SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
[X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by Rule
14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Solicitation Material Pursuant to Rule 14a-11(c) or rule 14a-12
Hemispherx Biopharma, Inc.
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(Name of Registrant as Specified in its Charter)
17:
(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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
----------------------
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
2
HEMISPHERX BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 23, 2004
To the Stockholders of Hemispherx Biopharma, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders
of Hemispherx Biopharma, Inc. ("Hemispherx"), a Delaware corporation, to be held
at the Embassy Suites, 1776 Benjamin Franklin Parkway, Philadelphia Pennsylvania
19103, on Wednesday, June 23, 2004, at 10:00 a.m. local time, for the following
purposes:
1. To elect six members to the Board of Directors of Hemispherx to serve
until their respective successors are elected and qualified;
2. To ratify the selection by Hemispherx's audit committee of BDO Seidman,
LLP, independent public accountants, to audit the financial statements of
Hemispherx for the year ending December 31, 2004;
3. To approve the issuance of our common stock upon exercise of certain
warrants and conversion of certain debentures to comply with AMEX Company Guide
Section 713;
4. To adopt the Hemispherx 2004 Equity Incentive Plan; and
5. To transact such other matters as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on April 26, 2004 are
entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed. If you are unable to attend the
meeting in person you are urged to sign, date and return the enclosed proxy
promptly in the self addressed stamped envelope provided. If you attend the
meeting in person, you may withdraw your proxy and vote your shares. We have
also enclosed our annual report on Form 10-K for the fiscal year ended December
31, 2003.
By Order of the Board
of Directors
s\Ransom W. Etheridge, Secretary
Philadelphia, Pennsylvania
May , 2004
PROXY STATEMENT
HEMISPHERX BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
INTRODUCTION
This proxy statement is furnished in connection with the solicitation
of proxies for use at the annual meeting of stockholders of Hemispherx
Biopharma, Inc. ("Hemispherx" or the "Company") to be held on Wednesday, June
23, 2004, and at any adjournments. The accompanying proxy is solicited by the
Board of Directors of Hemispherx and is revocable by the stockholder by
notifying Hemispherx's Corporate Secretary at any time before it is voted, or by
voting in person at the annual meeting. This proxy statement and accompanying
proxy will be distributed to stockholders beginning on or about May 17, 2004.
The principal executive offices of Hemispherx are located at 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103, telephone (215) 988-0080.
OUTSTANDING SHARES AND VOTING RIGHTS
RECORD DATE; OUTSTANDING SHARES
Only stockholders of record at the close of business on April 26, 2004,
the record date, are entitled to receive notice of, and vote at the annual
meeting. As of the record date, the number and class of stock outstanding and
entitled to vote at the meeting was 42,363,928 shares of common stock, par value
$.001 per share. Each share of common stock is entitled to one vote on all
matters. No other class of securities will be entitled to vote at the meeting.
There are no cumulative voting rights.
The six nominees receiving the highest number of votes cast by the
holders of common stock represented and voting at the meeting will be elected as
Hemispherx's directors and constitute the entire board of directors of
Hemispherx. The affirmative vote of at least a majority of the shares
represented and voting at the annual meeting at which a quorum is present (which
shares voting affirmatively also constitute at least a majority of the required
quorum) is necessary for approval of Proposals No. 2, 3 and 4. Pursuant to the
AMEX Company Guide, votes on Proposal No. 3 by Company stockholders who own the
debentures and warrants referred to in that Proposal may not be counted with
regard to that Proposal.
REVOCABILITY OF PROXIES
If you attend the meeting, you may vote in person, regardless of
whether you have submitted a proxy. Any person giving a proxy in the form
accompanying this proxy statement has the power to revoke it at any time before
it is voted. It may be revoked by filing, with the corporate secretary of
Hemispherx at its principal offices, 1617 JFK Boulevard, Suite 660,
Philadelphia, PA 19103, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Every stockholder of record is entitled, for each share held, to one
vote on each proposal or item that comes before the meeting. There are no
cumulative voting rights. By submitting your proxy, you authorize William A.
Carter and Ransom W. Etheridge and each of them to represent you and vote your
shares at the meeting in accordance with your instructions. Messrs. Carter and
Etheridge and each of them may also vote your shares to adjourn the meeting from
time to time and will be authorized to vote your shares at any adjournment or
postponement of the meeting.
Hemispherx has borne the cost of preparing, assembling and mailing this
proxy solicitation material. The total cost estimated to be spent and the total
expenditures to date for, in furtherance of, or in connection with the
solicitation of stockholders is approximately $40,000. Hemispherx may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding soliciting materials to beneficial owners. Proxies
may be solicited by certain of Hemispherx's directors, officers and employees,
without additional compensation, personally, by telephone or by facsimile.
We have hired the firm of MacKenzie Partners, Inc. to assist in the
solicitation of proxies on behalf of the Board of Directors. MacKenzie has
agreed to perform this service for a proposed fee of $5,000 plus out-of-pocket
expenses.
ADJOURNED MEETING
The chair of the meeting may adjourn the meeting from time to time to
reconvene at the same or some other time, date and place. Notice need not be
given of any such adjournment meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken. If the time, date
and place of the adjournment meeting are not announced at the meeting which the
adjournment is taken, then the Secretary of the Corporation shall give written
notice of the time, date and place of the adjournment meeting not less than ten
(10) days prior to the date of the adjournment meeting. Notice of the
adjournment meeting also shall be given if the meeting is adjourned in a single
adjournment to a date more than 30 days or in successive adjournments to a date
more than 120 days after the original date fixed for the meeting.
TABULATION OF VOTES
The votes will be tabulated and certified by Hemispherx's transfer
agent.
VOTING BY STREET NAME HOLDERS
If you are the beneficial owner of shares held in "street name" by a
broker, the broker, as the record holder of the shares, is required to vote
those shares in accordance with your instructions. If you do not give
instructions to the broker, the broker will nevertheless be entitled to vote the
shares with respect to "discretionary" items but will not be permitted to vote
the shares with respect to "non-discretionary" items (in which case, the shares
will be treated as "broker non-votes").
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the annual
meeting is a majority of the shares of common stock entitled to vote at the
annual meeting, in person or by proxy. Shares that are voted "FOR," "AGAINST" or
"WITHHELD FROM" a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares represented and
voting the votes cast at the annual meeting with respect to such matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, Hemispherx believes that
abstentions should be counted for purposes of determining both: (i) the presence
or absence of a quorum for the transaction of business; and (ii) the total
number of votes cast with respect to a proposal (other than the election of
directors). In the absence of controlling precedent to the contrary, Hemispherx
intends to treat abstentions in this manner. Accordingly, abstentions will have
the same effect as a vote against the proposal (other than the election of
directors).
Under current Delaware case law, while broker non-votes (i.e. the votes
of shares held of record by brokers as to which the underlying beneficial owners
have given no voting instructions) should be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of votes
cast with respect to the particular proposal on which the broker has expressly
not voted. Hemispherx intends to treat broker non-votes in this manner. Thus, a
broker non-vote will make a quorum more readily obtainable, but the broker
non-vote will not otherwise affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the 2005 Annual Meeting of Stockholders must be
received by the Company's Secretary, at Hemispherx Biopharma, Inc., 1617 JFK
Boulevard, Philadelphia, PA 19103 no later than , 2005.
Pursuant to the Company's Restated and Amended Bylaws all stockholder
proposals may be brought before an annual meeting of stockholders only upon
timely notice thereof in writing having been given the Secretary of the Company.
To be timely, a stockholder's notice, for all stockholder proposals other than
the nomination of candidates for director, shall be delivered to the Secretary
at the principal executive offices of the Company not less than sixty (60) nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, the stockholder's notice in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. To be timely, a stockholder's notice, with respect
to a stockholder proposal for nomination of candidates for director, shall be
delivered to the Secretary at the principal executive offices of the Company not
less than ninety (90) nor more than one hundred twenty (120) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
the stockholder's notice in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure of
the date of the annual meeting was made, whichever first occurs. Provided,
however, in the event that the stockholder proposal relates to the nomination of
candidates for director and the number of directors to be elected to the Board
of Directors of the Company at an annual meeting is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board of Directors at least one hundred
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Company not
later than the close of business on the tenth day following the day on which
such public announcement is first made by the Company. All stockholder proposals
must contain all of the information required under the Company's Bylaws, a copy
of which is available upon written request, at no charge, from the Secretary.
The Company reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
and other applicable requirements.
PROPOSALS TO STOCKHOLDERS
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each nominee to the board of directors will serve until the next annual
meeting of stockholders, or until his earlier resignation, removal from office,
death or incapacity.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the election of William A. Carter, Richard C. Piani, Ransom W. Etheridge,
William M. Mitchell, Iraj-Eqhbal Kiani, and Antoni Esteve. Information is
furnished below with respect to all nominees.
Set forth below is the biographical information of the nominees and
directors of Hemispherx:
WILLIAM A. CARTER, M.D., 66, the co-inventor of Ampligen, joined Hemispherx
in 1978, and has served as: (a) Hemispherx's Chief Scientific Officer since May
1989; (b) the Chairman of Hemispherx's Board of Directors since January 1992;
(c) Hemispherx's Chief Executive Officer since July 1993; (d) Hemispherx's
President since April, 1995; and (e) a director since 1987. From 1987 to 1988,
Dr. Carter served as Hemispherx's Chairman. Dr. Carter was a leading innovator
in the development of human interferon for a variety of treatment indications
including various viral diseases and cancer. Dr. Carter received the first FDA
approval to initiate clinical trials on beta interferon product manufactured in
the U.S. under his supervision. From 1985 to October 1988, Dr. Carter served as
Hemispherx's Chief Executive Officer and Chief Scientist. He received his M.D.
degree from Duke University and underwent his post-doctoral training at the
National Institutes of Health and Johns Hopkins University. Dr. Carter also
served as Professor of Noeplastic Diseases at Hahnemann Medical University, a
position he held from 1980 to 1998. Dr. Carter served as Director of Clinical
Research for Hahnemann Medical University Institute for Cancer and Blood
Diseases, and as a professor at Johns Hopkins School of Medicine and the State
University of New York at Buffalo. Dr. Carter is a Board certified physician and
author of more than 200 scientific articles, including the editing of various
textbooks on anti-viral and immune therapy.
