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
(Amendment No. 1)
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.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: _________
2) Aggregate number of securities to which transaction applies: _________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction: _________
5) Total fee paid: __________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _________
(2) Form, Schedule or Registration Statement No.: _________
(3) Filing Party: _________
(4) Date Filed:
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
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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
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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.
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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
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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.
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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
7
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
8
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
9
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 andResearch 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.
10
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
11
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 $100,000
(collectively, the "Named Executives").
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary ($) Restricted Warrants & All Other
Stock Awards Options Awards Compensation (1)
------------------------------------------------------------------------------------------------------------------------------
2003 (4) $582,461 -- (5) 1,450,000 $ 37,175
William A. Carter 2002 (4) 565,514 -- (8) 1,000,000 25,747
Chairman of the Board and CEO 2001 (4) 551,560 -- (2) 386,650 22,917
2003 (9) $230,450 -- -- --
Robert E. Peterson 2002 151,055 -- (8) 200,000 --
Chief Financial Officer 2001 146,880 -- (3) 40,000 --
2003 -- -- --
David R. Strayer, M.D 2002 (6) $190,096 -- (8) 50,000 --
Medical Director 2001 (6) 178,594 -- (7) 10,000 --
(6) 174,591
2003 $140,576 -- -- --
Carol A. Smith, Ph.D 2002 128,346 -- (8) 20,000 --
Director of 2001 124,800 -- (7) 10,000 --
Manufacturing
Robert Hansen, 2003 (10) $104,500 -- -- --
V.P. of Manufacturing 2002 -- -- -- --
2001 -- -- -- --
12
(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.
13
-------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED RATES
NUMBER OF TOTAL WARRANTS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE WARRANTS TERM
WARRANTS FISCAL YEAR PRICE PER EXPIRATION ----------------------------
NAME GRANTED (1) 2002(2) SHARE (3) DATE 5% (4) 10%(4)
-------------------------------------------------------------------------------------------------------------------------------
Carter, W.A. 1,450,000 100% $2.20 9/8/08 $4,071,338 $5,137,527
-------------------------------------------------------------------------------------------------------------------------------
(1) These warrants became exercisable on March 17, 2004, when the second ISI
acquisition was completed.
(2) Total warrants issued to employees in 2003 were 1,450,000.
(3) The exercise price is equal to the closing price of the Company's common
stock at the date of issuance.
(4) Potential realizable value is based on an assumption that the market price
of the common stock appreciates at the stated rates compounded annually,
from the date of grant until the end of the respective option term. These
values are calculated based on requirements promulgated by the Securities
and Exchange Commission and do not reflect our estimate of future stock
price appreciation.
14
The following table sets forth certain information regarding the stock
options held as of December 31, 2003 by the individuals named in the above
Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
Securities Underlying Unexercised Value of Unexercised
Warrants/In-the-Money-Options At Fiscal Year
Options at Fiscal Year End End (1)
Numbers Dollars
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized ($)
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.
15
(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.
Number of securities
Weighted-average Remaining available for
Number of Securities to Exercise price of future issuance under
be issued upon exercise Outstanding equity compensation
of outstanding options, options, warrants plans(excluding securities
warrants and rights and rights reflected in column (a))
----------------------- ----------------- --------------------------
Plan Category
(a) (b) (c)
Equity compensation plans approved by
security holders: 433,134 $ 3.16 --
Equity compensation plans not approved -- -- --
by security holders:
Total 433,134 $ 3.16 --
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.
17
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.
18
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
19
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]
20
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.
21
Name and Address of Shares Beneficially % Of Share
Beneficial Owner Owned Beneficially 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;
22
(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
23
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
24
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 13,686,841 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 four transactions between July 10, 2003 and May 14, 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 (the "Exchange Cap"). Taken
separately, the four transactions do not trigger Section 713. However, the AMEX
has taken the position that the transactions should be aggregated and, as such,
stockholder approval is required for exercise of the warrants and conversion of
the Debentures at least to the extent that issuance of those shares equals or
exceeds the Exchange Cap.
