<PAGE> 1
As filed with the Securities and Exchange Commission on August 9, 1995
Registration Statement No. 33-88070
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
VIRAGEN, INC.
(Name of Small Business Issuer in its Charter)
_______________
Delaware 2830 59-2101668
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation Code Number)
_______________
2343 West 76th Street
Hialeah, Florida 33016 2343 West 76th Street
(305) 557-6000 Hialeah, Florida 33016
(Address and telephone (Address of principal place
number of principal of business or intended principal
executive offices) place of business)
_______________
Gerald Smith
Viragen, Inc.
2343 West 76th Street
Hialeah, Florida 33016
(305) 557-6000
(Name, address and telephone number of agent for service)
_______________
With copies to:
Jim Schneider, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
New River Center
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33331
(305) 763-1200
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
_______________
<PAGE> 2
CALCULATION OF REGISTRATION FEE [UPDATE]
<TABLE>
<CAPTION>
============================================================================================================================
Title of Proposed Proposed
Each Class Maximum Maximum
of Securities Amount Offering Aggregate Amount of
to be to be price Offering Registration
Registered Registered per Unit(1) Price(1) Fee
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
(par value
$.01 per
share) 21,457,465(2) $1.34/.89/.76(3) $27,092,685(3) $9,343
Common Stock
issuable under
Consultants'
Warrants 480,340(4) $ .30/.60(5) $ 163,452 $ 56
Common Stock
issuable under
Placement Agent
Warrants 765,650(4) $ 0.52 $ 398,138 $ 137
============================================================================================================================
Total...................................................................................... $21,000(6)
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(b).
(2) Includes shares issued or issuable upon conversion or exercise of the
Company's Series A 10% Convertible Cumulative Preferred Stock and
Convertible Debentures of the Company, interest on such Cytoferon
Convertible Debentures or in exchange for equity interests of
Cytoferon, together with such additional indeterminate number of
shares as may be issued upon conversion or exercise of such
securities by reason of the anti-dilution provisions contained therein.
(3) The price with respect to 17,908,698 shares was estimated and based on
the average of the closing bid and asked prices on December 23, 1994.
The price with respect to 3,426,667 shares and 59,600 shares
additionally registered were estimated and is based on the average of
the closing bid and asked prices on March 23, 1995 and May 31, 1995,
respectively.
(4) Includes such additional indeterminate number of shares as may be
issued under such Warrants by reason of the anti-dilution provisions
contained therein.
(5) Represents 415,840 Warrants exercisable at $.30 per share and 64,500
Warrants exercisable at $.60 per share.
(6) Amount reflected was previously paid.
ii
<PAGE> 3
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
iii
<PAGE> 4
VIRAGEN, INC.
_______________
Cross Reference Sheet for Prospectus Under Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
<S> <C> <C>
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Prospectus Summary; High Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page; High Risk Factors
Price
6. Dilution Not Applicable
7. Selling Security Holders Sales by Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Sales by Selling Security Holders
9. Legal Proceedings Business
10. Directors, Executive Offi-
cers, Promoters and Control
Persons Management
11. Security Ownership of Cer-
tain Beneficial Owners and
Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters
14. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities Undertakings
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
15. Organization within Last
Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Management-Certain Relationships
Related Transactions and Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities;
Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compen-sation
22. Financial Statements Financial Statements
23. Changes in and Disagree-
ments with Accountants on
Accounting and Financial
Disclosure Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
v
<PAGE> 6
Preliminary Prospectus Dated August 9, 1995
Subject to Completion
PROSPECTUS
VIRAGEN, INC.
22,703,455 SHARES OF COMMON STOCK
There are 22,703,455 shares of Common Stock, par value $.01 per share
("Common Stock or "Shares") of Viragen, Inc. (the "Company" or "Viragen") being
offered by certain stockholders of the Company (the "Selling Security
Holders"), if at all, on a delayed basis, including shares previously issued
upon conversion of Convertible Debentures issued by the Company and its
affiliate, Cytoferon Corp. ("Cytoferon") (collectively referred to as the
"Debentures"), upon exchange of other securities of Cytoferon, and to be issued
upon conversion of the Company's Series A 10% Convertible Cumulative Preferred
Stock (the "Series A Preferred Stock") or upon exercise of the Company's Common
Stock Purchase Warrants (the "Warrants"). An aggregate of 11,636,167 shares of
Common Stock were acquired by Selling Security Holders in separate private
placements during the Company's 1995 fiscal year at either $.40 or $.60 per
share, and the balance of the shares of Common Stock were issued or will be
issued upon conversion or exercise of the aforementioned securites at prices
below the current market price of the Common Stock of the Company. See "Sales
by Selling Security Holders" and "Description of Securities."
The Company's Common Stock is traded on a limited basis on the OTC
Bulletin Board under the symbol "VRGN," and on August 4, 1995, the closing bid
price for the Common Stock was $.75. The Company intends to apply for
inclusion of its Common Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") at such time as the price of the
Company's Common Stock satisfies the NASDAQ minimum bid requirements of $3.00,
but there can be no assurances that such securities will be accepted for
inclusion in the NASDAQ System. Furthermore, there can be no assurances that a
substantial trading market for its Common Stock will develop or be sustained in
the future. At March 31, 1995, the net tangible book value of the Company's
Common Stock was approximately $0.08 per share. Accordingly, it is likely that
the purchasers in this offering will incur an immediate and substantial
dilution from the purchase price of their shares of Common Stock. See "Price
Range of Common Stock."
The Company has been advised by the Selling Security Holders that they
may sell all or a portion of the Shares offered hereby from time to time in the
over-the-counter market, in negotiated transactions, directly or through
brokers or otherwise, and that such shares will be sold at market prices
prevailing at the time of such sales or at negotiated prices. The Company will
not receive any of the proceeds from the sale of the Shares offered hereby
except upon exercise of the Warrants. In connection with such sales, the
Selling Security Holders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the Securities Act of 1933.
See "Use of Proceeds" and "Sales by Selling Security Holders."
_______________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL
PURCHASERS SHOULD NOT INVEST IN THESE SECURITIES UNLESS THEY CAN
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT HEREIN.
SEE "HIGH RISK FACTORS."
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this Prospectus is _______________, 1995
1
<PAGE> 7
All costs, expenses and fees in connection with the registration of
the shares of Common Stock offered hereby will be borne by the Company.
Brokerage commissions, if any, directly attributable to the sale of the Shares
will be borne by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-6
and 10b-7, may apply to their sales in the market and has furnished each of the
Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of
this Prospectus in connection with any sale of securities registered hereunder.
_______________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
_______________
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center New York, New York
10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon
written request addressed to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
2
<PAGE> 8
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information.
THE COMPANY
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
(the "Product") is a natural human leukocyte alpha interferon ("Natural
Interferon"). Natural Interferon is a protein substance that inhibits
malignant cell growth without materially interfering with normal cells.
Natural Interferon stimulates and modulates the human immune system and, in
addition, impedes the growth and propagation of various viruses. The Product
is a natural product produced from human white blood cells. Alpha
Leukoferon(TM) is the trade name for Viragen's Product in injectable form. The
Company's Product has not been approved by the United States Food and Drug
Administration ("FDA") and there can be no assurances that approval of the
Product will be obtained at any time in the future.
Viragen has been granted an investigatory license by the Florida
Department of Health and Rehabilitative Services ("HRS") under Florida Statute
499 of the Florida Drug and Cosmetic Act to conduct Investigation Study
Programs (hereinafter referred to as the "499 Program") and distribute the
Product to physicians for use in the treatment of Florida residents with
multiple sclerosis ("MS"), HIV/AIDS, AIDS-Related Complex ("ARC") and Kaposi's
Sarcoma. Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. Under its HRS investigatory license, Viragen has
been able to distribute the Product to authorized Florida physicians for use
in treating their Florida patients under approved study protocols. Presently,
the primary application for Viragen's Product is the treatment of MS.
The Company intends to seek to obtain FDA approvals for various uses
of the Product in the future. Such approval is expected to require several
years of clinical trials and substantial additional funding. To date, Viragen
has not distributed the Product other than for research and pursuant to its
3
<PAGE> 9
investigatory license, and until May 1993, Viragen had not actively operated
due to insufficient funds. Viragen expects to concentrate its efforts in
preparing, filing and processing its applications and obtaining approvals for
its Product from the FDA and the European Union ("EU"). The Company has
assembled an advisory committee consisting of scientists, medical researchers
and clinicians to assist the Company in its application to the FDA and the EU.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services ("HRS") to postpone enrollment of new
patients under its 499 Program until such time as the Company provided certain
administrative reports to the HRS and satisfied certain FDA inspection-related
comments concerning the Company's manufacturing processes and facility. On
March 17, 1995, the Company received further notice from HRS requesting that
Viragen demonstrate that its production technology complies with FDA current
Good Manufacturing Practices ("cGMP") and for the Company to postpone the
enrollment of new patients under the 499 Program until the Company
demonstrated such compliance.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. However, in July 1995, management of the Company determined to
discontinue enrollment of new patients under its 499 Program. This decision
was based primarily on management's intention to focus the Company's efforts
on obtaining FDA and EU approvals for its Product and avoiding complications
associated with any further expansion of the 499 Program, which potentially
had increasing commercial implications which could hinder the Company's
efforts in securing regulatory approvals. The Company is in the process of
negotiating a settlement agreement with the Florida HRS which would provide
for the elimination of the enrollment of new patients in its 499 Program
(except for certain limited enrollments approved by the Florida HRS for
humanitarian purposes), the continued participation by currently enrolled
patients in the 499 Program and resolution of all other issues.
While the elimination of enrollment of new patients has limited the
revenues that would have been generated under the 499 Program, management
believes that such elimination will not affect the undertaking of clinical
trials and the approval process for the Company's Product following submission
to the FDA and the EU, which submission will represent the focus of the
Company's efforts at the present time. See "Business."
Viragen's administrative office and manufacturing facilities are
located at 2343 West 76th Street, Hialeah, Florida 33016 (telephone no.
305/557-6000; telecopier no. 305/364-8158).
4
<PAGE> 10
THE OFFERING AND OUTSTANDING SECURITIES
<TABLE>
<S> <C>
Common Stock Outstanding 35,355,532 shares of Common
at June 30, 1995............ Stock
Common Stock Offered by 22,703,455 shares of Common
Selling Security Holders.... Stock
Common Stock issued in
private placements completed 11,633,167 shares of Common
in August and December 1994. Stock
Common Stock issued upon
conversion or exchange of
Cytoferon Securities......... 9,083,333 shares of Common
Stock(1)
Common Stock issued upon
conversion of Viragen
Debentures................... 666,668 shares of Common Stock
Series A Preferred Stock
Outstanding at June 30, 3,450 shares of Series A
1995......................... Preferred Stock(2)
Shares underlying all Common
Stock Purchase Options and
Warrants Outstanding at 4,405,990 shares of Common
June 30, 1995................ Stock(3)
Proceeds to be received upon
Exercise of Warrants ....... $561,590
Risk Factors.................. Investment in these securities
involves a high degree of risk.
See "High Risk Factors."
OTC Bulletin Board Symbol... VRGN(4)
</TABLE>
----------------
1. Includes 7,271,666 shares on conversion of $2,181,500 principal
amount of Cytoferon Debentures, 444,547 shares on conversion of $
133,364 of accrued interest on such Debentures, and 1,367,120 shares
received by equity holders of Cytoferon upon termination of operations
of Cytoferon. See "Business - Recent Developments and Change of
Control" and "Management - Certain Relationships and Related
Transactions."
2. Each share of Series A Preferred Stock is convertible into 4.26 shares
of Common Stock of the Company or an aggregate of 14,697 shares of
Common Stock.
3. Includes 1,245,990 shares of Common Stock underlying Warrants offered
hereby.
4. The Company intends to apply for inclusion of its Common Stock on
NASDAQ at such time as the price of the Company's Common Stock
satisfiesthe NASDAQ minimum bid requirement of $3.00 per share. The
Company's Common Stock does not presently qualify for inclusion based
on the current price of the Common Stock, and there can be no
assurances that the Common Stock will qualify for inclusion at any
time in the future.
5
<PAGE> 11
Inclusion on NASDAQ does not imply that an established trading market
will develop or be sustained for the Common Stock.
SUMMARY FINANCIAL INFORMATION
(Not covered by Accountant's Report)
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information
concerning the Company and is qualified by reference to the audited
consolidated financial statements and notes thereto and unaudited quarterly
financial statements prepared by the Registrant incorporated herein by
reference in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For Period
Between For the Years Ended December 31
Year Ended Jan. 1, and -------------------------------------------
June 30, 1994 June 30, 1993 1992 1991 1990 1989
------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 677 $ 53 $ 52 $ 147 $ 355 $ 313
Loss before extra-
ordinary credit $ (1,083) $ (311) $ (563) $ (716) $(2,490) $(2,001)
Net income (loss) $ (1,083) $ (311) $ (563) $ (716) $(2,490) $ 403*
Income (loss)
attributable to
common stock $ (1,087) $ (313) $ (573) $ (730) $(2,504) $ 389*
Net income (loss)
per average
common share
outstanding $ (.06) $ (.02) $ (.05) $ (.07) $ (.23) $ .05*
Weighted average
shares outstanding 18,686,751 14,463,038 11,478,914 10,933,669 10,745,816 8,539,412
----------------
</TABLE>
*Includes extraordinary credit of $2,404,033 ($.28 per share) resulting from
the settlement of debt with Medicore.
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Operating revenues $ 544 $ 412
Net loss $ (2,644) $ (717)
Loss
attributable to
common stock $ (2,647) $ (720)
Net loss
per average
common share
outstanding $ (.09) $ (.04)
Weighted average
shares outstanding 30,637,957 18,559,724
</TABLE>
6
<PAGE> 12
CONSOLIDATED BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
At March 31 At June 30 At December 31
------------------ ------------------- -----------------------------
1995 1994 1994 1993 1992 1991 1990
----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) $2,601 $ 233 $ 795 $ 250 $(942) $(1,115) $ (624)
Total Assets $4,071 $1,988 $2,744 $1,642 $ 983 $ 1,070 $1,430
Long Term debt $ 937 $1,011 $ 976 $1,034 $ 529 $ 0 $ 9
Stockholders'
equity (deficit) $2,742 $ 132 $ 546 $ 101 $(588) $ (88) $ 565
</TABLE>
HIGH RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of
risk and is highly speculative in nature. Prospective investors should
carefully consider the following risks and speculative factors, among others,
inherent in and affecting both the business of the Company and the value of the
Common Stock, including, among other matters, the following risk factors:
HISTORY OF LOSSES AND RISKS OF NEWLY DEVELOPED BUSINESS
From its inception through March 31, 1995, the Company has incurred
operating losses. Losses for the nine months ended March 31, 1995 and fiscal
year ended June 30, 1994 were $2,453,248 and $1,083,346, respectively. At
March 31, 1995, the Company had an accumulated deficit of $15,612,010,
working capital of $2,601,385 and stockholders' equity of $2,741,947. Although
the Company has begun to expand its operations and has generated limited
revenues for its working capital and investing needs, there can be no assurance
that the Company will be able to obtain regulatory approvals necessary for the
distribution of its Product or be able to produce and market its Product on a
profitable basis in the future. Results of operations in the future will be
influenced by numerous factors including technological developments, regulatory
costs and impediments, increases in expenses associated with sales growth,
market acceptance of the Company's Product, the capacity of the Company to
expand and maintain the quality of its Product, competition and the ability of
the Company to control costs. There can be no assurance that revenue growth or
profitability on a quarterly or annual basis can be obtained. Additionally,
the Company will be subject to all the risks incident to a rapidly developing
business with only a limited history of active operations. Prospective
investors should consider the frequency with which relatively newly developed
and/or expanding businesses encounter unforeseen expenses, difficulties,
complications and delays, as well as other factors such as the possibility of
competition with larger companies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
7
<PAGE> 13
ADDITIONAL FINANCING REQUIRED AND POSSIBLE LACK OF AVAILABILITY OF FUNDS
Viragen will require substantial financing in the future in order to
initiate and complete the clinical trials required to obtain FDA and European
Union approvals for the Product in the treatment of various viral and
immunological diseases, such as MS, HIV/AIDS and Hepatitis B and C. The
Company is substantially dependent upon the infusion of capital through private
placements, subsequent public financings or joint venture/strategic alliances
in order to initiate and complete the clinical trials necessary for FDA and EU
approvals. There is no assurance that such funding will be available upon
terms acceptable or feasible to the Company or its stockholders. Furthermore,
inasmuch as the Company will no longer be enrolling new paying patients under
its 499 Program, an additional source of funds has been eliminated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CURTAILMENT OF 499 PROGRAM; LOSS OF REVENUES RESULTING FROM CURTAILMENT.
The Company is licensed by the State of Florida Department of Health
and Rehabilitative Services to produce Natural Interferon within the State of
Florida and distribute it on a limited basis to Florida physicians for
investigatory use under approved protocols on Florida patients exclusively
within the State of Florida. Viragen is not permitted to advertise its Product
to the general public under its Florida license, although it may distribute its
Product as a prescription medication pursuant to approval protocols to
physicians in Florida. In December 1994, the Company received notification from
HRS to postpone enrollment of new patients under its 499 Program until such
time as the Company provided certain administrative reports to the HRS and
corrected to their satisfaction certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. In July 1995,
the Company discontinued enrollment of new patients in its 499 Program and is
negotiating a settlement agreement with the Florida HRS for this purpose which
is expected to be concluded in the near future. The elimination of enrollment
of new patients under the 499 Program has caused the loss of additional revenues
the Company would have been able to receive upon enrollment of new patients
under its 499 Program, which revenues would have offset, in part, the
significant costs of obtaining regulatory approvals for its Product. See
"Business - Regulation."
8
<PAGE> 14
LACK OF FDA AND EU APPROVAL; ADDITIONAL FUNDING NEEDED
The Product has not been approved by the FDA or EU for use in the
treatment of patients, and the Company may not presently distribute the Product
except pursuant to its Florida license under Florida Statute Section 499.018,
which the Company has curtailed in respect to the enrollment of new patients as
a result of actions by the HRS and the Company's decision to concentrate its
resources on obtaining FOA and EU approvals. The Company intends to seek FDA
and EU approval of the Product for use in treating certain diseases. The
Company will require additional clinical trials in order to obtain FDA and EU
approvals. The FDA and EU approval processes are unpredictable, and the process
may take several years to obtain either FDA or EU approval. There is, however,
no assurance that any FDA or EU approvals will be received at any time in the
future. Further trials will also require significant additional funding in
addition to the proceeds obtained from the financings previously undertaken.
There is no assurance that such funding can be obtained on a cost feasible
basis to the Company. See "Business - Regulation."
COMPETITION
Competition in the immunological and pharmaceutical products industry
is intense. Competitors include major pharmaceutical, chemical, energy and
food companies, some of which are already marketing genetically engineered
alpha and beta interferon products for MS, cancer and viral treatments, and
many of which are expanding into modern biotechnology. Competition is expected
to increase in the future based upon the perceived potential commercial
applications for such products. Various of Viragen's competitors have existing
programs, FDA approved and commercially marketed products or products in the
FDA clinical trial process, more experience in research, development and
clinical testing of pharmaceutical and biomedical products, and substantially
greater financial, marketing and human resources than the Company. See
"Business - Competition."
RISK OF TECHNOLOGICAL OBSOLESCENCE
The research and development of new biomedical products is
characterized by rapid technological change, which can severely alter the
production methods, cost, marketing and acceptance of biomedical products.
There is no assurance that the Company will have the resources to keep pace
with technological changes or that products developed by others will not
adversely affect the commercial feasibility of products that Viragen may
distribute. See "Business - Research and Development."
9
<PAGE> 15
GOVERNMENT REGULATION MAY AFFECT DEVELOPMENT AND DISTRIBUTION OF PRODUCT
All pharmaceutical manufacturers are subject to extensive state and
federal rules and regulations, and are required to maintain current Good
Manufacturing Practices as promulgated under FDA guidelines. Additional rules
and regulations are imposed by the EU. These rules and regulations are
constantly changing and may serve to restrict in whole or in part the ability
of the Company to produce and distribute its Product. If Viragen were not
ultimately to achieve compliance with these rules and regulations, it would
likely have a material adverse effect on the Company's activities and delay or
preclude the development of commercially viable operations. See "Business -
Regulation."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its products may
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. In September 1993, President Clinton announced a series of
legislative and regulatory proposals aimed at reforming the health care system.
While the legislative and regulatory proposals have been tabled temporarily and
while the Company cannot predict whether any such future legislative or
regulatory proposals will be adopted, the pendency of such proposals could have
a material adverse effect on the Company's ability to raise capital. Any such
reform measures, if adopted, could adversely affect the pricing of therapeutic
products in the United States or the amount of reimbursement available from
United States governmental agencies or third party insurers and could
materially adversely affect the Company in general.
In both domestic and foreign markets, sales of the Company's Product
will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price and cost effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's Product
will be considered cost effective or that adequate third-party reimbursement
will be available to enable the Company to maintain price levels sufficient to
realize an appropriate return
10
<PAGE> 16
on its investment in product development. Legislation and regulations
affecting the pricing of pharmaceuticals may change before the Company's
Product is approved for marketing. Adoption of such legislation or regulations
could further limit reimbursement for medical products and services.
RISK THAT PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT PROVIDE PROPRIETARY
PROTECTION
The Company has pending a U.S. Patent application relating to
interferon manufacturing technology and processes. Viragen intends to rely in
part on certain proprietary technology in the production of the Product. The
Company anticipates filing additional patents relating to its new technology
during the 1995 calendar year. There can be no assurances that such
proprietary technology will enable the Company to manufacture its Product more
efficiently and with greater efficacy so as to enable Viragen to compete
effectively with other manufacturers of competitive immunological and
pharmaceutical products. In addition, there is no assurance that others may not
independently develop the same or superior technology to Viragen's technology.
Furthermore, to the extent that Viragen's production of the Product is alleged
to breach a third party's patents or proprietary technology, it could have an
adverse impact on the Company, even if the Company were ultimately determined
not to have breached such party's patents or proprietary technology. There can
be no assurance that Viragen's pending patent applications will be approved,
and if granted, whether such patents will provide substantial protection to the
Company. See "Business - Patents."
RISKS OF TECHNOLOGY TRANSFERS
One of the Company's proposed marketing strategies is to sell the
right to use Viragen's technology and manufacturing protocols to third parties
who will use them to produce the Product outside the United States. There can
be no assurance that the Company's marketing program or the efforts of any
brokers engaged to assist the Company will be commercially successful. See
"Business - Marketing."
PRODUCT LIABILITY AND LIMITATIONS OF PRODUCT LIABILITY INSURANCE
The Company may be subject to claims for personal injuries or other
damages resulting from the Product. A successful claim could have a materially
adverse effect on the Company. The Company maintains product liability
insurance in the amount of $1,000,000, but there can be no assurance that such
insurance will be available in the future at commercially acceptable rates or
that such coverage will be adequate for the Company's purposes.
11
<PAGE> 17
EXISTENCE OF OPTIONS AND WARRANTS; POSSIBLE DILUTION
Assuming the exercise of the Warrants and conversion of the Series A
Preferred Stock, there will still be outstanding options and warrants to
purchase up to 3,160,000 shares of Common Stock of the Company exercisable at
prices ranging from $0.30 to $1.00 per share. These options and warrants may
have certain dilutive effects because the holders will be given the opportunity
to profit from a rise in the market price of the underlying shares. The terms
on which the Company could obtain additional capital during the life of such
options and warrants may be adversely affected because the holders may be
expected to exercise them at a time when the Company might otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of such options and warrants. See
"Description of Securities."
CONTROL BY INSIDERS AND POSSIBLE LACK OF INFLUENCE BY OUTSIDE STOCKHOLDERS
As of June 30, 1995, the executive officers and directors of the
Company and their affiliates own or control 3,151,944 shares of Common Stock,
or 8.9% of the outstanding shares, as well as options to purchase an additional
2,700,000 shares of Viragen's Common Stock. Upon completion of this offering
and assuming conversion and exercise of the aforementioned securities, members
of management may be able to control in significant respects, through election
of directors and otherwise, the conduct of operations of the Company. See
"Principal Stockholders."
RISK OF DEPENDENCE ON KEY PERSONNEL
The Company's day-to-day operations are managed by its Chairman of the
Board and President, Mr. Gerald Smith, its Chief Executive Officer, Robert H.
Zeiger and its Executive Vice President and Chief Financial Officer, Mr.
Dennis W. Healey. The Company has entered into employment agreements with
Messrs. Smith, Zeiger and Healey which restrict competitive activities by them
during the term of their agreements and for a two-year period thereafter.
Although the Company intends to apply for "key man" life insurance on the lives
of Messrs. Smith, Zeiger and Healey for its benefit in the amount of $1,000,000
each, the loss of their services would adversely affect the conduct of the
Company's business. The Company's future success will depend in significant
part on its ability to attract and retain additional skilled personnel in
various phases of its operations. See "Management."
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of
12
<PAGE> 18
dividends is directly dependent upon future earnings of the Company, the
capital requirements of the Company, its financial requirements and other
factors to be determined by the Company's Board of Directors. For the
foreseeable future, it is anticipated that earnings, if any, which may be
generated from the Company's operations will be used to finance the growth of
the Company, and that cash dividends will not be paid to common stockholders.
See "Dividend Policy."
IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING
Initial purchasers of the Common Stock of the Company offered hereby
will incur an immediate and substantial dilution from the purchase price of
their shares. As of March 31, 1995, the net tangible book value of the
Company's Common Stock was approximately $0.08 per share.
POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of June 30, 1995, there were 23,801,553 shares of the Company's
Common Stock outstanding which were "restricted securities" as that term is
defined by Rule 144 under the Securities Act of 1933 as amended, (the
"Securities Act"), inclusive of shares being registered pursuant to this
Registration Statement of which this Prospectus is a part. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who has held restricted
securities for a period of two years may sell a limited number of shares to the
public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount
of sales of Common Stock covered by the Registration Statement of which this
Prospectus is a part, as well as such subsequently filed registration
statement, could also have a depressive effect on the market price of the
Company's Common Stock. See "Shares Eligible for Future Sales."
USE OF PREFERRED STOCK TO RESIST TAKEOVERS; POTENTIAL ADDITIONAL DILUTION
The Company's Certificate of Incorporation authorizes 375,000 shares
of Preferred Stock, of which 3,450 shares of Series A Preferred Stock are
presently issued and outstanding. As provided in the Company's Certificate of
Incorporation, Preferred Stock may be issued by resolutions of the Company's
Board of Directors from time to time without any action of the stockholders.
Such resolutions may authorize issuance of the Preferred Stock in one or more
series and may fix and determine dividend and liquidation preferences, voting
rights, conversion privileges, redemption terms and other privileges and rights
of the shares of each authorized
13
<PAGE> 19
series. While the Company includes such Preferred Stock in its capitalization
in order to enhance its financial flexibility, such Preferred Stock could
possibly be used by the Company as a means to preserve control by present
management in the event of a potential hostile takeover of the Company. In
addition, the issuance of large blocks of Preferred Stock could possibly have a
dilutive effect with respect to existing holders of Common Stock of the
Company. See "Description of Securities."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
SECURITIES PRICES
There is currently only a limited trading market for the Common Stock
of the Company. The Common Stock of the Company trades on the OTC Bulletin
Board under the symbol "VRGN," which is a limited market and subject to
substantial restrictions and limitations in comparison to the NASDAQ System.
There can be no assurance that a substantial trading market will develop (or be
sustained, if developed) for the Common Stock upon completion of this offering,
or that purchasers will be able to resell their securities or otherwise
liquidate their investment without considerable delay, if at all. Recent
history relating to the market prices of newly public or recently listed
companies indicates that, from time to time, there may be significant
volatility in the market price of the Company's securities because of factors
unrelated, as well as related, to the Company's operating performance. There
can be no assurances that the Company's Common Stock will ever qualify for
inclusion within the NASDAQ System or that more than a limited market will ever
develop for its Common Stock. See "Price Range of Common Stock."
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY
The Company's Common Stock is not presently included for trading on
the NASDAQ System, and there can be no assurances that the Company will
ultimately qualify for inclusion within that system. In order for an issuer to
be included in the NASDAQ System, it is required to have total assets of at
least $4,000,000, capital and surplus of at least $2,000,000, a minimum price
per share of not less than $3.00, have publicly held shares with a market value
of at least $1,000,000 as well as certain other criteria. No assurance can be
given that the Common Stock of the Company will ever qualify for inclusion on
the NASDAQ System. Until the Company's shares qualify for inclusion in the
NASDAQ system, the Company's Common Stock will be traded in the
over-the-counter markets on the OTC Bulletin Board. As a result, the Company's
Common Stock is covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding
14
<PAGE> 20
$200,000 or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company's securities and may also affect the ability
of stockholders to sell their shares in the secondary market. See "Description
of Securities."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated. These quotations
reflect prices between dealers, do not include retail mark-ups, mark-downs or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
First Quarter ended 09/30/92 $ 7/16 $ 5/32
Second Quarter ended 12/31/92 $ 13/32 $ 1/16
Third Quarter ended 03/31/93 $ 5/8 $ 1/16
Fourth Quarter ended 06/30/93 $ 1 $ 1/4
First Quarter ended 09/30/93 $ 7/8 $ 5/16
Second Quarter ended 12/21/93 $ 7/8 $ 5/16
Third Quarter ended 03/31/94 $ 27/32 $ 5/16
Fourth Quarter ended 06/30/94 $ 3/4 $13/32
First Quarter ended 09/30/94 $1 13/16 $ 3/8
Second Quarter ended 12/31/94 $1 13/16 $ 1/2
Third Quarter ended 03/31/95 $1 7/16 $ 1/2
Fourth Quarter ended 06/30/95 $1 7/16 $ 1/8
Period 07/01/95 - 07/31/95 $ 29/32 $ 1/4
</TABLE>
On August 4, 1995, the closing bid price for the Common Stock was $.75.