RICHARD C. PIANI, 77, has been a director of Hemispherx since May 1995. Mr.
Piani was employed as a principal delegate for Industry to the City of Science
and Industry, Paris, France, a scientific and educational complex, from 1985
through 2000. Mr. Piani provided consulting to Hemispherx in 1993, with respect
to general business strategies for Hemispherx's European operations and markets.
Mr. Piani served as Chairman of Industrielle du Batiment-Morin, a building
materials corporation, from 1986 to 1993. Previously Mr. Piani was a Professor
of International Strategy at Paris Dauphine University from 1984 to 1993. From
1979 to 1985, Mr. Piani served as Group Director in Charge of International and
Commercial Affairs for Rhone-Poulenc and from 1973 to 1979 he was Chairman and
Chief Executive Officer of Societe "La Cellophane", the French company which
invented cellophane and several other worldwide products. Mr. Piani has a Law
degree from Faculte de Droit, Paris Sorbonne and a Business Administration
degree from Ecole des Hautes Etudes Commerciales, Paris.
RANSOM W. ETHERIDGE, 64, has been a director of Hemispherx since October
1997, and presently serves as our secretary and general counsel. Mr. Etheridge
first became associated with Hemispherx in 1980 when he provided consulting
services to Hemispherx and participated in negotiations with respect to
Hemispherx's initial private placement through Oppenheimer & Co., Inc. Mr.
Etheridge has been practicing law since 1967, specializing in transactional law.
Mr. Etheridge is a member of the Virginia State Bar, a Judicial Remedies Award
Scholar and has served as President of the Tidewater Arthritis Foundation. He is
a graduate of Duke University and the University of Richmond School of Law.
WILLIAM M. MITCHELL, M.D., 69, has been a director since July 1998. Dr.
Mitchell is a Professor of Pathology at Vanderbilt University School of
Medicine. Dr. Mitchell earned an M.D. from Vanderbilt and a Ph.D. from Johns
Hopkins University, where he served as an Intern in Internal Medicine, followed
by a Fellowship at its School of Medicine. Dr. Mitchell has published over 200
papers, reviews and abstracts dealing with viruses and anti-viral drugs. Dr.
Mitchell has worked for and with many professional societies, including the
International Society for Interferon Research, and committees, among them the
National Institutes of Health, AIDS and Related Research Review Group. Dr.
Mitchell previously served as a director of Hemispherx from 1987 to 1989.
IRAJ-EQHBAL KIANI, M.B.A., PH.D., 58, was appointed to the Board of
Directors on May 1, 2002. Dr. Kiani is a citizen of England and resides in
Newport, California. As a native of Iran, Dr. Kiani served in various local
government positions including the Governor of Yasoi, Capital of Boyerahmad,
Iran. In 1980, Dr. Kiani moved to England, where he established and managed
several trading companies over a period of some 20 years. Dr. Kiani is a
planning and logistic specialist who is now applying his knowledge and
experience to build a worldwide immunology network which will use the Company's
proprietary technology. Dr. Kiani received his Ph.D. degree from the University
of Warwick in England.
ANTONI ESTEVE, Ph.D., 45, became a member of our Board of Directors in
November 2003. Dr. Esteve is a Member of the Executive Committee and Director of
Scientific and Commercial Operations for Laboratorios del Dr. Esteve S.A. He has
been engaged at Laboratorios del Dr. Esteve since 1984. Since 1986 he is
Professor at the Autonomous University of Barcelona, School of Pharmacy. In 2001
he was elected as member of the Advisory Board for R&D of the Spanish Ministry
of Science and Technology. Since 2002 he also has been President of Centre de
Transfussio i Banc de Teixits (the Transfusion and Tissues Bank Center of
Catalonia). Dr. Esteve received a degree in Pharmacy from the University of
Barcelona, Faculty of Pharmacy, in 1981 and a Ph.D. in Pharmaceutical Science in
1990.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
HEMISPHERx AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ALL SIX OF THE
ABOVE-NAMED NOMINEE DIRECTORS OF HEMISPHERX.
INFORMATION CONCERNING BOARD MEETINGS
Hemispherx board of directors met four times and executed three
Unanimous Consents, the Compensation Committee met two times, the Audit
Committee met four times, and the Strategic Planning Committee met two times
during the fiscal year ended December 31, 2003. Four of the incumbent directors
attended 100% of the Board Meetings and one incumbent, Iraj Eqhbal Kiani,
attended two meetings.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The board of directors maintains the following committees:
Executive Committee.
The Executive Committee is composed of William A. Carter, Chief
Executive Officer and President, Ransom W. Etheridge, Secretary and director,
and Iraj-Eqhbal Kiani. The Executive Committee makes recommendations to
management regarding general business matters of Hemispherx.
Compensation Committee.
The Compensation Committee is composed of Dr. William Mitchell,
director, and Richard C. Piani, director. The Compensation Committee makes
recommendations concerning salaries and compensation for employees of and
consultants to Hemispherx.
Nominating Committee.
The Nominating Committee is composed of Dr. William Mitchell, Dr.
Iraj-Eqhbal Kiani and Richard Piani, all determined by the Board of Directors to
be independent directors under the AMEX Company Guide. This Committee is
responsible for recommending to the Board the slate of nominees to be put forth
for election by the stockholders at our annual meeting. This Committee also
reviews proposals for nominations from stockholders that are submitted in
accordance with the procedures published in our proxy statement.
The Nominating Committee does not currently have a charter. The
committee utilizes a subjective analysis to identify and evaluate candidates to
be nominated as directors, including but not limited to, general business
knowledge, experience with financial reporting, interest in the Company's
business and related marketing businesses, and willingness to serve. However,
there are currently no minimum qualifications or standards that the Company
seeks for director nominees. The Company does not engage or pay any third party
to assist in the process of identifying or evaluating candidates for a director
position. The Company would consider candidates for director nominees
recommended by stockholders in accordance with the requirements of Delaware law.
If stockholder nominations were made, the Nominating Committee would perform an
investigation of the candidate to determine if the candidate were qualified and
would present the stockholder nomination in the proxy statement to be subject to
a vote of the stockholders.
Audit Committee and Audit Committee Expert.
Hemispherx's Audit Committee of the Board of Directors consists of Richard
Piani, Committee Chairman, William Mitchell, M.D. and Iraj Eqhbal Kiani, M.B.A.,
Ph.D. Mr. Piani, Dr. Mitchell and Dr. Iraj-Eqhbal Kiani, all determined by the
Board of Directors to be independent directors under Section 121B(2)(a)(i) of
the AMEX Company Guide. Hemispherx does not have a financial expert as defined
in Securities and Exchange Commission rules on the committee in the true sense
of the description. However, Mr. Piani is a businessman and has 40 years of
experience working with budgets, analyzing financials and dealing with financial
institutions. Hemispherx believes Mr. Piani, Dr. Mitchell and Iraj Eqhbal Kiani
to be independent of management and free of any relationship that would
interfere with their exercise of independent judgment as members of this
committee. The principal functions of the Audit Committee are to (i) annually
recommend independent accountants, (ii) prepare the reports or statements as may
be required by AMEX or the securities laws, (iii) review the adequacy of
Hemispherx's system of internal accounting controls and Hemispherx's audited
financial statements and reports, (iv) discuss the statements and reports with
management, including any significant adjustments, management judgments and
estimates, new accounting policies and disagreements with management, and (vi)
review disclosures by independent accountants concerning relationships with
Hemispherx and the performance of Hemispherx's independent accountants.
The Board of Directors is currently reviewing the charter of the Audit
Committee and plan to vote on an updated and revised charter at the Board
Meeting scheduled for June 23, 2004.
Audit Committee Report.
The primary responsibility of the Audit Committee (the "Committee") is
to assist the Board of Directors in discharging its oversight responsibilities
with respect to financial matters and compliance with laws and regulations. The
primary methods used by the Committee to fulfill its responsibility with respect
to financial matters are:
o To appoint, evaluate, and, as the Committee may deem appropriate,
terminate and replace our independent auditors;
o To monitor the independence of our independent auditors;
o To determine the compensation of our independent auditors;
o To pre-approve any audit services, and any non-audit services permitted
under applicable law, to be performed by our independent auditors;
o To review our risk exposures, the adequacy of related controls and
policies with respect to risk assessment and risk management;
o To monitor the integrity of our financial reporting processes and systems
of control regarding finance, accounting, legal compliance and information
systems;
o To facilitate and maintain an open avenue of communication among the
Board of Directors, management and our independent auditors.
The Audit Committee is composed of three directors, and the Board has
determined that each of those directors is independent as that term is defined
in Sections 121(B)(2)(a)(i) of the American Stock Exchange Company Guide.
In March 2004, the Board re-elected Mr. Piani, Dr. Mitchell and Iraj-Eqhbal
Kiani to the Audit Committee effective March 11, 2004, subject to their election
to the Board by stockholders at the Annual Meeting.
The Committee has met four times in 2003.
In discharging its responsibilities relating to internal controls,
accounting and financial reporting policies and auditing practices, the
Committee discussed with our independent auditor, BDO Seidman, LLP, the overall
scope and process for its audit. The Committee regularly meets with BDO Seidman,
LLP, with and without management present, to discuss the results of its
examinations, the evaluations of our internal controls and the overall quality
of our financial reporting.
The Committee has discussed with BDO Seidman, LLP its judgments about
the quality, in addition to the acceptability, of our accounting principles as
applied in our financial reporting, as required by Statement on Auditing
Standards No. 61 "Communications with Audit Committees."
The Committee also has received the written disclosures and the letter
from BDO Seidman, LLP that is required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, and has discussed with
BDO Seidman, LLP their independence.
