HEMISPHERx BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 8, 1997
To the Stockholders of Hemispherx Biopharma, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Hemispherx Biopharma, Inc. (the "Company"), a Delaware corporation, to be held
at the Center City Holiday Inn, Philadelphia, Pennsylvania, on Wednesday,
October 8, 1997, at 10:00 a.m. local time, for the following purposes:
1. To elect four members to the Board of Directors of the Company to
serve until their respective successors are elected and qualified;
2. To ratify the selection by the Company of KPMG Peat Marwick, L.L.P.,
independent public accountants, to audit the financial statements of
the Company for the year ending December 31, 1997; and
3. 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 August 19, 1997
(the "Record Date"), are entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed herewith. If you are unable to
attend the meeting in person you are urged to sign, date and return the enclosed
proxy promptly in the enclosed addressed envelope which requires no postage if
mailed within the United States. If you attend the meeting in person, you may
withdraw your proxy and vote your shares. Also enclosed herewith is the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
By Order of the Board of Directors
Peter W. Rodino III, Secretary
Philadelphia, Pennsylvania
July 10, 1997
<PAGE>
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 (the "Annual Meeting") of stockholders of
Hemispherx Biopharma, Inc. (the "Company"), to be held on Wednesday, October 8,
1997, and at any adjournments thereof. The accompanying proxy is solicited by
the Board of Directors of the Company and is revocable by the stockholder by
notifying the Company's 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 August 21, 1997. The
principal executive offices of the Company are located at 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103, telephone (215) 988-0080.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on August 19, 1996,
are entitled to receive notice of, and vote at the Annual Meeting. As of August
19, 1997, the number and class of stock outstanding and entitled to vote at the
meeting was 16,549,220 shares of common stock, par value $.001 per share (the
"Common Stock"). 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 nominees receiving the highest number of votes cast by the holders of
Common Stock will be elected as the Company's directors and constitute the
entire Board of Directors of the Company. 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. A
quorum is representation in person or by proxy at the Annual Meeting of at least
one-half of the outstanding shares of the Company.
<PAGE>
PROPOSALS TO SHAREHOLDERS
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, Peter W. Rodino III, Cedric C. Philipp and
Richard C. Piani. Information is furnished below with respect to all nominees.
The following information with respect to the principal occupation or
employment of the nominees, the name and principal business of the corporation
or other organization in which such occupation or employment is carried on and
other affiliations and business experience during the past five years has been
furnished to the Company by the respective nominees:
WILLIAM A. CARTER, M.D., the co-inventor of Ampligen, joined the Company in
1978, and has served as (a) the Company's Chief Scientific Officer since May
1989, (b) the Chairman of the Company's Board of Directors since January 1992
(c) the Company's Chief Executive Officer since July 1993, (d) the Company's
President since April, 1995, and (e) a director since 1987. From 1987 to 1988,
Dr. Carter served as the Company'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. In this context, he received the
first FDA approval to initiate clinical trials on a beta interferon product
manufactured in the U.S. under his supervision. From 1985 to October 1988, Dr.
Carter served as the Company'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 serves as Professor of Neoplastic Diseases at Hahnemann University,
a position he has held since 1980. He is also Director of Clinical Research for
Hahnemann University's Institute for Cancer and Blood Diseases. Dr. Carter has
served as a professor at Johns Hopkins School of Medicine, Hahnemann University
and the State University of New York at Buffalo.
PETER W. RODINO III has served as a director of the Company since July 1994
and Secretary of the Company since November 1994. He had previously served on
the Company's Board of Directors from 1987 to 1989. From 1988 through the
present he has served as Managing Partner of the law firm Rodino and Rodino,
which primarily deals in corporate, commercial, insurance, real estate,
environmental, bankruptcy and immigration law. He was a partner in the law firm
of Rodino and Scalera, Inc. from 1988 to 1991. He has served as Chairman of the
Board of Directors of the Foundation Health Plan of New Jersey, an IPA/HMO
providing health care services, from 1983 to 1988 and as a Director of Columbus
Hospital from 1986 to 1990. Mr. Rodino earned a B.S. in Business Administration
from Georgetown University in 1973 and J.D. from Seton Hall University School of
Law in 1976.
RICHARD C. PIANI serves as director of the Company since May 1995. Mr.
Piani has been employed as a principal delegate for Industry to the City of
Science and Industry, Paris, France, a billion dollar scientific and educational
complex since 1995. Mr. Piani provided consulting to the Company in 1993, with
respect to general business strategies for the Company's European operations and
markets. He served as Chairman of Industrielle du Batiment-Morin, a building
materials corporation, from 1986
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to 1993. Previously he was 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 RhonePoulenc and
from 1973 to 1979 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 Facilite de Droit, Paris
Sorbonne and a Business Administration degree from Ecola des Hautes Etudes
Commerciales, Paris.
CEDRIC C. PHILIPP has served as a director of the Company since July 1994
and as Special Advisor for International Marketing since 1993. He is President
of Philipp Pharmaceutical Marketing, a consulting firm which he founded in 1987.
From 1957 to 1987, he was with Wyeth International, a division of American Home
Products, during which time he served in various capacities in international
marketing and sales, most recently as Executive Assistant to the President. Mr.
Philipp received his A.B. degree from Columbia College.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ALL FOUR OF THE
ABOVE-NAMED NOMINEE DIRECTORS OF THE COMPANY.
INFORMATION CONCERNING BOARD MEETINGS
The Company's Board of Directors met twice during the fiscal year ended
December 31, 1996. The Company's Compensation Committee also met twice during
the fiscal year ended December 31, 1996. All of the incumbent Directors attended
at least 75% of such meetings.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The Board of Directors maintains an Executive Committee consisting of
William A. Carter and Peter W. Rodino III, which makes recommendations to
management regarding general business matters of the Company; a Compensation
Committee consisting of Peter W. Rodino III and Richard C. Piani, which makes
recommendations concerning salaries and compensation for employees of and
consultants to the Company; an Audit Committee consisting of Cedric C. Philipp,
which reviews the results and scope of the audit and other services provided by
independent auditors; and a Strategic Planning Committee consisting of William
A. Carter, Peter W. Rodino III and Cedric C. Philipp, which makes
recommendations to the Board of priorities in the application of the Company's
financial assets and human resources in the fields of research, marketing and
manufacturing.
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MANAGEMENT
The current executive officers and directors of the Company are set forth
below:
Name Age Position
---- --- --------
William A. Carter, M.D. 59 Chairman, Chief Executive Officer,
President
Robert E. Peterson 60 Chief Financial Officer
R. Douglas Hulse 53 Chief Operating Officer
Cedric C. Philipp 74 Director, Associate Secretary, Special
Advisor to the Board/International
Richard C. Piani 70 Director
Peter W. Rodino III 43 Director, Secretary
Harris Freedman 63 Vice President, Corporate Communications
Sharon D. Will 38 Vice President, Investor Relations
Josephine M. Dolhancryk 34 Treasurer, Assistant Secretary
David R. Strayer, M.D. 51 Medical Director, Director of Regulatory
Affairs
Carol A. Smith, Ph.D. 45 Director of Manufacturing and Process
Development
WILLIAM A. CARTER, M.D., the co-inventor of Ampligen, joined the Company in
1978, and has served as (a) the Company's Chief Scientific Officer since May
1989, (b) the Chairman of the Company's Board of Directors since January 1992
(c) the Company's Chief Executive Officer since July 1993, (d) the Company's
President since April, 1995, and (e) a director since 1987. From 1987 to 1988,
Dr. Carter served as the Company'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. In this context, he received the
first FDA approval to initiate clinical trials on a beta interferon product
manufactured in the U.S. under his supervision. From 1985 to October 1988, Dr.
