SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended Commission File No.
December 31, 1998 001-08568
IGI, Inc.
(Exact name of registrant as specified in its charter)
Delaware 01-0355758
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wheat Road and Lincoln Avenue, Buena, NJ 08310
(Address of principal executive offices) (Zip Code)
(609)-697-1441
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 par value)
Registered on the American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
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The aggregate market value of the Registrant's voting Common Stock, par
value $.01 per share, held by non-affiliates of the Registrant at March 19,
1999, as computed by reference to the last trading price of such stock, was
approximately $11,100,000. The Registrant has no shares of non-voting Common
Stock authorized or outstanding.
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding at March 19, 1999 was 9,526,854 shares.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed with the Commission on or before April 30, 1999 are
incorporated herein by reference in Part III.
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Exhibit Index located on pages 48-52
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Part I
Item 1. Business
IGI, Inc. ("IGI" or the "Company") was incorporated in Delaware in 1977.
Its executive offices are at Wheat Road and Lincoln Avenue, Buena, New Jersey.
The Company is a diversified company engaged in three business segments:
o Poultry Vaccine Business - production and marketing of poultry
vaccines and other related products;
o Companion Pet Products Business - production and marketing of
companion pet products such as pharmaceuticals, nutritional
supplements and grooming aids; and
o Consumer Products Business - production and marketing of cosmetics and
skin care products.
Recent Developments:
U.S. Regulatory Proceedings
From mid-1997 through most of 1998, the Company was subjected to intense
governmental and regulatory scrutiny relating to the Company's shipment of some
of its poultry vaccine products without complying with certain applicable
regulatory and record keeping requirements. As a result of actions taken by the
United States Department of Agriculture ("USDA"), the Company was ordered in
June 1997 to stop shipment of certain of its poultry vaccine products. In July
1997, the Company was advised that the USDA's Office of Inspector General
("OIG") had commenced an investigation into possible violations by the Company
of the Virus Serum Toxin Act of 1914 and alleged false statements made by the
Company to the USDA's Animal and Plant Health Inspection Service ("APHIS").
Company Actions
Based on these events, the Company:
o engaged independent counsel to conduct an investigation of the claimed
violations;
o took corrective action to allow the Company to resume shipment of its
affected product lines;
o terminated the President and Chief Operating Officer of the Company for
willful misconduct and commenced a lawsuit against him in the New Jersey
Superior Court;
o obtained the resignation of six employees, including two Vice Presidents;
o voluntarily disclosed information uncovered by its internal investigation
to the U.S. Attorney for the District of New Jersey, including information
that related to sales of poultry vaccines which may have violated U.S.
customs laws and regulations; and
o cooperated with the Securities and Exchange Commission ("SEC") in its
informal inquiry, initiated in April 1998, regarding the foregoing matters.
The USDA's stop shipment order and the investigations by federal regulatory
authorities disrupted the business of the Company during 1997 and 1998 and had a
material adverse effect on its business operations and its liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Settlement of U.S. Regulatory Proceedings
On March 24, 1999, the Company reached settlement with the Departments of
Justice, Treasury and Agriculture regarding their pending investigations and
proceedings. This settlement is subject to court approval, which the Company
believes will be obtained in due course. The terms of the settlement agreement
provide that the Company will enter a plea of guilty to a misdemeanor and will
pay a fine of $15,000 and restitution in the amount of $10,000. In addition,
beginning in January 2000, the Company will make monthly payments to the
Treasury Department through the period ending October 31, 2001 in the total
amount of $225,000. The expense of settling with these agencies is reflected in
the 1998 results of operations. The settlement does not affect the informal
inquiry being conducted by the SEC, nor does it affect possible governmental
action against former employees of the Company. Management does not expect that
the SEC informal inquiry will have
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a material adverse effect on the financial position, cash flow or operations of
the Company.
The Company is not aware of any other legal proceedings, which could have a
material effect upon the Company.
Licensed Technology
In December 1995, IGI distributed its ownership of its majority-owned
subsidiary, Novavax, Inc. ("Novavax"), in the form of a tax-free stock dividend,
to IGI stockholders. Novavax had conducted the biotechnology business segment of
IGI, which is reported as a discontinued operation in the five year summary of
selected financial data. In connection with the distribution, the Company paid
Novavax $5,000,000 in return for a fully paid-up, ten-year license (the "IGI
License Agreement") entitling it to the exclusive use of the Novasome(R) lipid
vesicle encapsulation and other technologies ("Microencapsulation Technologies"
or collectively the "Technologies") in the fields of (i) animal pharmaceuticals,
biologicals and other animal health products; (ii) foods, food applications,
nutrients and flavorings; (iii) cosmetics, consumer products and dermatological
over-the-counter and prescription products (excluding certain topically
delivered hormones); (iv) fragrances; and (v) chemicals, including herbicides,
insecticides, pesticides, paints and coatings, photographic chemicals and other
specialty chemicals, and the processes for making the same (collectively, the
"IGI Field"). IGI has the option, exercisable within the last year of the
ten-year term, to extend the exclusive license for an additional ten-year period
for $1,000,000. Novavax has the right to use the Technologies for applications
outside the IGI Field, mainly human vaccines and pharmaceuticals.
Business Segments
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach indicates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information.
The Company elected to change reportable segments from two segments (Animal
Health Products and Consumer Products) into three segments (Poultry Vaccines,
Companion Pet Products, and Consumer Products). Reasons leading to the change
included the fact that products from each of the segments serve different
markets, use different channels of distribution, and have two different forms of
government oversight. The Company elected to change the reporting of its
business segments as of January 1, 1998 and restated its prior years'
presentation to conform to this revised segment reporting standard.
The following table sets forth the revenue and operating profit of each of
the Company's three business segments for the periods indicated:
1998 1997* 1996*
-------- -------- --------
Revenue (in thousands)
Poultry Vaccines $ 14,843 $ 16,644 $ 19,953
Companion Pet Products 12,513 12,444 11,308
Consumer Products 5,839 5,255 3,686
-------- -------- --------
Total Revenues $ 33,195 $ 34,343 $ 34,947
======== ======== ========
Operating Profit (Loss)**
Poultry Vaccines $ (517) 1,202 $ 4,084
Companion Pet Products 2,844 2,577 2,300
Consumer Products 3,688 1,473 (955)
* Prior year amounts restated to reflect the Company's change in its method
of inventory pricing. (See Note 1 of Consolidated Financial Statements.)
** Excludes corporate expenses of $6,925,000, $5,032,000, and $4,097,000, for
1998, 1997, and 1996, respectively. (See Note 17 of Consolidated Financial
Statements.)
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Poultry Vaccine Business
The Company produces and markets poultry vaccines manufactured by the chick
embryo, tissue culture and bacteriologic methods. The Company produces vaccines
for the prevention of various chicken and turkey diseases and has more than 60
vaccine licenses granted by the USDA. The Company also produces and sells
nutritional, anti-infective and sanitation products used primarily by poultry
producers. The Company sells these products in the United States and in over 50
other countries under the Vineland Laboratories trade name.
The Company manufactures poultry vaccines at its USDA licensed facility in
Vineland, New Jersey and sells them, primarily through its own sales force of
nine persons, directly to large poultry producers and distributors in the United
States and, through its export sales staff of 15 persons, to local distributors
in other countries. The sales force is supplemented and supported by technical
and customer service personnel. The Company's vaccine production in the United
States is regulated by the USDA. Sales of poultry vaccines and related products
accounted for approximately 45% of the Company's revenues in 1998, 49% in 1997
and 57% in 1996. For information relating to the adverse effect of the stop
shipment order by the USDA on the Company's poultry vaccine business, as well as
other governmental actions, see "Government Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's principal competitors in the poultry vaccine market are
Intervet America, Fort Dodge, Tri Bio and Schering Plough Animal Health. The
Company believes that it is one of the largest domestic poultry vaccine
producers. The Company competes on the basis of product performance, price,
customer service and availability.
Companion Pet Products Business
The Company sells its Companion Pet Products to the veterinarian market
under the EVSCO Pharmaceuticals trade name and to the over-the-counter ("OTC")
pet products market under the Tomlyn and Luv'Em labels.
The EVSCO line of veterinary products is used by veterinarians in caring
for dogs and cats, and includes pharmaceuticals such as antibiotics,
anti-inflammatories and cardiac drugs, as well as nutritional supplements,
vitamins, insecticides and diagnostics. Product forms include gels, tablets,
creams, liquids, ointments, powders, emulsions, shampoos and diagnostic kits.
EVSCO also produces professional grooming aids for dogs and cats.
EVSCO products are manufactured at the Company's facility in Buena, New
Jersey and are sold through distributors to veterinarians. The facility operates
in accordance with Good Manufacturing Practices ("GMP") of the federal Food and
Drug Administration ("FDA") (See "Government Regulation"). Principal competitors
of the EVSCO product line include DVM, Allerderm, Schering Plough Animal Health
and Pfizer Animal Health. The Company competes on the basis of price, marketing,
customer service and product qualities.
The Tomlyn product line includes pet grooming, nutritional and therapeutic
products, such as shampoos, grooming aids, vitamin and mineral supplements,
insecticides and OTC medications. The products are manufactured at the Company's
facility in Buena, New Jersey, and are sold directly to pet superstores and
through distributors to independent merchandising chains, shops and kennels.
Principal competitors of the Tomlyn product line include Four Paws Products; Bio
Groom Products; Lambert Kay, a division of Carter-Wallace; Eight In One Pet
Products, Inc.; and Cardinal Labs, Inc.
Sales of the Company's veterinary products are handled by 20 sales
employees. Most of the Company's veterinary products are sold through
distributors. Sales of veterinary products accounted for approximately 38% of
the Company's revenues in 1998, 36% in 1997 and 32% in 1996.
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Consumer Products Business
IGI's Consumer Products business is primarily focused on the continued
commercialization of the Microencapsulation Technologies for skin care
applications. These efforts have been directed toward the development of high
quality skin care products that the Company markets through collaborative
arrangements with major cosmetic and consumer products companies. IGI plans to
continue to work with cosmetics, food, personal care products, and OTC
pharmaceutical companies for commercial applications of the Microencapsulation
Technologies. Because of their ability to encapsulate skin protective agents,
oils, moisturizers, shampoos, conditioners, skin cleansers and fragrances and to
provide both a controlled and a sustained release of the encapsulated materials,
Novasome(R) lipid vesicles are well suited to cosmetics and consumer product
applications. For example, Novasome(R) lipid vesicles may be used to deliver
moisturizers and other active ingredients to the deeper layers of the skin or
hair follicles for a prolonged period; to deliver or preserve ingredients which
impart favorable cosmetic characteristics described in the cosmetics industry as
"feel," "substantivity," "texture" or "fragrance"; to deliver normally
incompatible ingredients in the same preparation, with one ingredient being
shielded or protected from others by encapsulation within the Novasome(R)
vesicle; and to deliver pharmaceutical agents.
The Company produces Novasome(R) vesicles for various skin care products,
including those marketed by Estee Lauder such as "All You Need," "Re-Nutriv,"
"Virtual Skin," "100% Time Release Moisturizer," "Resilience" and others. Sales
to Estee Lauder accounted for $3,494,000 or 11% of 1998 sales, $2,408,000 or 7%
for 1997, and $2,505,000 or 7% in 1996. The Company also markets a skin care
product line to physicians through a distributor under the Company's
WellSkin(TM) brand.
Principal competitors to the Company's WellSkin(TM) product line include
NeoStrata, Inc. and MD Formulations, a division of Allergen. The Company's
Novasome(R) Technologies indirectly compete as a delivery system with, among
others, Collaborative Labs, Liposomes, Inc. and Lipo Chemicals.
In 1996, the Company entered into a license and supply agreement with Glaxo
Wellcome, Inc. ("Glaxo"). The agreement granted Glaxo exclusive rights to market
the WellSkin(TM) product line in the United States to physicians. Under the
terms of the agreement, IGI manufactured these products for Glaxo. This
agreement provided for Glaxo to pay royalties to IGI based on sales and pay a
$1,000,000 advance royalty to IGI in 1997 of which $300,000 was non-refundable.
The advance royalty was recorded as deferred income. In October 1998, Glaxo
notified the Company of its intent to exit the physician-dispensed skin care
market. In December 1998, the license and supply agreement with Glaxo was
terminated. The termination agreement provided that IGI would purchase all of
Glaxo's inventory and marketing materials related to the WellSkin(TM) line in
exchange for a $200,000 promissory note, due and payable in December 1999 and
bearing interest at a rate of 11%. The Company also issued a promissory note to
Glaxo for $608,000, representing the unearned portion of the advance royalty in
exchange for Glaxo transferring all rights to the WellSkin(TM) trademark to IGI.
This note bears interest at a rate of 11% and is payable in three installments
between December 1999 and December 2000. In connection with the Agreement
termination, but unrelated to the advance royalty, IGI reduced cost of sales by
$404,000 in 1998 for amounts owed to Glaxo that were forgiven. Beginning in 1997
and again in 1998, IGI recognized $150,000 and $326,000, respectively, of
royalties as income.
In December 1998, the Company entered into a supply and sales agreement
with Genesis Pharmaceutical, Inc. ("Genesis") for the marketing and distribution
of the Company's WellSkin(TM) line of skin care products. The agreement provides
that Genesis will pay the Company a trademark and technology transfer fee in
four equal annual payments of $250,000 each commencing November 1, 1999. In
addition, Genesis will pay the Company a royalty on its net sales with certain
guaranteed minimum royalty amounts. Genesis also purchased WellSkin(TM)
inventory and marketing materials previously purchased by the Company from
Glaxo. Genesis has signed a $200,000 promissory note for the inventory and
marketing materials, which is due on November 1, 1999 bearing interest at 11%.
The Genesis transaction did not significantly affect 1998 operating results.
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In March 1997, IGI granted Kimberly Clark ("Kimberly") the worldwide rights
to use certain patents and technologies in the industrial hand care and cleaning
products field. Upon signing the agreement, Kimberly paid IGI a $100,000 license
fee that was recognized as revenue by the Company in 1997. The agreement
requires Kimberly to make royalty payments based on quantities of material
produced. The Company is also guaranteed minimum royalties over the term of the
agreement. In 1998, the Company earned $133,000 of minimum royalties, which is
recorded as an accounts receivable due from Kimberly at December 31, 1998.
The Company entered into a license agreement with Johnson & Johnson
Consumer Products, Inc. ("J&J") in 1995. The agreement provides J&J with a
license to produce and sell Novasome(R) microencapsulated retinoid products and
provides for the payment of royalties on net sales of such products. J&J began
selling such products and making royalty payments in the first quarter of 1998.
The Company recognized $433,000 of revenue related to this agreement for the
year ended December 31, 1998.
In April 1998, the Company entered into a research and development
agreement with National Starch and Chemical Company ("National Starch") to
evaluate Novasome(R) technology which, if favorable, may result in negotiating a
licensing agreement. The agreement provides for a minimum of at least six, or up
to as much as nine, monthly payments commencing in June 1998 plus $100,000 for
the purchase of a patented Novamix(R) machine. The Company recognized $210,000
in revenues in 1998 related to the National Starch agreement plus $100,000 for
the purchase of the Novamix(R) machine.
In August 1998, the Company granted Johnson & Johnson Medical ("JJM"), a
Division of Ethicon, Inc., worldwide rights for the use of the Novasome(R)
technology for certain products and distribution channels. The agreement
provides for an up-front license fee of $150,000, of which $92,000 was
recognized as revenue by the Company in 1998, and future royalty payments based
on JJM's sales of licensed products. The Company is guaranteed minimum royalties
over the term of the agreement.
The Company entered into an exclusive Supply Agreement (the "Supply
Agreement") dated September 30, 1997 with IMX Corporation ("IMX"), a publicly
traded company. Under the IMX agreement, the Company agreed to manufacture and
supply 100% of IMX's requirements for certain products at prices stipulated in
the exclusive Supply Agreement, subject to renegotiation subsequent to 1998. The
Company is currently involved in discussions with IMX concerning possible
modifications to the Supply Agreement as it has determined the Company will not
supply the products stipulated by the Supply Agreement but may supply certain
other products based on negotiations with IMX. Under the Supply Agreement the
Company received 271,714 shares of restricted common stock of IMX. These shares
are restricted both by governmental and contractual requirements and the Company
is unsure if or when it will be able to sell these shares. As of December 31,
1998, the Company has not yet recognized income related to this agreement. See
Note 2 "Investments" of Consolidated Financial Statements.
During 1998, the Company recognized a total of $1.2 million of licensing
and royalty income which is included in the Consumer Products segment revenues.
Revenues from the Company's Consumer Products segment were principally based on
formulations using the Novasome(R) encapsulation technology. Total Consumer
Product revenues were approximately 17% of the Company's total revenues in 1998,
15% in 1997 and 11% in 1996.
Other Applications
The versatility of the Novasome(R) lipid vesicles combined with the
Company's commercial production capabilities allows the Company to target large,
diverse markets including potential applications in the fuels industry. The
Company is seeking collaboration with others to develop its products for this
industry. The efforts for the development of fuel enhancement products require
extensive testing, evaluation and trials, and therefore no assurance can be
given that commercialization of IGI's fuel additive and enhancing products will
be successful.
International Sales and Operations
A staff of seven persons based in Buena, New Jersey and eight individuals
based overseas handle sales of Company products outside the United States. The
Company's sales personnel and veterinarians travel abroad extensively to develop
business and support customers through local distributors. Exports consist
primarily of poultry vaccines,
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although the Company also exports some veterinary pharmaceuticals and pet care
products. Exports of vaccines and other products require product registration
(e.g., licenses) by foreign authorities. The Company has approximately 900
product registrations in over 50 countries outside the United States and has
over 800 registrations pending. The Company is seeking to expand its
international market presence. It entered the Chinese market in 1997 and
commenced product sales in Japan in 1998. The Company has obtained registrations
for six products in Brazil and expects to commence sales in that country in
mid-1999.
Mexico, Indonesia, Thailand and certain other Latin American and Far
Eastern countries are important markets for the Company's poultry vaccines and
other products. These countries have experienced periods of varying degrees of
political unrest and economic and currency instability. Because of the volume of
business transacted by the Company in these areas, continuation or recurrence of
such unrest or instability could adversely affect the businesses of its
customers, which could adversely impact the Company's future operating results.
In order to minimize risk, the Company maintains credit insurance for the
majority of its international accounts receivable, and all sales are denominated
in U.S. dollars to minimize currency fluctuation risk. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.")
Sales to international customers represented 32% of the Company's revenues
in 1998, 35% in 1997 and 39% in 1996. (See Note 14 "Export Sales" of
Consolidated Financial Statements.)
Manufacturing
The Company's manufacturing operations include the production and testing
of vaccines, cosmetics, dermatologics, emulsions, shampoos, gels, ointments,
pills and powders. These operations also include the packaging, bottling and
labeling of finished products and packing and shipping for distribution. On
March 1, 1999, 139 employees were engaged in manufacturing operations. The raw
materials included in these products are available from several suppliers. The
Company produces quantities of Novasome(R) lipid vesicles adequate to meet its
current needs for cosmetics, consumer product and animal health applications.
Product Development and Research
The Company's poultry vaccine development efforts are directed towards: 1)
developing more efficient single and multiple-component vaccines, 2) developing
vaccines to combat new diseases, and 3) incorporating Novasome(R) lipid vesicle
adjuvants into vaccines. The Company is concentrating its veterinary
pharmaceutical development efforts on the use of Novasome(R) microencapsulation
for various veterinary pharmaceutical and over-the-counter pet care products.
The Company's consumer products development efforts are directed towards
Novasome(R) encapsulation to improve performance and efficacy of fuels,
pesticides, specialty and other chemicals, biocides, cosmetics, consumer
products, flavors and dermatologic products.
In addition to its internal product development and research efforts, which
involve nine employees, the Company encourages the development of products in
areas related to its present lines by making specific grants to universities,
none of which had a material financial effect on the Company in 1998, 1997 or
1996. Total product development and research expenses were $1,425,000,
$1,675,000, and $2,013,000 in 1998, 1997 and 1996, respectively.
Patents and Trademarks
All of the names of the Company's major products are registered in the
United States and all significant markets in which the Company sells its
products. Under the terms of the 1995 IGI License Agreement, the Company has an
exclusive ten-year license to use the Technologies licensed from Novavax in the
IGI Field. Novavax holds approximately 44 U.S. patents and a number of foreign
patents covering the Technologies licensed to IGI.
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Government Regulation
The production and marketing of the Company's products and its research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. The Company's development, manufacturing and marketing of poultry
biologics are subject to regulation in the United States for safety and efficacy
by the USDA, including the Center for Veterinary Biologics ("CVB"), in
accordance with the Virus Serum Toxin Act of 1914. The development,
manufacturing and marketing of animal and human pharmaceuticals are subject to
regulation in the United States for safety and efficacy by the FDA in accordance
with the Food, Drug and Cosmetic Act.
Although the Company has now resolved these matters, from June 4, 1997
through March 27, 1998, the Company was subject to an order by the CVB to stop
distribution and sale of certain serials and subserials of designated poultry
vaccines produced by the Company's Vineland Laboratories division. In July 1997,
the OIG advised the Company of its commencement of an investigation into alleged
violations of the Virus Serum Toxin Act and alleged false statements made by
certain former Company personnel. In April 1998, the Company voluntarily
disclosed to the U.S. Attorney for the District of New Jersey, as well as to the
USDA and the OIG, information resulting from the Company's internal
investigation of alleged violations by certain officers and employees of USDA
rules and regulations and of the Virus Serum Toxin Act. (See "Legal Proceedings
- - Settlement of U.S. Regulatory Proceedings".)
On March 6, 1998, the FDA concluded an inspection of the Company's EVSCO
facility in Buena, New Jersey. This resulted in the issuance of a FDA Form 483
listing several "inspection observations." The FDA reemphasized its observations
on May 14, 1998 with a "Warning Letter." The Company responded in a timely
fashion to the Form-483 and to the Warning Letter, and has been advised by the
FDA compliance branch that the Company's corrective action plan appears to
address its concerns.
In the United States, pharmaceuticals are subject to rigorous FDA
regulation including pre-clinical and clinical testing. The process of
completing clinical trials and obtaining FDA approvals for a new drug is likely
to take a number of years, requires the expenditure of substantial resources and
is often subject to unanticipated delays. There can be no assurance that any
product will receive such approval on a timely basis, if at all.
In addition to product approval, the Company may be required to obtain a
satisfactory inspection by the FDA covering the manufacturing facilities before
a product can be marketed in the United States. The FDA will review the
manufacturing procedures and inspect the facilities and equipment for compliance
with applicable rules and regulations. Any material change by the Company in the
manufacturing process, equipment or location would necessitate additional review
and approval.
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental authorities in foreign countries must be
obtained prior to the commencement of clinical trials and subsequent marketing
of such product in such countries. The approval procedure varies from country to
country, and the time required may be longer or shorter than that for FDA
approval. Although there are some procedures for unified filing for certain
European countries, in general each country has its own procedures and
requirements.
In addition to regulations enforced by the USDA and the FDA, the Company
also is subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's product development and research
involves the controlled use of hazardous materials, chemicals, viruses and
bacteria. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
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Employees
At March 1, 1999, the Company had 228 full-time employees, of whom 53 were
in marketing, sales, distribution and customer support, 139 in manufacturing, 9
in research and development, and 27 in executive, finance and administration.
The Company has no collective bargaining agreement with its employees and
believes that its employee relations are good.
Item 2. Properties
The Company owns land and buildings used for offices, laboratories and
production facilities in four locations in New Jersey. The Company also owns a
warehouse and sales office space in Gainesville, Georgia. In addition, the
Company leases warehouses and poultry facilities in New Jersey, California,
Mississippi, and Arkansas.
The Company's poultry vaccine production facilities are located in
Vineland, New Jersey, where the Company owns several buildings situated on
approximately 16 acres of land. These buildings, containing 90,000 square feet
of usable floor space, house offices and facilities used for the production of
poultry vaccines. They were constructed and expanded from time to time between
1935 and 1992. The Company intends to renovate certain of these facilities in
the future to expand its vaccine production capacity to meet growth in sales of
existing poultry vaccines and to provide production capability for new vaccines.
The Company plans to finance these renovations with internally generated funds
or leases.
In Buena, New Jersey, the Company owns a facility used for the production
of veterinary pharmaceuticals. The facility was built in 1971 and expanded in
1975. The facility presently contains 41,200 square feet of usable floor space
and is situated on eight acres of land. Also located in Buena are the Company's
executive and administrative offices and a 25,000 square foot facility built in
1995 which is used for production, product development, marketing, and
warehousing for cosmetic, dermatologic and personal care products. This facility
also houses IGI's international marketing operations.
Each of the properties owned by the Company is subject to a mortgage held
by Fleet Bank-NH and Mellon Bank, N.A. Except as described above, the Company
believes that its current production and office facilities are adequate for its
present and foreseeable future needs.
Item 3. Legal Proceedings
U.S. Regulatory Proceedings and Pending Litigation
The Company has substantially resolved the legal and regulatory issues that
arose in 1997 and 1998. For most of 1997 and 1998 the Company was subject to
intensive government regulatory scrutiny by the U.S. Departments of Justice,
Treasury and Agriculture. In June 1997, the Company was advised by APHIS of the
USDA that the Company had shipped quantities of some of its poultry vaccine
products without complying with certain regulatory and record keeping
requirements. The USDA subsequently issued an order that the Company stop
shipment of certain of its products. Shortly thereafter, in July 1997, the
Company was advised that the USDA's OIG had commenced an investigation into
possible violations of the Virus Serum Toxin Act of 1914 and alleged false
statements made to APHIS.
Based upon these events, the Board of Directors caused an immediate and
thorough investigation of the facts and circumstances of the alleged violations
to be undertaken by independent counsel. The Company also took steps to obtain
the approval of APHIS for resumption of shipments, including the submission of
an amended and modified regulatory compliance program, improved testing
procedures and other safeguards. Based upon these actions, APHIS began lifting
the stop shipment order in August 1997 and released all remaining products from
the order on March 27, 1998.
In April 1998, the SEC advised the Company that it was conducting an
informal inquiry and requested information and documents from the Company, which
the Company has voluntarily provided to the SEC.
The Company has continued to refine and strengthen its regulatory programs
with the adoption of a series of compliance and enforcement policies, the
addition of new managers of Production and Quality Control and a new Senior
10
<PAGE>
Vice President and General Counsel. At the instruction of the Board of
Directors, the Company's General Counsel has established and oversees a
comprehensive employee training program, has designated in writing a Regulatory
Compliance Officer, and has established a fraud detection program, as well as an
employee "hotline." The Company has continued to cooperate with the USDA in all
aspects of its investigation and regulatory activities.
As a result of its internal investigation, the Company terminated the
employment of John P. Gallo as President and Chief Operating Officer in November
1997 for willful misconduct. In April 1998, the Company requested the
resignations of six additional employees including two Vice Presidents, and
instituted a lawsuit against Mr. Gallo in the New Jersey Superior Court. The
lawsuit alleged willful misconduct and malfeasance in office, as well as
embezzlement and related claims. Mr. Gallo filed counterclaims against the
Company. The Company has denied Mr. Gallo's allegations and believes his claims
are without merit. The Company has not reserved any amounts related to these
charges.
In June 1998, Mr. Gallo wrote to the Company's Board of Directors alleging
that he had been wrongfully terminated from employment and further alleging
wrongdoing by two Directors. In response to these allegations the Company
instituted an investigation of the two Directors by an Independent Committee
("Independent Committee") of the Board assisted by the Company's General
Counsel. The investigation included a series of interviews of the Directors,
both of whom cooperated with the Company, and a review of certain records and
documents. The Company also requested an interview with Mr. Gallo who, through
his counsel, declined to cooperate. In September 1998, the Independent Committee
reported to the Board that it had found no credible evidence to support Mr.
Gallo's claims and allegations and recommended no further action. The Board
adopted the recommendation.
In July 1998, the Company sought to depose Mr. Gallo in connection with the
litigation filed in New Jersey. Through his counsel, Mr. Gallo asserted his
Fifth Amendment privilege against self-incrimination and advised that he would
not participate in the discovery process until such time as a federal grand jury
investigation, in which he was a target, was concluded. At the suggestion of the
court, the Company and Mr. Gallo agreed to a voluntary dismissal of the
litigation, with the understanding that the Company was free to reinstate its
suit against Mr. Gallo at a later date, and that the Company was reserving all
of its rights and remedies with respect to Mr. Gallo. In addition, Mr. Gallo may
reinstate his counterclaims against the Company at a later date.
Settlement of U.S. Regulatory Proceedings
On March 24, 1999, the Company reached settlement with the Departments of
Justice, Treasury and Agriculture regarding their pending investigations and
proceedings. The settlement is subject to court approval, which the Company
believes will be obtained in due course. The terms of the settlement agreement
provide that the Company will enter a plea of guilty to a misdemeanor and will
pay a fine of $15,000 and restitution in the amount of $10,000. In addition,
beginning in January 2000, the Company will make monthly payments to the
Treasury Department through the period ending October 31, 2001 in the total
amount of $225,000. The expense of settling with these agencies is reflected in
the 1998 results of operations. The settlement does not affect the informal
inquiry being conducted by the SEC, nor does it affect possible governmental
action against former employees of the Company. Management does not expect that
the SEC informal inquiry will have a material adverse effect on the financial
position, cash flow or operations of the Company.
The Company is not aware of any other legal proceedings which could have a
material effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the last quarter of 1998.
11
<PAGE>
Executive Officers of the Company
The following table sets forth (i) the name and age of each executive
officer of the Company as of March 15, 1999, (ii) the position with the Company
held by each such executive officer and (iii) the principal occupation held by
each executive officer for at least the past five years.
<TABLE>
<CAPTION>
Officer Principal Occupation and Other Business
Name Age Since Experience During Past Five Years
- ---- --- ----- ---------------------------------
<S> <C> <C> <C>
Edward B. Hager, M.D. 67 1977 Chairman of the Board of Directors and Chief Executive
Officer of IGI, Inc. since 1977; Chairman of the Board of
Directors and Chief Executive Officer of Novavax, Inc. from
1987 to June 1996; Chairman of the Board of Directors of
Novavax, Inc. from February 1997 to March 1998.
Rajiv Mathur 44 1999 Senior Vice President and Assistant Secretary of IGI, Inc.
since March 1999; Vice President of Research and Development
of IGI, Inc. since 1989.
Robert E. McDaniel 48 1998 Senior Vice President and General Counsel of IGI, Inc. since
May 1998; General Counsel of Presstek, Inc. (laser graphic
arts company) from April 1997 to May 1998; and Commercial
Litigation Partner, law firm of Devine, Millimet and Branch
from April 1991 to April 1997.
John F. Wall 51 1998 Senior Vice President, Chief Financial Officer of IGI, Inc.
since June 1998 and Treasurer since March 1999; Chief
Financial Officer of Diversa Corp. (startup biotechnology
company developing enzymes for pharmaceuticals and chemicals)
from July 1995 to September 1997; and Chief Financial Officer
and a Co-founder of GynoPharma, Inc. (womens' healthcare
products manufacturer) from October 1987 to July 1995.
Paul Woitach 40 1998 President and Chief Operating Officer of IGI, Inc. since May
1998; General Manager, Laboratory Division of Mettler Toledo
North America (weighing and measurement systems) from 1997 to
1998; Vice President, Marketing and Sales, Balances and
Instrument Division of Mettler Toledo International from 1996
to 1997; Vice President and Executive Director from 1995 to
1996, and Director of Marketing Channels from 1993 to 1995 of
the Health Imaging division of Eastman Kodak Company
(diagnostic imaging).
</TABLE>
Officers are elected on an annual basis. Three of the above named officers
have employment agreements with the Company. (See "Executive Compensation-
Employment Agreements" contained in the Company's 1999 Proxy Statement,
incorporated herein by reference.)
12
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company has never paid cash dividends on its Common Stock. The payment
of dividends is prohibited by the Company's loan agreement with Fleet Bank-NH
and Mellon Bank, N.A. without prior consent of the lenders. See "Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
The principal market for the Company's Common Stock ($.01 par value) (the
"Common Stock") is the American Stock Exchange ("AMEX") (symbol: "IG"). The
following table shows the range of high and low sale prices on the AMEX for the
periods indicated.
High Low
---- ---
1997
First quarter $7 3/8 $5
Second quarter 5 1/2 4
Third quarter 5 1/2 3 7/8
Fourth quarter 5 1/8 3 5/8
1998
First quarter $4 3/16 $2 3/4
Second quarter (A) (A)
Third quarter 3 1 5/16
Fourth quarter 3 1/4 1 1/2
(A) The Company was unable to file its 1997 Annual Report on Form 10-K until
August 24, 1998 as a result of a special investigation initiated by the
Board of Directors which resulted in the restatement of financial results
for each of the two years in the period ended December 31, 1996 and the
first three quarters of year ended December 31, 1997. Accordingly, the
American Stock Exchange halted trading of the Company's Common Stock on
March 31, 1998 until such time as this and other required filings were
made. Trading resumed on September 8, 1998. Therefore, there are no
trading prices reflected for the second quarter and most of the third
quarter of 1998.