The Committee has met and held discussions with management. The
Committee has reviewed and discussed with management Hemispherx's audited
consolidated financial statements as of and for the fiscal year ended December
31, 2002 and the audited consolidated financial statements as of and for the
fiscal year ended December 31, 2003.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements
referred to above be included in our Informational Statement and Annual Report
for the year ended December 31, 2003.
This report is respectfully submitted by the members of the Audit
Committee of the Board of Directors.
Richard C. Piani, Chairman
William M. Mitchell
Iraj-Eqhbal Kiani
Code of Ethics
Hemispherx's Board of Directors adopted a code of ethics and business conduct
for officers, directors and employees that went into effect on May 19, 2003.
This code has been presented and reviewed by each officer, director and
employee. You may obtain a copy of this code by visiting our web site at
www.hemispherx.net or by written request to our office at 1617 JFK Boulevard,
Suite 660, Philadelphia, PA 19103. Our board of directors is required to approve
any waivers of the code of ethics and business conduct for directors or
executive officers and we are required to disclosed any such waiver in a Form
8-K within five days.
Strategic Planning Committee.
The Strategic Planning Committee is composed of William A. Carter and
Richard C. Piani. The Strategic Planning Committee makes recommendations to the
board of directors of priorities in the application of Hemispherx's financial
assets and human resources in the fields of research, marketing and
manufacturing. The Strategic Planning Committee has engaged a number of leading
consultants in healthcare, drug development and pharmaeconomics to assist in the
analysis of various products being developed and/or potential acquisitions being
considered by Hemispherx.
Communication with the Board of Directors
Interested parties wishing to contact the board of directors of the
Company may do so by writing to the following address: Board of Directors, c/o
Ransom Etheridge, Director, Corporate Secretary and General Counsel, 2610
Potters Rd., Virginia Beach, VA 23452. All letters received will be categorized
and processed by the Corporate Secretary and then forwarded to the Company's
Board or Directors.
Director Attendance at Annual Meetings of Shareholders
Directors are encouraged, but not required, to attend the Annual
Meeting of Stockholders. At the 2003 Annual Meeting, four of the five sitting
directors were in attendance.
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following sets forth biographical information about Hemispherx's
executive officers and key personnel:
Name Age Position
----------------------- ---- --------------------------------------
William A. Carter, M.D. 66 Chairman, Chief Executive Officer, and
President
Robert E. Peterson 67 Chief Financial Officer
David R. Strayer, M.D. 58 Medical Director, Regulatory Affairs
Mei-June Liao, Ph.D. 53 Vice President of Regulatory Affairs,
Quality Control and
Research and Development
Robert Hansen 60 Vice President of Manufacturing
Carol A. Smith, Ph.D. 54 Director of Process Development
Ransom W. Etheridge 64 Secretary and General Counsel
For biographical information about William A. Carter, M.D. and Ransom
Etheridge, please see the discussion under the heading "Proposal No. 1 Election
of Directors" above.
ROBERT E. PETERSON has served as Chief Financial Officer of the Company
since April 1993 and served as an Independent Financial Advisor to the Company
from 1989 to April 1993. Also, Mr. Peterson has served as Vice President of the
Omni Group, Inc., a business consulting group based in Tulsa, Oklahoma since
1985. From 1971 to 1984, Mr. Peterson worked for PepsiCo, Inc. and served in
various financial management positions including Vice President and Chief
Financial Officer of PepsiCo Foods International and PepsiCo Transportation,
Inc. Mr. Peterson is a graduate of Eastern New Mexico University.
DAVID R. STRAYER, M.D. who served as Professor of Medicine at the Medical
College of Pennsylvania and Hahnemann University, has acted as the Medical
Director of the Company since 1986. He is Board Certified in Medical Oncology
and Internal Medicine with research interests in the fields of cancer and immune
system disorders. Dr. Strayer has served as principal investigator in studies
funded by the Leukemia Society of America, the American Cancer Society, and the
National Institutes of Health. Dr. Strayer attended the School of Medicine at
the University of California at Los Angeles where he received his M.D. in 1972.
MEI-JUNE LIAO, Ph.D. has served as Vice President of Regulatory Affairs,
Quality and Research & Development since October 2003 and as Vice President of
Research & Development since March 2003 with responsibilities for the
regulatory, quality control and product development of Alferon(R). Before the
acquisition of certain assets of ISI, Dr. Liao was Vice President of Research
and Development from 1995 to 2003 and held senior positions in the Research and
Development Department of ISI from 1983 to 1994. Dr. Liao received her Ph.D.
from Yale University in 1980 and completed a three year postdoctoral appointment
at the Massachusetts Institute of Technology under the direction of Nobel
Laureate in Medicine, Professor H. Gobind Khorana. Dr. Liao has authored many
scientific publications and invention disclosures.
ROBERT HANSEN joined the Company as Vice President of Manufacturing in 2003 upon
the acquisition of certain assets of ISI. He is responsible for the manufacture
of Alferon N(R). Mr. Hansen had been Vice President of Manufacturing for ISI
since 1997, and served in various capacities in manufacturing since joining ISI
in 1987. He has a B.S. degree in Chemical Engineering from Columbia University
in 1966.
CAROL A. SMITH, Ph.D. has served as the Company's Director of Manufacturing
and Process Development since April 1995, as Director of Operations since 1993
and as the Manager of Quality Control from 1991 to 1993, with responsibility for
the manufacture, control and chemistry of Ampligen(R). Dr. Smith was
Scientist/Quality Assurance Officer for Virotech International, Inc. from 1989
to 1991 and Director of the Reverse Transcriptase and Interferon Laboratories
and a Clinical Monitor for Life Sciences, Inc. from 1983 to 1989. She received
her Ph.D. from the University of South Florida College of Medicine in 1980 and
was an NIH post-doctoral fellow at the Pennsylvania State University College of
Medicine.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ransom W. Etheridge, an officer and director of the Company, is an
attorney in private practice who has rendered corporate legal services to us
from time to time, for which he has received fees. Mr. Etheridge received
$60,000 for his professional services in 2003.
Richard C. Piani, a director of the Company, lives in Paris, France and
assists the Company's European subsidiary in their dealings with medical
institutions and the European Medical Evaluation Authority. William M. Mitchell,
M.D., another director of the Company, works with David R. Strayer, M.D. (the
Company's Medical Director) in establishing clinical trial protocols as well as
other scientific work for the Company from time to time. For these services,
these two directors were paid an aggregate of $40,100 in the year 2003. William
A. Carter, Chief Executive Officer of the Company, received an aggregate of
$12,106 in short term advances in 2002 which were repaid as of December 31,
2002. The Company loaned $60,000 to Mr. Etheridge in November 2001 for the
purpose of exercising 15,000 Class A Redeemable warrants. This loan bears
interest at 6% per annum. Dr. Carter's short term advances and Mr. Etheridge's
loan were approved by the Board of Directors.
The Company paid $57,750, $33,450 and $18,800 for the years ending
December 31, 2001, 2002 and 2003, respectively, to Carter Realty for the rent of
property used at various times in 2001, 2002 and 2003. The property is owned by
others and managed by Carter Realty. Carter Realty is owned by Robert Carter,
the brother of William A. Carter, the Company's Chief Executive Officer.
Antoni Esteve, one of the Company's directors, is a member of the Executive
Committee and Director of Scientific and Commercial Operations of Laboratorios
Del Dr. Esteve S.A. In March 2002, the Company's European subsidiary Hemispherx
S.A. entered into a Sales and Distribution Agreement with Laboratorios Del Dr.
Esteve S.A. In addition, in March 2003, we issued 347,445 shares of common stock
to Provesan S.A., an affiliate of Laboratorios Del Dr. Esteve S.A., in exchange
for 1,000,000 Euros of convertible preferred equity certificates of Hemispherx
S.A., owned by Laboratorios Del Dr. Esteve S.A.
There are no material proceedings to which any officer, director or
affiliate, or any associate thereof is a party adverse to the Company or has a
material interest adverse to the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires Hemispherx's officers and
directors, and persons who own more than ten percent of a registered class of
Hemispherx's equity securities, to file reports with the Securities and Exchange
Commission reflecting their initial position of ownership on Form 3 and changes
in ownership on Form 4 or Form 5.
Based solely on a review of the copies of such forms received by
Hemispherx, Hemispherx believes that, during the fiscal year ended December 31,
2003, its officers, directors and ten percent stockholders complied with all
applicable Section 16(a) filing requirements on a timely basis, except that Dr.
Carter, Dr. Mitchell and Mr. Piani each filed a Form 5 late in which each
reported one transaction that should have been reported on a Form 4 during 2003;
Mr. Etheridge filed a Form 5 late in which he reported two transactions that
should have been reported on a Form 4 during 2003; and Dr. Esteve and Mr. Kiani,
we have been informed, are each in the process of filing a Form 3.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The summary compensation table below sets forth the aggregate
compensation paid or accrued by Hemispherx for the fiscal years ended December
31, 2003, 2002 and 2001 to (i) the Chief Executive Officer and (ii) Hemispherx's
four most highly paid executives who were serving as executives at the end of
the last completed fiscal year and whose total annual salary and bonus exceeded
$100,000 (collectively, the "Named Executives").
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Name and Principal Year Salary ($) Restricted Warrants All Other
Position Stock Awards & Options Compensation
Awards (1)
--------------------- -------- ------------ ------- ------------ -----------
William A. Carter 2003 (4)$582,461 - (5)1,450,000 $37,175
Chairman of the Board 2002 (4) 565,514 - (8)1,000,000 25,747
and CEO 2001 (4) 551,560 - (2) 386,650 22,917
Robert E. Peterson 2003 (9)$230,450 - - -
Chief Financial Officer 2002 151,055 - (8) 200,000 -
2001 146,880 - (3) 40,000 -
2003
David R. Strayer, M.D. 2003 (6)$190,096 - (8) 50,000 -
Medical Director 2002 (6) 178,594 - (7) 10,000 -
2001 (6) 174,591 -
Carol A. Smith, Ph.D. 2003 $140,576 - - -
Director of 2002 128,346 - (8) 20,000 -
Manufacturing 2001 124,800 - (7) 10,000 -
Robert Hansen, V.P. of 2003 (10)$104,500 - - -
Manufacturing 2002 - - - -
2001 - - - -
(1) Consists of insurance premiums paid by us with respect to term life and
disability insurance for the benefit of the named executive officer.
