<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- - --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Virus Research Institute, Inc.
(Name of Registrant as Specified In Its Charter)
Virus Research Institute, Inc.
(Name of Person(s) Filing Proxy Statement)
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> 2
VIRUS RESEARCH INSTITUTE, INC.
61 MOULTON STREET
CAMBRIDGE, MASSACHUSETTS 02138
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 1997
------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of Virus Research Institute, Inc. (the "Company") will be held
on Thursday, May 1, 1997 at 10:00 a.m. local time at the offices of the Company
at 61 Moulton Street, Cambridge, Massachusetts 02138 for the following purposes:
1. To elect six directors to serve on the Board of Directors of the
Company to serve until the 1998 Annual Meeting of Stockholders and until
their respective successors are duly elected and qualified; and
2. To consider and act upon any other matters that may properly be
brought before the Annual Meeting and at any adjournments or postponements
thereof.
Any action may be taken on the foregoing matters at the Annual Meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the Annual Meeting may be adjourned, or to which the Annual Meeting
may be postponed.
The Board of Directors has fixed the close of business on March 19, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and at any adjournments or postponements thereof.
Only stockholders of record of the Company's common stock, par value $.001 per
share, at the close of business on that date will be entitled to notice of and
to vote at the Annual Meeting and at any adjournments or postponements thereof.
You are requested to fill in and sign the enclosed form of proxy, which is
being solicited by the Board of Directors of the Company, and to mail it
promptly in the enclosed postage-prepaid envelope. Any proxy may be revoked by
delivery of a later dated proxy. Stockholders of record who attend the Annual
Meeting may vote in person, even if they have previously delivered a signed
proxy.
By Order of the Board of Directors
WILLIAM A. PACKER
Secretary
Cambridge, Massachusetts
March 31, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 3
VIRUS RESEARCH INSTITUTE, INC.
61 MOULTON STREET
CAMBRIDGE, MASSACHUSETTS 02138
------------------------
PROXY STATEMENT
------------------------
FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 1997
March 31, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Virus Research Institute, Inc. (the
"Company") for use at the 1997 Annual Meeting of Stockholders of the Company to
be held on Thursday, May 1, 1997, and at any adjournments or postponements
thereof (the "Annual Meeting"). At the Annual Meeting, stockholders will be
asked to vote upon the election of directors of the Company and to act upon any
other matters properly brought before them.
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are first being sent to stockholders on or about March 31, 1997. The
Board of Directors has fixed the close of business on March 19, 1997 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting (the "Record Date"). Only stockholders of record of
the Company's common stock, par value $.001 per share (the "Common Stock"), at
the close of business on the Record Date will be entitled to notice of and to
vote at the Annual Meeting. Holders of Common Stock outstanding as of the close
of business on the Record Date will be entitled to one vote for each share held
by them. As of the Record Date, there were 8,868,475 shares of Common Stock
outstanding and entitled to vote at the Annual Meeting.
The presence, in person or by proxy, of holders of at least a majority of
the total number of shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Both abstentions and broker non-votes (as defined below) will be
counted as present in determining the presence of a quorum. A plurality of votes
cast shall be sufficient for the election of directors. Abstentions and broker
non-votes will be disregarded in determining the "votes cast" for purposes of
electing directors and will not affect the election of the candidates receiving
a plurality of votes. A "broker non-vote" is a proxy from a broker or other
nominee indicating that such person has not received instructions from the
beneficial owner or other person entitled to vote the shares which are the
subject of the proxy on a particular matter with respect to which the broker or
other nominee does not have discretionary voting power.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED, POSTAGE-PREPAID
ENVELOPE. SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY RECEIVED PRIOR TO THE
VOTE AT THE ANNUAL MEETING AND NOT REVOKED WILL BE VOTED AT THE ANNUAL MEETING
AS DIRECTED ON THE PROXY. IF A PROPERLY EXECUTED PROXY IS SUBMITTED AND NO
INSTRUCTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
TO SERVE AS DIRECTORS OF THE COMPANY NAMED IN THIS PROXY STATEMENT. IT IS NOT
ANTICIPATED THAT ANY MATTERS OTHER THAN THOSE SET FORTH IN THE PROXY STATEMENT
WILL BE PRESENTED AT THE ANNUAL MEETING. IF OTHER MATTERS ARE PRESENTED, PROXIES
WILL BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS.
A stockholder of record may revoke a proxy at any time before it has been
exercised by filing a written revocation with the Secretary of the Company at
the address of the Company set forth above; by filing a duly
<PAGE> 4
executed proxy bearing a later date; or by appearing in person and voting by
ballot at the Annual Meeting. Any stockholder of record as of the Record Date
attending the Annual Meeting may vote in person whether or not a proxy has
previously been given, but the presence (without further action) of a
stockholder at the Annual Meeting will not constitute revocation of a previously
given proxy.