Carter served as the Company'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 serves as Professor of Neoplastic Diseases at Hahnemann University,
a position he has held since 1980. He is also Director of Clinical Research for
Hahnemann University's Institute for Cancer and Blood Diseases. Dr. Carter has
served as a professor at Johns Hopkins School of Medicine, Hahnemann University
and the State University of New York at Buffalo.
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. Mr. Peterson has also served since 1990 as Vice
President of the Omni Group, Inc., a business consulting
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group based in Tulsa, Oklahoma. During the period 1983 through 1992, Mr.
Peterson was self-employed as a financial consultant to businesses in various
industries. Mr. Peterson was Vice President and Chief Financial Officer of
Pepsico Foods International from 1979 to 1983 and responsible for financial
management of this multinational operating unit with approximately $500 million
in annual revenues. Mr. Peterson is a graduate of Eastern New Mexico University.
DAVID R. STRAYER, M.D., who serves as Professor of Medicine at 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.
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. Dr. Smith has also been
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.
JOSEPHINE M. DOLHANCRYK joined the Company in 1990 as Office Manager, was
promoted to Executive Assistant to the Chairman of the Board and Chief Executive
Officer in 1991 and Assistant Secretary, Treasurer and Executive Administrator
in 1995. From 1989 to 1990 Ms. Dolhancryk was President of Medical/Business
Enterprises. Ms. Dolhancryk was employed by Children's Hospital of Philadelphia
from 1984 to 1989, where she also served as research coordinator on a drug study
from 1986 to 1988. Ms. Dolhancryk attended Saint Joseph's University and
Delaware County College.
CEDRIC C. PHILIPP has served as a director of the Company since July 1994
and as Special Advisor for International Marketing since 1993. He is President
of Philipp Pharmaceutical Marketing, a consulting firm which he founded in 1987.
From 1957 to 1987, he was with Wyeth International, a division of American Home
Products, during which time he served in various capacities in international
marketing and sales, most recently as Executive Assistant to the President. Mr.
Philipp received his A.B. degree from Columbia College.
RICHARD C. PIANI has served as a director of the Company since May 1995.
Mr. Piani has been employed as a principal delegate for Industry to the City of
Science and Industry, Paris, France, a billion dollar scientific and educational
complex since 1995. Mr. Piani provided consulting to the Company in 1993, with
respect to general business strategies for the Company's European operations and
markets. He served as Chairman of Industrielle du Batiment-Morin, a building
materials corporation, from 1986 to 1993. Previously he was 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 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 Facilite de Droit, Paris Sorbonne and a Business Administration
degree from Ecola des Hautes Etudes Commerciales, Paris.
5
<PAGE>
PETER W. RODINO III has served as a director of the Company since July 1994
and Secretary of the Company since November 1994. He had previously served on
the Company's Board of Directors from 1987 to 1989. From 1988 through the
present he has served as Managing Partner of the law firm Rodino and Rodino,
which primarily deals in corporate, commercial, insurance, real estate,
environmental, bankruptcy and immigration law. He was a partner in the law firm
of Rodino and Scalera, Inc. from 1988 to 1991. He has served as Chairman of the
Board of Directors of the Foundation Health Plan of New Jersey, an IPA/HMO
providing health care services, from 1983 to 1988 and as a Director of Columbus
Hospital from 1986 to 1990. Mr. Rodino earned a B.S. in Business Administration
from Georgetown University in 1973 and a J.D. from Seton Hall University School
of Law in 1976.
HARRIS FREEDMAN has served as Vice President for Strategic Alliances since
August 1994 and has been a private venture capitalist and business consultant
for more than the past five years. He is the Secretary of Bridge Ventures, Inc.
("Bridge Ventures") and SMACS Holding Corp., both of which are private venture
capital companies, positions he has held for more than five years. His business
experience has encompassed developing significant business contacts and acting
as an officer or director of several companies in the pharmaceutical, health
care and entertainment fields. Mr. Freedman was Vice President of U.S. Alcohol
Testing of America, Inc., from August 1990 to February 1991. Additionally, he
was Vice President--East Coast Marketing for MusicSource U.S.A., Inc. from
October 1992 to January 1994. Mr. Freedman attended New York University from
1951 to 1954.
SHARON D. WILL has been Vice President for Corporate Communications and
Investor Relations since November 1994. Prior to that time, she was a registered
sales representative and Senior Vice President for Institutional Sales at
Westfield Financial Corporation from September 1994 to October 1994. She was a
registered sales representative with Marsh Block Corporation from July 1994 to
September 1994. From October 1993 to July 1994 she served as a registered sales
representative at Seaboard Securities Corp. From October 1991 to present, Ms.
Will has been President of Worldwide Marketing Inc. a manufacturers'
representative of various companies selling to the retail trade markets. Ms.
Will was the National Sales Manager of Innovo, Inc., a domestic manufacturer of
textiles, from October 1989 to November 1991. She attended Baylor College as an
undergraduate for two years with a primary focus on chemistry.
R. DOUGLAS HULSE was named Chief Operating Officer on June 1, 1996. Since
July 1995, he had been Special Advisor for Licensing and New Product Development
to the Company's Board of Directors. Since 1995 he has served as Executive
Director of The Sage Group, a health care consulting firm specializing in
pharmaceutical and biotechnology business development and strategic planning.
Between 1991 and 1994, Mr. Hulse was Vice President of Business Development for
Enzon, Inc., a biopharmaceutical company with proprietary drug delivery
technologies, and from 1986 to 1991, Mr. Hulse served as an independent
financial and business development consultant to various biotechnology
companies. He was President and CEO of i-STAT Corporation, a manufacturer of
medical biosensors, from 1984 to 1986 and Vice President of Strategic Planning
for Engelhard Corporation from 1982 to 1984. Mr. Hulse held several executive
positions with Halcon International, Inc., a leading chemical company, from 1968
to 1982. Mr. Hulse received Masters degrees in Industrial Management and
Chemical Engineering Practice from M.I.T. and a Bachelors degree in Chemistry
from Princeton University.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Other Annual Restricted Stock Option All other
Principal Position Year Salary Compensation($)(1) Awards($) Awards Compensation($)(2)
- ------------------ ---- ------ ------------------ ---------------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
William A. Carter 1996 $400,522(3) -- -- -- 7,778
Chairman of the Board 1995 363,420(3) -- -- 300,000(5) 7,778
Chief Executive Officer 1994 363,420(3) -- -- 1,400,000(6) 7,778
Robert E. Peterson 1996 128,000 -- -- 50,000(7) --
Chief Financial Officer(4) 1995 120,000 -- -- 50,000(8) --
1994 110,000 -- -- -- --
Sharon Will 1996 126,000 -- -- -- --
Vice President 1995 125,000 -- -- 50,000(8) --
1994 -- -- -- 200,000(9) --
David R. Strayer, M.D. 1996 130,427(11) -- -- -- --
Medical Director 1995 115,083 -- -- -- --
1994 -- -- -- --
Harris Freedman 1996 126,000 -- -- -- --
Vice President 1995 112,500 -- -- 150,000(8) --
1994 -- -- -- 400,000(10) --
</TABLE>
(1) The Company makes available certain non-monetary benefits to its officers
with a view to attracting and retaining qualified personnel and
facilitating job performance. The Company considers such benefits to be
ordinary and incidental business costs and expenses. The aggregate value of
such benefits, which cannot be precisely ascertained but which is less than
10% of the cash compensation of each of the above-named executive officers,
is not included in the table.