(2) Consists of 188,325 warrants to purchase common stock at $6.00 per
share and 188,325 warrants to purchase common stock at $9.00 per share.
Also includes a stock option grant of 10,000 shares exercisable at
$4.03 per share.
(3) Consist of a stock option grant of 10,000 shares exercisable at $4.03
per share and 30,000 warrants to purchase common stock
at $5.00 per share.
(4) Includes bonuses of $94,952, $96,684 and $99,481 in 2001, 2002 and
2003, respectively. Also includes funds previously paid to Dr. Carter
by Hahnemann Medical University where he served as a professor until
1998. This compensation was continued by us and totaled $79,826 in
2001, $82,095 in 2002 and $84,776 in 2003.
(5) Represents warrants to purchase common stock exercisable at $2.20 per
share.
(6) Includes $98,926 paid by Hahnemann Medical University where Dr. Strayer
served as a professor until 1998. This compensation
was continued by us in 2001, 2002 and 2003.
(7) Consist of stock option grant of 10,000 shares exercisable at $4.03 per
share.
(8) Represents number of warrants to purchase shares of common stock at
$2 per share.
(9) 2003 includes a bonus of $74,464 paid in 2004.
(10) Compensation since March 2003. Employed by ISI prior to that.
The following table sets forth certain information regarding stock
warrants granted during 2003 to the executive officers named in the Summary
Compensation Table.
INDIVIDUAL GRANTS
------ ---------------------------- -------- ---------- -------------------
------ ------------ --------------- -------- ---------- -------------------
NAME NUMBER OF PERCENTAGE OF EXERCISE EXPIRATION POTENTIAL REALIZABLE
TOTAL WARRANTS DATE VALUE AT ASSUMED
SECURITIES GRANTED TO RATES OF
UNDERLYING EMPLOYEES IN STOCK PRICE
WARRANTS FISCAL YEAR PRICE PER APPRECIATION
GRANTED (1) 2002(2) SHARE (3) FOR WARRANTS TERM
------ ----------- -------------- --------- ---------- ------------------
------ ----------- -------------- --------- ---------- --------- ---------
5% (4) 10%(4)
------ ----------- -------------- --------- ---------- --------- ---------
------ ----------- -------------- --------- ---------- --------- ---------
Carter, W.A.1,450,000 100% $2.20 9/8/08 $4,071,338 $5,137,527
------ ----------- -------------- --------- ---------- --------- ---------
(1) These warrants became exercisable on March 17, 2004, when the second ISI
acquisition was completed.
(2) Total warrants issued to employees in 2003 were 1,450,000.
(3) The exercise price is equal to the closing price of the Company's common
stock at the date of issuance.
(4) Potential realizable value is based on an assumption that the market price
of the common stock appreciates at the stated rates compounded annually,
from the date of grant until the end of the respective option term. These
values are calculated based on requirements promulgated by the Securities
and Exchange Commission and do not reflect our estimate of future stock
price appreciation.
The following table sets forth certain information regarding the stock
options held as of December 31, 2003 by the individuals named in the above
Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
Securities Underlying Unexercised Value of Unexercised
Warrants/In-the-Money-Options At Fiscal Year
Options at Fiscal Year End End (1)
Numbers Dollars
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired Realized
on ($)
Exercise
(#)
------- -------- -------- ----------- ------------- ---------- -------------
------- -------- -------- ----------- ------------- ---------- -------------
William
Carter - - 3,805,378(2) 1,950,000(3) $367,150 $217,000
Robert - - 403,750(4) - 52,000 -
Peterson
David
Strayer - - 130,000(5) - 13,000 -
Carol
Smith - - 41,791(6) - 5,200 -
----------------------------
(1) Computation based on $2.26, the December 31, 2003 closing bid price for
the common stock on the American Stock Exchange.
(2) Consist of (i) 500,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007 (ii) 188,325 warrants exercisable at $6.00 per share expiring
on February 22, 2006 (iii) 188,325 warrants exercisable at $9.00 per share
expiring on February 22, 2006 (iv) 100,000 warrants exercisable at $6.25 per
share expiring on April 8, 2004 (v) 25,000 warrants exercisable at $6.50 per
share expiring on September 17, 2004 (vi) 25,000 warrants exercisable at $8.00
per share expiring on September 17, 2004 (vii) 10,000 stock option exercisable
at $4.03 per share expiring on January 3, 2011, (viii) 73,728 stock options
exercisable at $2.71 per share until exercised. Also includes 2,695,000 warrants
and options held in the name of Carter Investments, L.C. of which W.A. Carter in
the principal beneficiary. These securities consist of (i) 340,000 warrants
exercisable at $4.00 per share expiring on January 1, 2008,(ii) 170,000 warrants
exercisable at $5.00 per share expiring on January 1, 2005,(iii) 300,000
warrants exercisable at $6.00 per share expiring on January 1, 2005 (iv) 20,000
warrants exercisable at $4.00 per share expiring on 2008,(v) 465,000 warrants
exercisable at $1.75 expiring on June 3, 2005, and 1,400,000 warrants
exercisable at $3.50 per share expiring on October 16, 2004.
(3) Consists of (i) 500,000 warrants exercisable at $2.00 per share
expiring on August 13, 2007 and (ii) 1,450,000 warrants exercisable at $2.20 per
share expiring on September 8, 2008.
(4) Consists of (i) 10,000 stock options exercisable at $4.03 per share
expiring on January 3, 2011 (ii) 13,750 stock options exercisable at $3.50 per
share expiring on January 22, 2007, (iii) 200,000 warrants exercisable at $2.00
per share expiring on August 13, 2007, (iv) 50,000 warrants exercisable at $3.50
expiring on March 1, 2006, (v) 100,000 warrants exercisable at $5.00 per share
expiring on April 14, 2006 and (vi) 30,000 warrants exercisable at $5.00 per
share expiring on February 28, 2009.
(5) Consists of (i) 50,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007, (ii) 50,000 warrants exercisable at $4.00 per share expiring
on February 28, 2008, (iii) 10,000 stock options exercisable at $4.03 expiring
on January 3, 2011 and (iv) 20,000 stock options exercisable at $3.50 per share
expiring on January 22, 2007.
(6) Consists of (I) 20,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007, (ii) 5,000 warrants exercisable at $4.00 per share expiring
on June 7, 2008, (iii) 10,000 stock options exercisable at $4.03 per share
expiring on January 3, 2016, and (iv) 6,791 stock options exercisable at $3.50
per share expiring on January 22, 2007.
New Plan Benefits
It cannot be determined at this time what benefits or amounts, if any,
will be received by or allocated to any person or group of persons under the
Company's 2004 Equity Incentive Plan (the " Equity Incentive Plan "), if the
Equity Incentive Plan is adopted, or what amounts would have been received by
any person or group of persons for the last fiscal year if the Equity Incentive
Plan had been in effect. See "Proposal 4: Approval of the Hemispherx 2004 Equity
Incentive Plan."
The following table gives information about our Common Stock that may
be issued upon the exercise of options, warrants and rights under all of our
equity compensation plans as of December 31, 2003.
962:
Number of Securities to Weighted-average Number of securities
be issued upon exercise Exercise price of Remaining available
of outstanding options, Outstanding forfuture issuance
warrants and rights options, warrants under equity
and rights compensation plans
---------- (excluding securities
reflected in column
(a))
-----------
Plan Category
-------------
(a) (b) (c)
977:
Equity compensation
plans approved by
security holders: 433,134 $ 3.16 -
Equity compensation
plans not approved _ _ -
by security holders
Total 433,134 $ 3.16 -
Employment Agreements
Hemispherx entered into an amended and restated employment agreement
with its President and Chief Executive Officer, Dr. William A. Carter, dated as
of December 3, 1998, as amended in August 2003, which provided for his
employment until May 8, 2008 at an initial base annual salary of $361,586,
subject to annual cost of living increases. In addition, Dr. Carter could
receive an annual performance bonus of up to 25% of his base salary, at the sole
discretion of the board of directors. Dr. Carter will not participate in any
discussions concerning the determination of his annual bonus. Dr. Carter is also
entitled to an incentive bonus of 0.5% of the gross proceeds received by us from
any joint venture or corporate partnering arrangement, up to an aggregate
maximum incentive bonus of $250,000 for all such transactions. Dr. Carter's
agreement also provides that he be paid a base salary and benefits through May
8, 2004 if he is terminated without "cause", as that term is defined in the
agreement. This agreement was extended to May 8, 2008. Pursuant to his original
agreement, as amended on August 8, 1991, Dr. Carter was granted options to
purchase 73,728 shares of our common stock at an exercise price of $2.71 per
share.
Hemispherx entered into an amended and restated engagement agreement
with Robert E. Peterson dated April 1, 2001, which provides for Mr. Peterson's
employment as Hemispherx's Chief Financial Officer until December 31, 2003 which
has been extended six months, at an annual base salary of $155,988 per year,
subject to annual cost of living increases. In addition, Mr. Peterson shall
receive bonus compensation upon Federal Drug Administration approval of Ampligen
based on the number of years of his employment by us up to the date of such
approval. Mr. Peterson's agreement also contains a provision for severance pay
equal to nine months compensation.
Compensation of Directors
The compensation package for members of the Board of Directors was
changed on September 9, 2003. Board member compensation consists of an annual
retainer of $100,000 to be paid 50% in cash and 50% in Company common stock. In
addition, certain non-employee directors received some compensation in 2003 for
special project work performed on the Company's behalf. All directors have been
granted options to purchase common stock under our 1990 Stock Option Plan and/or
Warrants to purchase common stock. The Company believes such compensation and
payments are necessary in order for us to attract and retain qualified outside
directors.
