the Company, renewable at the Company's option, 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 1998, Mr. Glavin was paid $48,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Company's fiscal year ended December 31, 1998, Messrs. Sullivan,
Kimberlin, and Perelman served as the members of the Company's Compensation
Committee. 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, 1998.
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.
-10-
<PAGE>
STOCK OPTIONS
The following tables summarize option grants to and exercises by the
Company's Chief Executive Officer the Named Officers, the former Senior Vice
President, Finance and Administration and the former Vice President, Research
and Development during fiscal 1998, and the value of the options held by such
persons at the end of fiscal 1998. The Company does not grant Stock Appreciation
Rights.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS EXERCISE GRANT DATE VALUE
SECURITIES GRANTED TO OR ----------------
UNDERLYING EMPLOYEES BASE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
GRANTED(#)(1) YEAR(2) ($/SH)(3) DATE(4) VALUE($)(5)
------------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Dennis J. Carlo .......... 60,000 8.52 10.06 1/21/08 492,346
Steven P. Richieri ....... 40,000 5.68 10.06 1/21/08 328,231
Steven W. Brostoff ....... 40,000 5.68 10.06 1/21/08 328,231
Paula B. Atkins .......... 25,000 3.55 10.06 1/21/08 205,144
Charles J. Cashion ....... 40,000 5.68 10.06 1/21/08 328,231
Fred C. Jensen ........... 25,000 3.55 10.06 1/21/08 205,144
</TABLE>
- -----------------
(1) Options granted in 1998 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 667,137 shares of
the Company's Common Stock to employees in 1998.
(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 1998: risk free interest rate of
4.733%, expected option life of six years, expected volatility of .84
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 1998 AND OPTION VALUES
AT END OF FISCAL YEAR 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
END OF FISCAL END OF FISCAL
SHARES 1998(#) 1998($)(1)
ACQUIRED ON VALUE ----------------------- -------------------------
EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCABLE EXERCISABLE/UNEXERCISABLE
----------- ----------- ----------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Carlo ............ 130,000 $1,242,603 575,313 99,337 $3,731,286 $260,509
Steven P. Richieri ......... 102,150 1,005,044 176,260 59,232 1,017,477 122,912
Steven W. Brostoff ......... 50,000 523,695 142,364 58,102 740,243 111,202
Paula B. Atkins ............ 75,000 540,411 98,403 36,314 531,166 68,166
Charles J. Cashion ......... 67,200 690,733 162,236 0 903,627 0
Fred C. Jensen ............. 41,274 417,725 142,309 36,316 852,999 69,317
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1998, the fiscal year end ($10.875 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 1998 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 for an executive officer position at the median level
compared to those companies surveyed. The Company then creates a salary range
based on this level. The range is designed to place an executive officer above
or below the median level of the companies surveyed, 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
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<PAGE>
fostering of 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 1998,
bonus payments were generally in recognition of the satisfaction of several
significant corporate objectives during 1997, including (a) the completion of
enrollment of the Company's 2,5000 patient Phase III clinical trial with
REMUNE-TM-, an immune-based therapy under development for the treatment of HIV
infection, (b) the completion of Phase 2 clinical trials for treatments for
rheumatoid arthritis and psoriasis and (c) the continued development of the
Company's research programs, including furthering development on treatments for
cancer and gene therapy.
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 1998 remains competitive to
similar positions in the biotechnology industry.
DISCUSSION OF 1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Dr. Dennis J. Carlo is the Company's President and Chief Executive
Officer. During 1998, Dr. Carlo's base salary of $358,300 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 60,000
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 1998, and
recognizing the Company's share price remained volatile, the Committee believes
that Dr. Carlo made a significant contribution in 1998 in establishing a sound
base for enhancing stockholder value through his skillful business efforts. The
Committee recognizes that
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<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>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Immune Response Corporation $100.00 $58.54 $54.27 $80.49 $108.54 $106.10
Nasdaq Composite 100.00 97.00 136.23 166.79 203.98 281.69
Nasdaq Pharmaceutical 100.00 75.26 138.04 138.47 142.98 183.02
</TABLE>
Assumes a $100 investment on December 31, 1993 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.