To assure that we are in compliance with Company Guide Section 713, we are
requesting your approval of the issuance of 13,686,841 shares (which includes
2,444,074 anti-dilution shares). These include shares issued and to be issued
upon conversion of all of the outstanding debentures, including the debentures
issuable upon exercise of rights described below, and upon exercise of all of
the warrants. If this proposal is not passed, we will be required to make cash
payments in lieu of issuing shares of our stock upon conversion of debentures
and exercise of warrants. See "Effects of issuance of the shares" below. In
addition, approval of this proposal will give us more flexibility to do equity
financing transactions in the future.
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 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.
25
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 funded 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. The exercise price
(and the reset price) under the July 2008 Warrants also is subject to similar
adjustments for anti-dilution protection. Notwithstanding the foregoing, the
exercise price as reset or adjusted for anti-dilution, will in no event be less
than $2.14 per share.
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 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 had been held back, but were released to us in April 2004. As
required by the Debentures, we are in the process of providing a mortgage on the
ISI facility as further security for the Debentures. 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 had been held back but were released in
April 2004.
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
26
October 27, 2004. The exercise price (and the reset price) under the October
2008 Warrants also is subject to similar adjustments for anti-dilution
protection. Notwithstanding the foregoing, the exercise price as reset or
adjusted for anti-dilution, will in no event be less than $2.19 per share.
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.
The exercise price (and the reset price) under the July 2009 Warrants also is
subject to similar adjustments for anti-dilution protection. Notwithstanding the
foregoing, the exercise prices as reset or adjusted for anti-dilution, will in
no event be less than $2.58 per share with regard to the Class A warrants or
$3.54 per share with regard to the Class B warrants.
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
27
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.
On May 14, 2004, in consideration for the Debenture holders' exercise of all of
the warrants issued to them in June 2003 (the "June 2008 Warrants"), we issued
to the holders warrants (the "May 2009 Warrants") to purchase an aggregate of
1,300,000 shares of our common stock. We issued 1,000,000 shares and received
gross proceeds of $2,400,000 from the exercise of the June 2008 Warrants.
The May 2009 Warrants are to acquire at any time commencing on November 14, 2004
through April 30, 2009 an aggregate of 1,300,000 shares of common stock at a
price of $4.50 per share. On May 14, 2005, the exercise price of these May 2009
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 May
15, 2004 and May 13, 2005. The exercise price (and the reset price) under the
May 2009 Warrants also is subject to adjustments for anti-dilution protection
similar to those in the other Warrants. Notwithstanding the foregoing, the
exercise price as reset or adjusted for anti-dilution, will in no event be less
than $4.008 per share.
In addition, as agreed to by the Debenture holders, the provisions of all of the
outstanding Debentures (including the AIR Debentures) and related Warrants owned
by them have been amended to limit the maximum amount of funds that the holders
could receive in lieu of shares upon conversion of the Debentures and/or
exercise of the Warrants in the event that the Exchange Cap was reached to
119.9% of the conversion price of the relevant Debentures and 19.9% of the
relevant Warrant exercise price.
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 June 2008, July 2008, October 2008, January 2009
and May 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 all of the Warrants
other than the May 2009 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 $.00067
times the outstanding principal amount of the relevant Debentures 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. With regard to the exercise of the June 2008 Warrants
and issuance of the May 2009 Warrants, Cardinal received an investment banking
fee of 7%, half in cash and half to be issued in shares. By agreement with
Cardinal, we have registered all of the shares issuable upon exercise of the
above mentioned warrants for public sale and agreed to register the shares to be
issued with regard to the recent warrant exercise. We are seeking approval of
the issuance of the shares upon exercise of these warrants and the shares to be
issued to Cardinal with regard to the recent warrant exercise too.
28
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.
If issuance of these shares is not approved by stockholders, we will be unable
to issue shares upon exercise of approximately 3,007,751 warrants and we will be
unable to issue shares upon conversion of approximately $763,000 principal
amount of the Debentures (including the Debentures issuable upon exercise of the
AIR). The foregoing assumes that none of the applicable outstanding warrants
will be exercised prior to the Exchange Cap being reached and that the
Debentures will be converted in order of issuance. If warrants are exercised,
the amount of Debenture principal that will no longer be convertible will
increase. We also will be required to pay interest in cash rather than shares.
In addition, should this proposal not be passed, we are obligated to continue to
seek stockholder approval every three months.
Pursuant to the terms of the Warrants as amended, if stockholders do not approve
this resolution, any time the Warrant holder presents a notice of exercise after
the Exchange Cap is reached, we would be required to pay within two business
days an amount in cash equal to the lesser of (a) 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 or
(b) an amount equal to 19.9% of the applicable exercise price per shares of
common stock which could not be issued.
