SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule
14a-6(e)(2)) [X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Solicitation Material Pursuant to Rule 14a-11(c) or rule 14a-12
Hemispherx Biopharma, Inc.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
HEMISPHERX BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 2005
To the Stockholders of Hemispherx Biopharma, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Hemispherx Biopharma, Inc. ("Hemispherx"), a Delaware corporation, to be held at
the Embassy Suites, 1776 Benjamin Franklin Parkway, Philadelphia Pennsylvania
19103, on Wednesday, June 22, 2005, at 10:00 a.m. local time, for the following
purposes:
1. To elect six members to the Board of Directors of Hemispherx to
serve until their respective successors are elected and qualified;
2. To ratify the selection by Hemispherx's audit committee of BDO
Seidman, LLP, independent registered public accountants, to audit the
financial statements of Hemispherx for the year ending December 31, 2005;
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 April 25, 2005 are
entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed. If you are unable to attend the
meeting in person you are urged to sign, date and return the enclosed proxy
promptly in the self addressed stamped envelope provided. If you attend the
meeting in person, you may withdraw your proxy and vote your shares. We have
also enclosed our annual report on Form 10-K for the fiscal year ended December
31, 2004.
By Order of the Board
of Directors
s\Ransom W. Etheridge, Secretary
Philadelphia, Pennsylvania
May 13, 2005
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YOUR VOTE IS IMPORTANT
We urge you to promptly vote your shares
by completing, signing, dating and returning
your proxy card in the enclosed envelope.
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PROXY STATEMENT
HEMISPHERX BIOPHARMA, INC.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies for use at the annual meeting of stockholders of Hemispherx Biopharma,
Inc. ("Hemispherx" or the "Company") to be held on Wednesday, June 22, 2005, and
at any adjournments. The accompanying proxy is solicited by the Board of
Directors of Hemispherx and is revocable by the stockholder by notifying
Hemispherx's Corporate Secretary at any time before it is voted, or by voting in
person at the annual meeting. This proxy statement and accompanying proxy will
be distributed to stockholders beginning on or about May 10, 2005. The principal
executive offices of Hemispherx are located at 1617 JFK Boulevard, Philadelphia,
Pennsylvania 19103, telephone (215) 988-0080.
OUTSTANDING SHARES AND VOTING RIGHTS
RECORD DATE; OUTSTANDING SHARES
Only stockholders of record at the close of business on April 25, 2005,
the record date, are entitled to receive notice of, and vote at the annual
meeting. As of the record date, the number and class of stock outstanding and
entitled to vote at the meeting was 50,028,237 shares of common stock, par value
$.001 per share. Each share of common stock is entitled to one vote on all
matters. No other class of securities will be entitled to vote at the meeting.
There are no cumulative voting rights.
The six nominees receiving the highest number of votes cast by the holders
of common stock represented and voting at the meeting will be elected as
Hemispherx's directors and constitute the entire Board of directors of
Hemispherx. The affirmative vote of at least a majority of the shares
represented and voting at the annual meeting at which a quorum is present (which
shares voting affirmatively also constitute at least a majority of the required
quorum) is necessary for approval of Proposal No. 2.
REVOCABILITY OF PROXIES
If you attend the meeting, you may vote in person, regardless of whether
you have submitted a proxy. Any person giving a proxy in the form accompanying
this proxy statement has the power to revoke it at any time before it is voted.
It may be revoked by filing, with the corporate secretary of Hemispherx at its
principal offices, 1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103, a
written notice of revocation or a duly executed proxy bearing a later date, or
it may be revoked by attending the meeting and voting in person.
VOTING AND SOLICITATION
Every stockholder of record is entitled, for each share held, to one vote
on each proposal or item that comes before the meeting. There are no cumulative
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voting rights. By submitting your proxy, you authorize William A. Carter and
Ransom W. Etheridge and each of them to represent you and vote your shares at
the meeting in accordance with your instructions. Messrs. Carter and Etheridge
and each of them may also vote your shares to adjourn the meeting from time to
time and will be authorized to vote your shares at any adjournment or
postponement of the meeting.
Hemispherx has borne the cost of preparing, assembling and mailing this
proxy solicitation material. The total cost estimated to be spent and the total
expenditures to date for, in furtherance of, or in connection with the
solicitation of stockholders is approximately $35,000. Hemispherx may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding soliciting materials to beneficial owners. Proxies
may be solicited by certain of Hemispherx's directors, officers and employees,
without additional compensation, personally, by telephone or by facsimile.
We have hired the firm of MacKenzie Partners, Inc. to assist in the
solicitation of proxies on behalf of the Board of Directors. MacKenzie has
agreed to perform this service for a proposed fee of $5,000 plus out-of-pocket
expenses.
ADJOURNED MEETING
The chair of the meeting may adjourn the meeting from time to time to
reconvene at the same or some other time, date and place. Notice need not be
given of any such adjournment meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken. If the time, date
and place of the adjournment meeting are not announced at the meeting which the
adjournment is taken, then the Secretary of the Company shall give written
notice of the time, date and place of the adjournment meeting not less than ten
(10) days prior to the date of the adjournment meeting. Notice of the
adjournment meeting also shall be given if the meeting is adjourned in a single
adjournment to a date more than 30 days or in successive adjournments to a date
more than 120 days after the original date fixed for the meeting.
TABULATION OF VOTES
The votes will be tabulated and certified by Hemispherx's transfer agent.
VOTING BY STREET NAME HOLDERS
If you are the beneficial owner of shares held in "street name" by a
broker, the broker, as the record holder of the shares, is required to vote
those shares in accordance with your instructions. If you do not give
instructions to the broker, the broker will nevertheless be entitled to vote the
shares with respect to "discretionary" items but will not be permitted to vote
the shares with respect to "non-discretionary" items (in which case, the shares
will be treated as "broker non-votes").
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the annual meeting
is a majority of the shares of common stock entitled to vote at the annual
meeting, in person or by proxy. Shares that are voted "FOR," "AGAINST" or
"WITHHELD FROM" a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares represented and
voting the votes cast at the annual meeting with respect to such matter.
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While there is no definitive statutory or case law authority in Delaware
as to the proper treatment of abstentions, Hemispherx believes that abstentions
should be counted for purposes of determining both: (i) the presence or absence
of a quorum for the transaction of business; and (ii) the total number of votes
cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, Hemispherx intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal (other than the election of directors).
Under current Delaware case law, while broker non-votes (i.e. the votes of
shares held of record by brokers as to which the underlying beneficial owners
have given no voting instructions) should be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of votes
cast with respect to the particular proposal on which the broker has expressly
not voted. Hemispherx intends to treat broker non-votes in this manner. Thus, a
broker non-vote will make a quorum more readily obtainable, but the broker
non-vote will not otherwise affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the 2006 Annual Meeting of Stockholders must be
received by the Company's Secretary, at Hemispherx Biopharma, Inc., 1617 JFK
Boulevard, Philadelphia, PA 19103 no later than January 21, 2006.
Pursuant to the Company's Restated and Amended Bylaws all stockholder
proposals may be brought before an annual meeting of stockholders only upon
timely notice thereof in writing having been given the Secretary of the Company.
To be timely, a stockholder's notice, for all stockholder proposals other than
the nomination of candidates for director, shall be delivered to the Secretary
at the principal executive offices of the Company not less than sixty (60) nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, the stockholder's notice in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. To be timely, a stockholder's notice, with respect
to a stockholder proposal for nomination of candidates for director, shall be
delivered to the Secretary at the principal executive offices of the Company not
less than ninety (90) nor more than one hundred twenty (120) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
the stockholder's notice in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure of
the date of the annual meeting was made, whichever first occurs. Provided,
however, in the event that the stockholder proposal relates to the nomination of
candidates for director and the number of directors to be elected to the Board
of Directors of the Company at an annual meeting is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board of Directors at least one hundred
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice shall also be considered timely, but only with respect to
nominees for any new positions
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created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Company. All stockholder proposals must contain all of the
information required under the Company's Bylaws, a copy of which is available
upon written request, at no charge, from the Secretary. The Company reserves the
right to reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with these and other applicable
requirements.
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PROPOSALS TO STOCKHOLDERS
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each nominee to the Board of Directors will serve until the next annual
meeting of stockholders, or until his earlier resignation, removal from office,
death or incapacity.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the election of William A. Carter, Richard C. Piani, Ransom W. Etheridge,
William M. Mitchell, Iraj-Eqhbal Kiani, and Steven D. Spence. Information is
furnished below with respect to all nominees.
Set forth below is the biographical information of the nominees and
Directors of Hemispherx:
WILLIAM A. CARTER, M.D., 67, the co-inventor of Ampligen, joined Hemispherx in
1978, and has served as: (a) Hemispherx's Chief Scientific Officer since May
1989; (b) the Chairman of Hemispherx's Board of Directors since January 1992;
(c) Hemispherx's Chief Executive Officer since July 1993; (d) Hemispherx's
President from April 1995 to February 2005; and (e) a director since 1987. From
1987 to 1988, Dr. Carter served as Hemispherx's Chairman. Dr. Carter was a
leading innovator in the development of human interferon for a variety of
treatment indications including various viral diseases and cancer. Dr. Carter
received the first FDA approval to initiate clinical trials on beta interferon
product manufactured in the U.S. under his supervision. From 1985 to October
1988, Dr. Carter served as Hemispherx's Chief Executive Officer and Chief
Scientist. He received his M.D. degree from Duke University and underwent his
post-doctoral training at the National Institutes of Health and Johns Hopkins
University. Dr. Carter also served as Professor of Noeplastic Diseases at
Hahnemann Medical University, a position he held from 1980 to 1998. Dr. Carter
served as Director of Clinical Research for Hahnemann Medical University
Institute for Cancer and Blood Diseases, and as a professor at Johns Hopkins
School of Medicine and the State University of New York at Buffalo. Dr. Carter
is a Board certified physician and author of more than 200 scientific articles,
including the editing of various textbooks on anti-viral and immune therapy.
RICHARD C. PIANI, 78, has been a director of Hemispherx since May 1995. Mr.
Piani was employed as a principal delegate for Industry to the City of Science
and Industry, Paris, France, a scientific and educational complex, from 1985
through 2000. Mr. Piani provided consulting to Hemispherx in 1993, with respect
to general business strategies for Hemispherx's European operations and markets.
Mr. Piani served as Chairman of Industrielle du Batiment-Morin, a building
materials corporation, from 1986 to 1993. Previously Mr. Piani was a Professor
of International Strategy at Paris Dauphine University from 1984 to 1993. From
1979 to 1985, Mr. Piani served as Group Director in Charge of International and
Commercial Affairs for Rhone-Poulenc and from 1973 to 1979 he was Chairman and
Chief Executive Officer of Societe "La Cellophane", the French company which
invented cellophane and several other worldwide products. Mr. Piani has a Law
degree from Faculte de Droit, Paris Sorbonne and a Business Administration
degree from Ecole des Hautes Etudes Commerciales, Paris.