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<PAGE>
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved the amendment of the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation") to
increase the number of authorized shares of Common Stock from 40,000,000 to
65,000,000. The Board of Directors recommends that the Company's stockholders
approve this amendment.
As of March 31, 1999, the Company had 24,276,137 shares of Common Stock
outstanding. An additional 6,305,349 shares were reserved for future issuance
under the Company's stock plans, of which 3,509,589 shares were covered by
outstanding options and 2,795,760 shares were available for future grant or
purchase (including 2,500,000 shares subject to stockholder approval pursuant to
Proposal 3, which is described below).
The Board of Directors believes that the authorized Common Stock
remaining available is not sufficient to enable the Company to respond to
potential business opportunities and to pursue important objectives that may be
anticipated. Accordingly, the Board of Directors believes that it is in the
Company's best interests to increase the number of authorized shares of Common
Stock as described above. The Board of Directors also believes that the
availability of such shares will provide the Company with the flexibility to
issue Common Stock for proper corporate purposes that may be identified by the
Board of Directors from time to time, such as financings, acquisitions,
strategic business relationships or stock dividends (including stock splits in
the form of stock dividends). Further, the Board of Directors believes the
availability of additional shares of Common Stock will enable the Company to
attract and retain talented employees through the grant of stock options and
other stock-based incentives. The issuance of additional shares of Common Stock
may have a dilutive effect on earnings per share and, for a person who does not
purchase additional shares to maintain his or her pro rata interest, on a
stockholder's percentage voting power.
The authorized shares of Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable without further action by the Company's
stockholders, except as may be required by applicable laws or the rules of any
stock exchange or national securities association trading system on which the
securities may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of Common Stock. Holders of Common Stock
do not have preemptive rights. The Board of Directors does not intend to issue
any Common Stock except on terms which the Board deems to be in the best
interests of the Company and its then-existing stockholders.
The Board of Directors does not recommend this proposed amendment with
the intent to use the ability to issue additional Common Stock to discourage
tender offers or takeover attempts. However, the availability of authorized
Common Stock for issuance could render more difficult or discourage a merger,
tender offer, proxy contest or other attempt to obtain control of the Company.
The proposed amendment is not in response to any effort on the part of any party
to accumulate material amounts of Common Stock or to acquire control of the
Company by means of merger, tender offer, proxy contest or otherwise, or to
change the Company's management. In addition, the proposal is not part of any
plan by management to recommend a series of similar amendments to the Board of
Directors and the stockholders.
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<PAGE>
The text of Paragraph A of Article IV of the Certificate of
Incorporation, as it is proposed to be amended pursuant to this proposal, is as
follows:
ARTICLE IV
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is seventy million
(70,000,000) of which sixty-five million (65,000,000) shares of the par
value of One-Fourth of One Cent ($.0025) each shall be Common Stock (the
"Common Stock") and five million (5,000,000) shares of the par value of
One-Tenth of One Cent ($.001) each shall be Preferred Stock (the
"Preferred Stock").
The affirmative vote of the holders of a majority of the Company's
outstanding Common Stock is required to approve this proposal. If approved by
the stockholders, the proposed amendment to the Company's Certificate of
Incorporation will become effective upon the filing of a Certificate of
Amendment with the Secretary of State of Delaware, which will occur as soon as
reasonably practicable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3
APPROVAL OF THE AMENDED AND RESTATED
1989 STOCK PLAN OF THE IMMUNE RESPONSE CORPORATION
The 1989 Stock Plan of The Immune Response Corporation was adopted by
the Company's Board of Directors in September 1989 and subsequently approved by
its stockholders. On March 10, 1999, the Board of Directors amended and restated
the 1989 Stock Plan of The Immune Response Corporation (as amended and restated,
the "1989 Stock Plan"), to reserve an additional 2,500,000 shares for issuance
under the plan, subject to approval by the Company's stockholders at the Annual
Meeting. The amendment and restatement of the 1989 Stock Plan, as proposed, will
be effective as of January 4, 1999, if the amendment described below is approved
by the stockholders.