Pursuant to the terms of the Debentures(including the Debentures issuable upon
exercise of the AIR), as amended, if stockholders do not approve this
resolutions, any time the Debenture holder presents a notice of conversion after
the Exchange Cap is reached, we would be required to pay within two business
days an amount in cash equal to the lesser of (a) 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 or (b) an amount equal to 119.9% of the applicable conversion price for
the amount requested to be converted.
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.
29
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
30
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
31
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
32
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
33
EXHIBIT A
HEMISPHERX
2004 EQUITY INCENTIVE PLAN
Hemispherx Biopharma, Inc. hereby establishes the Hemispherx 2004 Equity
Incentive Plan upon the terms and conditions set forth below.
1. Definitions
In this Plan document, except where the context otherwise indicates,
words in the masculine gender shall be deemed to include males and females,
singular terms also shall refer to the plural, and the following definitions
shall apply:
1.1. "Agreement" means a written agreement specifying the terms and conditions
of an Award.
1.2. "Award" means any Option, Right, Restricted Stock or Other Stock Award
granted under the Plan
1.3. "Board" means the Board of Directors of the Corporation.
1.4. "Change in Control" means the occurrence of any of the following: (i) the
acquisition by any "person" or "group" (as defined in or pursuant to Sections
13(d) and 14(d) of the Exchange Act) (other than the Corporation, any Subsidiary
or any Corporation or Subsidiary's employee benefit plan), directly or
indirectly, as "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of securities of the Corporation representing twenty percent (20%) or more
of either the then outstanding shares or the combined voting power of the then
outstanding securities of the Corporation; (ii) either a majority of the
directors of the Corporation elected at the Corporation's annual stockholders
meeting shall have been nominated for election other than by or at the direction
of the "incumbent directors" of the Corporation, or the "incumbent directors"
shall cease to constitute a majority of the directors of the Corporation. The
term "incumbent director" shall mean any director who was a director of the
Corporation on May 1, 2004 and any individual who becomes a director of the
Corporation subsequent to May 1, 2004 and who is elected or nominated by or at
the direction of at least two-thirds of the then incumbent directors; (iii) the
shareholders of the Corporation approve (a) a merger, consolidation or other
business combination of the Corporation with any other "person" or "group" (as
defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate
thereof, other than a merger or consolidation that would result in the
outstanding common stock of the Corporation immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into common
stock of the surviving entity or a parent or affiliate thereof) more than fifty
percent (50%) of the outstanding common stock of the Corporation or such
surviving entity or a parent or affiliate thereof outstanding immediately after
such merger, consolidation or other business combination, or (b) a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets; or (iv) any other event or circumstance which is not covered by the
foregoing subsections of this Section 1.4 but which the Board of Directors
determines to affect control of the Corporation and with respect to which the
Board of Directors adopts a resolution that the event or circumstance
constitutes a Change in Control for purposes of the Plan. This definition of
"Change in Control" shall not be amended after (i) the occurrence of a Change in
Control; (ii) the public announcement of a proposal for a transaction that, if
consummated, would constitute a Change in Control; or (iii) the Board of
Directors learns of a specific proposal containing the essential terms of a
transaction that, if consummated, would constitute a Change in Control;
provided, however, that in the case of a proposal under (ii) or (iii)
immediately above, if the proposal is finally withdrawn or terminated, this
definition may be amended after the withdrawal or termination. For purposes of
the Plan and all related Agreements, if the employment of any Participant is
terminated by the Corporation and/or any Subsidiary (other than for cause) after
an event causing the definition of "Change in Control" to become nonamendable
under the preceding subsections of this Section 1.4, that Participant's
termination of employment shall be considered to have occurred after a Change in
Control if a Change in Control occurs with respect to and within two (2) years
after the event causing the definition of "Change in Control" to become
nonamendable]
1.5. "Code" means the Internal Revenue Code of 1986, as amended.
1.6. "Common Stock" means the common stock, par value $.001 per share, of the
Corporation.
1.7. "Corporation" means Hemispherx Biopharma, Inc.
1.8. "Date of Exercise" means the date on which the Corporation receives notice
of the exercise of an Option or Right in accordance with the terms of Article 8.