RANSOM W. ETHERIDGE, 65, has been a director of Hemispherx since October 1997,
and presently serves as our secretary and general counsel. Mr. Etheridge first
became associated with Hemispherx in 1980 when he provided consulting services
to Hemispherx and participated in negotiations with respect to Hemispherx's
initial private placement through Oppenheimer & Co., Inc. Mr. Etheridge has been
practicing law since 1967, specializing in transactional law. Mr. Etheridge is a
member of the Virginia State Bar, a Judicial Remedies Award Scholar and has
served as President of the Tidewater Arthritis Foundation. He is a graduate of
Duke University and the University of Richmond School of Law.
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WILLIAM M. MITCHELL, M.D., 70, has been a director since July 1998. Dr. Mitchell
is a Professor of Pathology at Vanderbilt University School of Medicine. Dr.
Mitchell earned an M.D. from Vanderbilt and a Ph.D. from Johns Hopkins
University, where he served as an Intern in Internal Medicine, followed by a
Fellowship at its School of Medicine. Dr. Mitchell has published over 200
papers, reviews and abstracts dealing with viruses and anti-viral drugs. Dr.
Mitchell has worked for and with many professional societies, including the
International Society for Interferon Research, and committees, among them the
National Institutes of Health, AIDS and Related Research Review Group. Dr.
Mitchell previously served as a director of Hemispherx from 1987 to 1989.
IRAJ-EQHBAL KIANI, M.B.A., PH.D., 59, was appointed to the Board of Directors on
May 1, 2002. Dr. Kiani is a citizen of England and resides in Newport,
California. As a native of Iran, Dr. Kiani served in various local government
positions including the Governor of Yasoi, Capital of Boyerahmad, Iran. In 1980,
Dr. Kiani moved to England, where he established and managed several trading
companies over a period of some 20 years. Dr. Kiani is an international planning
and logistic specialist. Dr. Kiani received his Ph.D. degree from the University
of Warwick in England.
Steven D. Spence, 46, was appointed to the Board of Directors in March 2005. Mr.
Spence is currently Managing Partner of Valued Ventures, a consultancy Mr.
Spence founded in 2003 to foster the development of micro and small cap
companies. For the six years prior to founding Valued Ventures, Mr. Spence
performed the duties as Managing Director at Merrill Lynch. Prior to his tenure
as Managing Director, Mr. Spence has held several high-ranking management
positions within Merrill Lynch including Chief Operating Officer for the
Security Services Division, Global Head of the Broker Dealer Security Services
Division, and Global Head of Financial Futures and Options. Mr. Spence is a
graduate of Columbia University in New York City.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
HEMISPHERx AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ALL SIX OF THE
ABOVE-NAMED NOMINEE DIRECTORS OF HEMISPHERX.
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INFORMATION CONCERNING BOARD MEETINGS
The Board of Directors is responsible for the management and direction of
Hemispherx and for establishing broad corporate policies. A primary
responsibility of the Board is to provide effective governance over the
Company's affairs for the benefit of its stockholders. In all actions taken by
the Board, the Directors are expected to exercise their business judgment in
what they reasonably believe to be the best interests of the Company. In
discharging that obligation, Directors may rely on the honesty and integrity of
the Company's senior executives and its outside advisors and auditors.
The Board of Directors and various committees of the Board meet
periodically throughout the year to receive and discuss operating and financial
reports presented by the chairman of the Board, the chief executive officer and
chief financial officer as well as reports by experts and other advisors.
Corporate review sessions are also offered to Directors to help familiarize them
with Hemispherx's technology and operations. Members of the Board are encouraged
to attend Board meetings in person, unless the meeting is held by
teleconference. The Board held seven meetings in 2004. All committee members
attended these meetings except for Dr. Kiani who attended four of the seven
meetings. Directors are expected to attend the Annual Meeting absent unusual
circumstances, although Hemispherx has no formal policy on the matter. All of
the Directors except one attended the 2004 Annual Meeting.
In March 2005, Steven D. Spence was appointed to the Board of Directors of
Hemispherx Biopharma, Inc. to serve until his successor is elected and
qualified.
Dr. Esteve resigned from the Board on December 16, 2004, after serving one
year.
In 2004, the non-employee members of the Board of Directors met two times
in executive session, i.e. with no employee Directors or management personnel
present. In April 2005, Richard Piani was appointed the Lead Director to preside
over future meetings. Interested persons may contact the Lead Director or the
non-employee Directors by sending written comments through the Office of the
Secretary of the Company. The Office will either forward the original materials
as addressed or provide Directors with summaries of the submissions, with the
originals available for review at the Directors' request.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The Board of Directors maintains the following committees:
Executive Committee.
The Executive Committee is composed of William A. Carter, Chief Executive
Officer, Ransom W. Etheridge, Secretary and director, and Steven D. Spence,
director. Mr. Spence was appointed to the Committee in April 2005. The Executive
Committee had one meeting in 2004. All committee members attended these
meetings. The Committee assists the Board by making recommendations to
management regarding general business matters of Hemispherx.
Compensation Committee.
The Compensation Committee is composed of Dr. William Mitchell, director,
Richard C. Piani, director, and Dr. Iraj-Eqhbal Kiani, director. Dr. Kiani was
appointed to the Committee in April 2005. The Compensation Committee makes
recommendations concerning salaries and compensation for officers, employees of
and consultants to Hemispherx. This committee met twice in 2004 and all
committee members were in attendance
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Corporate Governance and Nomination Committee.
In 2004, the Nominating Committee had one meeting and all members were
present.
In April 2005, in conjunction with the Board reconfiguration of the
Nominating Committee to include corporate governance, the Board of Directors
appointed Steven D. Spence to the newly formed Corporate Governance and
Nomination Committee. This Corporate Governance and Nomination Committee
consists of Dr. William Mitchell, Committee Chair, Richard Piani and Steven
Spence. All of the members of the Committee meet the independence standards
contained within the AMEX Company Guide and the Hemispherx Corporate Governance
Guidelines. The full text of the Corporate Governance and Nomination Committee
Charter as well as the Corporate Governance Guidelines, as approved by the
Board, are available on our website: www.hemispherx.net.
As discussed below, the Committee is responsible for recommending
candidates to be nominated by the Board for election by the stockholders or to
be appointed by the Board of Directors to fill vacancies consistent with the
criteria approved by the Board. It also is responsible for periodically
assessing Hemispherx's Corporate Governance Guidelines and making
recommendations to the Board for amendments, recommending to the Board the
compensation of Directors, taking a leadership role in shaping corporate
governance, and overseeing an annual evaluation of the Board.
The Corporate Governance and Nomination Committee is responsible for
identifying candidates who are eligible under the qualification standards set
forth in Hemispherx's Corporate Governance Guidelines to serve as members of the
Board. It is authorized to retain search firms and other consultants to assist
it in identifying candidates and fulfilling its other duties. The Committee is
not limited to any specific process in identifying candidates and will consider
candidates suggested by stockholders. Candidates are recommended to the Board
after consultation with the Chairman of the Board. In recommending Board
candidates, the Committee considers a candidate's: (1) general understanding of
elements relevant to the success of a large publicly traded company in the
current business environment, (2) understanding of Hemispherx's business, and
(3) educational and professional background. The Committee also gives
consideration to a candidate's judgment, competence, anticipated participation
in Board activities, experience, geographic location and special talents or
personal attributes. Stockholders who wish to suggest qualified candidates
should write to the Corporate Secretary, Hemispherx Biopharma, Inc., 1617 JKF
Blvd., Ste. 660, Philadelphia, PA 19103, stating in detail the qualifications of
such persons for consideration by the Committee.
The Company aspires to the highest standards of ethical conduct; reporting
results with accuracy and transparency; and maintaining full compliance with the
laws, rules and regulations that govern the Company's business. Hemispherx's
Corporate Governance Guidelines embody many of our policies and procedures which
are the foundation of our commitment to best practices. The guidelines are
reviewed annually, and revised as necessary to continue to reflect best
practices.
Audit Committee and Audit Committee Expert.
Hemispherx's Audit Committee of the Board of Directors consists of Richard
Piani, Committee Chairman, William Mitchell, M.D. and Steven Spence. Mr. Piani,
Dr. Mitchell, and Mr. Spence are all determined by the Board of Directors to be
independent directors as required under Section 121B(2)(a) of
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the AMEX Company Guide. Mr. Spence serves as the financial expert as defined in
Securities and Exchange Commission rules on the committee. Hemispherx believes
Mr. Piani, Dr. Mitchell, and Mr. Spence to be independent of management and free
of any relationship that would interfere with their exercise of independent
judgment as members of this committee. The principal functions of the Audit
Committee are to (i) assist the Board in fulfilling its oversight responsibility
relating to the annual independent audit of Hemispherx's consolidated financial
statements and internal control over financial reporting, the engagement of the
independent registered public accounting firm and the evaluation of the
independent registered public accounting firm's qualifications, independence and
performance (ii) prepare the reports or statements as may be required by AMEX or
the securities laws, (iii) assist the Board in fulfilling its oversight
responsibility relating to the integrity of Hemispherx's financial statements
and financial reporting process and Hemispherx's system of internal accounting
and financial controls, (iv) discuss the financial statements and reports with
management, including any significant adjustments, management judgments and
estimates, new accounting policies and disagreements with management, and (vi)
review disclosures by independent accountants concerning relationships with
Hemispherx and the performance of Hemispherx's independent accountants.
The Audit Committee Charter is attached to this proxy statement as Annex
A.
Audit Committee Report.
The primary responsibility of the Audit Committee (the "Committee") is to
assist the Board of Directors in discharging its oversight responsibilities with
respect to financial matters and compliance with laws and regulations. The
primary methods used by the Committee to fulfill its responsibility with respect
to financial matters are:
o To appoint, evaluate, and, as the Committee may deem appropriate,
terminate and replace our independent auditors;
o To monitor the independence of our independent auditors;
o To determine the compensation of our independent auditors;
o To pre-approve any audit services, and any non-audit services
permitted under applicable law, to be performed by our independent
auditors;
o To review our risk exposures, the adequacy of related controls and
policies with respect to risk assessment and risk management;
o To monitor the integrity of our financial reporting processes and
systems of control regarding finance, accounting, legal compliance
and information systems;
o To facilitate and maintain an open avenue of communication among the
Board of Directors, management and our independent auditors.
The Audit Committee is composed of three Directors, and the Board has
determined that each of those Directors is independent as that term is defined
in Sections 121(B)(2)(a) of the American Stock Exchange Company Guide.