The approximate number of holders of record of the Company's Common Stock
at March 19, 1999 was 860 (not including stockholders for whom shares are held
in a "nominee" or "street" name).
In connection with an Extension Agreement entered into with its bank
lenders as of April 29, 1998, the Company issued to its lenders warrants to
purchase an aggregate of 540,000 shares of the Company's Common Stock at an
exercise price of $3.50 per share. The issuance of the warrants is exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended. The
shares issuable upon the exercise of the warrants are subject to registration
rights in favor of the lenders, pursuant to the terms of the Extension
Agreement. (See "Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources.")
13
<PAGE>
Item 6. Selected Financial Data
Five-Year Summary of Selected Financial Data (in thousands, except per
share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1998 1997* 1996* 1995* 1994*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 33,195 $ 34,343 $ 34,947 $ 31,232 $ 29,331
Operating profit (loss) * (910) 220 1,332 3,112 3,312
(Loss) income from continuing
operations (3,029) (1,208) (481) 1,428 1,844
Loss from discontinued operations ** -- -- -- (4,034) (1,700)
Net (loss) income (3,029) (1,208) (481) (2,606) 144
(Loss) income per share-basic:
From continuing operations $ (.32) $ (.13) $ (.05) $ .16 $ .21
From discontinued operations -- -- -- (.44) (.19)
Net (loss) income (.32) (.13) (.05) (.28) .02
(Loss) income per share-diluted:
From continuing operations $ (.32) $ (.13) $ (.05) $ .15 $ .20
From discontinued operations -- -- -- (.41) (.19)
Net (loss) income (.32) (.13) (.05) (.26) .01
Cash dividends on common stock $ -- $ -- $ -- $ -- $ --
<CAPTION>
December 31,
--------------------------------------------------------
1998 1997* 1996* 1995* 1994*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working (deficit) capital $ (8,107) $ (5,472) $ 2,499 $ 3,831 $ 10,209
Total assets 32,056 33,750 33,845 31,956 30,207
Short-term debt and notes payable 19,318 18,857 13,085 10,463 3,819
Long-term debt and notes payable
(excluding current maturities) 408 36 6,893 9,624 10,019
Stockholders' equity 5,923 8,034 9,019 8,173 13,417
Average number of common and
common equivalent shares
Basic 9,470 9,458 9,323 9,173 8,804
Diluted 9,470 9,458 9,323 9,725 9,155
</TABLE>
- ----------
* During the fourth quarter of 1998, the Company changed its method of
determining the cost of inventories from the last-in, first-out ("LIFO") method
to the first-in, first-out ("FIFO") method. As required by generally accepted
accounting principles, the Company has retroactively restated all prior years'
financial statements for this change. The net after-tax impact of the change in
inventory costing method for 1998 to 1994 was: $0, $245,000, $(343,000),
$99,000, and $(125,000) respectively. (See Note 1 of Consolidated Financial
Statements.)
** In March 1994, IGI's Board of Directors voted to dispose of its Biotechnology
Business segment through the combination of certain majority-owned subsidiaries
and the subsequent tax-free distribution of its ownership of the combined entity
to IGI's shareholders. The distribution of this segment occurred on December 12,
1995. The Consolidated Financial Statements of IGI present this segment as a
discontinued operation.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This "Management's Discussion and Analysis" section and other sections of
this report contain forward-looking statements that are based on current
expectations, estimates, forecasts and projections about the industry and
markets in which the Company operates, management's beliefs and assumptions made
by management. In addition, other written or oral statements which constitute
forward-looking statements may be made by or on behalf of the Company. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seek,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. (See "Factors Which May Affect Future Results"
below.) Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Results of Operations
From mid-1997 through most of 1998, the Company was subjected to intense
governmental and regulatory scrutiny and was also confronted with a number of
material operational issues (See Item 3. "Legal Proceedings"). These matters had
a material adverse effect on the Company's financial condition and results of
operations in 1998 and 1997, and resulted in the departure of most of the
Company's senior management.
1998 Compared to 1997 (Restated)
The Company had a net loss of $3,029,000, or $.32 per share in 1998, as
compared to a net loss of $1,208,000, or $.13 per share in 1997. The major
contributing factors to the increased loss were: increased legal, consulting and
professional fees; increased expenses associated with investigating and
addressing regulatory problems; the costs and expenses associated with
termination of certain employees; the hiring of new management; and increased
bank fees and interest charges associated with the extension of the Company's
credit line. The Company incurred approximately $2.6 million of legal,
consulting and professional fees in 1998 and $1.1 million in 1997. Comparable
expenditures for 1994 to 1996 averaged about $0.5 million. The increase of about
$2.1 million in 1998 is principally attributable to the regulatory actions and
investigations which began in 1997 and resulted in the recent settlement with
the U.S. Departments of Justice, Treasury and Agriculture. Another major
contributing factor was a decrease in sales of poultry vaccines in 1998 as
compared with 1997, primarily as a result of the USDA regulatory action.
Total revenues for 1998 were $33,195,000, which represents a decrease of
$1,148,000 or 3% from revenues of $34,343,000 in 1997. Sales of poultry vaccines
decreased by $1,801,000, or 11%, in 1998 as compared with 1997. Poultry vaccine
sales were adversely affected by the USDA regulatory action which remained in
effect until March 27, 1998. The Company also experienced lower production
volumes of poultry vaccines while it made changes to improve its Vineland
Laboratories operations. Sales of pet care products increased by $69,000, or 1%.
Total Consumer Products revenues for 1998 increased by $584,000, or 11%,
from 1997 revenues. This reflected a $1,028,000 increase in revenue from the
Company's cosmetics and personal care products partially offset by a decrease in
revenues of $444,000 from the Company's dermatological products. The cosmetics
and personal care products revenues increased in 1998 due to increased product
sales to Estee Lauder and increased licensing and royalty income, primarily from
the Company's relationships with Johnson & Johnson. In August 1998, the Company
executed a second license agreement with a Johnson & Johnson division, licensing
the Novasome(R) microencapsulation technology for use in certain products and
distribution channels to Johnson & Johnson Medical, a division of Ethicon, Inc.
The decrease in revenues from dermatological products was due in large part
to a decline in revenues from Glaxo. In October, 1998, Glaxo notified the
Company that it intended to exit the physician-dispensed skin care market. The
Company recognized $326,000 and $150,000 in revenue from this agreement in 1998
and 1997, respectively. As a result of the termination, the Company acquired the
WellSkin(TM) trade name from Glaxo along with Glaxo's remaining inventory of
products and marketing materials. This termination resulted in the Company owing
$808,000 to Glaxo which is payable at specified intervals over the next two
years. At December 31, 1998, $400,000 is classified as short-term debt. In
December 1998, the Company entered into an agreement with Genesis
Pharmaceutical, Inc., ("Genesis") granting Genesis the exclusive right to market
and distribute the Company's WellSkin(TM) line of skin care products. Genesis
also purchased the entire inventory and marketing materials received from Glaxo.
The Company has a receivable from Genesis for approximately $112,000 at December
31, 1998. The Company recognized revenue of $6,000 in 1998 from Genesis.
During 1998, the Company recognized $1.2 million of licensing revenue as
compared to $150,000 in 1997. This revenue was comprised of $326,000 from Glaxo;
$6,000 from Genesis; $92,000 from Johnson & Johnson Medical; $433,000 from
Johnson & Johnson Consumer; $210,000 from National Starch; and $133,000 from
Kimberly Clark. During 1997, the licensing revenue was comprised of amounts
relating to the agreement with Glaxo.
Cost of sales decreased by $497,000, or 3%, primarily due to the lower
sales volume. However, as a percentage of sales, cost of sales increased from
51% in 1997 to 53% in 1998. This increase primarily resulted from costs relating
to the Company's reassessment of product manufacturing processes and formulas,
incurred in 1998, to increase future production efficiency and capacity in the
Company's Vineland labs division.
15
<PAGE>
Selling, general and administrative expenses increased by $729,000, or 5%,
from $14,997,000 in 1997 to $15,726,000 in 1998. These expenses were 47% of
revenues in 1998 compared with 44% of revenues in 1997. Much of the increase was
attributable to increased legal, consulting and professional fees in 1998. Total
professional fees in 1998 were approximately $2.6 million, of which
approximately $2.1 million was incurred primarily in response to the regulatory
actions and investigations which began in 1997 and resulted in the recent
settlement with the U.S. Departments of Justice, Treasury and Agriculture. The
Company expects its future professional expenses will be significantly below
those incurred during 1998.
Product development and research expenses decreased by $250,000, or 15%, in
1998 compared with 1997 as the Company curtailed certain development projects
primarily relating to the Consumer Products business.
Interest expense increased $1,590,000, or 86% from $1,853,000 in 1997 to
$3,443,000 in 1998. The increase was due to a charge to earnings of $645,000 for
warrants issued to the Company's bank lenders in connection with the execution
of an extension agreement with its bank lenders, higher borrowings at increased
interest rates in 1998, and fees paid to the bank lenders related to extension
and forbearance agreements.
The effective tax rates for 1998 and 1997 were 30% and 27%, respectively.
Changes in the effective tax rates primarily reflect the level of federal and
state tax credits offset by changes in the valuation allowance. The valuation
allowance increased from 1997 primarily based on management's expectations
regarding the realizability of certain state deferred tax assets.
1997 (Restated) Compared to 1996 (Restated)
During the fourth quarter of 1998, the Company changed its inventory
costing method from the LIFO method to the FIFO method. The change was made
because the Company believes its financial position is the primary concern of
its constituents (shareholders, bank lenders, trade creditors, etc.), and that
the accounting change will reflect inventory at a value which better represents
current costs. As required by generally accepted accounting principles, the
Company has retroactively restated prior years' financial statements for this
change. The aggregate effect of this restatement was a decrease in stockholders'
equity of $294,000 as of December 31, 1997. The restatement had no effect on
1998 results, decreased the net loss in 1997 by $245,000, and increased the net
loss in 1996 by $343,000.
The USDA's stop shipment order had a material adverse effect on the
Company's operations in 1997. Total revenues decreased $604,000, or 2%, from
$34,947,000 in 1996 to $34,343,000 in 1997. Sales of poultry vaccines decreased
by $3,309,000, or 17%, in 1997 as compared with 1996. Poultry vaccine sales were
adversely affected by the USDA regulatory action which remained in effect until
March 27, 1998. This decrease was offset in part by an increase of $1,136,000,
or 10%, in sales of companion pet products to $12,444,000, or 36% of the
Company's total sales in 1997, compared with $11,308,000, or 32% of total 1996
sales.
Sales of Consumer Products increased $1,569,000, or 43%, in 1997 to
$5,255,000 from $3,686,000 in 1996. Sales of Consumer Products represented 15%
of the Company's total 1997 sales, up from 11% of total 1996 sales. This
increase was due primarily to increased product sales to Glaxo and Kimberly
Clark.
Licensing and royalty revenue of $150,000 in 1997 represents $100,000 of
licensing income from Kimberly Clark and $50,000 of revenue attributable to an
agreement on September 30, 1997 between the Company and IMX. This agreement
granted IMX the exclusive right to market certain Novasome(R) based topical skin
care products in certain mass-merchandising markets. Currently, negotiations are
underway to further refine
16
<PAGE>
specific applications. Pursuant to that agreement, the Company received 271,714
shares of restricted common stock of IMX.
Cost of sales increased $334,000 in 1997 despite the lower sales volume. As
a percentage of sales, cost of sales increased from 49% in 1996 to 51% in 1997.
The increase in percentage was due primarily to: (1) manufacturing variances;
(2) inventory write-offs; (3) a less favorable product sales mix at the Vineland
Laboratories division due to the USDA action; and (4) product sales to Glaxo
which were made at cost plus a royalty on Glaxo's sales which resulted in a
higher cost of sales percentage than other consumer product sales.
Selling, general and administrative expenses were 44% of revenues in 1997
compared with 41% of revenues in 1996. Although the Company decreased selling
and marketing expenses as a result of the license and supply agreement with
Glaxo, total selling, general and administrative expenses increased $512,000 in
1997 due to additional reserves for accounts receivable and legal and related
expenses incurred in connection with the Company's regulatory affairs.
Product development and research expenses decreased $338,000, or 17%, in
1997 as the Company curtailed certain development projects primarily relating to
the Consumer Products business.
The effective tax rates for 1997 and 1996 were 27% and 44%, respectively.
The decrease is primarily due to the increase in the valuation allowance, based
on management's expectations, regarding the realizability of certain state
deferred tax assets.
Liquidity and Capital Resources
The Company entered into an Extension Agreement with its bank lenders as of
April 29, 1998 which provided for a waiver of all past and existing covenant
defaults, extension of the bank credit agreement through March 31, 1999, a
maximum credit line facility of $12,000,000 ("Credit Line"), extended terms for
repayment of the outstanding $6,857,000 balance of revolving credit notes
("Revolving Facility") and issuance to the lenders of warrants to purchase an
aggregate of 540,000 shares of the Company's Common Stock at an exercise price
of $3.50 per share. The Company has a call option on unexercised warrants at a
repurchase price of $1,800,000. The Company recognized a non-cash expense
related to the issuance of these warrants of approximately $645,000 in 1998.
The Company was in default under certain covenants contained in the
Extension Agreement at July 31, 1998. On August 19, 1998, the Company and its
bank lenders entered into a Forbearance Agreement whereby the banks agreed to
forbear from exercising their rights and remedies arising from these covenant
defaults through January 31, 1999. During fiscal 1998, the Company paid interest
at a rate of up to prime plus 5.5% on its outstanding borrowings under the
Credit Line and under the Revolving Facility.
Effective January 31, 1999, the Company and its bank lenders entered into a
Second Extension Agreement which provides for a waiver of the covenant defaults
under the Forbearance Agreement, amendment of certain covenants, extension of
the bank credit agreement to March 31, 2000, and the following:
o The maximum availability under the Credit Line is subject to the
determination of the amount of eligible accounts receivable and
inventories. There is no remaining availability as of December 31,
1998 or March 31, 1999.
o Mandatory principal payments of $4,000,000 and $2,000,000 of the
outstanding balance of $18,657,000 at December 31, 1998, under the
Revolving Facility and Credit Line are due on August 31, 1999 and
November 30, 1999, respectively, with the balance due and payable on
March 31, 2000.
o All of the Company's indebtedness to the banks is subject to a
security interest in all of the assets of the Company and its
significant subsidiaries. Although the Company can sell operating
assets, proceeds from such sale must be remitted directly to the
lenders.
17
<PAGE>
o Interest on outstanding borrowings of $18,657,000 under both the
Credit Line and the Revolving Facility will be at a rate of prime plus
5.5% of which prime plus 2.5% is paid monthly and 3.0% is accrued and
payable on March 31, 2000.
o The interest rate on outstanding borrowings will be reduced by 0.5%
after each of the mandatory principal payments. In addition, the
interest rate will be reduced by an additional 1.5% for each
$1,000,000 of voluntary principal payments, but not lower than prime
plus 1.0%. A pro rata portion of the accrued interest will be waived
for all principal payments occurring prior to December 31, 1999.
o On March 11, 1999, the Company issued warrants to the bank lenders to
purchase 270,000 shares of the Company's Common Stock at an exercise
price of $2.00 per share. These warrants are exercisable at any time
60 days after issuance. The Company also issued warrants to purchase
an additional 270,000 shares of the Company's Common Stock exercisable
at $2.00 per share if the bank debt is still outstanding at September
30, 1999. The warrants expire on the fifth anniversary of issuance.
The Company has a call option on unexercised warrants at a repurchase
price of $1,800,000. The Company will recognize a non-cash expense for
each issuance of warrants for approximately $195,000, or a total of
about $390,000 during 1999.
o The Company agreed to pay the bank lenders an extension fee of
$350,000, which is being amortized over the life of the agreement. At
the time of the extension, $50,000 was paid, with the balance payable
in four installments through February 24, 2000. If the Company is able
to refinance its bank debt, any extension fees due subsequent to the
closing date of the refinancing will be waived.
o The Company is required to maintain certain minimum financial
covenants and comply with other non-financial covenants, including
remittance of cash flows from debt or equity financing, income tax
refunds and fixed asset dispositions to the banks, and the completion
of Year 2000 compliance by September 30, 1999. The agreement also
prohibits the payment of cash dividends without prior written consent
of the lenders.
At March 1, 1999, the Company had cash and cash equivalent balances of
$535,000, and no available borrowing capacity under the Credit Line or the
Revolving Facility. The Company is currently generating losses that may extend
through much of 1999. Further, the Company has significant debt it must repay on
August 31, 1999, November 30, 1999 and March 31, 2000.
The Company is pursuing additional debt and equity financing alternatives
to meet these obligations. The Company believes it can obtain such financing on
acceptable terms. However, if the Company is not successful in obtaining the
required additional financing, it believes it has the ability and it plans to
meet its 1999 debt repayment obligations by altering its business plans
including, if necessary, a sale of selected Company operating and non-operating
assets. Any sale of operating assets would involve a curtailment of certain of
the Company's business operations and a modification of its business strategy.
However, if the Company is unable to raise sufficient funds to repay or
refinance the debt repayment due on March 31, 2000, the Company could be in
default under its loan agreement and any such default could lead to the
commencement of insolvency proceedings by its creditors subsequent to that date.
Accordingly, the Board of Directors of the Company has authorized
management of the Company to seek additional equity capital through the sale of
common stock of the Company, either through a private sale to institutional or
individual investors or through a rights offering to its stockholders. Subject
to shareholder approval, the Board has authorized an increase in the number of
shares of common stock available and the authorization of a preferred stock
class. While the Company has contacted a number of potential providers of
additional capital who have expressed interest in negotiating financing
arrangements with the Company, to date no agreements or commitments have been
obtained.
18
<PAGE>
The Company's operating activities provided $816,000 of cash during 1998,
which included net income and non-cash charges to operations for depreciation,
amortization, loss reserves and stock and warrant compensation expense,
partially offset by an increase in deferred tax assets. Additionally, inventory,
accounts receivable and other assets decreased, while accounts payable and
accrued expenses increased, all of which had the effect of increasing operating
cash flow. The accounts receivable turnover ratio for 1998 was 4.34 compared to
4.51 for 1997. The accounts receivable balances due from Mexico and Latin
America were 26% of the total receivable balances as of December 31, 1998, and
the Company believes the net amounts are collectible. Mexico and certain Latin
American countries are important markets for the Company's poultry vaccines and
other products. In addition, the Company has accounts receivable from countries
in the Far East, including Indonesia and Thailand, which represented 25% of the
total receivable balances at December 31, 1998.
These geographic markets have recently experienced political, economic and
currency instability. In order to minimize risk, the Company maintains credit
insurance for the majority of its international accounts receivable, and all
sales are denominated in U.S. dollars to minimize currency fluctuation risk.
Because of the volume of business transacted by the Company in these areas,
continuation or recurrence of such unrest or instability could adversely affect
the business of its customers in those countries or the Company's ability to
collect its receivables from such customers, which, in either case, could
materially adversely affect the Company's future operating results.
The inventory turnover ratio for 1998 was 2.07, compared to 1.89 for the
year ended December 31, 1997. The Company believes its reserves for inventory
obsolescence and accounts receivable are adequate. The Company used $708,000 for
investing activities, which were primarily capital expenditures for the
Company's manufacturing operations. Funding for the Company's investing
activities and repayment of debt was provided by the Company's cash flow from
operations.
Factors Which May Affect Future Results
The industry segments in which the Company competes are subject to intense
competitive pressures. The following sets forth some of the risks which the
Company faces.
Adverse Effects of USDA Actions and OIG and U.S. Attorney Investigations
The stop shipment order and other actions by the USDA in 1997, and other
government investigations described in "Legal Proceedings" and the costs
incurred in connection with those investigations have had a material adverse
effect on the Company's business and results of operations in 1998 and are
likely to continue to adversely affect the Company's business during the first
half of 1999.
The Company has continued to refine and strengthen its regulatory program
with the adoption of a series of compliance and enforcement policies, the
addition of new managers of Production and Quality Control, and a new Senior
Vice President and General Counsel. At the instruction of the Board of
Directors, the Company's General Counsel has established and oversees a
comprehensive employee training program, has designated in writing a Regulatory
Compliance Officer and has established a fraud detection program as well as an
employee "hotline." The Company has continued to cooperate with the USDA in all
aspects of its investigation and regulatory activities.
While the Company has made progress in returning to normal business
operations by hiring new management and taking corrective action to assure
compliance with all regulatory requirements, it still faces important
challenges. First, it must assure its customers that its future business
operations will comply with all applicable government rules and regulations and
that its financial condition is adequate to meet its business commitments and to
maintain a viable and stable business environment. Second, it must comply with
all of the covenants in its bank credit agreement to assure continued bank
financing of its operations and replace its current bank agreement. Third, it
must raise additional debt or equity funds to meet its business plan and to
maintain its competitive position. No assurance can be given that the Company
will be able to accomplish all or any of the foregoing requirements, and the
failure to do so, could have a material adverse effect on the Company's
business, financial condition and results of operations.
19
<PAGE>
Highly Leveraged; Inability to Obtain Additional Funding
The Company is currently very highly leveraged and has negative working
capital, and therefore will need to obtain additional debt or equity capital to
meet its business plan, short-term repayment obligations, and to maintain its
competitive position. No assurance can be given that such funds will be obtained
when required or, if obtainable, on terms that are favorable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The Company was in default under certain covenants in its bank credit
agreements during 1998. In April 1998, the banks agreed to a waiver of the
covenant defaults and to extend the credit agreement on revised terms and
conditions through March 31, 1999. The Company was in default under certain
covenants contained in its 1998 Extension Agreement at July 31, 1998. On August
19, 1998, the Company and its bank lenders entered into a Forbearance Agreement
whereby the banks agreed to forbear from exercising their rights and remedies
arising from these covenant defaults through January 31, 1999.
Effective January 31, 1999, the Company and its bank lenders entered into a
Second Extension Agreement pursuant to which the banks waived the existing
covenant defaults under the Forbearance Agreement and extended the credit
agreement on amended terms and conditions through March 31, 2000, including the
addition of a covenant obligating the Company to reduce its loans to the banks
by $4.0 million by August 31, 1999 and an additional $2.0 million by November
30, 1999.
At March 1, 1999, the Company had cash and cash equivalent balances of
$535,000, and no available borrowing capacity under the Credit Line or the
Revolving Facility. The Company is currently generating losses that may extend
through much of 1999. Therefore, the Company has significant debt it must repay
on August 31, 1999, November 30, 1999 and March 31, 2000.
The Company is pursuing additional debt and equity financing alternatives
in order to meet these obligations. The Company believes it can obtain such
financing on acceptable terms. However, if the Company is not successful in
obtaining the required additional funds, it believes it has the ability and it
plans to meet its 1999 debt repayment obligations by altering its business plans
including, if necessary, a sale of selected Company operating and non-operating
assets. Any sale of operating assets would involve a curtailment of certain of
the Company's business operations and a modification of its business strategy.
However, if the Company is unable to raise sufficient funds to repay or
refinance the debt repayment due March 31, 2000, the Company could be in default
under its loan agreement and any such default could lead to the commencement of
insolvency proceedings by its creditors.
Accordingly, the Board of Directors of the Company has authorized
management of the Company to seek additional equity capital through the sale of
common stock of the Company, either through a private sale to institutional or
individual investors or through a rights offering to its stockholders. While the
Company has contacted a number of potential providers of additional capital, no
agreements or commitments have been obtained to date.
Intense Competition in Consumer Products Business
The Company's Consumer Products business competes with large, well-financed
cosmetics and consumer products companies with development and marketing groups
that are experienced in the industry and possess far greater resources than
those available to the Company. There is no assurance that the Company's
consumer products can compete successfully against its competitors or that it
can develop and market new products that will be favorably received in the
marketplace. In addition, certain of the Company's customers that use the
Company's Novasome(R) lipid vesicles in their products may decide to reduce
their purchases from the Company or shift their business to other suppliers.
20
<PAGE>
Competition in Poultry Vaccine Business
The Company is encountering increasingly severe competition from
international producers of poultry vaccines, particularly increased price
competition coupled with a downward trend in vaccine prices.
Foreign Regulatory and Economic Considerations
The Company's business may be adversely affected by foreign import
restrictions and additional regulatory requirements. Also, unstable or adverse
economic conditions and fiscal and monetary policies in certain Latin American
and Far Eastern countries, increasingly important markets for the Company's
animal health products, could adversely affect the Company's future business in
these countries.
Rapidly Changing Marketplace for Pet Products
The emergence of pet superstores, the consolidation of distribution
channels into fewer, more powerful companies and the diminishing traditional
role of veterinarians in the distribution of pet products could adversely affect
the Company's ability to expand its animal health business or to operate at
acceptable gross margin levels.
Effect of Rapidly Changing Technologies
The Company expects to license its technologies to third parties which
would manufacture and market products incorporating the technologies. However,
if its competitors develop new and improved technologies that are superior to
the Company's technologies, its technologies could be less acceptable in the
marketplace and therefore the Company's planned technology licensing could be
materially adversely affected.
Regulatory Considerations
The Company's poultry vaccines and pet products are regulated by the USDA
and the FDA which subject the Company to review, oversight and periodic
inspections. Any new products are subject to expensive and sometimes protracted
USDA and FDA regulatory approval. Also, certain of the Company's products may
not be approved for sales overseas on a timely basis, thereby limiting the
Company's ability to expand its foreign sales.
Year 2000
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, a temporary
inability to process transactions, prepare invoices or engage in similar normal
business activities.
As of December 31, 1998, the Company had assessed its needs to assure full
compliance with Year 2000 requirements and has developed a comprehensive
compliance plan. The Company has Year 2000 compliance needs involving three
areas: (i) financial and management computer systems, (ii) microprocessors and
other electronic device components of equipment used by the Company ("embedded
chips"), and (iii) computer systems used by third parties, in particular
financial institutions, suppliers and customers of the Company.
The Company decided that its financial and management computer system
should be remediated. The Company's present financial and management computer
systems are not all Year 2000 compliant. The Company has undertaken to update
and remediate its existing computer system to make it Year 2000 compliant at a
cost of about $65,000, and has entered into a contract with the system's vendor
for such remediation. The Company expects its financial and management computer
system to be Year 2000 compliant by September 1999. To date, the Company has
incurred approximately $35,000 in hardware and software upgrades and
replacements. If the upgraded system fails, the Year 2000 issue could have a
materially adverse effect on the operations and financial condition of the
Company.
21
<PAGE>
The Company has completed an inventory and assessment of its exposure to
embedded chips in its facilities or equipment used in those facilities and the
capability of vendors of such equipment to successfully remediate Year 2000
problems in equipment with embedded chips. The Company believes that the cost to
remediate and/or replace its embedded chips to achieve Year 2000 compliance is
approximately $15,000 and expects all remediation of embedded chips to be
completed by June 1999.
The Company has contacted vendors and customers to determine their exposure
to Year 2000 issues, their anticipated risks and responses to those risks. The
Company's vendors supply products and materials which are readily available and
the Company has identified alternative sources in the event a vendor is not Year
2000 compliant. The Company believes that the cost related to non-compliance by
vendors and customers is not expected to be material.
While the Company believes that necessary modifications will be made on a
timely basis, there can be no assurance that there will not be a delay in or
increased costs associated with the implementation of such modifications. If the
Company is unsuccessful in completing remediation of non-compliant systems or
correcting embedded chips, the Company could incur additional costs to develop
alternative methods of managing its business and replacing non-compliant
equipment and may experience delays in payments from customers or to its
vendors.
Income Taxes
The Company has net deferred tax assets in the amount of approximately $5.5
million as of December 31, 1998. The largest deferred tax asset relates to the
$2.8 million net operating loss carryforwards. After considering the $726,000
valuation allowance at December 31, 1998, management believes the Company's
remaining net deferred tax assets are more likely than not to be realized
through the reversal of existing taxable temporary differences, the sale of
certain state net operating losses, and the generation of sufficient future
taxable operating income to ensure utilization of remaining deductible temporary
differences, net operating losses and tax credits. The minimum level of future
taxable income necessary to realize the Company's net deferred tax assets at
December 31, 1998, is approximately $16 million. There can be no assurance,
however, that the Company will be able to achieve the minimum levels of taxable
income necessary to realize its net deferred tax assets. Federal net operating
loss carryforwards expire through 2018. Significant components expire in 2007
(26%), 2010 (13%) and 2018 (56%). Also federal research credits expire in
varying amounts through the year 2018.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements and notes thereto listed in the accompanying index
to financial statements (Item 14) are filed as part of this Annual Report and
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
A portion of the information required by this item is contained in part
under the caption "Executive Officers of the Registrant" in Part I hereof, and
the remainder is contained in the Company's Proxy Statement for the Company's
Annual Meeting of Stockholders to be held on May 13, 1999 (the "1999 Proxy
Statement") under the captions "PROPOSAL 1 -
22
<PAGE>
ELECTION OF DIRECTORS" and "Section 16(a) Beneficial Ownership Reporting
Compliance" which are incorporated herein by this reference. Officers are
elected on an annual basis and serve at the discretion of the Board of
Directors. The Company expects to file the 1999 Proxy Statement no later than
April 14, 1999.
Item 11. Executive Compensation
The information required by this item is contained under the captions
"EXECUTIVE COMPENSATION" and "Director Compensation and Stock Options" in the
Company's 1999 Proxy Statement and is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the Company's 1999
Proxy Statement under the caption "Beneficial Ownership of Common Stock" and is
incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is contained under the caption
"Certain Relationships and Related Transactions" appearing in the Company's 1999
Proxy Statement and is incorporated herein by this reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets, December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule II. Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above are omitted for the reason
that they are either not applicable or not required or because the
information required is contained in the financial statements or notes
thereto.
Condensed financial information of the Registrant is omitted since
there are no substantial amounts of "restricted net assets" applicable
to the Company's consolidated subsidiaries.
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K.
The exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of this Annual Report on Form 10-K, unless
incorporated by reference as indicated.
(b) Reports on Form 8-K
None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 12, 1999 IGI, Inc.
By: /s/ Edward B. Hager
----------------------------
Edward B. Hager,
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Edward B. Hager Chairman of the Board April 12, 1999
- --------------------------- Chief Executive Officer
Edward B. Hager (Principal executive officer)
/s/ John F. Wall Senior Vice President April 12, 1999
- --------------------------- Chief Financial Officer
John F. Wall (Principal financial officer)
/s/ F. Steven Berg Director April 12, 1999
- ---------------------------
F. Steven Berg
/s/ Terrence D. Daniels Director April 12, 1999
- ---------------------------
Terrence D. Daniels
/s/ Jane E. Hager Director April 12, 1999
- ---------------------------
Jane E. Hager
/s/ Constantine L. Hampers Director April 12, 1999
- ---------------------------
Constantine L. Hampers
/s/ Terrence O'Donnell Director April 12, 1999
- ---------------------------
Terrence O'Donnell
/s/ Paul D. Paganucci Director April 12, 1999
- ---------------------------
Paul D. Paganucci
/s/ David G. Pinosky Director April 12, 1999
- ---------------------------
David G. Pinosky
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of IGI, Inc.:
In our opinion, the accompanying consolidated financial statements and
financial statement schedule as listed in Item 14(a)(1) and (2) of this Form
10-K present fairly, in all material respects, the financial position of IGI,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Notes 1 and 8, the Company has substantial debt due on
March 31, 2000, and is actively seeking alternative financing arrangements. As
discussed in Note 1 to the financial statements, the Company changed its method
of inventory costing in 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 31, 1999
25
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997*
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,068 $ 1,196
Accounts receivable, less allowance for
doubtful accounts of $516 and $903 in
1998 and 1997, respectively 6,462 6,851
Licensing and royalty receivable 440 --
Inventories 7,406 8,942
Current deferred taxes 1,275 728
Prepaid expenses and other current assets 433 690
-------- --------
Total current assets 17,084 18,407
-------- --------
Investments 535 1,011
Property, plant and equipment, net 9,479 9,836
Deferred income taxes 4,188 3,414
Other assets 770 1,082
-------- --------
Total Assets $ 32,056 $ 33,750
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line $ 12,000 $ 12,000
Revolving credit facility 6,657 6,857
Current portion of notes payable 661 --
Accounts payable 3,235 3,841
Accrued payroll 196 183
Due to stockholder 380 --
Accrued interest 432 150
Other accrued expenses 1,614 759
Income taxes payable 16 89
-------- --------
Total current liabilities 25,191 23,879
-------- --------
Notes payable 408 36
-------- --------
Deferred income from royalty contract 534 1,801
-------- --------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized;
9,648,931 and 9,602,681 shares issued in 1998 and 1997, respectively 97 96
Additional paid-in capital 19,961 19,074
Accumulated deficit (11,972) (8,943)
-------- --------
8,086 10,227
Less treasury stock; 136,014 shares
at cost, in 1998 and 1997 (2,163) (2,163)
Stockholders' notes receivable -- (30)
-------- --------
Total stockholders' equity 5,923 8,034
-------- --------
Total Liabilities and Stockholders' Equity $ 32,056 $ 33,750
======== ========
</TABLE>
* Prior year amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
The accompanying notes are an integral part of
the consolidated financial statements.