The Company's 1996 Annual Report, including financial statements for the
fiscal year ended December 31, 1996 ("Fiscal 1996"), is being mailed to
stockholders concurrently with this Proxy Statement. The Annual Report, however,
is not part of the proxy solicitation material.
PROPOSAL 1: ELECTION OF DIRECTORS
INTRODUCTION
Six directors will be elected at the Annual Meeting to serve on the
Company's Board of Directors until the Company's 1998 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified. The Board of Directors has nominated J. Barrie Ward, William A.
Packer, John W. Littlechild, Alan M. Mendelson, Frederick W. Kyle and Robert J.
Hennessey to serve as Directors (the "Nominees"). Each of the Nominees is
currently serving as a director of the Company. The Board of Directors
anticipates that, if elected, each of the Nominees will serve as a director.
However, if any person nominated by the Board of Directors is unable to accept
election, the proxies will be voted for the election of such other person or
persons as the Board of Directors may recommend. The Board of Directors will
consider a nominee for election to the Board of Directors recommended by a
stockholder of record if the stockholder submits the nomination in compliance
with the advance notice and other requirements of the Company's Amended and
Restated By-laws (the "By-laws"). See "Other Matters--Stockholder Proposals" for
a summary of these requirements.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES.
INFORMATION REGARDING THE NOMINEES
The following table sets forth the name and age of each Nominee and the
year each became a director of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
---- --- --------
<S> <C> <C>
J. Barrie Ward, Ph.D................................................. 58 1994
William A. Packer.................................................... 62 1992
John W. Littlechild.................................................. 45 1991
Alan M. Mendelson.................................................... 49 1994
Frederick W. Kyle.................................................... 64 1996
Robert J. Hennessey.................................................. 55 1997
</TABLE>
The following biographical descriptions set forth certain information with
respect to the Nominees for election as directors at the Annual Meeting, based
on information furnished to the Company by each Nominee.
J. Barrie Ward, Ph.D. has served as Chairman of the Board of Directors and
Chief Executive Officer since joining the Company in July 1994. From 1984 to
June 1994, Dr. Ward served as Director of the Microbiology Division of Glaxo
Research and Development Ltd., a pharmaceutical company, with responsi-
2
<PAGE> 5
bility for infectious disease research. Dr. Ward received a Ph.D. in microbial
biochemistry from the University of Bath, England.
William A. Packer joined the Company in June 1992 as President and a
director and was also elected Chief Financial Officer in March 1996. Prior to
joining the Company, Mr. Packer held various senior management positions with
SmithKline Beecham plc, a pharmaceutical company, from 1964 to 1991, most
recently as Senior Vice President, Biologicals, where he was responsible for the
direction of SmithKline Beecham's global vaccine business. Mr. Packer is a
Fellow of the Institute of Chartered Accountants in England and Wales.
John W. Littlechild has been a director of the Company since December 1991.
Since March 1992, Mr. Littlechild has been a general partner of HealthCare
Partners II, L.P. ("HCP II"), HealthCare Partners III, L.P. ("HCP III") and
HealthCare Partners IV, L.P. ("HCP IV"), the general partner, respectively, of
each of HealthCare Ventures II, L.P. ("HCV II"), HealthCare Ventures III, L.P.
("HCV III") and HealthCare Ventures IV, L.P. ("HCV IV"), and a Vice Chairman of
HealthCare Investment Corporation LLC ("HIC"), a venture management company
that, among other things, provides management services to HCV II, HCV III and
HCV IV. HCV II, HCV III and HCV IV are principal stockholders of the Company.
From 1984 to 1991, Mr. Littlechild was a Senior Vice President of Advent
International Corporation, a venture capital company ("Advent") based in Boston
and London. He received a B.Sc. from the University of Manchester and an M.B.A.
from Manchester Business School. Mr. Littlechild serves on the board of
directors of various healthcare and biotechnology companies, including Orthofix
International N.V. and Diacrin, Inc.
Alan M. Mendelson has been a director of the Company since May 1994. Mr.
Mendelson has been a general partner of Axiom Venture Partners, L.P. ("Axiom"),
a stockholder of the Company, since April 1994. Prior to April 1994, Mr.
Mendelson served with Aetna Life & Casualty in Hartford, Connecticut, in various
capacities over a 24-year period, most recently as Vice President-Investment
Strategy and Policy. In 1988, Mr. Mendelson founded Systemix, Inc., a
biotechnology company, where he initially served as Chief Executive Officer
until 1991. Mr. Mendelson is also a director of Connecticut Innovations, Inc.
and Collaborative Clinical Research, Inc. Mr. Mendelson has a B.A. from Trinity
College and a J.D. from the University of Connecticut.
Frederick W. Kyle has been a director of the Company since July 22, 1996.