1990 Stock Option Plan
Hemispherx 1990 Stock Option Plan, as amended ("1990 Plan"), provides
for the grant of options to employees, directors, officers, consultants and
advisors for the purchase of up to an aggregate of 460,798 shares of common
stock. The 1990 plan is administered by the Compensation Committee of the board
of directors, which has complete discretion to select eligible individuals to
receive and to establish the terms of option grants. The number of shares of
common stock available for grant under the 1990 Plan is subject to adjustment
for changes in capitalization. As of December 31, 2003, no options were
available for grants under the 1990 plan. This plan remains in effect until
terminated by the Board of Directors or until all options are issued.
401(K) Plan
In December 1995, Hemispherx established a defined contribution plan,
effective January 1, 1995, entitled the Hemispherx Biopharma employees 401(K)
Plan and Trust Agreement. All full time employees are eligible to participate in
the 401(K) plan following one year of employment. Subject to certain limitations
imposed by federal tax laws, participants are eligible to contribute up to 15%
of their salary (including bonuses and/or commissions) per annum. Participants'
contributions to the 401(K) plan may be matched by Hemispherx at a rate
determined annually by the board of directors. Each participant immediately
vests in his or her deferred salary contributions, while Hemispherx
contributions will vest over one year. In 2003, Hemispherx provided matching
contributions to each employee for up to 6% of annual pay for a total of $34,000
for all eligible employees.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2003, the members of Hemispherx's
Compensation Committee were Ransom W. Etheridge and Richard Piani. Mr. Etheridge
serves as secretary and general counsel and he is an attorney in private
practice and has rendered legal services to Hemispherx for which he received a
fee. Mr. Piani received fees for certain consulting work performed in Europe on
Hemispherx's behalf. Mr. Etheridge was paid $60,000 for his professional
services.
Notwithstanding anything to the contrary, the following report of the
Compensation Committee, the report of the Audit Committee on page 8, and the
performance graph on page 21 shall not be deemed incorporated 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 that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Compensation Committee Report on Compensation
The Compensation Committee makes recommendations concerning salaries
and compensation for Hemispherx employees and consultants.
The following report of the compensation committee discusses executive
compensation policies and the basis of the compensation paid to executive
officers in 2003.
In general, the compensation committee seeks to link the compensation
paid to each executive officer to the experience and performance of such
executive officer. Within these parameters, the executive compensation program
attempts to provide an overall level of executive compensation that is
competitive with companies of comparable size and with similar market and
operating characteristics.
There are three elements in Hemispherx's executive compensation
program, all determined by individual and corporate performance:
o Base salary
o Annual incentive
o Long-term incentive
Base Salary
In establishing base salary levels for individual executives, the
Compensation Committee will consider factors such as the executive's scope of
responsibility, current and future potential performance, and overall
competitive positioning relative to comparable positions at other companies. The
objective of the Company is to structure salaries that are competitive with
those of similarly situated companies.
The Summary Compensation Table shows amounts earned during 2003 by
Hemispherx executive officers. The base compensation of such executive officers
is set by terms of the employment agreement entered into with each such
executive officer. Hemispherx established the base salaries for Chief Executive
Officer, Dr. William A. Carter under an employment agreement in December 3, 1998
(as amended on August 14, 2003), which provides for a base salary of $361,586
until May 8, 2008. Also, Hemispherx entered into an extended employment
agreement with Robert E. Peterson, Chief Financial Officer for a base salary of
$155,988 until December 31, 2003, which was extended six months. Dr. Carter and
Mr. Peterson's agreements allow for annual cost of living increases. Dr.
Carter's compensation also includes funds previously paid to Dr. Carter by
Hahnemann Medical University where he served as a professor until 1998. This
compensation was continued by us and totaled $79,826 in 2001, $82,095 in 2002
and $84,776 in 2003.
Annual Incentive
Annual incentive bonus awards are granted from time to time to
executives in recognition of their contribution to the Company's business and
operations, as measured against competitors of the company and the Company's
internal budgets and operating plans.
Hemispherx's Chief Executive Officer and Chief Financial Officer are
entitled to an annual incentive bonus as determined by the compensation
committee based on such executive officers' performance during the previous
calendar year. The cash bonus awarded to Hemispherx's Chief Executive Officer in
2003 and the cash bonus awarded to the Chief Financial Officer in 2003 were
determined based on this provision in their employment agreements.
Long-Term Incentives
The Company grants long-term incentive awards periodically to align a
significant portion of the executive compensation program with stockholder
interests over the long-term through encouraging and facilitating executive
stock ownership. Executives are eligible to participate in the Company's
incentive stock option plans. Hemispherx's Chief Executive Officer and
President, Dr. William Carter, received a grant of 1,450,000 warrants in 2003.
These warrants are exercisable at $2.20 per share and expire on September 8,
2008, unless previously exercised. These warrants vest upon consummation of the
second ISI asset closing or the filing by us with the U.S. Food & Drug
Administration of a new drug application, whichever happens first. The warrants
vested on March 18, 2004, when the second ISI asset closing was consummated.
Chief Executive Officer Compensation
The Summary Compensation Table shows that during the year 2003 the
Company's Chief Executive Officer and President, Dr. William A. Carter earned
$582,461 in base compensation pursuant to the terms of his employment agreement.
In addition, Dr. Carter's compensation in 2003 also includes funds previously
paid by Hahnemann University where he served as a Professor until 1998.
The Compensation Committee believes that Dr. Carter's total
compensation is consistent with the median compensation for CEO's in comparable
companies. Factors reviewed by the Compensation Committee's assessment of the
Company's and the CEO's performance includes individual performance, growth in
revenue and expense management and implementation of the Company's business
strategy.
Compliance With Internal Revenue Code Section 162(m).
One of the factors the Compensation Committee considers in connection
with compensation matters is the anticipated tax treatment to Hemispherx and to
the executives of the compensation arrangements. The deductibility of certain
types of compensation depends upon the timing of an executive's vesting in, or
exercise of, previously granted rights. Moreover, interpretation of, and changes
in, the tax laws and other factors beyond the Compensation Committee's control
also affect the deductibility of compensation. Accordingly, the Compensation
Committee will not necessarily limit executive compensation to that deductible
under Section 162(m) of the Code. The Compensation Committee will consider
various alternatives to preserving the deductibility of compensation payments
and benefits to the extent consistent with its other compensation objectives.
This report submitted by the Compensation Committee of the
Company's Board of Directors.
Richard C. Piani
Dr. William M. Mitchell
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return for
the Company's common stock since December 31, 1998 to the cumulative total
returns of (i) the Standard & Poor's Smallcap 600 Index and (ii) a peer group
index for the same period, assuming an investment of $100 in each of the
Company's common stock, the Standard & Poor's Smallcap 600 Index and the peer
group index.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
ASSUMES $100 INVESTED ON JAN. 1, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2003
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index Dec99 Dec00 Dec01 Dec02 Dec03
------------------------ ------ ----- ----- ----- -----
HEMISPHERX BIOPHARMA INC 44.55 -52.20 -5.26 -52.67 6.10
S&P SMALLCAP 600 INDEX 12.40 11.80 6.54 -14.63 38.79
PEER GROUP -23.18 -33.76 48.39 -45.76 5.33
INDEXED RETURNS
Base Years Ending
Period
Company Name / Index Dec98 Dec99 Dec00 Dec01 Dec02 Dec03
------------------------ ------ ----- ------ ----- ----- ------
HEMISPHERX BIOPHARMA INC 100 144.55 69.09 65.45 30.98 32.87
S&P SMALLCAP 600 INDEX 100 112.40 125.67 133.88 114.30 158.63
PEER GROUP 100 76.82 50.88 75.51 40.95 43.14
Peer Group Companies
-----------------------------------------
AVI BIOPHARMA INC
IMMUNE RESPONSE CORP/DE
LA JOLLA PHARMACEUTICAL CO
MAXIM PHARMACEUTICALS INC
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 26, 2004, the number and
percentage of outstanding shares of common stock beneficially owned by:
o Each person, individually or as a group, known to us to be
deemed the beneficial owners of five percent or more of our
issued and outstanding common stock;
o each of our directors and the Named Executives; and
o all of our officers and directors as a group.
This table is based upon information supplied by Schedules 13D and 13G,
if any, filed with the Securities and Exchange Commission, and information
obtained from our directors and named executives. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares of common stock which such person has the right to acquire within 60
days. For purposes of computing the percentage of outstanding shares of common
stock held by each person or group of persons named in the table, any security
which such person or persons has or have the right to acquire within such date
is deemed to be outstanding but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, we believe, based on information supplied by such persons, that the
persons named in this table have sole voting and investment power with respect
to all shares common stock which they beneficially own. As of April 26, 2004,
42,363,928 shares of our common stock were outstanding. Unless otherwise noted,
the address of each of the principal stockholders is care of us at One Penn
Center, 1617 JFK Boulevard, Philadelphia, Pennsylvania 19103.
Name and Address of Shares Beneficially Owned % Of Share Beneficially
Beneficial Owner Owned
------------------------ ------------------------- ---------------------
William A. Carter, M.D. 5,760,028 (1) 12.1%
Robert E. Peterson 404,250 (2) *
Ransom W. Etheridge 439,009(3) 1.0
2610 Potters Rd.
Virginia Beach, VA 23452
Richard C. Piani 196,747(4) *
97 Rue Jeans-Jaures
Levaillois-Perret
France 92300
William M. Mitchell, M.D. 196,861(5) *
Vanderbilt University
Department of Pathology
Medical Center North
21st and Garland
Nashville, TN 37232
Antoni Esteve 347,446(6) *
Laboratorios Del Dr. Esteve S.A.