1.9. "Date of Grant" means the date on which the grant of an Award is authorized
under the Plan or such later date as may be specified in the authorization.
1.10. "Effective Date" means May 1, 2004.
1.11. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.12. "Fair Market Value" of a share of Common Stock on any relevant date means:
(i) if the Common Stock is at the time listed on any stock exchange, the Fair
Market Value shall be the closing selling price per share of Common Stock on the
date in question on the stock exchange, the Common Stock's price per share
officially quoted in the composite tape of transactions on the exchange that is
determined by the Board to be the primary market for the Common Stock and
published in The Wall Street Journal. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which a closing selling
price exists; (ii) if the Common Stock is at the time traded on the NASDAQ Stock
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question that is the Common Stock's price per
share reported by the National Association of Securities Dealers on the NASDAQ
Stock Market and published in The Wall Street Journal. If there is no closing
selling price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for which a
closing selling price exists; and (iii) if (i) or (ii) does not apply for any
reason, the Fair Market Value shall be determined pursuant to a reasonable
method adopted by the Board in good faith for that purpose.
1.13. "Incentive Stock Option" means an Option granted as such under the Plan
that is intended at the Date of Grant to qualify as an incentive stock option
under Section 422 of the Code.
1.14. "Nonstatutory Stock Option" means an Option granted under the Plan that is
not an Incentive Stock Option.
1.15. "Option" means an option to purchase Shares granted under the Plan in
accordance with the terms of Article 6.
1.16. "Option Period" means the period during which an Option may be exercised.
1.17. "Option Price" means the price per Share at which an Option may be
exercised.
1.18. "Other Stock Award" means an award of Shares granted under the Plan in
accordance with the terms of Article 10.
1.19. "Participant" means an individual to whom an Award has been granted.
1.20. "Permanent Disability" means disabled within the meaning of Code Section
72(m)(7).
1.21. "Plan" means the Hemispherx 2004 Equity Incentive Plan.
1.22. "Related Option" means the Option granted in connection with a specified
Right.
1.23. "Related Right" means the Right granted in connection with a specified
Option.
1.24. "Restricted Stock" means Shares granted in accordance with the terms of
Article 9.
1.25. "Retirement" means retirement of an officer or other employee from the
Corporation or a Subsidiary at or after age 65, or in the case of a non-employee
director, retirement from the Board at or after age 65, or in the case of a
non-employee consultant or advisor, Termination of Service at or after age 65.
1.26. "Right" means a stock appreciation right granted under the plan in
accordance with the terms of Article 7.
1.27. "Right Period" means the period during which a Right may be exercised.
1.28. "Share" means a share of Common Stock that is authorized but unissued
pursuant to the Plan.
1.29. "Subsidiary" means a corporation at least 50% of the total combined voting
power of all classes of stock of which is owned by the Corporation, either
directly or through one or more other Subsidiaries.
1.30. "Termination of Service" means termination of an officer's or other
employee's employment with the Corporation or a Subsidiary, or in the case of a
non-employee director, termination from service as a director on the Board, or
in the case of a non-employee consultant or advisor, cessation of the
performance of services to the Corporation or a Subsidiary.
2. Purpose
The Plan is intended to assist the Corporation in attracting,
retaining, and motivating directors, officers, other key employees, consultants
and advisors of outstanding ability and to promote the identification of their
interests with those of the shareholders of the Corporation.
3. Administration
3.1. The Board shall have the power to determine in its discretion the
directors, officers, other key employees, consultants and advisors of the
Corporation or a Subsidiary to whom Awards shall be granted, the number of
Shares to be subject to each Award, and the terms and conditions of each Award.
Without limiting the generality of the foregoing, the Board may provide in its
discretion in an Agreement:
(i) that Options or Rights will not become exercisable until a Change in Control
or other specified event(s) with respect to the Corporation or the Participant;
(ii) for an agreement by the Participant to render services to the Corporation
or a Subsidiary upon such terms and conditions as may be specified in the
Agreement;
(iii) for restrictions on the transfer, sale or other disposition of shares of
Common Stock issued to the Participant under the Plan, in which case, the
Corporation may place a legend upon the applicable certificates noting the
restrictions on any Shares issued pursuant to an Award.