He has been Vice Chairman of Pharmaceutical Marketing Services, Inc., a company
providing marketing data and market research to the pharmaceutical industry,
since October 1996. From January 1994 until September 1996 he was a Managing
Partner of Finisterre Management Corporation, an investment firm specializing in
the healthcare industry. From January 1992 until December 1993 he was Senior
Vice President of the American Red Cross with responsibility for that
organization's blood collection and other healthcare activities. Prior to that
he was employed by SmithKline Beecham plc, from 1981 through 1991, most recently
as President of Worldwide Commercial Operations for SmithKline Beecham
Pharmaceuticals. Mr. Kyle is also a director of Pharmaceutical Marketing
Services Inc., SoloPak Pharmaceuticals, Inc. and CytoMed, Inc.
Robert J. Hennessey has been a director of the Company since January 20,
1997. Since 1993, Mr. Hennessey has been Chairman, President and Chief Executive
Officer of Genome Therapeutics Corp. Prior to 1993, Mr. Hennessey was President
of Hennessey & Associates, LTD. Mr. Hennessey is also a director of Genome
Therapeutics Corp.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company currently consists of seven members.
All of the Company's directors are elected annually by the stockholders and hold
office until their respective successors are duly elected and qualified.
3
<PAGE> 6
During Fiscal 1996, the Board of Directors met eight times. During Fiscal
1996, each director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
such director served on the Board of Directors) and (ii) the total number of
meetings of all committees of the Board of Directors on which such director
served (during the periods for which such director served on such committee or
committees).
Audit Committee. The Board of Directors has established an Audit Committee
presently consisting of Messrs. Packer, Kyle and Mendelson (the "Audit
Committee"). The Audit Committee is authorized to review with the Company's
independent auditors the annual financial statements of the Company prior to
publication; to review the work of, and approve non-audit services performed by,
such independent auditors; and to make annual recommendations to the Board for
the appointment of auditors for the ensuing year. The Audit Committee also
reviews the effectiveness of the financial and accounting functions,
organization, operations and management of the Company. The Audit Committee met
once during Fiscal 1996.
Compensation Committee. The Board of Directors has also established a
Compensation Committee presently consisting of Messrs. Hennessey and Littlechild
(the "Compensation Committee"). The Compensation Committee is authorized to
review and recommend to the Board of Directors the compensation and benefits of
all officers and directors of the Company and to review general policy matters
relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options to the
Company's officers, employees and consultants pursuant to the Company's 1992
Equity Incentive Plan. The Compensation Committee met eight times during Fiscal
1996.
Executive Committee. The Board of Directors has also established an
Executive Committee presently consisting of Messrs. Ward, Packer, Littlechild
and Mendelson. The Executive Committee oversees certain significant transactions
in which the Company is engaged and makes recommendations to the Board with
respect to such transactions.
BOARD OF DIRECTORS COMPENSATION
Directors of the Company who are also employees of the Company or are
affiliated with stockholders deemed to beneficially own two percent (2%) or more
of the Common Stock receive no cash compensation for their services as directors
or as members of any of the committees of the Board of Directors. All other
directors receive a fee of $2,000 for each meeting attended. All directors are
reimbursed for their expenses incurred in connection with attending meetings of
the Board of Directors. Directors who are not employees of the Company are
entitled to receive automatic stock option grants under the Company's 1992
Equity Incentive Plan. For a description of such automatic grants see "Summary
of 1992 Equity Incentive Plan."
In accordance with the terms of the 1992 Equity Incentive Plan, in
connection with Mr. Kyle's election to the Board of Directors of the Company,
the Company issued to Mr. Kyle on July 22, 1996 an option to purchase 10,000
shares of Common Stock at an exercise price of $6.75 per share, which option
vests in four equal annual installments commencing July 22, 1997. In addition,
in connection with Mr. Hennessey's election to the Board of Directors of the
Company, the Company issued to Mr. Hennessey on January 20, 1997 an option to
purchase 10,000 shares of Common Stock at an exercise price of $7.25 per share,
which option vests in four equal annual installments commencing January 20,
1998.
4
<PAGE> 7
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded during each of the
three years ended December 31, 1996, 1995 and 1994 to the Company's Chief
Executive Officer and the three other most highly compensated executive officers
of the Company for Fiscal 1996 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION
- - ------------------------------ ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Barrie Ward, Ph.D.......... 1996 $196,875 $40,000 -- 56,667 $500(2)
Chief Executive Officer and 1995 183,954 20,000 -- -- --
Chairman of the Board 1994(4) 100,288 12,115 $ 10,696(3) 308,334 --
William A. Packer............. 1996 174,961 35,000 -- 33,167 --
President, Chief Financial 1995 159,173 30,000 49,880(3) -- --
Officer 1994 191,000 -- -- 73,334 --
Bryan E. Roberts, Ph.D........ 1996 158,847 16,000 -- 48,167 500(2)
Executive Vice President 1995 142,104 -- -- -- --
1994 142,738 17,500 -- 54,834 --
David H. Ramsdell............. 1996(5) 92,137 10,000 -- -- --
Vice President, Finance 1995 110,811 -- -- -- --
1994 111,462 -- -- 8,334 --
</TABLE>
- - ---------------
(1) Bonus in this chart may include amounts actually paid to the named executive
officer in the year indicated for services rendered in the prior fiscal
year.