AV. Mare de Deu de Montserat
Barcelona, 08041, Spain
David R. Strayer, M.D. 144,746(7) *
Carol A. Smith 41,791(8) *
Iraj-Eqhbal Kiani 12,000(9) *
Orange County Immune Institute
18800 Delaware Street
Huntingdon Beach, CA 92648
Mei-June Liao, Ph.D. - -
Robert Hansen - -
All directors and executive officers as a
group (11 persons) 7,518,185 15.4
------------------------
* Less than 1%
(1) Includes (i) an option to purchase 73,728 shares of common stock from
Hemispherx at an exercise price of $2.71 per share and expiring on
August 8, 2004, (ii) Rule 701 Warrants to purchase 1,400,000 shares of
common stock at a price of $3.50 per share, originally expiring on
September 30, 2002 was extended to September 30,2007; (iii) warrants to
purchase 465,000 shares of common stock at $1.75 per share issued in
connection with the 1995 Standby Financing Agreement and expiring on
June 30, 2005; (iv) 340,000 common stock warrants exercisable at $4.00
per share and originally expiring on January 1, 2003 was extended to
January 1, 2008; (v) 170,000 common stock warrants exercisable at $5.00
per share and expiring on January 2, 2005;(vi) 25,000 warrants to
purchase common stock at $6.50 per share and expiring on September 17,
2004;(vii) 25,000 warrants to purchase common stock at $8.00 per share
and expiring on September 17, 2004;(viii) 100,000 warrants to purchase
common stock at $6.25 per share and expiring on April 8, 2004; (ix)
20,000 warrants to purchase common stock at $4.00 per share originally
expiring January 1, 2003 was extended to January 1, 2008, (x) 188,325
common stock warrants exercisable at $6.00 per share and expiring on
February 22, 2006; (xi) 188,325 common stock warrants exercisable at
$9.00 per share and expiring on February 22, 2006 (xii) 300,000 common
stock warrants granted in 1998 that are exercisable at $6.00 per share
and expiring on January 1, 2006 (xiii) options to purchase 10,000
shares of common stock at $4.03 per share and expiring on January 3,
2011 (xiv) 500,000 warrants exercisable $2.00 per share in August 13,
2007 (xv) 1,450,000 warrants exercisable at $2.20 per share expiring on
September 9, 2008 and (x) 504,650 shares of common stock. Does not
include 500,000 warrants exercisable at $2.00 per share expiring on
August 13, 2007 that are not vested.
(2) Includes (i) 13,750 options to purchase common stock at an exercise
price of $3.50 per share, expiring on January 7, 2007; (ii) warrants to
purchase 50,000 shares of Common stock at an exercise price of $3.50
per share, expiring on March 1, 2006; (iii) warrants to purchase
100,000 shares of common stock at $5.00 per share, expiring on April
14, 2006; (iv) 30,000 warrants to purchase common stock at $5.00 per
share an expiring on February 28, 2009 (v) options to purchase 10,000
shares at $4.03 per share that expire on January 3, 2011 (vi) 200,000
warrants exercised at $2.00 per share expiring on November 13, 2007 and
(vii) 500 shares of common stock.
(3) Includes 20,000 warrants to purchase common stock at $4.00 per share,
originally expiring on January 1, 2003 and was extended to January 1,
2008; 25,000 warrants to purchase common stock at $6.50 per share;
25,000 warrants to purchase common stock at $8.00 per share, all
expiring on September 12, 2004; 100,000 warrants exercisable $2.00 per
share expiring on August 13, 2007; 200,000 stock options exercisable at
$2.75 per share and expiring on December 4, 2013 and 69,009 shares of
common stock.
(4) Includes (i) 20,000 warrants to purchase common stock at $4.00 per
share; (ii) warrants to purchase 25,000 shares of common stock at $6.50
per share; (iii) 25,000 warrants to purchase common stock at $8.00 per
share, all expiring on September 17, 2004;(vi) 100,000 warrants
exercisable at $2.00 per share expiring on August 13, 2007, (vi) 8,847
shares of common stock owned by Mr. Piani (vi) 12,900 shares of common
stock owned jointly by Mr. and Mrs. Piani; and (vii) 5000 shares of
common stock owned by Mrs. Piani.
(5) Includes (I) warrants to purchase 12,000 shares of common stock at
$6.00 per share, expiring on August 25, 2008; (ii) 25,000 warrants to
purchase common stock at $6.50 per share; (iii) 25,000 warrants to
purchase common stock at $8.00 per share all expiring on September 17,
2004; (iv) 100,000 warrants exercisable at $2.00 per share expiring in
August 13, 2007 and 34,861 shares of common stock.
(6) Consists of 347,446 shares of our common stock owned by Provesan S.A.,
an affiliate of Laboratorios del Dr. Esteve S.A. Dr.
Antoni Esteve is a member of the executive committee and director
of Scientific and Commercial Operations of Laboratorios
del Dr. Esteve S.A.
(7) Includes (i) stock options to purchase 20,000 shares of common stock at
$3.50 per share; (ii) 50,000 warrants to purchase common stock at $4.00
per share; (iii) 10,000 stock options exercisable at $4.03 per share
and expiring on January 3, 2011; 50,000 warrants to purchase common
stock at $2.00 per share and expiring on August 13, 2007 and; (iv)
14,746 shares of common stock.
(8) Consists of 5,000 warrants to purchase common stock at $4.00 per share
expiring June 7, 2008; 6,791 stock options
exercisable at $3.50 expiring January 22, 2007, 20,000 warrants
exercisable at $2.00 per share expiring in August 13, 2007
and options to purchase 10,000 shares of common stock at $ 4.03 per
share expiring on January 3, 2011.
(9) Consist of 12,000 warrants exercisable at $3.86 per share expiring on
April 30, 2005.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed the firm of BDO Seidman, LLP as independent auditors of Hemispherx
for the fiscal year ending December 31, 2004 subject to ratification by the
stockholders. BDO Seidman, LLP has served as Hemispherx's independent auditors
since June 2000.
At the Annual Stockholder's Meeting on September 10, 2003, and pursuant
to the recommendation of the Audit Committee of the Board of Directors,
stockholders ratified the appointment of the firm of BDO Seidman, LLP, as
independent accountants, to audit the financial statements of the Company for
the year end December 31, 2003.
All audit and professional services provided by BDO Seidman, LLP are
approved by the Audit Committee. The total fees billed by BDO Seidman, LLP were
$178,429 in 2002 and $313,992 in 2003. The following table shows the aggregate
fees billed to us by BDO Seidman, LLP for professional services rendered during
the year ended December 31, 2003.
-------------------- --------------------------------
Amount ($)
-------------------- --------------------------------
-------------------- ----------------- --------------
Description of Fees 2002 2003
--------------------- ---------------- --------------
--------------------- ---------------- --------------
Audit Fees $173,929 $264,917
--------------------- ---------------- --------------
--------------------- ---------------- --------------
Audit-Related Fees 4,500 43,580
--------------------- ---------------- --------------
--------------------- ---------------- --------------
Tax Fees - -
--------------------- --------------- ---------------
--------------------- --------------- ---------------
All Other Fees - -
--------------------- --------------- ---------------
--------------------- --------------- ---------------
--------------------- --------------- ---------------
--------------------- --------------- ---------------
Total $178,429 $308,497
======== ========
----------------------------------------- -----------
Audit Fees
Represents fees for professional services provided for the audit of our
annual financial statements and review of our financial statements included in
our quarterly reports and services in connection with statutory and regulatory
filings.
Audit-Related Fees
Represents the fees for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements, including those in 2002 and 2003 related to the acquisition of the
ISI business.
The Audit Committee has determined that BDO Seidman, LLP's rendering of
these non-audit services is compatible with maintaining auditors independence.
The Board of Directors considers BDO Seidman, LLP to be well qualified to serve
as the independent public accountants of the Company. If, however, the
stockholders do not ratify the appointment of BDO Seidman, LLP, the Board of
Directors may, but is not required to, reconsider the appointment. It is
anticipated that a representative of BDO Seidman, LLP will be present at the
Annual Meeting and will be available to respond to appropriate questions.
The affirmative vote of at least a majority of the shares represented
and voting at the Annual Meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the required quorum)
is necessary for approval of Proposal No. 2.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
HEMISPHERX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3
APPROVAL OF THE ISSUANCE OF 13,468,793 SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF CERTAIN WARRANTS AND UPON CONVERSION OF CERTAIN OUTSTANDING
DEBENTURES AND DEBENTURES ISSUABLE UPON EXERCISE OF CERTAIN RIGHTS TO COMPLY
WITH AMEX COMPANY GUIDE SECTION 713
As described below, in three transactions between July 10, 2003 and January 26,
2004, we issued convertible debentures, rights to purchase convertible
debentures, warrants and common stock in private transactions with accredited
investors. Section 713 of the American Stock Exchange ("AMEX") Company Guide
provides that we must obtain stockholder approval before issuance, at a price
per share below market value, of common stock, or securities convertible into
common stock, equal to 20% or more of our outstanding common stock. Taken
separately, the three transactions do not trigger Section 713. However, the AMEX
has taken the position that the three transactions should be aggregated and, as
such, stockholder approval is required for exercise of all of the warrants and
conversion of some of the Debentures.
To assure that we are in compliance with Company Guide Section 713, we are
requesting your approval of the issuance of 13,468,793 shares (includes
2,798,097 anti-dilution shares) upon conversion of all of the warrants, and upon
conversion of all of the outstanding debentures and all of the debentures
issuable upon exercise of rights described below.
Description of the transactions.
-------------------------------
On July 10, 2003, we issued an aggregate of $5,426,000 in principal amount of 6%
Senior Convertible Debentures due July 31, 2005 (the "July Debentures") and an
aggregate of 507,103 Warrants (the "July 2008 Warrants") to two accredited
investors, in a private placement for aggregate anticipated proceeds of
$4,650,000. Pursuant to the terms of the July Debentures, $1,550,000 of the
proceeds from the sale of the July Debentures were to have been held back and
released to us if, and only if, we acquired the facility of Interferon Sciences,
Inc. ("ISI") with in a set timeframe. These funds were released to us in October
2003 although we had not acquired ISI's facility at that time. The July
Debentures mature on July 31, 2005 and bear interest at 6% per annum, payable
quarterly in cash or, subject to satisfaction of certain conditions, common
stock. Any shares of common stock issued to the investors as payment of interest
shall be valued at 95% of the average closing price of the common stock during
the five consecutive business days ending on the third business day immediately
preceding the applicable interest payment date.