In April 2005, the Board elected Mr. Spence, replacing Dr. Iraj-Eqhbal
Kiani, and re-elected Mr. Piani and Dr. Mitchell to the Audit Committee, subject
to their election to the Board by stockholders at the Annual Meeting.
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The Committee met four times in 2004. All committee members were present
at the meetings except for Dr. Iraj-Eqhbal Kiani who was present at only two of
these meetings.
In discharging its responsibilities relating to internal controls,
accounting and financial reporting policies and auditing practices, the
Committee discussed with our independent registered public accountants, BDO
Seidman, LLP, the overall scope and process for its audit. The Committee
regularly meets with BDO Seidman, LLP, with and without management present, to
discuss the results of its examinations, the evaluations of our internal
controls and the overall quality of our financial reporting.
The Committee has discussed with BDO Seidman, LLP its judgments about the
quality, in addition to the acceptability, of our accounting principles as
applied in our financial reporting, as required by Statement on Auditing
Standards No. 61 "Communications with Audit Committees."
The Committee also has received the written disclosures and a letter from
BDO Seidman, LLP that is required by the Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, and has discussed with
BDO Seidman, LLP their independence.
The Committee has met and held discussions with management. The Committee
has reviewed and discussed with management Hemispherx's audited consolidated
financial statements as of and for the fiscal year ended December 31, 2003 and
the audited consolidated financial statements as of and for the fiscal year
ended December 31, 2004 as well as The internal control requirements of the
Sarbanes-Oxley Act.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements
referred to above be included in our Annual Report for the year ended December
31, 2004.
This report is respectfully submitted by the members of the Audit
Committee of the Board of Directors.
Richard C. Piani, Chairman
William M. Mitchell
Steven D. Spence
Strategic Planning Committee.
The Strategic Planning Committee is composed of William A. Carter, Richard
C. Piani, and Ransom Etheridge. Mr. Etheridge was appointed to the Committee in
April 2005. The Committee met one time in 2004 and all committee members were in
attendance. The Strategic Planning Committee makes recommendations to the Board
of Directors of priorities in the application of Hemispherx's financial assets
and human resources in the fields of research, marketing and manufacturing. The
Strategic Planning Committee has engaged a number of leading consultants in
healthcare, drug development and pharmaeconomics to assist in the analysis of
various products being developed and/or potential acquisitions being considered
by Hemispherx.
Lead Director
In April 2005, the Company designated Richard Piani as lead director. Mr. Piani
has been a director of the Company Since 1995. The lead director: (i) presides
at all meetings of the Board at which the Chairman is not present,
10
including executive sessions of the independent Directors; (ii) serves as
liaison between the Chairman and the independent Directors; (iii) approves
information sent to the Board; (iv) approves meeting agendas for the Board; (v)
approves meeting schedules to assure that there is sufficient time for
discussion of all agenda items; (vi) has the authority to call meetings of the
independent Directors; and (vii) if requested by major shareholders, ensure that
he is available for consultation and direct communication.
Code of Ethics and Business Conduct
Hemispherx's Board of Directors adopted a code of ethics and business conduct
for officers, directors and employees that went into effect on May 19, 2003.
This code has been presented and reviewed by each officer, director and
employee. You may obtain a copy of this code by visiting our web site at
www.hemispherx.net or by written request to our Office Administrator at 1617 JFK
Boulevard, Suite 660, Philadelphia, PA 19103. Our Board of Directors is required
to approve any waivers of the code of ethics and business conduct for Directors
or executive officers and we are required to disclose any such waiver in a
Current Report on Form 8-K within four business days.
Stock Ownership Guidelines
In April 2005, the Board of Directors adopted a set of stock ownership
guidelines for Directors and officers. The Board believes that Directors and
officers more effectively represent the interest of Hemispherx's shareholders if
they are shareholders themselves. At this time, most of our Directors and
officers are shareholders and this guideline was adopted to assure that the
present Directors and officers continue to participate as well as future
Directors and officers. The full text of the Stock Ownership Guidelines, as
approved by the Board, are available on our website: www.hemispherx.net.
Communication with the Board of Directors
Interested parties wishing to contact the Board of Directors of the
Company may do so by writing to the following address: Board of Directors, c/o
Ransom Etheridge, Director, Corporate Secretary and General Counsel, 2610
Potters Rd., Virginia Beach, VA 23452. All letters received will be categorized
and processed by the Corporate Secretary and then forwarded to the Company's
Board or Directors.
Director Attendance at Annual Meetings of Shareholders
Directors are encouraged, but not required, to attend the Annual Meeting
of Stockholders. At the 2004 Annual Meeting, five of the six sitting Directors
were in attendance.
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following sets forth biographical information about Hemispherx's
executive officers and key personnel:
Name Age Position
William A. Carter, M.D. 67 Chairman and Chief Executive Officer
R. Douglas Hulse 61 President
Robert E. Peterson 68 Chief Financial Officer
David R. Strayer, M.D. 59 Medical Director, Regulatory Affairs
Vice President of Regulatory Affairs,
Quality Control and
Mei-June Liao, Ph.D. 54 Research and Development
Robert Hansen 61 Vice President of Manufacturing
11
Carol A. Smith, Ph.D. 55 Director of Process Development
Ransom W. Etheridge 65 Secretary and General Counsel
For biographical information about William A. Carter, M.D. and Ransom
Etheridge, please see the discussion under the heading "Proposal No. 1 Election
of Directors" above.
R. DOUGLAS HULSE was appointed our President and Chief Operating Officer
in February 2005. Mr. Hulse has been an executive director at Sage Group, Inc.,
an international organization providing senior level strategic management
services to the biotechnology and pharmaceutical sector, since 1995. Mr. Hulse
is a Phi Beta Kappa graduate of Princeton University with a cum laude degree in
chemistry and the holder of S.M. Degrees in both management and Chemical
Engineering from M.I.T., previously served as our Chief Operating Officer in
1996 and 1997. Mr. Hulse devotes approximately 40 to 50% of his time to our
business.
ROBERT E. PETERSON has served as our Chief Financial Officer since April,
1993 and served as an Independent Financial Advisor to us from 1989 to April,
1993. Also, Mr. Peterson has served as Vice President of the Omni Group, Inc., a
business consulting group based in Tulsa, Oklahoma since 1985. From 1971 to
1984, Mr. Peterson worked for PepsiCo, Inc. and served in various financial
management positions including Vice President and Chief Financial Officer of
PepsiCo Foods International and PepsiCo Transportation, Inc. Mr. Peterson is a
graduate of Eastern New Mexico University.
DAVID R. STRAYER, M.D. who served as Professor of Medicine at the Medical
College of Pennsylvania and Hahnemann University, has acted as our Medical
Director since 1986. He is Board Certified in Medical Oncology and Internal
Medicine with research interests in the fields of cancer and immune system
disorders. Dr. Strayer has served as principal investigator in studies funded by
the Leukemia Society of America, the American Cancer Society, and the National
Institutes of Health. Dr. Strayer attended the School of Medicine at the
University of California at Los Angeles where he received his M.D. in 1972.
MEI-JUNE LIAO, Ph.D. has served as Vice President of Regulatory Affairs,
Quality and Research & Development since October 2003 and as Vice President of
Research & Development since March 2003 with responsibilities for the
regulatory, quality control and product development of Alferon(R). Before the
acquisition of certain assets of ISI, Dr. Liao was Vice President of Research
and Development from 1995 to 2003 and held senior positions in the Research and
Development Department of ISI from 1983 to 1994. Dr. Liao received her Ph.D.
from Yale University in 1980 and completed a three year postdoctoral appointment
at the Massachusetts Institute of Technology under the direction of Nobel
Laureate in Medicine, Professor H. Gobind Khorana. Dr. Liao has authored many
scientific publications and invention disclosures.
ROBERT HANSEN joined us as Vice President of Manufacturing in 2003 upon
the acquisition of certain assets of ISI. He is responsible for the manufacture
of Alferon N(R). Mr. Hansen had been Vice President of Manufacturing for ISI
since 1997, and served in various capacities in manufacturing since joining ISI
in 1987. He has a B.S. degree in Chemical Engineering from Columbia University
in 1966.
CAROL A. SMITH, Ph.D. is Director of Process Development and has served as
our Director of Manufacturing and Process Development since April 1995, as
Director of Operations since 1993 and as the Manager of Quality Control from
1991 to 1993, with responsibility for the manufacture, control and chemistry of
Ampligen(R). Dr. Smith was Scientist/Quality Assurance Officer for Virotech
International, Inc. from 1989 to 1991 and Director of the Reverse Transcriptase
12
and Interferon Laboratories and a Clinical Monitor for Life Sciences, Inc. from
1983 to 1989. She received her Ph.D. from the University of South Florida
College of Medicine in 1980 and was an NIH post-doctoral fellow at the
Pennsylvania State University College of Medicine.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ransom W. Etheridge, our secretary and one of our Directors, is an
attorney in private practice, who renders corporate legal services to us from
time to time, for which he has received fees totaling $60,000 in 2004.
Richard C. Piani, one of our independent Directors and Chairman of our
audit committee, lives in Paris, France and assisted our European subsidiaries
in their dealings with medical institutions and the European Medical Evaluation
Authority. The services provided by Mr. Piani were terminated in September 2003.
For these services, Mr. Piani was paid approximately $44,500, $49,500 and $4,500
for the years ended December 31, 2001, 2002, and 2003, respectively.
Dr. William Mitchell, another of our independent Directors and member of
the Audit Committee, assisted us in establishing clinical trial protocols and
performed other scientific work for us from time to time. The services provided
by Dr. Mitchell were terminated in September 2003. For these services, Dr.
Mitchell was paid $45,500, $60,000 and $25,600 for the years ending December 31,
2001, 2002 and 2003, respectively.
We believe that we are in compliance with the Corporate Governance and
Audit Committee Guidelines set forth in the Company Guide of the American Stock
Exchange.
Through November 2002, William A. Carter, our Chief Executive Officer, had
received an aggregate of $12,106 in short term advances which were repaid as of
December 31, 2002. All advances bore interest at 6% per annum. We loaned $60,000
to Ransom W. Etheridge in November 2001 for the purpose of exercising 15,000
class A redeemable warrants. This loan bears interest at 6% per annum.
We paid $33,450, $18,800 and $7,600 for the years ending December 31,
2002, 2003 and 2004, respectively to Carter Realty for the rent of property used
at various times in years 2002, 2003 and 2004 by us. The property was owned by
others, but was acquired in 2004 by Resort House, LLC of which William A. Carter
has a minority interest.