26
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
1998 1997* 1996*
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales, net $ 31,995 $ 34,193 $ 34,785
Licensing and royalty income 1,200 150 162
----------- ----------- -----------
Total revenues 33,195 34,343 34,947
Cost and Expenses:
Cost of sales 16,954 17,451 17,117
Selling, general and administrative expenses 15,726 14,997 14,485
Product development and research expenses 1,425 1,675 2,013
----------- ----------- -----------
Operating profit (loss) (910) 220 1,332
Interest expense, net (3,443) (1,853) (1,984)
Other income (expense), net 33 (11) (202)
----------- ----------- -----------
Loss before provision for income taxes (4,320) (1,644) (854)
Benefit for income taxes (1,291) (436) (373)
----------- ----------- -----------
Net loss $ (3,029) $ (1,208) $ (481)
=========== =========== ===========
Loss per common and common equivalent share:
Basic $ (.32) $ (.13) $ (.05)
=========== =========== ===========
Diluted $ (.32) $ (.13) $ (.05)
=========== =========== ===========
Average number of common and common equivalent shares:
Basic 9,470,413 9,457,938 9,323,440
=========== =========== ===========
Diluted 9,470,413 9,457,938 9,323,440
=========== =========== ===========
</TABLE>
* Prior year amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
The accompanying notes are an integral part of
the consolidated financial statements.
27
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997* 1996*
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,029) $(1,208) $ (481)
Reconciliation of net loss to net cash
used by operating activities:
Depreciation and amortization 992 1,037 992
Gain on sale of assets (62) -- --
Write off of other assets 558 -- --
Provision for loss on accounts and notes
receivable and inventories 1,482 1,610 412
Recognition of deferred revenue (242) (150) --
Issuance of stock to 401(k) plan -- 40 91
Benefit for deferred income taxes (1,321) (447) (382)
Stock compensation expense:
Non-employee stock options 149 47 156
Warrants issued to lenders 645 -- --
Directors' stock issuance 94 -- --
Litigation settlement in common stock -- (50) 175
Other, net 17 -- --
Changes in operating assets and liabilities:
Accounts receivable 239 721 (300)
Inventories 374 (1,735) 161
Receivable due under royalty agreement (328) 1,000 --
Prepaid and other assets 333 398 (455)
Accounts payable and accrued expenses 929 1,123 130
Deferred revenue 59 -- --
Income taxes payable (73) 51 22
------- ------- -------
Net cash provided from operating activities 816 2,437 521
------- ------- -------
Cash flows from investing activities:
Capital expenditures (607) (636) (913)
Proceeds from sale of assets 165 -- --
(Increase) decrease in other assets (266) 68 59
------- ------- -------
Net cash used by investing activities (708) (568) (854)
------- ------- -------
Cash flows from financing activities:
Net borrowings under line of credit agreements -- 2,358 1,594
Borrowings under revolving credit agreement -- -- 12
Repayment of debt (236) (3,443) (1,714)
Proceeds from exercise of common stock options -- 95 589
------- ------- -------
Net cash (used in) provided from financing activities (236) (990) 481
------- ------- -------
Net (decrease) increase in cash and cash equivalents (128) 879 148
Cash and cash equivalents at beginning of year 1,196 317 169
------- ------- -------
Cash and cash equivalents at end of year $ 1,068 $ 1,196 $ 317
======= ======= =======
</TABLE>
* Prior year amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
The accompanying notes are an integral part of
the consolidated financial statements.
28
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share information)
<TABLE>
<CAPTION>
Common Stock Additional Stockholders'
------------------------ Stock Paid-In Notes
Shares Amount Subscribed Capital Receivable
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996* 9,440,681 $ 94 $ -- $ 18,131 $ (189)
Exercise of stock options, including tax benefits of $79 132,000 2 666
Issuance of stock to 401(k) plan 1
Settlement of litigation 175
Tax benefit of license payment to former subsidiary 161
Issuance of non-employee stock options 156
Repayment on stockholders' notes 75
Net loss*
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996* 9,572,681 96 175 19,115 (114)
Settlement of litigation (175) (118)
Exercise of stock options, including tax benefits of $7 30,000 -- 122
Issuance of stock to 401(k) plan (92)
Value of non-employee stock options 47
Interest earned on stockholders' notes (10)
Reserve on stockholders' notes receivable 94
Net loss*
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997* 9,602,681 96 -- 19,074 (30)
Issuance of stock pursuant to Directors' Stock Plan 46,250 1 93
Value of non-employee stock options 149
Value of warrants issued 645
Interest earned on stockholders' notes (3)
Reserve on stockholders' notes receivable 33
Net loss
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 9,648,931 $ 97 $ -- $ 19,961 $ --
========== ========== ========== ========== ==========
<CAPTION>
Total
Accumulated Treasury Stockholders'
Deficit Stock Equity
---------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1, 1996* $ (7,254) $ (2,609) $ 8,173
Exercise of stock options, including tax benefits of $79 668
Issuance of stock to 401(k) plan 91 92
Settlement of litigation 175
Tax benefit of license payment to former subsidiary 161
Issuance of non-employee stock options 156
Repayment on stockholders' notes 75
Net loss* (481) (481)
---------- ---------- ----------
Balance, December 31, 1996* (7,735) (2,518) 9,019
Settlement of litigation 243 (50)
Exercise of stock options, including tax benefits of $7 (20) 102
Issuance of stock to 401(k) plan 132 40
Value of non-employee stock options 47
Interest earned on stockholders' notes (10)
Reserve on stockholders' notes receivable 94
Net loss* (1,208) (1,208)
---------- ---------- ----------
Balance, December 31, 1997* (8,943) (2,163) 8,034
Issuance of stock pursuant to Directors' Stock Plan 94
Value of non-employee stock options 149
Value of warrants issued 645
Interest earned on stockholders' notes (3)
Reserve on stockholders' notes receivable 33
Net loss (3,029) (3,029)
---------- ---------- ----------
Balance, December 31, 1998 $ (11,972) $ (2,163) $ 5,923
========== ========== ==========
</TABLE>
* Prior year amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
The accompanying notes are an integral part of
the consolidated financial statements.
29
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of the Business
IGI, Inc. ("IGI" or the "Company") is a diversified company engaged in
three business segments:
o Poultry Vaccine Business - production and marketing of poultry
vaccines and other related products;
o Companion Pet Products Business - production and marketing of
companion pet products such as pharmaceuticals, nutritional
supplements and grooming aids; and
o Consumer Products Business - production and marketing of cosmetics and
skin care products.
Financing Needs
At March 1, 1999, the Company had cash and cash equivalent balances of
$535,000, and no available borrowing capacity under the Credit Line or the
Revolving Facility. The Company is currently generating losses that may extend
through much of 1999. Therefore, the Company has significant debt that it must
repay on August 31, 1999, November 30, 1999 and March 31, 2000. The Company is
pursuing additional debt and equity financing alternatives in order to meet
these obligations. The Company believes it can obtain such financing on
acceptable terms. See also Note 8 - "Debt."
Principles of Consolidation
The consolidated financial statements include the accounts of IGI, Inc. and
its wholly-owned and majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated. An investment in an affiliated company with a
20% ownership interest is accounted for using the cost method.
Cash equivalents
Cash equivalents consist of short-term investments with initial maturities
of 90 days or less.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash, cash equivalents, accounts receivable,
notes receivable and certain restricted investments. The Company limits credit
risk associated with cash and cash equivalents by placing its cash and cash
equivalents with two high credit quality financial institutions. Accounts
receivable include customers in several key geographic areas. Of these, Mexico,
Indonesia, Thailand and certain other Latin American and Far Eastern countries
are important markets for the Company's poultry vaccines and other products.
These countries have from time to time experienced periods of varying degrees of
political unrest and economic and currency instability. Because of the volume of
business transacted by the Company in these areas, continuation or recurrence of
such unrest or instability could adversely affect the businesses of its
customers in these areas or the Company's ability to collect its receivables
from such customers, which in either case could adversely impact the Company's
future operating results. In order to minimize risk, the Company maintains
credit insurance for the majority of its international accounts receivable and
all sales are denominated in U.S. dollars to minimize currency fluctuation risk.
30
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories
Inventories are valued at the lower of cost, using the first-in, first-out
("FIFO") method, or market. During the fourth quarter of 1998, the Company
changed its method of determining the cost of inventories from the last-in,
first-out ("LIFO") method to the FIFO method. The change was made because the
Company believes its financial position is the primary concern of its
constituents (shareholders, bank lenders, trade creditors, etc.) and the
accounting change will reflect inventory at a value which better represents
current costs. As required by generally accepted accounting principles, the
Company has retroactively restated prior years' financial statements for this
change. The aggregate effect of this restatement was a decrease in stockholders'
equity of $294,000 as of December 31, 1997. The restatement had no effect on
1998 results, decreased the net loss in 1997 by $245,000 and increased the net
loss in 1996 by $343,000.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided for under the
straight-line method over the assets' estimated useful lives as follows:
Useful Lives
------------
Buildings and improvements 10 - 30 years
Machinery and equipment 3 - 10 years
Repair and maintenance costs are charged to operations as incurred while
major improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation thereon are removed from the accounts and any
gains or losses are included in operating results.
Other Assets
Other assets include cost in excess of net assets of businesses acquired of
$325,000, which is being amortized on a straight-line basis over 40 years.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," the Company reviews its long-lived
assets for impairment on an exception basis whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable through future cash flows. If it is determined that an impairment
has occurred based on expected future cash flows, the loss is then recognized in
the income statement.
Income Taxes
The Company records income taxes under the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is recorded based on a determination of the ultimate
realizability of future deferred tax assets.
Stock-Based Compensation
Compensation costs attributable to stock option and similar plans are
recognized based on any difference between the quoted market price of the stock
on the date of grant over the amount the employee is required to pay to acquire
the
31
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock (the intrinsic value method). Such amount, if any, is accrued over the
related vesting period, as appropriate. Since the Company uses the intrinsic
value method, it makes pro forma disclosures of net income and earnings per
share as if a fair value based method of accounting had been applied.
Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts receivable, notes receivable, restricted common stock, notes payable
and short-term debt. The carrying value of these instruments approximates the
fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include allowances for excess and
obsolete inventories, allowances for doubtful accounts and other assets, and
provisions for income taxes and related deferred tax asset valuation allowances.
Actual results could differ from those estimates.
Revenue Recognition
Sales, net of appropriate cash discounts, product returns and sales
reserves, are recorded upon shipment of products. Revenues earned under research
contracts or licensing and supply agreements are recognized when the related
contract provisions are met.
Product Development and Research
Product development and research represents the Company's research and
development efforts which are focused primarily on product development. Such
costs are expensed as incurred.
Business Segments
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach indicates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position but did
affect the disclosure of segment information included in Note 17, "Business
Segments."
Reclassification
Certain previously reported amounts have been reclassified to conform with
the current period presentation.
2. Investments
The Company has a 20% investment in Indovax, Ltd., an Indian poultry
vaccine company, which investment, because of the lack of significant influence,
is accounted for using the cost method. Dividends received from Indovax were
$22,000 in 1998, $23,000 in 1997 and $0 in 1996. Other investments include
271,714 shares of restricted common stock of IMX Corporation ("IMX"), a
publicly-traded
32
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
company, valued at $1.75 and $3.50 per share as of December 31, 1998 and 1997,
respectively, received pursuant to an exclusive Supply Agreement (the "Supply
Agreement") dated September 30, 1997 between the Company and IMX. These shares
are restricted both by governmental and contractual requirements and the Company
is unsure if or when it will be able to sell these shares. As of December 31,
1998, the Company has not yet recognized income related to this agreement. The
total investment in IMX stock was $475,000 at December 31, 1998 and $951,000 at
December 31, 1997, with corresponding amounts reflected as deferred income in
the accompanying Consolidated Balance Sheet.
Under the IMX agreement, the Company agreed to manufacture and supply 100%
of IMX's requirements for certain products at prices stipulated in the exclusive
Supply Agreement, subject to renegotiation subsequent to 1998. The Company is
currently involved in discussions with IMX concerning possible modifications to
the Supply Agreement as it has determined the Company will not supply the
products stipulated by the Supply Agreement but may supply certain other
products based on negotiations with IMX.
3. Supply and Licensing Agreements
In 1996, the Company entered into a license and supply agreement with Glaxo
Wellcome, Inc. ("Glaxo"). The agreement granted Glaxo exclusive rights to market
the WellSkin(TM) product line in the United States to physicians. Under the
terms of the agreement, IGI manufactured these products for Glaxo. This
agreement provided for Glaxo to pay royalties to IGI based on sales, and to pay
a $1,000,000 advance royalty to IGI in 1997 of which $300,000 was
non-refundable. The advance royalty was recorded as deferred income. In October
1998, Glaxo notified the Company of its intent to exit the physician-dispensed
skin care market. In December 1998, the license and supply agreement with Glaxo
was terminated. The termination agreement provided that IGI would purchase all
of Glaxo's inventory and marketing materials related to the WellSkin(TM) line in
exchange for a $200,000 promissory note, due and payable in December 1999
bearing interest at a rate of 11%. The Company also issued a promissory note to
Glaxo for $608,000, representing the unearned portion of the advance royalty in
exchange for Glaxo transferring all rights to the WellSkin(TM) trademark to IGI.
This note bears interest at a rate of 11% and is payable in three installments
between December 1999 and December 2000. In connection with the agreement
termination, but unrelated to the advance royalty, IGI reduced cost of sales by
$404,000 in 1998 for amounts owed to Glaxo that were forgiven. In 1997 and 1998,
IGI recognized $150,000 and $326,000, respectively, of royalty income under the
Glaxo Agreement.
In December 1998, the Company entered into a supply and sales agreement
with Genesis Pharmaceutical, Inc. ("Genesis") for the marketing and distribution
of the Company's WellSkin(TM) line of skin care products. The agreement provides
that Genesis will pay the Company a trademark and technology transfer fee in
four equal annual payments of $250,000 each commencing November 1, 1999. In
addition, Genesis will pay the Company a royalty on its net sales with certain
guaranteed minimum royalty amounts. Genesis also purchased WellSkin(TM)
inventory and marketing materials previously purchased by the Company from Glaxo
of which $112,000 was shipped by December 31, 1998 and the remainder was shipped
in early 1999. Genesis has signed a $200,000 promissory note for the inventory
and marketing materials, which is due on November 1, 1999 bearing interest at
11%. In connection with the Genesis transaction, the Company recognized revenue
of $6,000 in 1998.
In March 1997, IGI granted Kimberly Clark ("Kimberly") the worldwide rights
to use certain patents and technologies in the industrial hand care and cleaning
products field. Upon signing the agreement, Kimberly paid IGI a $100,000 license
fee that was recognized as revenue by the Company in 1997. The agreement
requires Kimberly to make royalty payments based on quantities of material
produced. The Company is also guaranteed minimum royalties over the term of the
agreement. In 1998, the Company earned $133,000 of minimum royalties, which is
recorded as an accounts receivable due from Kimberly Clark at December 31, 1998.
33
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company entered into a license agreement with Johnson & Johnson
Consumer Products, Inc. ("J&J") in 1995. The agreement provides J&J with a
license to produce and sell Novasome(R) microencapsulated retinoid products and
provides for the payment of royalties on net sales of such products. J&J began
selling such products and making royalty payments in the first quarter of 1998.
The Company recognized $433,000 of revenue related to this agreement for the
year ended December 31, 1998. No revenue was recognized under this agreement in
1997 or 1996.
In April 1998, the Company entered into a reseach and development agreement
with National Starch and Chemical Company ("National Starch") to evaluate
Novasome(R) technology which, if favorable, may result in negotiating a
licensing agreement. The agreement provides for a minimum of at least six, or up
to as much as nine, monthly payments commencing in June 1998 plus $100,000 for
the purchase of a patented Novamix(R) machine. The Company recognized $210,000
in licensing revenues in 1998 related to the National Starch agreement.
In August 1998, the Company granted Johnson & Johnson Medical ("JJM"), a
Division of Ethicon, Inc., worldwide rights for use of the Novasome(R)
technology for certain products and distribution channels. The agreement
provides for an up-front license fee of $150,000, of which $92,000 was
recognized as revenue by the Company in 1998, and future royalty payments based
on JJM's sales of licensed products. The Company is guaranteed minimum royalties
over the term of the agreement.
See also Note 2 "Investments" for a description of the IMX Supply
Agreement.
4. Supplemental Cash Flow Information
Cash payments for income taxes and interest during the years ended December
31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes paid, net $ 0 $ (33) $ 41
Interest 2,163 1,853 1,955
</TABLE>
In addition, during the years ended December 31, 1998, 1997 and 1996, the
Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Accrual for additions to other assets $ 40 $ -- $ --
Tax benefits of exercise of common stock options -- 7 79
Treasury stock repurchased -- 20 --
Tax benefit of license payment to former subsidiary -- -- (161)
Receivable under royalty agreement -- -- 1,000
Note payable to Glaxo (See Notes 3 and 7) 808 -- --
Note receivable from Genesis (See Note 3) (112) -- --
</TABLE>
See Note 2 "Investments" for discussion regarding IMX investment.
34
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Inventories
Inventories as of December 31, 1998 and 1997 consisted of:
1998 1997
------- -------
(in thousands)
Finished goods $ 2,785 $2,491
Raw materials 2,210 3,259
Work-in-process 2,411 3,192
------- -------
$ 7,406 $ 8,942
======= =======
See Note 1 for a description of the Company's change in inventory valuation
method and resultant restatement of prior year balances.
6. Property, Plant and Equipment
Property, plant and equipment, at cost, as of December 31, 1998 and 1997
consisted of:
1998 1997
------- -------
(in thousands)
Land $ 625 $ 625
Buildings 9,748 9,600
Machinery and equipment 9,986 9,659
------- -------
20,359 19,884
Less accumulated depreciation (10,880) (10,048)
------- -------
Property, plant and equipment, net $ 9,479 $ 9,836
======= =======
The Company recorded depreciation expense of $861,000, $925,000 and
$926,000 in each of the years 1998, 1997 and 1996 respectively.
7. Notes Payable
Notes payable at December 31, 1998 and 1997 consisted of:
1998 1997
------- -------
(in thousands)
Glaxo $ 808 $ --
Other 261 36
------ -------
1,069 36
Less: Current portion 661 --
------ -------
$ 408 $ 36
======= =======
The Company's licensing and supply agreement with Glaxo was terminated in
December 1998, resulting in the issuance of a $200,000 promissory note which is
due and payable in December 1999 and bears interest at a rate of 11%. The
Company also issued a promissory note to Glaxo for $608,000 bearing interest at
11%, which represents the unearned portion of the advanced royalty. Principal
and interest amounts are payable semi-annually beginning in December 1999 in the
amount of $200,000 with the remaining amount of $408,000 due in 2000. The
remaining balance of short-term notes payable of $261,000 consists of amounts to
finance the Company's 1998 insurance policies.
35
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Debt
Debt as of December 31, 1998 and 1997 consisted of:
1998 1997
------- -------
(in thousands)
Credit line $12,000 $12,000
Revolving credit facility 6,657 6,857
------- -------
$18,657 $18,857
======= =======
Aggregate annual principal payments due on debt for the years subsequent to
December 31, 1998 are as follows:
Year (in thousands)
---- --------------
1999 $ 6,000
2000 12,657
-------
$18,657
=======
The Company entered into an Extension Agreement with its bank lenders as of
April 29, 1998 which provided for a waiver of all past and existing covenant
defaults, extension of the bank credit agreement through March 31, 1999, a
maximum credit line facility of $12,000,000 ("Credit Line"), extended terms for
repayment of the outstanding $6,857,000 balance of revolving credit notes
("Revolving Facility") and issuance to the lenders of warrants to purchase an
aggregate of 540,000 shares of the Company's common stock at an exercise price
of $3.50 per share. The Company has a call option on unexercised warrants at a
repurchase price of $1,800,000. The Company recognized a non-cash expense
related to the issuance of these warrants of approximately $645,000 in 1998.
The Company was in default under certain covenants contained in the
Extension Agreement at July 31, 1998. On August 19, 1998, the Company and its
bank lenders entered into a Forbearance Agreement whereby the banks agreed to
forbear from exercising their rights and remedies arising from these covenant
defaults through January 31, 1999. During fiscal 1998, the Company paid interest
at a rate of up to prime plus 5.5% on its outstanding borrowings under the
Credit Line and under the Revolving Facility.
Effective January 31, 1999, the Company and its bank lenders entered into a
Second Extension Agreement which provides for a waiver of the covenant defaults
under the Forbearance Agreement, amendment of certain covenants, extension of
the bank credit agreement to March 31, 2000, and the following:
o The maximum availability under the Credit Line is subject to the
determination of the amount of eligible accounts receivable and
inventories. There is no remaining availability as of December 31,
1998 or March 31, 1999.
o Mandatory principal payments of $4,000,000 and $2,000,000 of the
outstanding balance of $18,657,000, at December 31, 1998, under the
Revolving Facility and Credit Line are due on August 31, 1999 and
November 30, 1999, respectively, with the balance due and payable on
March 31, 2000.
o All of the Company's indebtedness to the banks is subject to a
security interest in all of the assets of the Company and its
significant subsidiaries. Although the Company can sell operating
assets, proceeds from such sale must be remitted directly to the
lenders.
o Interest on outstanding borrowings of $18,657,000 under both the
Credit Line and the Revolving Facility will be at a rate of prime plus
5.5% of which prime plus 2.5% is paid monthly and 3.0% is accrued and
payable on March 31, 2000.
36
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
o The interest rate on outstanding borrowings will be reduced by 0.5%
after each of the mandatory principal payments. In addition, the
interest rate will be reduced by an additional 1.5% for each
$1,000,000 of voluntary principal payments, but not lower than prime
plus 1.0%. A pro rata portion of the accrued interest will be waived
for all principal payments occurring prior to December 31, 1999.
o On March 11, 1999, the Company issued warrants to the bank lenders to
purchase 270,000 shares of the Company's common stock at an exercise
price of $2.00 per share. These warrants are exercisable at any time
60 days after issuance. The Company also issued warrants to purchase
an additional 270,000 shares of the Company's common stock exercisable
at $2.00 per share, if the bank debt is still outstanding at September
30, 1999. The warrants expire on the fifth anniversary of issuance.
The Company has a call option on unexercised warrants at a repurchase
price of $1,800,000. The Company will recognize a non-cash expense for
each issuance of warrants of approximately $195,000, or a total of
about $390,000 during 1999.
o The Company agreed to pay the bank lenders an extension fee of
$350,000, which is being amortized over the life of the agreement. At
the time of the extension, $50,000 was paid, with the balance payable
in four installments through February 24, 2000. If the Company is able
to refinance its bank debt, any extension fees due subsequent to the
closing date of the refinancing will be waived.
o The Company is required to maintain certain minimum financial
covenants and comply with other non-financial covenants, including
remittance of cash flows from debt or equity financing, income tax
refunds and fixed asset dispositions to the banks, and the completion
of Year 2000 compliance by September 30, 1999. The agreement also
prohibits the payment of cash dividends without prior written consent
of the lenders.
At March 1, 1999, the Company had cash and cash equivalent balances of
$535,000, and no available borrowing capacity under the Credit Line or the
Revolving Facility. The Company is currently generating losses that may extend
through much of 1999. Further, the Company has significant debt it must repay on
August 31, 1999, November 30, 1999 and March 31, 2000.
The Company is pursuing additional debt and equity financing alternatives
to meet these obligations. The Company believes it can obtain such financing on
acceptable terms. However, if the Company is not successful in obtaining the
required additional financing, it believes it has the ability and it plans to
meet its 1999 debt repayment obligations by altering its business plans
including, if necessary, a sale of selected Company operating and non-operating
assets. Any sale of operating assets would involve a curtailment of certain of
the Company's business operations and a modification of its business strategy.
However, if the Company is unable to raise sufficient funds to repay or
refinance the debt repayment due on March 31, 2000, the Company could be in
default under its loan agreement and any such default could lead to the
commencement of insolvency proceedings by its creditors subsequent to that date.
Accordingly, the Board of Directors of the Company has authorized
management of the Company to seek additional equity capital through the sale of
common stock of the Company, either through a private sale to institutional or
individual investors or through a rights offering to its stockholders. Subject
to shareholder approval, the Board has authorized an increase in the number of
shares of common stock available and the authorization of a preferred stock
class. While the Company has contacted a number of potential providers of
additional capital who have expressed interest in negotiating financing
arrangements with the Company, to date no agreements or commitments have been
obtained.
Borrowings under the Credit Line and the Revolving Facility have been
classified as current debt in the accompanying financial statements as certain
repayments are due in 1999, and the agreement contains certain acceleration
provisions subject to the bank's evaluation.
37
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Common Stock
In October 1998, the Company adopted the 1998 Directors Stock Plan. Under
this plan, 200,000 shares of the Company's common stock are reserved for
issuance to non-employee directors, in lieu of payment of directors' fees in
cash. In 1998, 46,250 shares of common stock were issued as consideration for
directors' fees. The Company recognized $94,000 of expense related to these
shares during the year ended December 31, 1998. See also Note 8 - "Debt" for a
description of warrants issued to the Company's lenders in each of 1998 and 1999
for 540,000 shares, or a total of 1,080,000 shares of the Company's common stock
at an exercise price of $3.50 and $2.00 per share, respectively.
10. Stock Options
Under the 1983 Incentive Stock Option Plan, options have been granted to
key employees to purchase a maximum of 500,000 shares of common stock. Options,
having a maximum term of 10 years, have been granted at 100% of the fair market
value of the Company's stock at the time of grant. Options outstanding under
this plan at December 31, 1998 are generally exercisable in cumulative
increments over four years commencing one year from the date of grant.
Under the 1989 and 1991 Stock Option Plans, options may be granted to key
employees, directors and consultants to purchase a maximum of 500,000 and
2,600,000 shares of common stock, respectively. In 1998, the Board approved an
increase of 500,000 shares to the 1991 Stock Plan, which increased the maximum
to 3,100,000 shares. Options, having a maximum term of 10 years, have been
granted at 100% of the fair market value of the Company's stock at the time of
grant. Both incentive stock options and non-qualified stock options may be
granted under the 1989 Plan and the 1991 Plan. Incentive stock options are
generally exercisable in cumulative increments over four years commencing one
year from the date of grant. Non-qualified options are generally exercisable in
full beginning six months after the date of grant.
Under the 1988 Non-Qualified Stock Option Plan, options may be granted to
consultants, scientific advisors and employees to purchase a maximum of 250,000
shares of common stock. Options outstanding under this plan at December 31, 1998
are generally exercisable in cumulative increments over four years commencing
one year from the date of grant. The 1988 Non-Qualified Option Plan formalized
the granting of individual non-qualified stock options which had been granted to
officers and directors at prices equal to the fair market value of the Company's
stock on the date the options were granted. Exercise of the majority of these
options may be made at anytime during a ten year period commencing on the date
of grant.
Effective November 23, 1998, the Company's Board of Directors approved the
repricing of all outstanding options issued to then current employees and
consultants, to $2.44 per share, 115% of the market value of the Company's
Common Stock on that date. The Board also approved the repricing of 225,000
options held by the Chief Executive Officer, to $2.66 per share, 125% of the
market value of the Company's common stock on that date. As a result, 331,465
and 225,000 outstanding options at November 23, 1998 were effectively rescinded
and reissued at exercise prices of $2.44 and $2.66, respectively. This resulted
in a non-cash expense related to non-employees of $84,000 being reflected in
1998 operating results. All other conditions, such as term of option and vesting
schedules, remained unchanged.
38
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option transactions in each of the past three years under the
aforementioned plans in total were:
<TABLE>
<CAPTION>
1983, 1989, and 1991 Plans 1988 Non-Qualified Plan
-------------------------------------------- -------------------------------------------
Weighted Weighted
Shares Price Per Share Average Price Shares Price Per Share Average Price
------ --------------- ------------- ------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996 shares
under option 1,939,515 $3.64 - $9.88 $7.04 337,500 $1.38 - $ 6.80 $4.40
Granted 381,000 $5.13 - $7.69 $6.04 -- - --
Exercised (82,000) $4.70 - $6.96 $6.33 (50,000) $1.38 $1.38
Cancelled (29,500) $5.67 - $9.48 $7.31 (1,000) $6.80 $6.80
-------- --------
December 31, 1996 shares
under option 2,209,015 $3.65 - $9.88 $6.89 286,500 $3.97 - $ 6.80 $4.92
Granted 111,500 $3.75 - $5.69 $4.17 -- - --
Exercised (10,000) $3.65 $3.65 (20,000) $3.97 $3.97
Cancelled (176,050) $3.97 - $9.88 $7.21 (100,000) $5.67 $5.33
---------- --------
December 31, 1997 shares
under option 2,134,465 $3.75 - $9.88 $6.74 166,500 $4.70 - $ 6.80 $4.78
Granted 491,450 $1.94 - $3.81 $2.56 -- - --
Exercised -- - -- -- - --
Cancelled (652,250) $2.00 - $9.88 $6.52 (166,500) $2.66 - $6.80 $4.78
Rescinded (506,465) $4.70 - $9.88 $6.75 (50,000) $4.70 $4.70
Reissued 506,465 $2.44 - $2.66 $2.52 50,000 $2.66 $2.66
--------- --------
December 31, 1998 shares
under option 1,973,665 $1.94 - $9.88 $4.68 -- --
========= ========
Shares subject to outstanding
options exercisable at:
December 31, 1996 1,666,119 $7.01 286,500 $4.92
========= ========
December 31, 1997 1,854,715 $6.89 166,500 $4.78
========= ========
December 31, 1998 1,599,840 $5.18 -- $ --
========= ========
</TABLE>
The Company uses the intrinsic method to account for stock options.
Accordingly, no compensation cost has been recognized for option grants to
employees pursuant to the stock option plans or for the November 1998 stock
option repricing. Also, no compensation expense was recognized for option grants
to non-employee directors from January 1, 1996 through December 14, 1998. The
Company recorded compensation expense of $41,000 in 1998 for option grants to
non-employee directors subsequent to December 15, 1998 as a result of a proposed
Accounting Principles Board interpretation. The Company has recorded
compensation expense of $108,000, $46,000 and $156,000 in 1998, 1997 and 1996,
respectively, for options granted to consultants including the effect of the
1998 repricing.
If compensation cost for all grants under the Company's stock option plans
had been determined based on the fair value at the grant date consistent with
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" the
Company's net loss and loss per share would have been increased to the pro forma
loss amounts indicated below:
1998 1997* 1996*
---- ---- ---
(in thousands, except per share information)
Net loss - as reported $(3,029) $(1,208) $ (481)
Net loss - pro forma (3,618) (1,403) (1,397)
Loss per share - as reported
Basic: $ (.32) $ (.13) $ (.05)
Diluted: (.32) (.13) (.05)
Loss per share - pro forma
Basic: $ (.38) $ (.15) $ (.15)
Diluted: (.38) (.15) (.15)
* Prior years amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
39
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma information has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the grant date using the Black-Scholes
option-pricing model with the following assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Assumption 1998 1997 1996
---------- ---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Risk free interest rate 4.47% - 5.89% 5.84% - 6.63% 5.51% - 7.10%
Estimated volatility factor 39.51% - 47.87% 40.02% - 43.68% 33.07% - 43.45%
Expected life 6 - 9 years 6 - 9 years 6 - 9 years
</TABLE>
The effects of applying the fair value method are not indicative of future
amounts. The fair value method is not applied to awards prior to 1995, and
additional awards in future years are anticipated.
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------- --------------------------------
Range of Number of Weighted Average Weighted Average Number of Weighted Average
Exercise Prices Options Remaining Life (Years) Exercise Price Options Exercise Price
- --------------- ------- ---------------------- -------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 to $ 2.00 231,750 9.55 $1.98 71,500 $2.00
$2.00 to $ 3.00 594,915 5.29 $2.56 462,340 $2.52
$3.00 to $ 4.00 216,000 9.24 $3.41 135,000 $3.47
$4.00 to $ 5.00 60,000 1.33 $4.83 60,000 $4.83
$5.00 to $ 6.00 200,000 7.10 $5.76 200,000 $5.76
$6.00 to $ 7.00 290,000 6.15 $6.66 290,000 $6.66
$7.00 to $ 8.00 150,000 4.44 $7.45 150,000 $7.45
$8.00 to $ 9.00 176,000 6.24 $8.49 176,000 $8.49
$9.00 to $10.00 55,000 2.96 $9.66 55,000 $9.66
--------- ---------
$1.94 to $ 9.88 1,973,665 6.37 $4.68 1,599,840 $5.18
========= =========
</TABLE>
In connection with the exercise of 5,000 stock options in 1997, the Company
received 4,735 shares of its common stock as consideration for the exercise
price of the options. The total value of the shares used as consideration for
the exercise of stock options was $19,825, which has been recorded as treasury
stock.