The July Debentures are convertible at the option of the investors at any time
through July 31, 2005 into shares of our common stock. The conversion price
under the July Debentures was fixed at $2.14 per share; however, as part of the
debenture placement closed on October 29, 2003 (see below), the conversion price
under the July Debentures was lowered to $1.89 per share. The conversion price
is subject to adjustment for anti-dilution protection for issuance of common
stock or securities convertible or exchangeable into common stock at a price
less than the conversion price then in effect. In addition, in the event that we
do not pay the redemption price at maturity, the Debenture holders, at their
option, may convert the balance due at the lower of (a) the conversion price
then in effect and (b) 95% of the lowest closing sale price of our common stock
during the three trading days ending on and including the conversion date.
The July 2008 Warrants, as amended, received by the investors are to acquire at
any time commencing on July 26, 2004 through January 31, 2009 an aggregate of
507,102 shares of common stock at a price of $2.46 per share. On July 10, 2004,
the exercise price of these July 2008 Warrants will reset to the lesser of the
exercise price then in effect or a price equal to the average of the daily price
of the common stock between July 11, 2003 and July 9, 2004 (but in no event less
than $2.14 per share). The exercise price (and the reset price) under the July
2008 Warrants also is subject to similar adjustments for anti-dilution
protection.
On October 29, 2003, we issued an aggregate of $4,142,357 in principal amount of
6% Senior Convertible Debentures due October 31, 2005 (the "October Debentures")
and an aggregate of 410,134 Warrants (the "October 2008 Warrants") in a private
placement for aggregate anticipated gross proceeds of $3,550,000. Pursuant to
the terms of the October Debentures, $1,550,000 of the proceeds from the sale of
the October Debentures have been held back and will be released to us if, and
only if, we acquire ISI's facility within 90 days of January 26, 2004 and
provide a mortgage on the facility as further security for the October
Debentures. In March 2004, we acquired the facility and we are in the process of
mortgaging the facility to the Debenture holders. The October Debentures mature
on October 31, 2005 and bear interest at 6% per annum, payable quarterly in cash
or, subject to satisfaction of certain conditions, common stock. Any shares of
common stock issued to the investors as payment of interest shall be valued at
95% of the average closing price of the common stock during the five consecutive
business days ending on the third business day immediately preceding the
applicable interest payment date.
Upon completing the sale of the October Debentures, we received $3,275,000 in
net proceeds consisting of $1,725,000 from the October Debentures and $1,550,000
that had been withheld from the July Debentures. As noted above, $1,550,000 of
the proceeds from the October Debentures have been held back pending our
mortgaging of the ISI facility to the Debenture holders. We are in the process
of providing this mortgage.
The October Debentures are convertible at the option of the investors at any
time through October 31, 2005 into shares of our common stock. The conversion
price under the October Debentures is fixed at $2.02 per share, subject to
adjustment for anti-dilution protection for issuance of common stock or
securities convertible or exchangeable into common stock at a price less than
the conversion price then in effect. In addition, in the event that we do not
pay the redemption price at maturity, the Debenture holders, at their option,
may convert the balance due at the lower of (a) the conversion price then in
effect and (b) 95% of the lowest closing sale price of our common stock during
the three trading days ending on and including the conversion date.
The October 2008 Warrants, as amended, received by the investors are to acquire
at any time commencing on July 26, 2004 through April 30, 2009 an aggregate of
410,134 shares of common stock at a price of $2.32 per share. On October 29,
2004, the exercise price of these October 2008 Warrants will reset to the lesser
of the exercise price then in effect or a price equal to the average of the
daily price of the common stock between October 29, 2003 and October 27, 2004
(but in no event less than $2.19 per share). The exercise price (and the reset
price) under the October 2008 Warrants also is subject to similar adjustments
for anti-dilution protection.
On January 26, 2004, we issued: (i) an aggregate of $4,000,000 in principal
amount of 6% Senior Convertible Debentures due January 31, 2006 (the "January
2004 Debentures"); (ii) an aggregate of 790,514 warrants (the "2009 Warrants");
(iii) 158,103 shares of common stock; and (iv) Additional Investment Rights
("AIR") to purchase up to an additional $2,000,000 principal amount of January
2004 Debentures commencing in six months, in a private placement for aggregate
net proceeds of $3,695,000. The January 2004 Debentures mature on January 31,
2006 and bear interest at 6% per annum, payable quarterly in cash or, subject to
satisfaction of certain conditions, common stock. Any shares of common stock
issued to the investors as payment of interest shall be valued at 95% of the
average closing price of the common stock during the five consecutive business
days ending on the third business day immediately preceding the applicable
interest payment date. Commencing six months after issuance, we are required to
start repaying the then outstanding principal amount under the January 2004
Debentures in monthly installments amortized over 18 months in cash or, at our
option, in shares of common stock. Any shares of common stock issued to the
investors as installment payments shall be valued at 95% of the average closing
price of the common stock during the 10-day trading period commencing on and
including the eleventh trading day immediately preceding the date that the
installment is due.
The January 2004 Debentures are convertible at the option of the investors at
any time through January 31, 2006 into shares of our common stock. The
conversion price under the January 2004 Debentures is fixed at $2.53 per share,
subject to adjustment for anti-dilution protection for issuance of common stock
or securities convertible or exchangeable into common stock at a price less than
the conversion price then in effect. In addition, in the event that we do not
pay the redemption price at maturity, the Debenture holders, at their option,
may convert the balance due at the lower of (a) the conversion price then in
effect and (b) 95% of the lowest closing sale price of our common stock during
the three trading days ending on and including the conversion date.
There are two classes of July 2009 warrants received by the Investors: Class A
and Class B. The Class A warrants are to acquire any time from July 26, 2004
through July 26, 2009 an aggregate of up to 395,257 shares of common stock at a
price of $3.29 per share. The Class B warrants are to acquire any time from July
26, 2004 through July 26, 2009 an aggregate of up to 395,257 shares of common
stock at a price of $5.06 per share. On January 27, 2005, the exercise price of
these July 2009 Class A and Class B Warrants will reset to the lesser of their
respective exercise price then in effect or a price equal to the average of the
daily price of the common stock between January 27, 2004 and January 26, 2005
(but in no event less than $2.58 per share with regard to the Class A warrants
and $3.54 per share with regard to the Class B warrants). The exercise price
(and the reset price) under the July 2009 Warrants also is subject to similar
adjustments for anti-dilution protection.
The above mentioned AIR grant the investors the right to acquire up to an
additional $2,000,000 principal amount of January 2004 Debentures from us. These
Debentures are identical to the January 2004 Debentures except that the
conversion price is $2.58. The AIR are exercisable commencing on July 26, 2004
(the "Trigger" date) for a period of 90 days from the Trigger Date or 90 days
from the date which the registration statement registering the shares issuable
upon the conversion of the January 2004 Debentures to be issued pursuant to the
AIR is declared effective, whichever is longer.
Pursuant to the terms and conditions of the July Debentures, October Debentures
and January 2004 Debentures (collectively, the "Debentures"), we have pledged
all of our assets, other than our intellectual property, as collateral, and we
are subject to comply with certain financial and negative covenants. In
addition, we have paid $1,300,000 into the Debenture cash collateral account as
required by the terms of the Debentures. The cash collateral account provides
additional security for repayment of the Debentures in the event of default.
We entered into Registration Rights Agreements with the investors in connection
with the issuance of (i) the Debentures (including any Debentures issued
pursuant to the AIR); (ii) the July 2008, October 2008 and January 2009 Warrants
(collectively, the "Warrants"); and (iii) the shares issued in January 2004.
Pursuant to the Registration Rights Agreements we have registered on behalf of
the investors the shares issued to them in January 2004 and 135% of the shares
issuable upon conversion of the Debentures (including any Debentures issued
pursuant to the AIR) and upon exercise of the Warrants. If , subject to certain
exceptions, sales of all shares so registered cannot be made pursuant to the
registration statements, then we will be required to pay to the investors their
pro rata share of $3,635 for each day the above condition exists.
By agreement with Cardinal Securities, LLC, for general financial advisory
services and in conjunction with the private debenture placements in July and
October 2003 and in January 2004, we paid Cardinal Securities, LLC an investment
banking fee equal to 7% of the investments made by the two Debenture holders and
issued to Cardinal the following common stock purchase warrants: (i) 112,500
exercisable at $2.57 per share; (ii) 87,500 exercisable at $2.42 per share; and
(iii) 100,000 exercisable at $3.04 per share. The $2.57 warrants expire on July
10, 2008, the $2.42 warrants expire on October 30, 2008 and the $3.04 warrants
expire on January 5, 2009. By agreement with Cardinal, we have registered
300,000 of the shares issuable upon exercise of these warrants for public sale
and agreed to register the balance. We are seeking approval of the issuance of
the shares upon exercise of these warrants too.
As of the record date, the investors had converted $11,902,610 of debt from the
March, July and October Debentures into 7,073,234 shares of our common stock.
The March Debentures have been fully converted. The remaining principal balance
on the Debentures is convertible into shares of our stock at the option of the
investors at any time, through their respective maturity dates.
We have used and continue to use the net proceeds from these private offerings
for operating purposes.
Effects of issuance of the shares
A significant number of shares will be issuable upon conversion of the
Debentures and exercise of the Warrants. To the extent that a significant number
of these shares are issued, there will be a substantial pro rata dilution to our
current stockholders. In addition, because these shares have been registered for
public sale, such sales, or the anticipation of the possibility of such sales,
represents an overhang on the market and could depress the market price of our
common stock.
However, if issuance of the these shares is not approved by stockholders, we
will be unable to issue shares upon exercise of approximately 2,707,751 warrants
and we will be unable to issue shares upon conversion of the Debentures issuable
upon exercise of the AIR. Depending upon the amount and timing of conversion of
the outstanding Debentures, we also may be required to pay interest in cash
rather than shares.
Pursuant to the terms of the Warrants, if stockholders do not approve this
resolutions, any time the Warrant holder presents a notice of exercise, we would
be required to pay within two business days an amount in cash equal to the
product of (X) the number of shares of common stock which could not be issued
multiplied by (Y) the excess of (1) the average of the closing sale prices of
the common stock on each of the five trading days ending on the third trading
day immediately preceding the date that the Warrants become unexercisable as a
result of the stockholders failure to approve this resolution over (2) the
warrant exercise price then in effect.
Pursuant to the terms of the Debentures issuable upon exercise of the AIR, if
stockholders do not approve this resolutions, any time the Debenture holder
presents a notice of conversion, we would be required to pay within two business
days an amount in cash equal to the number of shares of common stock which could
not be issued multiplied by (Y) the average of the weighted average price of the
common stock on each of the five trading days ending on the third trading day
immediately preceding the date of delivery of such conversion notice.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF
HEMISPHERX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 4
APPROVAL OF THE HEMISPHERx 2004 EQUITY INCENTIVE PLAN
The Company is submitting the Hemispherx 2004 Equity Incentive Plan
(the "Equity Incentive Plan") to the stockholders for approval at the annual
meeting. The Equity Incentive Plan is intended to attract and retain individuals
of experience and ability, to provide incentive to employees, consultants, and
non-employee directors of the Company, to encourage employee and director
proprietary interests in the Company, and to encourage employees to remain in
the employ of the Company. The Equity Incentive Plan is conditioned upon the
stockholders' approval. The purposes of obtaining stockholder approval include
qualifying the Equity Incentive Plan under the Internal Revenue Code (the
"Code") for the granting of incentive stock options; meeting the requirements
for tax-deductibility of certain compensation items under Section 162(m) of the
Code; and meeting the requirements of AMEX applicable to the Equity Incentive
Plan.
The following general description of certain features of the Equity
Incentive Plan is qualified in its entirety by reference to the Equity Incentive
Plan, which is attached as Appendix A. Capitalized terms not otherwise defined
herein have the meanings ascribed to them in the Equity Incentive Plan.
The Board of Directors adopted the Equity Incentive Plan effective May
1, 2004, subject to the approval of the Company's stockholders. The Equity
Incentive Plan authorizes the grant of non-qualified and incentive stock
options, stock appreciation rights, restricted stock and other stock awards. A
maximum of 8,000,000 shares of common stock is reserved for potential issuance
pursuant to awards under the Equity Incentive Plan. Unless sooner terminated,
the Equity Incentive Plan will continue in effect for a period of 10 years from
its effective date.
The Equity Incentive Plan is administered by the Board of Directors.
The Equity Incentive Plan provides for awards to be made to such officers, other
key employees, non-employee directors, consultants and advisors of the Company
and its subsidiaries as the Board may select. No awards have been granted under
the Equity Incentive Plan.
Stock options awarded under the Equity Incentive Plan may be
exercisable at such times (not later than 10 years after the date of grant) and
at such exercise prices (not less than fair market value at the date of grant)
as the Board may determine. The Board may provide for options to become
immediately exercisable upon a "change in control," which is defined in the
Equity Incentive Plan to occur upon any of the following events: (a) the
acquisition by any person or group, as beneficial owner, of 20% or more of the
outstanding shares or the voting power of the outstanding securities of the
Company; (b) either a majority of the directors of Company at the annual
stockholders meeting has been nominated other than by or at the direction of the
incumbent directors of the Board, or the incumbent directors cease to constitute
a majority of the Company's Board; (c) the Company's stockholders approve a
merger or other business combination pursuant to which the outstanding common
stock of the Company no longer represents more than 50% of the combined entity
after the transaction; (d) the Company's shareholders approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of the Company's assets; or (e) any other event or circumstance determined
by the Company's Board to affect control of the Company and designated by
resolution of the Board as a change of control.
The exercise price of an option may be paid with cash, common stock, or
such other consideration as the Board may specify. No options may be granted
under the Equity Incentive Plan after the tenth anniversary of its effective
date. Unless the Board determines otherwise, options will be transferable only
by will or the laws of descent and distribution.
Stock appreciation rights awarded under the Equity Incentive Plan may
be granted as related rights, either in connection with and at the same time as
an option is granted, or by amendment of an outstanding non-qualified option. A
related stock appreciation right may be granted with respect to all or some of
the shares covered by the related option. Related stock appreciation rights
generally become exercisable at the same times as the related options become
exercisable, but may be limited so as to become exercisable only upon certain
events, such as a change in control. Upon exercise of a related right, the
grantee would receive, in lieu of purchasing stock, either stock or cash equal
to the difference between the fair market value on the date of exercise of the
underlying shares of common stock subject to the related option and the exercise
price of the option. Stock appreciation rights may also be granted independently
of any option, to become exercisable at such times as the Board may determine.
Upon exercise of such a right, the grantee would receive either stock or cash
equal to the difference between the fair market value on the date of exercise of
the shares of common stock subject to the right and the fair market value of the
shares on the date of grant of the right.
Restricted stock awarded under the Equity Incentive Plan may be granted
on such terms and conditions as the Board may determine, including provisions
that govern the lapse of restrictions and voting dividend, distribution and
other shareholder rights with respect to the restricted stock. If a grantee of
restricted stock terminates service with the Company for any reason, the grantee
will forfeit to the Company any restricted stock on which the restrictions have
not lapsed or been removed on or before the date of termination of service.
Other stock awards under the Equity Incentive Plan may provide for
common stock to be issued to grantees in exchange for consideration specified by
the Board that is either the grantee's cash or other direct payment to the
Company or the grantee's past services rendered to the Company or a subsidiary
on or before issuance.
The following is a brief summary of certain of the U.S. federal
income tax consequences of certain transactions under the Equity Incentive Plan
based on federal income tax laws in effect on January 1, 2004. This summary
applies to the Equity Incentive Plan as normally operated and is not intended to
provide or supplement tax advice to eligible employees. The summary contains
general statements based on current U.S. federal income tax statutes,
regulations and currently available interpretations thereof. This summary is not
intended to be exhaustive and does not describe state, local or foreign tax
consequences or the effect, if any, of gift, estate and inheritance taxes.
Grants of options or stock appreciation rights are not taxable income
to the grantees or deductible for tax purposes by the Company at the time of the
grant. In the case of non-qualified stock options, a grantee will be deemed to
receive ordinary income upon exercise of the stock option, and the Company will
be entitled to a corresponding deduction, in an amount equal to the amount by
which the fair market value of the common stock purchased on the date of
exercise exceeds the exercise price. The exercise of an incentive stock option
will not be taxable to the grantee or deductible by the Company, but the amount
of any income deemed to be received by a grantee due to premature disposition of
common stock acquired upon the exercise of an incentive stock option will be a
deductible expense of the Company for tax purposes. In the case of stock
appreciation rights, a grantee will be deemed to receive ordinary income upon
exercise of the right, and the Company will be entitled to a corresponding
deduction, in an amount equal to the cash or fair market value of shares payable
to the grantee. Grantees of restricted stock awards generally will recognize
ordinary income in an amount equal to the fair market value of the shares of
common stock granted to them at the time that the restrictions on the shares
lapse and the shares become transferable. At that time, the Company will be
entitled to a corresponding deduction equal to the amounts recognized as income
by the grantees in the year in which the amounts are included in the grantees'
income. Grantees of stock issued pursuant to other stock awards will generally
receive ordinary income, and the Company will be entitled to a corresponding
deduction, in an amount equal to the amount by which the fair market value of
the common stock on the date of issuance exceeds the grantee's cash or other
payment to the Company, if any.
Section 162(m) of the Code generally disallows a publicly held
corporation's tax deduction for certain compensation in excess of $1 million per
year paid to each of the five most highly compensated executive officers,
exclusive of compensation that is "performance-based." The Company has designed
the Equity Incentive Plan in a manner that is intended to qualify the options
and any stock appreciation rights granted under the Equity Incentive Plan as
performance-based compensation that will not be subject to the deduction
limitation of Section 162(m). Any grant of restricted stock or other stock award
could (but is not required to) be designed to avoid any such deduction
limitation.
The Board has the general power to amend the Equity Incentive Plan in
any respect. However, if the Equity Incentive Plan is approved by the
stockholders at the annual meeting, the Board may not, without further approval
of the Company's stockholders, amend the Plan so as to increase the aggregate
number of shares of common stock that may be issued under the Equity Incentive
Plan, modify the requirements as to eligibility to receive awards, or to
increase materially the benefits accruing to participants. In addition, the
Board is permitted to modify, extend or renew outstanding stock options or stock
appreciation rights, and to authorize the granting of new options or stock
appreciation rights in substitution for existing options and rights. However,
existing options or rights may not be repriced, directly or indirectly, so as to
provide for modified or new options or rights with an exercise price lower than
the exercise price provided for the outstanding stock options and stock
appreciation rights. The Board is also authorized to accelerate the lapse of
restrictions on restricted stock awards or to remove any or all restrictions at
any time.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 4 TO BE IN THE BEST INTERESTS OF
HEMISPHERx AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE
HEMISPHERx 2004 EQUITY INCENTIVE PLAN
GENERAL
Unless contrary instructions are indicated on the proxy, all shares of
common stock represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be voted FOR the
election of all directors nominated and FOR Proposals No. 2, 3 and 4.
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of
the stockholders arise, the persons designated as proxies will vote the
shares of common stock represented by the proxies in accordance with their
judgment on such matters. If a stockholder specifies a different choice on
the proxy, his or her shares of common stock will be voted in accordance
with the specification so made.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN,
SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE
PROVIDED, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
By Order of the Board of Directors,
Ransom W. Etheridge, Secretary
Philadelphia, Pennsylvania
May , 2004