(2) Represents reimbursement of tax advice services rendered to the named
executive officer.
(3) Represents relocation expense reimbursement paid to such Named Executive
Officer.
(4) Dr. Ward commenced employment with the Company on July 11, 1994.
(5) Mr. Ramsdell terminated his employment with the Company on September 27,
1996.
5
<PAGE> 8
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth certain information concerning the
individual grant of options to purchase Common Stock of the Company made to the
Named Executive Officers during Fiscal 1996. The following table also discloses
for each Named Executive Officer listed the gain or "spread" that would be
realized if the options were exercised when the Company's stock price had
appreciated by the percentage levels indicated from the market price on the date
of grant. No stock appreciation rights were granted during Fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED OR BASE OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
- - ----------------------------- ---------- -------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Barrie Ward, Ph.D......... 6,667 2.21% $ 3.90 1/22/06 $ 16,334 $ 41,469
50,000(2) 16.57% 6.25 9/16/06 196,500 498,000
William A. Packer............ 3,167 1.05% 3.90 1/22/06 7,759 19,699
30,000(2) 9.94% 6.25 9/16/06 117,900 298,800
Bryan E. Roberts, Ph.D....... 3,167 1.05% 3.90 1/22/06 7,759 19,699
45,000(2) 14.91% 6.25 9/16/06 176,850 448,200
David H. Ramsdell............ 0 0 N/A N/A N/A N/A
</TABLE>
- - ---------------
(1) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the options. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission (the "SEC") and do not represent the Company's estimate or
projection of future Common Stock prices.
(2) Pursuant to the terms of the option agreement, 50% of the options are
exercisable in four equal annual installments commencing September 16, 1997
and 50% of the options vest in five years subject to earlier vesting based
upon attainment of certain milestones.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information regarding options exercised in
Fiscal 1996 and unexercised options held at December 31, 1996 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END
NAME EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- - ---------------------------- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
J. Barrie Ward, Ph.D........ 8,080 $ 41,490 152,753/204,167 $ 669,516/$695,294
William A. Packer........... 15,000 123,250 108,168/ 66,667 536,023/ 165,368
Bryan E. Roberts, Ph.D...... 0 0 40,083/ 89,084 179,743/ 208,019
David H. Ramsdell........... 16,667 85,282 -- (2) -- (2)
</TABLE>
- - ---------------
(1) Value based only on (i) the number of options for which the exercise price
was equal to or less than $5.50 per share (the price of the last reported
trade of the Common Stock on the Nasdaq National Market on December 31,
1996) and (ii) the difference between such closing price and such options'
exercise price.
(2) Mr. Ramsdell terminated his employment with the Company on September 27,
1996 and as a result his options expired prior to December 31, 1996.
6
<PAGE> 9
STOCK PERFORMANCE GRAPH
The following stock performance graph compares the cumulative total return
of the Company's Common Stock from June 5, 1996, the date the Company's Initial
Public Offering became effective, to the cumulative total return for the same
period of the Nasdaq Stock Market Index (U.S. Companies) and the Nasdaq
Pharmaceutical Index. The calculation of total return assumes a $100 investment
in the Company's Common Stock, the Nasdaq Stock Market Index and the Nasdaq
Pharmaceutical Index on June 5, 1996, and the reinvestment of all dividends.
<TABLE>
<CAPTION>
Measurement Period Nasdaq Stock Nasdaq Pharma- Virus Research
(Fiscal Year Covered) Market Index ceutical Index Institu te, Inc.
<S> <C> <C> <C>
6/5/96 100.00 100.00 100.00
12/31/96 103.23 88.27 45.83
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for (1) reviewing and
recommending to the Board of Directors the compensation and benefits of all
officers and directors of the Company, (2) reviewing general policy matters
relating to compensation and benefits of employees of the Company, and (3)
administering the issuance of stock options to the Company's officers, employees
and consultants pursuant to the Company's 1992 Equity Incentive Plan.
Compensation Philosophy and Practice
It is the Company's philosophy and practice to pay fair and competitive
wages and salaries to its employees and executive officers in order to attract
and retain highly-qualified employees. The Compensation Committee and the Board
believe that the compensation of the Company's executive officers should be
significantly influenced by the Company's performance. Accordingly, the
Company's practice has been to establish base cash salaries at levels deemed
appropriate by the Compensation Committee based on historic Company compensation
levels and the Compensation Committee's experience and knowledge as to
compensation levels at other companies. In assessing compensation levels, the
Compensation Committee has periodically reviewed industry-specific compensation
surveys.
7
<PAGE> 10
The executive group participates in an annual management incentive (bonus)
program. The bonus program is available to the extent that the Company meets or
exceeds performance goals. The Compensation Committee establishes these goals
and objectives based on the Company's historical performance and discussions
with management.