(iv) for an agreement by the Participant to resell to the Corporation, under
specified conditions, shares of Common Stock issued under the Plan; and
(v) for the payment of all or part of the Option Price upon the exercise of an
Option or purchase of Common Stock pursuant to an Other Stock Award, subject to
Section 9 or Section 10 below, as applicable.
3.2. The Plan shall be administered by the Board. In addition to any other
powers granted to the Board hereunder, it shall have the following powers,
subject to the express provisions of the Plan:
(i) to construe and interpret the Agreements and the Plan;
(ii) to require, whether or not provided for in the pertinent Agreement, of any
person to whom Shares are to be issued under the Plan, the making of any
representations or agreements which the Board may deem necessary or advisable in
order to comply with the securities laws of the United States or of any state,
including Section 16(b) of the Exchange Act;
(iii) to provide for satisfaction of a Participant's tax liabilities arising in
connection with the Plan under such terms and conditions as the Board deems
appropriate, including requirements in the event of a disqualifying disposition
of shares of Common Stock acquired by a Participant pursuant to exercise of an
Incentive Stock Option; and
(iv) to make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.
3.3. Agreements shall be executed on behalf of the Corporation by the Chairman
of the Board.
3.4. Any determinations or actions made or taken by the Board pursuant to this
Article shall be binding and final.
4. Eligibility
Awards may be granted to those directors, officers, other key
employees, consultants and advisors of the Corporation or a Subsidiary who are
selected for Awards by the Board. Only individuals who are employees of the
Corporation or a Subsidiary shall be eligible for the grant of Incentive Stock
Options.
5. Stock Subject to the Plan
5.1. 8,000,000 Shares is (i) the maximum number of Shares that may be issued
under the Plan; and (ii) 3,000,000 is the maximum number of Shares with respect
to which Awards may be granted to any Participant during the period that the
Plan is in effect. The limitation in clause (ii) of the preceding sentence is
imposed to comply with the requirements for the exception for qualified
performance-based compensation under Section 162(m) of the Code and any
applicable regulations.
5.2. If an Award expires or terminates for any reason (other than termination by
virtue of the exercise of a Related Option or Related Right, as the case may be)
in whole or in part, the shares of Common Stock (or applicable portion thereof)
which had been subject to the Agreement relating thereto shall become Shares
that are available for the grant of other Awards.
5.3. Shares of Common Stock issued upon the exercise of a Right (or if cash is
payable in connection with the exercise, that number of Shares having a Fair
Market Value equal to the cash payable upon exercise) shall be charged against
the number of Shares issuable under the Plan and shall not become available for
the grant of other Awards. If the Right referred to in the preceding sentence is
a Related Right, the Shares subject to the Related Option, to the extent not
charged against the number of Shares subject to the Plan in accordance with this
Section 5.3, shall become available for the grant of other Awards.
5.4. The shares of Common Stock issued under the Plan may be authorized but
unissued shares, treasury shares or shares purchased by the Corporation on the
open market or from private sources for use under the Plan.
6. Options
6.1. All Agreements granting Options shall specify the extent to which the
Option is intended to be either (i) a Nonstatutory Stock Option or (ii) an
Incentive Stock Option.
6.2. The Option Period shall be determined by the Board and specifically set
forth in the Agreement, provided however, that an Option shall not be
exercisable after ten years from the Date of Grant.
6.3. All Incentive Stock Options granted under the Plan shall comply with the
provisions of the Code governing incentive stock options and with all other
applicable rules and regulations.
6.4. No Option shall be granted with an Option Price that is less than the Fair
Market Value of the Shares covered by the Option on the Date of Grant.
6.5. Tax obligations of a Participant resulting from the exercise of an Option
shall be withheld or provided for pursuant to any methods approved by the Board.
The amount of taxes paid pursuant to this Section at the time of the exercise of
the Option shall not be less than the statutory minimum withholding obligations
that result from the exercise of the Option and shall not exceed the
Participant's total estimated federal, state and any local tax obligations that
result from the exercise of the Option, except that the Corporation shall not
retain shares of Common Stock otherwise issuable following the exercise of the
Option in excess of the number required to meet the statutory minimum
withholding obligations.
6.6. All other terms of Options granted under the Plan shall be determined by
the Board in its sole discretion.
7. Rights
7.1. A Right may be granted under the Plan:
(i) in connection with, and at the same time as, the grant of an Option;
(ii) by amendment of an outstanding Nonstatutory Stock Option granted under the
Plan; or
(iii) independently of any Option granted under the Plan.