As of June 30, 1995, the approximate number of record holders of the
Company's Common Stock was 3,178.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
its incorporation in December 1980. Since the Company had been in the
development stage, has experienced losses since inception, and has significant
capital requirements in the future, it is not anticipated that funds will be
available for the issuance of dividends in the foreseeable future. The Company
presently intends to retain future earnings, if any, to finance the expansion
of its business and does not anticipate that any cash dividends will be paid in
the foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
15
<PAGE> 21
The Company has 3,450 shares of 10% Series A Preferred Stock
outstanding which are listed in the "pink sheets" published by the National
Quotation Bureau, Inc. (not trading on the OTC Bulletin Board). Each share of
Series A Preferred Stock is immediately convertible into 4.26 shares of Common
Stock. Dividends on the Series A Preferred Stock are cumulative, have priority
in relation to the Common Stock and are payable in either cash or Common Stock
at the option of the Company. The Series A Preferred Stock has voting rights
only if dividends are in arrears for five annual dividends. Upon such
occurrence, the voting would be limited to the election of two directors.
Voting rights terminate upon payment of the requisite cumulative dividends.
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at March 31, 1995, and as adjusted to give effect to the conversion
of the Series A Preferred Stock and the exercise of Warrants. All of the
Warrants are exercisable at exercise prices below the current market prices of
the Company's Common Stock.
<TABLE>
<CAPTION>
March 31, 1995
---------------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Notes Payable, less current portion(1)... $ 937,374 $ 937,374
Stockholders' equity:
Series A Preferred Stock, $1.00 par
value per share; 375,000 shares
authorized; 3,450 shares issued
and outstanding; no shares to be
outstanding............................ $ 3,450 $ -0-
Common Stock, $.01 par value per
share; 50,000,000 shares author-
ized; 35,355,532 shares issued
and outstanding; 36,616,219
shares to be outstanding............... $ 353,555 $ 366,162
Additional paid-in capital............... $ 18,514,202 $ 18,872,185
Accumulated deficit...................... $(15,803,010) $(15,612,010)
Notes due from officers.................. $ (326,250) $ (326,250)
------------ ------------
Total stockholders' equity.......... $ 2,741,947 $ 3,300,087
Notes payable and
total stockholders'
equity............................ $ 3,679,321 $ 4,237,461
============ ============
---------------
</TABLE>
(1) See Notes to Consolidated Financial Statements included elsewhere
herein for a description of terms of the Company's promissory notes,
long term obligations and capital lease obligations.
16
<PAGE> 22
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock for the accounts of the Selling Security Holders. There is included in
the Registration Statement of which this Prospectus is a part 480,340 shares
of Common Stock underlying warrants issued to consultants and 765,650 shares
underlying warrants issued to the placement agent and its designees in
connection with the Company's recently completed private placement. If all of
the warrants sold to consultants were exercised at $.30/.60 per share, the
Company would receive proceeds of approximately $163,452, and if the warrants
issued to the Company's placement agent and designees were exercised in their
entirety at an exercise price of $.52 per Share, the Company would receive
proceeds of approximately $398,138. Inasmuch as the Holders of all of the
aforementioned Warrants have no obligation to exercise such Warrants, the
Company is not in a position to evaluate when and if such derivative securities
will ever be exercised and the amount of proceeds that may be realized
therefrom. Accordingly, the Company is not able to allocate at this time the
proceeds that may be received from the exercise of such derivative securities,
and any proceeds realized will be utilized for working capital purposes, and
the development of FDA and EU protocols and clinical trial programs. To the
extent the proceeds of such exercise are not used immediately, they will be
invested in certificates of deposit, savings deposits, other interest bearing
instruments or will be left in the checking accounts of the Company.
SELECTED CONSOLIDATED FINANCIAL DATA
The financial data included in the following table has been selected
by the Company and has been derived from the consolidated financial statements
for the periods indicated. The following financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
17
<PAGE> 23
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For Period
Between For the Years Ended December 31
Year Ended Jan. 1, and -------------------------------------------------------
June 30, 1994 June 30, 1993 1992 1991 1990 1989
------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 677 $ 53 $ 52 $ 147 $ 355 $ 313
Loss before extra-
ordinary credit $ (1,083) $ (311) $ (563) $ (716) $ (2,490) $ (2,001)
Net income (loss) $ (1,083) $ (311) $ (563) $ (716) $ (2,490) $ 403*
Income (loss)
attributable to
common stock $ (1,087) $ (313) $ (573) $ (730) $ (2,504) $ 389*
Net income (loss)
per average
common share
outstanding $ (.06) $ (.02) $ (.05) $ (.07) $ (.23) $ .05*
Weighted average
shares outstanding 18,686,751 14,463,038 11,478,914 10,933,669 10,745,816 8,539,412
----------------
</TABLE>
*Includes extraordinary credit of $2,404,033 ($.28 per share) resulting from
the settlement of debt with Medicore.
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Operating revenues $ 544 $ 412
Net loss $ (2,644) $ (717)
Loss
attributable to
common stock $ (2,647) $ (720)
Net loss
per average
common share
outstanding $ (.09) $ (.04)
Weighted average
shares outstanding 30,637,957 18,559,724
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
At March 31 At June 30 At December 31
------------------- ------------------- -----------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) $2,601 $ 233 $ 795 $ 250 $(942) $(1,115) $ (624)
Total Assets $4,071 $1,988 $2,744 $1,642 $ 983 $ 1,070 $1,430
Long Term debt $ 937 $1,011 $ 976 $1,034 $ 529 $ 0 $ 9
Stockholders'
equity (deficit) $2,742 $ 132 $ 546 $ 101 $(588) $ (88) $ 565
</TABLE>
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has incurred operational losses and operated with a
negative cash flow since its inception in December 1980. Losses have totalled
approximately $607,000 and $2,644,248 for the three months ended and nine
months ended March 31, 1995 and $1,083,000, $311,000 and $264,000 (unaudited)
for the year ended June 30, 1994, and the six months periods ended June 30,
1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled $2,601,385 at March 31, 1995, an increase
of $1,806,786 over the year end balance of $795,000 at June 30, 1994. This
increase was attributable to the receipt during the fiscal 1995 first quarter
of approximately $2,275,000, representing the balance of the proceeds, net of
expenses, of the Company's $3.5 million private placement offering completed in
August 1994 and net proceeds of approximately $1,980,000, net of expenses, from
the Company's second private placement completed by December 31, 1994.
Approximately $911,000 in proceeds of the first private offering were received
prior to June 30, 1994. Working capital totalled approximately $795,000 at
June 30, 1994, an increase of $442,000 (178%) over the previous year. This
increase was primarily attributable to the receipt, prior to year end, of
partial proceeds of approximately $911,000, from the Company's private
placement offering completed in August 1994, the sale of Common Stock for
$400,000 in the first calendar quarter to its affiliate, Cytoferon Corp., and
the receipt of proceeds from the issuance of $200,000 in Convertible Debentures
in November 1993, such financings being offset to a large extent by operational
losses.
Certain components of working capital changed significantly between the
March 31, 1995 and June 30, 1994 periods, most notably cash balances, which
increased from $880,000 to $2,549,000 reflecting the completion of two private
placements of the Company's Common Stock in August and December, 1994. In
addition, certain components increased reflecting the recommencement of
manufacturing operations commencing in May 1993. In December 1994, the Company
received notification from HRS to postpone enrollment of new patients under its
499 Program until such time as the Company provided certain administrative
reports to HRS and corrected to their satisfaction certain FDA inspection -
related comments concerning the Company's manufacturing processes and facility.
In July 1995, as part of an ongoing negotiation and determination by management
to focus efforts on obtaining regulatory approvals, the Company has determined
to discontinue future enrollments under its 499 Program, with the possible
exception of a limited program for humanitarian purposes, involving offering
the Product on a non-payment basis. Accordingly, the Company has recorded a
$788,000 write-down of its inventory balances to a level reflecting product
on-hand needed to complete the course of treatment for patients actively
receiving the Product and enrolled prior to the elimination of new enrollments.
The last patient is scheduled to complete their course of treatment in March
1996. This adjustment was recognized in December 1994, the date the Company
received the initial HRS postponement notification.
On February 5, 1993, the Company entered into the Stock Agreement
("Stock Agreement") with Cytoferon, pursuant to which Cytoferon had the right
to purchase up to 11,640,000 shares of the Company's Common Stock, which would
have constituted approximately 49.5% of the then to-be-outstanding Common Stock
of the Company. Within the terms of the contract period, which ended May 31,
1993, Cytoferon invested $1,000,000 in the Company in exchange for 6,000,000
shares of Common Stock. In November 1993, the Company
19
<PAGE> 25
negotiated and executed an Additional Stock Purchase Agreement ("Additional
Stock Agreement") which provided Cytoferon the right to invest directly or
otherwise obtain additional investments of $500,000 within 60 days of execution
of the Additional Stock Agreement for 1,667,000 shares of the Company's Common
Stock. The investment threshold was subsequently met in part through the
purchase of $200,000 in Convertible Debentures of the Company.
Using the capital invested by Cytoferon, the Company recommenced the
production of its Alpha Leukoferon(TM) product in May 1993, and began limited
distribution of the Product in September 1993 for the treatment of MS and
HIV/AIDS patients residing in Florida through physicians specializing in the
treatment of those diseases. The Company is seeking to have its Product
embraced as a standard treatment for both intermittent and progressive multiple
sclerosis and further believes its Alpha Leukoferon(TM) product may be of
benefit for those suffering from HIV/AIDS and related illnesses.
In August 1994, the Company completed its $3.5 million private
placement offering of its Common Stock to accredited investors at $.40 per
share, resulting in the issuance of 8,919,000 shares. The net proceeds of the
offering were approximately $3,185,000, which are being utilized for the
acquisition of laboratory production equipment at an estimated cost of up to
$750,000, purchase of a Company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel and
working capital.
In December 1994, the Company completed a second private placement,
solely to accredited investors, of Common Stock at $.60 per share, which
enabled the Company to realize by December 31, 1994, gross proceeds of
$2,056,000 in consideration for the issuance of 3,426,667 shares. The proceeds
are intended to be utilized for implementation of the initial phase of the
Company's European market strategy, which includes the establishment of a
research and manufacturing facility in Europe during the 1995 calendar year.
It is the Company's intention to commence European clinical trials and seek the
necessary approvals for the sale of its Alpha-Leukoferon(TM) product in the EU
subject to receipt of additional funding necessary to conduct such trials.
Previously, the Company was being funded by Medicore, Inc.
("Medicore"), its former parent, and during 1992 received advances in the
amount of $301,000 to finance its minimal operations during this period.
Aggregate indebtedness due Medicore (inclusive of $108,000 in royalties due
under a previous agreement which is payable as the final payment under the
$2,400,000 total royalty to be paid) was $508,000 and $545,000 at March 31,
1995 and June 30, 1994, respectively. This indebtedness is secured by a
$429,000 note and mortgage on the realty and personal property of the Company.
20
<PAGE> 26
While subject to significant limitations, the Company has available
net tax operating loss carryforwards of approximately $10,800,000, expiring
between 1995 and 2009, which may be used to offset in part taxable income
during those periods.
In December, 1994, the Company received notification from HRS to
postpone enrollment of new patients under its 499 Program until such time as
the Company provided certain administrative reports to the HRS and
corrected to their satisfaction certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. In July 1995,
the Company discontinued enrollment of new patients in its 499 Program and is
negotiating a settlement agreement with the Florida HRS for this purpose which
is expected to be concluded in the near future. The elimination of enrollment
of new patients under the 499 Program will cause the loss of revenues the
Company would have been able to generate upon enrollment of new paying patients
under its 499 Program, which revenues could have offset, in part, the
significant cost of conducting clinical trials and obtaining regulatory
approvals for its Product.
Once the manufactured product is bottled, i.e., placed in a final
container, it carries a two year expiration. Currently, the Company is
shipping product with an expiration date of June 1996. Accordingly, an
inventory valuation adjustment stemming from product expiration is currently
considered unlikely. Additionally, given the Company's industry knowledge
related to human leukocyte interferon, particularly in the areas of efficacy
and minimal side effects (much of which information was received from the
Company's sponsored and state sanctioned clinical trial with the University of
Miami using the Company's proprietary technology), the Company believes
technological obsolescence for the foreseeable future will not impact the
marketability of the Product.
Management believes that the Company's improved Alpha-Leukoferon(TM)
product can be manufactured in sufficient quantity and will be priced at a
level to offer patients an attractive alternative treatment to the recombinant
or synthetic interferon. Management further believes that working capital
currently on-hand, as well as the continued limited distribution of the Product
under the 499 Program to existing patients will provide the Company with the
funds necessary to continue its current level of operations at least through
June 30, 1996.
RESULTS OF OPERATIONS
For the past several years, the majority of the Company's limited
revenues have been derived from sales of the Company's Natural Interferon
product, Alpha Leukoferon(TM), through Florida physicians (primarily
neurologists) for the treatment of Multiple Sclerosis in accordance with
Florida Statute 499. Distribution of the Company's Product is limited to the
State of Florida and is sanctioned by, and subject to, the provisions of
Florida Statute 499.018. This statute permits controlled distribution of the
Product in a clinical trial environment only within the State.
Commercialization of products under this statute is not permitted. As
indicated above, the Company discontinued enrollment of new patients in its 499
Program and expects to conclude a settlement agreement for this purpose with
the Florida HRS in the near future.
21
<PAGE> 27
Losses from operations have been incurred since inception and totalled
approximately $607,000 and $2,644,248 for the three months ended and nine
months ended March 31, 1995, $1,083,000 for the year ended June 30, 1994,
$313,000 and $271,000 (unaudited) for the six-month periods ended June 30,
1993, and 1992, $563,000 and $716,000 for the years ended December 31, 1992 and
1991, respectively.
The loss from operations for the quarter ended March 31, 1995 totalled
$607,276, compared to a loss of $425,437 for the previous quarter. This
increase in losses of approximately $182,000 was due primarily to an increase
in research and development costs between the periods of $180,000 stemming
from the Company's increased research efforts focused on its newly developed
Alpha Interferon product. Elements of the increase included increased salaries
and related expenses resulting from newly hired research personnel and related
expenses and the transfer of certain existing employees from the manufacturing
department to the research department upon the suspension of manufacturing
activities in December 1994. The increase in depreciation expense between the
periods also reflects the suspension of manufacturing operations as depreciation
costs on equipment associated with manufacturing had previously been
capitalized as a cost of manufacturing and recognized as a cost of sale when
product was sold.
The Company has recognized contract termination expenses of $525,000
in December 1994, reflecting the termination of the contractual relationship
between the Company and Cytoferon and related issuance of 1,750,000 shares of
Common Stock of Viragen. The transaction was initially approved by the
Company's Board of Directors in August 1994, subject to receipt of a fairness
opinion, which opinion was received in December 1994.
Sales for the year ended June 30, 1994 totalled $625,000, and were
derived almost entirely from distribution of the Company's Alpha Leukoferon(TM)
Product for the clinical study treatment of MS. As the Company was essentially
dormant due to the lack of working capital and depletion of its inventories in
the prior year, sales during the comparable period totalled only $9,000.
Through March 31, 1995, the Company has received $1,083,317 in revenues under
its HRS investigatory license. Management further believes that the Company's
Alpha Leukoferon(TM) product can ultimately be manufactured in sufficient
quantity and priced at a level to offer patients a cost effective alternative
treatment to treatments utilizing synthetic interferon and other drugs.
Cost of sales as a percentage of sales revenues totalled 52% for the
year ended June 30, 1994 and are expected to significantly increase as a
percentage of sales revenues during the 1995 fiscal year. This increase is due
to a significant drop (approximately 44%) in the selling price of the Company's
Alpha Leukoferon(TM) product. This sharp price reduction reflects the
Company's efforts to make the Product more price competitive with the synthetic
interferons, and accordingly, a more viable alternative patient treatment.
However, the Company anticipates implementation during the next year of
improved purification techniques which are expected to significantly reduce its
costs of production. While the actual production cost savings cannot yet be
accurately quantified, it is believed, although there can be no assurances,
that such reduction in production costs will yield savings at least sufficient
to recoup the gross profit margins lost through the price reduction.
Selling, general and administrative expenses increased significantly
between the most recent June 30 periods reflecting the recommencement of
manufacturing operations in May 1993 and related sales commencing in September
1993. Prior to recommencement of manufacturing operations, the Company was
essentially dormant. Included in these expenses were fees related to the
Cytoferon Management and Marketing Services Agreement of $173,000, product
liability insurance premiums of $74,000, sales
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commissions of $28,000 and royalty fees of $28,000. In addition the Company
incurred a substantial increase in legal fees including those associated with
litigation settled in January 1994 of approximately $120,000, fees associated
with a patent application and general corporate fees relating to the increase
in the overall level of operations. The increase also includes approximately
$117,000 charged to operations due to options granted to directors and officers
during the period, the payment of executive salaries for the entire period
commencing May 1993, which increase totalled $68,000 over the previous period,
as well as an increase in administrative staffing including related taxes and
benefits primarily consisting of group health insurance.
Research and development costs increased significantly over the prior
year reflecting the lack of research capital in 1993. The Company's research
efforts are focused primarily on improved production techniques for the
Company's Alpha Leukoferon(TM) product. These costs are expected to continue
to increase over future periods as the Company continues to seek improved
methods of manufacturing aimed at maintaining or improving product quality and
manufacturing efficiencies.
SIX MONTHS ENDED JUNE 30, 1993 COMPARED TO SIX MONTHS ENDED JUNE 30, 1992
For the six month period ended June 30, 1993 all revenues were derived
from interest income, rents received and reimbursement from insurance. The
Company depleted its Alpha Leukoferon inventory in July 1992, and did not
reinitiate manufacturing until May 1993, after receiving the necessary funds
through the sale of Common Stock. Accordingly, as no Product was available,
the Company recorded no sales during the six-month period ended June 30, 1993.
Sales of Natural Interferon for the six months ended June 30, 1992 were
$41,686, of which $16,200 or 39% of total sales, were from sales to the
University of Miami for the multiple sclerosis clinical trial program which
concluded in July 1992.
The decrease in depreciation and amortization is due primarily to
plant equipment used in product manufacturing reaching a fully
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depreciated status in 1992. Additionally, due to the recommencement of
production, a portion of the depreciation attributable to productive assets was
allocated to the cost of the related product manufactured.
Selling, general and administrative costs increased 59% when compared
to June 1992 primarily due to the rehiring of employees and related costs in
connection with the recommencement of production. At June 30, 1993, the Company
had nine employees in the manufacturing and quality control areas and four
employees in administration and support functions. For the same period in 1992
the Company had just one paid employee, its Controller.
Interest expense increased in 1993 as the result of increased
borrowings from Medicore, primarily during the period from July through
December, 1992 under a promissory note covering advances and loans at 1% over
prime.
1992 COMPARED TO 1991
Revenues declined approximately 65% during 1992 fiscal year compared
to the 1991 fiscal year, primarily due to a decline in the number of patients
enrolled in the MS study (conducted at the University of Miami) utilizing the
Company's Alpha Leukoferon(TM) product as the study neared its conclusion. MS
related sales accounted for 45% and 65% of interferon sales for the years ended
December 31, 1992 and 1991, respectively. This program was concluded in July
1992. Also at the end of the second quarter of 1992, the Company's interferon
inventory on hand had been depleted.
Cost of goods sold as a percentage of related revenues declined to 45%
during the 1992 fiscal year compared to 158% in 1991. This decline reflected
the sale in the 1992 fiscal year of certain inventoried items written down in
1991 due to questionable future value given the Company's financial condition
and lack of current operations at that time.
Research and development and selling, general and administrative
expenses dropped significantly in the 1992 fiscal year. The substantial
decline reflects significant cost cutting measures implemented to conserve
working capital and the suspension of research and development programs.
Selling, general and administrative expenses for the 1992 fiscal year includes
$63,792 attributable to a distribution of Common Stock to directors, employees
and others.
Interest expense increased 24% in the 1992 fiscal year when compared
with the 1991 fiscal year, primarily as the result of increased borrowings from
Medicore, based on a promissory note covering advances and loans at 1% over
prime.
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NINE MONTHS ENDED MARCH 31, 1995 COMPARED TO NINE MONTHS ENDED MARCH 31, 1994
Losses from operations totalled approximately $2,644,248 for the nine
months ended March 31, 1995, and $607,000 for the nine months ended March 31,
1994, an increase of $2,037,248 or 336%. The increase in losses reflects an
increase in various operating, developmental and administrative expenses
described hereafter offset to a limited extent by increased revenues as the
Company recommenced production and sales activities.
Sales for the nine months ended March 31, 1995 and 1994 totaled
$455,000 and $35,000, respectively and were derived almost entirely from
distribution of the Company's Alpha Leukoferon(TM) product for the clinical
study treatment of multiple sclerosis. As the Company was essentially dormant
prior to the receipt of investment capital (see Liquidity and Capital
Resources, above) due to the then lack of working capital and depletion of its
inventories in the prior year, sales of the Company's Alpha Leukoferon(TM)
product essentially commenced during the second quarter of fiscal 1994. Sales
for the third quarter of the prior year totaled $271,000 compared with the
$122,000 during the third quarter of the current year. This decrease was due
to the moratorium on the enrollment of new patients placed on the Company by
the Florida HRS.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company provided certain administrative
reports to the HRS and satisfied certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. On March 17,
1995, the Company received further notice from HRS requesting that Viragen
demonstrate that its production technology complies with FDA promulgated cGMP
and for the Company to continue the postponement of the enrollment of new
patients under the 499 Program until the Company demonstrated such compliance.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. In July 1995, management of the Company determined to discontinue
enrollment of new patients under its 499 Program. This decision was based
primarily on management's intention to focus the Company's efforts on
obtaining FDA and EU approvals for its Product and avoiding complications
associated with any further expansion of the 499 Program, which potentially had
increasing commercial implications which could hinder the Company's efforts in
securing regulatory approvals. The Company is in the process of negotiating a
settlement agreement with the Florida HRS which would provide for the
elimination of the enrollment of new patients in its 499 Program (except for
certain limited enrollments approved by the Florida HRS for humanitarian
purposes), the continued participation by currently enrolled patients in the
499 Program and resolution of all other issues. Accordingly, the Company
recorded a $788,000 write-down of its inventory balances to a level reflecting
product on-hand needed to complete the course of treatment for patients
actively receiving the Product and enrolled prior to the elimination of new
enrollments.
Management believes that the elimination of enrollment of new patients
has limited the revenues that would have been generated under the 499 Program.
However, such curtailment will not affect the undertaking of clinical trials
and the approval process for the Company's Product following submission to the
FDA and EU, which submission will represent the focus of the Company's effort
at the present time.
Cost of sales as a percentage of sales revenues totalled 59% for the
nine months ended March 31, 1995, and are expected to increase as a percentage
of sales revenues during the remainder of the current fiscal year. This
increase is due to a significant (44%) drop in the selling price of the
Company's Alpha Leukoferon(TM) product. This sharp price reduction reflects
the Company's efforts to make the Product more price competitive with the
synthetic interferons, and accordingly, a more viable alternative patient
treatment. However, the Company anticipates implementation during calendar 1995
of improved purification techniques which are expected to significantly reduce
its costs of production. While the actual production cost savings cannot yet
be accurately quantified, management believes, although there can be no
assurances, that such savings will at least be sufficient to recoup the gross
profit margins lost through the price reduction.
Research and development costs increased significantly over the prior
year reflecting the lack of research capital earlier in fiscal 1994. The
Company's research efforts are focused primarily on improved production
techniques for the Company's Alpha Leukoferon(TM) product. These costs are
expected to continue to increase over future periods as the Company continues
to seek improved methods of manufacturing aimed at maintaining or improving
product quality and manufacturing efficiencies.
The 33% increase in selling general and administrative expenses from
$854,000 for the nine months ended March 31, 1994, to $1,133,000 for the nine
months ended March 31, 1995, reflects the overall increase in the level of
production and sales activities including the addition of administrative
personnel with related benefit costs. During the bulk of the comparable
periods of the proceeding years, the Company was essentially dormant with
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limited distribution of the Company's product not commencing until September
1993. Included in those components, which increased as a direct result of
recent recommencement of sales, were fees relating to product liabilities
insurance coverage, sales and royalty fees.
The increase in interest expense resulted from the increase in the
bank prime rate between the periods. The Company has two mortgages on its
production facility, both of which are tied to the prime rate. The prime rate
was 9.0% and 8.5% as of March 31, 1995 and 1994, respectively.
INFLATION
Inflationary factors have not had a significant effect on the
Company's operations during any periods presented.
BUSINESS
GENERAL
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
is a natural human leukocyte alpha interferon. Natural Interferon is a protein
substance that inhibits malignant cell growth without materially interfering
with normal cells. Natural Interferon stimulates and modulates the human
immune system and, in addition, impedes the growth and propagation of various
viruses. The Product is a natural product produced from human white blood
cells. Alpha Leukoferon(TM) is the trade name for Viragen's Product in
injectable form. The Company's Product has not been approved by the United
States Food and Drug Administration and there can be no assurances that
approval of the Product will be obtained at any time in the future.
Viragen has been granted an investigatory license by the Florida
Department of Health and Rehabilitative Services under Florida Statute 499 of
the Florida Drug and Cosmetic Act to conduct Investigation Study Programs and
distribute the Product to physicians for use in the treatment of Florida
residents with Multiple Sclerosis, HIV/AIDS, AIDS-Related Complex and Kaposi's
Sarcoma. Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. Under its HRS investigatory license, Viragen has
been able to distribute the Product to authorized Florida physicians
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for use in treating their Florida patients under approved study protocols.
Presently, the primary application for Viragen's Product is the treatment of
MS. Through March 31, 1995, the Company has received $1,083,317 in revenues
under such HRS investigatory license.
The Company intends to seek to obtain FDA approvals for various uses
of the Product in the future. Such approval is expected to require several
years of clinical trials and substantial additional funding. To date, Viragen
has not distributed the Product other than for research and pursuant to its
investigatory license, and until May 1993, Viragen had not actively operated
due to insufficient funds. Viragen expects to concentrate its efforts in
preparing, filing and processing its applications and obtaining approvals for
its Product from the FDA and the European Union. The Company has assembled an
advisory committee consisting of scientists, medical researchers and clinicians
to assist the Company in its application to the FDA.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company provided certain administrative
reports to the HRS and satisfied certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. On March 17,
1995, the Company received further notice from HRS requesting that Viragen
demonstrate that its production technology complies with FDA current Good
Manufacturing Practices, and for the Company to postpone the enrollment of new
patients under the 499 Program until the Company demonstrated such compliance.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. However, in July 1995, management of the Company determined to
discontinue enrollment of new patients under its 499 Program. This decision
was based primarily on management's intention to focus the Company's efforts on
obtaining FDA and EU approvals for its Product and avoiding complications
associated with any further expansion of the 499 Program, which potentially had
increasing commercial implications which could hinder the Company's efforts in
securing regulatory approvals. The Company is in the process of negotiating a
settlement agreement with the Florida HRS which would provide for the
elimination of the enrollment of new patients in its 499 Program (except for
certain limited enrollments approved by the Florida HRS for humanitarian
purposes), the continued participation by currently enrolled patients in the
499 Program and resolution of all other issues. While management believes that
the elimination of enrollment of new patients has limited the revenues that
would have been generated under the 499 Program, management believes that such
elimination
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will not affect the approval process for the Company's Product following
submission to the FDA and the EU, which submission will represent the focus of
the Company's efforts at the present time.
RECENT DEVELOPMENTS AND CHANGE OF CONTROL
In August 1994, the Company completed a $3.5 million private placement
offering of its Common Stock. Net proceeds of the Offering of approximately
$3,185,000 are being utilized for the acquisition of laboratory production
equipment, purchase of a company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel and
working capital.