SUMMARY OF AMENDMENT
The amendment to the 1989 Stock Plan approved by the Board of Directors
and submitted for stockholder approval is to increase the number of shares of
Common Stock reserved for issuance under the 1989 Stock Plan by 2,500,000
shares.
DESCRIPTION OF AMENDED AND RESTATED 1989 STOCK PLAN
PURPOSE
The purpose of the 1989 Stock Plan is to assist the Company in the
recruitment, retention and motivation of employees and independent contractors
who are in a position to make material contributions to the Company's progress.
The 1989 Stock Plan offers a significant incentive to the employees (including
officers and directors who are also employees) and independent contractors (who
are not directors) of the Company by enabling such employees and contractors to
acquire the Company's Common Stock, thereby increasing their proprietary
interest in the growth and success of the Company.
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<PAGE>
ADMINISTRATION
The 1989 Stock Plan is administered by the Stock Option and Compensation
Committee of the Board of Directors (the "Option Committee") composed of two or
more disinterested members of the Board of Directors. Subject to the limitations
set forth in the 1989 Stock Plan, the Option Committee has the authority to
determine to whom options will be granted and shares will be sold, the number of
shares to be offered for sale and options to be granted, the price and other
terms and conditions of each sale of shares and the exercise price and terms and
conditions of each option and the type of option (ISO or NSO, as described
below) to be granted, and to interpret the 1989 Stock Plan and adopt rules
thereunder and to make all other decisions relating to the operation of the 1989
Stock Plan. The Employee Stock Option Committee of the Board of Directors,
composed of one or more members of the Board of Directors who need not be
disinterested, administers the 1989 Stock Plan with respect to employees who are
not officers or directors of the Company.
ELIGIBILITY AND SHARES SUBJECT TO THE 1989 STOCK PLAN
Under the 1989 Stock Plan, 8,000,000 shares of Common Stock have been
reserved for issuance (including 2,500,000 shares which are subject to
stockholder approval at the Annual Meeting) either by direct sale or upon
exercise of options granted to employees (including officers and directors who
are also employees) and independent contractors of the Company who are not
directors. The 1989 Stock Plan provides for the grant of both incentive stock
options ("ISO's") intended to qualify as such under section 422 of the Internal
Revenue Code, as amended, and nonstatutory stock options ("NSO's"). ISO's may be
granted only to employees of the Company. NSO's may be granted, and Common Stock
may be sold directly, to employees and independent contractors of the Company
who are not directors. The 1989 Stock Plan provides that options granted to any
optionee in a single calendar year shall not cover more than 500,000 shares.
Such limitation has been added in response to recent changes in federal income
tax laws and is designed to qualify income recognized upon exercise of options
granted under the 1989 Stock Plan for tax deductibility by the Company. If any
options granted under the 1989 Stock Plan shall for any reason expire or be
canceled or otherwise terminated without having been exercised in full, the
shares allocable to the unexercised portion of such options shall again become
available for the 1989 Stock Plan. If shares issued under the 1989 Stock Plan
are forfeited, they also become available for new grants.
As of March 31, 1999, there were 155 employees and 5 independent
contractors eligible to participate in the 1989 Stock Plan. There have been
327,218 options granted to such independent contractors. As of March 31, 1999,
options to purchase an aggregate of 3,059,589 shares of Common Stock at an
average exercise price of $6.19 per share were outstanding under the 1989 Stock
Plan. To date, all stock options have been granted with exercise prices equal to
the fair market value of the Company's Common Stock on the date of grant. As of
March 31, 1999, no shares of Common Stock have been issued for direct sale under
the 1989 Stock Plan. As of March 31, 1999, a total of 2,645,760 shares of Common
Stock are reserved for future option grants or direct sales under the 1989 Stock
Plan, (including 2,500,000 shares which are subject to stockholder approval at
the Annual Meeting). On March 31, 1999, the closing price for the Company's
Common Stock on the Nasdaq National Market was $8.813.