A Right granted under clause (i) or (ii) of the preceding sentence is a Related
Right. A Related Right may, in the Board's discretion, apply to all or a portion
of the Shares subject to the Related Option.
7.2. A Right may be exercised in whole or in part as provided in the Agreement,
and subject to the provisions of the Agreement, entitles its Participant to
receive, without any payment to the Corporation (other than required tax
withholding amounts) either cash or that number of Shares (equal to the highest
whole number of Shares), or a combination thereof, in an amount or having a Fair
Market Value determined as of the Date of Exercise not to exceed the number of
Shares subject to the portion of the Right exercised multiplied by an amount
equal to the excess of (i) the Fair Market Value per Share on the Date of
Exercise of the Right over (ii) either (A) the Fair Market Value per Share on
the Date of Grant of the Right if it is not a Related Right, or (B) the Option
Price as provided in the Related Option if the Right is a Related Right.
7.3. The Right Period shall be determined by the Board and specifically set
forth in the Agreement, provided, however, that:
(i) a Right will expire no later than the earlier of (A) ten years from the Date
of Grant or (B) in the case of a Related Right, the expiration of the Related
Option;
(ii) a Right may be exercised only when the Fair Market Value of a Share exceeds
either (A) the Fair Market Value per Share on the Date of Grant of the Right if
it is not a Related Right, or (B) the Option Price as provided in the Related
Option if the Right is a Related Right; and
(iii) a Right that is a Related Right to an Incentive Stock Option may be
exercised only when and to the extent the Related Option is exercisable.
7.4. The exercise, in whole or in part, of a Related Right shall reduce the
number of Shares subject to the Related Option by the number of Shares with
respect to which the Related Right is exercised. Similarly, the exercise, in
whole or in part, of a Related Option shall reduce the number of Shares subject
to the Related Right by the number of Shares with respect to which the Related
Option is exercised.
7.5. Tax obligations of a Participant resulting from the exercise of a Right
shall be withheld or provided for pursuant to any methods approved by the Board.
The amount of taxes paid pursuant to this Section at the time of the exercise of
the Option shall not be less than the statutory minimum withholding obligations
that result from the exercise of the Option and shall not exceed the
Participant's total estimated federal, state and any local tax obligations that
result from the exercise of the Option, except that the Corporation shall not
retain shares of Common Stock otherwise issuable following the exercise of the
Option in excess of the number required to meet the statutory minimum
withholding obligations.
8. Exercise
An Option or Right may, subject to the provisions of the Agreement
under which it was granted, be exercised in whole or in part by the delivery to
the Corporation of written notice of the exercise, in such form as the Board may
prescribe, accompanied, in the case of an Option, by full payment for the Shares
with respect to which the Option is exercised. A Participant may pay the
purchase price either (i) in cash; (ii) with previously acquired shares of
Common Stock (valued at Fair Market Value on the Date of Exercise of the Option)
that have either been purchased in open market transactions or issued by the
Corporation pursuant to a plan thereof or of a Subsidiary; (iii) by payment of
such other consideration as the Board may specify; or (iv) a combination
thereof.
9. Restricted Stock
9.1. The Board may cause the Corporation to issue Restricted Stock from time to
time. Whenever the Board deems it appropriate to grant Restricted Stock to a
Participant, notice shall be given to the Participant stating the number of
Shares granted as Restricted Stock and the terms and conditions to which the
Restricted Stock is subject. That notice shall become an Agreement upon written
acceptance by the Participant, and certificates representing the Restricted
Stock shall be issued and delivered to the Participant as soon as practicable
after execution and return of the Agreement. Restricted Stock may be granted
with or without cash consideration.
9.2. Restricted Stock issued pursuant to the Plan shall be subject to the
following restrictions:
(i) No Restricted Stock may be sold, assigned, transferred, pledged,
hypothecated, or otherwise encumbered or disposed of until the restrictions set
forth in the applicable Agreement have lapsed or been removed pursuant to
Section 9.3 or Section 9.4.
(ii) In the case of a Participant's Termination of Service for any reason
(whether voluntarily or involuntarily, with or without cause), the Participant
shall forfeit to the Corporation any Restricted Stock on which the restrictions
have not lapsed or been removed pursuant to Section 9.3 or Section 9.4 below on
the date of the Termination of Service, and the Corporation shall have no
obligation to pay any amounts with respect to such Restricted Stock, unless the
Board determines to the contrary.