Antoni Esteve, one of our former Directors, was a Member of the Executive
Committee and Director of Scientific and Commercial Operations of Laboratorios
Del Dr. Esteve S.A. In March 2002, our European subsidiary Hemispherx S.A.
entered into a Sales and Distribution Agreement with Laboratorios Del Dr. Esteve
S.A. In addition, in March 2003, we issued 347,445 shares of our common stock to
Provesan SA, an affiliate of Laboratorios Del Dr. Esteve S.A., in exchange for
1,000,000 Euros of convertible preferred equity certificates of Hemispherx S.A.,
owned by Laboratorios Del Dr. Esteve S.A. Dr. Esteve resigned from the Board on
December 16, 2004, after serving one year.
There are no material proceedings to which any officer, director or affiliate,
or any associate thereof is a party adverse to the Company or has a material
interest adverse to the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our officers and Directors, and
persons who own more than ten percent of a registered class of equity
securities, to file reports with the Securities and Exchange Commission
reflecting their initial position of ownership on Form 3 and changes in
ownership on Form 4 or Form 5. Based solely on a review of the copies of such
Forms received by us, we believe that, during the fiscal year ended December 31,
2004, all of our officers, Directors and ten percent stockholders complied with
all applicable Section 16(a) filing requirements on a timely basis, except
13
that Dr. Esteve, a former director, and Mr. Kiani did not file a Form 3.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The summary compensation table below sets forth the aggregate compensation
paid or accrued by us for the fiscal years ended December 31, 2004, 2003 and
2002 to (i) our Chief Executive Officer and (ii) our five most highly paid
executive officers other than the CEO who were serving as executive officers at
the end of the last completed fiscal year and whose total annual salary and
bonus exceeded $100,000 (collectively, the "Named Executives").
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
All Other
Restricted Warrants & Compensation
Name and Principal Position Year Salary ($) Stock Awards Options Awards (1)
-----------------------------------------------------------------------------------------------
William A. Carter 2004 (2)605,175 - (3) 320,000 $32,003
Chairman of the 2003 (2)582,461 - (4)1,450,000 28,375
Board and CEO 2002 (2)565,514 - (5)1,000,000 24,747
Robert E. Peterson 2004 (6)221,242 - (7) 63,824 -
Chief Financial 2003 (6)193,816 - - -
Officer 2002 (6)187,689 - (5) 200,000 -
David R. Strayer, M.D. 2004 180,394 - (8) 10,000 -
Medical Director 2003 190,096 - - -
2002 178,594 - (5) 50,000 -
Carol A. Smith, Ph.D. 2004 134,658 - (8) 10,000 -
Director of 2003 140,576 - - -
Process Development 2002 128,346 - (5) 20,000 -
2004 149,000 - (8) 10,000 -
Mei-June Liao, Ph.D., 2003 (9)100,575 - - -
V.P. of Quality Control 2002 - - - -
----------
(1) Consists of insurance premiums paid by us with respect to term life and
disability insurance for the benefit of the named executive officer.
(2) Includes bonuses of $96,684, $99,481 and $121,035 in 2002, 2003 and 2004,
respectively.
(3) Consist of a stock option grant of 320,000 shares exercisable at $2.60 per
share.
(4) Represents warrants to purchase 1,450,000 shares of common stock
exercisable at $2.20 per share.
14
(5) Represents number of options to purchase shares of common stock at $2 per
share.
(6) 2002 includes a bonus of $36,634 and 2003 includes a bonus of $37,830 both
paid in 2004, 2004 includes a bonus of $44,248 which was paid in 2005.
(7) Consist of stock option grant of 50,000 shares exercisable at $3.44 per
share and 13,824 stock options to purchase common stock at $2.60 per
share.
(8) Consists of stock option grant exercisable at $1.90 per share.
(9) Compensation since March 2003. Employed by ISI prior to that.
The following table sets forth certain information regarding stock options
granted during 2004 to the executive officers named in the Summary Compensation
Table.
-----------------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------------------------------------------------
Percentage Of
Number Of Total Options Potential Realizable Value At
Securities Granted To Assumed Rates Of Stock Price
Underlying Employees In Exercise Appreciation For Options Term
Warrants Fiscal Year Price Per Expiration -------------------------------
Name Granted 2004(1) Share (2) Date 5% (3) 10%(3)
-----------------------------------------------------------------------------------------------------------------------
Carter, W.A. 320,000 50.5 $2.60 9/7/14 $1,357,130 $2,161,355
-----------------------------------------------------------------------------------------------------------------------
Peterson, R. 50,000 10.1 3.44 6/22/14 280,170 446,123
13,864 2.60 9/7/14 58,627 93,369
-----------------------------------------------------------------------------------------------------------------------
Strayer, D. 10,000 1.6 1.90 12/7/14 30,949 49,498
-----------------------------------------------------------------------------------------------------------------------
Smith, C. 10,000 1.6 1.90 12/7/14 30,949 49,498
-----------------------------------------------------------------------------------------------------------------------
Liao, M. 10,000 1.6 1.90 12/7/14 30,949 49,498
-----------------------------------------------------------------------------------------------------------------------
Hansen, R. 10,000 1.6 1.90 12/7/14 30,949 49,498
-----------------------------------------------------------------------------------------------------------------------
(1) Total stock options issued to employees in 2004 were 633,080.
(2) The exercise price is equal to the closing price of our common stock at
the date of issuance.
(3) Potential realizable value is based on an assumption that the market price
of the common stock appreciates at the stated rates compounded annually,
from the date of grant until the end of the respective option term. These
values are calculated based on requirements promulgated by the Securities
and Exchange Commission and do not reflect our estimate of future stock
price appreciation.
15
The following table sets forth certain information regarding the stock options
held as of December 31, 2004 by the individuals named in the above Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
Value of Unexercised
Securities Underlying In-the-Money-Options
Unexercised Warrants/ At Fiscal Year End (1)
Options at Fiscal
Shares Year End Numbers Dollars
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------
William Carter -- -- 5,325,378(2) 250,000(3) $69,750 $ --
Robert Peterson -- -- 453,750(4) -- -- --
David Strayer -- -- 130,000(5) 10,000(7) -- --
Carol Smith -- -- 41,791(6) 10,000(7) -- --
Mei-June Liao -- -- -- 10,000(7) -- --
Robert Hansen -- -- -- 10,000(7) -- --
----------
(1) Computation based on $1.90, the December 31, 2004 closing bid price for
the common stock on the American Stock Exchange.
(2) Consist of (i) 750,000 warrants exercisable at $2.00 per share expiring on
August 13, 2007 (ii) 188,325 warrants exercisable at $6.00 per share
expiring on February 22, 2006 (iii) 188,325 warrants exercisable at $9.00
per share expiring on February 22, 2006 (iv) 1,450,000 warrants to
purchase common stock at $2.20 per share expiring on September 8, 2008,
(v) 320,000 stock option exercisable at $2.60 per share expiring on
September 7, 2014 and (vi) 73,728 stock options exercisable at $2.71 per
share until exercised. Also includes 2,355,000 warrants and options held
in the name of Carter Investments, L.C. of which W.A. Carter in the
principal beneficiary. These securities consist of (i) 170,000 warrants
exercisable at $4.00 per share expiring on January 1, 2008,(ii) 300,000
warrants exercisable at $6.00 per share expiring on January 1, 2006 (iii)
20,000 warrants exercisable at $4.00 per share expiring on 2008,(iv)
465,000 warrants exercisable at $1.75 expiring on January 1, 2008, and
1,400,000 warrants exercisable at $3.50 per share expiring on September
30, 2007.
(3) Consists of (i) 250,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007.
(4) Consists of (i) 10,000 stock options exercisable at $4.03 per share
expiring on January 3, 2011 (ii) 13,750 stock options exercisable at $3.50
per share expiring on January 22, 2007, (iii) 200,000 warrants exercisable
at $2.00 per share expiring on August 13, 2007, (iv) 50,000
16
warrants exercisable at $3.50 expiring on March 1, 2006, (v) 100,000
warrants exercisable at $5.00 per share expiring on April 14, 2006, (vi)
30,000 warrants exercisable at $5.00 per share expiring on February 28,
2009 and 50,000 options to purchase common stock at $3.44 per share
expiring June 22, 2014.
(5) Consists of (i) 50,000 warrants exercisable at $2.00 per share expiring on
August 13, 2007, (ii) 50,000 warrants exercisable at $4.00 per share
expiring on February 28, 2008, (iii) 10,000 stock options exercisable at
$4.03 expiring on January 3, 2011 and (iv) 20,000 stock options
exercisable at $3.50 per share expiring on January 22, 2007.
(6) Consists of (i) 20,000 warrants exercisable at $2.00 per share expiring on
August 13, 2007, (ii) 5,000 warrants exercisable at $4.00 per share
expiring on June 7, 2008, (iii) 10,000 stock options exercisable at $4.03
per share expiring on January 3, 2016, and (iv) 6,791 stock options
exercisable at $3.50 per share expiring on January 22, 2007.
(7) Consists of options to purchase common stock at $1.90 per share expiring
on December 7, 2014.
In September 2003, our Board of Directors changed the non-employee Board
Member compensation to be 50% cash and 50% stock. The Board's stock compensation
is to be paid on the first day of each calendar quarter. The number of shares
paid shall have a value of $12,500 with the value of the shares being determined
by the closing price of our common stock on the American Stock Exchange on the
last trading day of the preceding quarter. In no event shall the number of
shares issued under this plan exceed 1,000,000 shares over a ten-year period.
Employment and Change in Control Agreements
On March 11, 2005, our Board of Directors, at the recommendation of the
Compensation Committee, approved an amended and restated employment agreement
and an amended and restated engagement agreement with Dr. William A. Carter.
The amended and restated employment agreement provides for Dr. Carter's
employment as our Chief Executive Officer and Chief Scientific Officer until
December 31, 2010 unless sooner terminated for cause or disability. The
agreement automatically renews for successive one year periods after the initial
termination date unless we or Dr. Carter give written notice otherwise at least
ninety days prior to the termination date or any renewal period. Dr. Carter has
the right to terminate the agreement on 30 days' prior written notice. The
initial base salary retroactive to January 1, 2005 is $290,888, subject to
adjustment based on the average increase or decrease in the Consumer Price Index
for the prior year. In addition, Dr. Carter could receive an annual performance
bonus of up to 25% of his base salary, at the sole discretion of the
Compensation Committee of the Board of Directors, based on his performance or
our operating results. Dr. Carter will not participate in any discussions
concerning the determination of his annual bonus. Dr. Carter is also entitled to
an incentive bonus of 0.5% of the gross proceeds received by us from any joint
venture or corporate partnering arrangement. Dr. Carter's agreement also
provides that he be paid a base salary and benefits through the last day of the
then term of the agreement if he is terminated without "cause", as that term is
defined in agreement. In addition, should Dr. Carter terminate the agreement or
the agreement be terminated due to his death or disability, the agreement
provides that Dr Carter be paid a base salary and benefits through the last day
of the month in which the termination occurred and for an additional twelve
month period. Pursuant to his original agreement, Dr. Carter was granted options
to purchase 73,728 (post split) shares in 1991. The exercise period of these
options is extended through December 31, 2010 and, should Dr. Carter's
employment agreement be extended beyond that date, the option exercise period is
further extended to the last day of the extended
17
employment period.