As of March 31, 1999, the following persons or groups had in total,
received options to purchase shares of Common Stock under the 1989 Stock Plan as
follows: (i) the Chief Executive Officer and the other executive officers named
in the Summary Compensation Table: Dr. Carlo, 804,650 shares, Dr. Brostoff,
316,116 shares, Mr. Richieri, 339,242 shares, Dr. Jensen, 256,325 shares, Ms.
Atkins, 248,454 shares, and Mr. Cashion, 298,261 shares; (ii) all current
executive officers of the Company as a group: 1,708,462 shares; and (iii) all
employees of the Company, including all current officers who are not executive
officers, as a group: 3,318,560 shares. Nonemployee directors are not eligible
to receive options under the 1989 Stock Plan.
The allocation of the additional shares of stock which the stockholders
are being asked to approve hereby has not been determined. Pursuant to the terms
of the 1989 Stock Plan, the Company's Option Committee or Employee Stock Option
Committee, as appropriate, will determine the number of options (and any other
awards) to be allocated to employees and independent contractors under the 1989
Stock Plan in the future, and such allocations may only be made in accordance
with the provisions of the 1989 Stock Plan as described herein. The Company
believes that the granting of options is necessary to attract the highest
quality personnel as well as to
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<PAGE>
reward and thereby retain existing key personnel. Moreover, the attraction
and retention of such personnel is essential to the continued progress of the
Company which ultimately is in the interests of the Company's stockholders.
The amendment to increase the number of shares under the 1989 Stock Plan will
not result in any new plan benefits to the Company's nonemployee directors.
TERMS OF OPTIONS
Options granted pursuant to the 1989 Stock Plan will vest at the time or
times determined by the Option Committee.
The maximum term of each option granted under the 1989 Stock Plan is 10
years (5 years in the case of an ISO granted to a 10% stockholder). Stock
options granted under the 1989 Stock Plan must be exercised by the optionee
during the earlier of the term of such option or within 90 days after
termination of the optionee's employment, except that the period may be extended
on certain events including death and termination of employment due to
disability.
The exercise price of shares of Common Stock subject to options
qualifying as ISO's must not be less than 100% (110% in the case of an ISO
granted to a 10% stockholder) of the fair market value of the Common Stock on
the date of the grant. The exercise price of NSO's granted under the 1989 Stock
Plan must not be less than 85% of the fair market value of the Common Stock on
the date of grant. Under the 1989 Stock Plan, the exercise price is payable in
cash, Common Stock or by full-recourse promissory note. The 1989 Stock Plan also
permits an optionee to pay the exercise price of an option by delivery (on a
form prescribed by the Company) of an irrevocable direction to a securities
broker approved by the Company to sell the optionee's shares and deliver all or
a part of the sale proceeds to the Company in payment of all or part of the
exercise price and any withholding taxes or by delivery of an irrevocable
direction to pledge the optionee's shares to a securities broker or lender
approved by the Company as security for a loan and to deliver all or part of the
loan proceeds to the Company in payment of all or part of the exercise price and
any withholding taxes.
TERMS OF SHARES OFFERED FOR SALE
The terms of any sale of shares of Common Stock under the 1989 Stock
Plan will be set forth in a common stock purchase agreement to be entered into
between the Company and each purchaser. The terms of the stock purchase
agreements entered into under the 1989 Stock Plan need not be identical, and the
Option Committee shall determine all terms and conditions of each such
agreement, which shall be consistent with the 1989 Stock Plan. The purchase
price for shares sold under the 1989 Stock Plan shall not be less than 85% of
the fair market value of such shares. The purchase price may be paid, at the
Option Committee's discretion, with a full-recourse promissory note secured by
the shares, except that the par value of the shares must be paid in cash. Shares
may also be awarded under the 1989 Stock Plan in consideration of services
rendered prior to the award, without a cash payment by the recipient.