The Company also maintains a stock option plan to provide long-term
incentives to maximize shareholder value by rewarding employees for the
long-term appreciation of the Company's share price. Options are typically
subject to four-year vesting. Generally, option grants are made to executives in
connection with their initial hire. The Board has also approved grants in
connection with a significant change in responsibilities, as a reward for
outstanding performance, and to provide incentives for continued employment. The
number of shares subject to each stock option granted is based on anticipated
future contribution and the ability of the individual to affect corporate
results.
Compensation of Chief Executive Officer
In establishing compensation for the Chief Executive Officer, the
Compensation Committee considers objective criteria including the overall
performance of the Company, accomplishment of strategic goals and the
development of management. Accordingly, the Chief Executive Officer's total
compensation (salary and bonus) for 1996 was $236,875.
In addition, the Compensation Committee recommended, and the Board of
Directors endorsed, the granting to the Chief Executive Officer options to
purchase an aggregate 56,667 shares of Common Stock in 1996. Of these options,
6,667 were exercisable upon grant, 25,000 vest in five years subject to earlier
vesting based upon the attainment of specific Company milestones and the
remaining 25,000 vest in four equal installments commencing from the date of
grant.
New Federal Tax Regulations
As a result of new Section 162(m) of the Internal Revenue Code (the
"Code"), the Company's deduction of executive compensation may be limited to the
extent that a "covered employee" (i.e., a Named Executive Officer who is
employed on the last day of the Company's taxable year and whose compensation is
reported in the summary compensation table in the Company's proxy statement)
receives compensation in excess of $1,000,000 in such taxable year of the
Company (other than performance-based compensation that otherwise meets the
requirements of Section 162(m) of the Code). The Company does not anticipate
that the compensation for any of the Named Executive Officers will exceed
$1,000,000 in the current taxable year, but intends to take appropriate action
to comply with such regulations, if applicable, in the future.
Submitted by the Compensation
Committee:
Robert J. Hennessey
John W. Littlechild
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1996, the members of the Compensation Committee consisted of
Messrs. Anagnostopoulos and Littlechild. The current members of the Compensation
Committee consist of Messrs. Hennessey and Littlechild. None of said members of
the Compensation Committee was or is an officer and employee of the Company. Mr.
Littlechild is a general partner of several partnerships that have provided
financing to the Company and Mr. Anagnostopoulos is a general partner of the
general partner of a partnership that has provided financing to the Company. See
"Certain Relationships and Related Transactions."
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HCV II, HCV III and HCV IV are limited partnerships formed to provide
capital to companies in the healthcare field. HCP II, HCP III and HCP IV are
limited partnerships which serve as the general partner of HCV II, HCV III and
HCV IV, respectively, which are controlling stockholders of the Company. HIC is
the management company for each of HCV II, HCV III and HCV IV. Mr. Littlechild,
a director of the Company, is a general partner of each of HCP II, HCP III and
HCP IV and an officer of HIC. See "Security Ownership of Management and Certain
Beneficial Owners."
Everest Trust ("Everest"), a stockholder of the Company, holds
approximately 19% and 88% of the outstanding limited partnership interests in
each of HCV II and HCV IV. An affiliate of Everest is a limited partner of each
of HCP II, HCP III and HCP IV. Everest has informed the Company that it is a
grantor trust which has as its principal beneficiaries Joshua Ruch and Jan
Philipp F. Reemtsma. Messrs. Ruch and Reemtsma may be deemed to have control
over the investment decisions of Everest Trust.
Gateway Venture Partners III, L.P. ("Gateway"), a stockholder of the
Company, is a venture capital firm. Constantine E. Anagnostopoulos, a director
of the Company, is a general partner of Gateway Associates III, L.P., the
general partner of Gateway. See "Security Ownership of Management and Certain
Beneficial Owners."
Axiom Venture Partners, L.P. ("Axiom"), a stockholder of the Company, is an
investment fund which specializes in providing funds to companies in the
medical, healthcare and communication fields. Alan M. Mendelson, a director of
the Company, is a founding general partner of Axiom.
In February 1994, the Company borrowed an aggregate of $1,000,000 from
several parties, including HCV III, HCV IV, Dillon, Read & Co., Inc. ("Dillon
Read"), Gateway and Everest Trust, pursuant to a series of promissory notes
bearing interest at the rate of 8% per annum on the unpaid principal amount of
the notes, which notes, together with accrued interest, were either repaid out
of the proceeds of the sale of the Series C Convertible Preferred Stock or
canceled in consideration for the issuance of shares of Series C Convertible
Preferred Stock. In connection with these loans, the Company issued warrants to
purchase an aggregate of 33,570 shares of its Common Stock at an exercise price
of $.96 per share, which warrants expire in February 2004.
In April 1994, the Company entered into a convertible preferred stock
purchase agreement, pursuant to which it sold an aggregate of 5,621,535 shares
of Series C Convertible Preferred Stock at a purchase price of
$1.60 per share, to a group of stockholders including HCV III, HCV IV, Gateway,
Everest Trust and Concord, and, at a subsequent closing, Axiom. Outstanding
shares of preferred stock automatically converted into shares of Common Stock on
a three-for-one basis upon consummation of the Company's Initial Public
Offering.