On May 9, 2005, our Board of Directors, at the recommendation of the
Compensation Committee, approved an amendment to the amended and restated
employment agreement with Dr. William A. Carter whereby the amount of life
insurance provided for the benefit of Dr. Carter on his life was increased to
$2,800,000.
The amended and restated engagement agreement, retroactive to January 1,
2005, provides for our engagement of Dr. Carter as a consultant related to
patent development, as one of our Directors and as chairman of the Executive
Committee of our Board of Directors until December 31, 2010 unless sooner
terminated for cause or disability. The agreement automatically renews for
successive one year periods after the initial termination date or any renewal
period. Dr. Carter has the right to terminate the agreement on 30 days' prior
written notice. The initial base fee as of January 1, 2004 is $207,777, subject
to annual adjustments equal to the percentage increase or decrease of annual
dollar value of Directors' fees provided to our Directors during the prior year.
The annual fee is further subject to adjustment based on the average increase or
decrease in the Consumer Price Index for the prior year. In addition, Dr. Carter
could receive an annual performance bonus of up to 25% of his base fee, at the
sole direction of the Compensation Committee of the Board of Directors, based on
his performance. Dr. Carter will not participate in any discussions concerning
the determination of this annual bonus. Dr. Carter's agreement also provides
that he be paid his base fee through the last day of the then term of the
agreement if he is terminated without "cause", as that term is defined in the
agreement. In addition, should Dr. Carter terminate the agreement or the
agreement be terminated due to his death or disability, the agreement provides
that Dr. Carter be paid fees due him through the last day of the month in which
the termination occurred and for an additional twelve month period.
On February 14, 2005 we entered into an agreement with The Sage Group of
Branchburg, New Jersey for R. Douglas Hulse, an Executive Director of The Sage
Group, to serve as President and Chief Operating Officer of our company. In
addition, other Sage Group principals and Senior Directors will be made
available to assist as needed. The engagement is expected to continue for a
period of 18 months; however, it is terminable on 30 days written notice by
either party after 12 months. Compensation for the services include a ten year
warrant to purchase 250,000 shares of our common stock at an exercise price of
$1.55. These warrants are to be issued to Sage Healthcare Advisors, LLC and are
to vest at the rate of 12,500 per month of the engagement with 25,000 vesting
upon completion of the eighteenth month. Vesting accelerates in the event of a
merger or a purchase of a majority of our assets or equity. The Sage Group also
is to receive a monthly retainer of $10,000 for the period of the engagement. In
addition, for each calendar year (or part thereof) during which the agreement is
in effect, The Sage Group will be entitled to an incentive bonus in an amount
equal to 0.5% of the gross proceeds received by us during such year from any
joint ventures or corporate partnering arrangements. After termination of the
agreement, The Sage Group will only be entitled to receive the incentive bonus
based upon gross proceeds received by us during the two year period commencing
on the termination of the agreement with respect to any joint ventures or
corporate partnering arrangements entered into by us during the term of the
agreement. Mr. Hulse will devote approximately two to two and one half days per
week to our business.
We entered into an engagement agreement, retroactive to January 1, 2005,
with Ransom W. Etheridge which provides for Mr. Etheridge's engagement as our
General Counsel until December 31, 2009 unless sooner terminated for cause or
disability. The agreement automatically renews for successive one year periods
after the initial termination date unless we or Mr. Etheridge give written
notice otherwise at least ninety days prior to the termination date or any
renewal period. Mr. Etheridge has the right to terminate the agreement on 30
days' prior written notice. The initial annual fee for services is $96,000 and
18
is annually subject to adjustment based on the average increase or decrease in
the Consumer Price Index for the prior year. Mr. Etheridge's agreement also
provides that he be paid all fees through the last day of then current term of
the agreement if he is terminated without "cause" as that term is defined in the
agreement. In addition, should Mr. Etheridge terminate the agreement or the
agreement be terminated due to his death or disability, the agreement provides
that Mr. Etheridge be paid the fees due him through the last day of the month in
which the termination occurred and for an additional twelve month period. Mr.
Etheridge will devote approximately 85% of his business time to our business.
We entered into an amended and restated engagement agreement, retroactive
to January 1, 2005, with Robert E. Peterson which provides for Mr. Peterson's
engagement as our Chief Financial Officer until December 31, 2010 unless sooner
terminated for cause or disability. Mr. Peterson has the right to terminate the
agreement on 30 days' prior written notice. The initial annual fee for services
is $202,680 and is annually subject to increases based on the average increase
in the cost of inflation index for the prior year. Mr. Peterson shall receive an
annual bonus in each year that our Chief Executive Officer is granted a bonus.
The bonus shall equal a percentage of Mr. Peterson's base annual compensation
comparable to the percentage bonus received by the Chief Executive Officer. In
addition, Mr. Peterson shall receive bonus compensation upon Federal Drug
Administration approval of commercial application of Ampligen. Mr. Peterson's
agreement also provides that he be paid all fees through the last day of then
current term of the agreement if he is terminated without "cause" as that term
is defined in the agreement. In addition, should Mr. Peterson terminate the
agreement or the agreement be terminated due to his death or disability, the
agreement provides that Mr. Peterson be paid the fees due him through the last
day of the month in which the termination occurred and for an additional twelve
month period. Mr. Peterson will devote approximately 85% of his business time to
our business.
On March 11, 2005 the Board of Directors, deeming it essential to the best
interests of our shareholders to foster the continuous engagement of key
management personnel and recognizing that, as is the case with many publicly
held corporations, a change of control might occur and that such possibility,
and the uncertainty and questions which it might raise among management, might
result in the departure or distraction of management personnel to the detriment
of our company and our shareholders, determined to reinforce and encourage the
continued attention and dedication of members of our management to their
engagement without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of our company
and entered into identical agreements regarding change in control with William
A. Carter, our Chief Executive Officer and Chief Scientific Officer, Robert E.
Peterson, our Chief Financial Officer and Ransom W. Etheridge, our General
Counsel. Each of the agreements regarding change in control became effective
March 11, 2005 and continue through December 31, 2007 and shall extend
automatically to the third anniversary thereof unless we give notice to the
other party prior to the date of such extension that the agreement term will not
be extended. Notwithstanding the foregoing, if a change in control occurs during
the term of the agreements, the term of the agreements will continue through the
second anniversary of the date on which the change in control occurred. Each of
the agreements entitles William A. Carter, Robert E. Peterson and Ransom W.
Etheridge, respectively, to change of control benefits, as defined in the
agreements and summarized below, upon their respective termination of
employment/engagement with our company during a potential change in control, as
defined in the agreements or after a change in control, as defined in the
agreements, when their respective terminations are caused (1) by us for any
reason other than permanent disability or cause, as defined in the agreement (2)
by William A. Carter, Robert E. Peterson and/or Ransom W. Etheridge,
respectively, for good reason as defined in the agreement or, (3) by William A.
Carter, Robert E. Peterson and/or Ransom W. Etheridge, respectively for any
reason during the 30 day period commencing on the first date which is six months
after the date of the change in control.
19
The benefits for each of the foregoing executives would be as follows:
o A lump sum cash payment of three times his base salary and annual
bonus amounts; and
o Outplacement benefits.
Each agreement also provides that the executive is entitled to a "gross-up"
payment to make him whole for any federal excise tax imposed on change of
control or severance payments received by him.
Dr. Carter's agreement also provides for the following benefits:
o Continued insurance coverage through the third anniversary of his
termination; and
o Retirement benefits computed as if he had continued to work for the
above period.
Compensation of Directors
The compensation package for Members of the Board of Directors was changed
on September 9, 2003. Board member compensation consists of an annual retainer
of $100,000 to be paid 50% in cash and 50% in Company common stock. On September
9, 2003 the Directors approved a 10 year plan which authorizes up to 1,000,000
shares for use in supporting this compensation plan. In addition, all
non-employee Directors received some compensation in 2003 for special project
work performed on our behalf. This project work ceased as of September 30, 2003.
All Directors have been granted options to purchase common stock under our Stock
Option Plans and/or Warrants to purchase common stock. We believe such
compensation and payments are necessary in order for us to attract and retain
qualified outside Directors.
2004 Equity Incentive Plan
Our 2004 Equity Incentive Plan ("2004 Plan") provides for the grant of
non-qualified and incentive stock options, stock appreciation rights, restricted
stock and other stock awards to our employees, Directors, officers, consultants
and advisors for the purchase of up to an aggregate of 8,000,000 shares of
common stock. The 2004 plan is administered by the Board of Directors, which has
complete discretion to select eligible individuals to receive and to establish
the terms of grants under the plan. Stock options awarded under the Equity
Incentive Plan may be exercisable at such times (not later than 10 years after
the date of grant) and at such exercise prices (not less than fair market value
at the date of grant) as the Board may determine. The Board may provide for
options to become immediately exercisable upon a "change in control" as defined
in the plan. The number of shares of common stock available for grant under the
2004 Plan is subject to adjustment for changes in capitalization. As of December
31, 2004, 7,366,920 shares were available for grants under the 2004 Plan. Unless
sooner terminated, the Equity Incentive Plan will continue in effect for a
period of 10 years from its effective date
1990 Stock Option Plan
Our 1990 Stock Option Plan, as amended ("1990 Plan"), provides for the
grant of options to our employees, Directors, officers, consultants and advisors
for the purchase of up to an aggregate of 460,798 shares of common stock. The
1990 plan is administered by the Compensation Committee of the Board of
Directors, which has complete discretion to select eligible individuals to
receive and to establish the terms of option grants. The number of shares of
common stock available for grant under the 1990 Plan is subject to adjustment
20
for changes in capitalization. As of December 31, 2004, no options were
available for grants under the 1990 plan. This plan remains in effect until
terminated by the Board of Directors or until all options are issued.
401(K) Plan
In December 1995, we established a defined contribution plan, effective
January 1, 1995, entitled the Hemispherx Biopharma employees 401(K) Plan and
Trust Agreement. All of our full time employees are eligible to participate in
the 401(K) plan following one year of employment. Subject to certain limitations
imposed by federal tax laws, participants are eligible to contribute up to 15%
of their salary (including bonuses and/or commissions) per annum. Participants'
contributions to the 401(K) plan may be matched by Hemispherx at a rate
determined annually by the Board of Directors. Each participant immediately
vests in his or her deferred salary contributions, while our contributions will
vest over one year. In 2004 we provided matching contributions to each employee
for up to 6% of annual pay for a total of $76,886 for all eligible employees.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2004, the members of our
Compensation Committee were William Mitchell and Richard Piani. Please see
"Certain Relationships And Related Transactions" above for additional
information.