Shares sold under the 1989 Stock Plan will vest upon satisfaction of the
conditions specified in the stock purchase agreement. Vesting conditions are
determined by the Option Committee and may be based on the recipient's service,
individual performance, the Company's performance or such other criteria as the
Option Committee may adopt. Shares may be subject to repurchase by the Company
at their original purchase price in the event that any applicable vesting
conditions are not satisfied. Shares sold under the 1989 Stock Plan may not be
resold or otherwise transferred until they have vested, except that certain
transfers to a trust may be permitted. Any right to acquire shares under the
1989 Stock Plan (other than an option) will automatically expire if not
exercised within 30 days after the grant if such right was communicated by the
Option Committee. A holder of shares sold under the 1989 Stock Plan has the same
voting, dividend and other rights as the Company's other stockholders.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the 1989 Stock
Plan at any time, except that any such amendment, suspension or termination
shall not affect any option previously granted. Any amendment
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<PAGE>
of the 1989 Stock Plan, however, which increases the number of shares
available for issuance, materially changes the class of persons who are
eligible for the grant of ISO's or, if required by Rule 16b-3 (or any
successor) under the Securities Exchange Act of 1934, as amended, would
materially increase the benefits accruing to participants under the 1989
Stock Plan or would materially modify the requirement as to eligibility for
participation in the 1989 Stock Plan, is subject to approval of the Company's
stockholders. Stockholder approval is not required for any other amendment of
the 1989 Stock Plan. Unless sooner terminated by the Board of Directors, the
1989 Stock Plan will terminate in March 2009, and no further options may be
granted or stock sold pursuant to such plan following the termination date.
EFFECT OF CERTAIN CORPORATE EVENTS
Outstanding employee stock option agreements entered into pursuant to
the 1989 Stock Plan provide for the automatic vesting of employee stock options
and (in the case of the common stock purchase agreements) the automatic
termination of the Company's right of repurchase upon a change of control.
Future employee stock option agreements and common stock purchase agreements
entered into pursuant to the 1989 Stock Plan will contain similar provisions,
unless otherwise determined by the Option Committee.
For purposes of the 1989 Stock Plan, the term "change in control" means
(1) that a change in the composition of the Board of Directors occurs as a
result of which fewer than two-thirds of the incumbent directors are directors
(the "Continuing Directors") who either had been directors of the Company 24
months prior to such change or were elected or nominated for election to the
Board of Directors with the approval of at least a majority of the directors who
had been directors of the Company 24 months prior to such change and who were
still in office at the time of the election or nomination, (2) that any person
is or becomes the beneficial owner, directly or indirectly, of at least 25% of
the combined voting power of the Company's outstanding securities and such
ownership has not been approved by a majority of the Continuing Directors who
had been directors of the Company 24 months prior to the acquisition or
aggregation and who were still in office at the time of such acquisition or
aggregation, or (3) that any person is or becomes the beneficial owner, directly
or indirectly, of at least 50% of the combined voting power of the Company's
outstanding securities. A change in the relative beneficial ownership under (2)
or (3) above by reason of a repurchase by the Company of its own securities will
be disregarded.
In the event of a subdivision of the outstanding Common Stock, a
combination or consolidation of the outstanding Common Stock (by
reclassification or otherwise) into a lesser number of shares, a declaration of
a dividend payable in Common Stock or in a form other than Common Stock in an
amount that has a material effect on the price of the shares, or a similar
occurrence, the Option Committee will make adjustments in the number and/or
exercise price of options and/or the number of shares available under the 1989
Stock Plan, as appropriate.