On February 5, 1993, the Company entered into an Agreement for Sale of
Stock, as amended on May 4, 1993 (the "Stock Agreement"), with Cytoferon Corp.,
a privately owned Florida corporation, which provided for Cytoferon to acquire
in various stages of investment up to 11,640,000 shares of the Company's Common
Stock for an aggregate consideration of $1,500,000. Mr. Gerald Smith, who
subsequently became the Company's Chairman and President, is the principal
shareholder and chief executive officer of Cytoferon. By May 31, 1993, the
expiration of the initial investment period, Cytoferon had invested $1,000,000
for 6,000,000 shares of the Company's Common Stock for an effective acquisition
price of $.167 per share. On May 11, 1993, stockholders of the Company
approved an amendment to the Certificate of Incorporation to increase the
Company's authorized capital to provide sufficient shares for Cytoferon's
investment. The initial $1,000,000 infusion of capital enabled the Company in
May 1993, to reinitiate production (which had been suspended in 1990) and
distribution of its Alpha Leukoferon(TM) product. In connection with
Cytoferon's investments, the Company entered into a Marketing and Management
Services Agreement ("MMS Agreement") with Cytoferon pursuant to which agreement
Cytoferon became consultant to and exclusive distributor of products of the
Company not approved by the FDA for national distribution in exchange for
certain fees and commissions. The Company does not own, manufacture or
distribute any products currently approved by the FDA for national use or
distribution.
Upon execution of the Stock Agreement and Cytoferon's initial $100,000
investment in the Company in February 1993, Mr. Gerald Smith, became a
director of the Company. In May 1993, Mr. Smith was elected President of the
Company following infusion of the initial $1,000,000. In accordance with the
terms of the Stock Agreement, in April 1993, following Cytoferon's investment
exceeding $600,000, Thomas K. Langbein resigned as an officer and director of
the Company and Jesse Hwa, a Cytoferon representative, was appointed as a
director. Mr. Hwa resigned as a director on July 22, 1993. The Company
negotiated an Additional Stock Purchase Agreement with Cytoferon, executed in
November 1993, which
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provided Cytoferon the right to invest an additional $500,000 within 60 days of
execution of the Additional Stock Agreement for 1,667,000 shares of the
Company's Common Stock. Additionally, this agreement provided Cytoferon the
right to receive other compensation as well as an additional 1,750,000 shares
of Common Stock of Viragen over a 24-month period subject to a formula of gross
sales, based on not less than $2,000,000 in gross sales the first year and
$4,000,000 in gross sales the second year following the execution of the
Additional Stock Agreement. In March 1994, the $500,000 investment threshold
was met and Cytoferon began receiving the maximum consulting fee provided for
under the terms of the MMS Agreement.
The MMS Agreement provided for a management consulting fee of $240,000
per year, subject to Cytoferon meeting certain per year and aggregate initial
term and renewal term sales requirements. In addition, the MMS Agreement
provided that Cytoferon was to be the exclusive worldwide distributor, subject
to maintaining certain sales minimums for all of the Company's non - FDA
approved products, for three years with two automatically renewable successive
three year terms, a 4% sales commission on such sales, 50% of all fees received
by the Company from the sale of any foreign franchises, licenses, technology
transfer or joint venture agreements and 20% of any ongoing foreign royalty
payments.
In August 1994, the Board of Directors of the Company voted to enter
into a further modifying agreement (the "Subsequent Agreement") with Cytoferon,
terminating the MMS Agreement and related agreements concurrent with the
issuance of the 1,750,000 shares of Common Stock and subject to receipt of a
fairness opinion. The Company's management believes it was in the best
interest of the Company to unify and consolidate management functions and
efforts and eliminate potential conflicts that may arise by virtue of minimum
sales requirements that could be inconsistent with the Company's plans to
introduce new production technologies and refinement of related protocols.
Accordingly, the Company executed the Subsequent Agreement which, following
receipt of a fairness opinion, provided for the termination of the earlier
stock purchase agreements and the MMS Agreement and the issuance of the shares
previously contingently issuable under the Subsequent Agreement through
restoration of the concept of the original Stock Agreement concurrent with the
cancellation of the MMS Agreement, Stock Agreement and Additional Stock
Agreement. The fairness opinion was accepted by the Company on December 21,
1994, and the Company and Cytoferon consummated the Subsequent Agreement. The
Company has recognized contract termination expenses of $525,000 in December
1994, reflecting the termination of contractual obligations between the Company
and Cytoferon and related issuance of 1,750,000 shares of Common Stock of the
Company.
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OPERATIONS
As a result of Cytoferon's initial capital investment, in March 1993,
the Company commenced rehiring production personnel and in May 1993,
re-established production of its Alpha Leukoferon(TM) National Interferon
product. Due to its then strained financial condition and for the several
years prior to the recommencement of production in May 1993, the Company had
limited its operations to the sale of its then existing interferon inventory
and, to a lesser extent, enzyme inventories (the Company no longer manufactures
or markets enzymes).
Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. In 1986, the Company received approval from the
Florida Department of Health and Rehabilitative Services under the Florida
Statutes, Chapter 499, to distribute its Natural Interferon product under
specific investigative study protocols, through hospitals, pharmacies and
Florida licensed physicians for treatment within the State of Florida. The
Company eventually received state approval for use of its Alpha Leukoferon(TM)
product in the treatment of MS, HIV/AIDS, AIDS Related Complex and AIDS/Kaposi
Sarcoma and 32 types of cancers, hepatitis and certain viral diseases. Through
management's decision to focus the Company's efforts and resources, the Company
is currently providing product under the Florida Statutes Chapter 499 for the
treatment of MS and HIV/AIDS. However, in July 1995, the Company discontinued
enrollment of new patients in its 499 Program and is negotiating a settlement
agreement with the Florida HRS for this purpose which is expected to be
concluded in the near future. See "Regulation" below. All other previously
approved indications for use of the Company's Alpha Leukoferon(TM) Product are
inactive.
Although the recent capital investments have allowed the Company to
re-establish its interferon production and expand its Florida clinical studies,
the Company will require additional financing to engage in clinical trials for
the purpose of obtaining FDA and EU approval for its Natural Interferon
product. Clinical testing toward FDA and EU approval is an expensive process
which is expected to take several years to accomplish with no assurance such
approval would eventually be obtained.
THE PRODUCT
The Company has primarily been working with human leukocyte
interferon-alpha. Natural interferon is one of the body's natural defensive
responses to foreign substances such as viruses, and is
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so named because it "interferes" with viral growth. Interferon consists of
protein molecules that induce antiviral, antitumor and immunomodulatory
responses within the body. Medical studies have indicated that interferons may
inhibit malignant cell and tumor growth without affecting normal cell activity.
There are two basic types of interferon-alpha differentiated primarily
by their method of manufacture and resultant composition. The first, as
produced by the Company, is natural, human leukocyte alpha interferon produced
by stimulated human white blood cells. The human white blood cells are
cultivated and stimulated by the introduction of a harmless stimulating virus
that induces the cells to produce natural interferon. The natural interferon
is then extracted and purified by chemical and filtration processes to produce
a highly concentrated product for clinical use. The second, recombination
alpha interferon, is a genetically engineered synthetic interferon produced by
recombinant DNA techniques ("Synthetic Interferon").
Studies have indicated that there may be significant differences
between the use of Natural Interferon and Synthetic Interferon. The Company is
advised that studies have found that treatment with Synthetic Interferon in
certain cases may cause an immunological response ("neutralizing and/or binding
antibodies") that reduces the effectiveness of the treatment. The Company
believes that the production of neutralizing and/or binding antibodies is
virtually non-existent in patients treated with Natural Interferon.
Furthermore, primarily due to other differences including dosage requirements
(less of the natural product is apparently required to treat the subject
diseases), the side effects of treatment with Natural Interferon, in most
instances, may be less severe.
THE INDUSTRY
Prior to 1985, Natural Interferon was the only type of interferon
available. Research institutions and other biomedical companies similar to the
Company were working to solve the manufacturing problems associated with
industrial-scale production of Natural Interferon. In 1985, Hoffman-LaRoche,
Inc. and Schering Plough Corporation, two major pharmaceutical companies,
successfully developed synthetic interferon using DNA technology and
subsequently received licenses from the FDA to produce and market their alpha
interferon product for the treatment of hairy-cell leukemia, hepatitis and
Kaposi's Sarcoma, an AIDS-related cancer. After the development of recombinant
alpha interferon, the medical community's interest in Natural Interferon
diminished, and most clinical studies thereafter were based on the synthetic
product, due to its availability and substantially lower unit cost compared to
Natural Interferon.
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The medical community's enthusiasm over the potential positive
therapeutic results of "interferon" treatment began to dwindle as clinical
studies revealed an ever-increasing number of patients treated with Synthetic
Interferon were relapsing due to the development of neutralizing and/or binding
antibodies. Supposition grew that there may be significant differences between
Natural Interferon and Synthetic Interferon, or that there may be disease or
dosage related differences.
Hoffman-LaRoche, Inc., and Schering Plough Corporation continue to
actively market their products and continue to advertise and promote the
therapeutic benefits of their respective Synthetic Interferon products in
medical journals and through direct physician contact. In 1993 Chiron Corp
received FDA approval of its recombinant beta interferon for the treatment of
received relapsing/remitting MS. In addition to the manufacturers of Synthetic
Interferon, a domestic manufacturer of natural interferon-alpha, received FDA
approval in 1989 to sell, in injectable form, their natural interferon product
for genital warts. They continue to market their product for this approved
indication.
APPLICATION OF INTERFERON
Multiple Sclerosis Program
Following approval for use of the Company's Product by HRS for the
treatment of MS, the Company, in February 1990, entered into a research
agreement with the University of Miami School of Medicine, Department of
Neurology. This research program related to a state-approved, patient funded,
multi-phase clinical trial for the treatment of MS with human leukocyte
interferon produced by the Company. The study was conducted on a double blind
basis with certain patients receiving different dosage levels of the Company's
Alpha Leukoferon(TM) product and certain patients receiving a placebo. The
agreement expired January 30, 1991 and the program concluded by mid-1992.
Recently published information on these trials indicated that, in a majority of
cases, the Company's interferon product provided favorable results in the
treatment of patients afflicted with intermittent and progressive MS.
With the infusion of equity capital commenced in 1993 and continuing
through the offering completed in December 1994, the Company recommenced
research and production and revenue producing studies focusing on MS and
HIV/AIDS patients residing in Florida.
Cancer and Viral Diseases
The Company has distributed human leukocyte interferon-alpha in
Florida for cancer patients pursuant to a variety of protocols (specifically
delineated structures of treatment). Minimal revenues were obtained in 1991
and 1992 until the Company's
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interferon inventory was depleted in June 1992. Production recommenced in May
1993.
The Company received approval from HRS in January 1988 for the
intrastate distribution of interferon for the treatment of venereal warts,
herpes labialis and genital herpes with injectable human leukocyte interferon
in conformance with Florida Statute 499. Due to the Company's limited capital
and operations during the last few years, HRS placed the cancer, hepatitis and
viral protocols on an inactive status. Any indications for the use of
interferon for cancer treatment would require resubmission of the protocol for
HRS approval. The Company presently does not have plans to request
reactivation of these protocols.
In July 1990, the Company received approval from the Florida HRS for
an HIV/AIDS treatment protocol with its Alpha Leukoferon(TM) in injectable
form. The Company's product has been approved for treatment of patients, who
are eligible Florida residents, with HIV/AIDS, AIDS Related Complex and
AIDS/Kaposi Sarcoma. In September 1993, the Company initiated distribution on
a limited basis of its Product under this protocol. At the present time only
three individuals are participating in this treatment protocol. However, in
December 1994, HRS informed the Company that no new patients may be enrolled
under the 499 Program, including those patients with HIV/AIDs, ARC and Kaposi's
Sarcoma, until the Company has satisfied HRS regarding compliance with FDA
promulgated cGMP requirements. In July 1995, the Company discontinued
enrollment of new patients in its 499 Program and is negotiating a settlement
agreement with the Florida HRS for this purpose which is expected to be
concluded in the near future.
MANUFACTURE OF INTERFERON
Human source leukocytes ("white blood cells") and a stimulating virus,
which raw materials are readily available to the Company, are needed to produce
human leukocyte interferon by conventional (non-recombinant) means. A
stimulating virus, harmless to humans, is introduced into the white blood cell
which induces the cell to produce interferon. The interferon is extracted and
purified by chemical and mechanical filtration processes. The Company's
natural human leukocyte interferon-alpha is distributed under the name Alpha
Leukoferon(TM).
Production methods developed by the Company as well as enhanced
methods currently under development have reduced the Company's costs of
production of Natural Interferon and accordingly, the differences in market
price between the natural and synthetic interferons. While production of the
natural product is still believed to be somewhat more costly on a per unit
basis, the Company believes that lower dosage requirements for the Natural
Interferon make it presently a cost effective alternative method of treatment.
The Company anticipates that it will be required to make capital expenditures
of between $750,000 and $1,500,000 in
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order to refine, acquire and install new manufacturing equipment associated
with its proprietary manufacturing process depending on the amount of equipment
and the number of locations in which such equipment will be installed. The
Company has also entered into an agreement with the University of Nebraska
Medical Center for purposes of refining certain aspects of such manufacturing
process which involves the payment of $100,000 over the term of such agreement,
which is expected to be completed in August 1995. The Company believes that
its new proprietary manufacturing technology should significantly reduce the
cost of production which, in turn, will further reduce the price of the
Product, thereby enabling it to be more competitive with Synthetic Interferons.
There can be no assurances that such new manufacturing technology will enable
the Company to achieve the level of manufacturing proficiency and Product
improvement anticipated by management.
With sufficient inventory to meet current patient Product demand and
in conjunction with the development of the new proprietary manufacturing
technology, the Company discontinued production of the Product under its
previous manufacturing method in December 1994. Subsequently, in December,
Viragen also received notice from the HRS concerning production and facilities
deficiencies. Inventory on hand will permit the treatment of patients
currently enrolled in the Company's 499 Program. The Company has been advised
by HRS that new patients may not be enrolled that were not previously enrolled,
and in July 1995, the Company discontinued enrollment of new patients in its
499 Program in response to the HRS request and due to management's
determination to focus efforts on obtaining FDA and EU approvals for its
Product.
RESEARCH AND DEVELOPMENT
The entire process of research, development and FDA approval (if
obtained), of a new pharmaceutical takes several years and requires substantial
funding. The Company is not currently engaged in any FDA clinical trials and,
while proposed for the future, commencement of such studies is dependent upon
obtaining significant additional funding. The Company was one of the first to
be licensed in 1983 under Florida law to manufacture and distribute interferon
in Florida for certain cancer protocols and for the treatment of viral
diseases. The Company's present focus is the distribution, manufacture and
continued research and development of Alpha Leukoferon(TM) for the treatment of
multiple sclerosis and HIV/AIDS.
In 1991, the Company, due to its then serious lack of financial
resources, suspended its research and development activities. In 1993,
following receipt of additional equity financing, the Company's technical
personnel recommenced limited research efforts focusing on improved production
techniques related to the Company's Alpha Leukoferon(TM) product. Following
the receipt of additional funding from the Company's private placement offering
completed in August 1994, research efforts and related costs
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<PAGE> 40
increased further and can be expected to continue to increase as the Company
continues its development efforts towards a new proprietary production
technology for its product. While limited, to the extent that sales revenues
exceed the related costs of such sales, gross profits would be available to
augment funds available for research and development costs as well as offset
selling general and administrative expenses. Research and development costs
totaled $342,738 and $34,743 for the nine-month periods ended March 31, 1995
and 1994 and $17,476 and $1,873 for the fiscal years ended June 30, 1994 and
1993, respectively.
Purification System
The Company has expended a substantial amount of research and
development time and resources towards the development of improved purification
techniques. These purification processes are believed to enhance the purity of
the product while increasing production yields thereby lowering production
costs and eventually the sales price of the product. In May 1992, and January
1994, the Company filed patent applications related to improved purification
processes. See "Patents" below.
Limited Partnership
In 1983 the Company contracted with Viragen Research Associates
Limited Partnership (the "Limited Partnership"), an unaffiliated entity, to
enable the Company to perform the research and development with respect to a
topical ointment utilizing transfer factor or interferon for the treatment of
herpes virus infections of the skin. The Company received $456,500 from the
Limited Partnership in 1984 for such research and assigned to the Limited
Partnership a worldwide licensing agreement to market any such topical ointment
product, and all patent rights to the processes and products developed in
connection with the research and development of the topical cream for the
treatment of herpes virus. The Limited Partnership is to receive 5% of the
gross revenues received by the Company from the sale of ointment products,
whether human leukocyte interferon or human lymphocyte transfer factor, used in
the topical treatment of herpes virus infections of the skin, until it has
received 200% of the money it paid to the Company for research and development
and thereafter 2% of the gross revenues. The Limited Partnership has been
inactive since 1984 and terminates June 30, 2002. All research and development
funds had been expended by the Limited Partnership without the
commercialization of any interferon or transfer factor ointment.
MARKETING
Florida legislation permits, on a limited and controlled basis, the
intrastate manufacture, distribution and use of certain investigational drugs,
including human leukocyte alpha interferon,
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<PAGE> 41
for the treatment of patients within the State under protocols approved by HRS.
The Company was one of the first to be licensed in Florida in 1983 to produce
and distribute a product under such legislation.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company provided certain administrative
reports to the HRS and satisfied certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. On March 17,
1995, the Company received further notice from HRS requesting that Viragen
demonstrate that its production technology complies with FDA promulgated cGMP
and for the Company to continue the postponement of the enrollment of new
patients under the 499 Program until the Company demonstrated such compliance.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. However, in July 1995, management of the Company determined to
discontinue enrollment of new patients under its 499 Program. This decision
was based primarily on management's intention to focus the Company's efforts on
obtaining FDA and EU approvals for its Product and avoiding complications
associated with any further expansion of the 499 Program, which potentially had
increasing commercial implications which could hinder the Company's efforts in
securing regulatory approvals. The Company is in the process of negotiating a
settlement agreement with the Florida HRS which would provide for the
elimination of the enrollment of new patients in its 499 Program (except for
certain limited enrollments approved by the Florida HRS for humanitarian
purposes), the continued participation by currently enrolled patients in the
499 Program and resolution of all other issues.
Management believes that the elimination of enrollment of new patients
has limited the revenues that would have been generated under the 499 Program.
However, management believes that such elimination will not affect the
undertaking of clinical trials and the approval process for the Company's
Product following submission to the FDA and EU, which submission will represent
the focus of the Company's efforts at the present time.
Primary Applications
Multiple Sclerosis
The Principal Investigator for the Company's state sanctioned MS
clinical study at the Multiple Sclerosis Center, University of Miami School of
Medicine, recently authored, together with other investigators, an abstract of
the favorable results achieved in many cases with the use of the Company's
Product in the treatment of all types of MS. The Company's Medical Director
was co-author of this article. The abstract was published in the Annals of
Neurology, the official journal of the American Neurological Association. The
Company has distributed its Product to qualified MS patients wishing to
participate in the Florida Clinical Study through enrolled Florida physicians
pursuant to its investigational study protocols.
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<PAGE> 42
Asymptomatic HIV, AIDS, ARC and AIDS/Kaposi's Sarcoma ("HIV/AIDS")
HIV/AIDS is a progressive, terminal disease for which there are few
therapeutic drugs available and no known cure. The Company's Florida
HRS-approved protocols permit interferon to be administered by itself or used
together with other drugs in the treatment of HIV/AIDS patients by enrolled
Florida physicians. To date, the Company has treated patients on a very
limited basis but believes its Product may prove efficacious in this area.
Reimbursement and Payments
The cost to patients for interferon treatment varies widely depending
upon the physician's fee, protocol, dosage and length of treatment. Revenues
from the distribution of interferon have been limited, due to the
investigational nature of the product, the cost, limited insurance coverage for
investigational new drugs, and the regulatory restrictions on advertising and
commercialization.
The current policy of both Medicare and State of Florida Medicaid is
not to reimburse for treatment until such time as a drug has been approved for
use by the FDA. As such, Medicare and Medicaid presently will not reimburse
patients for their costs in being treated with the Company's interferon for MS
or HIV/AIDS. Certain private insurers on a limited, case-by-case basis, have
in the past paid for treatments using the Company's interferon product.
Marketing and Management Services Agreement
A Marketing and Management Services Agreement with Cytoferon was
entered into effective May 12, 1993. The MMS Agreement provided that Cytoferon
will render advice to the Company relating to production, administration,
marketing and regulatory affairs. The maximum consulting fee payable to
Cytoferon was $204,000 for the first year and $240,000 per year for the next
two years of the three year term of the MMS Agreement, reduced on a pro-rata
basis based upon the extent of Cytoferon's investment in the Company. The
consulting fees are payable only if the Company meets certain annual sales
minimums and aggregates during the initial and renewal terms. The maximum
consulting fees were to be paid provided Cytoferon invested an additional
$500,000 in the Company under the terms of the Additional Stock Purchase
Agreement executed in November 1993. This additional investment was made by
Cytoferon in accordance with the terms of that agreement.
The MMS Agreement further provided that Cytoferon was to be the
exclusive worldwide distributor for all of the Company's non-FDA approved
products for three years with two automatically renewable successive three year
terms with a 4% sales commission on such sales. In order to have maintained
exclusivity, the Company's
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<PAGE> 43
sales of such non-FDA approved products were to have been at least $2,000,000,
$4,000,000 and $7,000,000 for the first, second and third years of the initial
term of the MMS Agreement, respectively. The worldwide distribution aspect of
the MMS Agreement was initially renewable if the Company had $13,000,000 in
non-FDA approved product sales during the initial term and $24,000,000 of such
product sales for the first renewal period. Cytoferon had the non-exclusive
right to market, nationally and internationally, all FDA approved products of
the Company, none of which the Company presently has, at the same 4% sales
commission.
Cytoferon also had the exclusive right to create certain marketing
programs for implementation in foreign countries. An additional provision of
the MMS Agreement provided for the Company to pay Cytoferon 50% of all fees
that the Company received from the sale of any foreign franchise, license,
technology transfer or joint venture agreements. In order for Cytoferon to
have maintained such foreign marketing program exclusivity, the Company was to
have realized a minimum per year and aggregate term sales level set forth above
for Cytoferon's worldwide distribution exclusivity. Furthermore, if the
Company received continuing royalties pursuant to any such foreign agreement,
Cytoferon would have received 20% of all such royalties. In addition, the
Company was obligated to continue to pay Cytoferon royalties on such agreements
in accordance with the terms of such foreign agreements after the termination
of the MMS Agreement. In order to have maintained its exclusive international
licensing, Cytoferon was to have caused general license fees and royalties to
be paid net to the Company of $250,000 per year the first two years, $500,000
the third year and cumulative license fees of $1,500,000 net to the Company, at
no less than $500,000 per year, during the first and second renewal terms of
three years.
In August 1994, the Board of Directors of the Company voted to enter
into the Subsequent Agreement with Cytoferon terminating the MMS Agreement and
related agreements and provided for the issuance of 1,750,000 shares which were
contingently issuable subject to receipt of a fairness opinion. The Company's
management believed it was in the long-term best interest of the Company to
unify and consolidate management functions and efforts and eliminate conflicts
that may have arisen by virtue of minimum sales requirements that could have
been inconsistent with the Company's plans to introduce new production
technologies and refinement of related protocols. Accordingly, the Company
executed the Subsequent Agreement which, following receipt of the fairness
opinion, provided for the termination of the MMS Agreement and related stock
purchase agreements and issuance of the shares provided for under the November
1993 Additional Stock Agreement. The fairness opinion was accepted by the
Company on December 21, 1994, and the Company consummated the Subsequent
Agreement recognizing contract termination expense of $525,000 effective
December 1994.
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Royalty Agreement
In consideration of Medicore, Inc., having financed the Company and
having deferred the payment of certain indebtedness (settled for stock in
November 1989), the Company modified its Royalty Agreement with Medicore
pursuant to which it was to pay Medicore a royalty of 12% of its net sales up
to $20,000,000 of interferon, transfer factor and products using such
substances, and a royalty of 7% for sales in excess of $20,000,000. The
royalty agreement was to expire on November 6, 2001.
Pursuant to the Stock Agreement with Cytoferon, the Company and
Medicore have further amended the royalty agreement to provide for a maximum
cap on royalties to be paid to Medicore of $2,400,000, with a schedule of
royalty payments due of 5% of the first $7,000,000 of sales of interferon and
related products, 4% of the next $10,000,000 of sales and 3% of the next
$55,000,000 of sales, with no royalties to be paid with respect to delivery and
payments of the Company's interferon and related products for six months
following May 12, 1993, the closing date of the Stock Agreement. This
amendment further provided that royalties of approximately $108,000 previously
accrued as payable to Medicore prior to amendment of the Royalty Agreement
would be payable as the final payment due under the total $2,400,000 royalty
obligation.
PATENTS
The Company believes its purification techniques presently under
development are unique and are capable of yielding a superior quality product
while reducing related production costs which will enable the Company to
eventually further lower the cost of the Product. The Company intends to file
an additional patent application relating to such techniques currently under
development as soon as feasible. The Company has also submitted several
foreign patent applications for an interferon-based composition for the skin.
United States patents have been issued to others with respect to
genetically engineered organisms and genes and human leukocyte interferon
purified to a certain degree. Subject to the extent of such existing patent
claims, the Company may have to negotiate license agreements with such patent
holders to use such processes and products in the Company's human leukocyte
interferon program.
The validity and enforceability of a patent can be challenged by
litigation after its issuance and if the outcome of such litigation is adverse
to the owner of the patent, other parties may be free to use the subject matter
covered by the patent. The degree of protection afforded by foreign patents
may be different than in the United States. There can be no assurance that
patents
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<PAGE> 45
now held or obtained in the future will be of substantial protection or
commercial benefit to the Company.
REGULATION
Federal
The Company's activities and the products and processes resulting from
such activities are subject to substantial government regulation, both state
and federal. The interstate manufacturing, advertising and sale of biologic
substances and pharmaceutical products are regulated by, and require approval
of, the FDA and comparable state and local agencies. While currently not
subject to FDA regulation, the Company, under State of Florida HRS guidelines,
must follow strict production procedures and maintain certain standards,
generally known as current Good Manufacturing Practices established by the FDA.
The FDA has established mandatory procedures and standards which apply to the
clinical testing, marketing and manufacture of such products. Obtaining FDA
approval for commercialization of a new product can take significant time and
capital since it involves procedures and often lengthy clinical trials
measuring product safety, potential toxicity, and efficacy, if any, under
specific protocols. The process of obtaining FDA approval includes extensive
animal testing to demonstrate product safety, toxicity and side effects, if
any, and preferred dosages; human testing to show the same and to document such
findings as effectiveness, toxicity and side effects; and biostatistical
analysis of data gathered in such studies, followed by the submission of all
information and data.
At the present time, the Company has no pending applications relative
to its Alpha-Leukoferon(TM) Product before the FDA for the treatment of MS or
any other disease indications, although the Company intends to submit an
Investigative New Drug Application to the FDA during the Company's fiscal year
commencing July 1, 1995. For this purpose, the Company has assembled a
Clinical Advisory Committee comprised of scientists, medical researchers and
clinicians who will act in an advisory capacity in order to assist the Company
in developing the medical, scientific and clinical aspects in support of the
Company's anticipated Investigative New Drug Application to be filed with the
FDA for approval of its Natural Interferon product.
In the United States, human clinical trial programs generally involve
a three phase process. Typically, Phase I trials are conducted in healthy
volunteers to determine the early side effect profile and the pattern of drug
distribution and metabolism. Phase II trials are conducted in groups of
patients afflicted with the target disease to provide sufficient data for the
statistical proof of efficacy and safety required by federal regulatory
agencies. If Phase II evaluations indicate that a product has shown indications
of potential effectiveness and has an acceptable safety profile,
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Phase III trials are undertaken to conclusively demonstrate clinical efficacy
and safety within an expanded population at multiple clinical study sites.
Sometimes, the FDA requires Phase IV studies to track patients after a product
is approved for commercial sale to identify side effects that may occur in a
small number of patients.
Regulatory approval of a new pharmaceutical product often taken fives
years or more (unless accelerated for life-threatening diseases) and involves
the expenditure of substantial resources. Approval depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials.
American pharmaceutical manufacturers who sell outside of the United
States are also subject to FDA jurisdiction. Semi-finished drugs may be
shipped under certain controlled circumstances for further processing,
packaging, labelling and distribution to third parties residing in approved
foreign countries, subject to such laws as apply in those countries. The
Company will have to comply with FDA rules and regulations as well as those of
the country to which the Company intends to ship the Product before it will be
permitted to export crude or finished interferon products outside the United
States.
Florida
The Company is and was one of the first to be licensed, in 1983, to
manufacture and use investigational drugs in Florida pursuant to Section
499.018 of the Florida Drug and Cosmetic Act. Rules were adopted by Florida
HRS allowing certain investigational drugs to be used for the treatment of
cancer and viral diseases. The Company originally received approval from
Florida HRS to manufacture, distribute and use interferon in injectable form
for the treatment of cancers, hepatitis and viral diseases within the State of
Florida. The Company's cancer, hepatitis and herpes protocols have been placed
on inactive status by HRS. The Company's current license for the manufacture
and distribution of drugs or other immunological products under the Florida
regulations is for investigational purposes, not commercialization.
Investigational products, such as the Company's Alpha Leukoferon(TM), may be
distributed to physicians for investigational use for patient treatment in
Florida, but under current Florida HRS regulations the product will not be
licensed for commercial sale within the state.
Florida physicians are required to inform the patient in writing that
therapy with the Company's product is not approved as a treatment or cure (for
each particular disease) by the FDA. The patient is required to sign a written
Informed Consent and authorization for the treatment.