11. Income Taxes
The benefit for income taxes included in the consolidated statements of
operations for the years ended December 31, 1998, 1997 and 1996 was as follows:
1998 1997* 1996*
------- ------- -------
(in thousands)
Continuing operations:
Current tax expense:
Federal $ 14 $ -- $ --
State and local 16 11 9
------- ------- -------
Total current 30 11 9
------- ------- -------
Deferred tax expense (benefit):
Federal (1,161) (637) (197)
State and local (160) 190 (185)
------- ------- -------
Total deferred (1,321) (447) (382)
------- ------- -------
Total benefit for income taxes $(1,291) $ (436) $ (373)
======= ======= =======
40
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The benefit for income taxes differed from the amount of income taxes
determined by applying the applicable Federal tax rate (34%) to pretax income
from continuing operations as a result of the following:
1998 1997* 1996*
------- ------- -------
(in thousands)
Statutory benefit $(1,469) $ (559) $ (290)
Non-deductible expenses 111 51 66
State income taxes, net of federal benefit (240) (164) (112)
Research and development tax credits (33) (65) (42)
Increase in valuation allowance 393 299 --
Other, net (53) 2 5
------- ------- -------
$(1,291) $ (436) $ (373)
======= ======= =======
Deferred tax assets included in the consolidated balance sheets as of
December 31, 1998 and 1997 consisted of the following:
1998 1997*
------- -------
(in thousands)
Property, plant and equipment $ (498) $ (633)
Prepaid license agreement 1,389 1,626
Deferred royalty payments 212 345
Net operating loss carryforwards 2,802 1,616
Tax credit carryforwards 610 484
Reserves 510 500
Inventory 537 405
Non-employee stock options 217 82
Other future deductible temporary differences 475 98
Other future taxable temporary differences (65) (48)
------- -------
6,189 4,475
Less: valuation allowance (726) (333)
------- -------
Deferred taxes, net $ 5,463 $ 4,142
======= =======
* Prior year amounts restated to reflect the Company's change in
inventory costing method (See Note 1).
The Company evaluates the recoverability of its deferred tax assets based
on its history of operating earnings prior to the recent conditional settlement
of regulatory proceedings (see Note 13), its plans to sell the benefit of
certain state net operating losses, its expectations for the future, and the
expiration dates of the operating loss carryforwards. As a result, the Company
has concluded it is not likely it will be able to fully realize certain of these
deferred tax assets. Therefore, the Company increased its valuation allowance
for certain deferred tax assets at December 31, 1998.
41
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating loss and tax credit carryforwards for tax reporting purposes as
of December 31, 1998 are as follows:
(in thousands)
Federal:
Operating losses (expiring through the year 2018) $6,958
Research tax credits (expiring through the year 2018) 507
Alternative minimum tax credits (available without expiration) 28
State:
Net operating losses New Jersey (expiring through the year 2005) $7,213
Research tax credits New Jersey (expiring through the year 2005) 75
Federal net operating loss carryforwards that expire through 2018 have
significant components expiring in 2007 (26%), 2010 (13%) and 2018 (56%).
12. Commitments and Contingencies
The Company leases manufacturing and warehousing space, machinery and
equipment and automobiles under non-cancelable operating lease agreements
expiring at various dates in the future. Rental expense aggregated approximately
$371,000 in 1998, $348,000 in 1997, and $330,000 in 1996. Future minimum rental
commitments under non-cancelable operating leases as of December 31, 1998 are as
follows:
Year $
---- --
(in thousands)
1999 56
2000 40
2001 33
2002 32
2003 11
The Company has entered into an employment contract with an expiration date
of December 31, 1999 with an officer that provides that this officer is entitled
to continuation of his salary if he is terminated without cause prior to the
contract expiration date. See also Note 15, "Certain Relationships and Related
Transactions."
The Company has entered into employment agreements with two other senior
executives that provide for their employment for a one year period, which is
automatically renewed annually unless terminated by the Company by written
notice at least 60 days prior to the renewal date. In the event their employment
is terminated without cause, one executive is entitled to continuation of his
annual salary for up to 18 months and the other executive is entitled to
continuation of his annual salary for up to 12 months.
42
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. U.S. Regulatory Proceedings
The Company has substantially resolved the legal and regulatory issues
which arose in 1997 and 1998. For most of 1997 and 1998, the Company was subject
to intensive government regulatory scrutiny by the U.S. Departments of
Justice, Treasury and Agriculture. In June 1997, the Company was advised by the
Animal and Plant Health Inspection Service ("APHIS") of the United States
Department of Agriculture ("USDA") that the Company had shipped quantities of
some of its poultry vaccine products without complying with certain regulatory
and record keeping requirements. The USDA subsequently issued an order that the
Company stop shipment of certain of its products. Shortly thereafter, in July
1997, the Company was advised that the USDA's Office of Inspector General
("OIG") had commenced an investigation into possible violations of the Virus
Serum Toxin Act of 1914 and alleged false statements made to APHIS.
Based upon these events, the Board of Directors caused an immediate and
thorough investigation of the facts and circumstances of the alleged violations
to be undertaken by independent counsel. The Company also took steps to obtain
the approval of APHIS for resumption of shipments, including the submission of
an amended and modified regulatory compliance program, improved testing
procedures and other safeguards. Based upon these actions, APHIS began lifting
the stop shipment order in August 1997 and released all remaining products from
the order on March 27, 1998.
In April 1998, the U.S. Securities and Exchange Commission ("SEC") advised
the Company that it was conducting an informal inquiry and requested information
and documents from the Company, which the Company voluntarily provided to the
SEC.
As a result of its internal investigation, the Company terminated the
employment of John P. Gallo as President and Chief Operating Officer in November
1997 for willful misconduct. In April 1998, the Company requested the
resignations of six additional employees including two Vice Presidents and
instituted a lawsuit against Mr. Gallo in the New Jersey Superior Court. The
lawsuit alleged willful misconduct and malfeasance in office, as well as
embezzlement and related claims. Mr. Gallo filed counterclaims against the
Company. The Company has denied Mr. Gallo's allegations and believes his claims
are without merit. The Company has not reserved any amounts related to these
charges.
In June 1998, Mr. Gallo wrote to the Company's Board of Directors alleging
that he had been wrongfully terminated from employment and further alleging
wrongdoing by two Directors. In response to these allegations the Company
instituted an investigation of the two Directors by an Independent Committee
("Independent Committee") of the Board assisted by the Company's General
Counsel. The investigation included a series of interviews of the Directors,
both of whom cooperated with the Company, and a review of certain records and
documents. The Company also requested an interview with Mr. Gallo who, through
his counsel, declined to cooperate. In September 1998, the Independent Committee
reported to the Board that it had found no credible evidence to support Mr.
Gallo's claims and allegations and recommended no further action. The Board
adopted the recommendation.
In July 1998, the Company sought to depose Mr. Gallo in connection with the
litigation filed in New Jersey. Through his counsel, Mr. Gallo asserted his
Fifth Amendment privilege against self-incrimination and advised that he would
not participate in the discovery process until such time as a federal grand jury
investigation, in which he was a target, was concluded. At the suggestion of the
court, the Company and Mr. Gallo agreed to a voluntary dismissal of the
litigation, with the understanding that the Company was free to reinstate its
suit against Mr. Gallo at a later date, and that the Company was reserving all
of its rights and remedies with respect to Mr. Gallo. In addition, Mr. Gallo may
reinstate his counterclaims against the Company at a later date.
43
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Settlement of U.S. Regulatory Proceedings
On March 24, 1999, the Company reached settlement with the Departments of
Justice, Treasury and Agriculture regarding their pending investigations and
proceedings. This settlement is subject to court approval which the Company
believes will be obtained in due course. The terms of the settlement agreement
provide that the Company will enter a plea of guilty to a misdemeanor and will
pay a fine of $15,000 and restitution in the amount of $10,000. In addition,
beginning in January 2000, the Company will make monthly payments to the
Treasury Department through the period ending October 31, 2001 in the total
amount of $225,000. The expense of settling with these agencies is reflected in
the 1998 results of operations. The settlement does not affect the informal
inquiry being conducted by the SEC, nor does it affect possible governmental
action against former employees of the Company. Management does not expect that
the SEC informal inquiry or the possible governmental action against former
employees will have a material adverse effect on the financial position, cash
flow or operations of the Company.
The Company is not aware of any other legal proceedings which could have a
material effect upon the Company.
14. Export Sales
Export revenues by the Company's domestic operations accounted for
approximately 32% of the Company's total revenues in 1998, 35% in 1997, and 39%
in 1996. The following table shows the geographical distribution of the
Company's total revenues:
1998 1997 1996
------- ------- -------
(in thousands)
Latin America $ 4,445 $ 4,593 $ 5,076
Asia/Pacific 3,787 4,659 6,011
Europe 1,151 1,263 1,286
Africa/Middle East 1,380 1,362 1,141
------- ------- -------
10,763 11,877 13,514
United States/Canada 22,432 22,466 21,433
------- ------- -------
Total Revenues $33,195 $34,343 $34,947
======= ======= =======
Export sales net accounts receivable balances at December 31, 1998, 1997
and 1996 approximated $4,002,000, $4,144,000, and $5,276,000, respectively.
15. Certain Relationships and Related Party Transactions
The Company's notes receivable from certain stockholders amounted to
$251,000 as of December 31, 1998 and $249,000 at December 31, 1997. These notes
are demand notes and bear interest at prime rate plus 1/4% and are
collateralized by shares of common stock of the Company. Remaining balances of
these notes from officers are included in stockholders' equity as stockholders'
notes receivable and all other notes receivable are included in notes receivable
in the accompanying Consolidated Balance Sheets. The Company has recognized
interest income from these notes of $3,000, $10,000 and $15,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. However, the Company has
provided valuation reserves for these balances totaling $251,000 and $219,000
for 1998 and 1997, respectively, representing the amount of notes receivable
from terminated employees.
The Company's Chief Executive Officer has chosen to defer his salary until
the Company's cash flow stabilizes. The total amount due to him was $380,000 at
December 31, 1998, which the Company has recorded as a non-interest bearing,
current obligation.
44
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Employee Benefits
The Company has a 401(k) contribution plan, pursuant to which employees,
who have completed six months of employment with the Company or its subsidiaries
as of specified dates, may elect to contribute to the plan, in whole
percentages, up to 18% of compensation, subject to a minimum contribution by
participants of 2% of compensation and a maximum contribution of $10,000 for
1998 and $9,500 in 1997 and $9,240 in 1996. The Company contribution is in the
form of Company common stock, which is vested immediately. The Company matches
25% of the first 5% of compensation contributed by participants and also
contributes, on behalf of each participant, $4 per week of employment during the
year. The Company has recorded charges to expense related to this plan of
approximately $81,000, $113,000, and $115,000 for the years 1998, 1997 and 1996,
respectively.
17. Business Segments
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which affects the way the Company
reports information about its operating segments. The information for 1997 and
1996 has been restated from the prior years' presentations to conform to the
1998 presentation.
The Company elected to change reportable segments from two segments (Animal
Health Products and Consumer Products) into three segments (Poultry Vaccines,
Companion Pet Products and Consumer Products). Reasons leading to the change
included the fact that products from each of the segments serve different
markets, use different channels of distribution, and have two different forms of
government oversight. The Company elected to change the reporting of its
business segments as of January 1, 1998 and restated its prior years'
presentation to conform to this revised segment reporting standard.
Poultry Vaccines
The Company produces and markets poultry vaccines manufactured by the chick
embryo, tissue culture and bacteriologic methods. The Company produces vaccines
for the prevention of various chicken and turkey diseases and has more than 60
vaccine licenses granted by the USDA. The Company also produces and sells
nutritional, anti-infective and sanitation products used primarily by poultry
producers. The Company sells these products in the United States and in over 50
other countries under the Vineland Laboratories trade name.
The Company manufactures poultry vaccines at its USDA licensed facility in
Vineland, New Jersey and sells them, primarily through its own sales force of
nine persons, directly to large poultry producers and distributors in the United
States and, through its export sales staff of 15 persons, to local distributors
in other countries. The sales force is supplemented and supported by technical
and customer service personnel. The USDA regulates the Company's vaccine
production in the United States.
Companion Pet Products
The Company sells its Companion Pet Products to the veterinarian market
under the EVSCO Pharmaceuticals trade name and to the over-the-counter ("OTC")
pet products market under the Tomlyn and Luv'Em labels.
The EVSCO line of veterinary products is used by veterinarians in caring
for dogs and cats, and includes pharmaceuticals such as antibiotics,
anti-inflammatories and cardiac drugs, as well as nutritional supplements,
vitamins, insecticides and diagnostics. Product forms include gels, tablets,
creams, liquids, ointments, powders, emulsions, shampoos and diagnostic kits.
EVSCO also produces professional grooming aids for dogs and cats.
45
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EVSCO products are manufactured at the Company's facility in Buena, New
Jersey and are sold through distributors to veterinarians. The facility operates
in accordance with Good Manufacturing Practices ("GMP") of the federal Food and
Drug Administration ("FDA").
The Tomlyn product line includes pet grooming, nutritional and therapeutic
products, such as shampoos, grooming aids, vitamin and mineral supplements,
insecticides and OTC medications. The products are manufactured at the Company's
facility in Buena, New Jersey, and are sold directly to pet superstores and
through distributors to independent merchandising chains, shops and kennels.
Sales of the Company's veterinary products are handled by 20 sales employees.
Most of the Company's veterinary products are sold through distributors.
Consumer Products Business
IGI's Consumer Products business is primarily focused on the continued
commercial use of the Novasome(R) microencapsulation technologies for skin care
applications. These efforts have been directed toward the development of high
quality skin care products marketed by the Company or through collaborative
arrangements with cosmetic and consumer products companies. Revenues from the
Company's Consumer Products business were principally based on formulations
using the Novasome(R) encapsulation technology. Sales to Estee Lauder accounted
for $3,494,000 or 11% of 1998 sales, $2,408,000 or 7% for 1997, and $2,505,000
or 7% in 1996.
Summary Segment Data
Summary data related to the Company's reportable segments for the three
years ended December 31, 1998 appear below:
<TABLE>
<CAPTION>
Poultry Companion Pet Consumer
(in thousands) Vaccines Products Products Corporate* Consolidated
-------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1998
Revenues $ 14,843 $ 12,513 $ 5,839 $ -- $ 33,195
Operating profit (loss) (517) 2,844 3,688 (6,925) (910)
Depreciation and amortization 587 206 199 -- 992
Identifiable assets 14,747 5,846 4,932 6,531 32,056
Capital expenditures 412 186 9 -- 607
1997**
Revenues $ 16,644 $ 12,444 $ 5,255 $ -- $ 34,343
Operating profit (loss) 1,202 2,577 1,473 (5,032) 220
Depreciation and amortization 651 225 161 -- 1,037
Identifiable assets 16,377 6,602 5,433 5,338 33,750
Capital expenditures 536 96 4 -- 636
1996**
Revenues $ 19,953 $ 11,308 $ 3,686 $ -- $ 34,947
Operating profit (loss) 4,084 2,300 (955) (4,097) 1,332
Depreciation and amortization 667 168 157 -- 992
Identifiable assets 20,151 6,382 3,478 3,834 33,845
Capital expenditures 617 98 198 -- 913
</TABLE>
* Note:
(A) Unallocated corporate expenses are principally general and administrative
expenses.
(B) Corporate assets represent deferred tax assets and cash and cash
equivalents.
(C) Transactions between reportable segments are not material.
** Prior year amounts restated to reflect the Company's change in inventory
costing method (See Note 1).
46
<PAGE>
IGI, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
Additions
------------------------------
Balance (1) Charged Balance
at beginning to costs (2) Charged to at end
Description of period and expenses other accounts Deductions of period
--------- ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 306 $ (40) $ -- $ 28(A) $ 238
Inventory valuation allowance 693 123 -- 199(B) 617
Other asset valuation allowance 186 -- -- -- 186
Valuation allowance on net deferred
tax assets 69 -- -- 35(C) 34
Year ended December 31, 1997:
Allowance for doubtful accounts $ 238 $ 793 $ -- $ 128(A) $ 903
Inventory valuation allowance 617 603 -- 107(B) 1,113
Other asset valuation allowance 186 -- -- 186(A) --
Valuation allowance on net deferred
tax assets 34 299 -- -- 333
Year ended December 31, 1998:
Allowance for doubtful accounts $ 903 $ 150 $ -- $ 537(A) $ 516
Inventory valuation allowance 1,113 1,332 -- 1,089(B) 1,356
Valuation allowance on net deferred
tax assets 333 382 11 -- 726
</TABLE>
(A) Relates to write-off of uncollectible accounts.
(B) Disposition of obsolete inventories.
(C) Related to spin off of certain discontinued operations during 1995.
47
<PAGE>
IGI, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibits marked with a single asterisk are filed herewith, and exhibits
marked with a double asterisk reference a management contract, compensatory plan
or arrangement, filed in response to Item 14(a)(3) of the instructions to Form
10-K. The other exhibits listed have previously been filed with the Commission
and are incorporated herein by reference.
(3)(a) Certificate of Incorporation of IGI, Inc., as amended. [Incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-8, File No. 33-63700, filed June 2, 1993.]
(b) By-laws of IGI, Inc., as amended. [Incorporated by reference to
Exhibit 2(b) to the Company's Registration Statement on Form S-18,
File No. 002-72262-B, filed May 12, 1981.]
(4) Specimen stock certificate for shares of Common Stock, par value $.01
per share. [Incorporated by reference to Exhibit (4) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 001-08568, filed April 2, 1990 (the "1989 Form
10-K".)]
**(10.1) IGI, Inc. 1983 Incentive Stock Option Plan. [Incorporated by
reference to Exhibit A to the Company's Proxy Statement for the
Annual Meeting of Stockholders held May 11, 1983, File No. 000-10063,
filed April 11, 1983.]
**(10.2) IGI, Inc. 1989 Stock Option Plan. [Incorporated by reference to the
Company's Proxy Statement for the Annual Meeting of Stockholders held
May 11, 1989, File No. 001-08568, filed April 12, 1989.]
**(10.3) Employment Agreement by and between the Company and Edward B. Hager
dated as of January 1, 1990. [Incorporated by reference to Exhibit
(10)(c) to the 1989 Form 10-K.]
**(10.4) Extension of Employment Agreement by and between the Company and
Edward B. Hager dated as of March 11, 1993. [Incorporated by
reference to Exhibit (10)(d) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, File No. 001-08568,
filed March 31, 1993 (the "1992 Form 10-K".)]
**(10.5) Extension of Employment Agreement by and between the Company and
Edward B. Hager dated as of March 14, 1995. [Incorporated by
reference to Exhibit (10)(e) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, File No. 001-08568,
filed March 31, 1995 (the "1994 Form 10-K".)]
**(10.6) Amendment to Employment Agreement by and between the Company and
Edward B. Hager dated as of October 1, 1997. [Incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, File No. 001-08568,
filed November 13, 1997 (the "September 30, 1997 Form 10-Q".)]
**(10.7) Employment Agreement by and between the Company and John P. Gallo
dated as of January 1, 1990. [Incorporated by reference to Exhibit
(10)(d) to the 1989 Form 10-K.]
**(10.8) Extension of Employment Agreement by and between the Company and John
P. Gallo dated as of March 11, 1993. [Incorporated by reference to
Exhibit (10)(g) to the 1992 Form 10-K.]
48
<PAGE>
IGI, INC. AND SUBSIDIARIES
EXHIBIT INDEX (Continued)
**(10.9) Extension of Employment Agreement by and between the Company and John
P. Gallo dated as of March 14, 1995. [Incorporated by reference to
Exhibit (10)(h) to the 1994 Form 10-K.]
**(10.10) Amendment to Employment Agreement by and between the Company and John
P. Gallo dated as of October 1, 1997. [Incorporated by reference to
Exhibit 10(b) to the September 30, 1997 Form 10 Q.]
(10.11) Rights Agreement by and between the Company and Fleet National Bank
dated as of March 19, 1987. [Incorporated by reference to Exhibit (4)
to the Company's Current Report on Form 8-K, File No. 000-10063,
filed March 27, 1987.]
(10.12) Amendment to Rights Agreement by and among the Company, Fleet
National Bank and State Street Bank and Trust Company dated as of
March 23, 1990. [Incorporated by reference to Exhibit (10)(g) to the
1989 Form 10-K.]
(10.13) Second Amended and Restated Loan Agreement by and between Fleet
Bank-NH, Mellon Bank, N.A. and IGI, Inc., together with its
subsidiaries, dated December 13, 1995. [Incorporated by reference to
Exhibit (10)(o) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 001-08568, filed March
29, 1996 (the "1995 Form 10-K".)]
(10.14) First Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc., together
with its subsidiaries, dated March 27, 1996. [Incorporated by
reference to Exhibit 10(l) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, File No. 001-08568,
filed April 10, 1997 (the "1996 Form 10-K".)]
(10.15) Second Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc., together with
its subsidiaries, dated June 26, 1996. [Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, File No. 001-08568, filed November
14, 1996 (the "September 30, 1996 Form 10-Q".)]
(10.16) Third Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc., together
with its subsidiaries, dated August 23, 1996. [Incorporated by
reference to Exhibit 10.2 to the September 30, 1996 Form 10-Q.]
(10.17) Fourth Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc. together with
its subsidiaries, dated November 13, 1996. [Incorporated by reference
to Exhibit 10(o) to the 1996 Form 10-K.]
(10.18) Fifth Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc., together
with its subsidiaries, dated March 27, 1997. [Incorporated by
reference to Exhibit 10(p) to the 1996 Form 10-K.]
(10.19) Sixth Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc. together with
its subsidiaries, dated June 30, 1997. [Incorporated by reference to
Exhibit 10(c) to the September 30, 1997 Form 10-Q.]
49
<PAGE>
IGI, INC. AND SUBSIDIARIES
EXHIBIT INDEX (Continued)
(10.20) Seventh Amendment to Second Amended and Restated Loan Agreement by
and between Fleet Bank-NH, Mellon Bank, N.A. and IGI, Inc. together
with its subsidiaries dated July 31, 1997. [Incorporated by reference
to Exhibit 10(d) to the September 30, 1997 Form 10-Q.]
(10.21) Eighth Amendment to Second Amended and Restated Loan Agreement by and
between Fleet Bank- NH, Mellon Bank, N.A. and IGI, Inc. together with
its subsidiaries dated September 30, 1997. [Incorporated by reference
to Exhibit 10(e) to the September 30, 1997 Form 10-Q.]
(10.22) Extension Agreement by and between Fleet Bank-NH, Mellon Bank, N.A.
and IGI, Inc. together with its subsidiaries dated April 29,
1998.[Incorporated by reference to Exhibit (10.22) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 001-08568, filed August 24, 1998 (the "1997 Form
10-K".)]
(10.23) Forbearance Agreement by and between Fleet Bank-NH, Mellon Bank, N.A.
and IGI, Inc. together with its subsidiaries, dated August 19, 1998.
[Incorporated by reference to Exhibit 10.23 to the 1997 Form 10-K.]
**(10.24) IGI, Inc. Non-Qualified Stock Option Plan. [Incorporated by reference
to Exhibit (3)(k) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, File No. 001-08568, filed March
30, 1992 (the "1991 Form 10-K".)]
**(10.25) IGI, Inc. 1991 Stock Option Plan, [Incorporated by reference to the
Company's Proxy Statement for the Annual Meeting held May 9, 1991,
File No. 001-08568, filed April 5, 1991.]
**(10.26) Amendment No. 1 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 11, 1993. [Incorporated by reference to
Exhibit 10(p) to the 1992 Form 10-K.]
**(10.27) Amendment No. 2 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 22, 1995. [Incorporated by reference to
the Appendix to the Company's Proxy Statement for the Annual Meeting
of Stockholders held May 9, 1995, File No. 001-08568, filed April 14,
1995.]
**(10.28) Amendment No. 3 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 19, 1997. [Incorporated by reference to
Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 001-08568, filed August 14,
1997.]
(10.29) Amendment No. 4 to IGI, Inc. 1991 Stock Option Plan as approved by
Board of Directors on March 17, 1998. [Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 001-08568, filed November 6, 1998.]
(10.30) Form of Registration Rights Agreement signed by all purchasers of
Common Stock in connection with private placement on January 2, 1992.
[Incorporated by reference to Exhibit (3)(m) to the 1991 Form 10-K.]
(10.31) License Agreement by and between Micro-Pak, Inc. and IGEN, Inc.
[Incorporated by reference to Exhibit (10)(v) to the 1995 Form 10-K.]
50
<PAGE>
IGI, INC. AND SUBSIDIARIES
EXHIBIT INDEX (Continued)
(10.32) Registration Rights Agreement between IGI, Inc. and SmithKline
Beecham plc dated as of August 2, 1993. [Incorporated by reference to
Exhibit (10)(s) to the 1993 Form 10-K.]
(10.33) Supply Agreement, dated as of January 27, 1997, between IGI, Inc. and
Glaxo Wellcome Inc. [Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q/A, Amendment No. 1, for the
quarter ended March 31, 1997, File No. 001-08568, filed June 16,
1997.]
(10.34) Common Stock Purchase Warrant No. 1 to purchase 150,000 shares of
IGI, Inc. Common Stock issued May 12, 1998 to Fleet Bank-NH.
[Incorporated by reference to Exhibit (10.33) to the 1997 Form 10-K.]
(10.35) Common Stock Purchase Warrant No. 2 to purchase 150,000 shares of
IGI, Inc. Common Stock issued May 12, 1998 to Fleet Bank-NH.
[Incorporated by reference to Exhibit (10.34) to the 1997 Form 10-K.]
(10.36) Common Stock Purchase Warrant No. 3 to purchase 120,000 shares of
IGI, Inc. Common Stock issued May 12, 1998 to Mellon Bank, N.A.
[Incorporated by reference to Exhibit (10.35) to the 1997 Form 10-K.]
(10.37) Common Stock Purchase Warrant No. 4 to purchase 120,000 shares of
IGI, Inc. Common Stock issued May 12, 1998 to Mellon Bank, N.A.
[Incorporated by reference to Exhibit (10.36) to the 1997 Form 10-K.]
*(10.38) IGI, Inc. 1998 Directors Stock Option Plan as approved by the Board
** of Directors on October 19, 1998.
*(10.39) Second Extension Agreement by and between Fleet Bank-NH, Mellon Bank,
N.A. and IGI, Inc. together with its subsidiaries.
*(10.40) Common Stock Purchase Warrant No. 5 to purchase 150,000 shares,
respectively, of IGI, Inc. Common Stock issued March 11, 1999 to
Fleet Bank, NH.
*(10.41) Common Stock Purchase Warrant No. 6 to purchase 150,000 shares,
respectively, of IGI, Inc. Common Stock issued March 11, 1999 to
Fleet Bank, NH.
*(10.42) Common Stock Purchase Warrant No. 7 to purchase 120,000 shares,
respectively, of IGI, Inc. Common Stock issued March 11, 1999 to
Mellon Bank, N.A.
*(10.43) Common Stock Purchase Warrant No. 8 to purchase 120,000 shares,
respectively, of IGI, Inc. Common Stock issued March 11, 1999 to
Mellon Bank, N.A.
*(10.44) Employment Agreement, dated May 1, 1998 between IGI, Inc. and Paul
** Woitach.
*(10.45) Employment Agreement, dated June 1, 1998, between IGI, Inc. and
** John F. Wall.
*(11) Computation of Net Income Per Common Share.
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IGI, INC. AND SUBSIDIARIES
EXHIBIT INDEX (Continued)
*(21) List of Subsidiaries.
*(23) Consent of PricewaterhouseCoopers LLP.
*(27.1) Financial Data Schedule for the year ended December 31, 1998.
*(27.2) Restated Financial Data Schedules for the years ended December 31,
1997 and 1996.
52
IGI, INC.
1998 DIRECTORS STOCK PLAN
1. Purpose.
The purpose of the 1998 Directors Stock Plan (the "Plan") of IGI, Inc. (the
"Company") is to provide for the payment of fees to the outside (non-employee)
Directors of the Company in Common Stock of the Company in lieu of cash and
thereby encourage ownership in the Company by the Directors.
2. Participation in the Plan.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
3. Stock Subject to the Plan.
The shares issuable under the Plan shall consist of 200,000 shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), subject
to adjustment in the event of stock splits, reverse stock splits, stock
dividends, reorganizations, recapitalizations and similar transactions.
4. Issuance of Common Stock in Lieu of Payment of Directors Fees in Cash.
(a) Attached to the Plan as Appendix A is a schedule setting forth the
fees payable (as of the date of adoption of the Plan) to outside
Directors for their services as Directors, including fees payable for
attendance at Directors meetings (both regular and telephonic) and
committee meetings. If and when the fees payable to Directors are
revised by action of the Board of Directors of the Company, the new
fees shall be set forth in a schedule and annexed to the Plan as
amended Appendix A and shall govern the payment of fees to Directors
until any subsequent revisions are adopted by the Board of Directors.
(b) The total fees payable to the outside Directors for each calendar
quarter shall be determined on the basis of the cash fees set forth in
Appendix A. As soon as practicable after the end of each calendar
quarter, the Company shall issue to each outside Director that number
of shares of Common Stock as shall be determined by dividing
(i) the total dollar amount of fees payable to the Directors for the
applicable quarter by
(ii) the closing per share price of the Common stock on the American
<PAGE>
Stock Exchange on the last day of the applicable quarter.
(c) The shares of Common Stock will be issued in the name of each outside
Director and the certificate for such shares shall be delivered to the
Directors as soon as practicable after the end of each calendar
quarter, together with a notification from the Company containing the
information set forth in Appendix B annexed hereto.
(d) The Company plans to register the Common Stock covered by the Plan
under the Securities Act of 1933 (the "Act") on Form S-8; but
notwithstanding such registration, Directors serving as members of the
Board at the time they wish to sell Common Stock received by them
under the Plan shall be subject to the volume and other limitations
contained in Rule 144 promulgated under the Act.
(e) The shares of Common Stock received by Directors pursuant to the Plan
shall be deemed to be compensation for services and therefore subject
to ordinary income taxes and will be reported to the Internal Revenue
Service on Form 1099 or such other appropriate Internal Revenue
Service form.
(f) The rights and benefits under the Plan are expressly provided to
substitute Common Stock for cash payment of Directors fees, and the
Plan shall be in addition to any other rights and benefits to which
the Directors are entitled under any other plans of the Company,
including any stock option plan for Directors currently in effect or
adopted in the future.
5. The Effective Date and Duration of the Plan.
(a) The Plan shall become effective when adopted by the Board of Directors
and shall also apply to any past Directors fees earned by Directors
which were unpaid by the Company at the time that the Plan was so
adopted by the Board.
(b) The Plan shall continue to apply to all fees earned by Directors from
and after the date of its adoption by the Board of Directors until
terminated by action of the Board of Directors or otherwise amended by
the Board of Directors.
6. Governing Law.
The Plan shall be governed by the laws of the State of Delaware.
Approved by the Board of Directors of IGI
on October 19, 1998.
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<PAGE>
APPENDIX A
SCHEDULE OF DIRECTORS FEES
The following sets forth the amount of fees payable to outside Directors of
IGI, Inc. for their services as Directors:
Event Fee
----- ---
Scheduled Directors Meeting $2,000
Telephonic Directors Meeting 1,000
Committee Meeting Held on Same 500
Day as Directors Meeting
Committee Meeting Not Held on 1,000
Same Day as Directors Meeting
Annual Fee for Chairman of the 5,000
Audit Committee
Annual Fee for Chairman of the 4,000
Compensation Committee
Annual Fee for Chairman of a 4,000
Special Committee
<PAGE>
APPENDIX B
IGI LETTERHEAD
Date
To: Name and Address of Director
Dear _______:
Today IGI, Inc. has requested its Stock Transfer Agent to issue you a
certificate representing _____ shares of IGI, Inc. Common Stock in payment of
the Directors fees to which you are entitled for the calendar quarter ended
______________, 19__. The following details the fees to which you are entitled
for the quarter, amounting in the aggregate to $_____, and these fees have been
converted into shares of IGI Common Stock using the quarter end closing price on
the American Stock Exchange, which was $____.
Attendance at Meetings of the Board of Directors $4,000
($2,000 per meeting - 4/20, 6/18)
Attendance at Telephonic Board of Directors Meetings 1,000
($1,000 per meeting - 5/25)
Attendance at Compensation Committee Meetings 500
($500 per meeting held the same date as the Board
meeting - 4/20)
Attendance at Compensation Committee Meeting 1,000
($1,000 per meeting held on non-Board meeting date -5/31)
Annual Fee for services as Chairman of the Audit 1,250
-----
Committee (1/4 of $5,000 Annual Fee - $1,250)
Total Due $7,750
SECOND EXTENSION AGREEMENT
This Second Extension Agreement (hereinafter, the "Agreement") is made this
11th day of March, 1999 by and among:
FLEET BANK-N.H., a banking and trust company organized under the laws
of New Hampshire ("Fleet");
MELLON BANK, N.A., a national banking association ("Mellon"); and
IGI, INC., a Delaware corporation ("IGI"), IGEN, INC., a Delaware
corporation ("IGEN"); IMMUNOGENETICS, INC., a Delaware corporation
("Immunogenetics"); and BLOOD CELLS, INC., a Delaware corporation
("BCI").