In September 1995, the Company entered into a loan agreement with certain
stockholders, including HCV III, HCV IV, Everest, Dillon Read, Gateway and
Axiom, permitting the Company to borrow up to $1,000,000 through March 31, 1996
from such lenders (the "1995 Bridge Financing"). The Company issued notes in an
aggregate amount of $1,000,000 in connection with such financing (the
"Convertible Notes") which bore interest at the rate of 8% per annum, were due
on September 14, 1997 or earlier upon a request for repayment by lenders holding
a majority of interest in the notes and were convertible, at the option of the
holders, into shares of the Company's Series C Convertible Preferred Stock at a
conversion price of $1.60 (such price subject to adjustment pursuant to certain
anti-dilution provisions). Upon consummation of the Company's Initial Public
Offering, the Convertible Notes and accrued interest thereon were converted into
an aggregate of 217,927 shares of Common Stock. In connection with the 1995
Bridge Financing, the Company also issued warrants to purchase an aggregate of
66,670 shares of Common Stock, subject to certain anti-
9
<PAGE> 12
dilution provisions, at an exercise price of $1.95 per share to each of the
lenders. These warrants expire in December 2005.
In April 1994, the Company entered into a Second Amended and Restated
Stockholders Agreement with all of the holders of the Company's preferred stock
(as subsequently amended in December 1994, September 1995 and January 1996, the
"Stockholders Agreement") which grants to such holders certain demand and
piggyback registration rights with respect to shares of Common Stock issued upon
conversion of shares of the Company's preferred stock and preferred stock
warrants. All outstanding shares of the Company's preferred stock automatically
converted into shares of Common Stock upon consummation of the Company's Initial
Public Offering. The holders of the Warrants granted in connection with the 1995
Bridge Financing have also been granted similar registration rights.
SUMMARY OF 1992 EQUITY INCENTIVE PLAN
In October 1992, the Board of Directors of the Company adopted the 1992
Equity Incentive Plan (the "Plan"). Under the Plan, as amended, 1,751,176 shares
of Common Stock may be issued to officers, employees, consultants and directors
of the Company in the form of stock options and awards. As of December 31, 1996,
688,192 shares were available for future grant and options to purchase 992,378
shares at exercise prices ranging from $0.15 to $10.80 were outstanding under
the Plan. The Plan provides for the grant of options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options not intended to qualify as incentive stock options
("nonstatutory stock options").
The Plan is administered by the Compensation Committee (the "Committee") of
the Board of Directors. The Committee consists of at least two "disinterested"
directors as defined in Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act"). The maximum number of shares for which options may
be granted to any participant under the Plan during any fiscal year is 250,000
shares. Subject to the limitations set forth in the Plan, the Committee has the
authority to determine to whom options will be granted, the term during which
options granted under the Plan may be exercised, the exercise price of options
and the rate at which options may be exercised and may vest. Nonstatutory stock
options may be granted to all employees and officers of the Company and to
consultants and affiliates capable of contributing significantly to the
successful performance of the Company. Incentive stock options may be granted to
all employees or officers of the Company. The maximum term of each incentive
stock option granted under the Plan is ten years. The exercise price of shares
of Common Stock subject to options qualifying as incentive stock options may not
be less than the fair market value of the Common Stock on the date of the grant
(110% of the fair market value in the case of incentive stock options granted to
any stockholder owning in excess of 10% of the Company's Common Stock, which
options must also expire within five years from the date of grant). Under the
Plan, the exercise price of both incentive stock options and nonstatutory stock
options is payable in cash or, at the discretion of the Committee, in Common
Stock or such other lawful consideration as the Committee may determine. Options
granted pursuant to the Plan will automatically become exercisable in full upon
a change of control (as defined in the Plan).
The Committee, in its discretion, may also award shares of Common Stock to
any employees and officers of and consultants to the Company or any affiliates
capable of contributing significantly to the successful performance of the
Company. The Committee has the authority to impose terms and restrictions upon
the award of any such shares of Common Stock, including the achievement of
certain performance objectives and the continued employment with the Company
through a specified period. Shares of restricted Common Stock so granted under
the Plan may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as permitted by the Committee, until all the applicable terms
and conditions set by the Committee have been fulfilled.
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<PAGE> 13
The Plan provides for the automatic grant of nonstatutory stock options
("Director Options") to directors of the Company who are not employees of the
Company ("Eligible Directors"). Eligible Directors of the Company are granted a
Director Option to purchase 10,000 shares of Common Stock on the date such
person is first elected or appointed a director (an "Initial Director Option").