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In March 1990, the Company received approval from HRS for the
intrastate distribution of its product, under Florida Statute 499.018 for its
multiple sclerosis investigational study protocol. In July, 1990, the Company
received approval from HRS for use of its product for HIV/AIDS treatment under
its investigational study protocols. With respect to HIV/AIDS, interferon
treatment is available to patients who are eligible Florida residents for the
entire treatment period and are afflicted with HIV, AIDS, ARC or AIDS/Kaposi's
Sarcoma. At the time that the Company's protocols were approved for MS and
HIV/AIDS, it did not have the sufficient funding to exploit the opportunities
available as a result of those approvals. Funding received during 1993 and
1994 enabled the Company to focus its product marketing in these areas.
In December 1994, the Company received a notice from the HRS citing
certain deficiencies in the Company'sHRS reporting, manufacturing and
distribution process. On March 17, 1995 and in response to various submissions
of the Company, Viragen received further notice from HRS relative to the
distribution of the Company's Product under the 499 Program. In such notice,
HRS requested that Viragen demonstrate that both its previous and new
production technology complies with cGMP and requested additional clarification
as to the level of compliance with cGMP necessary to satisfy FDA requirements.
HRS further required the Company to continue the postponement of the enrollment
of new patients under the 499 Program until the Company demonstrated
compliance with cGMP.
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The Company had requested a hearing from the HRS for purposes of
substantiating its compliance with FDA promulgated cGMP requirements, which
hearing was expected to occur in August, 1995. The Company is continuing to
provide its Product to patients currently receiving treatment or enrolled in
the Company's 499 Program consistent with existing treatment protocols and
reporting procedures established for the 499 Program. However, in July 1995,
management of the Company determined to discontinue enrollment of new patients
under its 499 Program. This decision was based primarily on management's
intention to focus the Company's efforts on obtaining FDA and EU approvals for
its Product and avoiding complications associated with any further expansion of
the 499 Program, which potentially had increasing commerical implications which
could hinder the Company's efforts in securing regulatory approvals. The
Company is in the process of negotiating a settlement agreement with the
Florida HRS which would provide for the elimination of the enrollment of new
patients in its 499 Program (except for certain limited enrollments approved by
the Flordia HRS for humanitarian purposes), the continued participation by
currently enrolled patients in the 499 Program and resolution of all other
issues. Furthermore, while the Company believes that the elimination of
enrollment of new patients has limited revenues that would have been generated
under the 499 Program, management believes that such elimination will not
affect the approval process for the Company's Product following submission of
its application to the FDA and the EU or its financial capacity to undertake
the application process.
Legislation continually is proposed relating to the safety, efficacy,
pricing and labeling of biomedical and pharmaceutical products. The Company is
unable to predict what effect, if any, changes in governmental regulations will
increase the cost of research and development or affect the time required to
develop and introduce new products.
European Union
In accordance with EU regulations, the Company's injectable Alpha
Interferon product is classified as a "protein identical to naturally occurring
human polypeptides and proteins." The EU regulations specifically provide for
a more abbreviated amount of preclinical studies for naturally occurring
substances such as the Company's Product than for genetically engineered
products. Accordingly, the Company expects to receive a more expeditious
review of the various EU processes and clinical trials prerequisite to market
approval.
For purposes of securing approvals and completing the necessary
clinical trials relative to the EU as well as to secure a sufficient blood
source for the manufacture of the Company's Natural Interferon product
following completion of EU trials, on July 20, 1995, the Company and its
wholly-owned subsidiary, Viragen (Scotland) Limited, a company incorporated
under the laws of Scotland ("VSL"), entered into a License and Manufacturing
Agreement with the Common Services Agency (the "Agency") of Scotland. The
Agency is an adjunct of the Scottish Government which acts on behalf of the
National Health Service in Scotland and the Scottish Natural Blood Transfusion
Service. The Agency owns and operates a blood fractionation facility in
Edinburgh, Scotland, and has the physical and technical capacity to manufacture
alpha interferon from human leukocytes. Securing a facility in the EU which
has available a sufficient qualified blood source was critical to enable the
Company to conduct EU clinical trials as well as for subsequent commercial
manufacturing.
In order to conduct clinical trials, the Scottish manufacturing plant
must be licensed specifically within EU approved manufacturing SOPs (i.e.,
Standard Operating Procedures). The Company has engaged a professionally
recognized consultant familiar with the EU regulatory process to assist in the
manufacturing and product submission prerequisite to EU approvals. In
addition, the Scottish National Blood Service has a full time regulatory
department, comprising the three persons, that have obtained approval of
numerous EU blood-derived products. The Scottish National Blood Service will
provide its best efforts, working in conjunction with the Company, to obtain a
manufacturing license and subsequent product approval at the conclusion of the
EU clinical studies. At such time as the Scottish National Blood Service
obtains a manufacturing license for the Company's Product, Viragen intends to
seek FDA manufacturing approval of the Scottish manufacturing facility. There
can be no assurance or guarantee that the EU will approve the manufacturing
facility or permit clinical testing and distribution of the Company's product
within the EU, or that the FDA will license or approve the Scottish
manufacturing facility or the Company's Product for clinical trials and
subsequent distribution in the United States.
VSL has been organized by the Company to undertake clinical trials in
the European Union and for sale of the Company's Alpha Interferon and related
products in the EU and other countries outside the United States. Viragen has
transferred patent and related proprietary rights associated with the
production of its Natural Interferon product and related technology to VSL for
this purpose. Under the grant of license, VSL has provided the Agency with an
exclusive license to use the proprietary rights covered by the License and
Manufacturing Agreement for the preparation, manufacture and supply of the
Product within the United Kingdom. The Agency has committed to manufacture the
Product in sufficient scale to accommodate the EU clinical trials and,
thereafter, for subsequent commercial sales in amounts to be agreed upon by the
parties. The Agency is also expect to conduct certain studies relevant to the
Product and cooperate with VSL and the Company to enable them to comply with
the laws and regulations of the EU in connection with the production of the
Product.
VSL and the Company, pursuant to the License and Manufacturing
Agreement, will provide the Agency with full access to the proprietary
technology and specialized equipment, provide suitable training to the Agency's
personnel and defray all costs associated with securing permits and regulatory
approvals, augmenting the Agency's facilities, if necessary, to manufacture the
Product and securing documentation substantiating compliance of the Product
with United Kingdom regulatory requirements. The Agency will receive
compensation for Products manufactured for use in clinical trials in the EU,
for Products manufactured for sales prior to obtaining new drug application
approval, and for sales following such approval, at varying percentages in
relation to costs. Products manufactured and utilized for humanitarian
purposes or for medical use by patients of the Scottish National Health
Services or the United Kingdom National Health Services will involve either no
payments to the Agency or payments at substantially discounted prices.
The term of the License and Manufacturing Agreement is for a five-year
period with two additional five-year extension terms at the option of VSL. The
Agreement also contains provisions protecting proprietary rights of VSL and the
Company and the preclusion of certain competitive activities by the Agency.
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COMPETITION
Competition in the research, development and production of interferon,
and other immunological products is intense and involves major, well
established and abundantly financed pharmaceutical and commercial entities as
well as major educational and scientific institutions. Many researchers, some
of whom have substantial private and government funding, are involved with
interferon production, including production of interferon through recombinant
DNA technology. A number of large companies including Hoffman-LaRoche, Inc.,
Schering Plough Corporation, Biogen, Inc., Chiron Corp., and Berlex
Laboratories are producing, selling, and/or conducting clinical trials with
recombinant interferons (alpha and beta) and other immunological products for
the treatment of cancer and viruses, including MS, HIV/AIDS/KS and Hepatitis.
In addition to the manufacturers of Synthetic Interferons, a domestic
manufacturer of natural interferon-alpha received FDA approval in 1989 to sell,
in injectable form, their natural interferon product for genital warts. They
continue to conduct FDA sanctioned clinical trials and to market their product
for their approved indication. The Company believes that competition is also
based on production ability, technological superiority, and ability to obtain
governmental approval for testing, manufacturing and marketing of the product.
The Company is not aware of any other drug manufacturer in Florida which is
actively marketing products on a large scale under Florida Statute 499.018.
The timing of the entry of a new pharmaceutical product into the
market is an important factor in determining that product's eventual success.
Early marketing has advantages in gaining product acceptance and market share.
The Company's ability to develop products, complete clinical studies and obtain
governmental approval in the past have been hampered by serious lack of
adequate capital. The Company re-initiated production and marketing operations
in May 1993 and is not presently a competitive factor in revenue volume in the
biopharmaceutical industry.
EMPLOYEES
In 1990, based upon its operational losses and limited liquidity, the
Company suspended manufacturing operations and reduced its staff to a minimum,
which in 1992 consisted of one paid employee, exclusive of executive officers
who received no cash compensation. Since its receipt of funding, the Company,
in March 1993, commenced rehiring personnel to re-initiate production of
interferon. As of June 30, 1995, the Company has 19 full-time employees and one
part time employee, of which 11 are production, research and quality
assurance/quality control personnel. The remaining eight employees are
administrative.
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PROPERTIES
The Company owns a 14,000 square foot building at 2343 West 76th
Street, Hialeah, Florida. The facility includes executive offices, a
laboratory for biomedical research and production and related facilities. The
Company refinanced its building through a $600,000 borrowing with a Florida
bank under a five year note and mortgage. The loan is reduced in equal monthly
principal payments of $2,500 with interest at 2% in excess of the prime rate.
A balloon payment of $450,000 is due August 1, 1996. The mortgage is on the
land, building and improvements, equipment and fixtures used in connection with
the realty. Medicore has guaranteed the principal and interest on this loan
together with expenses and fees upon any default. Medicore has an Acquisition
Agreement with the Company giving Medicore the right to cure defaults and
assume the mortgage and take title to the property. From the date of any such
default, the Company has the right, for a period of six months, to sell the
building for the greater of $600,000 or all sums due under the note and
mortgage and to Medicore, all of which aggregate approximately $906,700 at
September 30, 1994.
Prior to the receipt of equity capital in 1993, the Company received
advances from Medicore for operating capital. Aggregate indebtedness due
Medicore resulting from such advances was $398,220 at December 31, 1994, and
$453,612 and $483,510 at June 30, 1994 and 1993, respectively. This
indebtedness is secured by a $429,400 note and mortgage on the realty and
personal property of the Company.
The Company has leased 2,800 square feet in this building to Medicore
for the latter's administrative offices. The lease is for five years through
December 31, 1997, with two five-year renewals, at an annual rental of $19,600
plus taxes and utilities.
The Company considers that its property is generally in good
condition, well maintained and is generally suitable and adequate to carry on
the Company's business. The Company further believes that it maintains
sufficient insurance coverage on the Company's real and personal property.
LEGAL PROCEEDINGS
The Company knows of no material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party. The
Company is in the process of negotiating a settlement with the Florida HRS
pursuant to which the Company will discontinue the enrollment of new patients
in its 499 Program. In the absense of settlement, the Company would likely
proceed to an informal hearing relative to various aspects of its 499 Program
which would likely be convened prior to September 30, 1995. See
"Business--Regulation."
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MANAGEMENT
The names and ages of the Company's directors and executive officers
are as follows:
<TABLE>
<CAPTION>
Served as
Position with Officer and/or
Name Age the Company Director Since
---- --- ----------- --------------
<S> <C> <C> <C>
Gerald Smith 64 Chairman of
the Board and 1994
President 1993
Robert H. Zeiger 51 Chief Executive 1995
Officer, Chief
Operating Officer
and Director
Dennis W. Healey 47 Executive Vice
President, 1993
Chief Financial
Officer, Treasurer, 1981
Secretary and 1989
Director 1994
Charles F. Fistel 34 Executive Vice
President 1994
Peter D. Fischbein 54 Director 1981
Sidney Dworkin, Ph.D. 72 Director 1994
Jay M. Haft 59 Director 1994
William B. Saeger 42 Director 1994
</TABLE>
The Company's directors are collectively elected at the annual meeting
of stockholders and hold office for one year and until their successors are
elected and qualified. The Company's officers are appointed by the Board of
Directors and serve at the pleasure of the Board.
Set forth below is a biographical description of each director and
executive officer of the Company.
GERALD SMITH, in accordance with the February 1993 Stock Agreement,
became a director on February 5, 1993, the date of Cytoferon's initial stock
purchase. On May 12, 1993, Mr. Smith became President of the Company. In
June, 1994 Mr. Healey relinquished his position as Chairman of the Board of
Directors in favor of Mr. Smith. Mr. Smith is Chairman of the Board, Chief
Executive Officer and President of Cytoferon. Since 1982, he was a principal
stockholder, president, chief executive officer and director of Business
Development Corp. ("BDC") of Miami, Florida, which has served as a managing
entity and consultant to several high technology ventures including Compupix
Technology Joint
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Venture of Boca Raton, Florida. In 1988, Mr. Smith was the founder, president
and a director of Club-Theatre Network, Inc. of Boca Raton, Florida, an
audience-interactive private video theater. Mr. Smith sold his interest in
that company in March 1989. From August 1991 to December 1991, Mr. Smith was
the chief executive officer of Electronic Imagery, Inc. located in Pompano,
Florida, a company engaged in the development of imaging software. Mr. Smith
is also the president, chief executive officer and a director of Cinescopic
Corporation and International Database Service, Inc. located in Palm Beach
Gardens, Florida, computer-oriented companies which developed database
technology using the personal computer for audio, video, animation and real
time communication. Mr. Smith has wound down BDC's operations in order to
devote substantially all of his time to the Company. Mr. Smith has advised
that his services to these companies will not materially affect his ability to
render services to Cytoferon and the Company.
ROBERT H. ZEIGER, was appointed Chief Executive Officer and Chief
Operating Officer and was elected as a director in May 1995. Mr. Zeiger is a
pharmaceutical executive. From 1985 to 1994, Mr. Zeiger was employed by
Glaxo, Inc., Research Triangle Park, North Carolina, serving as Vice President
and General Manager of their Dermatological Division from 1985 to 1988, Vice
President and General Manager of Alan & Hansburgs from 1988 to 1991, and Vice
President and General Manager of Glaxo Pharmaceuticals from 1991 to 1994. Mr
Zeiger also served as Vice President, Marketing and Sales with Stiefel
Laboratories, Coral Gables, Florida, Inc. from 1979 to 1985, as National Sales
Manager of Knoll Pharmaceutical Company of Whipping New Jersey from 1971 to
1979 and as a Hospital Sales Representative of Warner-Chilcott Laboratories of
Morris Plains, New Jersey from 1968 to 1969.
DENNIS W. HEALEY was appointed Chairman of the Board and Chief
Executive Officer on April 13, 1993 upon the resignation of Thomas K. Langbein
from those positions pursuant to the Stock Agreement with Cytoferon. In June
1994, Mr. Healey relinquished his position as Chairman of the Board to Mr.
Smith and in July 1994 relinquished the position of Chief Executive Officer
upon the employment of Mr. Fistel. Upon Gerald Smith becoming President on May
12, 1993, Mr. Healey became Executive Vice President and has served as Chief
Financial Officer and Treasurer of the Company since 1980. Mr. Healey was
appointed Secretary in 1994. Mr. Healey, Chief Financial Officer and Treasurer
of Medicore and was appointed Executive Vice President of its Techdyne
affiliate in November 1991. Mr. Healey is a Certified Public Accountant and
joined Medicore in 1976 as its controller. He is also Treasurer of most of
Medicore subsidiaries and serves as Vice President of Dialysis Corporation of
America ("DCA"), a subsidiary of Medicore, and Secretary-Treasurer and director
of other DCA subsidiaries. Mr. Healey devotes approximately 75% of his
business time to the affairs of the Company.
CHARLES F. FISTEL was appointed Chief Executive Officer of the Company
upon his employment in July 1994, which position he relinguished to Mr. Robert
H. Zeiger in May 1995, becoming an Executive Vice President of the Company.
Mr. Fistel will be assuming the position of President of the Company's
dermatological division, once formed. Mr. Fistel, prior to joining the Company,
served for two years as an independent financial advisor to publicly-traded and
privately-held emerging growth companies. Prior thereto, between 1986 and
1992, he served as Executive Vice President, Chief Financial Officer and a
director of Tiger Direct, Inc. (formerly BLOC Development Corporation), a
Miami, Florida-based publicly-traded computer technology development,
marketing and distribution company. From 1981 to 1986, Mr. Fistel, who is also
a Certified Public Accountant, actively practiced public accounting.
PETER D. FISCHBEIN is an attorney who has been practicing law for
approximately 29 years. Mr. Fischbein served as the Company's Secretary
between May and December, 1994. From 1971 through
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<PAGE> 53
January 1990, Mr. Fischbein was a partner in the law firm of Rosenfeld,
Fischbein, Bernstein and Tannenhauser, of New York, New York which on occasion
represented the Company, Medicore and the Viragen Research Limited Partnership
which has certain contracts with the Company. Since January, 1990, Mr.
Fischbein has practiced law as an individual practitioner specializing in
corporate and business law. Mr. Fischbein is also a director of Medicore
(since 1984) and Techdyne (since 1985). Mr. Fischbein has been a general
partner of several limited partnerships engaged in oil exploration and real
estate development.
SIDNEY DWORKIN, Ph.D., elected a director in August 1994, was a
founder, former President, Chief Executive Officer and Chairman of Revco, Inc.
Between 1987 and the present, Dr. Dworkin has also served as chief executive
officer of Stonegate Trading, Inc., Hudson, Ohio, an importer and exporter of
various health, beauty aids, groceries and sundries. Between 1988 and the
present, Mr. Dworkin has served as Chairman of the Board of Advanced Modular
Systems, Hudson, Ohio, which is engaged in the sale of modular buildings.
Between June 1993 and the present, Dr. Dworkin has also served as Chairman of
Global International, Inc., Boca Raton, Florida, which is involved in the sale
and leasing of modular buildings to hospitals and radiology groups. Between
1990 and the present, Dr. Dworkin has also served as Chairman of the Board of
Comtrex Systems, Newark, New Jersey, which is engaged in the provision of data
processing services. In addition, between July 1988 and the present, Dr.
Dworkin has served as Chairman of the Board of General Computer Corp., Hudson,
Ohio, which is engaged in the marketing of data processing equipment. Dr.
Dworkin also serves on the Board of Directors of CCA Industries, Inc.,
Interactive Technologies, Inc. and Northern Technologies International
Corporation, all of which are publicly traded companies.
JAY M. HAFT, elected a director in August 1994, is an attorney and of
counsel to Parker Duryee Rosoff & Haft, New York, N.Y and Ruden, Barnett,
McCloskey, Smith, Schuster & Russell, Fort Lauderdale, Florida and a practicing
lawyer since 1959. Mr. Haft is also temporary President and CEO and a director
of Noise Cancellation Technologies, Inc. (OTC), as well as a director of
Extech, Inc. (OTC), CAS Medical Systems, Inc. (OTC), Nova Technologies, Inc.
(OTC), Oryx Technology Corp. (OTC) and RVSI, Inc. (OTC), all of which are
publicly-traded concerns.
WILLIAM B. SAEGER, elected a director in August 1994, is a Certified
Public Accountant with fifteen years experience in corporate strategic
planning, financial and tax planning, acquisitions, corporate capitalizations,
and analysis and management of financial assets. Mr. Saeger has served as a
portfolio manager and analyst and since November, 1987 has served as Vice
President of Fundamental Management. Mr. Saeger has served
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<PAGE> 54
as a Director of Telemac Cellular Corp. since May, 1993. Mr. Saeger has also
written for financial publications on federal taxation and investment portfolio
management.
There is no family relationship between any of the officers and
directors.
On August 15, 1994, the Company expanded its Board of Directors to
include Messrs. Sidney Dworkin, Jay M. Haft and William B. Saeger. At that
time, the Company constituted its Audit, Executive and Compensation Committees.
The audit committee consists of Messrs. Healey, Dworkin and Saeger. The
Executive Committee consists of Messrs. Smith, Healey and Fistel. The
Compensation Committee consists of Messrs. Haft and Dworkin. Inasmuch as
these Committees have only been recently constituted, other than the Executive
Committee which meets monthly, no meetings have occurred following the initial
organizational meeting of each of these committees.
The Audit Committee oversees the Company's audit activities to protect
against improper and unsound practices and to furnish adequate protection to
all assets and records. The Audit Committee also acts as liaison to the
Company's independent certified public accountants, and conducts such work as
is necessary and receives written reports, supplemented by such oral reports as
it deems necessary, from the audit firm. The Executive Committee is empowered
to act for the full Board in intervals between Board meetings, with the
exception of certain matters which by law may not be delegated. The Executive
Committee will meet, as necessary, and all actions by the Committee are to be
reported at the next Board of Directors meeting. The Compensation Committee
provides overall guidance for officer compensation programs, including salaries
and other forms of compensation.
EXECUTIVE COMPENSATION
During 1992 the Company had one employee, its controller, who was paid
a salary. Neither Thomas K. Langbein, who was then Chairman of the Board of
Directors and Chief Executive Officer until April 13, 1993, when he resigned
under the terms of the Stock Agreement, nor Dennis W. Healey, the individual
who succeeded to Mr. Langbein's positions and currently holds other executive
positions with the Company, received any cash consideration from the Company in
1991 or through most of 1992 due to the severely strained financial condition
of the Company during these periods. Mr. Healey began receiving an annual
salary of $75,000 in May 1993. Mr. Smith did not receive any salary during the
fiscal periods described below.
Based on the understanding of the parties prior to the investment by
Cytoferon and the execution of the Stock Agreement, there were to be no
employment agreements or employee benefits
49
<PAGE> 55
between the Company and any of its employees. In accordance therewith, in June
1992, the Company issued 400,000 shares and 200,000 shares of its Common Stock,
respectively to Messrs. Langbein and Healey in consideration of termination of
their employment agreements.
The Summary Compensation Table below sets forth compensation paid by
the Company and its subsidiary for the year ended June 30, 1994. No executive
officer had a total annual salary and bonus exceeding $100,000 nor did any
other executive officer, other than Mr. Healey, receive any salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation* Award(s) SARs(#) Payouts sation
--------- ---- ------ ----- ------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith, 1994 $ 0 $7,500 $0 0 0 0 0
Chairman of Board 1993 $ 0 $ 0 $0 0 0 0 0
and President(1) 1992 $ 0 $ 0 $0 0 0 0 0
Dennis W. Healey, 1994 $75,000 $ 0 $0 0 0 0 0
Exec. V.P., Treas., 1993 $ 7,200 $ 0 $0 0 0 0 0
CFO and Director(2) 1992 $ 0 $ 0 $0 200,000 0 0 0
Thomas K. Langbein 1992 $ 0 $ 0 $0 400,000 0 0 0
Chairman of Board
and CEO
</TABLE>
--------------
(1) Mr. Smith is Chairman of the Board, Chief Executive Officer and sole
shareholder of Cytoferon, a former active affiliate of the Compan.
Cytoferon previously had a consulting and marketing agreement with the
Company pursuant to which Cytoferon was entitled to receive consulting
fees, commissions, fees for certain foreign transactions and foreign
royalties.
In November 1993, as modified on December 15, 1994, Mr. Smith entered
into a two-year employment agreement expiring November 18, 1995 with
the Company at no salary. The agreement provided for the sale at the
inception of the employment agreement of 750,000 shares of Common
Stock at $.30 per share, payable through the issuance of a promissory
note with the shares being issued into escrow pending cash payments
reflecting the shares to be released from escrow in increments of no
less than $3,000. These shares were purchased through the issuance of
a note in the principal amount of $217,500 in April 1994 with Mr.
Smith receiving a bonus equal to the par value ($7,500) of shares
purchased. On May 15, 1995, the Company forgave Mr. Smith's note in
lieu of bonus for the 1995 fiscal year, following unanimous approval of
the independent members of the Board of Directors. The agreement also
provided for the issuance of 750,000 options to purchase Common Stock
subject to meeting
50
<PAGE> 56
certain production related or capital raising criteria. The criteria
were successfully met with the closing of the Company's $3.5 million
private placement in August 1994 and, accordingly, these options
became exercisable.
Mr. Smith had an employment agreement with Cytoferon effective June 2,
1992 for a term ending June 30, 1995. He was provided with an annual
salary of $120,000 the first year, $130,000 the second year and
$140,000 the third year. The salary for the period prior to May 12,
1993, the completion of the Stock Agreement, was accrued and was
payable from available cash. Mr. Smith is entitled to participate in
any Cytoferon benefit plans of which there presently are none. The
Cytoferon employment agreement further provided Mr. Smith with certain
severance arrangements if there is a change in control of Cytoferon or
the Company. In August 1994, the Board of Directors of the Company
voted to enter into the Subsequent Agreement and terminate the
Management and Marketing Services Agreement and related stock purchase
agreements with Cytoferon, terminating all fees payable thereunder,
concurrent with the issuance of 1,750,000 shares of the Company's
Common Stock, subject to receipt of a fairness opinion which was
subsequently received. In connection with this transaction, the
Company agreed to assume the obligations of Mr. Smith's employment
agreement with Cytoferon through November 18, 1995.
(2) In April 1994, as modified on December 15, 1994, Mr. Healey entered
into a two-year employment agreement expiring April 8, 1996 with the
Company at an annual salary of $75,000. The agreement provides for
health, life and similar employee benefits generally made available to
other employees of the Company, an automobile and related expenses.
The agreement further provided for the sale of 125,000 shares of
Common Stock at $.30 per share payable through the issuance of a
promissory note with the shares being issued into escrow pending cash
payments reflecting the shares to be released from escrow in
increments of no less than 10,000 shares. These shares were purchased
in June 1994 through the issuance of a note in the principal amount
of $36,250, with Mr. Healey receiving a bonus equal to the par value
($1,250) of the shares purchased. On May 15, 1995, the Company
forgave Mr. Healey's note in lieu of bonus for the 1995 fiscal year,
following unanimous approval of the independent members of the Board
of Directors. The agreement also provides for the issuance of 125,000
options to purchase common shares at $.30 per share subject to the
Company reaching certain production levels or raising certain minimums
in capital during the employment contract period, consistent with
similar provisions contained in Mr. Smith's November 1993 employment
agreement. These criteria were met in August 1994 and, according,
these options became exercisable.
On July 1, 1994, as modified on December 15, 1994, the Company entered
into a two-year employment agreement
51
<PAGE> 57
expiring July 1, 1996 with Charles Fistel to serve as Chief Executive
Officer (which position he relinquished to Mr. Robert H. Zeiger in May
1995, assuming the position of Executive Vice President) at an annual
salary of $110,000. The agreement provides for health, life, and
similar employee benefits generally made available to other employees
of the Company, use of an automobile and related maintenance expenses
and reimbursement for expenses incurred in fulfilling his normal
responsibilities to the Company. The agreement provides for the
issuance of options to purchase the aggregate of 300,000 shares of
Common Stock of the Company at an exercise price of $.30 per share,
exercisable with respect to 150,000 shares commencing June 30, 1995
through July 1, 1999, and exercisable for the remaining 150,000 shares
commencing June 30, 1996 through July 1, 2,000. The right to exercise
such options have accelerated based on the Company having raised
certain minimums in capital referred to above. The options are
terminable prior to the lapse of their respective terms only if Mr.
Fistel's employment should be terminated for cause and, in that event,
the options must be exercised, to the extent that they have
theretofore accrued, within 90 days of such termination.
On May 9, 1995, the Company entered into a two-year employment
agreement expiring May 9, 1997 with Robert H. Zeiger to serve as Chief
Executive Officer and Chief Operating Officer of the Company at an annual
salary of $120,000. The agreement provides for health, life and similar
employee benefits generally made available to other employees of the Company,
use of an automobile and related maintenance expenses and reimbursement for
expenses incurred in fulfilling his normal responsibilities to the Company.
The agreement provides for the issuance of options to purchase the aggregate of
1,000,000 shares of Common Stock of the Company at an exercise price of $.96
per share, exercisable with respect to 500,000 shares commencing May 8, 1996
through May 8, 2000 and exercisable for the remaining 500,000 shares commencing
May 8, 1997 through May 8, 2001. The right to exercise such options may be
accelerated upon the occurrence of certain material corporate transactions.
The options are terminable prior to the lapse of their respective terms only if
Mr. Zeiger's employment should be terminated for cause, and, in that event, the
options must be exercised to the extent that they have theretofore accrued
within 90 days of such termination.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant
of options to purchase shares of Common Stock during the fiscal year ended June
30, 1994 to each person named in the Summary Compensation Table. The exercise
price of each option is equal to the fair market value of a share of Common
Stock on the date of grant.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARS Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald Smith 750,000 59.0 $0.30 08/12/99
Dennis W. Healey 125,000 10.0 $0.30 08/12/99
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the
exercise of options to purchase shares of Common Stock during the fiscal year
ended June 30, 1994 to each person named in the Summary Compensation Table and
the unexercised options held as of the end of the 1994 fiscal year:
52
<PAGE> 58
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1994 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Less Exercise Value of Unexercised
Value Realized In the Money
(Market Price) Number of Unexercised Options at FY-End (Based on
Shares at Exercise Less Options at FY-End FY-End Price of $0.66/Share
Acquired on Exercise Price ------------------------------ -------------------------------
Name Exercise Price Exercisable Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith - - - 750,000 - $270,000
Dennis W. Healey - - - 125,000 - $ 45,000
</TABLE>
ADDITIONAL STOCK OPTIONS
On May 15, 1995, the Company adopted its 1995 Stock Option Plan (the
"Plan") under which 4,000,000 shares of Common Stock have been reserved for
issuance to officers, directors, employees and consultants of the Company upon
exercise of options designated as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986 or upon exercise of
nonstatutory options. The primary purpose of the Plan is to attract and retain
capable executives, employees, directors, advisory board members and other
consultants by offering such individuals a greater personal interest in the
Company's business by encouraging stock ownership. The Plan will be
administered by the Compensation Committee of the Company's Board of Directors
which will determine, among other things, the persons to be granted options,
the number of shares subject to each option and the option price. The Plan
terminates on May 15, 2005.
The exercise price of any incentive stock option granted under the Plan
to an eligible employee must be equal to the fair market value of the shares on
the date of grant, and with respect to persons owning more than 10% of the
outstanding capital stock, the exercise price may not be less than 110% of the
fair market value of the shares underlying such option on the date of grant.
The Board of Directors or Compensation Committee will determine the term of
each option and the manner in which it may be exercised provided that no
incentive stock option may be exercisable more than ten years after the date of
grant, except for optionees who own more than 10% of the Company's capital
stock, in which case the option may not be for more than five years. Further,
no director of the Company or other person who is not an employee of the
Company will be eligible to receive incentive stock options. From the date of
grant until 30 days prior to the exercise, the optionee must be an employee of
the Company in order to exercise any options, except in the case of disability
or death of the employee. Options are not transferable except upon the death
of the optionee. In the event of disability, options must be exercised within
twelve months of termination of employment as determined by the Board of
Directors or the Compensation Committee. Nonqualified options will have
similar terms except the exercise price therefor may be determined by the Board
of Directors or the Compensation Committee, and the term of such nonqualified
options may not extend beyond ten years and one day. The Board of Directors or
the Compensation Committee has the power to impose additional limitations,
conditions and restrictions in connection with the grant of any option.
No options have been granted as yet under the recently enacted Plan.
In August 1994, the Company issued five-year options to purchase an
aggregate of 350,000 shares exercisable at $1.00 per share which were divided
equally among the seven directors of the Company (one of whom subsequently
resigned). In addition, between
53
<PAGE> 59
May 1994 and March 1995, the Company issued five-year options to purchase an
aggregate of 570,000 shares of Common Stock at exercise prices ranging from
$.62 to $1.00 per share to six key employees.
In May 1995, the Company issued 1,000,000 Common Stock purchase
options to Mr. Robert H. Zeiger, Chief Executive Officer, Chief Operating
Officer and a director, pursuant to an Employment Agreement. Under the terms
of the Agreement, 500,000 options become exercisable May, 1996 and 500,000
options become exercisable May, 1997. The options carry a five year term and
are exercisable at $.96 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Medicore, the former parent of the Company, over several years
invested in and loaned substantial sums to the Company which ultimately
resulted in Medicore, after having spun-off the Company as a subsidiary in
1986, then owning 1,500,000 shares of Common Stock and holding a second
mortgage on the Company's property securing a promissory note of $429,400,
representing the loans and advances by Medicore up through the closing of the
Cytoferon investment in May 1993, less a $50,000 partial payment of principal
the Company made to Medicore. The Medicore note carries interest at 1% over
prime and is amortizable over 20 years with equal monthly payments of principal
of $1,790 plus interest with a balloon payment of $361,412 due on August 1,
1996. As of March 31, 1995, the principal amount owing on stock note was
$390,038. The note, evidenced by a loan agreement, in addition to the mortgage
on the Company's building, is also secured with the Company's equipment,
fixtures, accounts receivable and contract rights. The security interest in
the building which the Company has granted to Medicore is second to the
security interest held by the Equitable Bank which holds a first mortgage on
the Company's property, securing a promissory note to Equitable Bank from the
Company of $600,000, which is being amortized over 20 years with equal monthly
installments of principal of $2,500 plus interest at prime plus 2% per month,
with a balloon payment of $450,000 due on August 1, 1996. Medicore has
guaranteed the Equitable Bank mortgage and has an agreement to acquire the
Company's property if Medicore assumes the Equitable mortgage. The bank may
not make any further loans or advances to the Company without the prior written
consent of Medicore. The Equitable loan and mortgage were in default for
failure to satisfy covenants other than the payment of principal and interest,
but have since been brought current.
In conjunction with Medicore spin-off of the Company in 1986, several
agreements were entered into with Medicore to administratively deal with the
separation of the companies. These agreements included employment agreements
with Messrs. Langbein and Healey (Mr. Langbein resigned as Chief Executive
Officer and Chairman of the Board of Directors of the Company under the terms
of the Stock Agreement) which employment agreements were terminated in
consideration for stock of the Company. Also as part of the spin-off, the
Company entered into a Royalty Agreement with Medicore to pay to Medicore
royalties on net sales of interferon and related products. Pursuant to the
Stock Agreement, the Company and Medicore further amended the royalty agreement
providing for a cap of $2,400,000 in royalty payments and installment payments
of royalties based upon percentages of sales.
54
<PAGE> 60
Gerald Smith, Chairman of the Board of Directors, President and
director of the Company, is the sole shareholder of Cytoferon, a former active
affiliate of the Company.
The Company shares one officer and one director with Medicore and its
subsidiaries. Dennis W. Healey, Executive Vice President, Treasurer and
Principal Financial Officer of the Company, is Senior Vice President and
Treasurer of Medicore, Executive Vice President of Techdyne and an officer
and/or director of their subsidiaries. Peter D. Fischbein, director of the
Company, is a director of Medicore and Techdyne. Lawrence E. Jaffe, former
Secretary and corporate counsel to the Company holds these positions with
Medicore and Techdyne. Mr. Jaffe resigned all positions with the Company in
May 1994, being replaced by Peter Fischbein, a Director of the Company.
During 1990 and 1991 the Company borrowed $60,000 from Seymour Friend,
an officer and director of Medicore and former director of the Company, to meet
then current operating expenses. The borrowing was represented by a demand
promissory note dated May 31, 1991 bearing interest of 11% per annum. The
principal and interest was converted into capital of the Company in June, 1991,
with Mr. Friend receiving 200,000 shares of the Company's Common Stock. From
January, 1992 to April 10, 1992, Mr. Friend made additional loans to the
Company which the Company repaid in part, with a balance due to Mr. Friend of
$66,700 evidenced by a demand convertible promissory note at 10% interest per
annum. This note with related interest accrued was satisfied in January 1994
through the issuance of 260,130 shares of the Company's Common Stock. In June
1994, the Company borrowed an additional $25,000 from Mr. Friend which was
repaid in July 1994, with related interest at 10%.
Peter D. Fischbein, director of the Company, and a director of Medicore
and Techdyne, was a member of a law firm, now dissolved, which firm acted as
counsel to the Company, and Medicore from time to time. Mr. Fischbein's firm
also handled the legal work for the Limited Partnership which has licensing
agreements with the Company. In December 1994, Mr. Fischbein resigned as
Secretary of the Company. In July 1994, Mr. Fischbein, in recognition for
several years' services as a director of the Company, was provided the right to
purchase 125,000 shares of Common Stock at $.30 per share (market price at that
time was approximately $.53 per share), payable through the issuance of a note
in the principal amount of $36,250, with Mr. Fischbein receiving a bonus equal
to the par value ($1,250) of the shares purchased. On May 15, 1995, the
Company forgave Mr. Fischbein's note in lieu of bonus for the 1995 fiscal year,
following unanimous approval of the independent members of the Board of
Directors.
Lawrence E. Jaffe former Secretary and counsel to the Company resigned
these positions in May 1994. Mr. Jaffe is also corporate counsel to Medicore
and its majority owned subsidiary Techdyne. Mr. Jaffe received $30,410 and
$14,434 in fees from the Company in 1992 and for the six months ended June 30,
1993, respectively, and received substantially all of the balance of his
professional fees for fiscal 1992 and for the six months ended and year ended
June 30, 1993 and 1994 from Medicore and Techdyne.
On February 5, 1993, the Stock Agreement with Cytoferon was executed,
the initial $100,000 investment was made by Cytoferon and Gerald Smith, chief
executive officer, director and principal of
55
<PAGE> 61
Cytoferon, became a director of the Company. Under the terms of the Stock
Agreement, upon further Cytoferon investments, Thomas K. Langbein an executive
of the Company since its inception in 1980 and Chairman of the Board, resigned
and Jesse Hwa, a Cytoferon appointee, filled the vacancy on the Board in April
1993. Mr. Hwa resigned on July 22, 1993 and was one of the plaintiffs in the
Cytoferon Debenture holders suit against Cytoferon and the Company. Upon
Cytoferon's additional investment in May 1993, pursuant to which Cytoferon had
invested $1,000,000 for 6,000,000 shares of Common Stock of the Company, Mr.
Seymour Friend resigned as director. In May, Cytoferon moved its offices to
the Company's facilities in Hialeah, Florida. In November 1993 the Company
entered into the Additional Stock Purchase Agreement with Cytoferon and
thereafter, issued 1,333,333 shares of Common Stock to Cytoferon for an
additional investment of $400,000.
In connection with Cytoferon's investments, the Company entered into a
Marketing and Management Services Agreement with Cytoferon pursuant to which
agreement Cytoferon became consultant to and exclusive distributor of products
of the Company not approved by the U.S. Food and Drug Administration for
national distribution in exchange for certain fees and commissions. The MMS
Agreement provided for a management consulting fee of $240,000 per year subject
to Cytoferon meeting certain per year and aggregate initial term and renewal
term sales requirements. In addition, the MMS Agreement provided that
Cytoferon was to have been the exclusive worldwide distributor, subject to
maintaining certain sales minimums for all of the Company's non-FDA approved
products for three years, a 4% sales commission on such sales, 50% of all fees
received by the Company from the sale of any foreign franchises, licenses,
technology transfer or joint venture agreements and 20% of any ongoing foreign
royalty payments.
Cytoferon had obtained funds for such investments through sale of
$2,181,500 principal amount of its Debentures between February 1993 and March
1994 (net of $849,250 of Debentures which were retired as a result of the
settlement of the Cytoferon Debenture holders' suit against Cytoferon, Viragen
and certain other parties). Each of the series of Debentures issued by
Cytoferon carried an identical interest rate of 8.5%, were convertible into
Common Stock of Viragen at $.30 per share and were secured by Common stock of
Viragen acquired through Cytoferon's investment in Viragen. The Cytoferon's
Debentures were converted into 7,271,666 shares of Common Stock of Viragen in
December 1994, at which time accrued interest of $133,364 was converted into
444,547 shares of Common Stock of Viragen also at a conversion ratio of $.30
per share.
The Company's management believed it was in the long-term best
interest of the Company to unify and consolidate management functions and
efforts and eliminate conflicts that could arise by virtue of minimum sales
requirements that could be inconsistent with the Company's plans to introduce
new production technologies and refinement of related protocols. Accordingly,
the Company executed the Subsequent Agreement, subject to receipt of a fairness
opinion received in December 1994, which terminated the MMS Agreement, the
Stock Purchase Agreement and Additional Stock Purchase Agreement and restored
the concept of the original Stock Purchase Agreement by accelerating the
issuance of the 1,750,000 shares previously contingently issuable under the
Additional Stock Agreement concurrent with the cancellation of the
aforementioned agreements.
Messrs. Sydney Dworkin, Jay M. Haft, and William B. Saeger, Directors
of the Company, Mr. Jerome E. Treisman, a former Director, and Charles F.
Fistel, an Executive Vice President of the Company, purchased Cytoferon 8 1/2%
Convertible Debentures in the respective principal
56
<PAGE> 62
amounts of $50,000, $62,500, $150,000, $22,500 and $50,000 which are
convertible into Common Stock of the Company. The principal amount of such
Debentures together with accrued interest were converted, effective September
30, 1994 at $.30 per share and accrued interest into 175,244 shares, 220,744
shares, 533,766 shares, 78,668 and 177,922 shares of Common Stock of the
Company.
In November, 1993, the Company issued $200,000 in 8 1/2%, three-year
convertible debentures. These debentures were converted at $.30 per share into
666,668 shares of Common Stock on October 31, 1994. These shares are held by
Fundamental Management Corp. and Hedge Fund Management, which are investment
funds managed by William B. Saeger, a director of the Company.
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd., a medical consultant to the Company, for
$20,000, exercisable at $.30 per share for a term of five years, concurrent
with the execution of an independent Management Consulting Agreement.
Provisions of the Management Consulting Agreement provide the purchaser the
right to purchase up to 300,000 shares commencing six months from the date of
the agreement with purchase rights on the balance of 700,000 vesting uniformly
over a three-year period. The Company had the right to repurchase any warrants
at its option for $.025 per share. The Company repurchased 584,160 warrants
and terminated the Management Consulting Agreement in July 1994, resulting in
warrants to purchase 415,850 shares remaining outstanding, which are presently
exercisable although none have been exercised to date.
In connection with the Company's $3.5 million private placement,
completed in August 1994, the Company issued 765,650 Common Stock purchase
warrants exercisable presently at $.52 per share to the placement agent and its
designees for such offering. These warrants are exercisable through August
1999. In March 1995, the Company issued 64,500 Common Stock purchase warrants
to Mr. Moty Hermon and designees in consideration for financial consulting
services to be undertaken on behalf of the Company. The warrants are for a
five year term and are exercisable presently at $.60 per share, although none
have been exercised to date.
CLINICAL ADVISORY COMMITTEE
The Company formed a Clinical Advisory Committee in February, 1995
comprised of scientists, medical researchers and clinicians who have expertise
primarily in areas of relevance to the Company's research and development
activities. All of the members of the Clinical Advisory Committee participated
in a full day conference and program to evaluate procedures and to recommend a
course of action for obtaining FDA and EU approvals of the Company's Natural
Interferon product, which program was held in February immediately
57
<PAGE> 63
following the organization of the Clinical Advisory Committee. The Clinical
Advisory Committee is expected to assist the Company in developing the medical,
scientific and clinical aspects of formal Multiple Sclerosis clinical protocols
and trials for its investigational, natural human interferon-alpha product.
The Company views this as its initial step towards seeking FDA and EU approvals
of its Product.
KENNETH JOHNSON, M.D., who serves as Chairman of the Clinical Advisory
Committee, is Professor and Chairman of the Department of Neurology for the
University of Maryland School of Medicine. Among previous appointments, Dr.
Johnson has been Professor of Neurology at the University of California and
Associate Professor at Case Western Reserve University. Dr. Johnson is listed
in the publication "Best Doctors in America". He is currently on the Editorial
Board for the Archives of Neurology and the Journal of Neuroimmunology. Dr.
Johnson is an Ad Hoc reviewer for various medical journals including,
Neurology, Annals of Neurology, Annals of Internal Medicine, New England
Journal of Medicine, the American Journal of Virology as well as for other
publications. Dr. Johnson has lectured extensively on the subject of
Interferon therapy in Multiple Sclerosis as well as on Copolymer-I and Beta
Interferon. Dr. Johnson was a co-author in the Landmark 1983 medical article
on "New Diagnostic Criteria for Multiple Sclerosis" which became the seminal
source for diagnostic typing within Multiple Sclerosis. In addition, Dr.
Johnson has published in excess of twenty articles regarding the use of
Interferon in Multiple Sclerosis. Dr. Johnson has also received research
support from Schering Plough relative to a 1982-1985 trial of Alpha Interferon,
from the Kroc Foundation and from Sandoz Pharmaceutical for 1981-1985 study of
cyclosporine therapy, from the Triton Viro Science Corporation for the study of
Beta Interferon and from the National Multiple Sclerosis Society for the study
of Copolymer-I.
JEFFREY A. COHEN, M.D., is currently the Director of the Experimental
Therapeutics Program at the Mellen Center for Multiple Sclerosis Treatment and
Research for the Cleveland Clinic Foundation. Dr. Cohen is also presently a
member of the staff of the Department of Neurology of the Cleveland Clinic. He
is currently a reviewer for ten Neurology Journals, including Annals of
Neurology, Archives of Neurology and Neurology. Dr. Cohen has been a
consultant for the R.W. Johnson Pharmaceutical Research Institute, and Ortho
Pharmaceutical Corporation and participated in the standardization of the
clinical rating scales for the Cladribine clinical trial and has been a
participant in the Copolomer-1 studies. Dr. Cohen has been a recipient of
grants for various clinical studies including the Tizanidine Study. Dr. Cohen
is a frequent contributor to various publications on the subject of
Neurovirology.
58
<PAGE> 64
GEORGE W. ELLISON, M.D., is currently Professor In-residence of
Neurology at the University of California, Los Angeles. Prior thereto, Dr.
Ellison was Adjunct Professor of Neurology at the University of California, Los
Angeles. Dr. Ellison has served since 1971 as a director of the Multiple
Sclerosis Research Clinic and Treatment Center at the Reed Neurological
Research Center at the University of California, Los Angeles. Dr. Ellison also
has served through hospital appointments and teaching activities at various
medical institutions and hospitals and has functioned as a consultant to
various professional societies and governmental agencies. Dr. Ellison has also
been a frequent participant in various lecture programs, has published
extensively in the area of Neuroviology and the treatment of Multiple Sclerosis
and has been the recipient of several research grants in the field.
ROBERT HERNDON, M.D., was a full Professor of Neurology at the Oregon
Health Sciences University and the Chairman of the Combined Neurology Services
Department at the Legacy Health System which is the combined departments of
Neurology, Neurosurgery, Psychiatry, and Rehabilitation at the University of
Oregon in Portland. Prior thereto, Dr. Herndon was full professor at the
University of Rochester, an Associate Professor at John Hopkins Medical School
and Chief of the Neurology Service at the Veteran's Administration in Palo
Alto, California. Dr. Herndon is a Board Member of the Portland Chapter of the
National Multiple Sclerosis Society and is on the Editorial Board of the Annals
of Neurology, Neurology and the Journal of Neuropathology, and Experimental
Neurology. In addition, Dr. Herndon has been extensively involved with the
National Multiple Sclerosis Society and was a co-investigator for the Beta
Interferon trial conducted on behalf of Biogenic, Inc. Dr. Herndon has
published extensively on research issues in Vironeurologic diseases and has
also published on the immunopathologic aspects of Multiple Sclerosis.
Specifically in the clinical area, Dr. Herndon was the third author on the
Jacobs study on intrathecal administration of Human Fibroblast Interferon. He
is also published on MRI imagining in the treatment of Multiple Sclerosis and
is the first of two authors on the cerebrospinal fluid. Dr. Herndon has also
participated in various clinical trials including the DATATOP trial in
Parkinson's Diseases, and Cyclophosphamide Pulse Therapy trial in Multiple
Sclerosis, and most recently was a member of the Optic Neuritis Study Group
which presented a number of articles in the New England Journal of Medicine
regarding the relationship between Multiple Sclerosis and Optic Neuritis.
WILLIAM SHEREMATA, M.D., is currently Associate Professor of Neurology
and Immunology at the University of Miami, and prior thereto was Assistant
Professor of Neurology at McGill University in Montreal. Dr. Sheremata is an
Ad Hoc reviewer for Neurology, New England Journal of Medicine, Archives of
Neurology and Archives of Opthalmology. He is an active participant through
counsel membership in organizations involved with Multiple Sclerosis
59
<PAGE> 65
including the National Multiple Sclerosis Society, and has received various
grants in connection with the treatment and evaluation of Multiple Sclerosis.
Dr. Sheremata has been an active participant in various lectureship programs
and has published extensively in the area of Multiple Sclerosis and Neurology.
JERRY WOLINSKY, M.D., is a full professor of Neurology at the
University of Texas, and at the Houston Health Science Center, School of
Medicine. Dr. Wolinsky has held appointments at the University of California
in San Francisco and from John Hopkins University. Previously, Dr. Wolinsky
worked for Carter Wallace between 1991 and 1992 and Elan Pharmaceuticals from
1992 to the present. Dr. Wolinsky is presently on the Medical Advisory Board
for Multiple Sclerosis for Sandoz Pharmaceuticals and is listed in the
publication "Best Doctors in America". Dr. Wolinsky has been a participant on
the Executive Board of the National Multiple Sclerosis Society and is on the
Editorial Board for the Annals of Neurology and Critical Reviews in Clinical
Neurobiology. He is an Ad Hoc reviewer for most of the neurologic journals as
well as for the New England Journal of Medicine. Dr. Wolinsky has been a
participant in various studies for which grants have been awarded and has been
published extensively in the area of immunovirology. Dr. Wolinsky has also
worked for Sandoz Pharmaceuticals as a participant in their cyclosporine
studies and has published extensively on the Herpes Simplex Virus.
Each member of the Clinical Advisory Committee has entered into an
agreement with the Company which requires the member to maintain the
confidentiality of the Company's trade secrets and other proprietary data
derived by the member during the course of his relationship with the Company.
The agreements also provide that all discoveries and trade secrets conceived
and developed by such members in conjunction with their services to the Company
will become the proprietary property of the Company. The Company expects to
structure compensation arrangements with each of the members, based on the
level of their involvement with the Company, which may include cash payments
and/or a combination of securities.
Since the date of the initial organization of the Clinical Advisory
Committee, Dr. Johnson has been active in advising the Company as to procedures
for the preparation of clinical trials and Dr. Sheremata has continued to
advise the Company on clinical aspects of its 499 Program. As Chairman of the
Clinical Advisory Committee, Dr. Johnson is expected to assign to the members
in forthcoming months various responsibilities relative to developing the
Company's Multiple Sclerosis clinical protocols and trials.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned at June 30, 1995 (i) by each person
who is known by the Company to own beneficially or
60
<PAGE> 66
exercise voting or dispositive control over 5% or more of the Company's Common
Stock, (ii) by each of the Company's directors, and Chief Executive Officer and
(iii) by all officers and directors as a group. A person is deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within sixty days. At June 30, 1995, there were 35,355,532
shares of Common Stock of the Company outstanding.
<TABLE>
<CAPTION>
Amount
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership (1) Class (2)
------------------- ------------- ---------
<S> <C> <C>
Gerald Smith 1,162,847(3) 3.2%
Robert H. Zeiger 1,000,000(4) 2.7%
Dennis W. Healey 600,000(5) 1.7%
Peter D. Fischbein 300,000(6) 0.8%
Sidney Dworkin, Ph.D. 225,244(7) 0.6%
Jay M. Haft 320,744(8) 0.9%
William B. Saeger 1,631,854(9) 4.6%
Officers and Directors
as a Group 8 persons) 5,801,944 16.1%
</TABLE>
---------------
(1) Based upon information furnished to the Company by the principal
security holders or obtained from the stock transfer books of the
Company. Other than indicated in the notes, the Company has been
informed that such persons have sole voting and dispositive power with
respect to their shares. All of the individuals listed are officers
and/or directors of the Company whose address is 2343 West 76th
Street, Hialeah, Florida 33016.
(2) Based on 35,355,532 shares of Common Stock outstanding at June 30,
1995. Exclusive of (i) 14,697 shares of Common Stock reserved for
issuance pursuant to conversion of 3,450 outstanding shares of
preferred stock each convertible into 4.26 shares of Common Stock; and
(ii) 3,380,990 shares of Common Stock reserved for issuance pursuant
to the exercise of warrants and options of the Company.
(3) Mr. Smith is Chairman of the Board of Directors and President of the
Company. Includes (i) 362,847 shares owned directly by Mr. Smith;
(ii) 750,000 Common Stock purchase options exercisable at $.30 per
share pursuant to Mr. Smith's Employment Agreement; and (iii) 50,000
Common Stock purchase options exercisable at $1.00 per share granted
to all Directors in August 1994.
(4) Mr. Zeiger is Chief Executive Officer, Chief Operating Officer and a
Director of the Company. Includes 1,000,000 Common Stock purchase
options exercisable at $.96 per share pursuant to Mr. Zeiger's
Employment Agreement.
61
<PAGE> 67
(5) Mr. Healey is Executive Vice President, Treasurer, Chief Financial
Officer, Secretary and a Director of the Company. Includes (i)
425,000 shares owned directly by Mr. Healey; (ii) 125,000 Common Stock
purchase options exercisable at $.30 per share pursuant to Mr.
Healey's Employment Agreement; and (iii) 50,000 Common Stock purchase
options exercisable at $1.00 per share granted to all Directors in
August 1994.
(6) Mr. Fischbein is a Director of the Company. Includes (i) 125,000
shares owned directly by Mr. Fischbein; (ii) 125,000 Common Stock
purchase options exercisable at $.30 per share pursuant to a Sale of
Stock and Stock Option Agreement and (iii) 50,000 Common Stock
purchase options exercisable at $1.00 per share granted to all
Directors in August 1994. Mr. Fischbein disclaims any beneficial
ownership of 388,400 shares of Common Stock held by his daughter, who
is of majority age and lives independently of her father. Mr.
Fischbein's daughter has piggy-back registration rights to 107,400
shares.
(7) Dr. Dworkin is a Director of the Company. Includes (i) 175,244 shares
owned directly by Mr. Dworkin and his wife; (ii) 50,000 Common Stock
purchase options exercisable at $1.00 per share granted to all
Directors in August 1994.
(8) Mr. Haft is a Director of the Company. Includes (i) 220,744 shares
owned directly by Mr. Haft; (ii) 50,000 Common Stock purchase options
exercisable at $.30 per share and (iii) 50,000 Common Stock purchase
options exercisable at $1.00 per share granted to all Directors in
August 1994.
(9) Mr. Saeger is a Director the Company. Includes (i) 26,100 shares
owned directly by Mr. Saeger; (ii) 1,555,755 shares held by
Fundamental Management Corp. and Hedge Fund Management. Mr. Saeger
holds a controlling position as Fund Manager of the Fundamental Fund
Group, holder of these shares and is considered a beneficial owner
and; (iii) 50,000 Common Stock purchase options exercisable at $1.00
per share granted to all Directors in August 1994.
SALES BY SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security
Holder, the amount of shares of Common Stock held directly
62
<PAGE> 68
or indirectly by each holder on January 31, 1995, the amount of shares of
Common Stock to be offered by each such holder, the amount of Common Stock to
be owned by each such holder following sale of such shares of Common Stock and
the percentage of shares of Common Stock to be owned by each such holder
following completion of such offering. On June 30, 1995, there were 35,555,532
shares of Common Stock of the Company outstanding.