Fleet and Mellon are hereinafter sometimes individually referred to as a
"Lender" and collectively referred to as the "Lenders", and IGI, IGEN,
Immunogenetics, BCI, and each of their subsidiaries as set forth on Exhibit "A"
annexed hereto and specifically incorporated by reference herein, are
hereinafter sometimes individually referred to as a "Borrower" and collectively
referred to as the "Borrowers".
BACKGROUND
Reference is made to certain Loan Arrangements (hereinafter, the "Loan
Arrangements") entered into by and between the Lenders and the Borrowers
evidenced by, among other things, the following documents, instruments, and
agreements (hereinafter, singly and collectively, as amended, the "Loan
Documents"):
(a) Fourth Amended and Restated Line of Credit Note dated September 30,
1997 in the original principal amount of $6,600,000.00 made by the Borrowers
payable to Fleet (the "Fleet Line of Credit Note");
(b) Fourth Amended and Restated Line of Credit Note dated September 30,
1997 in the original principal amount of $5,400,000.00 made by the Borrowers
payable to Mellon (the "Mellon Line of Credit Note");
(c) Third Amended and Restated Revolving Credit Note dated March 27, 1997
in the original principal amount of $6,171,428.40 made by the Borrowers payable
to Fleet (the "Fleet Term Note");
(d) Third Amended and Restated Revolving Credit Note dated March 27, 1997
in the original principal amount of $4,114,285.60 made by the Borrowers payable
to Mellon (the "Mellon Term Note");
<PAGE>
(e) Second Amended and Restated Loan Agreement dated December 13, 1995 by
and among the Lenders and the Borrowers, as amended by a certain First Amendment
to Second Amended and Restated Loan Agreement dated March 27, 1996, a certain
Second Amendment to Second Amended and Restated Loan Agreement dated as of June
26, 1996, a certain Third Amendment to Second Amended and Restated Loan
Agreement dated August 13, 1996, a certain Fourth Amendment to Second Amended
and Restated Loan Agreement dated as of November 13, 1996, a certain Fifth
Amendment to Second Amended and Restated Loan Agreement dated March 27, 1997, a
certain Sixth Amendment to Second Amended and Restated Loan Agreement dated June
30, 1997, a certain Seventh Amendment to Second Amended and Restated Loan
Agreement dated July 31, 1997, and a certain Eighth Amendment to Second Amended
and Restated Loan Agreement dated as of September 30, 1997 (hereinafter, as
amended and in effect, the "Loan Agreement");
(f) A certain Security Agreement granted by, among others, IGI, IGEN and
Immunogenetics, in favor of Fleet dated December 20, 1990;
(g) A certain Security Agreement - Intellectual Property granted by, among
others, IGI, IGEN and Immunogenetics in favor of Fleet dated December 20, 1990;
(h) A certain Security Documents Modification Agreement entered into by,
among others, the Borrowers and the Lenders dated as of December 13, 1995;
(i) A certain Joinder, Assumption and Security Documents Modification
Agreement dated as of May 12, 1992 entered into by, among others, the Borrowers,
and Fleet;
(j) A certain Mortgage granted by Immunogenetics in favor of Fleet dated
December 20, 1990 encumbering certain property located in the borough of Buena,
Atlantic County, New Jersey;
(k) A certain Mortgage granted by Immunogenetics in favor of Fleet dated
May 12, 1992 encumbering certain property located in the township of Buena
Vista, Atlantic County, New Jersey;
(l) A certain Mortgage granted by Immunogenetics in favor of Fleet dated
December 20, 1990 encumbering certain property located in the city of Vineland,
Cumberland County, New Jersey;
(m) A certain Collateral Assignment of Lessee's Interest in Leases executed
by, among others, Immunogenetics in favor of Fleet dated December 20, 1990;
(n) A certain Stock Pledge Agreement executed by, among others, IGI and
IGEN in favor of Fleet dated December 20, 1990;
2
<PAGE>
(o) A certain Conditional Assignment of Contracts granted by, among others,
IGI, IGEN and Immunogenetics in favor of Fleet dated December 20, 1990;
(p) A certain Extension Agreement dated April 29, 1998 (the "Extension
Agreement") by and among the Lenders and the Borrowers; and
(q) A certain Forbearance Agreement dated August 19, 1998 (the "Forbearance
Agreement") by and among the Lenders and the Borrowers.
The Borrowers acknowledge and agree that the Lenders' agreement to forbear
as set forth in the Forbearance Agreement has terminated, and have requested
that the Lenders (i) extend the time for repayment of their entire outstanding
indebtedness under the Loan Documents until March 31, 2000, (ii) waive certain
existing defaults, and (iii) otherwise modify the existing Loan Documents. The
Lenders have agreed, but only upon the terms and conditions set forth herein.
Further, to the extent that the terms and conditions of the Extension Agreement
are inconsistent with the terms and conditions of this Agreement, the terms and
conditions of this Agreement shall supersede the conflicting terms of the
Extension Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and among
the Lenders and the Borrowers as follows:
ACKNOWLEDGMENT OF INDEBTEDNESS
1. (a) The Borrowers hereby acknowledge and agree that they are jointly and
severally liable to the Lenders for the following amounts which are outstanding
under the Loan Documents as of February 22, 1999:
Fleet Line of Credit Note:
Principal $6,600,000.00
Pay Rate(1) Interest 39,462.50
Accrual(2) $ 79,200.00
-------------
Subtotal $6,718,662.50
- ----------
(1) As defined in Paragraph 2, below.
(2) As defined in Paragraph 2, below.
3
<PAGE>
Mellon Line of Credit Note:
Principal $5,400,000.00
Pay Rate Interest 32,287.50
Accrual $ 64,800.00
-------------
Subtotal $5,497,087.50
Fleet Term Note:
Principal $3,994,285.20
Pay Rate Interest 23,882.50
Accrual $ 47,931.43
=============
Subtotal $4,066,099.13
Mellon Term Note:
Principal $2,662,856.80
Pay Rate Interest 15,921.67
Accrual $ 31,954.28
=============
Subtotal $2,710,732.75
TOTAL............................$18,992,581.88
(b) The Borrowers further acknowledge and agree that they are each jointly
and severally liable to the Lenders for all interest accruing under the Loan
Documents from and after February 22, 1999 (or January 31, 1999 as appropriate),
and for all late fees, costs, expenses, and costs of collection (including
attorneys' fees) heretofore or hereafter incurred by the Lenders in connection
herewith. (Hereinafter, all amounts due as set forth in this Paragraph 1 shall
be referred to collectively as the "Obligations").
REPAYMENT OF DEBT
2. (a) Fleet Line of Credit Note and Mellon Line of Credit Note.
(i) From and after the execution of this Agreement, on the 1st day of
each month, the Borrowers shall pay to the Lenders a monthly interest
payment equal to the accrued interest on the principal balance of the
Fleet Line of Credit Note and the Mellon Line of Credit Note,
calculated at a floating rate equal to the aggregate of Fleet's Prime
Rate (as such Prime Rate may be announced by Fleet from time to time)
plus 2.50% per annum (the "Pay Rate").
Additional interest, the "Accrual", has accrued, and shall
continue to accrue, on the principal balance of the Fleet Line of
Credit Note and the Mellon Line of Credit Note at a fixed rate of 3.0%
per annum (the "Accrual Rate"). The
4
<PAGE>
Accrual shall be due and payable by the Borrowers upon the earlier of
(x) satisfaction of the Obligations, in their entirety, or, (y) the
Termination Date.
(ii) Any amounts paid to cure the financial covenant default
pursuant to Paragraph 12(a)(iii) of the Extension Agreement, shall be
applied on a pro rata basis in reduction of the principal balance of
the Fleet Line of Credit Note and the Mellon Line of Credit Note.
(iii) At no time shall the combined principal balance of the
Fleet Line of Credit Note and the Mellon Line of Credit Note exceed
$12,000,000.00.
(iv) Upon receipt by the Lenders of each of the payments set
forth in Paragraph 2(b)(ii) below, as and when due, the interest rate
charged on the principal balances of the Fleet Line of Credit Note and
the Mellon Line of Credit Note shall be reduced by (x) 25 basis points
for the Pay Rate, and (y) 25 basis points for the Accrual Rate.
(b) Fleet Term Note and Mellon Term Note.
(i) From and after the execution of this Agreement, on the 1st
day of each month, the Borrowers shall pay to the Lenders a monthly
interest payment equal to the accrued interest on the principal
balance of the Fleet Term Note and the Mellon Term Note, calculated at
the Pay Rate.
Additional interest, the "Accrual", has accrued, and shall
continue to accrue, on the principal balance of the Fleet Term Note
and the Mellon Term Note at the Accrual Rate. The Accrual shall be due
and payable by the Borrowers upon the earlier of (x) satisfaction of
the Obligations, in their entirety, or, (y) the Termination Date.
(ii) The Borrowers shall pay to the Lenders the following amounts
on or before the following dates in collected funds to be applied by
the Lenders on a pro rata basis in reduction of the outstanding
indebtedness under the Fleet Term Note and the Mellon Term Note as
permanent reductions to the outstanding indebtedness thereunder:
Date: Amount
----- ------
August 31, 1999 $4,000,000.00
November 30, 1999 $2,000,000.00
Upon receipt by the Lenders of each of these payments as and when
required above, then (x) the interest rate charged upon the remaining
principal balances of the Fleet Term Note and the Mellon Term Note
shall be reduced by (A) 25 basis
5
<PAGE>
points for the Pay Rate, and (B) 25 basis points for the Accrual Rate,
and (y) the Lenders shall waive the portion of the Accrual equal to
the interest charges attributable to the amount of the principal
payment from August 1, 1998 through the date paid. (Ex. Upon receipt
of the $4,000,000.00 payment the Lenders shall waive the unpaid
interest on the $4,000,000.00 earned at 3% from August 1, 1998 through
the date of the payment).
(iii) Any amounts paid or prepaid on account of the Fleet Term
Note or the Mellon Term Note, whether pursuant to this Agreement or
otherwise, shall not be available for reborrowing.
(c) The entire balance of the Obligations, including, without limitation,
all principal, interest (accrued and hereafter accruing), costs and expenses,
and other charges due in connection therewith shall be paid in full by the
Borrowers on or before 5:00 P.M. eastern standard time on March 31, 2000, it
being expressly acknowledged and agreed that TIME IS OF THE ESSENCE.
VOLUNTARY PRINCIPAL PAYMENTS; WAIVER OF ACCRUED INTEREST
3. (a) Provided that there is no then existing Event of Default as set
forth in Paragraph 19, below, if the Borrowers shall make voluntary
extraordinary principal reductions in excess of the payments set forth in
Paragraph 2(b), above, as a consequence of fixed asset dispositions permitted by
the Lenders in writing, or otherwise, then: (i) such payments shall be applied,
on a pro rata basis, first to Fleet Term Note and the Mellon Term Note, and then
to the Fleet Line of Credit Note and the Mellon Line of Credit Note, as
permanent reductions which may not be reborrowed; (ii) for each $1,000,000.00
paid in principal reduction, the interest rate charged upon the remaining
Obligations shall be reduced by (x) 50 basis points for the Pay Rate, and (y)
100 basis points for the Accrual Rate (however, in no event shall Pay Rate be
reduced by more than 150 basis points, in the aggregate, nor shall the Accrual
Rate be reduced by more than 300 basis points, in the aggregate, as a
consequence of such mandatory and/or voluntary extraordinary principal payments
as set forth in Paragraphs 2(b) and 3, and (iii), provided such payment is made
on or before December 31, 1999, the Lenders shall waive the portion of the
Accrual equal to the interest charges attributable to the amount of the
principal payment from August 1, 1998 through the date paid.
(b) All payments of principal made prior to the payment in full of the
principal payments set forth in Paragraph 2(b)(ii) shall be applied first to the
payments required by Paragraph 2(b)(ii), before being applied to the Obligations
pursuant to this Paragraph.
COMMITMENT LETTER
4. On or before June 30, 1999, the Borrowers shall deliver a commitment
letter, or other evidence, reasonably acceptable to the Lenders, demonstrating a
commitment, subject only
6
<PAGE>
to documentation and no further contingencies of any kind, from a financial
institution, shareholder group, investor(s), or other entity to provide a
capital infusion (x) in an amount sufficient to satisfy the $4,000,000.00
principal payment required by Paragraph 2(b)(ii) above, and (y) to close on or
before August 31, 1999. The identity of the entity or individual providing the
capital, as well as all of terms and conditions of the proposed capital
infusion, must be reasonably acceptable to the Lenders. To the extent that such
funds are in the form of equity that may be converted to debt, or subordinated
debt, the Borrowers shall obtain whatever additional documents, instruments, and
agreements, including, without limitation, any subordination agreements, that
the Lenders may require in connection therewith.
EQUITY OR PERMITTED DEBT ISSUANCE; TAX REFUNDS
5. (a) In the event the Borrowers shall raise funds from the issuance of
either debt permitted by the Lenders and/or equity instruments, such funds will
be applied (i) first, on a pro rata basis in reduction of the outstanding
indebtedness under the Fleet Term Note and the Mellon Term Note; and (ii)
second, on a pro rata basis as permanent reductions to the outstanding
indebtedness under the Fleet Line of Credit Note and the Mellon Line of Credit
Note and shall permanently reduce the available credit thereunder by that
amount.
(b) In the event the Borrowers receive actual funds from any tax refund
(local, state, federal, or otherwise), the Borrowers shall immediately deliver
the same to the Lenders, in the identical form received and with all necessary
endorsements thereon, which funds will be applied (i) first, on a pro rata basis
in reduction of the outstanding indebtedness under the Fleet Term Note and the
Mellon Term Note; and (ii) second, on a pro rata basis as permanent reductions
to the outstanding indebtedness under the Fleet Line of Credit Note and the
Mellon Line of Credit Note and shall permanently reduce the available credit
thereunder by that amount.
CASH MANAGEMENT; DEPOSITORY ACCOUNTS; PAYMENTS
6. (a) The Borrowers shall continue to maintain their corporate depository
bank accounts with Fleet as required by the Loan Agreement. The Borrowers
further acknowledge and agree that no overdrafts in any of their demand deposit
accounts shall be permitted.
(b) Until further notice from the Lenders, all payments required under this
Agreement shall be made as and when due to Fleet's address set forth below in
Paragraph 22. All receivables collected by the Borrowers shall be deposited into
the Borrowers' account with Fleet, Account No. 099-0059-160 (the "General
Account"). Any and all funds deposited in the Borrowers' existing lock box
account at Fleet shall be transferred to the General Account on a daily basis.
Until the occurrence of an Event of Default as defined in Paragraph 19 below,
all funds in the General Account shall be available to the Borrowers, subject to
Fleet's usual and customary rules and procedures regarding uncollected funds, to
pay their regular and ordinary business expenses.
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<PAGE>
(c) Any payments due under this Agreement, or costs and expenses incurred
by the Lenders which are reimbursable under this Agreement, may be debited by
Fleet from the General Account without any further instruction or authorization
of the Borrowers.
WAIVER OF DEFAULTS
7. The Lenders hereby waive the following specific defaults which have
occurred under the terms and conditions of the Extension Agreement prior to the
execution of this Agreement:
(a) Section 2(b)(ii) -$500,000.00 and $200,000.00 principal payments due on
July 15, 1998 and August 15, 1998 not paid;
(b) Section 12(a) - Minimum Eligible Accounts and Minimum Eligible
Inventory levels not met;
(c) Sections 12(b)-Minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 not
met;
(d) Section 12(c) -Minimum Net Worth not met;
(e) Section 13(d) -Submission of final, original, audited financial
statements for fiscal year ended December 31, 1997, together with certified
public accountant's unqualified opinion and management letter not delivered
by May 15, 1998 and without material adverse change from the 1997 draft
financial statement previously delivered to the Lenders;
(f) Section 13(e) - Rolling thirteen week Cash Flow Forecast not met;
(g) Section 13(f) -Business Plan/Refinancing not met; and
(h) Section 15 -Additional Documents (failure to obtain foreign credit
insurance on behalf of Lenders or failure to coordinate arrangement to
factor receivables by May 31, 1998.
Additionally, the Lenders hereby waive any defaults which have occurred
under Section 6.10 of the Loan Agreement.
The above-listed defaults constitute all of the defaults known to the
Borrowers or the Lenders. However, nothing contained in this Paragraph 7 is
intended to be, nor shall it be construed as, a waiver of any default or Event
of Default occurring or continuing after the execution of this Agreement, or of
any other default or Event of Default, other than the specific defaults
referenced above.
8
<PAGE>
INVESTMENT BANKER
8. The Borrowers have retained, and shall continue to retain, Berwind
Financial Group, L.P., or some other nationally-recognized investment banker
acceptable to the Lenders in their reasonable discretion (the "Investment
Banker"), for the purpose of formulating alternative business strategies on
behalf of the Borrowers and to coordinate the orderly satisfaction of the
Obligations. The Investment Banker shall furnish the Lenders with monthly
written progress reports and periodic verbal reports commencing on February 23,
1999 and continuing on the last Tuesday of each month during the term of this
Agreement.
WARRANTS
9. Grant. In addition to the Warrants (the "Existing Warrants") granted to
the Lenders under the Extension Agreement (which Existing Warrants are no longer
conditional and may be exercised by the Lenders at any time at a strike price of
$3.50), upon the execution of this Agreement, IGI, Inc. shall, in consideration
for the extension and other accommodations provided by the Lenders under this
Agreement, grant to the Lenders, and their respective successors and assigns,
stand-alone warrants (collectively, the "New Warrants"), the terms of which
shall be in conformance with the provisions of this Paragraph 9 and which shall
be in a form acceptable, in all respects, to the Lenders in their reasonable
discretion, exercisable for shares of IGI, Inc. common stock, as follows:
As to Fleet: Two Warrants, one for 150,000 shares (the "New Fleet
Unconditional Warrant") and one for 150,000 shares (the "New Fleet Conditional
Warrant")
As to Mellon: Two Warrants, one for 120,000 shares (the "New Mellon
Unconditional Warrant," and, together with the Fleet Unconditional Warrant, the
"New Unconditional Warrants") and one for 120,000 shares (the "New Mellon
Conditional Warrant," and, together with the Fleet Conditional Warrant, the "New
Conditional Warrants").
Exercise Price. The exercise price for the New Warrants shall be $2.00 per
common share (subject to customary adjustments). In addition to other customary
warrant provisions, the New Warrants shall each contain "cashless" exercise
provisions and anti-dilution provisions.
Exercise Period.
(a) New Unconditional Warrants. The New Unconditional Warrants
will be exercisable at any time during the period commencing sixty
(60) days after issuance and ending on October 1, 2004.
(b) Conditional Warrants. The New Conditional Warrants will be
exercisable during the period commencing September 30, 1999, and
ending on October 1, 2004, unless, by 5:00 PM, Boston time, on
September 30, 1999, either (a) all Obligations of the Borrowers to the
Lenders shall have been paid in full, in which case the New
Conditional
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Warrants shall expire, or (b) the Borrowers have delivered an
acceptable commitment letter, subject only to documentation and no
further contingencies of any kind, from a financial institution
acceptable to the Lenders, contemplating a full refinance of the
existing obligations which contemplates a closing within thirty (30)
days, in which case the New Conditional Warrants exercise start date
shall be extended to October 30, 1999; provided, however, if all
Obligations of the Borrowers to the Lenders have been paid in full on
or before such extended start date, the New Conditional Warrants shall
expire upon such payment.
(c) Acceleration of Exercise Start Dates. Notwithstanding the
foregoing, the New Unconditional Warrants and the New Conditional
Warrants shall become immediately exercisable upon the occurrence of
an Event of Default, or the exercise by IGI, Inc. of the call option
for the issuable shares under such Warrant described below (to afford
the Lenders the opportunity to exercise the subject Warrant before the
call option closing).
Call Option. IGI, Inc. shall have a call option on the New Warrants,
subject to the following terms:
(a) The option may only be exercised as to all, and not less than
all, of the shares issuable at such time under the subject Warrant,
and shall not cover issued shares (or shares pending issuance).
(b) The option may be exercised as to a subject Warrant at any
time up to the time that the Lender exercises its rights under the
subject Warrant.
(c) The repurchase price (subject to customary adjustments based
upon the operation of the anti-dilution provisions of the New
Warrants) will be (i) $500,000 for the 150,000 shares issuable under
the New Fleet Unconditional Warrant; (ii) $500,000 for the 150,000
shares issuable under the New Fleet Conditional Warrant; (iii)
$400,000 for the 120,000 shares issuable under the New Mellon
Unconditional Warrant; and (iv) $400,000 for the 120,000 shares
issuable under the New Mellon Conditional Warrant. In the event that
the number of shares issuable under a Warrant at the time of a call
exercise is less than the number of shares initially issuable
thereunder due to an exercise thereunder or a transfer, the repurchase
price will be proportionately adjusted.
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Registration Rights. The Lenders acknowledge that the shares issuable upon
the exercise of the New Warrants (when issued, the "Warrant Shares") will be
"restricted securities" within the meaning of Rule 144 of the Securities Act of
1933, as amended (the "Securities Act"). IGI, Inc. will use its best efforts to,
as soon as practicable following the exercise of any of the New Warrants but in
no event less that 180 days from the actual exercise date, (a) to file an
appropriate registration statement under the Securities Act for the resale of
the Warrant Shares by the Lenders, and (b) to cause such registration statement
(which shall specifically permit sales either thereunder or under Rule 144 if it
becomes available at any time during the period such registration statement is
effective) to become effective, and to keep such registration statement
effective until the earlier of (i) the resale of all of the Warrant Shares by
the Lenders; or (ii) the later of (as may be applicable) (A) 120 days from the
initial effective date of such registration statement; (B) the date which is one
year from the date the New Warrants are issued to the Lenders; and (C) the date
as of which the resale of all of the Warrant Shares has been permissible under
Rule 144 for a continuous 120 day period without regard to the volume
limitations set forth in Rule 144(e) and assuming only for purposes of
determining permissibility under this clause (C) (regardless of whether the New
Warrants are exercised in a cashless exercise) that all New Warrants were
exercised in full in cashless exercises as of the respective dates when such New
Warrants were first exercisable. IGI, Inc. will also use its best efforts to at
all times while the New Warrants or Warrant Shares are held by the Lenders to
comply with the current public information conditions of Rule 144(c).
IGI, Inc. has informed the Lenders that IGI, Inc. is ineligible to utilize
a Form S-3 registration statement until a date on or about October 1, 1999.
Accordingly, notwithstanding the terms of the preceding paragraph, IGI, Inc.
shall have no obligation to file a registration statement until the earlier of
(x) October 1, 1999, or (y) such earlier date at which IGI, Inc. is eligible to
file a registration statement on Form S-3.
The Lenders will also be granted "piggy-back" registration rights for as
long as they own Warrant Shares.
IGI, Inc. agrees to list the Warrant Shares on the NASDAQ/American Stock
Exchange within six months of any exercise under a New Warrant or New Warrants.
Return of Warrants. If the Borrowers pay all of the Obligations in full on
or before June 30, 1999, the Lenders shall return the following Existing
Warrants to the Borrowers:
(a) One Warrant for 150,000 shares defined in the Extension
Agreement as the "Fleet Conditional Warrant", which shares have a
strike price of $3.50; and
(b) One Warrant for 120,000 shares defined in the Extension
Agreement as the "Mellon Conditional Warrant", which shares have a
strike price of $3.50.
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Waiver of Anti-Dilution Provisions of Existing Warrants. In connection with
the issuance of the New Warrants, the Lenders hereby irrevocably waive all
rights to adjustment to the exercise price of the Existing Warrants, and any
correlative adjustment to the number of Warrant Shares (as defined in the
Existing Warrants) issuable upon exercise of the Existing Warrants, as set forth
in Section 3 of the Existing Warrants, as a result of the issuance of the New
Warrants or the issuance of Warrant Shares upon exercise of such New Warrants.
EXTENSION FEE
10. In consideration of the Lenders' agreement to enter into this
Agreement, the Borrowers shall pay to Fleet, as agent on behalf of the Lenders,
an extension fee (the "Extension Fee") in the sum of $350,000.00 by bank
cashiers' check, certified check, federal funds wire transfer, or direct debit
from the General Account or the Collection Account as follows:
(a) $50,000.00 on or before the execution of this Agreement;
(b) $60,000.00 on or before May 31, 1999;
(c) $70,000.00 on or before August 31, 1999;
(d) $80,000.00 on or before November 30, 1999; and
(e) $90,000.00 on or before February 24, 2000.
Each portion of the Extension Fee shall be fully earned as of the date of this
Agreement and shall be distributed upon receipt by Fleet to the Lenders on a pro
rata basis as a fee and not applied to the Obligations.
Notwithstanding the foregoing, if the Lenders receive payment in full of
all of the Obligations, then the Lenders' shall waive any portion of the
extension fee which becomes payable after the date the Lenders receive payment
in full.
AGENT'S FEE
11. In consideration of Fleet's agreement to enter into this Agreement and
to continue to administer the Loan Arrangements as agent on behalf of the
Lenders, the Borrowers shall pay to Fleet a monthly $5,000.00 agent's fee,
commencing upon the execution of this Agreement and continuing on the 1st day of
each month thereafter. The agent's fee for each month shall be fully earned as
of the 1st day of that month, and shall be retained by Fleet as a fee and shall
not be applied in reduction of the Obligations.
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FINANCIAL COVENANTS
12. In addition to all other covenants contained in the Loan Documents,
during the term of this Agreement, the Borrowers shall at all times comply with
the following covenants:
(a) Minimum Eligible Accounts Receivable and Minimum Eligible Inventory:
The Borrowers shall maintain, at month end, combined "Minimum Eligible Accounts
Receivable" and "Minimum Eligible Inventory" of $9,750,000.00.
(i) "Minimum Eligible Accounts Receivable" shall include both
"Eligible Domestic Accounts Receivable" and "Eligible Foreign Accounts
Receivable". "Eligible Domestic Accounts Receivable" shall mean
invoices for domestic shipments and services less than ninety (90)
days old and otherwise reasonably acceptable to the Lenders. "Eligible
Foreign Accounts Receivable" shall mean invoices for international
shipments and services not more than sixty (60) days past due and
otherwise reasonably acceptable to the Lenders.
(ii) "Eligible Inventory" shall mean the lesser of (x)
$6,000,000.00 or (y) gross inventory calculated on a FIFO basis less
(a)work-in-process, (b) cartons, labels, and obsolescence reserves and
(c) any other reserves reasonably deemed necessary by the Lenders.
Until further notice from Fleet on behalf of the Lenders, the portion
of work-in-process inventory consisting of completed products which
has passed all quality assurance tests, and only awaits packaging and
labeling, may be included in the calculation of "Eligible Inventory".
(iii) The Borrowers may, within forty-eight (48) hours of actual
knowledge of any violation under this covenant, cure such violation by
either, or combination, of the following methods:
(1) Paying to the Lenders an amount sufficient to reduce the
aggregate balance of the Fleet Line of Credit Note and the Mellon
Line of Credit Note by an amount equal to (x) $9,750,000.00 minus
(y) the sum of Eligible Domestic Accounts Receivable, plus
Eligible Foreign Accounts Receivable, plus Eligible Inventory,
plus (z) amounts previously paid by the Borrowers under this
subsection only in the event there shall exist a further decrease
from the collateral level most recently reported. Said amounts
may be reborrowed provided that the Borrowers remain in
compliance with the terms and conditions of this Agreement, and
the combined Minimum Eligible Accounts Receivable and Minimum
Eligible Inventory totals at least $9,750,000.00; or
(2) Providing the Lenders with (x) a covenant compliance
certificate in the form of Exhibit C, demonstrating the
Borrowers'
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compliance with each of the covenants contained in Paragraph 12,
and (y) documentary evidence, including, without limitation, all
invoices for new shipments and services, demonstrating the
increase in the Borrowers' Eligible Accounts Receivable and
Eligible Inventory to the required collateral level.
(b) Minimum Net Worth: The Borrowers shall maintain, at all times, a
minimum "Net Worth" (as defined in accordance with generally accepted accounting
principles) of no less than $4,200,000.00. In addition, the Borrowers shall
maintain a Minimum Net Worth of no less than the following amounts on the dates
set forth below:
Dates Amount
----- ------
3/31/99 $5,405,000.00
6/30/99 $5,019,000.00
9/30/99 $4,769,000.00
12/31/99 $4,718,000.00
3/31/00 $4,451,000.00
(c) Maximum Capital Expenditures: For the period from January 1, 1999
through December 31, 1999, the Borrower shall not incur consolidated Capital
Expenditures (as defined in accordance with generally accepted accounting
principles) in excess of the aggregate amount $2,000,000.00, and no more than
the following amounts for each of the following periods:
Dates Amount
----- ------
1/1/99 through 3/31/99 $500,000.00
4/1/99 through 6/30/99 $500,000.00
7/1/99 through 9/30/99 $500,000.00
10/1/99 through 12/31/99 $500,000.00
In addition, for the period commencing January 1, 2000 through and including
March 31, 2000, the Borrowers shall not incur consolidated Capital Expenditures
in excess of $250,000.00. The Borrowers may obtain lease facilities and/or
purchase money financing to fund the above referenced Capital Expenditures.
(d) Cash Flow: The Borrowers shall, as of the end of each period set forth
below, maintain consolidated cumulative EBITDA (as defined in accordance with
generally accepted accounting principles) of no less than the following amounts:
Dates: Amounts:
------ --------
1/1/99 through 3/31/99 $253,000.00
1/1/99 through 6/30/99 $877,000.00
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1/1/99 through 9/30/99 $1,586,000.00
1/1/99 through 12/31/99 $2,550,000.00
1/1/00 through 3/31/00 $ 633,000.00
(e) Dividends: The Borrowers shall not pay dividends, or make other
distributions of any kind, nature, or manner to any party without the prior
written consent of Fleet on behalf of the Lenders.
(f) Additional Indebtedness/Liens: The Borrowers shall not incur any
additional indebtedness from and after the date of this Agreement other than (i)
in connection with the ordinary course of their business, or (ii) as set forth
in Paragraph 12(c) above, nor shall the Borrowers grant or permit any lien or
other encumbrance to exist or be placed upon any of their assets, except as
approved by the Lenders in writing.
(g) Year 2000 Compliance. The Borrowers will be "Year 2000 Compliant" by
September 30, 1999. As used herein"Year 2000 Compliant" means, with respect to
the Borrowers and/or their suppliers, vendors, and customers, that all software,
embedded microchips, and other processing capabilities utilized by, and material
to the business operations or financial condition of, such entity are able to
interpret and manipulate data on and involving all calendar dates correctly, and
without causing any abnormal ending scenario, including, without limitation, in
relation to dates on or after January 1, 2000. Such compliance will be evidenced
by a publicly issued statement by the Borrowers to the Securities and Exchange
Commission ("SEC"), with a copy delivered to each of the Lenders.
FINANCIAL REPORTING
13. In addition to all other reporting requirements contained in the Loan
Documents, the Borrowers shall also furnish to the Lenders the following:
(a) Accounts Receivable Agings and Borrowing Base Certificate: The
Borrowers shall submit to each of the Lenders on Wednesday of each week both (i)
Domestic and Foreign Accounts Receivable Agings and (ii) a certificate in the
form of Exhibit B annexed hereto and specifically incorporated by reference
herein and setting forth the Borrowers' compliance with Paragraph 12(a), above,
each of which (i) and (ii) shall be dated as of the last day of the immediately
preceding week. In connection with the provision of the Accounts Receivable
Agings contemplated herein, the Borrowers shall include a detailed calculation
of (x) the total value of the otherwise eligible domestic accounts receivable
wherein fifty (50%) percent or more of an individual customer accounts account
balances are in excess of ninety (90) days from the invoice date and (y) the
total value of otherwise eligible foreign accounts receivable wherein fifty
(50%) percent or more of an individual customer account balances are more than
sixty (60) days past due.
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(b) Inventory Report: The Borrowers shall submit to each of the Lenders by
the 15th of each month, a detailed inventory report dated as of the last day of
the immediately preceding month; and
(c) Monthly Financial Statements: The Borrowers shall submit to each of the
Lenders, within forty-five (45) days of the close of a calendar month, a
consolidated and consolidating statement of profit or loss, cash flow and
balance sheet for the immediately preceding month and year-to-date period.
Simultaneously with the furnishing of such financial information, the Borrowers
shall submit to each of the Lenders, a reconciliation analysis of the actual
monthly and year-to-date results compared to the projected results set forth in
the "IGI, Inc. Operating Plan Year 1999" dated January 5, 1999, and amended by
an IGI, Inc. Bank Covenant Budget dated March 5, 1999 (the "Operating Plan"),
together with a detailed explanation of any and all material variances.