Notwithstanding anything to the contrary, the following report of the
Compensation Committee, the report of the Audit Committee on page 9, and the
performance graph on page 25 shall not be deemed incorporated by reference this
Proxy Statement into any filing under the Securities Act of 1933, or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Compensation Committee Report on Compensation
The Compensation Committee makes recommendations concerning salaries and
compensation for our employees and consultants.
The following report of the compensation committee discusses our executive
compensation policies and the basis of the compensation paid to our executive
officers in 2004.
In general, the compensation committee seeks to link the compensation paid
to each executive officer to the experience and performance of such executive
officer. Within these parameters, the executive compensation program attempts to
provide an overall level of executive compensation that is competitive with
companies of comparable size and with similar market and operating
characteristics.
There are three elements in our executive total compensation program, all
determined by individual and corporate performance as specified in the various
employment agreements; base salary, annual incentive, and long-term incentives.
Base Salary
The Summary Compensation Table shows amounts earned during 2004 by our
executive officers. The base compensation of such executive officers is set by
terms of the employment agreement entered into with each such executive officer.
We established the base salaries for Chief Executive Officer, Dr. William A.
Carter under an employment agreement in December 3, 1998 (as amended and
restated on March 11, 2005), which provides for a base salary of
21
$290,887.68. In addition, we entered into an agreement with Dr. Carter for his
services as a consultant related to patient development, development of patents
and as a member of our Board of Directors. This agreement establishes a base
annual fee of $207,776.88. Both agreements are subject to annual cost of living
adjustments. Dr. Carter is entitled to an annual performance bonus of up to 25%
of the base salary of each agreement at the discretion of the compensation
committee of the Board of Directors.
On March 11, 2005, we entered into an extended engagement agreement with
Robert E. Peterson, Chief Financial Officer retroactive to January 1, 2005 for a
base annual fee of $202,680 until December 31, 2010. Mr. Peterson's agreement
allows for annual cost of living increases and a performance bonus.
On March 11, 2005, we entered into an engagement agreement with Ransom W.
Etheridge, Corporate General Counsel, retroactive to January 1, 2005 for an
annual fee of $96,000 until December 31, 2009.
Annual Incentive
Our Chief Executive Officer and our Chief Financial Officer are entitled
to an annual incentive bonus as determined by the compensation committee based
on such executive officers' performance during the previous calendar year. The
cash bonus awarded to our Chief Executive Officer in 2004 and the cash bonus
awarded to the Chief Financial Officer in 2004 were determined based on this
provision in their employment agreements.
Long-Term Incentives
We grant long-term incentive awards periodically to align a significant
portion of the executive compensation program with stockholder interest over the
long-term through encouraging and facilitating executive stock ownership.
Executives are eligible to participate in our incentive stock option plans. Our
Chief Executive Officer and President, Dr. William Carter, received a grant of
320,000 stock options in 2004. These options are exercisable at $2.60 per share
and expire on September 7, 2014, unless previously exercised. The options vested
on September 8, 2004.
On June 23, 2004, our Chief Financial Officer, Robert E. Peterson, was
granted 50,000 stock options exercisable at $3.44 per share expiring on June 22,
2014 unless previously exercised. These options were issued in connection with
his renewed and extended employment agreement. On September 8, 2004 Mr. Peterson
was granted 13,824 stock options exercisable at $2.60 per share expiring on
September 7, 2014.
Ransom Etheridge, our Corporate Secretary and General Counsel, was awarded
50,000 stock options on September 8, 2004 exercisable at $2.60 per share
expiring September 7, 2014, unless previously exercised.
Chief Executive Officer Compensation
The Summary Compensation Table shows that during the year 2004 the
Company's Chief Executive Officer, Dr. William A. Carter, earned $605,175 in
base compensation pursuant to the terms of his employment agreements.
The Compensation Committee believes that Dr. Carter's total compensation
is consistent with the median compensation for CEO's in comparable companies.
Factors reviewed by the Compensation Committee's assessment of the Company's and
the CEO's performance includes individual performance, growth in revenue and
expense management and implementation of the Company's business strategy.
Compliance With Internal Revenue Code Section 162(m).
One of the factors the Compensation Committee considers in connection with
22
compensation matters is the anticipated tax treatment to Hemispherx and to the
executives of the compensation arrangements. The deductibility of certain types
of compensation depends upon the timing of an executive's vesting in, or
exercise of, previously granted rights. Moreover, interpretation of, and changes
in, the tax laws and other factors beyond the Compensation Committee's control
also affect the deductibility of compensation. Accordingly, the Compensation
Committee will not necessarily limit executive compensation to that deductible
under Section 162(m) of the Code. The Compensation Committee will consider
various alternatives to preserving the deductibility of compensation payments
and benefits to the extent consistent with its other compensation objectives.
This report submitted by the Compensation Committee of the
Company's Board of Directors.
Richard C. Piani
Dr. William M. Mitchell
23
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return for
the Company's common stock since December 31, 1999 to the cumulative total
returns of (i) the Standard & Poor's Smallcap 600 Index and (ii) a peer group
index for the same period, assuming an investment of $100 in each of the
Company's common stock, the Standard & Poor's Smallcap 600 Index and the peer
group index.
[The following information was depicted as a line chart in the printed material]
INDEXED RETURNS
Base Years Ending
Period
Company Name / Index Dec99 Dec00 Dec01 Dec02 Dec03 Dec04
--------------------------------------------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC 100 47.80 45.28 21.43 22.74 19.12
S&P 600 INDEX 100 111.80 119.11 101.68 141.13 173.09
PEER GROUP 100 66.24 98.29 53.31 56.15 26.60
24
ASSUMES $100 INVESTED ON JAN. 1, 1999
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2004
Total Return to Shareholders
(Includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index Dec00 Dec01 Dec02 Dec03 Dec04
--------------------------------------------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC -52.20 -5.26 -52.67 6.10 -15.93
S&P 600 INDEX 11.80 6.54 -14.63 38.79 22.65
PEER GROUP -33.76 48.39 -45.76 5.33 -52.63
Peer Group Companies
--------------------------------------------------------------------------------------------------------------------
AVI BIOPHARMA INC
IMMUNE RESPONSE CORP/DE
LA JOLLA PHARMACEUTICAL CO
MAXIM PHARMACEUTICALS INC
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 25, 2005, the number and
percentage of outstanding shares of common stock beneficially owned by:
o Each person, individually or as a group, known to us to be deemed
the beneficial owners of five percent or more of our issued and
outstanding common stock;
o each of our Directors and the Named Executives; and
o all of our officers and Directors as a group.
As of April 25, 2005, there were no other persons, individually or as a
group, known to the Hemispherx to be deemed the beneficial owners of five
percent or more of the issued and outstanding common stock.
25
Shares % Of Share
Name and Address of Beneficially Beneficially
Beneficial Owner Owned Owned
--------------------------------------------------------------------------------
William A. Carter, M.D 6,082,868(1) 10.9
Robert E. Peterson 475,574(2) *
Ransom W. Etheridge 464,430(3) *
2610 Potters Rd
Virginia Beach, VA 23452
Richard C. Piani 252,469(4) *
97 Rue Jeans-Jaures
Levaillois-Perret
France 92300
R. Douglas Hulse 339,400(10) *
Sage Group, Inc.
3322 Route 22 West
Building 2, Suite 201
Branchburg, NJ 08876
William M. Mitchell, M.D 228,087(5) *
Vanderbilt University
Department of Pathology
Medical Center North
21st and Garland
Nashville, TN 37232
David R. Strayer, M.D 148,746(6) *
Carol A. Smith, Ph.D 51,791(7) *
Steven D. Spence 44,877(11) *
245 Park Avenue, 24th Floor
New York, New York 10167
Iraj-Eqhbal Kiani, Ph.D 12,000(8) *
Orange County Immune Institute
18800 Delaware Street
Huntingdon Beach, CA 92648
Mei-June Liao, Ph.D 10,000(9) *
Robert Hansen 10,000(9) *
All directors and executive
officers as a group
(12 persons) 8,120,242 14.2%
----------
26
* Less than 1%
(1) Includes (i) warrants to purchase 1,450,000 shares of common stock at
$2.20 per share, expiring on September 8, 2008, (ii) 1,000,000 warrants to
purchase common stock at $2.00 per share expiring on August 7, 2007, (iii)
188,325 warrants to purchase common stock at $6.00 per share expiring on
February 22, 2006, (iv) 188,325 warrants to purchase common stock at $9.00
per share expiring on February 22, 2006, (v) 320,000 stock options to
purchase common stock at $2.60 per share expiring on September 7, 2014,
(vi) 73,728 stock options exercisable at $2.71 per share until exercised
and (vii) 507,490 shares of common stock. Also includes 2,355,000 warrants
and options originally issued to Dr. Carter and subsequently transferred
to Carter Investments of which Dr. Carter is a majority owner. These
warrants and options include 170,000 warrants to purchase common stock at
$4.00 per share expiring January 1, 2008; 300,000 warrants to purchase
common stock at $6.00 per share expiring on January 1, 2006; 20,000
warrants to purchase common stock expiring on January 1, 2008; 465,000
warrants to purchase common stock at $1.75 expiring on June 30, 2005 and
1,400,000 warrants to purchase common stock at $3.50 expiring on September
30, 2007.
(2) Includes (i) 13,750 options to purchase common stock at an exercise price
of $3.50 per share, expiring on January 7, 2007; (ii) warrants to purchase
50,000 shares of Common stock at an exercise price of $3.50 per share,
expiring on February 28, 2006; (iii) warrants to purchase 100,000 shares
of common stock at $5.00 per share, expiring on April 14, 2006; (iv)
30,000 warrants to purchase common stock at $5.00 per share an expiring on
April 30, 2006 (v) options to purchase 10,000 shares at $4.03 per share
that expire on January 3, 2011 (vi) 200,000 warrants exercised at $2.00
per share expiring on August 13, 2007, (vii) 50,000 options to purchase
common stock at $3.44 per share expiring on June 22, 2014; (viii) 13,824
options to purchase common stock exercisable at $2.60 per share expiring
on September 7, 2014 and (ix) 8,000 shares of common stock.
(3) Includes (i) 100,000 warrants to purchase common stock at $2.00 per share
expiring on August 13, 2007, (ii) 20,000 warrants to purchase common stock
at $4.00 per share expiring January 2, 2008, (iii) 100,000 stock options
to purchase common stock at $2.75 per share expiring on November 13, 2013,
(iv) 50,000 stock options to purchase common stock at $2.60 per share
expiring on September 7, 2014 and 94,430 shares of common stock. Also
includes 100,000 stock options originally issued to Mr. Etheridge and
subsequently transferred to relatives and trusts. These options to
purchase common stock at $2.75 expire on December 4, 2013.