<TABLE>
<CAPTION>
Shares to Percentage
Number Shares be Owned to be
Name of Selling of Shares to be After Owned After
Security Holder Owned Offered Offering Offering
--------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C>
Tom Payne 848,997 848,997 0 *
Northlea Partners 813,846 813,846 0 *
Broad & Cassel, PA 523,548 523,548 0 *
Penfield Partners 500,000 500,000 0 *
Harry Schwartz 425,749 425,749 0 *
Laboratorios Andromaco 355,845 355,845 0 *
Feron, Inc. 355,845 355,845 0 *
MDA Financial, Inc. 348,756 348,756 0 *
Fundamental Growth Partners, Ltd. 344,589 344,589 0 *
Fundamental Resources, Ltd 344,589 344,589 0 *
Hedge Fund Partners, Ltd. 344,589 344,589 0 *
Eugene DeBlasio 338,333 338,333 0 *
The Jaymee Company 325,127 325,127 0 *
Laidlaw Equities, Inc. 313,567 313,567 0 *
W. Richard Lueck 305,903 305,903 0 *
Charles F. Fistel 261,255 261,255 0 *
Moty Hermon 260,584 260,584 0 *
Susan Kaufman 258,750 258,750 0 *
Avi & Irma Samuel, JTWROS 250,000 250,000 0 *
Frederick Adler 250,000 250,000 0 *
Katheryn Eckstein 250,000 250,000 0 *
Peters Securities 250,000 250,000 0 *
Roger D. Benson 250,000 250,000 0 *
Richard M. Lilly/RM Lilly Trust 228,061 228,061 0 *
Jay Haft 220,744 220,744 0 *
Jaswant & Debra Pannu 211,255 211,255 0 *
Wisdom Tree Associates LP 208,333 208,333 0 *
Marvin Kogod 191,906 191,906 0 *
Rueben Peters 180,310 180,310 0 *
Avtar Sandhu 177,922 177,922 0 *
Martin Kartagener 177,922 177,922 0 *
Charles Evans 175,355 175,355 0 *
James Warner and Keelin Hayden 173,769 173,769 0 *
Melvin Gershman 168,811 168,811 0 *
Fundamental Associates, Ltd. 166,667 166,667 0 *
Uri Elias 166,667 166,667 0 *
Wellington Hill Financial, Inc. 166,667 166,667 0 *
Felix and Joyce Campos 159,005 159,005 0 *
Arthur Gottman 156,831 156,831 0 *
Kenneth M. Reichle, Jr. 150,239 150,239 0 *
Irving Davies 150,122 150,122 0 *
Eugene & Nazeli DeBlasio, JTWROS 150,000 150,000 0 *
Herbert F. Holin 150,000 150,000 0 *
Robert M. Rosin 146,072 146,072 0 *
Joel Friedman 133,750 133,750 0 *
Robert W. Hill/RW Hill Trust 133,333 133,333 0 *
Aaron Priest 125,000 125,000 0 *
Edward R. Falkner Profit Sharing Trust 125,000 125,000 0 *
Intergalactic Growth Fund, Inc. 125,000 125,000 0 *
LEF Investments, Inc. 125,000 125,000 0 *
R & J Trust DTD: 7/1/93 125,000 125,000 0 *
Sidelmar 125,000 125,000 0 *
Uzi Zucker 125,000 125,000 0 *
Vincent R. Keating 125,000 125,000 0 *
Wesley Wood 125,000 125,000 0 *
Leonard Berke 112,736 112,736 0 *
Tina D. and Richard M. Lilly 112,431 112,431 0 *
Walter Smith & Kathleen King JTWROS 110,586 110,586 0 *
Gerald Richter 106,282 106,282 0 *
Barry Shemaria 104,167 104,167 0 *
</TABLE>
63
<PAGE> 69
<TABLE>
<S> <C> <C> <C> <C>
Rozel International Holdings, Ltd 104,167 104,167 0 *
Steven Zenker 102,500 102,500 0 *
Oscar Zimmerman 101,875 101,875 0 *
Gary Waxman IRA 100,000 100,000 0 *
James & Janet Jordan JTWROS 100,000 100,000 0 *
Kevin J. Wiltz 100,000 100,000 0 *
Eugene Mascarenhas 96,169 96,169 0 *
Eric & Florence Stein, JTWROS 93,333 93,333 0 *
Hilaire & Sandra Fernandez 88,961 88,961 0 *
Ritchie Jacobs 88,961 88,961 0 *
Edward Falkner 87,855 87,855 0 *
Michael & Martha Bushey, JTWROS 87,816 87,816 0 *
Edward Rosenthal 87,739 87,739 0 *
Lee Hartzmark 87,739 87,739 0 *
Dorris R. Dworkin 87,622 87,622 0 *
Sidney Dworkin 87,622 87,622 0 *
Phyllis Froimson 87,622 87,622 0 *
James Shoke 87,428 87,428 0 *
Tina Lilly 84,347 84,347 0 *
Diamondback, Ltd. 83,334 83,334 0 *
Dale R. Warren 83,333 83,333 0 *
Donald E. Kaplan 83,333 83,333 0 *
Gary & Carolyn Bodzin, TITE 83,333 83,333 0 *
George Gayle Darville 83,333 83,333 0 *
Heinz Gisin 83,333 83,333 0 *
Mark S. Block 83,333 83,333 0 *
Nell A. Ramo 83,333 83,333 0 *
Radix Associates 83,333 83,333 0 *
Ronald C. Smith 83,333 83,333 0 *
Sandra & Jose Yglesias, JTWROS 83,333 83,333 0 *
Willoughby Holin and Rentner PSP 83,333 83,333 0 *
Amtech Services Defined Benefit Plan 81,250 81,250 0 *
Jerome Treisman 78,668 78,668 0 *
Gilbert & Cristi Shapiro, JTWROS 77,814 77,814 0 *
Raymond & Margaret McKnight, JTWROS 77,814 77,814 0 *
Hymie Akst 75,236 75,236 0 *
Suzanne Schiller 75,000 75,000 0 *
Jeffrey & Martha Pearl 71,753 71,753 0 *
Christopher Rosman 70,734 70,734 0 *
David Nuelle 70,734 70,734 0 *
Robert Peters 70,734 70,734 0 *
Steven Helms 70,719 70,719 0 *
Ray A. Eckstein 62,847 62,847 0 *
Elizabeth A. Krause 62,551 62,551 0 *
1520 Family Partners Ltd 62,500 62,500 0 *
Adam L. Henick 62,500 62,500 0 *
Anthony C. & Marilyn Dalessio, JTWROS 62,500 62,500 0 *
David T. Atkins IRA Plan #2 62,500 62,500 0 *
G.R.P. Industries Inc. 62,500 62,500 0 *
Glen Lebowitz 62,500 62,500 0 *
H. James Catlin, Jr. 62,500 62,500 0 *
James A. Schoke, ADMIN. 62,500 62,500 0 *
James Blanchard 62,500 62,500 0 *
Joan F. Forshew 62,500 62,500 0 *
Josef & Shelley Patadis, JTWROS 62,500 62,500 0 *
Lawrence W. Mullman 62,500 62,500 0 *
Michael E. & Martha L. Bushey, JTWROS 62,500 62,500 0 *
Michael G. Lucci - Revocable Living Trust 62,500 62,500 0 *
Michael Lilly 62,500 62,500 0 *
Miller Advisory Corp. P/P/T 62,500 62,500 0 *
Nannette Wasserman 62,500 62,500 0 *
Robert G. Gottesman 62,500 62,500 0 *
Ronald G. & Ellen Caravello, JTWROS 62,500 62,500 0 *
Sallie Felzen 62,500 62,500 0 *
Sidelman, A Partnership 62,500 62,500 0 *
Victor J. Scaravilli 62,500 62,500 0 *
John & Vivian Scarmadella, JTWROS 60,000 60,000 0 *
Westin Investors PSP 60,000 60,000 0 *
Garry Friedberg 57,307 57,307 0 *
Ruth S. Russ 53,750 53,750 0 *
Manuel Iribar 53,377 53,377 0 *
Dacia Marie Lueck 52,638 52,638 0 *
Tiara Lynn Lueck 52,638 52,638 0 *
Beverly Segal 52,550 52,550 0 *
Roger H. Willoughby 52,083 52,083 0 *
Francine Rodin 50,000 50,000 0 *
Frank Merklein 50,000 50,000 0 *
Hermina Rosenberg 50,000 50,000 0 *
</TABLE>
64
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C>
Louise Bassano 50,000 50,000 0 *
Michael W. Pure 50,000 50,000 0 *
Muriel Gottesman 50,000 50,000 0 *
Phillip J. Schiller 50,000 50,000 0 *
Than M. Jain 50,000 50,000 0 *
Vinod & Manju Joshi, JTWROS 50,000 50,000 0 *
James D. & Judith A. Rentner, JTWROS 47,792 47,792 0 *
Beatrice Murphy & Kathy Griffin JTWROS 45,842 45,842 0 *
Harvey Polly 43,801 43,801 0 *
Ramchandra & Rashmi Jakhotias, JTWROS 43,750 43,750 0 *
Cabell & Joyce Payne, JTWROS 41,667 41,667 0 *
Dean Cundey, Trustee 41,667 41,667 0 *
Donald Lipsy S. 41,667 41,667 0 *
Gale K. Sostek 41,667 41,667 0 *
Howard & Jill Schwartz, TITE 41,667 41,667 0 *
Jose Luis Ferriz 41,667 41,667 0 *
Nagia Elias 41,667 41,667 0 *
Patrick & Dawn Kearney Trustees 41,667 41,667 0 *
Larry Griffin 41,666 41,666 0 *
Lawrence Hurwitz, MD Trustee 41,666 41,666 0 *
Dolores Hartzmark 37,500 37,500 0 *
Hans Pojer 36,324 36,324 0 *
Rolando & Maria Del Rio 35,584 35,584 0 *
Kathy Griffin 35,176 35,176 0 *
David & Adele Hast, JTWROS 35,000 35,000 0 *
Michel Beno 35,000 35,000 0 *
Russel Anmuth 33,334 33,334 0 *
Herbert & Marlia Josephart, TTEES 33,333 33,333 0 *
Max Silkowitz 33,333 33,333 0 *
Charles and Patricia Goldsmith ,TITE 31,250 31,250 0 *
Daniel Abramson 31,250 31,250 0 *
Elaine Schwartz 31,250 31,250 0 *
James M. Goldfarb 31,250 31,250 0 *
John C. & Joan C. Levine, JTWROS 31,250 31,250 0 *
Joseph & Hermina Rosenberg, JTWROS 31,250 31,250 0 *
Julius Krammer 31,250 31,250 0 *
Michael G. & Eileen P. Smith, JTWROS 31,250 31,250 0 *
RFD Associates 31,250 31,250 0 *
Richard & Robin Alman , JTWROS 31,250 31,250 0 *
Samuel A. & Carol Cassell, JTWROS 31,250 31,250 0 *
Steven & Kim Silvers, JTWROS 31,250 31,250 0 *
Steven Silvers D.O., P.A. Pension Plan 31,250 31,250 0 *
Irwin H. Blau 30,000 30,000 0 *
Kevin E. Potter 30,000 30,000 0 *
Alan Hartzmark Revocable Trust 25,000 25,000 0 *
Allan E. Glickman 25,000 25,000 0 *
Barbara Akst 25,000 25,000 0 *
Brent Adamson 25,000 25,000 0 *
Elliot Dworkin 25,000 25,000 0 *
Izhr & Nitza Shy 25,000 25,000 0 *
Lee Kaplan 25,000 25,000 0 *
Mark Schwartz 25,000 25,000 0 *
Marvin Pastor 25,000 25,000 0 *
Renee Nadel Trust 25,000 25,000 0 *
Ritchie and Estelle Jacobs 25,000 25,000 0 *
Rosemary Valente, IRA 25,000 25,000 0 *
Stanley & Marilyn Boyle, Trustees 25,000 25,000 0 *
Theodore J. & Edith Wins, JTWROS 25,000 25,000 0 *
Miriam J. Pearl, Trustee 25,000 25,000 0 *
Timothy & Bryan Reed, JTWROS 25,000 25,000 0 *
Varda & Moshe Yalon, JTWROS 25,000 25,000 0 *
Janine P. Gia 21,901 21,901 0 *
Jeffrey Polly 21,901 21,901 0 *
Alfred B. Schuler 20,833 20,833 0 *
Howard Gross PNCIRA Custodian 20,833 20,833 0 *
Peter & Bettle Kuzmick, JTWROS 20,833 20,833 0 *
Scott & Lisa Goldberg TITE 20,833 20,833 0 *
Leonard R. Schenker 20,000 20,000 0 *
Marian Heiser 20,000 20,000 0 *
Seth Kaufman, Trustee 20,000 20,000 0 *
Mark Alan Rosenberg 18,000 18,000 0 *
Lee Collins 17,513 17,513 0 *
Andrew Sostek 16,667 16,667 0 *
Bernard & Estelle Jacobs JTWROS 16,667 16,667 0 *
Jerry F. Nichols 16,667 16,667 0 *
June Busby 16,667 16,667 0 *
Kenneth D & Janice B. Lent U/T/D 16,667 16,667 0 *
Richard Burack 16,667 16,667 0 *
</TABLE>
65
<PAGE> 71
<TABLE>
<S> <C> <C> <C> <C>
Sidney & Alene Workman, JTWROS 16,667 16,667 0 *
William Herbst, IRA 16,667 16,667 0 *
Steven Sanders 15,979 15,979 0 *
Michael Smith 15,000 15,000 0 *
Phyllis Cohen 15,000 15,000 0 *
Roberta Lamb 13,653 13,653 0 *
James R. Postinpack 13,500 13,500 0 *
Anand V. Khandelwal 12,500 12,500 0 *
Claude Memmi 12,500 12,500 0 *
Claude Wall 12,500 12,500 0 *
Daniel Shek 12,500 12,500 0 *
David & Muriel Kaufman, JTWROS 12,500 12,500 0 *
Michael G. & Susan A. Green, JTWROS 12,500 12,500 0 *
Mukesh & HemaxiBhatt, JTWROS 12,500 12,500 0 *
Natwara Jethva 12,500 12,500 0 *
Betty Smith 12,480 12,480 0 *
Donald Hagen 11,860 11,860 0 *
Carlson & Bales, P.A. 11,738 11,738 0 *
Paul Abbey 10,861 10,861 0 *
Amanda B. Pearl 10,000 10,000 0 *
Andrew Sroka 10,000 10,000 0 *
Govind K. Mehta 10,000 10,000 0 *
James A. Baker 10,000 10,000 0 *
Manuel V. Fernandez 10,000 10,000 0 *
Martin Scharf 10,000 10,000 0 *
Melvin Waxman 10,000 10,000 0 *
Allen & Joan VanWinkle, TITE 8,333 8,333 0 *
Ilyne Kobrin, SEP-IRA 8,333 8,333 0 *
Lazlo Szekely 7,500 7,500 0 *
Mark Kogod 6,667 6,667 0 *
Bruce Hartzmark 6,250 6,250 0 *
Hershel Krasnow 6,250 6,250 0 *
Lal C. Jagetia 6,250 6,250 0 *
Louis A. Horwitz 6,250 6,250 0 *
Steven L. Wasserman 6,000 6,000 0 *
Anil Jagetta 5,000 5,000 0 *
Ceaser Fraschilla 3,000 3,000 0 *
Jeffrey Buick 2,083 2,083 0 *
Ann Greene 2,000 2,000 0 *
Bruce Kogod 1,667 1,667 0 *
Karen Kogod 1,667 1,667 0 *
----- -----
Total 22,703,455 22,703,455
========== ==========
</TABLE>
_______________
*Denotes less than 1% ownership.
An aggregate of 14,697 shares of Common Stock included in the shares
of Common Stock listed above to be sold by Selling Security Holders are
issuable upon exercise of 3,450 shares of Series A Preferred Stock of the
Company issued in January 1984. See "Description of Securities - Preferred
Stock."
An aggregate of 7,716,213 shares of Common Stock were received upon
conversion of convertible subordinated debentures and accrued interest of
Cytoferon and are included in the shares of Common Stock listed above to be sold
by the Selling Security Holders. These debentures were issued by Cytoferon in
separate transactions between February 1993 and March 1994 and were convertible
into Common Stock of the Company at a conversion price of $.30 per share. On
September 30, 1994, these debentures were converted into Common Stock of the
Company, at which time accrued interest on such debentures were converted into
Common Stock of Viragen also at a conversion ratio at $.30 per share. There is
also included above 1,367,120 shares received by the equity holders of Cytoferon
upon termination of operations of Cytoferon. Between February 1993 and August
1994, the Company and Cytoferon entered into a series of stock purchase and
management and marketing agreements which were subsequently terminated as a
result of the Subsequent Agreement entered into in August 1994. See previous
discussion under
66
<PAGE> 72
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Marketing and Management Services Agreement."
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000 exercisable at $.30 per share
as previously described. Under the terms of the agreement with Northlea
Partners, Ltd., the Company repurchased 584,160 warrants resulting in warrants
to purchase 415,850 shares of Common Stock remaining outstanding, all of which
are currently exercisable. All of the shares underlying such warrants are
included in the shares of Common Stock listed above to be sold by the Selling
Security Holders. See previous discussion under "Management - Certain
Relationships and Related Transactions."
In August 1994, the Company completed its $3.5 million private
placement offering of its Common Stock to accredited investors at $.40 per
share resulting in the issuance of 8,919,000 shares. The offering was
conducted by Laidlaw Equities, Inc. ("Laidlaw") which acted as the placement
agent for the offering. In connection therewith, Laidlaw, in consideration for
serving as the placement agent for such offering, received warrants to purchase
765,650 shares of Common Stock exercisable at $.52 per share. The purchase
price for the Common Stock and the exercise price of the warrants issued to
Laidlaw and its designees were the result of arms-length bargaining and
represented approximately a 39% discount from the market price of the Common
Stock at the time of agreement but in excess of the offering price of the
Common Stock in such private offering. All of the shares of Common Stock
included in such private offering and underlying the aforementioned warrants
are included in the shares of Common Stock listed above to be sold by the
Selling Security Holders. See previous discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management - Certain Relationships and Related Transactions."
In December 1994, the Company completed a second private placement
during its 1995 fiscal year of Common Stock at $.60 per share which enabled the
Company to realize gross proceeds of $2,056,000 in consideration for the
issuance of 3,426,667 shares of Common Stock. The offering price for the
shares was determined by management of the Company and represented a discount
of approximately 31% from the market price of the Company's Common Stock at the
date of determination in October, 1994. All of the shares of Common Stock
issued in such private offering are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders. See previous
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to Mr. Moty Hermon and designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants
are exercisable at $.60 per share and the
67
<PAGE> 73
exercise price was determined through arms-length negotiations with the
consultant and represented a discount of approximately 34% from the market
price of the Company's Common Stock at the date of the transaction. The shares
of Common Stock underlying such warrants are listed above in the shares of
Common Stock to be sold by the Selling Security Holders. See previous
discussion under "Management - Certain Relationships and Related Transactions."
The Company has undertaken to maintain the Registration Statement
current for a period of not less than nine months from the effective date of
the Registration Statement of which this Prospectus is a part in order that
sales of shares of Common Stock may be made by the Selling Security Holders.
The Company has agreed to pay for all costs and expenses incident to the
issuance, offer, sale and delivery of the Common Stock, including, but not
limited to, all expenses and fees of preparing, filing and printing the
Registration Statement and Prospectus and related exhibits, amendments and
supplements thereto and mailing of such items. The Company will not pay
selling commissions and expenses associated with any such sales by the Selling
Security Holders. The Company has agreed to indemnify the Selling Security
Holders against civil liabilities including liabilities under the Securities
Act of 1933. The Selling Security Holders have advised the Company that sales
of shares of their Common Stock may be made from time to time by or for the
accounts of the Selling Security Holders in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise, at prices
related to the prevailing market prices or at negotiated prices.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 50,000,000 shares
of Common Stock, par value $.01 per share, of which 35,355,532 shares were
outstanding as of June 30, 1995. The Company is also authorized to issue up to
375,000 shares of Preferred Stock, par value $1.00 per share, of which 3,450
shares of Series A Preferred Stock were outstanding as of June 30, 1995.
COMMON STOCK
Subject to the dividend rights of the holders of Preferred Stock,
holders of shares of Common Stock are entitled to share, on a ratable basis,
such dividends as may be declared by the Board of Directors out of funds,
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors and holders of Preferred Stock that may be
outstanding, the assets of the Company will be divided pro rata on a per share
basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting
68
<PAGE> 74
for the election of Directors can elect all of the Directors if they choose to
do so, and, in such event, the holders of the remaining shares will not be able
to elect any Directors. The By-Laws of the Company require that only a
majority of the issued and outstanding shares of Common Stock of the Company
need be represented to constitute a quorum and to transact business at a
stockholders' meeting. The Common Stock has no preemptive, subscription or
conversion rights and is not redeemable by the Company.
PREFERRED STOCK
The Company is authorized to issue 375,000 shares of Preferred Stock,
par value $1.00 per share. The Company currently has 3,450 shares of Series A
Preferred Stock outstanding. The Preferred Stock may be issued by resolutions
of the Company's Board of Directors from time to time without any action of the
stockholders. Such resolutions may authorize issuances of such Preferred Stock
in one or more series and may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms and other
privileges and rights of the shares of each authorized series. The Company has
no present intention to issue any additional shares of its Preferred Stock for
any purpose. While the Company includes such Preferred Stock in its
capitalization in order to enhance its financial flexibility, such Preferred
Stock could possibly be used by the Company as a means to preserve control by
present management in the event of a potential hostile takeover of the Company.
In addition, the issuance of large blocks of Preferred Stock could possibly
have a dilutive effect with respect to the existing holders of Common Stock of
the Company.
The Series A Preferred Stock was established by the Board of Directors
January 1984. Each share of Series A Preferred Stock is immediately
convertible into 4.26 shares of Common Stock. Dividends on the preferred stock
are cumulative, have priority to the Common Stock and are payable in either
cash or Common Stock, at the option of the Company. The Company anticipates
approval by its Board of Directors of a preferred stock dividend during the
third fiscal quarter of 1995.
The Series A Preferred Stock has voting rights only if dividends are
in arrears for five annual dividends. Upon such occurrence, the voting would
be limited to the election of two directors. Voting rights terminate upon
payment of the cumulative dividends. The Series A Preferred Stock is
redeemable at the option of the Company at any time after expiration of ten
consecutive business days during which the bid or last sale price for the
Common Stock is $6.00 per share or higher. There is no mandatory redemption or
sinking fund obligation with respect to the preferred stock.
Owners of the Series A Preferred Stock of which there are eight record
holders, will be entitled to receive $10.00 per share (plus accrued and unpaid
dividends) before any distribution or payment is
69
<PAGE> 75
made to holders of the Common Stock or other stock of the Company junior to the
Series A Preferred Stock upon liquidation, dissolution or winding up of the
Company. If in any such event the assets of the Company distributable among
the holders of Series A Preferred Stock or any stock of the Company ranking on
a par with the Series A Preferred Stock upon liquidation, dissolution or
winding up are insufficient to permit such payment, the holders of the Series A
Preferred Stock and of such other stock will be entitled to ratable
distribution of the available assets in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid
in full.
The resale of the Common Stock issuable upon conversion of the Series
A Preferred Stock is included as part of the Registration Statement of which
this Prospectus is a part.
CONVERTIBLE DEBENTURES
In November 1993, the Company issued $200,000 principal amount of its
8 1/2% three-year convertible debentures. These debentures were converted into
666,668 shares of Common Stock of the Company at a conversion price of $.30 per
share on October 31, 1994. These shares are included in the Registration
Statement of which this prospectus is a part.
COMMON STOCK PURCHASE WARRANTS
In connection with the completion of the Company's $3.5 private
placement offering in August 1994, the Company issued to the placement agent
and its designees Common Stock Purchase Warrants to purchase 765,650 shares of
Common Stock. These warrants are exercisable at $.52 per share on/or prior to
August 15, 1999. The shares of Common Stock underlying these warrants are
included in the Registration Statement of which this Prospectus is a part.
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000, exercisable at $.30 per share
on or prior to January 6, 1999. The Company repurchased warrants to acquire
584,160 shares of Common Stock at the time of the termination of the Management
Consulting Agreement with Northlea Partners, Ltd. in July 1994, leaving 415,840
warrants, all of which are currently exercisable. In March 1995, the Company
issued 64,500 Common Stock purchase warrants to Mr. Moty Hermon and designees
in consideration for financial consulting services to be undertaken on behalf
of the Company. The warrants are for a five year term and are exercisable
currently at $.60 per share. The shares underlying these warrants are included
in the Registration Statement of which this Prospectus is a part.
70
<PAGE> 76
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The Company intends to apply for inclusion of its Common
Stock on the NASDAQ System at such time as the price of the Company's Common
Stock satisfies NASDAQ minimum bid requirements of $3.00 per share. If for any
reason the Common Stock is not accepted for inclusion on the NASDAQ System,
then in such case the Company's Common Stock would be expected to continue to
be traded in the over-the-counter markets through the "pink sheets" or the
NASD's OTC Bulletin Board. In the event the Common Stock were not included in
the NASDAQ System, the Company's Common Stock would be covered by a Securities
and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's securities and
also may affect the ability of purchasers in this offering to sell their shares
in the secondary market. The ability of the Company to secure a symbol on the
NASDAQ System does not imply that a meaningful trading market in its Common
Stock will ever develop.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is Continental Stock
Transfer & Trust Company, Two Broadway, New York, New York 10004.
CERTAIN MARKET INFORMATION
As of June 30, 1995, 35,355,532 shares of the Company's Common Stock
are outstanding of which 24,541,053 shares will be "restricted securities," as
such term is defined under the Securities Act of 1933, exclusive of the Common
Stock to be sold pursuant to the Registration Statement of which this
Prospectus is a part.
In general, Rule 144 (as presently in effect), promulgated under the
Act, permits a stockholder of the Company who has beneficially owned restricted
shares of Common Stock for at least two years to sell without registration,
within any three-month period, such number of shares not exceeding the greater
of 1% of the then outstanding shares of Common Stock or, if the Common Stock is
quoted on NASDAQ, the average weekly trading volume over a defined period of
time, assuming compliance by the Company with certain reporting requirements of
Rule 144. Furthermore, if the restricted shares of
71
<PAGE> 77
Common Stock are held for at least three years by a person not affiliated with
the Company (in general, a person who is not an executive officer, director or
principal stockholder of the Company during the three-month period prior to
resale), such restricted shares can be sold without any volume limitation. Any
sales of shares by stockholders pursuant to Rule 144 may have a depressive
effect on the price of the Company's Common Stock.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for the Company by Atlas, Pearlman & Trop, P.A., 3200 North
Military Trail, Suite 205, Boca Raton, Florida 33431.
EXPERTS
The consolidated financial statements of Viragen, Inc. at June 30,
1994 and for the year ended June 30, 1994, six months ended June 30, 1993 and
year ended December 31, 1992 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits filed as a part thereof. The
statements contained in this Prospectus as to the contents of any contract or
other document identified as exhibits in this Prospectus are not necessarily
complete, and in each instance, reference is made to a copy of such contract or
document filed as an exhibit to the Registration Statement. The Registration
Statement, including exhibits, may be inspected without charge at the principal
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
upon payment of fees prescribed by the Commission from the Public Reference
Section of the Commission at its principal office in Washington, D.C. set forth
above.
72
<PAGE> 78
FORM SB-2--ITEM 22
VIRAGEN, INC. AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and subsidiary
are included:
Consolidated balance sheets -- March 31, 1995 (unaudited) and June 30,
1994.
Consolidated statements of operations -- Nine months ended March 31,
1995 and 1994 (unaudited), year ended June 30, 1994, six months ended
June 30, 1993 and year ended December 31, 1992.
Consolidated statements of stockholders' equity (deficit) -- Nine
months ended March 31, 1995 (unaudited), year ended June 30, 1994, six
months ended June 30, 1993 and year ended December 31, 1992.
Consolidated statement of cash flows -- Nine months ended March 31,
1995 and 1994 (unaudited), year ended June 30, 1994, six months ended
June 30, 1993, and year ended December 31, 1992.
Notes to consolidated financial statements -- March 31, 1995
(unaudited) and June 30, 1994.
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Viragen, Inc.
We have audited the accompanying consolidated balance sheet of Viragen, Inc.
and subsidiary as of June 30, 1994 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
June 30, 1994, six months ended June 30, 1993 and year ended December 31, 1992.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Viragen, Inc. and subsidiary at June 30, 1994 and the consolidated results of
their operations and their cash flows for the year ended June 30, 1994, six
months ended June 30, 1993 and year ended December 31, 1992, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
October 7, 1994
Miami, Florida
F-2
<PAGE> 80
CONSOLIDATED BALANCE SHEETS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,548,646 $ 879,926
Accounts receivable, less
allowance of $40,000 at
March 31, 1995 and $15,000 68,515 22,785
at June 30, 1994.
Subscriptions receivable from
private placement 102,500
Inventory 291,328 766,471
Prepaid expenses 75,673 36,189
Other current assets 8,932 9,653
--------- ---------
TOTAL CURRENT ASSETS 2,993,094 1,817,524
NOTES RECEIVABLE, less allowance
of $15,600 at March 31, 1995
and $5,600 at June 30, 1994. 90,672 74,189
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,184,629 1,170,855
Equipment and furniture 1,269,285 1,049,072
--------- ---------
2,453,914 2,219,927
Less accumulated depreciation (1,475,671) (1,377,454)
--------- ---------
978,243 842,473
DEPOSITS AND OTHER ASSETS 9,021 10,308
---------- ---------
$ 4,071,030 $2,744,494
========== =========
</TABLE>
F-3
<PAGE> 81
CONSOLIDATED BALANCE SHEETS--Continued
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 161,950 $ 420,049
Current portion of amounts
payable to Medicore, Inc. 31,592 52,153
Accrued expenses and other
liabilities 168,167 520,723
Current portion of notes payable 30,000 30,000
---------- ----------
TOTAL CURRENT LIABILITIES 391,709 1,022,925
CONVERTIBLE DEBENTURES PAYABLE 200,000
MORTGAGE NOTE PAYABLE, less current
portion 460,939 483,439
AMOUNTS PAYABLE TO MEDICORE, INC.,
less current portion 476,435 492,537
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative
preferred stock, $1.00 par value.
Authorized 375,000 shares; issued
and outstanding 3,450 shares at
March 31, 1995 and June 30, 1994.
Liquidation preference value: $10
per share, aggregating $34,500 at
March 31, 1995 and June 30, 1994. 3,450 3,450
Common stock, $.01 par value.