9.3. The Board shall establish as to each Award of Restricted Stock (i) the
terms and conditions upon which the restrictions set forth in Section 9.2 above
shall lapse, and (ii) the extent, if any, to which the Participant shall have
the voting, dividend, distribution and other rights of a shareholder with
respect to the Restricted Stock. Certificates representing Restricted Stock
shall bear a legend referring to the restrictions set forth in the Plan and the
Participant's Agreement. Those terms and conditions may include, without
limitation, the lapsing of restrictions as a result of the death, Permanent
Disability or Retirement of the Participant or the occurrence of a Change in
Control.
9.4. Notwithstanding Section 9.2(i) and Section 9.2(ii) above, the Board may at
any time, in its sole discretion, accelerate the time at which any or all
restrictions on Restricted Stock will lapse or remove any and all such
restrictions.
9.5. Tax obligations of a Participant resulting from the Participant's earning
Restricted Stock hereunder shall be withheld or provided for pursuant to any
methods approved by the Board and set forth in the Agreement. The amount of
taxes so paid shall not be less than the statutory minimum withholding
obligations that result when the Restricted Stock is earned and shall not exceed
the Participant's total estimated federal, state and any local tax obligations
that result when the Restricted Stock is earned, except that the Corporation
shall not retain shares of Common Stock otherwise issuable in excess of the
number required to meet the statutory minimum withholding requirements.
10. Other Stock Awards
The Board may cause the Corporation to issue Common Stock from time to
time pursuant to an Other Stock Award in exchange for consideration from the
Participant specified by the Board that is either the Participant's cash or
other direct payment to the Corporation or the Participant's past services
rendered to the Corporation or a Subsidiary on or before the date of issuance.
Whenever the Board deems it appropriate to grant an Other Stock Award to a
Participant, notice shall be given to the Participant stating the number of
Shares to be issued pursuant to the Other Stock Award and the other terms and
conditions of the Other Stock Award. That notice shall become an Agreement upon
written acceptance by the Participant. Tax obligations of a Participant
resulting from the Participant's Other Stock Award shall be withheld or provided
for pursuant to any methods approved by the Board and set forth in the
Agreement. The amount of taxes so paid shall not be less than the applicable
statutory minimum withholding obligations that result when the Common Stock is
earned and shall not exceed the Participant's total estimated federal, state and
any local tax obligations that relate to the Other Stock Award, except that the
Corporation shall not retain shares of Common Stock otherwise issuable in excess
of the number required to meet the statutory minimum withholding requirements.
11. Nontransferability of Options and Rights
Unless otherwise determined by the Board, Options and Rights granted
under the Plan shall not be transferable other than by will or the laws of
descent and distribution, and an Option or Right may be exercised during the
Participant's lifetime only by him or in the event of his legal disability, by
his legal representative. A Related Right is transferable only when the Related
Option is transferable and only with the Related Option and under the same
conditions.
12. Capital Adjustments
The number and class of Shares subject to each outstanding Award, the
Option Price and the aggregate number and class of Shares for which Awards
thereafter may be made shall be adjusted by the Board, as appropriate and
equitable, to reflect such events as stock dividends, dividends payable other
than in cash or other extraordinary dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Corporation.
13. Termination or Amendment
The Board shall have the power to terminate the Plan and to amend it in
any respect, provided that, after the Plan has been approved by the shareholders
of the Corporation, the Board may not, without the approval of the shareholders
of the Corporation, amend the Plan so as to increase the aggregate number of
Shares that may be issued under the Plan (except as provided in Article 12), to
modify the requirements as to eligibility to receive Awards, or to increase
materially the benefits accruing to Participants. Notwithstanding the preceding
sentence, no termination or amendment of the Plan shall, without his or her
consent, adversely affect the rights or obligations of a Participant with
respect to any Award previously granted except as reasonably required for
compliance with Rule 16b-3 under the Exchange Act or with the provisions of the
Code and other applicable rules and regulations thereunder governing incentive
stock options.