(4) Includes (i) 20,000 warrants to purchase common stock at $4.00 per share
expiring on January 1, 2006, (ii) 54,608 stock options to purchase Common
Stock at $2.60 per share expiring on September 7, 2014, (iii) 100,000
warrants exercisable at $2.00 per share expiring on August 13, 2007, (iv)
59,961 shares of common stock owned by Mr. Piani (v) 12,900 shares of
common stock owned jointly by Mr. and Mrs. Piani; and (vi) 5,000 shares of
common stock owned by Mrs. Piani.
(5) Includes (I) warrants to purchase 12,000 shares of common stock at $6.00
per share, expiring on August 25, 2008; (ii) 50,000 stock options to
purchase common stock at $2.60 per share expiring on September 7,
2014,(iii) 100,000 warrants exercisable at $2.00 per share expiring in
August 13, 2007 and 66,087 shares of common stock.
(6) Includes (i) stock options to purchase 20,000 shares of common stock at
$3.50 per shares expiring on February 22, 2007; (ii) 50,000 warrants to
purchase common stock at $4.00 per shares expiring on February 28, 2008;
(iii) 10,000 stock options exercisable at $4.03 per share and expiring on
27
January 3, 2011; 50,000 warrants to purchase common stock at $2.00 per
share and expiring on August 13, 2007, 10,000 stock options to purchase
common stock at $1.90 per share expiring on December 7, 2014 and (iv)
8,746 shares of common stock.
(7) Consists of 5,000 warrants to purchase common stock at $4.00 per share
expiring June 7, 2008; 6,791 stock options exercisable at $3.50 expiring
January 22, 2007, 20,000 warrants exercisable at $2.00 per share expiring
in August 13, 2007, options to purchase 10,000 shares of common stock at $
4.03 per share expiring on January 3, 2011 and 10,000 stock options to
purchase common stock at $1.90 per share expiring on December 7, 2014.
(8) Consist of 12,000 warrants exercisable at $3.86 per share expiring on
April 30, 2005.
(9) Consists of options to purchase common stock at $1.90 per share expiring
on December 7, 2014.
(10) Consists of 250,000 options to purchase common stock at $1.55 expiring
February 13, 2015. These warrants vest at the rate of 12,000 per month
beginning March 14, 2005. These options are issued to Sage Healthcare,
LLC, an affiliate of The Sage Group. Also includes 89,400 shares of common
stock owned by The Sage Group.
(11) Consists of 44,877 shares of common stock.
28
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed the firm of BDO Seidman, LLP as independent registered public
accountants of Hemispherx for the fiscal year ending December 31, 2005 subject
to ratification by the stockholders. BDO Seidman, LLP has served as Hemispherx's
independent auditors since June 2000.
At the Annual Stockholder's Meeting on June 23, 2004, and pursuant to the
recommendation of the Audit Committee of the Board of Directors, stockholders
ratified the appointment of the firm of BDO Seidman, LLP, as independent
accountants, to audit the financial statements of the Company for the year end
December 31, 2004.
All audit and professional services provided by BDO Seidman, LLP are approved by
the Audit Committee. The total fees billed by BDO Seidman, LLP were $308,497 in
2003 and $226,484 in 2004. The following table shows the aggregate fees billed
to us by BDO Seidman, LLP for professional services rendered during the year
ended December 31, 2004.
--------------------------------------------------------------------------------
Amount ($)
--------------------------------------------------------------------------------
Description of Fees 2003 2004
--------------------------------------------------------------------------------
Audit Fees $264,917 $149,950
--------------------------------------------------------------------------------
Audit-Related Fees 43,580 76,534
--------------------------------------------------------------------------------
Tax Fees - -
--------------------------------------------------------------------------------
All Other Fees - -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total $308,497 $226,484
======== ========
--------------------------------------------------------------------------------
Audit Fees
Represents fees for professional services provided for the audit of our
annual financial statements and review of our financial statements included in
our quarterly reports and services in connection with statutory and regulatory
filings.
Audit-Related Fees
Represents the fees for assurance and related services that are reasonably
related to the performance of the audit or review of our financial statements,
including those in 2003 and 2004 related to the acquisition of ISI.
The Audit Committee has determined that BDO Seidman, LLP's rendering of
these non-audit services is compatible with maintaining auditors independence.
The Board of Directors considers BDO Seidman, LLP to be well qualified to serve
as our independent public accountants. The committee also approved the charges
for services performed in 2004.
The Audit Committee pre-approves all auditing services and the terms
thereof (which may include providing comfort letters in connection with
securities underwriting) and non-audit services (other than non-audit services
prohibited under Section 10A(g) of the Exchange Act or the applicable rules of
the SEC or the Public Company Accounting Oversight Board) to be provided to us
by the independent auditor; provided, however, the pre-approval requirement is
waived with respect to the provisions of non-audit services for us if the "de
minimus" provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied.
This authority to pre-approve non-audit services may be delegated to one or more
members of the Audit Committee, who shall present all decisions to pre-approve
an activity to the full Audit Committee at its first meeting following such
decision.
29
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 2.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
HEMISPHERX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
GENERAL
Unless contrary instructions are indicated on the proxy, all shares of
common stock represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be voted FOR the
election of all Directors nominated and FOR Proposal No. 2.
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 13, 2005
30
ANNEX A
HEMISPHERX BIOPHARMA, INC.
AUDIT COMMITTEE CHARTER
as of April 2005
I. General Statement of Purpose
The purposes of the Audit Committee of the Board of Directors (the "Audit
Committee") of Hemispherx Biopharma, Inc. (the "Company") are to:
o oversee the accounting and financial reporting processes of the
Company and the audits of the Company's financial statements;
o take, or recommend that the Board of Directors of the Company (the
"Board") take, appropriate action to oversee the qualifications,
independence and performance of the Company's independent registered
public accountants; and
o prepare the report required by the rules of the Securities and
Exchange Commission (the "SEC") to be included in the Company's
annual proxy statement.
II. Composition
The Audit Committee shall consist of at least three (3) members of the Board,
each of whom must (1) be "independent" as defined in Sections 121 and 803(a)
under the Company Guide of the American Stock Exchange ("AMEX"); (2) meet the
criteria for independence set forth in Rule 10A-3(b)(1) promulgated under
Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), subject to the exemptions provided in Rule 10A-3(c) under the
Exchange Act; and (3) not have participated in the preparation of the financial
statements of the Company or a current subsidiary of the Company at any time
during the past three years.
Each member of the Audit Committee must be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement. At least one member of the Audit Committee
shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication, including
being or having been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities. One or more members of
the Audit Committee may qualify as an "audit committee financial expert" under
the rules promulgated by the SEC.
The Corporate Governance and Nomination Committee shall recommend to the Board
nominees for appointment to the Audit Committee annually and as vacancies or
newly created positions occur. The members of the Audit Committee shall be
appointed annually by the Board and may be replaced or removed by the Board with
or without cause. Resignation or removal of a Director from the Board, for
whatever reason, shall automatically and without any further action constitute
resignation or removal, as applicable, from the Audit Committee. Any vacancy on
the
31
Audit Committee, occurring for whatever reason, may be filled only by the Board.
The Board shall designate one member of the Audit Committee to be Chairman of
the Committee.
III. Compensation
A member of the Audit Committee may not, other than in his or her capacity as a
member of the Audit Committee, the Board of any other committee established by
the Board, receive directly or indirectly from the Company any consulting,
advisory or other compensatory fee from the Company. A member of the Audit
Committee may receive additional directors' fees to compensate such member for
the significant time and effort expended by such member to fulfill his or her
duties as an Audit Committee member.
IV. Meetings
The Audit Committee shall meet as often as it determines is appropriate to carry
out its responsibilities under this charter, but not less frequently than
quarterly. A majority of the members of the Audit Committee shall constitute a
quorum for purposes of holding a meeting and the Audit Committee may act by a
vote of a majority of the members present at such meeting. In lieu of a meeting,
the Audit Committee may act by unanimous written consent. The Chairman of the
Audit Committee, in consultation with the other committee members, may determine
the frequency and length of the committee meetings and may set meeting agendas
consistent with this Charter.
V. Responsibilities and Authority
A. Review of Charter
o The Audit Committee shall review and reassess the adequacy of
this Charter annually and recommend to the Board any
amendments or modifications to the Charter that the Audit
Committee deems appropriate.
B. Annual Performance Evaluation of the Audit Committee
o At least annually, the Audit Committee shall evaluate its own
performance and report the results of such evaluation to the
Corporate Governance and Nomination Committee.
C. Matters Relating to Selection, Performance and Independence of
Independent Auditor
o The Audit Committee shall be directly responsible for the
appointment, retention and termination, and for determining
the compensation, of the Company's independent auditor engaged
for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the
Company. The Audit Committee may consult with management in
fulfilling these duties, but may not delegate these
responsibilities to management.
o The Audit Committee shall be directly responsible for
32
oversight of the work of the independent auditor (including
resolution of disagreements between management and the
independent auditor regarding financial reporting) engaged for
the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the
Company.
o The Audit Committee shall instruct the independent auditor
that the independent auditor shall report directly to the
Audit Committee.
o The Audit Committee shall pre-approve all auditing services
and the terms thereof (which may include providing comfort
letters in connection with securities underwritings) and
non-audit services (other than non-audit services prohibited
under Section 10A(g) of the Exchange Act or the applicable
rules of the SEC or the Public Company Accounting Oversight
Board) to be provided to the Company by the independent
auditor; provided, however, the pre-approval requirement is
waived with respect to the provision of non-audit services for
the Company if the "de minimus" provisions of Section
10A(i)(1)(B) of the Exchange Act are satisfied. This authority
to pre-approve non-audit services may be delegated to one or
more members of the Audit Committee, who shall present all
decisions to pre-approve an activity to the full Audit
Committee at its first meeting following such decision.
o The Audit Committee may review and approve the scope and
staffing of the independent auditors' annual audit plan(s).
o The Audit Committee shall request that the independent auditor
provide the Audit Committee with the written disclosures and
the letter required by Independence Standards Board Standard
No. 1, as modified or supplemented, require that the
independent auditor submit to the Audit Committee on a
periodic basis a formal written statement delineating all
relationships between the independent auditor and the Company,
discuss with the independent auditor any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor, and based on such
disclosures, statement and discussion take or recommend that
the Board take appropriate action in response to the
independent auditor's report to satisfy itself of the
independent auditors' independence.
o The Audit Committee may consider whether the provision of the
services covered in Items 9(e)(2) and 9(e)(3) of Regulation
14A of the Exchange Act (or any successor provision) is
compatible with maintaining the independent auditor's
independence.