Authorized 50,000,000 shares;
issued and outstanding 35,355,532
shares at March 31, 1995 and
20,218,197 shares at June 30 1994. 353,555 202,182
Capital in excess of par value 18,514,202 12,698,723
Common stock subscribed 1,126,250
Retained earnings (deficit) (15,803,010) (13,158,762)
Notes due from officers (326,250) (326,250)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,741,947 545,593
----------- ----------
$ 4,071,030 $ 2,744,494
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 82
CONSOLIDATED STATEMENTS OF OPERATIONS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
------- ------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME
Revenues $454,902 $354,050 $624,814
Interest and other income 89,400 58,428 51,807 $53,562
------- -------- -------- ------
544,302 412,478 676,621 53,562
COST AND EXPENSES
Cost of goods sold 268,566 144,178 322,262
Inventory valuation adjustment 788,000
Depreciation and amortization 60,503 35,371 47,257 39,644
Research and development costs 342,738 34,743 17,476 1,873
Bad debt expense 35,000 20,600
Selling, general and admin-
istrative expenses 1,097,859 854,396 1,264,334 280,137
Contract termination fee 525,000
Interest expense 70,884 60,968 88,038 43,351
--------- --------- --------- -------
3,188,550 1,129,656 1,759,967 365,005
--------- --------- --------- -------
NET LOSS (2,644,248) (717,178) (1,083,346) (311,443)
Deduct required dividends on
convertible preferred stock 2,588 2,799 3,450 1,835
--------- --------- --------- -------
LOSS ATTRIBUTABLE TO COMMON
STOCK $(2,646,836) $(719,977) $(1,086,796) $(313,278)
========= ======== ========= =======
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $(.09) $(.04) $(.06) $(.02)
==== ===== ===== =====
Weighted average shares
outstanding 30,637,957 18,559,724 18,686,751 14,463,038
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 83
CONSOLIDATED STATEMENT OF OPERATIONS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
------------
<S> <C>
INCOME
Revenues $ 41,274
Interest and other income 10,551
51,825
COST AND EXPENSES
Cost of goods sold 18,474
Depreciation and amortization 146,276
Research and development costs 342
Bad debt expense
Selling, general and admin-
istratative expenses 364,034
Interest expense 85,853
--------
614,979
--------
NET LOSS (563,154)
--------
Deduct required dividends on
convertible preferred stock 9,545
--------
LOSS ATTRIBUTABLE TO COMMON
STOCK $ (572,699)
========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (.05)
========
Weighted average shares
outstanding 11,478,914
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 84
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Capital
in Excess Common Retained
Preferred Common of Par Stock Earnings
Stock Stock Value Subscribed (Deficit)
--------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December $13,700 $110,337 $10,988,555 $ - $(11,200,819)
31, 1991
Common stock issued to
employees and directors
(797,400 shares) 7,974 55,818
Conversion of 10,000
preferred shares into
42,600 common shares (10,000) 426 9,574
Net loss (563,154)
--------- -------- ----------- ----------- ------------
Balance at December
31, 1992 3,700 118,737 11,053,947 (11,763,973)
Sale of common stock
(6,000,000 shares) 60,000 940,000
Net loss (311,443)
--------- -------- ----------- ----------- ------------
Balance at June
30, 1993 3,700 178,737 11,993,947 (12,075,416)
Options granted to
directors 117,033
Conversion of note
payable to stockholder
(260,130 shares) 2,601 75,437
Purchase of
stock warrants 20,000
Purchase of stock
by Cytoferon
(1,333,333 shares) 13,333 386,667
Stock purchase by
officer
(750,000 shares) 7,500 217,500
Stock purchases by
officer, director and
affiliate (375,000 shares) $ 112,500
</TABLE>
F-7
<PAGE> 85
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
VIRAGEN, INC. AND SUBSIDIARY--Continued
<TABLE>
<CAPTION>
Capital
in Excess Common Retained
Preferred Common of Par Stock Earnings
Stock Stock Value Subscribed (Deficit)
--------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Conversion of series A
preferred stock $ (250) $ 11 $ 239 $ $
Private placement of
common stock
(2,534,375 shares) 1,013,750
Private placement
issuance costs (112,100)
Net loss (1,083,346)
-------- -------- ----------- ---------- ------------
Balance at June 30,
1994 3,450 202,182 12,698,723 1,126,250 (13,158,762)
Repurchase of warrants (14,604)
Conversions of debentures 6,666 193,334
Purchase of stock by
officers and affiliates 3,750 108,750 (112,500)
Shares to Cytoferon from
modification of agreement 17,500 507,500
Private placement #1
of common stock 89,190 3,478,410 (1,013,750)
Private placement #1
issuance costs (382,633)
Private placement #2
of common stock 34,267 2,021,733
Private placement #2
issuance costs (77,096)
Registration of
Form SB-2 (19,915)
Net loss (2,644,248)
-------- -------- ----------- ---------- ------------
Balance at March 31,
1995 (unaudited) $ 3,450 $353,555 $18,514,202 $ -0- $(15,803,010)
======== ======== =========== ========== ============
</TABLE>
F-8
<PAGE> 86
CONSOLIDATED STATEMENTS OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,644,248) $(717,178) $(1,083,346) $(311,443)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 98,217 35,371 47,257 43,311
Interest paid through stock
issue 11,438
Bad Debt Expense 35,000 20,600
Stock Options granted to directors 27,500
Net gain in Sale of Fixed Assets (11,392)
Issuance of common stock to
officers, employees and others 11,250
Compensation expense on stock
options 117,033
Increase (decrease) relating
to operating activities from:
Escrow account 62,752 68,535
Accounts receivable (70,730) (79,923) (43,385) 204
Inventory 475,143 (585,231) (676,345) (90,126)
Notes receivable (26,483) (101,237)
Prepaid expenses and other
current assets (38,763) (46,269) (9,141)
Deferred expenses and other
assets 1,287 (2,375) (3,573) (1,785)
Accounts payable (258,099) 56,520 224,792 32,697
Accounts payable to
Medicore (20,561) (27,926) (19,523) 18,168
Accrued expenses and other
liabilities (352,556) 175,390 376,741 (5,452)
---------- ---------- ---------- --------
Net cash used in
operating activities (2,801,793) (1,112,761) (1,049,763) (323,567)
INVESTING ACTIVITIES
Proceeds from sale of equipment 45,992
Additions to property, plant and
equipment, net (233,987) (34,627) (11,643) (42,547)
---------- ---------- ---------- ---------
Net cash provided by
investing activities (233,987) 11,365 (11,643) (42,547)
</TABLE>
F-9
<PAGE> 87
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
------------ ---------- --------- --------
(Unaudited) (Unaudited)
FINANCING ACTIVITIES
<S> <C> <C> <C> <C>
Payments on long-term debt $ (38,602) $(25,000) $(57,724) $ (15,000)
Payments to Medicore, Inc. (82,202)
Proceeds from sale of common
stock, net of related expenses 4,232,706 400,000 911,250 1,000,000
Contract termination fee paid in stock 525,000
Proceeds from sale of warrants 20,000 20,000
Repurchase of Warrants (14,604)
Proceeds from sale of common
stock to Cytoferon 400,000
Proceeds from issuance of
convertible debentures 200,000 200,000
Proceeds from issuance of
convertible debentures Advances
from Medicore 74,034
Private Placement issuance
costs (112,100)
Advances from Medicore, Inc. 22,427
Payments to Medicore, Inc. (98,636)
---------- --------- ---------- ---------
Net cash provided by
financing activities 4,704,500 570,398 1,361,426 925,225
---------- --------- ---------- ---------
Increase (decrease) in cash 1,668,720 (530,998) 300,020 559,111
Cash and cash equivalents
at beginning of period 879,926 579,906 579,906 20,795
---------- --------- --------- ---------
Cash and cash equivalents
at end of period $2,548,646 $ 48,908 $ 879,926 $ 579,906
========== ========= ========= =========
</TABLE>
Supplemental Cash Flow Information:
During the nine months ended March 31,1995 and 1994 (unaudited), year ended
June 30, 1994 and six months ended June 30, 1993, the Company had the
following noncash financing activity:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994 1994 1993
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Issuance of common stock to
directors and officers $326,250
Issuance of common stock
purchase warrants to
directors and officers $123,750
Issuance of common stock for
convertible debentures $200,000
Issuance of common stock to
stockholder in payment of note $66,600 66,600 78,039
payable
Stock subscriptions receivable 102,500
-------- ------- -------- --------
Interest paid $ 79,528 $56,939 $ 86,369 $ 39,998
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 88
CONSOLIDATED STATEMENT OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year ended
December 31,
1992
------------
<S> <C>
OPERATING ACTIVITIES
Net loss $(563,154)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 146,276
Interest paid through stock
issue
Bad Debt Expense
Stock Options granted to
directors, issuance of common stock
to officers, employees and
others 63,792
Compensation expense on stock
options
Write off of unusable equipment 9,383
Net gain on sale of fixed assets (1,648)
Increase (decrease) relating
to operating activities from:
Escrow account (68,535)
Accounts receivable 12,014
Inventory 19,476
Notes receivable
Prepaid expenses and other
current assets 2,133
Deferred expenses and other
assets 3,475
Accounts payable 23,588
Accounts payable to
Medicore 37,423
Accrued expenses and other
liabilities 23,876
-------
Net cash used in
operating activities (291,901)
INVESTING ACTIVITIES
Proceeds from sale of equipment 5,762
Additions to property, plant and
equipment, net (20,156)
-------
Net cash provided by
investing activities (14,394)
</TABLE>
F-11
<PAGE> 89
CONSOLIDATED STATEMENT OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
----------
<S> <C>
FINANCING ACTIVITIES
Payments on long-term debt $ (40,516)
Payments on note payable to
and advances from stockholders (3,000)
Advances from Medicore, Inc. 300,946
Proceeds from notes payable
to and advances from
stockholders 69,600
---------
Net cash provided by
financing activities 327,030
---------
Increase in cash 20,735
Cash and cash equivalents 60
at beginning of period ---------
Cash and cash equivalents $ 20,795
at end of period ========
Supplemental Cash Flow Information:
During year end December 31, 1992, the company had the following noncash finance activities:
Issuance of common stock to directors $ 63,792
Interest paid $ 48,319
=========
</TABLE>
F-12
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
MARCH 31, 1995 (UNAUDITED) and JUNE 30, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen, Inc. and subsidiary have been
engaged in the research, development and manufacture of certain
immunological products for commercial application. The consolidated
financial statements include the accounts of Viragen, Inc. and its
wholly-owned subsidiary, Vira-Tech, Inc. All material intercompany
accounts and transactions have been eliminated in consolidation.
Change in Fiscal Year End: The Company has changed its year end from
December 31 to June 30 effective January 1, 1993. Accordingly, the
accompanying financial statements include financial statements for the
year ended June 30, 1994, the six month transition period from January 1
through June 30, 1993, the nine months ended March 31, 1995 and 1994, and
year ended December 31, 1992.
Inventory: The Company has capitalized the human leukocyte interferon
manufactured in its laboratories at the lower of average cost or market.
The timing of the realization of the interferon inventory is dependent
upon future events. In July 1995, as part of an ongoing negotiation and
determination by management to focus efforts on obtaining regulatory
approvals, the Company has determined to discontinue new patient
enrollments under the State of Florida 499 Program. Accordingly, the
Company recorded as write-down of its interferon inventory, effective
December, 1994, of $788,000.
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Supplies $ 5,000
Work in Process 99,864
Finished goods $ 291,328 661,607
---------- ----------
$ 291,328 $ 766,471
========== ==========
</TABLE>
Property, Plant and Equipment: Property, plant and equipment is stated at
the lower of cost or net realizable value. Depreciation was computed
using the straight-line method over the estimated useful life for
financial reporting purposes and using accelerated methods for income tax
purposes.
Accounting Change: Effective in January 1, 1993, the Company changed its
method of accounting for income taxes and implemented Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
This change had no effect on results of operations or financial position
as presented in the accompanying financial statements. See NOTE E to
"Notes to Consolidated Financial Statements".
F-13
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loss Per Share: Loss per share has been computed based on the weighted
average number of shares outstanding during each period. The effect of
warrants and stock options (common stock equivalents) are antidilutive.
Fully diluted loss per share data, which includes the assumed conversion
of the convertible preferred stock, has not been presented because it was
not dilutive.
Interim Adjustments: The financial summaries for the nine months ended
March 31, 1995 and March 31, 1994 are unaudited and include, in the
opinion of management of the Company all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations for these periods.
Operating results for the nine months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the entire
year ending June 30, 1995.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that Financial
Statements for the nine months ended March 31, 1995 be read in conjunction
with the financial statements and notes included in the Company's annual
report on Form 10-K for the year ended June 30, 1994.
NOTE B--CAPITAL STOCK
In August 1994, the Company concluded a Private Placement of its common
stock which concluded subsequent to year end with the issuance of
8,919,000 shares at $.40 per share. At June 30, 1994, 2,534,375 shares
had been recorded as subscribed. In connection with this offering, the
Company has issued 765,650 common stock purchase warrants entitling the
holder to purchase one share of common stock at $.52 per share for a
period of five years from date of issuance. Subscriptions receivable of
$102,500 at June 30, 1994 related to this private placement were paid on
July 16, 1994.
During fiscal 1994, Cytoferon Corporation purchased 1,333,333 shares of
common stock at $.30 per share under the terms of an additional stock
purchase agreement. Also during the period, the Company entered into
stock purchase and option agreements with officers and directors totaling
2,250,000 shares obtainable at $.30 per share, of which 1,125,000 shares
were immediately exercisable and 1,125,000 shares were subject to certain
performance criteria. Subsequent to year end, the option related
performance criteria were met and the remaining 1,125,000 options became
exercisable. During the year ended June 30, 1994, $117,000 was charged to
operations upon the issuance of the officer and director options.
In April 1994, an officer purchased 750,000 shares of common stock at $.30
per share, in accordance with the provisions of his employment agreement,
$7,500, the par value of the stock, was treated as compensation expense
and a note receivable was recorded on the remaining balance of $217,500.
F-14
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE B--CAPITAL STOCK -- Continued
In June 1994, two officers and an affiliate each purchased 125,000 shares
of common stock at $.30 per share. $3,750 the par value of the stock, was
treated as compensation expense and a note receivable from each
individual/entity was recorded on the remaining balance of $36,250.
In November 1994, the Company commenced a second Private Placement solely
to accredited investors to raise through the sale of Common Stock at $.60
per share, a maximum of $3,000,000. This offering was completed on
December 31, 1994 with the Company having realized gross proceeds of
$2,056,000 upon the issuance of 3,426,667 shares. The net proceeds of this
offering of approximately $1,980,000 are intended to be utilized for the
establishment of a research and manufacturing facility in Europe during
fiscal 1995 and for general working capital purposes. Subject to receipt
of additional funding to conduct European-based clinical trials, it is the
Company's intention to commence European clinical trails and seek the
necessary approvals for the sale of its Alpha Leukoferon(TM) product in
Europe.
In December 1993, a stockholder and former director converted a
convertible promissory note payable of $66,600 with related accrued
interest of $11,439 into 260,130 shares of common stock.
The Company had outstanding 1,190,875 Class A common stock purchase
warrants exercisable at $1.63 per share, 600,000 Class B common stock
purchase warrants exercisable at $2.93 per share, and 3,029,270 Class C
common stock purchase warrants exercisable at $2.08 per share. These
warrants expired on their terms March 31, 1995 with no options being
exercised.
There are 3,450 shares of 10% Cumulative, Convertible Series A preferred
stock of the Company outstanding at March 31, 1995 and June 30, 1994.
Each share of preferred stock provides for a 10% cumulative dividend,
payable at the option of the Company, in either cash or common stock and
is convertible into 4.26 shares of common stock.
In 1994 and 1992, 250 shares and 10,000 shares of the convertible 10%
series A cumulative preferred stock were converted into 1,065 and 42,600
shares respectively, of the Company's common stock.
On June 17, 1992 the Company issued 797,400 shares of common stock to
officers and directors of the Company. The fair value of the shares on the
date of grant $(63,792) was charged to selling, general and administrative
expenses.
The holders of the preferred stock are not entitled to vote unless
dividends are in arrears for five annual dividend periods. The Company
has the right to call the preferred stock for redemption, in whole or in
part, if the closing bid for common stock is $6.00 per share or higher for
a period of ten consecutive business days ("Redemption Trigger Date").
F-15
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE B--CAPITAL STOCK -- Continued
The preferred stock is redeemable at $11.00 per share for a period of five
years from the Redemption Trigger Date, and thereafter at $10.00 per
share. Shares of the Company's common stock reserved at March 31, 1995
for possible future issuance are as follows:
<TABLE>
<S> <C>
Warrants - former consultant 480,340
Convertible preferred stock 14,697
Option plans 2,510,000
Directors options 650,000
Warrants - private placement 765,650
----------
4,420,687
==========
</TABLE>
In October 1994, the $200,000 of Convertible Debentures outstanding at
September 30 and June 30, 1994 were converted into 666,668 share of common
stock.
The Company has the authority to issue 1,000,000 shares of preferred
stock, of which 375,000 shares have been designated as Series A. No other
classes of preferred stock have been designated.
In a special meeting held on May 11, 1993, shareholders of the Company
approved an amendment to the certificate of incorporation to increase the
Company's authorized capital to provide sufficient shares for Cytoferon's
investment; therefore the authorized shares of the Company's common stock
were increased from 20,000,000, $.01 par value, to 50,000,000, $.01 par
value.
NOTE C--TRANSACTIONS WITH MEDICORE, INC.
In August 1993, the Company renegotiated its promissory note and second
mortgage with Medicore, Inc. for a total of $429,400. The second mortgage
is secured by the Company's land, building, equipment, and accounts
receivable. The note is being amortized over a 20 year term in equal
installments with a balloon payment for the remaining balance due on
August 1, 1996. The note incurs interest at 1% over prime. Principal
payments on the outstanding balance at June 30, 1994 of $406,140 are as
follows: $21,470 in 1995, $21,470 in 1996, and $363,201 in 1997.
Interest incurred during 1994 and 1993 totaled $30,832 and $21,830,
respectively, of which $2,792 and $56,864 remained unpaid at June 30, 1994
and 1993, respectively.
In May 1993, the Company renegotiated its royalty agreement with Medicore.
Under the new terms, the Company will pay Medicore 5% of sales to
$7,000,000, 4% of the next $10,000,000, and 3% on the next $55,000,000 to
a maximum of $2,400,000 in royalty payments. Royalties incurred in prior
years under the previous agreement, totaling $108,000 are included in
amounts payable to Medicore, Inc. This amount will be paid as the final
payment under the $2,400,000 total royalty agreement. Royalties expense
incurred in 1994 totaled $28,000.
F-16
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE C--TRANSACTIONS WITH MEDICORE, INC. -- Continued
Medicore leased office space from the Company for a total of $15,655 for
the nine months ended March 31, 1995 and, $20,874 and $10,434 during 1994
and 1993, respectively.
NOTE D--MORTGAGE AND NOTES PAYABLE
Mortgage and notes payable are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Mortgage note secured by land,
building and equipment with a
net book value of $878,000 at
June 30, 1994.
Monthly principal payments of
$2,500 plus interest at prime
plus 2% with the unpaid balance
due August 1, 1996. $490,939 $513,439
-------- --------
Less current portion 30,000 30,000
-------- --------
$460,939 $483,439
======== ========
</TABLE>
The prime rate was 7.25% as of June 30, 1994 and 9.00% at March 31, 1995.
Scheduled maturities of mortgage and notes payable outstanding at March
31, 1995 are: 1995 - $30,000; 1996 - $460,939.
At June 30, 1994 the Company was in default of certain covenants on its
mortgage note. The lender waived these defaults and waived compliance
with these covenants through July 1, 1995.
Medicore has guaranteed the principal and interest on the mortgage and
expenses and fees upon any default. Medicore has the right to cure
defaults and has an Acquisition Agreement with the Company giving Medicore
the right to assume the mortgage.
Interest payments on debt totaled $79,528 and $56,939 for the nine months
ended March 31, 1995 and 1994 respectively; and $84,777 for the year ended
June 30, 1994, and $39,998 for the six months ended June 30, 1993.
NOTE E--INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes and implemented Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Statement 109 changes
the method of accounting for income taxes from the deferred to the
liability method. Under the liability method, deferred income taxes at
the end of each period are determined by applying enacted tax rates
applicable, to future periods in which the taxes are expected to be paid
or recovered to differences between financial accounting and tax bases of
assets.
F-17
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE E--INCOME TAXES -- Continued
Under the deferred method, deferred income taxes are recognized using the
tax rates in effect when the tax is first recorded and are not adjusted
for subsequent changes in tax rates until paid or recovered.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets as of June 30, 1994 are as follows:
<TABLE>
<CAPTION>
June 30,
1994
----------
<S> <C>
Deferred tax liabilities:
Tax over book depreciation $ 75,000
Other 10,000
Total deferred tax liabilities 85,000
Deferred tax assets
Net operating loss carryforwards 3,349,000
Research and development credit 230,000
Investment tax credit 40,000
Other 107,000
----------
Total deferred tax assets 3,726,000
Valuation allowance for deferred
tax assets 3,641,000
----------
85,000
----------
Net deferred tax assets $ -0-
==========
</TABLE>
NOTE F--TRANSACTIONS WITH OTHER RELATED PARTIES
In November 1993, the Company issued $200,000 in 8 1/2%, three year
convertible debentures. The debentures, at the holders option are
immediately convertible into common stock of the Company at $.30 per
share. These debentures are held by a fund managed by a director of the
Company. In October 1994, these debentures were converted into 666,668
shares of common stock. These shares are held by Fundamental Growth
Partners, Ltd., Fundamental Associates, Ltd., Hedge Fund Partners, Ltd.
and Fundamental Resources, Ltd., which are investment funds managed by
William B. Saeger, a director of the Company.
In December 1993, the Company issued 260,130 shares of common stock to a
stockholder and former director in payment of a 10% convertible promissory
note in the amount of $66,600 and related accrued interest of $11,439. At
June 30, 1994, the Company had outstanding a note payable in the amount of
$25,000 to this stockholder. The note with related interest was repaid in
July 1994.
F-18
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE F--TRANSACTIONS WITH OTHER RELATED PARTIES -- Continued
Legal fees of $38,118 during the year ended June 30, 1994 and $14,434
during the six months ended June 30, 1993 and $5,500 for the year ended
December 31, 1992 were paid to the former secretary of the Company.
During the fourth quarter 1994, the Company made a series of short-term
borrowings from Cytoferon represented by notes payable bearing interest at
10%. At June 30, 1994 such notes totalled $60,000 and were repaid in July
1994.
NOTE G--AGREEMENT FOR SALE OF STOCK
On February 5, 1993, the Company entered into a Stock Agreement with
Cytoferon to purchase up to 11,640,000 shares of the Company's common
stock for consideration of $1,500,000 ("Maximum Investment"). By May 31,
1993, the expiration of the investment period, the Company had received
the Minimum Purchase under the terms of the stock agreement, $1,000,000,
in exchange for 6,000,000 shares of common stock at $.167 per share. This
price reflects the receipt, by Cytoferon, of a 20% bonus of common stock
due upon having reached the Minimum Purchase.
On November 19, 1994, the Company entered into an Additional Stock
Purchase Agreement under which terms Cytoferon purchased an additional
1,333,333 common shares at $.30 per share.
The funds invested enabled the Company to reinitiate production of its
interferon product, Alpha Leukoferon(TM), and to reinitiate the marketing
of the product through physicians specializing in the treatment of
Multiple Sclerosis and HIV/AIDS patients residing in the state of Florida.
Under the terms of the Stock Agreement, the Company had approved the
Management and Marketing Services Agreement ("MMS Agreement") subject to
certain modifications, which appointed Cytoferon as consultant to the
Company relating to production, administration, marketing and regulatory
affairs for which Cytoferon was to receive a consulting fee of $204,000
the first year and $240,000 the next two years provided certain minimum
sales requirements were met. To the extent Cytoferon's investment in the
Company was less than the Maximum Investment, the consulting fee was
reduced pro-rata. The MMS Agreement also provided a 4% gross sales
commission for exclusive distributorship for non-FDA approved products and
non- exclusive marketing of FDA approved products, none of which the
Company presently has. The MMS Agreement further provides for the Company
to pay Cytoferon 50% fees for foreign licensing, franchising and transfer
of technology plus 20% royalties the Company may receive from foreign
agreements resulting from Cytoferon's efforts.
All such fees and commissions were subject to the Company generating
certain minimum sales under the MMS Agreement. The Company incurred
management fees of $140,000 and $120,133, and sales commission expenses of
$12,067 and $13,272 for the nine months ended March 31, 1995 and 1994,
respectively.
F-19
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE G--AGREEMENT FOR SALE OF STOCK -- Continued
In August 1994, the Board of Directors of the Company voted to terminate
the MMS Agreement with Cytoferon, subject to receipt of a fairness
opinion, and issue the 1,750,000 shares contingently issuable under the
Additional Stock Purchase Agreement.
The Company's management believes that it is in the long-term best
interest of the Company to unify and consolidate management functions and
efforts and eliminate conflicts that may arise by virtue of minimum sales
requirements that could be inconsistent with the Company's plans to
introduce new production technologies and refinement of related protocols.
Accordingly, the Company executed a Subsequent Agreement which, subject to
receipt of a fairness opinion received in December 1994, terminated the
MMS Agreement and accelerated the issuance of the 1,750,000 shares
contingently issuable under the November 1993 Additional Stock Agreement
concurrent with the cancellation of the MMS Agreement and related
contractual obligations. As a result of this transaction, the Company
recognized a contract termination fee expense of $525,000 in August, 1994.
NOTE H--RESEARCH AND DEVELOPMENT AGREEMENTS
In 1983, the Company contracted with Viragen Research Associates Limited
Partnership ("Limited Partnership") for the Company to perform the
research and development with respect to two therapeutic products for the
treatment of herpes virus infections. The Company received $456,500 from
the Limited Partnership and assigned all of its patent rights to the
processes and products to the Limited Partnership for $5,000 and an
exclusive worldwide licensing agreement. The Limited Partnership is to
receive 5% of the gross revenues of such products until it has received
approximately $900,000 and thereafter it is to receive 2% of the gross
revenues of such products. Approval to sell these products commercially
has not yet been received.
NOTE I--SUBSEQUENT EVENTS
In August 1994, the Company completed a $3.5 million Private Placement
offering of unregistered common stock at $.40 per share. In connection
with this Private Placement, an Agreement was executed with Laidlaw
Equities, Inc. ("Laidlaw") utilizing that firm as placement agent. This
Agreement provided for Laidlaw to receive a 9.25% commission on capital
raised and reimbursement of Laidlaw's out-of-pocket expenses not to exceed
$65,000.
F-20
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE I--SUBSEQUENT EVENTS -- Continued
The Agreement further provided for the issuance of five year common stock
purchase warrants with an exercise price of $.52 per share equal to ten
percent (10%) of the number of shares issued during the Offering. The
Company agreed to file a Registration Statement within six (6) months from
the closing date registering the common shares sold pursuant to the
Offering and would be subject to a substantial dilutive penalty if such
Registration did not occur on a timely basis. The Company also agreed to
use its best efforts to file a Registration Statement for the underwriter
warrants within one year of such warrants issuance.
Net proceeds of the Private Placement of approximately $3,150,000 are
being utilized for the acquisition of laboratory production equipment,
purchase of a company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel
and working capital.
In November 1994, the Company commenced a second Private Placement solely
to accredited investors to raise through the sale of Common Stock at $.60
per share, a maximum of $3,000,000. This offering was completed on
December 31, 1994 with the Company having realized gross proceeds of
$2,056,000 upon the issuance of 3,426,667 shares. The net proceeds of this
offering of approximately $1,980,000 are intended to be utilized for the
establishment of a research and manufacturing facility in Europe during
fiscal 1995 and for general working capital purposes. Subject to receipt
of additional funding to conduct European-based clinical trials, it is the
Company's intention to commence European clinical trails and seek the
necessary approvals for the sale of its Alpha Leukoferon(TM) product in
Europe.
In May 1995, the Company forgave notes receivable due from officers,
directors, and an affiliate related to the purchase of the Company s
common stock totaling $326,250. Repayment of the note was waived in lieu
of bonuses for the 1995 fiscal year, following unanimous approval of the
independent members of the Board of Directors.
F-21
<PAGE> 99
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Year Six Months
Ended Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 30,637,957 18,559,724 18,686,751 14,463,038
=========== ========== =========== ==========
Net Loss $(2,644,248) $ (717,178) $(1,083,346) $ (311,443)
Deduct required dividends
on convertible
preferred stock 2,588 2,799 3,450 1,835
----------- ---------- ----------- ----------
Net loss attributable
to common stock $(2,646,836) $ (719,977) $(1,086,796) $ (313,278)
============ =========== =========== ==========
Loss per common
share after deduction
for required dividends
on convertible
preferred stock $ (.09) $ (.04) $ (.06) $ (.02)
============ =========== =========== ==========
</TABLE>
F-22
<PAGE> 100
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
-----------
<S> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 11,478,914
============
Net loss $ (563,154)
Deduct required dividends
on convertible
preferred stock 9,545
-----------
Net loss attributable
to common stock $ (572,699)
===========
Loss per common
share after deduction
for required dividends
on convertible preferred
stock $ (.05)
===========
</TABLE>
F-23
<PAGE> 101
(22) Subsidiary of the Registrant
<TABLE>
<CAPTION>
Percent Owned State/Country of
Name by Registrant Incorporation
---- ------------- ----------------
<S> <C> <C>
Vira-Tech, Inc. 100% Florida
Viragen(Scotland)
Limited 100% Scotland
</TABLE>
F-24
<PAGE> 102
<TABLE>
<S> <C>
No person has been authorized to give any
information or to make any representations other
than those contained in this Prospectus in
connection with this offering, and any information
or representations not contained herein must not
be relied upon as having been authorized by the
Company or any other person. This Prospectus does
not constitute an offer to sell or a solicitation VIRAGEN, INC.
of an offer to buy any securities other than the
securities to which it relates, or any offer to or 22,703,455 SHARES
solicitation of any person in any jurisdiction in
which such offer or solicitation would be COMMON STOCK
unlawful. Neither the delivery of this Prospec-
tus nor any offer or sale made hereunder shall,
under any circumstances, create an implication
that information herein is correct at any time
subsequent to the date hereof.
------------------------------
PROSPECTUS
-----------
------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.........
High Risk Factors..........
Price Range of
Common Stock.............
Dividend Policy............
Capitalization.............