(2) Consists of insurance premiums paid by the Company with respect to term
life insurance for the benefit of the named executive officer. (3) Includes
$63,000 paid to Dr. Carter by Hahnemann University where he serves as a
professor.
(4) Mr. Peterson joined the Company in April 1993 and is paid on a fee basis.
(5) BioAegean Options to purchase 300,000 shares of common stock of BioAegean
Corp., a subsidiary of the Company, at $1.00 per share, which were granted
in May 1995 (the "BioAegean Options").
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(6) Rule 701 Warrants to purchase Common Stock at $3.50 per share granted in
October 1994. These Rule 701 Warrants vest in 1/3 increments over a 36
month period. Rule 701 Warrants are warrants which were issued to officers,
directors and consultants of the Company in reliance upon Rule 701 of the
Securities Act.
(7) Warrants to purchase Common Stock at $3.50 purchase granted in March 1996.
(8) BioAegean Options.
(9) Rule 701 Warrants to purchase common stock at $3.50 per share granted in
November 1994.
(10) Rule 701 Warrants to purchase common stock at $3.50 per share granted in
August 1994.
(11) Includes $80,427 paid to Dr. Strayer by Hahneman University.
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Year End Option Table. The following table sets forth certain information
regarding the stock options held as of December 31, 1996 by the individuals
named in the above Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money-Options
Fiscal Year End(#) at Fiscal Year End (9)
Shares Acquired Value ----------------------------- -------------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William A. Carter -- -- 1,473,021(1) 766,667(2) 245,000 --
Robert E. Peterson __ __ 10,368(3) 103,456(4) -- --
Sharon Will __ __ 513,333(5) 216,667(6) 190,000 --
Harris Freedman __ __ 989,827(7) 283,333(8) 182,500 --
</TABLE>
- -------------------
(1) Includes (i) 933,333 currently exercisable Rule 701 Warrants to purchase
Common Stock at $3.50 per share; (ii) 73,728 stock options to purchase
Common Stock at $3.50 per share; (iii) 960 warrants to purchase Common
Stock at $3.50 per share; and (iv) warrants to purchase 465,500 shares of
Common Stock at $1.75 per share.
(2) Includes 300,000 BioAegean Options, for which there is no public market,
and 466,667 Rule 701 Warrants.
(3) Stock options to purchase Common Stock at $4.34 per share.
(4) Includes 50,000 BioAegean Options, 50,000 warrants to purchase Common Stock
at $3.50 per share and 3,456 stock options exercisable at $4.34 per share.
(5) Includes 133,333 currently exercisable Rule 701 Warrants and 380,000
warrants to purchase Common Stock at $1.75 per share.
(6) Includes 150,000 BioAegean Options and 66,667 Rule 701 Warrants.
(7) Includes (i) 266,667 Rule 701 Warrants currently exercisable; (ii) 292,161
warrants to purchase common stock at $3.50 per share; (iii) 365,000
warrants to purchase Common Stock at $1.75 per share; and (iv) 66,000 Class
A Warrants to purchase Common Stock at $4.00 per share.
(8) Includes 133,333 Rule 701 Warrants and 150,000 BioAegean Options.
(9) Computation based on $2.25, the December 31, 1996 closing price for the
Common Stock.
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Option Grant Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 1996 by the
Company to the individuals named in the above Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options
Options Granted to
Granted Employees in Exercise Price Expiration
Name (#) Fiscal Year $/Share Date
- ---- --- ----------- ------- ----
Robert E. Peterson 50,000 17% $3.50 3/1/06
Employment Agreements
The Company entered into an employment agreement with Sharon Will providing
for her employment as Vice President for Corporate Communications and Investor
Relations on November 1, 1994. The agreement provides for Ms. Will to be
employed for a one-year term for a base salary of $120,000 and provides for
termination of the agreement upon certain circumstances including termination by
the Company or Ms. Will on 14 days written notice or the sale of Ms. Will's
stock in the Company. Pursuant to the agreement, Ms. Will was granted Rule 701
Warrants to purchase 200,000 shares of Common Stock of the Company at $3.50 per
share. Ms. Will's agreement provides that she shall devote 60% of her business
time, attention and energies to the Company during regular business hours. In
the event that Ms. Will's employment is terminated for any reason other than
breach of contract, she shall be entitled to receive accrued and unpaid
compensation plus an additional three months' compensation. In July 1995, the
term of Ms. Will's employment agreement was extended from one year to three
years.
The Company entered into an employment agreement with Harris Freedman
providing for Mr. Freedman's employment as Vice President for Strategic
Alliances on August 1, 1994. The agreement provides for Mr. Freedman to be
employed for a one year term for a base salary of $120,000 and provides for
termination of the agreement upon certain circumstances including termination by
the Company or Mr. Freedman on 14 days written notice or the sale of Mr.
Freedman's stock in the Company. Pursuant to the agreement, Mr. Freedman was
granted Rule 701 Warrants to purchase 400,000 shares of Common Stock of the
Company at $3.50 per share. Mr. Freedman's agreement provides that he shall
devote 30% of his business time, attention and energies to the Company during
regular business hours. In the event that Mr. Freedman's employment is
terminated for any reason other than breach of contract, he shall be entitled to
receive accrued and unpaid compensation plus an additional three months'
compensation. In July 1995, the term of Mr. Freedman's employment agreement was
extended from one year to three years.
The Company entered into an amended and restated employment agreement with
Dr. William A. Carter, dated as of July 1, 1993, which provides for his
employment until May 8, 1996 at an initial base annual salary of $295,832,
subject to annual cost of living increases. In addition, Dr. Carter may receive
an annual performance bonus of up to 25% of his base salary, in 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 the
Company from any joint venture or corporate partnering arrangement, up to an
aggregate maximum incentive bonus of $250,000 for all such transactions. It is
contemplated that Dr. Carter will be entitled to this incentive bonus upon
receipt of the gross proceeds from the SAB Agreement (as defined in "Certain
Transactions"). Dr. Carter's agreement also provides that he shall be paid his
base salary and benefits through May 8, 1996 if he is terminated without
"cause," as that term is defined in the agreement. Pursuant to his original
agreement, as amended on August 8, 1991, Dr. Carter was granted options to
purchase 73,728 shares of the Company's Common Stock at an exercise price
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of $2.71 per share. The agreement is automatically renewed for successive one
(1) year periods unless written notice of refusal to renew is given by one party
to the other at least 90 days prior to the expiration of the renewal period.
Compensation of Directors
During the year ended December 31, 1996, each non-employee directors
received $3,750 as compensation for serving on the Board of Directors or any
committee thereof. All of the directors are reimbursed for their expenses
incurred in attending meetings of the Board of Directors and its committees.
Non-management directors receive an annual retainer of $15,000 and will receive
$600 for each Board or committee meeting they attend and will be reimbursed for
out of pocket expenses incurred in attending meetings. Certain non-employee
directors receive compensation as consultants to the Company and have been
granted options to purchase Common Stock under the Company's 1990 Stock Option
Plan and Rule 701 Warrants to purchase Common Stock of the Company. The Company
believes such payments are necessary in order for the Company to attract and
retain qualified outside directors.
1992 Stock Option Plan
The Company's 1992 Stock Option Plan ("1992 Plan"), provides for the grant
of options for the purchase of up to an aggregate of 92,160 shares of Common
Stock to the Company's employees, directors, consultants and others whose
efforts are important to the success of the Company. The 1992 Plan is
administered by the Compensation Committee of the Board of Directors, which has
complete discretion to select the eligible individuals to receive and to
establish the terms of option grants. The 1992 Plan provides for the issuance of
either non-qualified options or incentive stock options, provided that incentive
stock options must be granted with an exercise price of not less than fair
market value at the time of grant and that non-qualified stock options may not
be granted with an exercise price of less than 50% of the fair market value at
the time of grant. The number of shares of Common Stock available for grant
under the 1992 Plan is subject to adjustment for changes in capitalization. To
date, no options have been granted under the 1992 Plan.