(d) Financial Statements: The Borrowers shall deliver final original copies
of audited financial statements, together with their certified public
accountant's unqualified opinion and management letter for the fiscal year
ending December 31, 1998 to each of the Lenders on or before March 31, 1999. The
final, original audited financial statements shall be in form and substance
without material adverse deviation from the draft financial statements
previously delivered to the Lenders. Further, the unqualified opinion shall not
(i) disclaim the auditor's obligation to address the so called "Yk2" or "Year
2000 Risk" issue as it relates to the Borrower's liabilities or contingent
liabilities, and (ii) be qualified as to the Borrower's possible failure to take
all appropriate steps to successfully address the so called "Yk2" issue.
(e) Cash Flow Reports: The Borrowers shall submit to each of the Lenders,
by the fifteenth (15) day of each month, a consolidated summary of the actual
cash flow results of the Borrowers for the preceding month. In addition, the
Borrowers shall submit, with the Monthly Financial Statements set forth in
sub-paragraph (c) above, detailed consolidated cash flow statements for the
Borrowers comparing the actual cash flow for the preceding month with the
projected results set forth in Operating Plan. In addition to the cash flow
statements, the Borrowers shall submit a narrative description detailing the
variances between the actual results with the projected results set forth in the
Operating Plan.
(f) Certifications: All such financial reporting shall be certified (to the
best knowledge and belief of the certifying officer) both as to the accuracy and
compliance with required covenants by IGI's Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, or Treasurer. Any such certification
shall be deemed to have been made on behalf of each of the Borrowers.
ADDITIONAL DOCUMENTS
14. Upon the execution of this Agreement, and at any time thereafter, the
Borrowers shall also execute and deliver to the Lenders such additional
documentation as the Lenders in
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their discretion may reasonably require in order to grant and/or perfect the
Lenders' security interest in all assets of the Borrowers, including, without
limitation, all (i) motor vehicles, (ii) intellectual property including,
without limitation, all patents and/or trademarks, and (iii) license agreements.
The Borrowers represent that all locations where inventory is located and all
patents or other intellectual property in which the Borrowers have an interest
are listed, respectively, on Exhibit "D" and Exhibit "E" each as annexed hereto
and specifically incorporated by reference herein.
COMPLIANCE CERTIFICATE
15. Upon or before the execution of this Agreement, and within forty five
(45) days of each month end during the term of this Agreement, the Borrowers
shall deliver to each of the Lenders, a covenant compliance certificate in the
form of Exhibit C setting forth the Borrowers' compliance with each of the
financial covenants referenced in Paragraph 12, above.
APPRAISALS; FIELD EXAMINATIONS; LENDERS' FINANCIAL CONSULTANT
16. (a) The Borrowers agree to cooperate with the Lenders to enable the
Lenders to obtain updated appraisals of all real estate and personal property
owned by the Borrowers and to conduct independent field examinations of the
Borrowers' books and records which cooperation shall include, without
limitation, providing the Lenders and/or their appraisers, examiners and/or
other representatives, reasonable access to such property and shall make
available such financial and/or other information regarding the property, books
and records, and other assets of the Borrowers as may be reasonably requested by
the Lenders in their discretion. The Borrowers shall reimburse the Lenders for
all reasonable out of pocket costs and expenses of independent third parties
incurred by the Lenders in connection with such appraisals and field
examinations.
(b) The Borrowers agree that the Lenders may continue to retain a financial
consultant to act on behalf of the Lenders for the purpose of assessing the
status of the business operations of the Borrowers and analyzing the Borrowers'
current and future plans and business operations, and their effect on the
ability of the Borrowers to satisfy the Obligations. The Borrowers agree to
cooperate with any such financial consultant and agree to reimburse the Lenders
for all reasonable fees and expenses incurred by the Lenders in connection with
the retention of such financial consultant.
WAIVER OF CLAIMS
17. The Borrowers hereby acknowledge and agree that they have no offsets,
defenses, claims, or counterclaims against the Lenders or the Lenders' officers,
directors, employees, attorneys, representatives, predecessors, affiliates,
successors, and assigns with respect to the Obligations, or otherwise, and that
if the Borrowers now have, or ever did have, any offsets, defenses, claims, or
counterclaims against the Lenders or the Lenders' officers, directors,
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employees, attorneys, representatives, predecessors, affiliates, successors, and
assigns, whether known or unknown, at law or in equity, from the beginning of
the world through this date and through the time of execution of this Agreement,
all of them are hereby expressly WAIVED, and the Borrowers each hereby RELEASE
the Lenders and the Lenders' officers, directors, employees, attorneys,
representatives, predecessors, affiliates, successors, and assigns from any
liability therefor, to the extent allowed by applicable laws.
RATIFICATION OF LOAN DOCUMENTS; FURTHER ASSURANCES
18. (a) The Borrowers hereby ratify, confirm, and reaffirm all and singular
the terms and conditions of the Loan Documents, and specifically ratify,
confirm, and reaffirm their authority to execute same. The Borrowers further
acknowledge and agree that, except as specifically modified in this Agreement,
all terms and conditions of those documents, instruments, and agreements shall
remain in full force and effect.
(b) The Borrowers shall, from and after the execution of this Agreement,
execute and deliver to the Lenders whatever additional documents, instruments,
and agreements that the Lenders may reasonably require in order to vest or
perfect the Loan Documents and the collateral granted therein more securely in
the Lenders and to otherwise give effect to the terms and conditions of this
Agreement, including, without limitation, a complete amendment and restatement
of the Loan Documents within thirty (30) days of any request by the Lenders for
any such additional documentation.
EVENTS OF DEFAULT
19. The occurrence of any one or more of the following events shall
constitute an event of default (hereinafter, an "Event of Default") under this
Agreement:
(a) The failure of the Borrowers to pay or deposit any amounts due
hereunder or under any of the Loan Documents as and when due;
(b) The failure of the Borrowers to comply with any other term or
condition of this Agreement (which default, other than a default under
Paragraph 12(a), may be cured within three (3) days in connection with any
non-monetary default capable of being cured);
(c) The filing of a petition for relief by or against any one or more
of the Borrowers under the United States Bankruptcy Code;
(d) The existence or issuance of any directive or action by either the
United States Department of Agriculture or Office of the Inspector General
of the United States, or any other governing body, which materially
adversely impact the Borrowers' ability to manufacture, sell, or ship
products, or otherwise have a Material Adverse Effect (defined below) on
the Borrowers' financial condition or with the passage of time could have a
material adverse impact
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on the Borrowers' financial condition, assets, operating status, or
projected financial condition. For the purposes of this Agreement,
"Material Adverse Effect" shall be defined as any material adverse effect
on the Borrowers' financial condition, assets, operating status or
projected financial condition or any fact or circumstance that, singly or
in the aggregate with any fact or circumstance, has a reasonable likelihood
of resulting in or leading to the inability of the Borrowers to perform in
any material respect their obligations under this Agreement or under any
Loan Document or the inability of Agent and/or Lenders to enforce in any
material respect the rights purported to be granted to them under this
Agreement or any Loan Document or which have a reasonable likelihood of
having a material adverse effect on the ability of the Borrowers to
effectuate (including hindering or unduly delaying) the transactions
contemplated by this Agreement and the loan Documents on the terms
contemplated hereby and thereby.
(e) The occurrence of any further event of default under, and as defined
in, any of the Loan Documents.
RIGHTS UPON DEFAULT
20. Upon the occurrence of any Event of Default:
(a) All Obligations shall become immediately due and payable in full,
without demand, notice, or protest, all of which are hereby expressly
WAIVED.
(b) The Lenders may immediately commence enforcing their rights and
remedies pursuant to the Loan Documents and otherwise.
(c) Interest shall accrue on the outstanding principal balance of the
Obligations at the default rate of interest set forth in the Loan
Documents.
(d) Any waiver of the Accrual under Paragraphs 2(b)(ii) or 3(a) shall
be void, and the full amount of the Accrual shall be due and payable in
full.
(e) The agreement of the Lenders contained in Paragraph 9 to return
certain of the Existing Warrants shall be void, and of no further force and
effect.
Notwithstanding the occurrence of any Event of Default, if the Borrowers
pay all Obligations in full, then the Borrowers shall retain the benefits of
prepayment set forth in Paragraphs 2(b)(ii), 3(a), 9, and 10, provided that the
ability of the Borrowers to obtain such benefits has not terminated or expired
under the terms and conditions of those Paragraphs.
REIMBURSEMENT OF COSTS AND EXPENSES
21. Upon the execution of this Agreement, the Borrowers shall pay to the
Lenders an amount equal to any and all reasonable attorneys' fees and expenses
incurred in connection with
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this matter through the date of this Agreement. In addition, upon Demand, or
upon the occurrence of any Event of Default, as defined in Paragraph 19, above,
the Borrowers shall reimburse the Lenders for any and all reasonable costs and
expenses, including, without limitation, all reasonable costs, expenses and fees
of all accountants, appraisers, auditors and other representatives of the
Lenders, and costs of collection (including attorneys' fees) hereafter incurred
by the Lenders in connection with the clarification, modification, protection,
preservation, and enforcement by the Lenders of their rights and remedies.
NOTICES
22. Any notices required to be sent to the Lenders and the Borrowers shall
be forwarded via recognized overnight courier, addressed as follows:
If to the Lenders: Fleet National Bank
40 Westminster Street
Mail Code: RI OP TO5A
Providence, Rhode Island 02901
Attn: Mr. Daniel D. Butler, Vice President
Telephone: (401) 459-4678
Fax: (401) 459-4963
With a copy to: Steven T. Greene, Esquire
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Telephone: (617) 523-9000
Fax: (617) 723-6831
Mellon Bank
Mellon Bank Center
1735 Market Street, P.O. Box 7899
Philadelphia, PA 19101-7899
Telephone: 215-553-2043
Fax: 215-553-4560
Attn: Walter J. Letts
Vice President
With a copy to: Peter Leibundgut, Esquire
Blank, Rome and Comisky
Woodland Falls Corporate Park
210 Lake Drive East
Cherry Hill, New Jersey 08002
Telephone: 609-779-3644
Fax: 609-779-7647
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If to the Borrowers: IGI, Inc.
IGEN, Inc.
Immunogenetics, Inc.
Blood Cells, Inc.
Wheat Road and Lincoln Avenue
Buena, New Jersey 08310
Attn: John F. Wall, CFO
Telephone: (609) 697-1441
Fax: (609) 697-1001
With a copy to: Paul Brountas, Esquire
Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02109
Telephone: (617) 526-6000
Fax: (617)526-5000
WAIVERS
23. Non-Interference. From and after the occurrence of any Event of
Default, the Borrowers agree not to interfere with the exercise by the Lenders
of any of their rights and remedies. The Borrowers further agree that they shall
not seek to distrain or otherwise hinder, delay, or impair the Lenders' lawful
efforts to realize upon the Collateral, or otherwise to enforce their rights and
remedies pursuant to the Loan Documents. This provision shall be specifically
enforceable by the Lenders.
24. Automatic Stay. The Borrowers agree that upon the filing of any
Petition for Relief by or against any one or more of the Borrowers under the
United States Bankruptcy Code, the Lenders shall be entitled to file a motion
for immediate and complete relief from the automatic stay, and the Lenders shall
be permitted to proceed to protect and enforce their rights and remedies under
applicable law.
25. Jury Trial. The Borrowers hereby make the following waiver knowingly,
voluntarily, and intentionally, and understand that the Lenders, in entering
into this Agreement or making any financial accommodations to the Borrowers,
whether now or in the future, are relying on such waiver: TO THE EXTENT ALLOWED
BY APPLICABLE LAW, THE BORROWERS HEREBY IRREVOCABLY WAIVE ANY PRESENT OR FUTURE
RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE LENDERS
BECOME A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE
LENDERS OR IN WHICH THE LENDERS ARE JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT
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OF, OR IS IN RESPECT OF, ANY RELATIONSHIP BETWEEN THE BORROWERS, OR ANY OTHER
PERSON, AND THE LENDERS.
ENTIRE AGREEMENT
26. This Agreement shall be binding upon the Borrowers and the Borrowers'
officers, directors, employees, representatives, successors, and assigns, and
shall inure to the benefit of the Lenders and the Lenders' successors and
assigns. This Agreement and the Loan Documents and all documents, instruments,
and agreements executed in connection herewith or therewith incorporate all of
the discussions and negotiations between the Borrowers and the Lenders, either
expressed or implied, concerning the matters included herein and in such other
documents, instruments and agreements, any statute, custom, or usage to the
contrary notwithstanding. No such discussions or negotiations shall limit,
modify, or otherwise affect the provisions hereof. No modification, amendment,
or waiver of any provision of this Agreement, or any provision of any other
document, instrument, or agreement between the Borrowers and the Lenders shall
be effective unless executed in writing by the party to be charged with such
modification, amendment, or waiver, and if such party be the Lenders, then by a
duly authorized officer thereof.
CONSTRUCTION OF AGREEMENT
27. (a) This Agreement and all other documents, instruments, and agreements
incidental hereto and all rights and obligations hereunder and thereunder,
including matters of construction, validity, and performance, shall be governed
by and construed in accordance with the law of the State of New Hampshire and
are intended to take effect as sealed instruments. The Borrowers hereby consent
to the jurisdiction of the Courts of the State of New Hampshire for all purposes
with respect to this Agreement and the Obligations. The captions of this
Agreement are for convenience purposes only, and shall not be used in construing
the intent of the Lenders and the Borrowers under this Agreement. In the event
of any inconsistency between the provisions of this Agreement and any other
document, instruments, or agreement entered into by and between the Lenders and
the Borrowers, including the Extension Agreement, the provisions of this
Agreement shall govern and control.
(b) The Borrowers further acknowledge and agree that the Lenders and the
Borrowers have prepared this Agreement and all documents, instruments, and
agreements incidental hereto and with the aid and assistance of their respective
counsel. Accordingly, when interpreting this Agreement and all such other
documents, instruments, and agreements, each of them shall be deemed to have
been drafted by the Lenders and the Borrowers and shall not be construed against
either the Lenders or the Borrowers.
22
<PAGE>
ILLEGALITY OR UNENFORCEABILITY
28. Any determination that any provision or application of this Agreement
is invalid, illegal, or unenforceable in any respect, or in any instance, shall
not effect the validity, legality, or enforceability of any such provision in
any other instance, or the validity, legality, or enforceability of any other
provision of this Agreement.
COMPREHENSIVE AGREEMENT
29. The Borrowers warrant and represent to the Lenders that the Borrowers:
(i) have read and understand all of the terms and conditions of this Agreement,
(ii) intend to be bound by the terms and conditions of this Agreement, (iii) are
executing this Agreement freely and voluntarily, without duress, after
consultation with independent counsel of their own selection.
IN WITNESS WHEREOF, this Agreement has been executed this ____ day of
March, 1999.
FLEET BANK-N.H. IGI, INC.
By: /s/ Fred H. Manning By: /s/ Edward B. Hager
------------------------- -------------------------
Title: Senior Vice President Title:
MELLON BANK IGEN, INC.
By: /s/ Walter Letts By: /s/ George P. Warren, Jr.
------------------------- -------------------------
Title: Vice President Title: Assistant Secretary
IMMUNOGENETICS, INC.
By: /s/ Edward B. Hager
--------------------------
Title: Chairman and Chief
Executive Officer
BLOOD CELLS, INC.
By: /s/ Edward B. Hager
--------------------------
Title: Chairman and Chief
Executive Officer
23
<PAGE>
STATE OF RHODE ISLAND
County of Providence, ss March 11, 1999
Then personally appeared the above named Fred H. Manning, the Sr. Vice
President of Fleet Bank- N.H. and acknowledged the foregoing to be the free act
and deed of Fleet Bank- N.H., before me,
/s/ Jane A. Martin
---------------------------------
Notary Public Jane A. Martin
My Commission Expires: 2/12/02
STATE OF PENNSYLVANIA
______________, ss March 9, 1999
Then personally appeared the above named Walter Letts, the Vice President
of Mellon Bank, N.A. and acknowledged the foregoing to be the free act and deed
of Mellon Bank, N.A., before me,
/s/ Yolanda D. Arnold
---------------------------------
Notary Public Yolanda D. Arnold
My Commission Expires: 3/13/00
STATE OF NEW JERSEY
_____________, ss March 10, 1999
Then personally appeared the above named Edward B. Hager, the Chairman of
IGI, Inc. and acknowledged the foregoing to be the free act and deed of IGI,
Inc., before me,
/s/ Theresa R. Dematte
---------------------------------
Notary Public Theresa R. Dematte
My Commission Expires: 5/24/00
24
<PAGE>
STATE OF DELAWARE
County of Newcastle, ss March 10, 1999
Then personally appeared the above named George P. Warren, Jr. , the Asst.
Secretary of IGEN, Inc. and acknowledged the foregoing to be the free act and
deed of IGEN, Inc., before me,
/s/ Cynthia L. Conner
---------------------------------
Notary Public Cynthia L. Conner
My Commission Expires: 7/6/99
STATE OF NEW JERSEY
_____________, ss March 10, 1999
Then personally appeared the above named Edward B. Hager, the Chariman of
Immunogenetics, Inc. and acknowledged the foregoing to be the free act and deed
of Immunogenetics, Inc., before me,
/s/ Theresa R. Dematte
---------------------------------
Notary Public Theresa R. Dematte
My Commission Expires: 5/24/00
STATE OF NEW JERSEY
_____________, ss March 10, 1999
Then personally appeared the above named Edward B. Hager, the Chairman of
Blood Cells, Inc. and acknowledged the foregoing to be the free act and deed of
Blood Cells, Inc., before me,
/s/ Theresa R. Dematte
---------------------------------
Notary Public Theresa R. Dematte
My Commission Expires: 5/24/00
25
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. 5 Number of Shares: 150,000
(subject to adjustment)
Date of Issuance: March 11, 1999
IGI, INC.
Common Stock Purchase Warrant
(Void after October 1, 2004)
IGI, Inc., a Delaware corporation (the "Company"), for value received,
hereby certifies that Fleet Bank-N.H., a banking and trust company organized
under the laws of New Hampshire, or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time on or after the 60th day after the
date of issuance and on or before October 1, 2004 at not later than 5:00 p.m.
(Boston, Massachusetts time), 150,000 shares of Common Stock, $.01 par value per
share (the "Common Stock"), of the Company, at a Exercise Price of $2.00 per
share. The shares issuable upon exercise of this Warrant, and the Exercise Price
per share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Exercise
Price," respectively.
1. Certain Definitions. As used in this Warrant, the following terms shall
have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
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<PAGE>
"Registrable Shares" means (i) the Warrant Shares, and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) upon any
sale in any manner to a person or entity which, by virtue of Section 13 of this
Warrant, is not entitled to the rights provided by this Warrant.
"Securities Act" means the Security Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Commission issued under
such Act, as they each may, from time to time, be in effect.
2. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
Exhibit I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Exercise Price payable in
respect of the number of Warrant Shares issued upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Exercise Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Exercise Price payable in respect of the
number of Warrant Shares being issued upon such exercise by (ii) the excess of
the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 2(c) below (the "Exercise Date")
over the Exercise Price per share. If the Registered Holder wishes to exercise
this Warrant pursuant to this method of payment with respect to the maximum
number of Warrant Shares issuable pursuant to this method, then the number of
Warrant Shares so issuable shall be equal to the total number of Warrant Shares,
minus the product obtained by multiplying (x) the total number of Warrant Shares
by (y) a fraction, the numerator of which shall be the Exercise Price per share
and the denominator of which shall be the Fair Market Value per share of Common
Stock as of the Exercise Date. The Fair Market Value per share of Common Stock
shall be determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq Stock Market or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the average of
the last reported sale price per share of
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<PAGE>
Common Stock thereon for the ten consecutive trading days ending on the day
immediately prior to the Exercise Date;
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq Stock Market or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most
recently determined in good faith by the Board of Directors to
represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of granting
Common Stock options or issuing Common Stock under an employee benefit
plan of the Company); and, upon request of the Registered Holder, the
Board of Directors (or a representative thereof) shall promptly notify
the Registered Holder of the Fair Market Value per share of Common
Stock. Notwithstanding the foregoing, if the Board of Directors has
not made such a determination within a forty-five day period prior to
the Exercise Date, then (A) the Fair Market Value per share of Common
Stock shall be the amount next determined in good faith by the Board
of Directors to represent the fair market value per share of the
Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock
under an employee benefit plan of the Company), (B) the Board of
Directors shall make such a determination within 15 days of a request
by the Registered Holder that it do so, and (C) the exercise of this
Warrant pursuant to this subsection 2(b) shall be delayed until such
determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 2(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
2(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Registered Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 4 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or
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<PAGE>
faces thereof for the number of Warrant Shares equal (without giving effect to
any adjustment therein) to the number of such shares called for on the face of
this Warrant minus the sum of (a) the number of such shares purchased by the
Registered Holder upon such exercise plus (b) the number of Warrant Shares (if
any) covered by the portion of this Warrant cancelled in payment of the Exercise
Price payable upon such exercise pursuant to subsection 2(b) above.
(e) Notwithstanding the foregoing, the Warrant shall become immediately
exercisable by the Registered Holder upon (i) the occurrence of an Event of
Default (as defined in the Second Extension Agreement dated March 11, 1999 by
and among the Registered Holder, Fleet Bank-N.H., the Company and certain of its
subsidiaries (the "Second Extension Agreement")) or (ii) the mailing date of
written notice by the Company of its intention to exercise its right under
Section 8 to redeem Available Warrant Shares (as defined under subsection 8(a)).
3. Adjustments.
(a) General. The Exercise Price shall be subject to adjustment from time to
time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
(i) Special Definitions. For purposes of this subsection 3(b),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options described in clause
(II) of subsection 3(b)(i)(D) below.
(B) "Original Issue Date" shall mean the date on which this
Warrant was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subsection
3(b)(iii) below, deemed to be issued) by the Company after the
Original Issue Date, other than shares of Common Stock issued or
issuable:
(I) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that are
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<PAGE>
excluded from the definition of Additional Shares of Common
Stock by this clause (I); or
(II) to employees or directors of, or consultants to, the Company
pursuant to a plan adopted by the Board of Directors of the
Company.
(ii) No Adjustment of Exercise Price. No adjustments to the
Exercise Price shall be made unless the consideration per share
(determined pursuant to subsection 3(b)(v)) for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less than
the Exercise Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock. If the Company at any time or from time to time after
the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders
of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard
to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue
or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to subsection 3(b)(v)
hereof) of such Additional Shares of Common Stock would be less than
the Exercise Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Exercise Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase
in the consideration payable to the Company, upon the exercise,
conversion or exchange thereof, the Exercise Price computed upon
the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such
Convertible Securities;
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<PAGE>
(C) Upon the expiration or termination of any unexercised
Option, the Exercise Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of
the original issue of such Option shall not be deemed issued for
the purposes of any subsequent adjustment of the Exercise Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange
of any Option or Convertible Security, including, but not limited
to, a change resulting from the anti-dilution provisions thereof,
the Exercise Price then in effect shall forthwith be readjusted
to such Exercise Price as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been
made upon the basis of such change; and
(E) No readjustment pursuant to Clause (B) or (D) above
shall have the effect of increasing the Exercise Price to an
amount which exceeds the lower of (i) the Exercise Price on the
original adjustment date, or (ii) the Exercise Price that would
have resulted from any issuances of Additional Shares of Common
Stock between the original adjustment date and such readjustment
date.
(iv) Adjustment of Exercise Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
subsection 3(b)(iii), but excluding shares issued as a dividend or
distribution or upon a stock split or combination as provided in subsection
3(c)), without consideration or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such
issue, then and in such event, such Exercise Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares
of Common Stock which the aggregate consideration received or to be
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Exercise Price; and (B) the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the
purpose of this subsection 3(b)(iv), all shares of Common Stock issuable
upon exercise or conversion of Options or Convertible Securities
outstanding immediately prior to such issue shall be deemed to be
outstanding (other than shares excluded from the definition of "Additional
Shares of Common Stock" by virtue of clause (II) of subsection 3(b)(i)(D)),
and (ii) the number of shares of Common Stock deemed issuable upon
conversion of such outstanding Options and Convertible Securities shall not
give effect to any adjustments to the conversion price or conversion rate
of
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<PAGE>
such Options or Convertible Securities resulting from the issuance of Additional
Shares of Common Stock that is the subject of this calculation.
Notwithstanding the foregoing, the applicable Exercise Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration. For purposes of this
subsection 3(b), the consideration received by the Company for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the
time of such issue, as determined in good faith by the Board
of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Company for consideration which covers both,
be the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to subsection
3(b)(iii), relating to Options and Convertible Securities, shall
be determined by dividing
(x) the total amount, if any, received or receivable by
the Company as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or
the conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
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<PAGE>
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of
such Options or the conversion or exchange of such
Convertible Securities.
(c) Recapitalizations. If outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 3(c) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which
such Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then issuable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the provisions set forth in
this Section 3 (including provisions with respect to adjustment of the Exercise
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares purchasable upon
the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Exercise
Price in effect immediately prior to such adjustment, by (ii) the Exercise Price
in effect immediately after such adjustment.
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<PAGE>
(f) Certificate of Adjustment. When any adjustment is required to be made
pursuant to this Section 3, the Company shall promptly mail to the Registered
Holder a certificate setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
such adjustment.
4. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 2(b) above.
5. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 5, (ii) a transfer made in accordance with Rule 144
under the Act, or (iii) a transfer by a Registered Holder which is a corporation
to an affiliate, as defined under Rule 144 of the Securities Act, if the
transferee agrees in writing to be subject to the terms of this Section.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
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<PAGE>
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
6. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
7. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares issued upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such Warrant Shares immediately prior to the date on which a record is taken for
such Liquidating Dividend or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends or distribution are to
be determined.
8. Optional Redemption.
(a) At any time, the Company may, at its option, redeem all, but not less
than all, of the Warrant Shares for which the Registered Holder has not
exercised its right to be issued (the "Available Warrant Shares"), by paying
$3.33 per Available Warrant Share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each Available Warrant Share then redeemed
(hereinafter referred to as the "Redemption Price"); provided, however, that the
Registered Holder may immediately exercise its Warrant or Warrants until such
time on or 15 days prior to the Redemption Date (as defined below).
(b) At least 15 days prior to the date fixed for any redemption of
Available Warrant Shares (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to the Registered Holder, notifying such holder of the election of the
Company to redeem such Available Warrant Shares, specifying the Redemption Date
and calling upon the Registered Holder to surrender to the Company, in the
manner and at the place designated, its Warrant or Warrants, representing the
Available Warrant Shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to the Redemption Date (subject to the
Registered Holder's right to exercise
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<PAGE>
such Warrants prior to the Redemption Date), the Registered Holder shall
surrender its Warrant or Warrants representing Available Warrant Shares to the
Company, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the Registered Holder and each surrendered Warrant shall be cancelled. From and
after the Redemption Date, unless there shall have been a default in payment of
the Redemption Price (or the Registered Holder has exercised the Warrants prior
to such Redemption Date), all rights of the Registered Holder designated for
redemption in the Redemption Notice as the Registered Holder (except the right
to receive the Redemption Price without interest upon surrender of the Warrant)
shall cease with respect to the Warrant or Warrants representing the Available
Warrant Shares, and such Warrant or Warrants shall not thereafter be transferred
on the books of the Company or be deemed to be outstanding for any purpose
whatsoever.
9. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Registered Holder of this Warrant a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such other stock or
securities at the time deliverable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
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10. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
11. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 5
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
13. Transfers, etc.
(a) The Company will maintain a register containing the name and address of
the Registered Holder of this Warrant. Any Registered Holder may change its or
his address as shown on the warrant register by written notice to the Company
requesting such change.
(b) Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
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14. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
15. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
16. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
17. Headings. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
18. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of Delaware.
19. Registration Rights.
(a) The Registered Holder shall have the registration rights with respect
to the Warrant Shares as specified in Section 9 of the Second Extension
Agreement.
(b) Furthermore, the Registered Holder shall be entitled to "piggyback"
registration rights for so long as the Registered Holder shall own Warrant
Shares. Whenever the Company proposes to file a Registration Statement (other
than pursuant to subsection 19(a) at any time and from time to time, it will,
prior to such filing, give written notice to the Registered Holder of its
intention to do so and, upon the written request of the Registered Holder given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Registered Holder to register to be registered under the
Securities Act to the extent necessary to
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permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of the Registered Holder; provided that
the Company shall have the right to postpone or withdraw any registration
effected pursuant to this subsection 19(b) without obligation to the Registered
Holder or any persons or entities to which the rights under this Warrant are
transferred by the Registered Holder, its successors or assigns pursuant to
Section 13 hereof.
(c) In connection with any registration under subsection 19(b) involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Warrant). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein. If the number of Registrable Shares to be
included in the offering in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of securities entitled to include them in such registration
shall participate in the registration pro rata based upon their total ownership
of shares of Common Stock (giving effect to the conversion into Common Stock of
all securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
20. Registration Procedures. If and whenever the Company is required by the
provisions of this Warrant to use to effect the registration of any of the
Registrable Shares under the Securities Act, the Company shall:
(a) furnish to the Registered Holder such number of copies as the
Registered Holder shall reasonably request of the prospectus, including a
preliminary prospectus and any amendments or supplements thereto, in
conformity with the requirements of the Securities Act;
(b) use its best efforts to register or qualify the Registrable Shares
covered by the Registration Statement under the securities laws of such
states as the Registered Holder shall reasonably request; provided,
however, that the Company shall not be required in connection with this
subsection 20(b) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(c) promptly notify the Registered Holder, if the Company has
delivered preliminary or final prospectuses to the Registered Holder and
after having
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done so, the prospectus is amended to comply with the requirements of the
Securities Act and, if requested by the Company, the Registered Holder
shall immediately cease making offers or sales of Registrable Shares under
the Registration Statement and return all prospectuses to the Company. The
Company shall promptly provide the Registered Holder with revised
prospectuses and, following receipt of the revised prospectuses, the
Registered Holder shall be free to resume making offers and sales of the
Registrable Shares; and
(d) pay the expenses incurred by it in complying with its obligations
under this Warrant in connection with registration rights, including all
registration and filing fees, exchange listing fees, expenses for the
preparation of the Registration statement, prospectus and any amendments
and supplements thereto, printing and photocopy expenses, fees and expenses
of counsel for the Company, and fees and expenses of accountants for the
Company, but excluding: (i) selling commissions or underwriting discounts
incurred by the Registered Holder in connection with sales of Registrable
Shares under the Registration Statement and (ii) the fees and expenses of
any counsel retained by the Registered Holder.
21. Requirements of Registered Holder. The Company shall not be required to
effect the registration of any of the Registrable Shares under the Securities
Act pursuant to this Warrant unless:
(a) the Registered Holder owning such shares furnishes to the Company
in writing such information regarding such Registered Holder and the
proposed sale of Registrable Shares by such Registered Holder as the
Company may reasonably request in writing in connection with the filing of
a Registration Statement or as shall be required in connection therewith by
the Commission or any state securities law authorities; and
(b) Such Registered Holder shall have provided to the Company its
written agreement that in the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Warrant, each
Registered Holder will indemnify the Company and its officers and directors
and each person, if any, who controls any thereof (within the meaning of
the Securities Act) against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact
contained in any prospectus or other document incident to any registration,
qualification or compliance (or in any related Registration Statement,
notification or the like) or any omission (or alleged omission) to state
therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Registered Holder will
reimburse the Company and each other person indemnified pursuant to this
Section 21 for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this Section 21 shall apply
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only if (and only to the extent that) such statement or omission was made
in reliance upon written information furnished to the Company in an
instrument duly executed by such Registered Holder and stated to be
specifically for use in such prospectus or other document (or related
Registration Statement, notification or the like) or any amendment or
supplement thereto; and, provided further that each Registered Holder's
liability hereunder with respect to any particular registration shall be
limited to an amount equal to the net proceeds received by such Registered
Holder from the Registrable Securities sold by such Registered Holder in
such registration.
22. Indemnification by Company. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Warrant, the
Company will indemnify each Registered Holder and each person who controls the
Registered Holder (within the meaning of the Securities Act) against any and all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of any
material fact contained in any prospectus or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Registered Holder and controlling person for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Registered Holder or
controlling person and specifically for use in such prospectus or other
document.
IGI, INC.
/s/ Edward B. Hager
--------------------------------
By: Edward B. Hager
Title: Chief Executive Officer
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EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full Exercise Price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[_] $______ in lawful money of the United States; and/or
[_] The cancellation of such portion of the attached Warrant as is exercisable
for a total of _____ Warrant Shares (using a Fair Market Value of $_____
per share for purposes of this calculation).
Signature:_____________________
Address:______________________
______________________
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EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_____________________ Signature:___________________________
Dated:_____________________ Witness:_____________________________
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. 6 Number of Shares: 150,000
(subject to adjustment)
Date of Issuance: March 11, 1999
IGI, INC.
Common Stock Purchase Warrant
(Void after October 1, 2004)
IGI, Inc., a Delaware corporation (the "Company"), for value received,
hereby certifies that Fleet Bank--N.H., a banking and trust company organized
under the laws of New Hampshire, or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time on or after September 30, 1999 and
on or before October 1, 2004 at not later than 5:00 p.m. 150,000 shares of
Common Stock, $.01 par value per share (the "Common Stock"), of the Company, at
a Exercise Price of $2.00 per share unless, by 5:00 p.m., Boston, Massachusetts
time, on or before September 30, 1999, either (a) all Obligations (as defined in
the Second Extension Agreement dated March 11, 1999 (the "Second Extension
Agreement") by and among the Registered Holder, Mellon Bank, N.A., the Company
and certain of its subsidiaries) of the Borrowers (as defined in the Second
Extension Agreement) to the Lenders (as defined in the Second Extension
Agreement) shall have been paid in full, in which case this Warrant and the
Registered Holder's rights hereunder shall expire, or (b) the Borrowers have
delivered an acceptable commitment letter, subject only to documentation and no
further contingencies of any kind, from a financial institution acceptable to
the Lenders, contemplating a full refinance of the existing Obligations which
contemplates a closing within thirty (30) days, in which case this Warrant's
exercise start date shall be extended to commence October 30, 1999; provided,
however, if all Obligations to the Lenders have been paid in full on or before
such extended start date, this Warrant and the Registered Holder's rights
hereunder shall expire upon such payment. The shares issuable upon exercise of
this Warrant, and the exercise price per share, each as adjusted from time to
time pursuant to the provisions of this Warrant, are hereinafter referred to as
the "Warrant Shares" and the "Exercise Price," respectively.
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1. Certain Definitions. As used in this Warrant, the following terms shall
have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registrable Shares" means (i) the Warrant Shares, and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) upon any
sale in any manner to a person or entity which, by virtue of Section 13 of this
Warrant, is not entitled to the rights provided by this Warrant.
"Securities Act" means the Security Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Commission issued under
such Act, as they each may, from time to time, be in effect.
2. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
Exhibit I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Exercise Price payable in
respect of the number of Warrant Shares issued upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Exercise Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Exercise Price payable in respect of the
number of Warrant Shares being issued upon such exercise by (ii) the excess of
the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 2(c) below (the "Exercise Date")
over the Exercise Price per share. If the
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Registered Holder wishes to exercise this Warrant pursuant to this method of
payment with respect to the maximum number of Warrant Shares issuable pursuant
to this method, then the number of Warrant Shares so issuable shall be equal to
the total number of Warrant Shares, minus the product obtained by multiplying
(x) the total number of Warrant Shares by (y) a fraction, the numerator of which
shall be the Exercise Price per share and the denominator of which shall be the
Fair Market Value per share of Common Stock as of the Exercise Date. The Fair
Market Value per share of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq Stock Market or another nationally recognized exchange or
trading system as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the average of the last reported sale
price per share of Common Stock thereon for the ten consecutive trading
days ending on the day immediately prior to the Exercise Date.
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq Stock Market or another nationally recognized exchange
or trading system as of the Exercise Date, the Fair Market Value per share
of Common Stock shall be deemed to be the amount most recently determined
in good faith by the Board of Directors to represent the fair market value
per share of the Common Stock (including without limitation a determination
for purposes of granting Common Stock options or issuing Common Stock under
an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof)
shall promptly notify the Registered Holder of the Fair Market Value per
share of Common Stock. Notwithstanding the foregoing, if the Board of
Directors has not made such a determination within a forty-five day period
prior to the Exercise Date, then (A) the Fair Market Value per share of
Common Stock shall be the amount next determined in good faith by the Board
of Directors to represent the fair market value per share of the Common
Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee
benefit plan of the Company), (B) the Board of Directors shall make such a
determination within 15 days of a request by the Registered Holder that it
do so, and (C) the exercise of this Warrant pursuant to this subsection
2(b) shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 2(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
2(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
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(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Registered Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 4
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the sum of (a) the number of such shares
purchased by the Registered Holder upon such exercise plus (b) the number
of Warrant Shares (if any) covered by the portion of this Warrant cancelled
in payment of the Exercise Price payable upon such exercise pursuant to
subsection 2(b) above.
(e) Notwithstanding the foregoing, this Warrant shall become immediately
exercisable by the Registered Holder upon (i) the occurrence of an Event of
Default (as defined in the Second Extension Agreement) or (ii) the mailing date
of written notice by the Company of its intention to exercise its right under
Section 8 to redeem Available Warrant Shares (as defined under subsection 8(a)).
3. Adjustments.
(a) General. The Exercise Price shall be subject to adjustment from time to
time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
(i) Special Definitions. For purposes of this subsection 3(b), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in clause (II) of subsection
3(b)(i)(D) below.
(B) "Original Issue Date" shall mean the date on which this
Warrant was first issued.
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(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to subsection 3(b)(iii) below,
deemed to be issued) by the Company after the Original Issue Date,
other than shares of Common Stock issued or issuable:
(I) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that are excluded
from the definition of Additional Shares of Common Stock by
this clause (I); or
(II) to employees or directors of, or consultants to, the Company
pursuant to a plan adopted by the Board of Directors of the
Company.
(ii) No Adjustment of Exercise Price. No adjustments to the Exercise
Price shall be made unless the consideration per share (determined pursuant
to subsection 3(b)(v)) for an Additional Share of Common Stock issued or
deemed to be issued by the Company is less than the Exercise Price in
effect on the date of, and immediately prior to, the issue of such
Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock. If the Company at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to
be Additional Shares of Common Stock issued as of the time of such issue
or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to subsection 3(b)(v) hereof) of such Additional
Shares of Common Stock would be less than the Exercise Price in effect on
the date of and immediately prior to such issue, or such record date, as
the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Exercise Price shall be made
upon the subsequent issue of Convertible Securities or shares of
Common Stock
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upon the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, upon the exercise,
conversion or exchange thereof, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase becoming effective, be recomputed to reflect
such increase insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised Option,
the Exercise Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Exercise Price;
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Exercise
Price then in effect shall forthwith be readjusted to such Exercise
Price as would have obtained had the adjustment which was made upon
the issuance of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such
change; and
(E) No readjustment pursuant to Clause (B) or (D) above shall
have the effect of increasing the Exercise Price to an amount which
exceeds the lower of (i) the Exercise Price on the original adjustment
date, or (ii) the Exercise Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(iv) Adjustment of Exercise Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
subsection 3(b)(iii), but excluding shares issued as a dividend or
distribution or upon a stock split or combination as provided in subsection
3(c)), without consideration or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such
issue, then and in such event, such Exercise Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares
of Common Stock which the
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aggregate consideration received or to be received by the Company for the
total number of Additional Shares of Common Stock so issued would purchase
at such Exercise Price; and (B) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
provided that, (i) for the purpose of this subsection 3(b)(iv), all shares
of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding (other than shares excluded from the definition of
"Additional Shares of Common Stock" by virtue of clause (II) of subsection
3(b)(i)(D)), and (ii) the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Options and Convertible Securities
shall not give effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities resulting from
the issuance of Additional Shares of Common Stock that is the subject of
this calculation.
Notwithstanding the foregoing, the applicable Exercise Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration. For purposes of this subsection
3(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts paid
or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets
of the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (I) and (II) above, as determined in good
faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common
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Stock deemed to have been issued pursuant to subsection 3(b)(iii),
relating to Options and Convertible Securities, shall be determined by
dividing
(x) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange
of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(c) Recapitalizations. If outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 3(c) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which
such Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then issuable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the
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provisions set forth in this Section 3 (including provisions with respect to
adjustment of the Exercise Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares issuable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Exercise Price
in effect immediately prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.
(f) Certificate of Adjustment. When any adjustment is required to be made
pursuant to this Section 3, the Company shall promptly mail to the Registered
Holder a certificate setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
such adjustment.
4. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 2(b) above.
5. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 5, (ii) a transfer made in accordance with Rule 144
under the Act, or (iii) a transfer by a Registered Holder which is a corporation
to an affiliate, as defined under Rule 144 of the Securities Act, if the
transferee agrees in writing to be subject to the terms of this Section.
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(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
6. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
7. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares issued upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such Warrant Shares immediately prior to the date on which a record is taken for
such Liquidating Dividend or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends or distribution are to
be determined.
8. Optional Redemption.
(a) At any time, the Company may, at its option, redeem all, but not less
than all, of the Warrant Shares for which the Registered Holder has not
exercised its right to be issued (the "Available Warrant Shares"), by paying
$3.33 per Available Warrant Share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each
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Available Warrant Share then redeemed (hereinafter referred to as the
"Redemption Price"); provided, however, that the Registered Holder may
immediately exercise its Warrant or Warrants until such time on or 15 days prior
to the Redemption Date (as defined below).
(b) At least 15 days prior to the date fixed for any redemption of
Available Warrant Shares (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to the Registered Holder, notifying such holder of the election of the
Company to redeem such Available Warrant Shares, specifying the Redemption Date
and calling upon the Registered Holder to surrender to the Company, in the
manner and at the place designated, its Warrant or Warrants, representing the
Available Warrant Shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to the Redemption Date (subject to the
Registered Holder's right to exercise such Warrants prior to the Redemption
Date), the Registered Holder shall surrender its Warrant or Warrants
representing Available Warrant Shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the Registered Holder and each
surrendered Warrant shall be cancelled. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price (or
the Registered Holder has exercised the Warrants prior to such Redemption Date),
all rights of the Registered Holder designated for redemption in the Redemption
Notice as the Registered Holder (except the right to receive the Redemption
Price without interest upon surrender of the Warrant) shall cease with respect
to the Warrant or Warrants representing the Available Warrant Shares, and such
Warrant or Warrants shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever.
9. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or
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cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time deliverable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
10. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
11. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 5
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
13. Transfers, etc.
(a) The Company will maintain a register containing the name and address of
the Registered Holder of this Warrant. Any Registered Holder may change its or
his address as shown on the warrant register by written notice to the Company
requesting such change.
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(b) Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
14. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
15. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
16. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
17. Headings. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
18. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of Delaware.
19. Registration Rights.
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(a) The Registered Holder shall have the registration rights with respect
to the Warrant Shares as specified in Section 9 of the Second Extension
Agreement.
(b) Furthermore, the Registered Holder shall be entitled to "piggyback"
registration rights for so long as the Registered Holder shall own Warrant
Shares. Whenever the Company proposes to file a Registration Statement (other
than pursuant to subsection 19(a) at any time and from time to time, it will,
prior to such filing, give written notice to the Registered Holder of its
intention to do so and, upon the written request of the Registered Holder given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Registered Holder to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of the Registered Holder; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to subsection 19(b)
without obligation to the Registered Holder or any persons or entities to whom
the rights under this Warrant are transferred by the Registered Holder, its
successors or assigns pursuant to Section 13 hereof.
(c) In connection with any registration under subsection 19(b) involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Warrant). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein. If the number of Registrable Shares to be
included in the offering in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of securities entitled to include them in such registration
shall participate in the registration pro rata based upon their total ownership
of shares of Common Stock (giving effect to the conversion into Common Stock of
all securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
20. Registration Procedures. If and whenever the Company is required by the
provisions of this Warrant to use its best efforts to effect the registration of
any of the Registrable Shares under the Securities Act, the Company shall:
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(a) furnish to the Registered Holder such number of copies as the
Registered Holder shall reasonably request of the prospectus, including a
preliminary prospectus and any amendments or supplements thereto, in
conformity with the requirements of the Securities Act;
(b) use its best efforts to register or qualify the Registrable Shares
covered by the Registration Statement under the securities laws of such
states as the Registered Holder shall reasonably request; provided,
however, that the Company shall not be required in connection with this
subsection 20(b) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(c) promptly notify the Registered Holder, if the Company has
delivered preliminary or final prospectuses to the Registered Holder and
after having done so, the prospectus is amended to comply with the
requirements of the Securities Act and, if requested by the Company, the
Registered Holder shall immediately cease making offers or sales of
Registrable Shares under the Registration Statement and return all
prospectuses to the Company. The Company shall promptly provide the
Registered Holder with revised prospectuses and, following receipt of the
revised prospectuses, the Registered Holder shall be free to resume making
offers and sales of the Registrable Shares; and
(d) pay the expenses incurred by it in complying with its obligations
under this Warrant in connection with registration rights, including all
registration and filing fees, exchange listing fees, expenses for the
preparation of the Registration Statement, prospectus and any amendments
and supplements thereto, printing and photocopy expenses, fees and expenses
of counsel for the Company, and fees and expenses of accountants for the
Company, but excluding: (i) selling commissions or underwriting discounts
incurred by the Registered Holder in connection with sales of Registrable
Shares under the Registration Statement and (ii) the fees and expenses of
any counsel retained by the Registered Holder.
21. Requirements of Registered Holder. The Company shall not be required to
effect the registration of any of the Registrable Shares under the Securities
Act pursuant to this Warrant unless:
(a) the Registered Holder owning such shares furnishes to the Company
in writing such information regarding such Registered Holder and the
proposed sale of Registrable Shares by such Registered Holder as the
Company may reasonably request in writing in connection with the filing of
a Registration Statement or as shall be required in connection therewith by
the Commission or any state securities law authorities; and
(b) Such Registered Holder shall have provided to the Company its
written agreement that in the event of any registration of any of the
Registrable
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Shares under the Securities Act pursuant to this Warrant, each Registered
Holder will indemnify the Company and its officers and directors and each
person, if any, who controls any thereof (within the meaning of the
Securities Act) against any and all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of any material fact contained in
any prospectus or other document incident to any registration,
qualification or compliance (or in any related Registration Statement,
notification or the like) or any omission (or alleged omission) to state
therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Registered Holder will
reimburse the Company and each other person indemnified pursuant to this
Section 21 for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this Section 21 shall apply
only if (and only to the extent that) such statement or omission was made
in reliance upon written information furnished to the Company in an
instrument duly executed by such Registered Holder and stated to be
specifically for use in such prospectus or other document (or related
Registration Statement, notification or the like) or any amendment or
supplement thereto; and, provided further that each Registered Holder's
liability hereunder with respect to any particular registration shall be
limited to an amount equal to the net proceeds received by such Registered
Holder from the Registrable Securities sold by such Registered Holder in
such registration.
22. Indemnification by Company. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Warrant, the
Company will indemnify each Registered Holder and each person who controls the
Registered Holder (within the meaning of the Securities Act) against any and all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of any
material fact contained in any prospectus or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration,
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qualification or compliance, and the Company will reimburse each such Registered
Holder and controlling person for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company in an instrument duly executed
by such Registered Holder or controlling person and specifically for use in such
prospectus or other document.
IGI, INC.
/s/ Edward B. Hager
-------------------------
By: Edward B. Hager
[Corporate Seal] Title: Chief Executive Officer
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EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full Exercise Price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[_] $______ in lawful money of the United States; and/or
[_] The cancellation of such portion of the attached Warrant as is exercisable
for a total of _____ Warrant Shares (using a Fair Market Value of $_____
per share for purposes of this calculation).
Signature:_____________________
Address:______________________
______________________
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EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_____________________ Signature:________________________________
Dated:_____________________ Witness:__________________________________
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. 7 Number of Shares: 120,000
(subject to adjustment)
Date of Issuance: March 11, 1999
IGI, INC.
Common Stock Purchase Warrant
(Void after October 1, 2004)
IGI, Inc., a Delaware corporation (the "Company"), for value received,
hereby certifies that Mellon Bank, N.A., a national banking association, or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time or from time to time
on or after the 60th day after the date of issuance and on or before October 1,
2004 at not later than 5:00 p.m. (Boston, Massachusetts time), 120,000 shares of
Common Stock, $.01 par value per share (the "Common Stock"), of the Company, at
a Exercise Price of $2.00 per share. The shares issuable upon exercise of this
Warrant, and the Exercise Price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares" and the "Exercise Price," respectively.
1. Certain Definitions. As used in this Warrant, the following terms shall
have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
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"Registrable Shares" means (i) the Warrant Shares, and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) upon any
sale in any manner to a person or entity which, by virtue of Section 13 of this
Warrant, is not entitled to the rights provided by this Warrant.
"Securities Act" means the Security Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Commission issued under
such Act, as they each may, from time to time, be in effect.
2. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
Exhibit I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Exercise Price payable in
respect of the number of Warrant Shares issued upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Exercise Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Exercise Price payable in respect of the
number of Warrant Shares being issued upon such exercise by (ii) the excess of
the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 2(c) below (the "Exercise Date")
over the Exercise Price per share. If the Registered Holder wishes to exercise
this Warrant pursuant to this method of payment with respect to the maximum
number of Warrant Shares issuable pursuant to this method, then the number of
Warrant Shares so issuable shall be equal to the total number of Warrant Shares,
minus the product obtained by multiplying (x) the total number of Warrant Shares
by (y) a fraction, the numerator of which shall be the Exercise Price per share
and the denominator of which shall be the Fair Market Value per share of Common
Stock as of the Exercise Date. The Fair Market Value per share of Common Stock
shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq Stock Market or another nationally recognized exchange or
trading system as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the average of the last reported sale
price per share of
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Common Stock thereon for the ten consecutive trading days ending on the day
immediately prior to the Exercise Date;
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq Stock Market or another nationally recognized exchange
or trading system as of the Exercise Date, the Fair Market Value per share
of Common Stock shall be deemed to be the amount most recently determined
in good faith by the Board of Directors to represent the fair market value
per share of the Common Stock (including without limitation a determination
for purposes of granting Common Stock options or issuing Common Stock under
an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof)
shall promptly notify the Registered Holder of the Fair Market Value per
share of Common Stock. Notwithstanding the foregoing, if the Board of
Directors has not made such a determination within a forty-five day period
prior to the Exercise Date, then (A) the Fair Market Value per share of
Common Stock shall be the amount next determined in good faith by the Board
of Directors to represent the fair market value per share of the Common
Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee
benefit plan of the Company), (B) the Board of Directors shall make such a
determination within 15 days of a request by the Registered Holder that it
do so, and (C) the exercise of this Warrant pursuant to this subsection
2(b) shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 2(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
2(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Registered Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 4
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or
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faces thereof for the number of Warrant Shares equal (without giving effect to
any adjustment therein) to the number of such shares called for on the face of
this Warrant minus the sum of (a) the number of such shares purchased by the
Registered Holder upon such exercise plus (b) the number of Warrant Shares (if
any) covered by the portion of this Warrant cancelled in payment of the Exercise
Price payable upon such exercise pursuant to subsection 2(b) above.
(e) Notwithstanding the foregoing, the Warrant shall become immediately
exercisable by the Registered Holder upon (i) the occurrence of an Event of
Default (as defined in the Second Extension Agreement dated March 11, 1999 by
and among the Registered Holder, Fleet Bank-N.H., the Company and certain of its
subsidiaries (the "Second Extension Agreement")) or (ii) the mailing date of
written notice by the Company of its intention to exercise its right under
Section 8 to redeem Available Warrant Shares (as defined under subsection 8(a)).
3. Adjustments.
(a) General. The Exercise Price shall be subject to adjustment from time to
time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
(i) Special Definitions. For purposes of this subsection 3(b), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in clause (II) of subsection
3(b)(i)(D) below.
(B) "Original Issue Date" shall mean the date on which this
Warrant was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to subsection 3(b)(iii) below,
deemed to be issued) by the Company after the Original Issue Date,
other than shares of Common Stock issued or issuable:
(I) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that are
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excluded from the definition of Additional Shares of Common
Stock by this clause (I); or
(II) to employees or directors of, or consultants to, the Company
pursuant to a plan adopted by the Board of Directors of the
Company.
(ii) No Adjustment of Exercise Price. No adjustments to the Exercise
Price shall be made unless the consideration per share (determined pursuant
to subsection 3(b)(v)) for an Additional Share of Common Stock issued or
deemed to be issued by the Company is less than the Exercise Price in
effect on the date of, and immediately prior to, the issue of such
Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock. If the Company at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to
be Additional Shares of Common Stock issued as of the time of such issue
or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to subsection 3(b)(v) hereof) of such Additional
Shares of Common Stock would be less than the Exercise Price in effect on
the date of and immediately prior to such issue, or such record date, as
the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Exercise Price shall be made
upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, upon the exercise,
conversion or exchange thereof, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase becoming effective, be recomputed to reflect
such increase insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
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(C) Upon the expiration or termination of any unexercised Option,
the Exercise Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Exercise Price;
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Exercise
Price then in effect shall forthwith be readjusted to such Exercise
Price as would have obtained had the adjustment which was made upon
the issuance of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such
change; and
(E) No readjustment pursuant to Clause (B) or (D) above shall
have the effect of increasing the Exercise Price to an amount which
exceeds the lower of (i) the Exercise Price on the original adjustment
date, or (ii) the Exercise Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(iv) Adjustment of Exercise Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
subsection 3(b)(iii), but excluding shares issued as a dividend or
distribution or upon a stock split or combination as provided in subsection
3(c)), without consideration or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such
issue, then and in such event, such Exercise Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares
of Common Stock which the aggregate consideration received or to be
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Exercise Price; and (B) the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the
purpose of this subsection 3(b)(iv), all shares of Common Stock issuable
upon exercise or conversion of Options or Convertible Securities
outstanding immediately prior to such issue shall be deemed to be
outstanding (other than shares excluded from the definition of "Additional
Shares of Common Stock" by virtue of clause (II) of subsection 3(b)(i)(D)),
and (ii) the number of shares of Common Stock deemed issuable upon
conversion of such outstanding Options and Convertible Securities shall not
give effect to any adjustments to the conversion price or conversion rate
of
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such Options or Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
Notwithstanding the foregoing, the applicable Exercise Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration. For purposes of this subsection
3(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the
time of such issue, as determined in good faith by the Board
of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Company for consideration which covers both,
be the proportion of such consideration so received,
computed as provided in clauses (I) and (II) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to subsection
3(b)(iii), relating to Options and Convertible Securities, shall
be determined by dividing
(x) the total amount, if any, received or receivable by
the Company as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or
the conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
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<PAGE>
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(c) Recapitalizations. If outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 3(c) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which
such Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then issuable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the provisions set forth in
this Section 3 (including provisions with respect to adjustment of the Exercise
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares purchasable upon
the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Exercise
Price in effect immediately prior to such adjustment, by (ii) the Exercise Price
in effect immediately after such adjustment.
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(f) Certificate of Adjustment. When any adjustment is required to be made
pursuant to this Section 3, the Company shall promptly mail to the Registered
Holder a certificate setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
such adjustment.
4. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 2(b) above.
5. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 5, (ii) a transfer made in accordance with Rule 144
under the Act, or (iii) a transfer by a Registered Holder which is a corporation
to an affiliate, as defined under Rule 144 of the Securities Act, if the
transferee agrees in writing to be subject to the terms of this Section.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
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The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
6. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
7. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares issued upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such Warrant Shares immediately prior to the date on which a record is taken for
such Liquidating Dividend or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends or distribution are to
be determined.
8. Optional Redemption.
(a) At any time, the Company may, at its option, redeem all, but not less
than all, of the Warrant Shares for which the Registered Holder has not
exercised its right to be issued (the "Available Warrant Shares"), by paying
$3.33 per Available Warrant Share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each Available Warrant Share then redeemed
(hereinafter referred to as the "Redemption Price"); provided, however, that the
Registered Holder may immediately exercise its Warrant or Warrants until such
time on or 15 days prior to the Redemption Date (as defined below).
(b) At least 15 days prior to the date fixed for any redemption of
Available Warrant Shares (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to the Registered Holder, notifying such holder of the election of the
Company to redeem such Available Warrant Shares, specifying the Redemption Date
and calling upon the Registered Holder to surrender to the Company, in the
manner and at the place designated, its Warrant or Warrants, representing the
Available Warrant Shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to the Redemption Date (subject to the
Registered Holder's right to exercise
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such Warrants prior to the Redemption Date), the Registered Holder shall
surrender its Warrant or Warrants representing Available Warrant Shares to the
Company, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the Registered Holder and each surrendered Warrant shall be cancelled. From and
after the Redemption Date, unless there shall have been a default in payment of
the Redemption Price (or the Registered Holder has exercised the Warrants prior
to such Redemption Date), all rights of the Registered Holder designated for
redemption in the Redemption Notice as the Registered Holder (except the right
to receive the Redemption Price without interest upon surrender of the Warrant)
shall cease with respect to the Warrant or Warrants representing the Available
Warrant Shares, and such Warrant or Warrants shall not thereafter be transferred
on the books of the Company or be deemed to be outstanding for any purpose
whatsoever.
9. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Registered Holder of this Warrant a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such other stock or
securities at the time deliverable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
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10. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
11. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 5
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
13. Transfers, etc.
(a) The Company will maintain a register containing the name and address of
the Registered Holder of this Warrant. Any Registered Holder may change its or
his address as shown on the warrant register by written notice to the Company
requesting such change.
(b) Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
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14. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
15. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
16. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
17. Headings. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
18. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of Delaware.
19. Registration Rights.
(a) The Registered Holder shall have the registration rights with respect
to the Warrant Shares as specified in Section 9 of the Second Extension
Agreement.
(b) Furthermore, the Registered Holder shall be entitled to "piggyback"
registration rights for so long as the Registered Holder shall own Warrant
Shares. Whenever the Company proposes to file a Registration Statement (other
than pursuant to subsection 19(a) at any time and from time to time, it will,
prior to such filing, give written notice to the Registered Holder of its
intention to do so and, upon the written request of the Registered Holder given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Registered Holder to register to be registered under the
Securities Act to the extent necessary to
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permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of the Registered Holder; provided that
the Company shall have the right to postpone or withdraw any registration
effected pursuant to this subsection 19(b) without obligation to the Registered
Holder or any persons or entities to which the rights under this Warrant are
transferred by the Registered Holder, its successors or assigns pursuant to
Section 13 hereof.
(c) In connection with any registration under subsection 19(b) involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Warrant). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein. If the number of Registrable Shares to be
included in the offering in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of securities entitled to include them in such registration
shall participate in the registration pro rata based upon their total ownership
of shares of Common Stock (giving effect to the conversion into Common Stock of
all securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
20. Registration Procedures. If and whenever the Company is required by the
provisions of this Warrant to use to effect the registration of any of the
Registrable Shares under the Securities Act, the Company shall:
(a) furnish to the Registered Holder such number of copies as the
Registered Holder shall reasonably request of the prospectus, including a
preliminary prospectus and any amendments or supplements thereto, in
conformity with the requirements of the Securities Act;
(b) use its best efforts to register or qualify the Registrable Shares
covered by the Registration Statement under the securities laws of such
states as the Registered Holder shall reasonably request; provided,
however, that the Company shall not be required in connection with this
subsection 20(b) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(c) promptly notify the Registered Holder, if the Company has
delivered preliminary or final prospectuses to the Registered Holder and
after having
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done so, the prospectus is amended to comply with the requirements of the
Securities Act and, if requested by the Company, the Registered Holder
shall immediately cease making offers or sales of Registrable Shares under
the Registration Statement and return all prospectuses to the Company. The
Company shall promptly provide the Registered Holder with revised
prospectuses and, following receipt of the revised prospectuses, the
Registered Holder shall be free to resume making offers and sales of the
Registrable Shares; and
(d) pay the expenses incurred by it in complying with its obligations
under this Warrant in connection with registration rights, including all
registration and filing fees, exchange listing fees, expenses for the
preparation of the Registration Statement, prospectus and any amendments
and supplements thereto, printing and photocopy expenses, fees and expenses
of counsel for the Company, and fees and expenses of accountants for the
Company, but excluding: (i) selling commissions or underwriting discounts
incurred by the Registered Holder in connection with sales of Registrable
Shares under the Registration Statement and (ii) the fees and expenses of
any counsel retained by the Registered Holder.
21. Requirements of Registered Holder. The Company shall not be required to
effect the registration of any of the Registrable Shares under the Securities
Act pursuant to this Warrant unless:
(a) the Registered Holder owning such shares furnishes to the Company
in writing such information regarding such Registered Holder and the
proposed sale of Registrable Shares by such Registered Holder as the
Company may reasonably request in writing in connection with the filing of
a Registration Statement or as shall be required in connection therewith by
the Commission or any state securities law authorities; and
(b) Such Registered Holder shall have provided to the Company its
written agreement that in the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Warrant, each
Registered Holder will indemnify the Company and its officers and directors
and each person, if any, who controls any thereof (within the meaning of
the Securities Act) against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact
contained in any prospectus or other document incident to any registration,
qualification or compliance (or in any related Registration Statement,
notification or the like) or any omission (or alleged omission) to state
therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Registered Holder will
reimburse the Company and each other person indemnified pursuant to this
Section 21 for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this Section 21 shall apply
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only if (and only to the extent that) such statement or omission was made
in reliance upon written information furnished to the Company in an
instrument duly executed by such Registered Holder and stated to be
specifically for use in such prospectus or other document (or related
Registration Statement, notification or the like) or any amendment or
supplement thereto; and, provided further that each Registered Holder's
liability hereunder with respect to any particular registration shall be
limited to an amount equal to the net proceeds received by such Registered
Holder from the Registrable Securities sold by such Registered Holder in
such registration.
22. Indemnification by Company. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Warrant, the
Company will indemnify each Registered Holder and each person who controls the
Registered Holder (within the meaning of the Securities Act) against any and all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of any
material fact contained in any prospectus or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Registered Holder and controlling person for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Registered Holder or
controlling person and specifically for use in such prospectus or other
document.
IGI, INC.
/s/ Edward B. Hager
-------------------------
By: Edward B. Hager
Title: Chief Executive Officer
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EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full Exercise Price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[_] $______ in lawful money of the United States; and/or
[_] The cancellation of such portion of the attached Warrant as is exercisable
for a total of _____ Warrant Shares (using a Fair Market Value of $_____
per share for purposes of this calculation).
Signature:_____________________
Address:______________________
______________________
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_____________________ Signature:__________________________
Dated:_____________________ Witness:____________________________
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. 8 Number of Shares: 120,000
(subject to adjustment)
Date of Issuance: March 11, 1999
IGI, INC.
Common Stock Purchase Warrant
(Void after October 1, 2004)
IGI, Inc., a Delaware corporation (the "Company"), for value received,
hereby certifies that Mellon Bank, N.A., a national banking association, or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time or from time to time
on or after September 30, 1999 and on or before October 1, 2004 at not later
than 5:00 p.m. 120,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of the Company, at a Exercise Price of $2.00 per share unless,
by 5:00 p.m., Boston, Massachusetts time, on or before September 30, 1999,
either (a) all Obligations (as defined in the Second Extension Agreement dated
March 11, 1999 (the "Second Extension Agreement") by and among the Registered
Holder, Fleet Bank, N.A., the Company and certain of its subsidiaries) of the
Borrowers (as defined in the Second Extension Agreement) to the Lenders (as
defined in the Second Extension Agreement) shall have been paid in full, in
which case this Warrant and the Registered Holder's rights hereunder shall
expire, or (b) the Borrowers have delivered an acceptable commitment letter,
subject only to documentation and no further contingencies of any kind, from a
financial institution acceptable to the Lenders, contemplating a full refinance
of the existing Obligations which contemplate a closing within thirty (30) days,
in which case this Warrant's exercise start date shall be extended to commence
October 30, 1999; provided, however, if all Obligations to the Lenders have been
paid in full on or before such extended start date, this Warrant and the
Registered Holder's rights hereunder shall expire upon such payment. The shares
issuable upon exercise of this Warrant, and the exercise price per share, each
as adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Shares" and the "Exercise Price,"
respectively.
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1. Certain Definitions. As used in this Warrant, the following terms shall
have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registrable Shares" means (i) the Warrant Shares, and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) upon any
sale in any manner to a person or entity which, by virtue of Section 13 of this
Warrant, is not entitled to the rights provided by this Warrant.
"Securities Act" means the Security Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Commission issued under
such Act, as they each may, from time to time, be in effect.
2. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
Exhibit I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Exercise Price payable in
respect of the number of Warrant Shares issued upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Exercise Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Exercise Price payable in respect of the
number of Warrant Shares being issued upon such exercise by (ii) the excess of
the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 2(c) below (the "Exercise Date")
over the Exercise Price per share. If the Registered Holder wishes to exercise
this Warrant pursuant to this method of
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payment with respect to the maximum number of Warrant Shares issuable pursuant
to this method, then the number of Warrant Shares so issuable shall be equal to
the total number of Warrant Shares, minus the product obtained by multiplying
(x) the total number of Warrant Shares by (y) a fraction, the numerator of which
shall be the Exercise Price per share and the denominator of which shall be the
Fair Market Value per share of Common Stock as of the Exercise Date. The Fair
Market Value per share of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq Stock Market or another nationally recognized exchange or
trading system as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the average of the last reported sale
price per share of Common Stock thereon for the ten consecutive trading
days ending on the day immediately prior to the Exercise Date.