33
o The Audit Committee shall evaluate the independent auditors'
qualifications, performance and independence, and shall
present its conclusions with respect to the independent
auditors to the full Board. As part of such evaluation, at
least annually, the Audit Committee shall:
o obtain and review a report or reports from the
independent auditor describing (1) the auditor's
internal quality-control procedures, (2) any material
issues raised by the most recent internal
quality-control review or peer review of the auditors or
by any inquiry or investigation by government or
professional authorities, within the preceding five
years, regarding one or more independent audits carried
out by the auditors, and any steps taken to address any
such issues, and (3) in order to assess the auditors'
independence, all relationships between the independent
auditor and the Company;
o review and evaluate the performance of the independent
auditor and the lead partner (and the Audit Committee
may review and evaluate the performance of other members
of the independent auditors' audit staff); and
o assure the regular rotation of the audit partners
(including, without limitation, the lead and concurring
partners) as required under the Exchange Act and
Regulation S-X.
o In this regard, the Audit Committee shall also (1) seek the
opinion of management and the internal auditors of the
independent auditors' performance and (2) consider whether, in
order to assure continuing auditor independence, there should
be regular rotation of the audit firm.
o The Audit Committee may recommend to the Board policies with
respect to the potential hiring of current or former employees
of the independent auditor.
D. Audited Financial Statements and Annual Audit
o The Audit Committee shall review the overall audit plan (both
internal and external) with the independent auditor and the
members of management who are responsible for preparing the
Company's financial statements, including the Company's Chief
Financial Officer and/or principal accounting officer or
principal financial officer (the Chief Financial Officer and
such other officer or officers are referred to herein
collectively as the "Senior Accounting Executive").
o The Audit Committee shall review and discuss with management
(including the Company's Senior Accounting Executive) and with
the independent auditor the Company's annual audited financial
statements, including (a) all critical accounting policies and
practices used or to be used by the Company,
34
(b) the Company's disclosures under "Management's Discussion
and Analysis of Financial Conditions and Results of
Operations" prior to the filing of the Company's Annual Report
on Form 10-K, and (c) and significant financial reporting
issues that have arisen in connection with the preparation of
such audited financial statements.
o The Audit Committee must review:
i. Any analyses prepared by management and/or the
independent auditors setting forth significant financial
reporting issues and judgments made in connection with
the preparation of financial statements, including
analyses of the effects of alternative GAAP methods on
the financial statements. The Audit Committee may
consider the ramifications of the use of such
alternative disclosures and treatments on the financial
statements, and the treatment preferred by the
independent auditor. The Audit Committee may also
consider other material written communications between
the registered public accounting firm and management,
such as any management letter or schedule of unadjusted
differences;
ii. Major issues as to the adequacy of the Company's
internal controls and any special audit steps adopted in
light of material control deficiencies;
iii. Major issues regarding accounting principles and
procedures and financial statement presentations,
including any significant changes in the Company's
selection or application of accounting principles; and
iv. The effects of regulatory and accounting initiatives, as
well as off-balance sheet transactions and structures,
on the financial statements of the Company.
o The Audit Committee shall review and discuss with the
independent auditor (outside of the presence of management)
how the independent auditor plans to handle its
responsibilities under the Private Securities Litigation
Reform Act of 1995, and request assurance from the auditor
that Section 10A of the Private Securities Litigation Reform
Act of 1995 has not been implicated.
o The Audit Committee shall review and discuss with the
independent auditor any audit problems or difficulties and
management's response thereto. This review shall include (1)
any difficulties encountered by the auditor in the course of
performing its audit work, including any restrictions on the
scope of its activities or its access to information and (2)
any significant disagreements with management.
o This review may also include:
i. Any accounting adjustments that were noted or proposed
by
35
the auditors but were "passed" (as immaterial or
otherwise);
ii. Any communications between the audit team and the audit
firm's national office regarding auditing or accounting
issues presented by the engagement; and
iii. Any management or internal control letter issued, or
proposed to be issues, by the auditors.
o The Audit Committee shall discuss with the independent
auditors those matters brought to the attention of the Audit
Committee by the auditors pursuant to Statement on Auditing
Standards No. 61, as amended ("SAS 61").
o The Audit Committee shall also review and discuss with the
independent auditors the report required to be delivered by
such auditors pursuant to Section 10A(k) of the Exchange Act.
o If brought to the attention of the Audit Committee, the Audit
Committee shall discuss with the CEO and CFO of the Company
(1) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report
financial information required to be disclosed by the Company
in the reports that it files or submits under the Exchange
Act, within the time periods specified in the SEC's rules and
forms, and (2) any fraud involving management or other
employees who have a significant role in the Company's
internal control over financial reporting.
o Based on the Audit Committee's review and discussions (1) with
management of the audited financial statements, (2) with the
independent auditor of the matters required to be discussed by
SAS 61, and (3) with the independent auditor concerning the
independent auditor's independence, the Audit Committee shall
make a recommendation to the Board as to whether the Company's
audited financial statements should be included in the
Company's Annual Report on Form 10-K for the last fiscal year.
o The Audit Committee shall prepare the Audit Committee report
required by Item 306 of Regulation S-K of the Exchange Act (or
any successor provision) to be included in the Company's
annual proxy statement.
E. Unaudited Quarterly Financial Statements
o The Audit Committee shall review and may discuss with
management and the independent auditor as appropriate, prior
to the filing of the Company's Quarterly Reports on Form 10-Q,
(1) the Company's quarterly financial statements and the
Company's related disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of
Operations," (2) such issues as may be brought to the Audit
36
Committee's attention by the independent auditor pursuant to
Statement on Auditing Standards No. 100, and (3) any
significant financial reporting issues that have arisen in
connection with the preparation of such financial statements.
F. Earnings Press Releases
o The Audit Committee shall review and discuss the Company's
earnings and related financial information expected to be
announced in any press releases, as well as financial
information and earnings guidance provided to analysts and
rating agencies, including in general, the types of
information to be disclosed and the types of presentation to
be made (paying particular attention to the use of "pro forma"
or "adjusted" non-GAAP information).
G. Risk Assessment and Management
o The Audit Committee shall discuss the process by which the
Company's exposure to risk is assessed and managed by
management.
o In connection with the Audit Committee's discussion of the
Company's risk assessment and management guidelines, the Audit
Committee may discuss or consider the Company's major
financial risk exposures and the steps that the Company's
management has taken to monitor and control such exposures.
H. Procedures for Addressing Complaints and Concerns
o The Audit Committee shall establish procedures for (1) the
receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls, or
auditing matters and (2) the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
o The Audit Committee may review and reassess the adequacy of
these procedures periodically and adopt any changes to such
procedures that the Audit Committee deems necessary or
appropriate.
I. Regular Reports to the Board
o The Audit Committee shall regularly report to and review with
the Board any issues that arise with respect to the quality or
integrity of the Company's financial statements, the Company's
compliance with legal or regulatory requirements, the
performance and independence of the independent auditors, and
any other matters that the Audit Committee deems appropriate
or is requested to review for the benefit of the Board.
37
VI. Additional Authority
The Audit Committee is authorized, on behalf of the Board, to do any of the
following as it deems necessary or appropriate:
A. Engagement of Advisors
o The Audit Committee may engage independent counsel and such other
advisors it deems necessary or advisable to carry out its
responsibilities and powers, and, if such counsel or other advisors
are engaged, shall determine the compensation or fees payable to
such counsel or other advisors.
B. Legal and Regulatory Compliance
o The Audit Committee may discuss with management and the independent
auditor, and review with the Board, the legal and regulatory
requirements applicable to the Company and its subsidiaries and the
Company's compliance with such requirements. After these
discussions, the Audit Committee may, if it determines it to be
appropriate, make recommendations to the Board with respect to the
Company's policies and procedures regarding compliance with
applicable laws and regulations.
o The Audit Committee may discuss with management legal matters
(including pending or threatened litigation) that may have a
material effect on the Company's financial statements or its
compliance policies and procedures.
C. Conflicts of Interest
o The Audit Committee shall conduct an appropriate review of all
related party transactions for potential conflict of interest
situations on an ongoing basis, and the approval of the Audit
Committee shall be required for all such transactions.
D. General
o The Audit Committee may form and delegate authority to subcommittees
consisting of one of more of its members as the Audit Committee
deems appropriate to carry out its responsibilities and exercise its
powers.
o The Audit Committee may perform such other oversight functions
outside of its stated purpose as may be requested by the Board from
time to time.
o In performing its oversight function, the Audit Committee shall be
entitled to rely upon advice and information that it receives in its
discussions and communications with management, the independent
auditor and such experts, advisors and professionals as may be
consulted with by the Audit Committee.
o The Audit Committee is authorized to request that any officer or
employee of the Company, the Company's outside legal
38
counsel, the Company's independent auditor or any other professional
retained by the Company to render advice to the Company attend a
meeting of the Audit Committee or meet with any members of or
advisors to the Audit Committee.
o The Audit Committee is authorized to incur such ordinary
administrative expenses as are necessary or appropriate in carrying
out its duties.
Notwithstanding the responsibilities and powers of the Audit Committee set forth
in this Charter, the Audit Committee does not have the responsibility of
planning or conducting audits of the Company's financial statements or
determining whether the Company's financial statements are complete, accurate
and in accordance with GAAP. Such responsibilities are the duty of management
and, to the extent of the independent auditor's audit responsibilities, the
independent auditor.
39
HEMISPHERX BIOPHARMA, INC.
ANNUAL MEETING OF STOCKHOLDERS
June 22, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Carter and Ransom W. Etheridge and
each of them, with full power of substitution, as proxies to represent the
undersigned at the Annual Meeting of Stockholders to be held at the Embassy
Suites, 1776 Benjamin Franklin Parkway, Philadelphia, Pennsylvania 19103, on
Wednesday, June 22, 2005, at 10:00 a.m. local time and at any adjournment
thereof, and to vote all of the shares of common stock of Hemispherx Biopharma,
Inc. the undersigned would be entitled to vote if personally present, upon the
following matters:
Please mark box in blue or black ink.
1. Proposal No.1-Election of Directors.
Nominees: William A. Carter, Richard C. Piani, Ransom W. Etheridge,
William M. Mitchell, Iraj-Eqhbal Kiani and Steven Spence.
|_| For all nominees (except as marked to the contrary below)
|_| Authority Withheld as to all Nominees
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME)
William A. Carter Richard C. Piani Ransom W. Etheridge William M. Mitchell
Iraj-Eqhbal Kiani Steven Spence
2. Proposal No. 2-Ratification of the selection of BDO Seidman, LLP, as
independent registered public accountants of Hemispherx Biopharma, Inc.
for the year ending December 31, 2005.
|_| For |_| Against |_| Abstain
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS
INDICATED, WILL BE VOTED "FOR" ALL OF THE PROPOSALS, INCLUDING FOR ALL OF
THE DIRECTOR NOMINEES, AND, IN THE DISCRETION OF THE PROXIES, ON ALL OTHER
MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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