Further, commencing on the day immediately following the date of the annual
meeting of stockholders for the fiscal year ending December 31, 1997, each
Eligible Director, other than directors who will have received an Initial
Director Option since the last annual meeting, will be granted a Director Option
to purchase 2,000 shares of Common Stock on the day immediately following the
date of each annual meeting of stockholders, as long as such director is a
member of the Board of Directors. The exercise price for each share subject to a
Director Option shall be equal to the fair market value of the Common Stock on
the date of grant. Director Options are exercisable in four equal annual
installments, commencing on the date of grant and will expire on the earlier of
the tenth anniversary of the date of grant or 90 days after the termination of
the directors' service on the Board of Directors.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 1, 1997 certain information
regarding the beneficial ownership of Common Stock by (i) each of the persons or
entities known by the Company to be the beneficial owners of more than 5% of the
Company's Common Stock, (ii) each of the Named Executive Officers, (iii) each
director and Nominee of the Company and (iv) all directors and executive
officers of the Company as a group (twelve persons).
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) COMMON STOCK
- - ------------------------------------------------------------- --------------------- ------------
<S> <C> <C>
HealthCare Ventures II, L.P.................................. 1,324,975(2) 15.0%
Twin Towers at Metro Park
379 Thornall Street
Edison, New Jersey 08837
HealthCare Ventures III, L.P................................. 1,174,575(2) 13.2%
Twin Towers at Metro Park
379 Thornall Street
Edison, New Jersey 08837
Dillon, Read & Co., Inc. and related entities................ 1,099,384(3) 12.4%
535 Madison Avenue
New York, New York 10022
Constantine E. Anagnostopoulos, Ph.D......................... 54,978(4) *
Robert J. Hennessey.......................................... -- --
Frederick W. Kyle............................................ -- --
John W. Littlechild.......................................... 2,844,478(5) 32.0%
Alan M. Mendelson............................................ 233,081(6) 2.6%
J. Barrie Ward, Ph.D......................................... 160,834(7) 1.8%
William A. Packer............................................ 123,168(8) 1.4%
Bryan E. Roberts, Ph.D....................................... 62,417(9) *
David H. Ramsdell............................................ 16,667 *
All directors and executive officers as a group.............. 3,558,969(10) 38.4%
</TABLE>
- - ---------------
* Less than 1%
(1) Except as otherwise indicated, each of the parties listed has sole voting
and investment power over the shares owned.
11
<PAGE> 14
(2) As reported in a Schedule 13G dated February 14, 1997 and jointly filed
with the SEC by HCV II, HCP II, HCP III, HCV III, HCP IV and HCV IV. The
shares owned by HCV III include immediately exercisable warrants to
purchase 42,980 shares of Common Stock.
(3) As reported in a Schedule 13G dated February 11, 1997 and jointly filed
with the SEC by Dillon, Read & Co. Inc., Dillon, Read Inc., and Dillon,
Read Holding, Inc., these securities are held for managed accounts. For
purposes of the Exchange Act, Dillon, Read Holding, Inc., Dillon, Read Inc.
and Dillon, Read & Co. Inc. are each deemed to be the beneficial owners of
these securities; however, each of these entities expressly disclaims
beneficial ownership of such shares. The number of shares of Common Stock
disclosed includes immediately exercisable warrants to purchase 20,369
shares.
(4) Includes 31,022 shares registered to and owned by Gateway Venture Partners
III, L.P. (which includes immediately exercisable warrants to purchase
9,970 shares registered to Gateway Venture Partners III, L.P.) Dr.
Anagnostopoulos is a general partner of Gateway Associates III, L.P., the
general partner of Gateway Venture Partners III, L.P. Dr. Anagnostopoulos
disclaims beneficial ownership of such shares.
(5) Mr. Littlechild is a general partner of HCP II, HCP III and HCP IV, the
general partners of HCV II, HCV III and HCV IV, respectively. Mr.
Littlechild shares voting and investment control with respect to the shares
of Common Stock owned by HCV II, HCV III and HCV IV with the other general
partners of HCP II, HCP III and HCP IV, respectively. The shares
beneficially owned by Mr. Littlechild include 55,602 shares subject to
immediately exercisable warrants. Mr. Littlechild does not own any shares
of the Company's Common Stock in his individual capacity.
(6) Includes 232,481 shares of Common Stock beneficially owned by Axiom Venture
Partners L.P., of which Mr. Mendelson is a general partner (which includes
2,837 shares subject to immediately exercisable warrants). Mr. Mendelson
disclaims beneficial ownership of such shares.
(7) Includes 152,754 shares of Common Stock issuable upon exercise of options
to purchase Common Stock exercisable within 60 days of February 1, 1997.
(8) Includes 108,168 shares of Common Stock issuable upon exercise of options
to purchase Common Stock exercisable within 60 days of February 1, 1997.
(9) Includes 43,417 shares of Common Stock issuable upon exercise of options to
purchase Common Stock exercisable within 60 days of February 1, 1997.