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq Stock Market or another nationally recognized exchange
or trading system as of the Exercise Date, the Fair Market Value per share
of Common Stock shall be deemed to be the amount most recently determined
in good faith by the Board of Directors to represent the fair market value
per share of the Common Stock (including without limitation a determination
for purposes of granting Common Stock options or issuing Common Stock under
an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof)
shall promptly notify the Registered Holder of the Fair Market Value per
share of Common Stock. Notwithstanding the foregoing, if the Board of
Directors has not made such a determination within a forty-five day period
prior to the Exercise Date, then (A) the Fair Market Value per share of
Common Stock shall be the amount next determined in good faith by the Board
of Directors to represent the fair market value per share of the Common
Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee
benefit plan of the Company), (B) the Board of Directors shall make such a
determination within 15 days of a request by the Registered Holder that it
do so, and (C) the exercise of this Warrant pursuant to this subsection
2(b) shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 2(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
2(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
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<PAGE>
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Registered Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 4
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the sum of (a) the number of such shares
purchased by the Registered Holder upon such exercise plus (b) the number
of Warrant Shares (if any) covered by the portion of this Warrant cancelled
in payment of the Exercise Price payable upon such exercise pursuant to
subsection 2(b) above.
(e) Notwithstanding the foregoing, this Warrant shall become immediately
exercisable by the Registered Holder upon (i) the occurrence of an Event of
Default (as defined in the Second Extension Agreement) or (ii) the mailing date
of written notice by the Company of its intention to exercise its right under
Section 8 to redeem Available Warrant Shares (as defined under subsection 8(a)).
3. Adjustments.
(a) General. The Exercise Price shall be subject to adjustment from time to
time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
(i) Special Definitions. For purposes of this subsection 3(b), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in clause (II) of subsection
3(b)(i)(D) below.
(B) "Original Issue Date" shall mean the date on which this
Warrant was first issued.
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<PAGE>
(C) "Convertible Securities" shall mean any evidences of indebtedness,
shares or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to subsection 3(b)(iii) below, deemed to
be issued) by the Company after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(I) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that are excluded from the
definition of Additional Shares of Common Stock by this clause
(I); or
(II) to employees or directors of, or consultants to, the Company
pursuant to a plan adopted by the Board of Directors of the
Company.
(ii) No Adjustment of Exercise Price. No adjustments to the Exercise
Price shall be made unless the consideration per share (determined pursuant
to subsection 3(b)(v)) for an Additional Share of Common Stock issued or
deemed to be issued by the Company is less than the Exercise Price in
effect on the date of, and immediately prior to, the issue of such
Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock. If the Company at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to
be Additional Shares of Common Stock issued as of the time of such issue
or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to subsection 3(b)(v) hereof) of such Additional
Shares of Common Stock would be less than the Exercise Price in effect on
the date of and immediately prior to such issue, or such record date, as
the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Exercise Price shall be made
upon the subsequent issue of Convertible Securities or shares of
Common Stock
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<PAGE>
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, upon the exercise,
conversion or exchange thereof, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase becoming effective, be recomputed to reflect
such increase insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised Option,
the Exercise Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Exercise Price;
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Exercise
Price then in effect shall forthwith be readjusted to such Exercise
Price as would have obtained had the adjustment which was made upon
the issuance of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such
change; and
(E) No readjustment pursuant to Clause (B) or (D) above shall
have the effect of increasing the Exercise Price to an amount which
exceeds the lower of (i) the Exercise Price on the original adjustment
date, or (ii) the Exercise Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(iv) Adjustment of Exercise Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to
subsection 3(b)(iii), but excluding shares issued as a dividend or
distribution or upon a stock split or combination as provided in subsection
3(c)), without consideration or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such
issue, then and in such event, such Exercise Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares
of Common Stock which the
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<PAGE>
aggregate consideration received or to be received by the Company for the
total number of Additional Shares of Common Stock so issued would purchase
at such Exercise Price; and (B) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
provided that, (i) for the purpose of this subsection 3(b)(iv), all shares
of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding (other than shares excluded from the definition of
"Additional Shares of Common Stock" by virtue of clause (II) of subsection
3(b)(i)(D)), and (ii) the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Options and Convertible Securities
shall not give effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities resulting from
the issuance of Additional Shares of Common Stock that is the subject of
this calculation.
Notwithstanding the foregoing, the applicable Exercise Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration. For purposes of this subsection
3(b), the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts paid
or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets
of the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (I) and (II) above, as determined in good
faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common
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<PAGE>
Stock deemed to have been issued pursuant to subsection 3(b)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Company as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(c) Recapitalizations. If outstanding shares of Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 3(c) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which
such Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then issuable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the
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<PAGE>
provisions set forth in this Section 3 (including provisions with respect to
adjustment of the Exercise Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares issuable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Exercise Price
in effect immediately prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.
(f) Certificate of Adjustment. When any adjustment is required to be made
pursuant to this Section 3, the Company shall promptly mail to the Registered
Holder a certificate setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
such adjustment.
4. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 2(b) above.
5. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) the Company first shall have
been furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 5, (ii) a transfer made in accordance with Rule 144
under the Act, or (iii) a transfer by a Registered Holder which is a corporation
to an affiliate, as defined under Rule 144 of the Securities Act, if the
transferee agrees in writing to be subject to the terms of this Section.
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(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
6. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
7. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares issued upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such Warrant Shares immediately prior to the date on which a record is taken for
such Liquidating Dividend or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends or distribution are to
be determined.
8. Optional Redemption.
(a) At any time, the Company may, at its option, redeem all, but not less
than all, of the Warrant Shares for which the Registered Holder has not
exercised its right to be issued (the "Available Warrant Shares"), by paying
$3.33 per Available Warrant Share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each
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Available Warrant Share then redeemed (hereinafter referred to as the
"Redemption Price"); provided, however, that the Registered Holder may
immediately exercise its Warrant or Warrants until such time on or 15 days prior
to the Redemption Date (as defined below).
(b) At least 15 days prior to the date fixed for any redemption of
Available Warrant Shares (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to the Registered Holder, notifying such holder of the election of the
Company to redeem such Available Warrant Shares, specifying the Redemption Date
and calling upon the Registered Holder to surrender to the Company, in the
manner and at the place designated, its Warrant or Warrants, representing the
Available Warrant Shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to the Redemption Date (subject to the
Registered Holder's right to exercise such Warrants prior to the Redemption
Date), the Registered Holder shall surrender its Warrant or Warrants
representing Available Warrant Shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the Registered Holder and each
surrendered Warrant shall be cancelled. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price (or
the Registered Holder has exercised the Warrants prior to such Redemption Date),
all rights of the Registered Holder designated for redemption in the Redemption
Notice as the Registered Holder (except the right to receive the Redemption
Price without interest upon surrender of the Warrant) shall cease with respect
to the Warrant or Warrants representing the Available Warrant Shares, and such
Warrant or Warrants shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever.
9. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving entity), or any transfer of
all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will
mail or
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cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (ii)
the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to take place, and the time, if any is to be fixed, as of which the holders
of record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities)
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation
or winding-up. Such notice shall be mailed at least ten (10) days prior to
the record date or effective date for the event specified in such notice.
10. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
11. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 5
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
13. Transfers, etc.
(a) The Company will maintain a register containing the name and address of
the Registered Holder of this Warrant. Any Registered Holder may change its or
his address as shown on the warrant register by written notice to the Company
requesting such change.
-12-
<PAGE>
(b) Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
14. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
15. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
16. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
17. Headings. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
18. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of Delaware.
19. Registration Rights.
-13-
<PAGE>
(a) The Registered Holder shall have the registration rights with respect
to the Warrant Shares as specified in Section 9 of the Second Extension
Agreement.
(b) Furthermore, the Registered Holder shall be entitled to "piggyback"
registration rights for so long as the Registered Holder shall own Warrant
Shares. Whenever the Company proposes to file a Registration Statement (other
than pursuant to subsection 19(a) at any time and from time to time, it will,
prior to such filing, give written notice to the Registered Holder of its
intention to do so and, upon the written request of the Registered Holder given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Registered Holder to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of the Registered Holder; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to subsection 19(b)
without obligation to the Registered Holder or any persons or entities to whom
the rights under this Warrant are transferred by the Registered Holder, its
successors or assigns pursuant to Section 13 hereof.
(c) In connection with any registration under subsection 19(b) involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Warrant). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein. If the number of Registrable Shares to be
included in the offering in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of securities entitled to include them in such registration
shall participate in the registration pro rata based upon their total ownership
of shares of Common Stock (giving effect to the conversion into Common Stock of
all securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
20. Registration Procedures. If and whenever the Company is required by the
provisions of this Warrant to use its best efforts to effect the registration of
any of the Registrable Shares under the Securities Act, the Company shall:
-14-
<PAGE>
(a) furnish to the Registered Holder such number of copies as the
Registered Holder shall reasonably request of the prospectus, including a
preliminary prospectus and any amendments or supplements thereto, in
conformity with the requirements of the Securities Act;
(b) use its best efforts to register or qualify the Registrable Shares
covered by the Registration Statement under the securities laws of such
states as the Registered Holder shall reasonably request; provided,
however, that the Company shall not be required in connection with this
subsection 20(b) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(c) promptly notify the Registered Holder, if the Company has
delivered preliminary or final prospectuses to the Registered Holder and
after having done so, the prospectus is amended to comply with the
requirements of the Securities Act and, if requested by the Company, the
Registered Holder shall immediately cease making offers or sales of
Registrable Shares under the Registration Statement and return all
prospectuses to the Company. The Company shall promptly provide the
Registered Holder with revised prospectuses and, following receipt of the
revised prospectuses, the Registered Holder shall be free to resume making
offers and sales of the Registrable Shares; and
(d) pay the expenses incurred by it in complying with its obligations
under this Warrant in connection with registration rights, including all
registration and filing fees, exchange listing fees, expenses for the
preparation of the Registration Statement, prospectus and any amendments
and supplements thereto, printing and photocopy expenses, fees and expenses
of counsel for the Company, and fees and expenses of accountants for the
Company, but excluding: (i) selling commissions or underwriting discounts
incurred by the Registered Holder in connection with sales of Registrable
Shares under the Registration Statement and (ii) the fees and expenses of
any counsel retained by the Registered Holder.
21. Requirements of Registered Holder. The Company shall not be required to
effect the registration of any of the Registrable Shares under the Securities
Act pursuant to this Warrant unless:
(a) the Registered Holder owning such shares furnishes to the Company
in writing such information regarding such Registered Holder and the
proposed sale of Registrable Shares by such Registered Holder as the
Company may reasonably request in writing in connection with the filing of
a Registration Statement or as shall be required in connection therewith by
the Commission or any state securities law authorities; and
(b) Such Registered Holder shall have provided to the Company its
written agreement that in the event of any registration of any of the
Registrable
-15-
<PAGE>
Shares under the Securities Act pursuant to this Warrant, each Registered
Holder will indemnify the Company and its officers and directors and each
person, if any, who controls any thereof (within the meaning of the
Securities Act) against any and all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of any material fact contained in
any prospectus or other document incident to any registration,
qualification or compliance (or in any related Registration Statement,
notification or the like) or any omission (or alleged omission) to state
therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Registered Holder will
reimburse the Company and each other person indemnified pursuant to this
Section 21 for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this Section 21 shall apply
only if (and only to the extent that) such statement or omission was made
in reliance upon written information furnished to the Company in an
instrument duly executed by such Registered Holder and stated to be
specifically for use in such prospectus or other document (or related
Registration Statement, notification or the like) or any amendment or
supplement thereto; and, provided further that each Registered Holder's
liability hereunder with respect to any particular registration shall be
limited to an amount equal to the net proceeds received by such Registered
Holder from the Registrable Securities sold by such Registered Holder in
such registration.
22. Indemnification by Company. In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Warrant, the
Company will indemnify each Registered Holder and each person who controls the
Registered Holder (within the meaning of the Securities Act) against any and all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of any
material fact contained in any prospectus or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated
-16-
<PAGE>
under the Securities Act applicable to the Company and relating to any action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Registered
Holder and controlling person for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company in an instrument duly executed
by such Registered Holder or controlling person and specifically for use in such
prospectus or other document.
IGI, INC.
/s/ Edward B. Hager
--------------------------------
By: Edward B. Hager
Title: Chief Executive Officer
<PAGE>
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full Exercise Price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[_] $______ in lawful money of the United States; and/or
[_] The cancellation of such portion of the attached Warrant as is exercisable
for a total of _____ Warrant Shares (using a Fair Market Value of $_____
per share for purposes of this calculation).
Signature:_____________________
Address:______________________
______________________
-18-
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_____________________ Signature:_________________
Dated:_____________________ Witness:___________________
Employment Agreement between
Paul Woitach ("Executive") and
IGI, Inc. ("Corporation")
1. Position: Executive is to serve as President and Chief Operating Officer of
corporation. Executive will also be nominated, as a director of the
Corporation at the earliest time in the future deemed appropriate by the
Board of Directors. Upon the retirement of the current Chief Executive
Officer of the Corporation, Executive will be the principal candidate for
the position of Chief Executive Officer.
2. Term: The Initial term of this agreement is one year, commencing May 1,
1998, (the "effective date") and continuing through April 30, 1999 and,
unless either party gives written notice to the other on or before February
28, 1999 or February 29, 2000 that the term will not be extended, the term
will be extended automatically through April 30, 2000 and April 30, 2001,
respectively.
3. Base Salary: Executive's Initial base salary will be $200,000 per year,
with review for possible merit increases, not less than annually, and with
no reduction permitted.
4. Cash Bonuses:
(a) Executive will receive bonuses at the end of 1998 and 1999 in amounts
equal to 20% of the base salary for each year with no reduction
permitted.
(b) Executive will receive additional annual performance bonuses for 1998
and each subsequent year based upon the terms of the Corporation' s
annual management performance bonus plan, which is to contain
reasonable terms developed promptly by the Compensation Committee of
the Corporation in consultation with Executive.
Group/Executive Benefits: Executive and his family may participate on terms
no less favorable to Executive than the terms provided to other senior
executives of the Corporation, (with all waiting periods waived) in any
group and/or executive life, hospitalization or disability insurance plan,
health program, pension, profit sharing, ESOP, 401(k) and similar benefit
plans (qualified, non-qualified and supplemental) or other fringe benefits
of the Corporation, including not more than four weeks of vacation
annually, and a monthly vehicle allowance.
The company will pay all healthcare premiums for the Executive and his
immediate family.
5. Equity Based Incentive Compensation:
(a) Executive is to receive as of the Effective Date, a grant of a
ten-year option to purchase 100,000 shares of the Corporation which
shall vest on the date which is six months after the Effective Date;
and, an additional option for 100,000 shares which shall be made on
January 5, 1999 and which shall vest on the first anniversary of the
Effective Date. The exercise price for the shares will be $2.00 per
share.
(b) Executive will receive additional option grants (and perhaps other
equity awards) in subsequent years consistent with the Corporation's
then-current policies and practices (which policies and practices will
be developed promptly by the Compensation Committee of the Corporation
in consultation with Executive which approval will not be withheld
unreasonably).
(c) All equity-based awards will fully vest upon a Change of Control (as
defined in paragraph 11, below).
<PAGE>
6. Automobile Allowance: Executive shall receive an automobile allowance in
the amount of $600.00 per month.
7. Relocation:
(a) The Corporation will pay all reasonable temporary living expenses for
Executive in a location near the headquarters of the Corporation. If
Executive elects to relocate his family's residence to be closer to
the headquarters of the Corporation, the Corporation will pay up to
$50,000 to cover all reasonable costs of such relocation
8. Termination: Employment under the agreement may be terminated:
(a) By Executive's death or disability,
(b) By the Corporation, upon written notice to Executive if for Cause (as
described in paragraph 9, below), or by giving at least 15 days'
written notice to Executive if not for Cause, or
(c) By Executive, with or without Good Reason (as described in paragraph
10, below), without liability to the Corporation, by giving at least
15 days' written notice to the Corporation.
9. Cause for Termination by the Corporation: "Cause" for the Corporation to
terminate Executive's employment shall mean:
(a) Executive's commission of an act materially and demonstrably
detrimental to the interests (including the goodwill) of the
Corporation or any of its subsidiaries, including violation of any
statutory or regulatory requirements applicable to the business of the
Corporation or any of its subsidiaries, which act constitutes willful
misconduct by Executive in the performance of his material duties to
the Corporation or any of its subsidiaries, or
(b) Executive's commission of any material act of dishonesty or breach of
trust resulting or intended to result in material personal gain or
enrichment of Executive at the expense of the Corporation or any of
its subsidiaries, or
(c) Executive's conviction of a felony involving moral turpitude, but
specifically excluding any conviction based entirely on vicarious
liability.
No act or failure to act will be considered "willful" unless it is done, or
omitted to be done, by Executive in bad faith or without reasonable belief that
his action or omission was in the best interests of the Corporation.
10. Good Reason for Termination by Executive: "Good Reason" for Executive to
terminate his employment shall mean:
(a) The failure to re-elect Executive as President and Chief Operating
Officer, or as a member of the Board of Directors as provided in
paragraph 1.
<PAGE>
(b) Assignment of duties inconsistent with Executive's position,
authority, duties or responsibilities, or any other action by the
Corporation which results in a substantial diminution of such
position, authority, duties or responsibilities, including any such
diminution resulting from a sale or other disposition of a substantial
portion of the assets of the corporation,
(c) Any substantial breach by the Corporation of any of the provisions of
Executive's employment agreement, or
(d) The Corporation giving notice to Executive that the term will not be
extended beyond April 30, 1999 or April 30, 2000 respectively.
In addition, termination by Executive for any reason during the 60-day
period immediately after a Change of Control shall be deemed to be a
termination for Good Reason.
11. Change of Control: A "Change of Control" will be deemed to have occurred
if:
(a) Any "person" (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), excluding for
this purpose the Corporation or any subsidiary of the Corporation, or
any employee benefit plan of the Corporation or any subsidiary of the
Corporation, or any person or entity organized, appointed or
established by the Corporation for or pursuant to the terms of such
plan which acquires beneficial ownership of voting securities of the
Corporation, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Corporation representing thirty-five percent (35%) or more of the
combined voting power of the Corporation's then outstanding
securities; provided, however, that no Change of Control will be
deemed to have occurred as a result of a change in ownership
percentage resulting solely from an acquisition of securities by the
Corporation; and provided further that no Change of Control will be
deemed to have occurred if a person inadvertently acquires an
ownership interest of 35% or more but then promptly reduces that
ownership interest below 35%;
(b) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at
the beginning of such two-year period constitute the Board of
Directors of the Corporation and no new director(s) (except for a
director designated by a person who has entered into an agreement with
the Corporation to effect a transaction described elsewhere in this
paragraph 11) whose election by the Board or nomination for election
by the Corporation's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously approved, cease for any reason
to constitute at least a majority thereof; or
(c) The shareholders of the Corporation approve a plan of complete
liquidation of the Corporation, an agreement for the sale of
disposition of the Corporation or all or substantially all of the
Corporation's assets, or a plan of merger or consolidation of the
Corporation with any other corporation, except for a merger or
consolidation in which the security owners of the Corporation
immediately prior to the merger or consolidation continue to own at
least sixty-five percent (65%) of the voting securities of the new (or
continued) entity immediately after such merger or consolidation.
<PAGE>
12. Benefits Upon Termination of Employment:
(a) If Executive's employment is terminated by death, disability,
discharge by the Corporation for Cause, or resignation by Executive
without Good Reason, Executive will be entitled to receive his base
salary through the date of termination, any bonus or incentive or
deferred compensation accrued as of the date of termination, and all
other benefits which have accrued as of the date of termination.
(b) If Executive's employment is terminated by death or disability,
Executive will be entitled to receive, in addition to the compensation
and benefits described in paragraph (a), above, the following
benefits:
(i) Immediate full vesting of all of Executive's otherwise unvested
options to purchase shares of the Corporation, which options will
be exercisable for a period of at least 2 years after the date of
termination of employment, and
(ii) Immediate vesting of all other equity or incentive compensation
awards to Executive, which are not otherwise vested.
(c) If, prior to May 1, 1999, Executive's employment is terminated by the
Corporation other than for Cause of disability or is terminated by
Executive for Good Reason, Executive will be entitled to receive, in
addition to the compensation and benefits described in paragraphs (a)
and (b), above, the following severance benefits:
(i) Payment in a lump sum of an amount equal to Executive's twelve
months Base Salary as in effect prior to the termination,
(ii) Payment in a lump sum of the pro rata portion of Executive's Base
Salary, guaranteed Cash Bonus, and target annual performance
bonus as defined in sections 4(a) and 4(b) for the year of
termination; and,
(iii) Payment in a lump sum of an amount equal to Executive's target
annual performance bonus for the year of termination,
(iv) Continuation, for a period of twelve months after the date of
termination , of Benefits and senior executive perquisites,
including automobile allowance, at least equal to those which
would have been provided if Executive's employment had continued
for that time, including auto allowance and
(v) Outplacement services, at the expense of the Corporation, from a
provider reasonably selected by Executive.
Provided, however if Executive's employment is terminated after April 30,
1999 by the Corporation other than for Cause disability or by Executive for
Good Reason, the compensation and benefits described above will be modified
in that the lump sum payments for base salary and bonuses will be one and
one half times the respective amounts described in subparagraphs (i) and
(iii), above, and the Benefits and perquisites described in subparagraph
(iv), above, will be continued for a period of eighteen months.
<PAGE>
(d) If any Change of Control severance agreement between the Corporation
and any other senior executive of the Corporation provides for any
additional type of compensation or benefit, or a higher level of a
particular type of compensation or benefit, compared to the
compensation and benefits otherwise provided for Executive by his
employment agreement in the event of the termination of Executive's
employment after a Change of Control, Executive will also receive that
additional type of, or higher level of, severance compensation or
benefit.
13. No Duty to Mitigate: Any severance benefits payable to Executive will not
be subject to reduction for any compensation received from other
employment.
14. Gross-Up Payment for Golden Parachute Taxes: If it is determined that any
payment by the Corporation to or for the benefit of Executive, under his
employment agreement otherwise, would be subject to the federal excise
taxes imposed on golden parachute payments, the Corporation will make an
additional payment to Executive (the "Gross-Up Payment") in an amount
sufficient to cover (a) any golden parachute excise tax payable by
Executive, (b) all taxes on the Gross-Up Payment, and (c) all interest
and/or penalties imposed with respect to such taxes.
15. Fees and Expenses:
The Corporation will pay all reasonable legal, accounting and other
professional fees and related expenses incurred by Executive in connection
with the negotiation and preparation of his employment agreement with the
Corporation, up to $2500.00
16. Indemnification: To the full extent permitted by law, and by the bylaws of
the Corporation, the Corporation will indemnify Executive (including the
advancement of expenses) for any judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred by
Executive in connection with the defense of any lawsuit or other claim to
which he is made a party by reason of being an officer, director or
employee of the Corporation or any of its subsidiaries. The Corporation
will maintain reasonable director and officer liability insurance coverage
for all acts or omissions of Executive during his employment with the
Corporation.
17. Binding of Successors: The Corporation will be required to have any
successor to all or substantially all of its business and/or assets
expressly assume and agree to perform Executive's employment agreement in
the same manner and to the same extent that the Corporation would be
required to perform if no such succession had taken place.
18. Completeness of Disclosure: The Corporation represents and warrants that it
has disclosed to Executive, prior to entering into his employment
agreement, all material facts regarding the financial condition of the
Corporation and the future conduct of business by the Corporation.
/s/ Edward B. Hager 4/6/99
- ------------------------------------------ -------------------------
IGI Inc. Date
/s/ Paul Woitach 4/6/99
- ------------------------------------------ -------------------------
Executive Date
Employment Agreement between
John Wall ("Executive") and
IGI, Inc. ("Corporation")
1. Position: Executive is to serve as Senior Vice President and Chief
Financial Officer of the Corporation.
2. Term: The Initial term of this agreement is one year, commencing June 1,
1998, (the "effective date") and continuing through May 30, 1999 and,
unless either party gives written notice to the other on or before ninety
days before the end of the term, the term will be extended automatically
from year to year.
3. Base Salary: Executive's Initial base salary will be $150,000 per year,
plus $20,000 deferred salary due upon the successful completion of one year
of service.
Group/Executive Benefits: Executive and his family may participate on terms
no less favorable to Executive than the terms provided to other senior vice
president executives of the Corporation, (with all waiting periods waived)
in any group and/or executive life, hospitalization or disability insurance
plan, health program, 401(k) and similar benefit plans (qualified,
non-qualified and supplemental) or other fringe benefits of the
Corporation, including not more than four weeks of vacation annually, and a
monthly vehicle allowance.
The company will pay all healthcare premiums for the Executive and his
immediate family.
4. Equity Based Incentive Compensation:
Executive is to receive as of the Effective Date, a grant of a ten-year
option to purchase 50,000 shares of the Corporation, 25,000 of which shall
vest on the date which is six months after the Effective Date; and, 25,000
of which shall vest on the first anniversary of the Effective Date. Other
performance based compensation is to be determined by the Compensation
Committee of the Board.
5. Automobile Allowance: Executive shall receive an automobile allowance in
the amount of $600.00 per month.
6. Change of Control: A "Change of Control" will be deemed to have occurred
if:
(a) Any "person" (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), excluding for
this purpose the Corporation or any subsidiary of the Corporation, or
any employee benefit plan of the Corporation or any subsidiary of the
Corporation, or any person or entity organized, appointed or
established by the Corporation for or pursuant to the terms of such
plan which acquires beneficial ownership of voting securities of the
Corporation, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of
the Corporation representing thirty-five percent (35%) or more of the
combined voting power of the Corporation's then outstanding
securities; provided, however, that no Change of Control will be
deemed to have occurred as a result of a change in ownership
percentage resulting solely from an acquisition of securities by the
Corporation; and provided further that no Change of Control will be
deemed to have occurred if a person inadvertently acquires an
ownership interest of 35% or more but then promptly reduces that
ownership interest below 35%;
(b) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at
the beginning of such two-year period constitute the Board of
Directors of the Corporation and no new director(s) (except for a
director designated by a person who has entered into an agreement with
the Corporation
<PAGE>
to effect a transaction described elsewhere in this paragraph 8) whose
election by the Board or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously approved, cease for any reason to constitute at least a
majority thereof; or
(c) The shareholders of the Corporation approve a plan of complete
liquidation of the Corporation, an agreement for the sale of
disposition of the Corporation or all or substantially all of the
Corporation's assets, or a plan of merger or consolidation of the
Corporation with any other corporation, except for a merger or
consolidation in which the security owners of the Corporation
immediately prior to the merger or consolidation continue to own at
least sixty-five percent (65%) of the voting securities of the new (or
continued) entity immediately after such merger or consolidation.
7. Benefits Upon Termination of Employment:
(a) If Executive's employment is terminated by death, disability,
discharge by the Corporation for Cause, or resignation, Executive will
be entitled to receive his base salary through the date of
termination, any bonus or incentive or deferred compensation accrued
as of the date of termination, and all other benefits which have
accrued as of the date of termination.
(b) If Executive's employment is terminated by death or disability,
Executive will be entitled to receive, in addition to the compensation
and benefits described in paragraph (a), above, the following
benefits:
(i) Immediate full vesting of all of Executive's otherwise unvested
options to purchase shares of the Corporation, which options will
be exercisable for a period of at least 2 years after the date of
termination of employment, and
(ii) Immediate vesting of all other equity or incentive compensation
awards to Executive, which are not otherwise vested.
(c) If Executive's employment is terminated by the Corporation other than
for Cause or disability, Executive will be entitled to receive, in
addition to the compensation and benefits described in paragraphs (a)
and (b), above, the following severance benefits:
(i) Payment in a lump sum of an amount equal to Executive's twelve
months salary as in effect prior to the termination,
(ii) Continuation, for a period of twelve months after the date of
termination , of Benefits and senior executive perquisites at
least equal to those which would have been provided if
Executive's employment had continued for that time, including
auto allowance and
(iii) Outplacement services, at the expense of the Corporation, from a
provider reasonably selected by Executive.
10. Indemnification: To the full extent permitted by law, and the bylaws of the
corporation, the Corporation will indemnify Executive (including the
advancement of expenses) for any judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred by
Executive in connection with the defense of any lawsuit or other claim to
which he is made a party, except due to intentional misconduct by reason of
being an officer, director or employee of the Corporation or any of its
subsidiaries. The Corporation will maintain reasonable director and officer
liability insurance coverage for all acts or omissions of Executive during
his employment with the Corporation.
<PAGE>
11. Binding of Successors: The Corporation will be required to have any
successor to all or substantially all of its business and/or assets
expressly assume and agree to perform Executive's employment agreement in
the same manner and to the same extent that the Corporation would be
required to perform if no such succession had taken place.
12. Completeness of Disclosure: The Corporation represents and warrants that it
has disclosed to Executive, prior to entering into his employment
agreement, all material facts regarding the financial condition of the
Corporation and the future conduct of business by the Corporation.
/s/ Edward B. Hager 4/6/99
- ------------------------------------------ -------------------------
IGI Inc. Date
/s/ John F. Wall 4/6/99
- ------------------------------------------ -------------------------
Executive Date
EXHIBIT 11
IGI, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(amounts in thousands, except per share information)
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997* 1996*
---------- ---------- ----------
<S> <C> <C> <C>
Net loss $ (3,029) $ (1,208) $ (481)
========== ========== ==========
Weighted average shares outstanding 9,470,413 9,457,938 9,323,440
Dilutive common stock equivalents (net of
Common Stock deemed reacquired) based on
Average market stock price -- -- --
---------- ---------- ----------
Diluted common and common equivalent shares 9,470,413 9,457,938 9,323,440
========== ========== ==========
Loss per common and common
equivalent share:
Basic $ (.32) $ (.13) $ (.05)
Diluted $ (.32) $ (.13) $ (.05)
</TABLE>
* Prior year amounts are restated to reflect the Company's change in inventory
costing method (See Note 1 to Consolidated Financial Statements).
53
EXHIBIT 21
IGI, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF IGI, INC.
IGEN, Inc., a Delaware corporation
ImmunoGenetics, Inc., a Delaware corporation
Marketing Aspects, Inc., a Delaware corporation
Blood Cells, Inc., a Delaware corporation
Flavorsome, Ltd., a Delaware corporation
Vista, Inc., a Virgin Island corporation
IGI Do Brasil, a Brazil corporation
Microburst, Inc., a Delaware corporation
54
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of IGI, Inc. on Form S-8 (No. 2-90713), on Form S-8 and S-3 (No. 33-35047), on
Form S-8 and S-3 (No. 33-43212), on Form S-3 (No. 33-47777), on Form S-3 (No.
33-54920), on Form S-8 (No. 33-63700), on Form S-8 (No. 33-65706), on Form S-8
(No. 33-58479), on Form S-8 (No. 33-65249), on Form S-3 (No. 333-27173), on Form
S-8 (No. 333-28183), on Form S-8 (No. 333-65553) and on Form S-8 (No.
333-67565), of our report dated March 31, 1999 on our audits of the consolidated
financial statements and financial statement schedule of IGI, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for the years ended December
31, 1998, 1997, and 1996, which report is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 31, 1999
55
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,068
<SECURITIES> 0
<RECEIVABLES> 6,978
<ALLOWANCES> 516
<INVENTORY> 7,406
<CURRENT-ASSETS> 17,084
<PP&E> 20,359
<DEPRECIATION> 10,880
<TOTAL-ASSETS> 32,056
<CURRENT-LIABILITIES> 25,191
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 7,989
<TOTAL-LIABILITY-AND-EQUITY> 32,056
<SALES> 31,995
<TOTAL-REVENUES> 33,195
<CGS> 16,954
<TOTAL-COSTS> 16,954
<OTHER-EXPENSES> 17,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,443
<INCOME-PRETAX> (4,320)
<INCOME-TAX> (1,291)
<INCOME-CONTINUING> (3,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,029)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 1,196 317
<SECURITIES> 0 0
<RECEIVABLES> 7,754 8,603
<ALLOWANCES> 903 238
<INVENTORY> 8,942 8,223
<CURRENT-ASSETS> 18,407 19,432
<PP&E> 19,884 19,248
<DEPRECIATION> 10,048 9,121
<TOTAL-ASSETS> 33,750 33,845
<CURRENT-LIABILITIES> 23,879 16,933
<BONDS> 0 0
0 0
0 0
<COMMON> 96 96
<OTHER-SE> 10,131 8,923
<TOTAL-LIABILITY-AND-EQUITY> 33,750 33,845
<SALES> 34,193 34,785
<TOTAL-REVENUES> 34,343 34,947
<CGS> 17,451 17,117
<TOTAL-COSTS> 17,451 17,117
<OTHER-EXPENSES> 16,672 16,498
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,853 1,984
<INCOME-PRETAX> (1,644) (854)
<INCOME-TAX> (436) (373)
<INCOME-CONTINUING> (1,208) (481)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,208) (481)
<EPS-PRIMARY> (.13) (.05)
<EPS-DILUTED> (.13) (.05)
</TABLE>