In the event of a merger or other reorganization, outstanding options
will be subject to the agreement of merger or reorganization. Such agreement
will provide for the assumption of outstanding options by the surviving
corporation or its parent, for their continuation by the Company (if the Company
is the surviving corporation), for payment of a cash settlement equal to the
difference between the amount to be paid for one share under the agreement of
merger or reorganization and the exercise price for each option, or for the
acceleration of the exercisability of each option followed by the cancellation
of options not exercised, in all cases without the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS UNDER THE 1989 STOCK PLAN
Neither the optionee nor the Company will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising an NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
Common Stock on the date of exercise; the Company generally will be entitled to
a deduction for the same amount. In the case of an employee, the option spread
at the time an NSO is exercised is subject to income tax withholding, but the
optionee generally may elect to satisfy the withholding tax obligation by having
shares of Common Stock withheld from those purchased under the NSO. The tax
treatment of a disposition of
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<PAGE>
option shares acquired under the 1989 Stock Plan depends on how long the
shares have been held and on whether such shares were acquired by exercising
an ISO or by exercising an NSO. The Company will not be entitled to a
deduction in connection with a disposition of option shares, except in the
case of a disposition of shares acquired under an ISO before the applicable
ISO holding periods have been satisfied.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4
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, 1999, 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 4.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted pursuant to Rule 14a-8 under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
intended to be presented for consideration at the Company's 2000 Annual Meeting
of Stockholders must be received by the Company not later than December 23, 1999
in order to be considered for inclusion in the Company's proxy materials for
that meeting.
The Company's bylaws also establish an advance notice procedure with
respect to certain stockholder proposals. If a stockholder wishes to have a
stockholder proposal considered at the Company's next annual meeting, the
stockholder must give timely notice of the proposal in writing to the Secretary
of the Company. To be timely, a stockholder's notice of the proposal must be
delivered to, or mailed and received at the executive offices of the Company not
less than 50 days nor more than 75 days prior to the proposed date of the annual
meeting of 2000; provided, however, that if less than 65 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice of the proposal to be timely must be received no later than
the 15th day following the day on which such notice of the date of the annual
meeting is mailed or public disclosure of the meeting date is given.
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 1998, with the exception of Dr.
Carlo, who failed to timely file one Form 4 in July 1998. 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.
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<PAGE>
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.
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.
Rand P. Mulford
SENIOR VICE PRESIDENT, CORPORATE DEVELOPMENT,
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 MAY 25, 1999
Dennis J. Carlo and Steven P. Richieri, 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 5935 Darwin Court, Carlsbad, California on May 25, 1999
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 I DIRECTORS
AND FOR ITEMS TWO, THREE AND FOUR.
(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 I DIRECTOR AND FOR ITEMS TWO, THREE AND FOUR.
Please mark your /X/
votes as indicated
in this example
1. ELECTION OF DIRECTORS
Nominees: James B. Glavin
Philip M. Young
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as to vote for all
marked to the contrary) nominees listed below
(INSTRUCTION: To withhold authority to vote for
any individual nominee, write that nominee's name
in the space provided below.)
2. To approve the amendment and restatement of
the Company's Restated Certificate of
Incorporation:
3. To approve the amendment and restatement of FOR AGAINST ABSTAIN
the 1989 Stock Plan:
4. To ratify the appointment of Arthur Andersen
LLP as the Company's independent auditors:
PLEASE MARK, SIGN, DATE AND MAIL
THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
Signature(s) Dated: , 1999
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
<PAGE>
THE IMMUNE RESPONSE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON MAY 25, 1999
Dennis J. Carlo and Steven P. Richieri, 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 5935 Darwin Court, Carlsbad, California on May 25, 1999
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 I DIRECTORS
AND FOR ITEMS TWO, THREE AND FOUR.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- FOLD AND DETACH HERE -
<PAGE>
THE IMMUNE RESPONSE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
For Withhold For All
All All Except
/ / / / / /
1. Election of Directors
Nominees: James B. Glavin
Phillip M. Young
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space
provided below.)
_______________________________
For Against Abstain
/ / / / / /
2. To approve the amendment
and restatement of the
Company's Restated
Certificate of Incorporation:
For Against Abstain
/ / / / / /
3. To approve the amendment
and restatement of the
1989 Stock Plan:
For Against Abstain
/ / / / / /
4. To ratify the appointment of
Arthur Andersen LLP as the
Company's independent auditors:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO NOMINEES
FOR CLASS I DIRECTOR AND FOR ITEMS TWO, THREE AND FOUR.
Dated:___________________________, 1999
_______________________________________
Signature(s)
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 -
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