1990 Stock Option Plan
The Company's 1990 Stock Option Plan, as amended ("1990 Plan"), provides
for the grant of options to employees, directors, officers, consultants and
advisors of the Company for the purchase of up to an aggregate of 460,798 shares
of Common Stock. The 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, 1996, options to acquire an
aggregate of 234,953 shares of the Common Stock were outstanding under the 1990
Plan.
401(K) Plan
In December 1995, the Company established a defined contribution plan,
effective January 1, 1995, the Hemispherx Biopharma employees 401(K) Plan and
Trust Agreement (the "401(K) Plan"). All full time employees of the company 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 the Company at a rate determined annually by the Board of Directors.
Each participant immediately vests in his or her deferred salary contributions,
while Company contributions will vest over one year. In 1996 the Company
provided matching contributions to each employee for up to 6% of annual pay or
$31,580.
11
<PAGE>
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1996, the members of the
Company's Compensation Committee were William A. Carter, Peter W. Rodino III,
and E. Gerald Kay. Dr. Carter is an officer of the Company. The Company's
Compensation Committee currently consists of Peter W. Rodino III and Richard C.
Piani. The following transactions describe certain relationships between the
Company and present and former members of the Compensation Committee:
In May 1995, Dr. Carter, E. Gerald Kay and certain other individuals and
entities entered into a 1995 Standby Financing Agreement with the Company
pursuant to which they were collectively obligated to invest during 1995 an
aggregate of $5,500,000 in the Company in the event the Company was unable to
secure alternative financing and the Board of Directors determined that the sale
of securities to such persons was advisable (the "1995 Standby Financing
Agreement"). In exchange for entering into the 1995 Standby Financing Agreement,
the Company issued to each of the parties ten-year warrants to purchase 50,000
shares of the Company's Common Stock at an exercise price of $1.75 per share for
each $100,000 of standby financing obligation assumed by the party, resulting in
warrants to purchase an aggregate of 2,750,000 shares of Common Stock. In
September 1995, the parties to the 1995 Standby Financing Agreement, including
Dr. Carter and Mr. Kay, agreed to extend their obligations through December 31,
1996.
In June 1995, the directors of BioAegean Corp., a subsidiary of the
Company, issued 10-year options to purchase an aggregate of 1,200,000 shares of
common stock of BioAegean at an exercise price of $1.00 per share (the
"BioAegean Options") to its officers and directors. The BioAegean Options are
conditional upon the recipient's agreement to serve BioAegean as needed for at
least 24 months unless fully incapacitated. William A. Carter, M.D., serves as
Chairman, Chief Executive Officer and a Director of BioAegean and received
300,000 BioAegean Options. Peter W. Rodino III serves as Vice-Chairman,
Secretary, Corporate Counsel and a director of BioAegean and received 150,000
BioAegean Options. Richard C. Piani serves as a director and the Advisor for
European Affairs of BioAegean and received 50,000 BioAegean Options. E. Gerald
Kay serves as a director for BioAegean and received 50,000 BioAegean Options.
In March 1995, the Company received an interest-free loan from William A.
Carter in the amount of $35,000. In March 1995, the Company repaid the loan from
Dr. Carter.
In February 1995, the Company issued notes in the aggregate principal
amount of $600,000 in connection with the Tisch/Tsai Restructuring (as defined
below). The notes were secured by a pledge by Dr. Carter of 112,925 shares of
Series C Preferred Stock and 240,756 shares of Common Stock. The notes have been
paid off and the shares are being returned.
12
<PAGE>
PERFORMANCE GRAPH
Total Shareholder Returns - Dividends Reinvested
ANNUAL RETURN PERCENTAGE
Month Ending
<TABLE>
<CAPTION>
Company Name/Index Nov95 Dec95 Jan96 Feb96 Mar96 Apr96 May96 Jun96 Jul96 Aug96 Sep96 Oct96 Nov96 Dec96
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMISPHERX BIOPHARMA INC. 60.71 (61.10) (11.42) 67.53 (7.69) 64.57 (17.72) (15.39) (45.45) 113.33 (14.85) 11.92 98.18) (35.71)
S&P SMALLCAP 600 INDEX 2.44 1.65 0.22 3.27 2.14 5.74 3.55 (3.92) (6.88) 6.18 4.39 (0.69) 5.19 1.17
PEER GROUP 26.18 20.00 11.05 (4.52) (15.63) 7.04 21.63 (17.53) (23.91) 12.48 18.58 (11.14) 6.38 1.15
</TABLE>
<TABLE>
<CAPTION>
Base
Company Name/ Period
Index 2Nov95 Nov95 Dec95 Jan96 Feb96 Mar96 Apr96 May96 Jun96 Jul96 Aug96 Sep96 Oct96 Nov96 Dec96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMISPHERX
BIOPHARMA INC. 100 160.71 62.51 55.38 92.77 85.64 140.93 115.95 98.11 53.52 114.18 97.23 108.81 99.91 64.23
S&P SMALLCAP
600 INDEX 100 102.44 104.13 104.36 107.77 110.08 116.40 120.54 115.81 107.85 114.51 119.53 118.70 124.87 126.33
PEER GROUP 100 126.18 151.42 168.16 160.55 135.46 145.00 176.35 145.44 110.66 124.47 147.60 131.16 139.53 141.13
Peer Group Companies:
- ------------------------------------------------------------------------------------------------------------------------------------
GILEAD SCIENCES INC.
ISIS PHARMACEUTICALS INC.
</TABLE>
13
<PAGE>
TOTAL SHAREHOLDER RETURNS
[The following table was represented as a line graph in the printed material]
NEED PLOT POINTS
Prepared by Standard & Poor's Compusat - Custom Products Division - 7/7/97
14
<PAGE>
Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of June 27, 1997, the record and
beneficial ownership of Common Stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:
Shares
Officers, Directors and Beneficially Percent of Shares
Principal Stockholders Owned Beneficially Owned (1)
William A. Carter 3,733,255(2) 21.0%
R. Douglas Hulse 172,500(3) 1.0%
Robert E. Peterson 64,324(4) *
Harris Freedman 1,285,328(5) 7.4%
Sharon D. Will 613,333(6) 3.6%
Peter W. Rodino III 31,765(7) *
Cedric C. Philipp 36,333(8) *
Richard C. Piani 18,063(9) *
David R. Strayer, M.D. 8,745 *
Josephine Dolhancryk 50,820(10) *
Jerome Belson 1,565,000(11) 9.1%
Belson Enterprises, Inc.
495 Broadway
New York, NY 10012
All directors, 5,963,646 30.2%
executive officers
as a group (9 persons)
*Less than 1%
(1) 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 of June 27, 1997. For purposes of
computing the percentage of outstanding shares of Common Stock held by each
person or group of persons named above, 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, the Company believes 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 of Common Stock which they
beneficially own.
(2) Includes irrevocable proxies to vote 1,205,000 shares of Common Stock on
all matters that come before the stockholders of the Company until such
time as (i) the Company shall have achieved a market capitalization of
$300,000,000 or greater for at least 20 consecutive days of trading in the
public markets or (ii) the Company shall have received a bona fide offer
for acquisition or merger, the net effect of which, if consummated, would
be to establish a market capitalization of the Company of not less than
$300,000,000. This proxy shall be terminated upon the sale of such shares
in an arm's length public sale. Also includes (i) an option to purchase
73,728 shares of Common Stock from the Company at an exercise price
15
<PAGE>
of $2.71 per, (ii) warrants to purchase 960 shares of Common Stock at an
exercise price of $3.50 per share, (iii) Rule 701 Warrants to purchase
933,333 shares of Common Stock at a price of $3.50 per share (does not
include 466,667 which are non-exercisable); and (iv) warrants to purchase
465,000 shares of Common Stock at $1.75 per share issued in connection with
the 1995 Standby Financing Agreement. Dr. Carter has pledged 112,925 shares
of Series C Preferred and 240,756 shares of Common Stock to the Tisch/Tsai
Entities as security for the repayment of the $660,000 note executed in
March 1995. The note has been paid off and the shares are being returned.
(3) Includes 172,500 warrants to purchase Common Stock exercisable at $3.50 per
share held by The Sage Group, of which Mr. Hulse is an Executive Director.
Does not include 100,000 warrant to purchase Common Stock at $1.75 per
share and 217,500 options to purchase Common Stock at $3.50 per share.
(4) Consists of 13,824 options to purchase Common Stock at an exercise price of
$4.34 per share and warrants to purchase 50,000 shares of Common Stock at
an exercise price of $3.50 per share.
(5) Includes (i) 80,000 shares of Common Stock held by SMACS Holding Corp. of
which Mr. Freedman is an officer; (ii) 58,000 shares of Common Stock held
by Bridge Ventures,Inc. of which Mr. Freedman is an officer, (iii) 50,000
shares of Common Stock held by Bridge Ventures Defined Benefit Plan, of
which Mr. Freedman is Trustee; (iv) warrants to purchase 292,161 shares of
Common Stock at an exercise price of $3.50 per share owned of record by
Bridge Ventures, Inc.; (v) warrants to purchase 365,000 shares of Common
Stock which are exercisable at $1.75 per share issued in connection with
the 1995 Standby Financing Agreement owned of record by Bridge Ventures,
Inc.; (vi) 266,667 Rule 7arrants to purchase Common Stock of the Company at
an exercise price of $3.50 (does not include 133,333 which are
non-exercisable); (vii) 86,000 Class A Warrants, 40,000 of which are owned
by SMACS Holding Corp. and 46,000 of which are owned by Bridge Ventures,
Inc; and (viii) 37,500 shares of Common Stock underlying Series E
Preferred. Bridge Ventures, Inc. has given an irrevocable proxy to vote its
58,000 shares to William A. Carter on the same terms as the proxy described
in Note 2.
(6) Includes Rule 701 Warrants to purchase 133,333 shares of Common Stock at an
exercise price of $3.50 per share (does not include 66,667 which are
non-exercisable). Also includes 100,000 shares of Common Stock owned of
record by Worldwide Marketing, a company for which Ms. Will serves as
President. Also includes 380,000 warrants to purchase Common Stock of the
Company at an exercise price of $1.75. Worldwide Marketing has given an
irrevocable proxy to vote its shares to William A. Carter on the same terms
as the proxy described in Note 2.
(7) Includes Rule 701 Warrants to purchase 13,333 shares of Common Stock at
$3.50 per share (does not include 6,667 which are non-exercisable).
(8) Includes (i) Rule 701 Warrants to purchase 13,333 shares of Common Stock at
$3.50 per share (does not include 6,667 which are non-exercisable); (ii)
options to purchase 20,000 shares of Common Stock at $3.50 per share; and
(iii) 2,000 shares of Common Stock and 1,000 Class A Warrants owned by the
Cedric C. Philipp and Sue Jones Philipp Trust, of which Mr. Philipp and his
wife are Trustees.
(9) Includes options to purchase 4,608 shares of Common Stock at an exercise
price of $4.34 and 4,608 shares of Common Stock owned of record by Mr.
Piani's wife.
(10) Consists of options to purchase 820 shares of Common Stock at an exercise
price of $3.80 and 50,000 Warrants to purchase Common Stock at an exercise
price of $3.50 per share.
(11) Includes 392,000 Class A Warrants, of which (i) 25,000 are owned of record
by Mr. Belson's wife; and (ii) 27,000 are owned of record by The Jerome
Belson Foundation, of which Mr. Belson is Trustee. Also includes (i) 45,000
shares of
16
<PAGE>
Common Stock owned of record by The Jerome Belson Foundation; (ii) 125,000
shares of Common Stock underlying Series E Preferred; and (iii) warrants to
purchase 550,000 shares of Common Stock at $1.75 per share owned of record
by Belson Enterprises, Inc. of which Mr. Belson is an officer.
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1997, Bridge Ventures, Inc. purchased 75 shares of Series E
Preferred at $1,000 per share in a private offering pursuant to Rule 506 the
Securities Act and Regulation D promulgated thereunder. The Series E Preferred
is convertible into shares of Common Stock at $2.00 per share. Harris Freedman,
the Company's Vice President, is an officer of Bridge Ventures, Inc.
In March 1996, the Compensation Committee of the Board of Directors
approved a grant of 250,000 warrants to purchase common stock at an exercise
price of $3.50 per share to Michael C. Burrows. This grant was made in
accordance with a Letter Agreement dated January 15, 1996, in which Mr. Burrows
agreed to provide consulting services to the Company for twenty four months. Mr.
Burrows served as Director of the Company in past years.
In March 1996 the Compensation Committee of the Board of Directors approved
grants of 50,000 warrants to purchase common stock at an exercise price of $3.50
per share to each of Robert E. Peterson, CFO and Josephine Dolhancryk, Assistant
Secretary of the Company. Such warrants are not exercisable for a period of one
year from issuance.
In March 1995, the Company instituted a declaratory judgment action against
a February noteholder, Seymour Cohn, of a $5,000,000 convertible note and a
secured defendant in United States District Court for the Eastern District of
Pennsylvania to declare as void, set aside, and cancel the February 1992
convertible note between the Company and Mr. Cohn (the "Note"). In addition, Mr.
Cohn instituted suit against the Company on the Note in the Circuit Court of the
15th Judicial District in and for Palm Beach County, Florida, seeking judgment
on the Note, plus attorney fees, costs and expenses; in August 1995, this action
was stayed by the Florida Court pending the outcome of the Pennsylvania action.
Mr. Cohn also filed a motion for a preliminary injunction in the Pennsylvania
court to enjoin the Company from disbursing the proceeds of a public offering in
the amount of $5.8 million, which motion was granted November, 1995. On February
15, 1996, the Company reached an agreement to settle this matter. Terms and
conditions of the settlement include payment of $6,450,000 to Mr. Cohn to cover
the unpaid balance Note balance, legal expenses and the retention of certain
warrants granted prior to the lawsuit. The funds under this settlement were paid
on March 21, 1996. Mutual releases were executed which completed the settlement
of the litigation.
In January 1996, the Company engaged the Research Works, Inc. to produce
four research reports with respect to the securities of the Company over a 13
month period. In exchange for this service, the Company granted 60,000 warrants
to the Research Works, Inc. exercisable at $4.00 per share.
In January 1996, the Company entered into a one year consulting agreement
with Millenium International Communications, Ltd. ("Millenium"). The
consideration for such services is $120,000, to be paid by the Company in either
monthly payments or balloon payments, in the Company's discretion. Millenium
shall consult with and render advice to the Company specifically concerning
strategic planning, public relations and other related matters. The President of
Millenium, David C. Drescher is related to Steve Drescher, a former director of
the Company.
In December 1995, the Company retained the law firm of Akin, Gump,,
Strauss, Hauer & Feld, LLP (the "Akin Group") to provide general legal counsel,
advice and representation. Initially, the Akin Group will represent the Company
in matters pertaining to the Food and Drug Administration ("FDA"). The agreement
includes incentive payments for obtaining FDA approval of Ampligen for HIV
Disease treatment.
In November 1995, the Company sold 5,313,000 Units of securities through an
initial public offering. Each Unit consists of one share of Common Stock and one
Class A Redeemable Warrant.
In August 1995, in connection with the settlement of a lawsuit brought by a
former employee of the Company against the Company and David Fries, a former
director of the Company, the Company, Dr. Fries, the Canaan Entities and Dr.
William A.
18
<PAGE>
Carter, President, Chairman and CEO of the Company, entered into an agreement
pursuant to which the Company has agreed to reimburse Dr. Fries for expenses in
the amount of $50,000 incurred in connection with such litigation. As part of
such agreement, the parties agreed to mutual releases of certain claims for
expenses and damages arising out of the litigation or arising in connection with
Dr. Fries' service as a director of the Company. The payment of $50,000 to Dr.
Fries is evidenced by an interest-free promissory note pursuant to which the
final payment is due on or before November 15, 1995. The note was assigned to
the Canaan Entities.
In June 1995, the Company entered into an agreement with The Sage Group
pursuant to which The Sage Group has agreed to introduce the Company to and
assist the Company in negotiations with certain prospective distribution
partners listed in the agreement. In exchange, The Sage Group will receive from
the Company: (i) a monthly retainer of $5,000 which began accruing July 1, 1995
and (ii) at The Sage Group's option, a percentage of the proceeds, up to an
aggregate of $150,000, from the Company's first distribution agreement with a
partner listed in the agreement or the sum of $125,000 from such agreement. In
connection with this agreement, the Company will also issue to The Sage Group
warrants to purchase 100,000 shares of the Company's Common Stock at an exercise
price of $1.75 per share. R. Douglas Hulse, a special advisor to the Company's
Board of Directors, is the Executive Director of The Sage Group.
In May 1995, William A. Carter, M.D., President, Chairman and CEO of the
Company, Bridge Ventures, Sharon Will, a Vice President of the Company,
Associated Funding Services, Inc., Jerome Belson, a director of one of the
Company's subsidiaries and a principal shareholder and E. Gerald Kay, a director
of the Company, entered into a 1995 Standby Financing Agreement with the Company
pursuant to which they are collectively obligated to invest during 1995 an
aggregate of $5,500,000 in the Company in the event the Company is unable to
secure alternative financing and the Board of Directors determines that the sale
of securities to such persons is advisable. In exchange for entering into the
1995 Standby Financing Agreement, the Company issued to each of the parties
ten-year warrants to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share for each $100,000 of standby financing
obligation assumed by the party, resulting in warrants to purchase an aggregate
of 2,750,000 shares of Common Stock. In September 1995, the parties agreed to
extend their obligations under the 1995 Standby Financing Agreement through
December 31, 1996. Harris Freedman, a Vice President of the Company, and his
wife are officers of Bridge Ventures. Gerald Brauser is President of Associated
Funding Services, Inc.
In June 1995, the Board of Directors of BioAegean Corp, a subsidiary of the
Company, issued an aggregate of 1,200,000 BioAegean Options at an exercise price
of $1.00 per share to its officers and directors, including certain officers and
directors of the Company. In consideration for the BioAegean Options, the
recipients agreed to serve BioAegean's needs for at least 24 months unless fully
incapacitated. William A. Carter, M.D., Chairman, President and Chief Executive
Officer of the Company, serves as Chairman, Chief Executive Officer and a
Director of BioAegean and received 300,000 BioAegean Options. Peter W. Rodino
III, a director and Secretary of the Company, serves as Vice-Chairman,
Secretary, Corporate Counsel and a director of BioAegean and received 150,000
BioAegean Options. Robert Peterson serves as Chief Financial Officer of both the
Company and BioAegean and received 50,000 BioAegean Options. Sharon Will, Vice
President of Investor Relations and Corporate Communications for the Company,
serves as Vice President of Marketing for BioAegean and received 150,000
BioAegean Options. Harris Freedman serves as Vice President for Strategic
Alliances for both the Company and BioAegean and received 150,000 BioAegean
Options. Richard C. Piani, a director of the Company, serves as a director and
the Advisor for European Affairs of BioAegean and received 50,000 BioAegean
Options. E. Gerald Kay serves as a director for both the Company and BioAegean
and received 50,000 BioAegean Options. BioAegean's remaining director, Jerome
Belson, a principal stockholder of the Company, received 50,000 BioAegean
Options.
In March 1995, the Company issued the Original Brauser Note, to Gerald A.
Brauser in the principal amount of $200,000. The Original Brauser Note also
provided for the issuance of warrants to purchase 50,000 shares of the Company's
Common Stock at $1.75 per share. In May 1995, the Company restructured the
Original Brauser Note and issued the New Brauser Note to Mr. Brauser in the
amount of $100,000 along with warrants to purchase 25,000 shares of the
Company's Common Stock at $1.75 per share. As part of the restructuring, Mr.
Brauser agreed to (i) purchase 100,000 shares of Common Stock with $50,000 of
the
19
<PAGE>
Original Brauser Note and (ii) apply $50,000 of the Original Brauser Note
towards a Bridge Loan in connection with the Bridge Financing. The New Brauser
Note of $100,000 and the $50,000 Bridge Loan have been paid off. In connection
with both the Original Brauser Note and the New Brauser Note, Bridge Ventures
agreed to permit the Company to collateralize these notes with the Company's
patent estate, which collateral had previously been granted to Bridge Ventures.
Bridge Ventures further guaranteed the Original Brauser Note with certain
publicly traded common stock, which guarantee was released by Mr. Brauser in
connection with the restructuring. Harris Freedman, a Vice President of the
Company, and his wife are both officers of Bridge Ventures.
In March and April 1995, in connection with the Bridge Financing, the
Company issued Bridge Notes to certain lenders in the aggregate principal amount
of $1,500,000, including a Bridge Note in the amount of $250,000 to Stephen
Drescher and a Bridge Note in the amount of $150,000 to Jerome Belson.
Additionally, in connection with the Bridge Loans, the Company has issued
options to purchase 166,665 Bridge Units at $.50 per Bridge Unit to Mr. Drescher
and options to purchase 100,000 Bridge Units at $.50 per Bridge Unit to Jerome
Belson. In July 1995, Mr. Drescher assigned the $250,000 Bridge Note and his
options to purchase 166,665 Bridge Units to certain other investors. Mr.
Drescher is a former director of the Company and presently serves as the
Director of Corporate Finance at Monroe Parker, one of the Underwriters. Jerome
Belson is a principal shareholder and director of BioAegean, a subsidiary of the
Company.
In March 1995, the Company received interest-free loans from William A.
Carter and Harris Freedman in the amounts of $35,000 and $12,000, respectively.
In March 1995, the Company repaid the loan from Dr. Carter. In April 1995, the
Company repaid the loan from Mr. Freedman.
In December 1992 and February 1993, the Company issued to the Tisch/Tsai
Entities, in a private placement, promissory notes in the aggregate principal
amount of $2,400,000 due on April 30, 1994, and warrants to purchase an
aggregate of 36,864 shares of the Company's Common Stock or 40,000 shares of
Series C Preferred Stock at an exercise price of the (i) $13.02 or $12.00 per
share, respectively or (ii) the per share price of Common Stock in the initial
public offering. The warrants expire on December 31, 1997. One-half of the
principal amount of the notes and one-half of the warrants were purchased by FLF
Associates. James S. Tisch, a former director of the Company, is a principal of
FLF Associates. The remaining half of the principal amount of the note and
one-half of the warrants were purchased by Gerald Tsai, Jr. and Lincoln Trust
Company, Custodian FBO Gerald Tsai, Jr. Mr. Tsai is a former director of the
Company. Interest on the notes is payable quarterly at an annual rate of 12% (6%
prior to May 1, 1993).
In February 1995, the Company entered a settlement agreement with the
Tisch/Tsai Entities to restructure the December 1992 and February 1993
promissory notes in the aggregate principal amount of $2,400,000 and settle
certain threatened claims made by the Tisch/Tsai Entities against the Company
(the "Tisch/Tsai Restructuring"). This debt restructuring consisted of (i) the
repayment by the Company of $1,200,000 in principal, (ii) the issuance of
replacement notes in the aggregate principal amount of $600,000 to the
Tisch/Tsai Entities which notes are due on the earlier of the closing of a
public offering or May 28, 1996 and bear interest at the rate of 8% per annum,
which interest is payable in quarterly installments from an interest reserve
established by the Company, (iii) the conversion of $600,000 of principal into
172,414 shares of Series C Preferred Stock at the rate of $3.48 per share, (iv)
the amendment and restatement of certain warrants issued in connection with the
original notes in order to increase the number of shares of stock issuable
thereunder by 64,000 shares to provide for warrants to purchase a total of
144,000 shares of Common Stock at an exercise price of $2.00 per share, which
warrants are exercisable until December 31, 1997, and (v) the release by all
parties of any claims. The replacement notes were secured by a pledge by Dr.
William A. Carter, President, Chief Executive Officer and Chairman of the
Company, of 112,925 shares of Series C Preferred Stock and 240,756 shares of
Common Stock. In March, 1996 the notes were repaid and the shares of stock are
being returned.
In November 1994, the Company restructured a $100,000 note issued in June
1993 to Myron Cherry (the "Cherry Note"), a stockholder, pursuant to which the
repayment date of the principal amount of the Cherry Note was extended to the
closing date of the Company's initial public offering and the accrued but unpaid
interest subsequent to September 30, 1993 was converted into Common Stock of the
Company at a price of $5.43 per share. Pursuant to the restructuring, in the
event that the Company's initial
20
<PAGE>
public offering was not completed by February 28, 1995, the principal amount
would be repaid by the Company or Bridge Ventures Inc. by March 6, 1995. In
addition, the Company issued to Mr. Cherry 5,000 immediately exercisable
warrants with an exercise price of $3.50 per share and Bridge Ventures agreed
that the unpaid principal on the Cherry Note would be collateralized by the
Company's patents on the same terms as the Bridge Financing arranged by Bridge
Ventures. In March 1995, the Company and Mr. Cherry agreed to extend the
maturity of the promissory note from March 1, 1995 to March 31, 1995. During
this extended period, the Company agreed to pay 8% interest and grant Mr. Cherry
a warrant to purchase 5,000 shares of Common Stock exercisable at $3.50. The
Company further agreed to either register all of Mr. Cherry's 2,770 shares of
Common Stock and 10,000 warrants to purchase Common Stock in connection with
this Public Offering or reduce the exercise price of Mr. Cherry's warrants to
$1.75 per share. Because Mr. Cherry has not advised the Company of his election,
the Company has reduced the exercise price of his warrants to $1.75 per share.
As of July, 1995, the Company has repaid the entire principal amount of the
Note, including accrued interest. Harris Freedman, a Vice President of the
Company, and his wife are officers of Bridge Ventures.
In October and November 1994, the Company granted Rule 701 Warrants to
purchase 20,000 shares of Common Stock at $3.50 per share to E. Gerald Kay,
Cedric C. Philipp and Peter Rodino III, directors of the Company and Maryann
Charlap Azzato, a former director of the Company. In addition, the Company
granted the following Rule 701 Warrants to purchase shares of Common Stock at
$3.50 per share: 1,400,000 warrants to William A. Carter; 200,000 warrants to
Sharon Will, Vice President of Investor Relations and Corporate Communications;
and 400,000 warrants to Harris Freedman, Vice President for Strategic Alliances.
From July 1994 to November 1994, the Company completed a private placement
in which it sold 2,050,000 shares of Common Stock to certain accredited
investors for an aggregate consideration of $1,025,000 (the "1994 Common Stock
Financing"). In connection with the private placement, Bridge Ventures
introduced a number of investors and lenders to the Company. Harris Freedman,
Vice President of the Company, and his wife are officers of Bridge Ventures. In
conjunction with the 1994 Common Stock Financing, the Company agreed to
collateralize certain of its patents until the earlier of the effectiveness of
the initial public offering or the consummation of corporate alliances or
licensing arrangement which provide sufficient operating capital and clinical
development support to the Company. Pursuant to the agreement with Bridge
Ventures in connection with the 1994 Common Stock Financing, Messrs. Philipp,
Rodino and Kay were elected to the Board of Directors. Purchasers of 1,950,000
of the shares of Common Stock issued pursuant to the 1994 Common Stock Financing
executed irrevocable proxies naming William A. Carter, the Company's President,
Chief Executive Officer and Chairman, as proxy, with full power to vote their
shares on all matters to be voted on by the stockholders of the Company until
the achievement by the Company of a market capitalization of $300,000,000 or
greater under certain circumstances or the receipt by the Company of a bona fide
offer for acquisition or merger, the net effect of which, if consummated, would
be to establish a market capitalization of at least $300,000,000.
In October 1994, in connection with the 1994 Common Stock Financing, the
Company sold 50,000 shares of Common Stock at a price of $.50 per share to
Stephen J. Drescher, a former director of the Company, 80,000 shares of Common
Stock to the Belfort Family Trust, of which Mr. Drescher serves as Trustee, at a
price of $.50 per share and 50,000 shares of Common Stock at a price of $.50 per
share to Jerome Belson, a director of BioAegean. Mr. Drescher also received
300,000 warrants in connection with general consulting services. In addition, in
October 1994, the Company received a certain loan in the aggregate principal
amount of $150,000 from the Belfort Family Trust. In March 1995, the loan was
repaid without interest from the proceeds from the Bridge Loans. In October
1995, the Belfort Family Trust sold 80,000 shares of Common Stock to Carol
Schiller at a price of $2.00 per share.
In October 1994, the Company entered into an agreement with Bioclones
Proprietary Limited ("Bioclones"), a biopharmaceutical company which is
associated with The South African Breweries Limited ("SAB"). In connection with
the execution of SAB Agreement, the Company granted Cedric C. Philipp, a
Director of the Company, an option to purchase 20,000 shares of Common Stock at
$3.50 per share. In addition, in October 1994, the Board of Directors granted to
Mr. Philipp, a director of the Company and Special Advisor to the Board for
International Marketing, the right to receive 3% of the gross
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proceeds of any licensing fees and prepaid royalties received by the Company
pursuant to the SAB Agreement and a fee of .75% of gross proceeds in the event
that SAB/Bioclones makes a tender offer for all or substantially all of the
Company's assets, including a merger, acquisition or related transaction. In
addition, the Company further agreed to provide a monthly retainer of $2,000 to
Mr. Philip in exchange for consulting services and remuneration for corporate
alliances which are principally introduced by Mr. Philipp. Mr. Philipp has been
paid $90,000 to date in connection with these arrangements.
In September 1994, Maryann Charlap Azzato, formerly Vice President of
Investor Relations and Corporate Communications and the former Vice Chairman and
director of the Company, entered into an agreement with Lloyd DeVos, a
stockholder, former director and holder of a note in the principal amount of
$100,000 (the "DeVos Note") in order to settle a lawsuit filed against the
Company and William A. Carter by Mr. DeVos in the United States District Court
for the Southern District of New York alleging breach of contract, conversion
and certain violations of the federal securities laws in connection with the
issuance of the DeVos Note. Pursuant to the settle ment agreement, principal and
interest on the DeVos Note were repaid by Ms. Azzato as well as certain expenses
incurred by Mr. DeVos in the approximate amount of $2,600 and 1,536 shares of
Common Stock of the Company were transferred to Mr. DeVos by Ms. Azzato in
exchange for the assignment to Ms. Azzato by Mr. DeVos of the right to repayment
by the Company of the DeVos Note and warrants to purchase 1,667 share of Series
C Preferred Stock. In addition, certain options to purchase 6,912 shares of
Common Stock of the Company previously issued to Mr. DeVos were delivered to Mr.
DeVos. In exchange for the above agreement, Mr. DeVos, the Company and William
A. Carter executed mutual releases of all claims and Mr. DeVos dismissed the
suit.
In September 1994, the Company incorporated three wholly-owned subsidiaries
- - BioPro Corp. ("BioPro"), Core BioTech, Corp. ("Core BioTech") and BioAegean
Corp. - in Delaware. In September 1994, the Company granted exclusive worldwide
licenses and/or sublicenses to certain of its patents and assigned certain other
patents to BioPro (the "BioPro License"), Core BioTech (the "CoreBiotech
License") and BioAegean (the "BioAegean License"). Bridge Ventures, which has
rights in the Company's patents pursuant to the collateralization of such
patents in connection with the 1994 Common Stock Financing, agreed to release
its rights in the licensed or assigned patents. Harris Freedman, the Vice
President for Strategic Alliances for the Company and BioAegean, and his wife
are officers of Bridge Ventures.
In May 1994, the Company entered into an agreement to borrow $100,000 from
Bridge Ventures for 60 days in exchange for warrants to purchase 92,160 shares
of Common Stock at $3.50 per share. In August 1994, the $100,000 loan was
converted to 200,000 shares of Common Stock and warrants to purchase 200,000
shares of Common Stock at an exercise price of $3.50 per share. Bridge Ventures
transferred 150,000 of its shares of Common Stock to Gerald Kay, a director of
the Company. In addition, Bridge Ventures received a $50,000 consulting fee for
general business and financial consulting services rendered from January 1994 to
July 1994, which it converted into 100,000 shares of Common Stock as part of the
1994 Common Stock Financing. Harris Freedman, the Company's Vice President, and
his wife are officers of Bridge Ventures. Pursuant to the agreement with Bridge
Ventures, Messrs. Kay, Philipp and Rodino were elected to the Board of
Directors. In November 1994, each of Bridge Ventures and Gerald Kay sold 50,000
shares of Common Stock at a price of $.50 per share to Worldwide Marketing.
Sharon Will, an officer of the Company, is President of Worldwide Marketing.
In April 1994, William A. Carter, the Company's Chairman and Chief
Executive Officer, purchased 20,000 shares of Series C Preferred Stock at $5.00
per share. Also Maryann Charlap Azzato purchased 30,000 shares of Series C
Preferred Stock at $5.00 per share and agreed to purchase an additional 10,000
shares at $5.00 per share.
In May 1994, Maryann Charlap Azzato guaranteed payment of two promissory
notes in the aggregate amount of $76,000 payable by the Company representing
payments due in connection with the Temple Agreement (the "Temple Notes"). In
return for the guarantee, the Company assigned all rights, patents and related
technology in the Company's Oragen and Diagen products to Ms. Azzato, which
rights will revert to the Company upon repayment of the principal on the Temple
Notes, 12% interest, and Ms. Azzato's fees and expenses which are expected to be
paid from the proceeds of this Public Offering. The Company also received a
right of first refusal with respect to the sale or assignment by Ms. Azzato of
this technology.
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In January 1994, William A. Carter, the Company's Chairman and Chief
Executive Officer, sold an aggregate of 122,880 shares of Common Stock at $3.26
per share for an aggregate price of $400,000 to Michael Dubilier, Keys
Foundation, Canaan Venture Limited Partnership ("Canaan Venture"), Canaan
Venture Offshore Limited Partnership, C.V. ("Canaan Offshore"), James Tisch and
an unaffiliated individual. Using the proceeds of this sale, Dr. Carter
purchased 80,000 shares of Series C Preferred Stock at $5.00 per share from the
Company. In addition, Maryann Charlap Azzato purchased 3,600 shares of Series C
Preferred Stock at $5.00 for an aggregate price of $18,000, representing her
remaining commitment under the 1993 Standby Financing Agreement.
Compliance with Section 16(a) of the Exchange Act
R. Douglas Hulse did not timely file a Form 3 upon his appointment as Chief
Operating Officer. William A. Carter, Harris Freedman, David R. Strayer, Robert
E. Peterson, E. Gerald Kay, Cedric C. Philipp and Sharon Will did not timely
file respective Forms 4 in connection with transactions made in fiscal 1996. All
applicable individuals have since since complied with Section 16 of the Act.
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PROPOSAL NO. 2
RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG Peat Marwick, L.L.P. audited the consolidated balance
sheets of the Company and its subsidiaries for the fiscal years ended December
31, 1995 and 1996 and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1996. On August 6, 1997, pursuant to a vote
of the Board of Directors, the firm of KPMG Peat Marwick, L.L.P. was selected to
audit the financial statements of the Company for the year ending December 31,
1997. Accordingly, the Board of Directors will offer the following resolution at
the Annual Meeting:
RESOLVED, that the appointment by the Board of Directors of KPMG Peat
Marwick, L.L.P. independent public accountants, to audit the financial
statements of the Company for the year ending December 31, 1997 be, and
hereby is, ratified and approved.
It is anticipated that a member of KPMG Peat Marwick, L.L.P. will be
present at the Annual Meeting to respond to appropriate questions and will have
the opportunity, if he desires, to make a statement.
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. Under Delaware law, there are no
rights of appraisal or dissenter's rights which arise as a result of a vote to
ratify the selection of auditor's.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's 1998 Annual Meeting of Stockholders
will be held in July 1998. Stockholders who seek to present proposals at the
Company's next Annual Meeting of Stockholders must submit their proposals to the
Secretary of the Company on or before March 1, 1998.
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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 Proposal No. 2 and for
the election of all directors nominated.
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,
Peter W. Rodino III, Secretary
Philadelphia, Pennsylvania
July 10, 1997
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HEMISPHERx BIOPHARMA, INC.
Annual Meeting of Stockholders -- Wednesday, October 8, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Carter and Peter W. Rodino III
and each of them, with power of substitution, as proxies to represent the
undersigned at the Annual Meeting of Stockholders to be held at Center City
Holiday Inn, Philadelphia, Pennsylvania, Wednesday, October 8, 1997 at 10:00
a.m. local time and at any adjournment thereof, and to vote the shares of stock
the undersigned would be entitled to vote if personally present, as indicted on
the reverse side hereof.
The shares represented by the proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR Proposal No. 2 and
for the election of William A. Carter, Peter W. Rodino III, Cedric C. Philipp
and Richard C. Piani as Directors.
Please mark boxes in blue or black ink.
1. Proposal No. 1 - Election of Directors.
Nominees: William A. Carter, Peter W. Rodino III, Cedric C. Philipp and
Richard C. Piani.
AUTHORITY
FOR withheld
all as to all
nominees nominees
/ / / /
For, except authority withheld as to the following nominee(s):
______________________________________________________________
2. Proposal No. 2 for ratification of the selection of KPMG Peat Marwick,
L.L.P. as the independent auditors of the Company.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(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.