14. Modification, Extension and Renewal of Options and Rights
Subject to the terms and conditions and within the limitations of the
Plan, the Board may modify, extend or renew outstanding Awards; provided,
however, that no Option or Right shall be repriced, whether by the reduction of
the Option Price (or the Fair Market Value per Share on the Date of Grant in the
case of a Right that is not a Related Right) or by the cancellation of an Option
or Right and the issuance of a substitute Option or Right with a lower Exercise
Price (or the Fair Market Value per Share on the Date of Grant in the case of a
Right that is not a Related Right).
15. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 13, the Plan
shall terminate on the date ten years after its adoption by the Board, and no
Awards may be granted or awarded after termination. The termination shall not
affect the validity of any Award outstanding on the date of termination.
16. Indemnification of Board
In addition to any other indemnification rights they may have as
directors, the members of the Board shall be indemnified by the Corporation
against the reasonable expenses, including attorneys' fees, actually incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Award granted hereunder, and against all amounts reasonably paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, if such members acted in good faith and in a manner
which they believed to be in, and not opposed to, the best interests of the
Corporation.
17. General Provisions
17.1. The establishment of the Plan shall not confer upon any director, officer,
other employee, consultant or advisor of the Corporation any legal or equitable
right against the Corporation, any Subsidiary or the Board, except as expressly
provided in the Plan.
17.2. The Plan does not constitute inducement or consideration for the
employment of officer or other employee of the Corporation, nor is it a contract
between the Corporation or any Subsidiary and any director, officer, other
employee, consultant or advisor of the Corporation. Participation in the Plan
shall not give a director, officer, other employee, consultant or advisor of the
Corporation any right to be retained in the service of the Corporation or any
Subsidiary.
17.3. The interests under the Plan of any Participant under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered.
17.4. The Plan shall be governed, construed and administered in accordance with
the laws of the state of Delaware and the intention of the Corporation that
Incentive Stock Options granted under the Plan qualify under Section 422 of the
Code.
IN TESTIMONY WHEREOF, Hemispherx Biopharma, Inc. has caused this Plan
to be executed in its name by its duly authorized officer effective the 1st day
of May, 2004.
HEMISPHERX BIOPHARMA, INC.
By:
----------------------------
Its:
----------------------------
HEMISPHERX BIOPHARMA, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 23, 2004
THIS PROXY IS SOLICTED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Carter and Ransom W. Etheridge and
each of them, with full power of substitution, as proxies to represent the
undersigned at the Annual Meeting of Stockholders 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 and at any adjournment
thereof, and to vote all of the shares of common stock of Hemispherx Biopharma,
Inc. the undersigned would be entitled to vote if personally present, upon the
following matters:
Please mark box in blue or black ink.
1. Proposal No.1-Election of Directors.
Nominees: William A. Carter, Richard C. Piani, Ransom W. Etheridge,
William M. Mitchell, Iraj-Eqhbal Kiani and Antoni Esteve.
// For all nominees (except as marked to the contrary below)
// Authority Withheld as to all Nominees
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INIVDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME)
William A. Carter Richard C. Piani Ransom W. Etheridge William M. Mitchell
Iraj-Eqhbal Kiani Antoni Esteve
2. Proposal No. 2-Ratification of the selection of BDO Seidman, LLP, as
independent auditors of Hemispherx Biopharma, Inc. for the year ending
December 31, 2004.
// For // Against // Abstain
3. Proposal No. 3 - To approve 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 Rule 713.
// For // Against // Abstain
4. Proposal No. 4 - To approve the Hemispherx 2004 Equity Incentive Plan.
// For // Against // Abstain
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. THE BOARD
RECOMMENDS A VOTE "FOR" ITEMS NOS. 2, 3 AND 4. IF NO CONTRARY INSTRUCTION IS
GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION OF WILLIAM A. CARTER, RICHARD
C. PIANI, RANSOM W. ETHERIDGE, WILLIAM A. MITCHELL, IRAJ-EQHBAL KIANI AND ANTONI
ESTEVE AS DIRECTORS, FOR PROPOSAL NO. 1 AND IN THE DISCRETION OF THE PROXIES ON
ALL OTHER MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
65:
Please date, sign as name appears at left, and return promptly. If the
stock is registered in the name of two or more persons, each should sign.
When signing as Corporate Officer, Partner, Executor, Administrator,
Trustee, or Guardian, please give full title. Please note any change in
your address alongside the address as it appears in the Proxy.
Dated:
Signature
(Print Name)
SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE