HEMISPHERX BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 15, 1998
To the Stockholders of Hemispherx Biopharma, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Hemispherx Biopharma, Inc. ("Company"), a Delaware corporation, to be held at
the Center City Holiday Inn, Philadelphia, Pennsylvania, on Wednesday, July 15,
1998, 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, LLP,
independent public accountants, to audit the financial statements of the
Company for the year ending December 31, 1998; 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 May 18, 1998
("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,
1997.
By Order of the Board
of Directors
/s/Ransom W. Etheridge, Secretary
Philadelphia, Pennsylvania
May 19, 1998
<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 ("Annual Meeting") of stockholders of
Hemispherx Biopharma, Inc. ("Company"), to be held on Wednesday, July 15, 1998,
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 May 26, 1998. 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 May 18, 1998, are
entitled to receive notice of, and vote at the Annual Meeting. As of May 18,
1998, the number and class of stock outstanding and entitled to vote at the
meeting was 21,174,339 shares of common stock, par value $.001 per share
("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, Richard C. Piani, Ransom W. Etheridge and
William M. Mitchell. 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 Allegheny University
of the Health Sciences, a position he has held since 1980. He is also Director
of Clinical Research for Allegheny University of the Health Science's Institute
for Cancer and Blood Diseases. Dr. Carter has served as a professor at Johns
Hopkins School of Medicine and the State University of New York at Buffalo.
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 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
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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.
RANSOM W. ETHERIDGE was elected a director of the Company in October 1997, and
presently serves as Secretary. Mr. Etheridge first became associated with the
Company in 1980 when he provided consulting services to the Company and
participated in negotiations with respect to the Company's initial private
placement through Oppenheimer & Co., Inc. He has been practicing law since 1967,
specializing in commercial and 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, the Wharton School Business Real Estate Investment Analysis Seminar,
and the University of Richmond School of Law.
WILLIAM M. MITCHELL, M.D. has been nominated by the Board of Directors to serve
as a director of the Company. He is a Professor of Pathology at Vanderbilt
University School of Medicine. Dr. Mitchell earned a Ph.D. from Johns Hopkins
University where he later worked as an intern in its hospital, 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. He 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 has
served as a director of the Company from 1987 to 1989.
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, 1997. The Company's Compensation Committee also met twice during
the fiscal year ended December 31, 1997. 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 Ransom W. Etheridge, which makes recommendations to
management regarding general business matters of the Company; a Compensation
Committee consisting of Ransom W. Etheridge and Richard C. Piani, which makes
recommendations concerning salaries and compensation for employees of and
consultants to the Company; an Audit Committee consisting of Ransom W. Etheridge
and William A. Carter, which reviews the results and scope of the audit and
other services provided by independent auditors; and a Strategic Planning
Committee
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consisting of William A. Carter and Richard C. Piani, 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. 60 Chairman of the Board of Directors,
Chief Executive Officer
and President
Robert E. Peterson 61 Chief Financial Officer
Richard C. Piani 71 Director
Ransom W. Etheridge 59 Director and Secretary
William M. Mitchell, M.D. 63 Director (nominated)
Harris Freedman 64 Vice President, Corporate Communications
Sharon D. Will 39 Vice President, Investor Relations
Josephine M. Dolhancryk 35 Treasurer, Assistant Secretary
David R. Strayer, M.D. 52 Medical Director, Director of
Regulatory Affairs
Carol A. Smith, Ph.D. 46 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 Allegheny University
of the Health Sciences, a position he has held since 1980. He is also Director
of Clinical Research for Allegheny University of the Health Science's Institute
for Cancer and Blood
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Diseases. Dr. Carter has served as a professor at Johns Hopkins School of
Medicine 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 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.
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.
RANSOM W. ETHERIDGE was elected a director of the Company in October 1997
and serves as Secretary. Mr. Etheridge first became associated with the Company
in 1980 when he provided consulting services to the Company and participated in
negotiations with respect to the Company's initial private placement through
Oppenheimer & Co., Inc. He has been practicing law since 1967, specializing in
commercial and 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, the Wharton
School Business Real Estate Investment Analysis Seminar, and the University of
Richmond School of Law.
WILLIAM M. MITCHELL, M.D. has been nominated by the Board of Directors to
serve as a director of the Company. He is a Professor of Pathology at Vanderbilt
University School of Medicine. Dr. Mitchell earned a Ph.D. from Johns Hopkins
University where he later worked as an intern in its hospital, 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. He has
worked for and with many professional societies, including the International
Society for Interferon Research, and committees, among them the National
Institutes of Health,
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AIDS and Related Research Review Group. Dr. Mitchell has served as a director of
the Company from 1987 to 1989.
DAVID R. STRAYER, M.D., who serves as Professor of Medicine at Medical
College of Pennsylvania and Allegheny University of the Health Sciences, 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.
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
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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.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual Restricted All other
Name and Compensation Stock Option Compensation
Principal Position Year Salary ($)(1) Awards($) Awards ($)(2)
- ------------------ ---- ------ ------------ ---------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
William A. Carter 1997 $427,504(3) 13,683 -- -- 11,387
Chairman of the Board 1996 400,522(3) -- -- 300,000(5) 10,580
Chief Executive Officer 1995 363,420(3) -- -- -- 7,778
Robert E. Peterson 1997 132,000 -- -- 13,750(6) --
Chief Financial Officer(4) 1996 128,000 -- -- 50,000(7) --
1995 120,000 -- -- 50,000(8) --
Sharon Will 1997 132,000 -- -- -- --
Vice President 1996 126,000 -- -- -- --
1995 125,000 -- -- 50,000(8) --
David R. Strayer, M.D. 1997 171,926(9) -- -- 20,000(6) --
Medical Director 1996 130,427(10) -- -- -- --
1995 115,083 -- -- --
Harris Freedman 1997 132,000 -- -- -- --
Vice President 1996 126,000 -- -- -- --
1995 112,500 -- -- 150,000(8) --
</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.
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(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 funds paid to Dr. Carter by Allegheny University of the Health
Sciences where he serves as a professor. This compensation totaled $79,826
in 1997.
(4) Mr. Peterson 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").
(6) Stock options to purchase shares of common stock at $3.50 per share. These
options vest over a four year period.
(7) Warrants to purchase common stock at $3.50 per share granted in March
1996.
(8) BioAegean Options.
(9) Includes $98,926 paid to Dr. Strayer by Allegheny University of the Health
Sciences, and $23,000 of compensation deferred from prior years.
(10) Includes $80,427 paid by Allegheny University of the Health Sciences in
1996.
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Year End Option Table. The following table sets forth certain information
regarding the stock options held as of December 31, 1997 by the individuals
named in the above Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money-Options
Fiscal Year End(#) at Fiscal Year End($)(9)
Shares Acquired ---------------------------- -------------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William A. Carter 1,041 3,644 1,938,728(1) 300,000(2) 1,296,432 ---
Robert E. Peterson --- --- 63,824(3) 63,750(4) 15,956 3,438
Sharon Will --- --- 570,000(5) 50,000(6) 790,000 ---
Harris Freedman --- --- 1,070,660(7) 150,000(8) 823,665 ---
David Strayer --- --- --- 20,000(10) --- 5,000
</TABLE>
- ---------------------
(1) Includes (i) 1,400,000 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; and (iii) warrants to purchase 465,000
shares of Common Stock at $1.75 per share.
(2) Represents BioAegean Options, for which there is no public market
(3) Includes 27,574 stock options exercisable at an average price of $3.92 per
share, and 50,000 warrants to purchase Common Stock at $3.50 per share.
(4) Represents 50,000 BioAegean Options, and 13,750 stock options exercisable
at $3.50 per share.
(5) Includes 200,000 currently exercisable Rule 701 Warrants and 370,000
warrants to purchase Common Stock at $1.75 per share.
(6) Represents BioAegean Options.
(7) Includes (i) 400,000 Rule 701 Warrants currently exercisable; (ii) 254,660
warrants to purchase common stock at $3.50 per share; (iii) 330,000
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) Represents 150,000 BioAegean Options.
(9) Computation based on $3.75, the December 31, 1997 closing price for the
Common Stock on the American Stock Exchange.
(10) Represents 20,000 stock options exercisable at $3.50 per share.
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Option Grant Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 1997 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 13,750 21% $3.50 1/22/07
David R. Strayer 20,000 31% $3.50 1/22/07
Employment Agreements
The Company entered into an amended and restated employment agreement with
Dr. William A. Carter, dated as of July 1, 1993, which provided 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 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. Pursuant to the
agreement, 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. Dr. Carter's agreement also provided that he would 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 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. In
January 1998, the term of Dr. Carter's employment agreement was extended for an
additional three years.
The Company entered into an employment agreement with Robert E. Peterson
dated April 15, 1998 providing for Mr. Peterson's employment as the Company's
Chief Financial Officer until December 31, 2000 at an annual base salary of
$132,000 per year, subject to annual cost of living increase. In addition, Mr.
Peterson shall receive bonus compensation upon the FDA approval of Ampligen
based on the number of years of his employment by the Company up to the date of
such approval. Mr. Peterson will also receive 100,000 warrants to purchase
shares of Common Stock with an exercise price not to exceed $5.00.
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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 1996, the base
salary was increased to $132,000 per year. In January 1998, the term of Ms.
Will's employment agreement was extended for an additional 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 1996, the base salary was increased to $132,000. In January
1998, the term of Mr. Freedman's employment agreement was extended for an
additional three years.
Compensation of Directors
During the year ended December 31, 1997, each non-employee directors
received $1,250 per month 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.
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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, 1997, options to acquire an
aggregate of 291,256 shares of the Common Stock were available for grants 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 1997 the Company
provided matching contributions to each employee for up to 6% of annual pay for
a total of $30,598 for all employees.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1997, the members of the
Company's Compensation Committee were Ransom W. Etheridge and Richard Piani.
There were no relationships between the Company and the members of the
Compensation Committee.
14
<PAGE>
Total Return of
Shareholder's
(Dividends
reinvested monthly)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name/Index Dec95 Dec96 Dec97
- --------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC. -37.43 2.74 80.53
S&P SMALLCAP 600 INDEX 4.13 21.32 25.58
PEER GROUP 51.42 -3.97 19.49
INDEXED RETURNS
Years Ending
Base
Period
Company Name/Index 2Nov95 Dec95 Dec96 Dec97
- --------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC. 100 62.57 64.29 116.06
S&P SMALLCAP 600 INDEX 100 104.13 126.33 158.65
PEER GROUP 100 151.42 145.41 173.75
Peer Group Companies
- --------------------------------------------------------------------------------
GILEAD SCIENCES INC.
ISIS PHARMACEUTICALS INC.
15
<PAGE>
[The following table was represented as a line graph in the printed material]
INDEXED RETURNS
Years Ending
Base
Period
Company Name/Index 2Nov95 Dec95 Dec96 Dec97
- --------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC. 100 62.57 64.29 116.06
S&P SMALLCAP 600 INDEX 100 104.13 126.33 158.65
PEER GROUP 100 151.42 145.41 173.75
Peer Group Companies
- --------------------------------------------------------------------------------
GILEAD SCIENCES INC.
ISIS PHARMACEUTICALS INC.
16
<PAGE>
Security Ownership of Certain Beneficial
Owners and Management
---------------------
The following table sets forth, as of May 14, 1998, 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 % of Share
Officers, Directors and Beneficially Beneficially
Principal Stockholders Owned Owned(1)
- ----------------------- ------------ -------------
William A. Carter 3,379,922(2) 14.5%
Robert E. Peterson 78,074(3) **
Ransom Etheridge 60,426(4) **
Harris Freedman 1,398,160(5) 6.3%
Sharon D. Will 715,000(6) 3.3%
Richard C. Piani 38,063(7) **
David R. Strayer, M.D. 28,745(8) **
Josephine Dolhancryk 77,924(9) **
Jerome Belson 1,824,800(10) 9.1%
Belson Enterprises, Inc.
495 Broadway
New York, NY 10012
Kennedy Capital 1,947,120(11) 8.7%
10829 Olive Blvd.
St. Louis, MO 63141
Mellon Bank NA 1,675,422 7.9%
c/o Mellon Bank Corp.
500 Grant Street
Pittsburgh, PA 15258
The Dreyfus Corporation 1,675,000 7.9%
c/o Mellon Bank Corp.
500 Grant Street
Pittsburgh, PA 15258
Premier Aggressive Growth Fund 1,175,000 5.5%
c/o Mellon Bank Corp.
500 Grant Street
Pittsburgh, PA 15258
17
<PAGE>
Jack Hunter 1,500,000(12) 7.1%
Hunter Capital Corp.
110 Kennedy, #3
San Antonio, TX 78209
All directors, 5,776,314(13) 22.7%
executive officers
as a group (8 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 May 14, 1998. 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 300,000 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 of
$2.71 per share, (ii) Rule 701 Warrants to purchase 1,400,000 shares of
Common Stock at a price of $3.50 per share; (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 (iv) 170,000 common stock
warrants exercisable at $3.00 per share. Does not include 660,000 common
stock warrants granted in 1998, which are not exercisable.
(3) Includes 27,754 options to purchase Common Stock at an average exercise
price of $3.92 per share and warrants to purchase 50,000 shares of Common
Stock at an exercise price of $3.50 per share.
(4) Includes 20,000 warrants to purchase Common Stock at $4.00 per share, and
30,100 Class A Warrants to purchase Common Stock at $3.50 per share.
18
<PAGE>
(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 254,660 shares of
Common Stock at an exercise price of $3.50 per share owned of record by
Bridge Ventures, Inc.; (v) warrants to purchase 330,000 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) 400,000 Rule 701 Warrants to purchase Common Stock of the
Company at an exercise price of $3.50; (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; (viii) 37,500 shares of Common Stock
underlying Series E Preferred; and (ix) 160,000 common stock warrants
exercisable at $4.00 per share. 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 200,000 shares of Common Stock at
an exercise price of $3.50 per share. 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 370,000 warrants to purchase
Common Stock of the Company at an exercise price of $1.75 and 45,000
common stock warrants exercisable at $3.00 per share. 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 (i) 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; and (ii) 20,000 warrants to purchase Common Stock at
$4.00 per share.
(8) Includes options to purchase 20,000 shares of Common Stock at $3.50 per
share.
(9) Includes of (i) options to purchase 820 shares of Common Stock at an
exercise price of $3.80; (ii) options to purchase 7,104 share of Common
Stock $3.50 per share; (iii) and 50,000 Warrants to purchase Common Stock
at an exercise price of $3.50 per share.
(10) Includes 428,200 Class A Warrants, of which (i) 25,000 are owned of record
by Mr. Belson's wife; and (ii) 3,200 are owned of record by The Jerome
Belson Foundation, of which Mr. Belson is Trustee. Also includes (i)
130,000 shares of Common Stock owned of record by The Jerome Belson
Foundation; (ii) 15,000 shares of Common Stock held by Mr. Belson's wife;
(iii) 125,000 shares of Common Stock underlying Series E Preferred; (iv)
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; and (v) warrants to purchase 200,000 shares of Common Stock
exercisable at $3.50 per share.
(11) Includes 1,250,000 shares of Common Stock underlying Series E Preferred
Stock.
19
<PAGE>
(12) Includes 1,000,000 shares of Common Stock beneficially owned by The
Peninsula Group, of which Mr. Hunter is president.
(13) Includes an aggregate of 4,222,274 shares of Common Stock underlying
certain warrants, stock options and Series E Preferred Stock.
20
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1998, the Company authorized the issuance of the following five
year common stock purchase warrants to certain officers and directors of the
Company for services rendered: (i) 810,000 warrants to William A. Carter, of
which 170,000 are immediately exercisable at $3.00 per share, 170,000 are
exercisable at $4.00 per share beginning one year from issuance, 170,000 are
exercisable at $5.00 per share beginning two years from issuance, and 300,000
are exercisable at $6.00 per share beginning three years from the date of
issuance; (ii) 160,000 warrants to Bridge Ventures, Inc., a company of which
Harris Freedman is Vice President, immediately exercisable at $4.00 per share;
and (iii) 45,000 warrants to Sharon Will, immediately exercisable at $3.00 per
share.
In January 1998, the Company authorized the issuance of 20,000 common
stock purchase warrants to each of the Company's directors. The aforesaid
warrants are exercisable at $4.00 per share during the two year period
commencing on the date of issuance.
In January 1997, the Company authorized the issuance of stock options to
Josephine Dolhancryk (7,104), Robert E. Peterson (13,750), and David R. Strayer
(20,000). All are exercisable at $3.50 per share.
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.
Compliance with Section 16(a) of the Exchange Act
Ransom W. Etheridge did not timely file a Form 3 upon his appointment as a
director of the Company. William A. Carter, Harris Freedman and Sharon Will did
not timely file respective Forms 4 in connection with transactions made in
fiscal 1997. All applicable individuals have since complied with Section 16 of
the Act.
21
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG Peat Marwick, LLP audited the consolidated balance sheets
of the Company and its subsidiaries for the fiscal years ended December 31, 1996
and 1997 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, 1997. On August 6, 1997, pursuant to a vote of the Board of
Directors, the firm of KPMG Peat Marwick, LLP 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, LLP independent public accountants, to audit the financial
statements of the Company for the year ending December 31, 1998 be, and
hereby is, ratified and approved.
It is anticipated that a member of KPMG Peat Marwick, LLP 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 auditors.
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 1999 Annual Meeting of Stockholders
will be held in July 1999. 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, 1999.
22
<PAGE>
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,
Ransom W. Etheridge, Secretary
Philadelphia, Pennsylvania
May 19, 1998
23
<PAGE>
HEMISPHERX BIOPHARMA, INC.
Annual Meeting of Stockholders -- Wednesday, July 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Carter and Ransom Etheridge 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, July 15, 1998 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, Richard C. Piani, Ransom W. Etheridge and
William M. Mitchell as Directors.
Please mark boxes in blue or black ink.
1. Proposal No. 1 - Election of Directors.
Nominees: William A. Carter, Richard C. Piani, Ransom W. Etheridge and
William M. Mitchell.
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,
LLP 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.