(10) Includes 429,512 shares of Common Stock issuable upon exercise of options
to purchase Common Stock held by the director and executive officer group
exercisable within 60 days of February 1, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and The Nasdaq National Market, the exchange on which the
Company's Common Stock is listed for trading. Executive officers, directors and
greater than 10% stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports and amendments thereto furnished to the Company and written
representations that no other reports were required during or with respect to
Fiscal 1996, the Company believes all Section 16(a) filing requirements were
complied with, except in the case of J. Barrie Ward filing a report past the
applicable deadline and Alan Mendelson failing to report 600 shares of common
stock of the Company that he purchased in the Company's Initial Public Offering.
12
<PAGE> 15
OTHER MATTERS
INDEPENDENT AUDITORS
The accounting firm of Richard A. Eisner & Company, LLP has served as the
Company's independent auditors since 1991 and will continue to do so for fiscal
year 1997. A representative of Richard A. Eisner & Company, LLP is expected to
be present at the Annual Meeting, will be given an opportunity to make a
statement if he so desires and will be available to respond to appropriate
questions.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, telegraph or mail by one or more employees of the Company. The
Company also may reimburse brokers, banks, nominees and other fiduciaries for
postage and reasonable clerical expenses of forwarding the proxy material to
their principals who are beneficial owners of the Company's Common Stock.
STOCKHOLDER PROPOSALS
Any stockholder proposals submitted pursuant to Exchange Act Rule 14a-8 and
intended to be presented at the Company's 1998 Annual Meeting of Stockholders
must be received by the Company by December 1, 1997 to be eligible for inclusion
in the proxy statement and form of proxy to be distributed by the Board of
Directors in connection with such meeting.
The Company's By-Laws provide that any stockholder proposals intended to be
presented at the Company's 1998 Annual Meeting, other than a stockholder
proposal submitted pursuant to Exchange Act Rule 14a-8, must be received in
writing at the principal executive office of the Company no later than 75 days
prior to May 1, 1998, nor prior to 120 days prior to May 1, 1998, together with
all supporting documentation; provided, however, that if the 1998 Annual Meeting
is scheduled to be held on a date more than 30 days before May 1, 1998 or more
than 60 days after May 1, 1998, a stockholder's notice shall be timely filed if
delivered to, or received by, the Company at its principal executive office on
the later of (a) 75 days prior to the date of the scheduled meeting or (b) the
15th day following the day on which public announcement of the date of such
annual meeting is first made by the Company.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL 1996
(INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO), WHICH WILL BE FILED WITH
THE SEC ON OR BEFORE MARCH 31, 1997, WILL BE PROVIDED WITHOUT CHARGE TO ANY
PERSON TO WHOM THIS PROXY STATEMENT IS MAILED UPON THE WRITTEN REQUEST OF ANY
SUCH PERSON TO LISA P. MCGILLIS, DIRECTOR OF FINANCE, VIRUS RESEARCH INSTITUTE,
INC., 61 MOULTON STREET, CAMBRIDGE, MA 02138.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD
TODAY.
13
<PAGE> 16
VIRUS RESEARCH INSTITUTE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 1, 1997
The undersigned hereby appoints J. Barrie Ward, Ph.D. and William A. Packer
as Proxies, each with full power to appoint his substitute, and hereby
authorizes each of them, to represent and vote, as designated on the reverse,
all shares of Common Stock of Virus Research Institute, Inc. (the "Company")
held of record by the undersigned on March 19, 1997, at the Annual Meeting of
Stockholders to be held on May 1, 1997 or any adjournments or postponements
thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF THIS PROXY IS PROPERLY EXECUTED
AND NO CHOICE IS SPECIFIED BY THE UNDERSIGNED STOCKHOLDER(S) WITH RESPECT TO
ANY MATTER, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE
BOARD OF DIRECTORS WITH RESPECT TO SUCH MATTER. THE BOARD RECOMMENDS A VOTE
"FOR" THE ELECTION OF THE SIX NOMINEES OF THE BOARD OF DIRECTORS LISTED
IN PROPOSAL 1. A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATION NEED ONLY SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT IN THE ENCLOSED ENVELOPE.
The undersigned hereby acknowledges receipt of the Notice and Proxy
Statement for the 1997 Annual Meeting of Stockholders and hereby revokes any
proxy or proxies heretofore given.
(TO BE SIGNED ON REVERSE SIDE.)
Please mark your
A [X] votes as in this
examples.
WITHHOLD
AUTHORITY
to vote for all
FOR nominees listed
1. ELECTION OF [ ] [ ] NOMINEES: J. Barrie Ward, Ph.D.
DIRECTORS. William A. Packer
John W. Littlechild
FOR all nominees listed (except Alan M. Mendelson
as marked to the contrary below) Frederick W. Kyle
Robert J. Honnessey
[ ]
----------------------------
2. In their discretion, to vote upon such other business as may properly come
before the Annual Meeting or any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WILL BE
VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR THE
SIX NOMINEES FOR ELECTION.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THIS PROXY PROMPTLY IN
THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED
STATES.
SIGNATURE(S): DATE:
--------------------- -------------------- -------------
NOTE: Please sign exactly as name or names appear on stock certificate
(as indicated hereon.)