Use of Proceeds............
Selected Consolidated
Financial Data...........
Management's Discussion and
Analysis of Financial Con- , 1995
ditions and Results of -------------
Operations...............
Business...................
Management.................
Clinical Advisory Committee
Principal Stockholders.....
Sales by Selling Security
Holders..................
Description of Securities..
Certain Market
Information..............
Legal Matters..............
Experts....................
Additional Information.....
Financial Statements.......
</TABLE>
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. A corporation may indemnify
against expenses (including attorneys' fees) and, other than in respect of an
action by or in the right of the corporation, against judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the right of the corporation, no
indemnification of expenses may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine that, despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145 of
the General Corporation Law of Delaware further provides that to the extent a
director, officer, employee or agent of the corporation has been successful in
the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him or her in connection therewith.
Article VII of the By-Laws of the Company require the Company to
indemnify its Directors and officers as follows:
"The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement
II-1
<PAGE> 104
actually and reasonably incurred by him in connection with such suit, action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful, provided, however, that in the case of an
action or suit by or in the right of the corporation, (a) such person shall be
indemnified only to the extent of his expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement thereof and not for any judgments, fines or amounts paid in
settlement and (b) no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless, and only to the extent that, the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Any indemnification hereunder (unless required by law or ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in this Article. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders of the corporation.
The indemnification provided herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware or of
these By-Laws.
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<PAGE> 105
The corporation's indemnity of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amounts such person may collect as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the corporation
or (ii) from such other corporation, partnership, joint venture, trust or other
enterprise.
Nothing contained in this Article VII, or elsewhere in these By-Laws,
shall operate to indemnify any director or officer of such indemnification is
for any reason contrary to law, either as a matter of public policy, or under
the provisions of the Federal Securities Act of 1933, the Securities Exchange
Act of 1934, or any other applicable state or federal law.
For the purposes of this Article, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporations so that any person who is or
was a director, officer, employee or agent of such a constituent corporation or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would if he had served the resulting or surviving corporation in the same
capacity."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred
in connection with the issuance and resale of the securities offered hereby.
The Company is responsible for the payment of all expenses in connection with
the Offering.
<TABLE>
<S> <C>
Registration fee under
the Securities Act of 1933.................. $ 21,000
Blue Sky filing fees and expenses............ 2,000.00*
Printing and engraving expenses.............. 10,000.00*
Legal fees and expenses...................... 15,000.00*
Accounting fees and expenses................. 15,000.00*
Miscellaneous................................ 2,000,00*
----------
Total................................ $65,000,00*
==========
</TABLE>
---------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1992, the Company issued 797,400 shares of Common Stock to
officers, directors and a consultant to the Company. An aggregate of 600,000
of such shares were issued to Mr. Tom Langbein and Mr.
II-3
<PAGE> 106
Dennis Healey in consideration for cancellation of their employment contracts
with the Company and the remaining 197,400 shares were issued to employees and
a consultant in lieu of cash payments and bonuses owing to such persons.
Inasmuch as such persons had a pre-existing relationship with the Company and
had access to relevant information concerning the Company, the issuance of such
shares was exempt from the registration requirements of the Securities Act of
1933 (the "Act"), pursuant to the exemption set forth in Section 4(2) of the
Act.
In May 1993, the Company issued 6,000,000 shares of Common Stock to
Cytoferon Corp. ("Cytoferon") for an investment of $1,000,000 and in November
1993, the Company issued 1,333,333 shares of Common Stock for a cash investment
of $400,000. In December 1994, following receipt of a fairness opinion, the
Company consummated an additional agreement with Cytoferon terminating all
prior agreements and compensation to be paid to Cytoferon, in consideration for
which the Company agreed to issue 1,750,000 shares of Common Stock to
Cytoferon. Inasmuch as Cytoferon had adequate financial resources to bear the
economic risk of the transaction, had a pre-existing relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such shares was exempt from the registration requirements of the
Act of 1933, pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued 750,000 shares of its Common
Stock for prior services (equal to the par value) and a promissory note and an
option to purchase 750,000 shares of Common Stock at an exercise price of $.30
per share to Mr. Gerald Smith as part of his employment agreement with the
Company. Inasmuch as Mr. Smith had a preexisting relationship with the Company
and had access to relevant information concerning the Company, the issuance of
such securities was exempt from the registration requirements of the Act
pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued $200,000 principal amount of its
convertible debentures to four investment funds managed by a director of the
Company for a consideration of $200,000. Inasmuch as such accredited investors
had adequate financial resources to bear the economic risk of the transaction,
had knowledge and experiences in investments of this type and had access to
relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Act pursuant to the
exemptions set forth in Sections 4(2) and 4(6) of the Act.
In January 1994, the Company issued 260,130 shares of Common Stock to
Mr. Seymour Friend in satisfaction of a demand note in the principal amount of
$66,700 and related interest. Inasmuch as Mr. Friend, a former director of the
Company, had a pre-existing relationship with the Company and had access to
relevant information concerning the Company, the issuance of such shares was
exempt from
II-4
<PAGE> 107
the registration requirements of the Act pursuant to the exemption set forth in
Section 4(2) of the Act.
In January 1994, the Company issued warrants to purchase 415,850
shares of Common Stock exercisable at $.30 per share to a medical consultant in
connection with a consulting agreement with the latter involving the issuance
of warrants to purchase 1,000,000 shares of Common Stock at an exercise price
of $.30 per share for $20,000 to Northlea Partners Ltd. The Company
subsequently repurchased 584,160 warrants under the terms of the issuing
agreement. Inasmuch as the consultant was an accredited investor and had
access to relevant information concerning the Company, the issuance of such
securities was exempt from the registration requirements of the Act pursuant to
the exemptions set forth in Sections 4(2) and 4(6) of the Act.
Between April 1994 and July 1994, the Company issued (i) 125,000
shares of Common Stock to Mr. Dennis Healey in consideration for prior services
as a director (equal to the par value) and a promissory note and options to
purchase an additional 125,000 shares of Common Stock exercisable at $.30 per
share; (ii) 125,000 shares of Common Stock to Mr. Peter Fischbein in
consideration for prior services as a director (equal to the par value) and a
promissory note and options to purchase an additional 125,000 shares of Common
Stock exercisable at $.30 per share; (iii) options to purchase 125,000 shares
of Common Stock to Mr. Gerald Smith or his designee exercisable at $.30 per
share; and (iv) options to purchase 300,000 shares to Mr. Charles Fistel at an
exercise price of $.30 per share. All of the aforementioned securities were
issued to officers and/or directors of the Company as part of their service as
a director, employment contracts or compensation arrangements with the Company.
Inasmuch as each of these individuals had a preexisting relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such securities was exempt from the registration requirements of
the Act pursuant to the exemptions set forth in Section 4(2) of the Act.
In August 1994, the Company issued 8,856,500 shares of its Common
Stock for an aggregate consideration of $3,500,000 to an aggregate of 140
accredited investors in a private placement of such securities undertaken
pursuant to Rule 505 of Regulation D and Section 4(6) of the Act. The offering
was conducted by Laidlaw Equities, Inc. ("Laidlaw") which acted as the
placement agent for the offering. In connection therewith, Laidlaw, in
consideration for serving as the placement agent for such offering, received
warrants to purchase 765,650, shares of Common Stock exercisable at $.52 per
share. Each of the investors executed subscription agreements verifying their
personal financial resources, their qualifications as accredited investors and
knowledge of investments. In addition, each of the investors was provided with
information and had access to relevant additional information concerning the
Company. Accordingly, the issuance of the aforementioned securities was exempt
from the registration requirements of the Act pursuant to the exemptions set
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<PAGE> 108
forth in Section 4(6) of the Act and Rule 504 under Regulation D and Section
4(2) of the Act.
Between May 1994 and March 1995, the Company issued five-year warrants
to purchase an aggregate of 570,000 shares of Common Stock at exercise prices
ranging from $.62 to $1.00 per share to six key employees. In August 1994,
the Company issued options to purchase an aggregate of 350,000 shares
exercisable at $1.00 per share which were divided equally among the then seven
directors of the Company. Inasmuch as each of the directors had a pre-existing
relationship with the Company and had access to relevant information concerning
the Company, the issuance of such securities was exempt from the registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
In December 1994, the Company issued 3,426,667 shares of its Common
Stock in consideration of $2,056,000 to an aggregate of 77 accredited investors
in a private placement of such securities undertaken pursuant to Rule 506 of
Regulation D and Section 4(6) of the Act. Each of the investors executed
subscription agreements verifying their personal financial resources, their
qualifications as accredited investors and knowledge of investments. In
addition, each of the investors was provided with information and had access to
relevant additional information concerning the Company. Accordingly, the
issuance of the aforementioned securities was exempt from the registration
requirements of the Act pursuant to the exemption set forth in Section 4(6) of
the Act and Rule 506 under Regulation D and Section 4(2) of the Act.
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to a consultant and his designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants
are for a five year term and are exercisable at $.60 per share. Inasmuch as the
consultant was an accredited investor and had access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Act pursuant to the exemptions set forth in
Sections 4(2) and 4(6) of the Act.
In May 1995, the Company issued 1,000,000 Common Stock purchase
options to Mr. Robert H. Zeiger pursuant to the terms of his Employment
Agreement. Under the terms of his Agreement, 500,000 options become
exercisable May, 1996 and 500,000 options become exercisable May, 1997. The
options remain exercisable for a five year term and are exercisable at $.96
per share. Mr. Zeiger was also elected to the Board of Directors in May,
1995. Inasmuch as Mr. Zeiger had access to relevant information concerning the
Company, the issuance of such securities was exempt from registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
Except with respect to the private placement completed in July 1994
and described above, no underwriters were involved in any of the transactions
described above, nor were any commissions paid in connection therewith.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibits
----------- -----------------------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
</TABLE>
II-6
<PAGE> 109
<TABLE>
<S> <C>
(2)(i) Plan of Merger between Florida Immunological Institute, Inc. and Vira-Tech, Inc., dated September 30, 1986
(incorporated by reference to the Company's registration statement on Form S-2, dated October 24, 1986, as amended
File No. 33-9714 ("1986 Form S-2"), Part II, Item 16, 2.1)
(2)(ii) Articles of Merger of Florida Immunological Institute into Vira-Tech, Inc., dated September 30, 1986 (incorporated
by reference to 1986 Form S-2, Part II, Item 16, 2.2)
(3)(i) Articles of Incorporation and By-Laws (incorporated by reference to the Company's registration statement on Form
S-1, dated June 8, 1981, as amended, File No. 2-72691, "Form S-1", Part II, Item 30(b) 3.1 and 3.2)
(3)(ii) Amended Certificate of Incorporation (incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.2)
(4) Instruments defining the rights of security holders, including indentures
(4)(i) Certificate of Designation for Series A Preferred Stock, as amended (incorporated by reference to 1986 Form S-2,
Part II, Item 16, 4.4)
(4)(ii) Specimen Certificate for Unit (Series A Preferred Stock and Class A Warrant) (incorporated by reference to 1986
Form S-2, Part II, Item 16, 4.5)
(4)(iii) Specimen Certificate for Class B Warrant (incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.6)
(4)(iv) Specimen Certificate for Class C Warrant (incorporated by reference to the Company's Annual Report on Form 10-K,
December 31, 1986 ("1986 Form 10-K"), Part IV, Item 14(a)(4) (vii))
(4)(v) Amended and Restated Warrant Agreement between the Company and Continental Stock Transfer & Trust Company
(incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.12)
(4)(vi) Addendum to the Amended and Restated Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company dated March 24, 1987 (incorporated by reference to the 1986 Form 10-K, Part IV, Item 14(a) (4) (ix))
(4)(vii) Amendment No. 1 to the Addendum to and to the Amended and Restated Warrant Agreement (incorporated by
</TABLE>
II-7
<PAGE> 110
<TABLE>
<S> <C>
reference to the Company's Annual Report on Form 10-K, December 31, 1991 ("1991 Form 10-K"), Part IV, Item
14(a)(10)(xxiv))
(4)(viii) Form of three year 8.5% Convertible Subordinated Debenture (incorporated by reference to the Company's Current
Report on Form 8-K dated November 17, 1993)
(4)(ix) Form of Stock Option Agreement dated November 19, 1993, issued to Messrs. Dennis W. Healey and Peter D. Fischbein
(incorporated by reference to the Company's Current Report on Form 8-K dated November 17, 1993)
(4)(x) 1995 Stock Option Plan(2)
(5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the validity of the securities being registered(1)
(10) Material contracts
(10)(i) Research Agreement between the Registrant and Viragen Research Associates Limited Partnership dated December 29,
1983 (incorporated by reference to Medicore S-1, File No. 2-89390, dated February 10, 1984 ("Medicore S-1"), Part
II, Item 16(a)(10)(xxxiii))
(10)(ii) License Agreement between the Registrant and Viragen Research Associates Limited Partnership dated December 29,
1983 (incorporated by reference to Medicore S-1, Part II, Item 16 (a)(10)(xxxiv))
(10)(iii) Novation Agreement between the Company, Medicore, Inc. and Immuno International AG, dated October 27, 1986
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 14, 1986 ("November 1986
Form 8-K"), Item 7(c)(iv))
(10)(iv) Royalty Agreement between the Company and Medicore, Inc. dated November 7, 1986 (incorporated by reference to the
November 1986 Form 8-K, Item 7(c)(i))
(10)(v) Amendment to Royalty Agreement between the Company and Medicore, Inc. dated November 21, 1989 (incorporated by
reference to the Company's Current Report on Form 8-K dated December 6, 1989, Item 7 (c)(i))
(10)(vi) Promissory Note from the Company to Medicore, Inc. dated August 6, 1991 (incorporated by reference to the Company's
1991 Form 10-K, Part IV, Item 10(a)(10)(xx))
(10)(vii) Loan Agreement between the Company and Medicore, Inc. dated January 31, 1991 (incorporated by reference to the
Company's Current Report on Form 8-K dated February 26, 1991, Item 7 (c)(ii))
</TABLE>
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<PAGE> 111
<TABLE>
<S> <C>
(10)(viii) Amendment to Loan Agreement between the Company and Medicore, Inc. dated August 6, 1991 (incorporated by reference
to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(ix) Florida Real Estate Mortgage and Security Agreement from the Company to Medicore, Inc. dated August 6, 1991
(incorporated by reference to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxii))
(10)(x) Human Source Leukocyte Agreement among the Company, Orlando Plasma Corporation and Immuno International AG dated
December 4, 1986 (incorporated by reference to 1986 Form S-2, Part II, Item 16, 10.15)
(10)(xi) Research Agreement between the Company and the University of Miami dated January 31, 1990 (incorporated by
reference to the Company's Current Report on Form 8-K dated March 7, 1990 ("March Form 8-K"), Item 7 (c)(i))
(10)(xii) Promissory Note to Equitable Bank dated August 2, 1991 (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the second quarter ended June 30, 1991 ("June, 1991 Form 10-Q"), Part II, Item 6(a)(28)(i))
(10)(xiii) Mortgage and Security Agreement issued to the Equitable Bank dated August 2, 1991 (incorporated by reference to the
Company's June, 1991 Form 10-Q, Part II, Item 6 (a) (28) (ii))
(10)(xiv) Acquisition Agreement between the Company and Medicore, Inc. dated August 2, 1991 (incorporated by reference to the
Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xv) Lease between the Company and Medicore, Inc. dated December 8, 1992 (incorporated by reference to the Company's
Current Report on Form 8-K, dated January 21, 1993 ("January 1993 Form 8-K"), Item 7(c)(10)(i))
(10)(xvi) Addendum to Lease between the Company and Medicore, Inc. dated January 15, 1993 (incorporated by reference to the
Company's January 1993 Form 8-K, Item 7(c)(10)(ii))
(10)(xvii) Agreement for Sale of Stock between the Company and Cytoferon Corp. dated February 5, 1993 (incorporated by
reference to the Company's Current Report on Form 8-K, dated February 11, 1993, Item 7(c)(28))
</TABLE>
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<PAGE> 112
<TABLE>
<S> <C>
(10)(xviii) Addendum to Agreement for Sale of Stock between the Company and Cytoferon Corp. dated May 4, 1993 (incorporated by
reference to the Company's Current Report on Form 8-K dated May 5, 1993, Item 7(c)(28)(i))
(10)(xix) Amendment No. 2 to the Royalty Agreement between the Company and Medicore, Inc. dated May 11, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xix))
(10)(xx) Note and Mortgage Modification Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated
by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xx))
(10)(xxi) Amendment No. 2 to the Loan Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(xxii) Amendment to Acquisition Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxii))
(10)(xxiii) Marketing and Management Services Agreement between the Company and Cytoferon Corp. dated August 18, 1993
(incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xxiv) Agreement for Sale of Stock between Cytoferon and the Company dated November 19, 1993 (incorporated by reference to
the Company's current report on Form 8-K, dated November 12, 1993)
(10)(xxv) Employment Agreement between Gerald Smith and the Company dated November 19, 1993 (incorporated by reference to the
Company's current report on Form 8-K, dated November 12, 1993) as amended by Modified Employment Agreement dated
December 15, 19941
(10)(xxvi) Common Stock Purchase Warrant Agreement between Northlea Partners Ltd. and the Company dated January 6, 1994
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 17, 1993)
(10)(xxvii) Management Consulting Agreement between the Company, Medvest, Inc. and Dr. John Abeles dated January 6, 1994
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 17, 1993)
</TABLE>
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<PAGE> 113
<TABLE>
<S> <C>
(10)(xxviii) Employment Agreement between Dennis W. Healey and the Company dated April 8, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) as amended by Modified Employment Agreement
dated December 15, 1994(1)
(10)(xxx) Employment Agreement between Charles F. Fistel and the Company dated July 1, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) as amended by Modified Employment Agreement
dated December 15, 1994(1)
(10)(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant issued to Laidlaw Equities, Inc. and designees(1)
(10)(xxxii) Amendment No. 1 to Agreement for Sale of Stock with Cytoferon(1)
(10) (xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter D. Fischbein(1)
(10)(xxxiv) Agreement with Moty Hermon(1)
(10)(xxxv) Agreement with University of Nebraska Medical Center(2)
(10)(xxxvi) License and Manufacturing Agreement with Common Services
Agency(2)
(21) Subsidiaries of the Registrant(1)
(23)(i) Consent of Ernst & Young, LLP(2)
(23)(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included as part of Exhibit (5))
</TABLE>
--------------------
1. Previously filed.
2. Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
II-11
<PAGE> 114
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities
Act of 1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and the offering of
the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-12
<PAGE> 115
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment to
its Registration Statement to be signed on its behalf by the undersigned in the
City of Hialeah, State of Florida, on August 8, 1995.
VIRAGEN, INC.
By: /s/Gerald Smith
------------------------------
Gerald Smith, Chairman of
Board, Principal Executive Officer
and President
In accordance with the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the
Board of Directors,
/s/ Gerald Smith Principal Executive Officer August 8, 1995
-------------------------- and President
Gerald Smith
Chief Executive Officer
Chief Operating Officer August _, 1995
--------------------------
Robert H. Zeiger
Executive Vice
President, Trea-
surer and Princi-
pal Financial
/s/ Dennis W. Healey Officer and August 8, 1995
-------------------------- Accounting Officer
Dennis W. Healey
Executive Vice
/s/ Charles F. Fistel President August 8, 1995
--------------------------
Charles F. Fistel
/s/ Peter D. Fischbein Director August 8, 1995
--------------------------
Peter D. Fischbein
/s/ Sidney Dworkin Director August 8, 1995
--------------------------
Sidney Dworkin
</TABLE>
<PAGE> 116
<TABLE>
<S> <C> <C>
/s/ Jay M. Haft Director August 8, 1995
--------------------------
Jay M. Haft
/s/ William B. Saeger Director August 8, 1995
--------------------------
William B. Saeger
</TABLE>
<PAGE> 1
EXHIBIT 10(XXXVI)
LICENSE AND MANUFACTURING
AGREEMENT
between
VIRAGEN (SCOTLAND) LIMITED, a company
incorporated in Scotland (Company
No. 155387) and having, its
registered office at 6/7 Blythswood
Square, GIasgow, G2 4AD ("the
Licensor")
OF THE FIRST PART
and
THE COMMON SERVICES AGENCY a statutory
body acting on behalf of the
National Health Service in Scotland
on behalf of the Scottish National
Blood Transfusion Service having its
principal office at Trinity Park
House, South Trinity Road, Edinburgh
("the Licensee")
OF THE SECOND PART
and
VIRAGEN INC., 2343 West 76th Street, Hialeah, Florida, 33016 ("the Guarantor")
OF THE THIRD PART
WHEREAS:
A. The Licensor has the exclusive rights, by assignment or by license, to
sublicense, throughout the United Kingdom (among other territories),
"the Proprietary Rights", as hereinafter defined, relating to "the
Licensed Property", as hereinafter defined, which includes "the
Licensed Patent Rights", as hereinafter defined, "the Licensed
Processes", as hereinafter defined, and "Licensed Technology", as
hereinafter defined, (which
<PAGE> 2
Licensed Technology shall specifically include "the Confidential
Information", as hereinafter defined and which Licensed Property is
used to manufacture natural alpha interferon derived from human
leukocytes).
B. The Licensee owns and operates a blood fractionation facility ("the
Facility") as hereinafter defined.
C. The Licensee has represented and warranted to the Licensor that the
Licensee has the ability and the capacity to perform the Licensee's
obligations set forth in this Agreement.
D. The Licensee has sufficient blood source available to the Licensee to
undertake in accordance with this Agreement the manufacture of natural
alpha interferon derived from human leukocytes pursuant to the Licensed
Patent Rights, the Licensed Processes, and the Licensed Technology which
are the subject matter of this Agreement.
E. The Licensee desires to obtain a manufacturing license to use the
Proprietary Rights related to the Licensed Property within "the
Territory", as hereinafter defined, and specifically at the Facility,
and the Licensor is willing to grant such license to the Licensee,
pursuant to the terms and conditions set forth in this Agreement.
F. The Licensor and the Licensee intend, in the future, to enter into
additional agreements to use the Facility in connection with the
preparation and manufacture of natural interleukons on terms to be
agreed.
G. The Licensor (including its "Affiliates", as hereinafter defined) has
established a valuable reputation and goodwill in its "Business", as
hereinafter defined, and the Licensee, by virtue of the grant of the
license which is the subject matter of this Agreement, shall become
familiar with and possessed in connection with the Licensed Property and
specifically including the Confidential Information, pertaining to the
Licensor's Business which is the subject matter of this Agreement.
NOW THEREFORE, in consideration of the mutual agreements herein made,
the Licensor and the Licensee do hereby agree as follows:
1. DEFINITIONS
When used in this Agreement, the following terms shall have
the meanings set forth in this Clause 1 or as otherwise set
forth in this Agreement.
2
<PAGE> 3
(a) "Affiliate" in the case of the Licensor means any
parent, subsidiary or brother or sister company of
the Licensor, or any parent, subsidiary or brother or
sister company of any of the foregoing, and in the
case of the Licensee any employee or contractor or
agent, or consultant of the Licensee.
(b) "Agreement" means this Agreement together with the
Schedule, as amended, modified, or supplemented from
time to time in writing executed by both parties
hereto.
(c) (i) "Business" means, the manufacture and/or sale
by the Licensor (or any of the Licensor's
Affiliates) of the Product.
(ii) "Business Activities" means the manufacture
and/or sale of the Product.
(d) "cGMPs" means current Good Manufacturing Practices,
as may be determined by the United Kingdom, the EC
and/or the United States regulatory agencies, as the
case may be.
(e) "Confidential Information" means trade secrets,
private or secret processes, methods, information and
ideas, as they exist from time to time, customer
lists concerning the Licensor's (or any of the
Licensor's Affiliates) products, services, business
records and plans, inventions, product design
information, proprietary equipment, price structure,
discounts, costs, computer programs and listings,
source codes and/or object codes, copyrights, moral
rights, design rights, trademarks, proprietary
information, formulae, protocols, standard operating
procedures, forms, Documents, procedures, training
methods, technical information, databases, data,
algorithms, marketing activities and procedures,
method for operating of the Licensor's Business,
credit and financial data concerning the Licensor (or
any of the Licensor's Affiliates), and information
concerning the Licensor's Clients and information
contained in the lists of the Licensor's Clients and
information contained in the lists of the Licensor's
Clients ("the Client Lists"), which Client Lists
shall not only mean one or more of the names and
addresses of the Licensor's Clients but it shall also
encompass any and all information whatsoever
regarding them, including their needs, and marketing
and advertising practices and plans and information
which is
3
<PAGE> 4
embodied in written or otherwise recorded form, and
it shall also include information which is mental,
not physical.
(f) "Documents" means all original written, recorded, or
graphic matters whatsoever, and any and all copies
thereof, including, but not limited to: papers,
books, records, tangible things, correspondence,
telex messages, facsimiles, software, memoranda,
work-papers, reports, statements, summaries,
analyses, evaluations, client records and
information, medical and patient records and
information, agreements, agendas, advertisements,
manuals, brochures, publications, directories,
industry lists, schedules, price lists, client lists,
statistical records, training manuals, computer
printouts, books of account, records and invoices
reflecting business operations, all things similar to
any of the foregoing however denominated. In all
cases where originals are not available, the term
"Documents" shall also mean identical copies of
original documents or non-identical copies thereof.
(g) "Effective Date" means the last date of execution of
this Agreement.
(h) "EC" means the European Community and includes the
individual member states thereof from time to time.
(i) "Facility" means the blood fractionation facility of
the Licensee at its premises at Ellen s Glen Road,
Edinburgh EH17 7QT
(j) "Licensed Patent Rights" means all patents throughout
the World (including, but not limited to patents of
importation, improvement patents, trademarks,
copyrights, composition of matter patents, patents
and certificates of addition and utility models, as
well as divisions, reissues, continuations, renewals
and extensions of the foregoing), applications
thereof, and patents which may issue upon such
applications:
(i) as to which patents or applications the
Licensor has at any time during the term of
this Agreement, the right to grant licenses
of or within the scope of licenses granted in
this Agreement; and
(ii) which cover inventions or designs applicable
to Licensed Processes.
4
<PAGE> 5
(k) "Licensed Processes" means the process or processes
as may be modified by Licensor from time to time to
manufacture the Products and specifically including,
but not limited to:
(i) the standard operating procedures ("SOPs") and
(ii) protocols (including, but not limited to,
the processing prior to purification which is
commonly referred to as "upstream process"
and the purification process which is
commonly referred to as the "downstream
process") (collectively the "Protocols", or
"Master Batch Records" or "MBR"s),
provided that the foregoing shall not be inconsistent
with the Protein Fractionation Centre's standards of
safety and efficacy.
(l) "Licensed Property" means the Licensed Patent Rights,
the Licensed Processes and the Licensed Technology.
(m) "Licensed Technology" means all of the trade secrets,
know-how, show-how, inventions, patents including
patent(s) and patent(s) applications in the
United States, the United Kingdom, the EC and all
jurisdictions foreign thereto throughout the world,
formulae, processes, computer systems, methods,
discoveries, business methods, Confidential
Information, expertise, copyrights, moral rights,
design rights, trademarks, service marks, plans,
drawings, sketches, prototypes, tooling and
information of any nature whatsoever which relates to
the Licensed Processes developed, possessed,
conceived, or used by the Licensor relating to the
Licensed Processes, including derivatives and
translations thereof.
(n) "Licensor's Clients" means any Person for or with
whom the Licensor (or any of the Licensor's
Affiliates) has performed its Business or Business
Activities including but not limited to patients,
physicians, medical personnel and purchasers and/or
consumers of any products or services provided or
supplied by the Licensor or any of the Licensor's
Affiliates.
(o) "Manufacturing Costs" means direct costs of
manufacturing the Products including direct
materials, direct labour and
5
<PAGE> 6
overhead which is directly identifiable as having a
causal relationship with the manufacture of the
Products by the Licensee all as determined by United
Kingdom Generally Accepted Accounting Principles and
any relevant Statements of Standard Accounting
Practice and as may be agreed between the parties
prior to the manufacture of the Products.
(p) "Person" means any individual, partnership,
corporation, trust or other entity.
(q) "Procedures Costs" means the direct costs incurred by
CSA in performing its obligations under Clause
3(a)(i) including direct materials, direct labour,
overhead which is directly identifiable as having a
causal relationship with the performance of such
obligations determined by United Kingdom Generally
Accepted Accounting Principles and any relevant
Statements of Standard Accounting Procedure and as
may be agreed by the parties prior to the manufacture
of the Products.
(r) "Products" means natural alpha interferons derived
from human leukocytes.
(q) "Manufacturing Costs" means direct costs of
manufacturing the Licensed Products including
direct materials, direct labor and identified,
incremental overhead as determined by generally
accepted accounting principles and any relevant
Statements of Standard Accounting Practice.
(s) "Proprietary Rights" means any and all rights and
privileges provided under the patent, trademark,
copyright, trade secret and other laws of the United
States, the individual states, thereof, and
jurisdictions foreign thereto throughout the world,
and the goodwill associated therewith.
(t) "Restricted Period" means during the term of this
Agreement and for the period of 10 years following
termination of this Agreement, regardless of
the reason for termination provided however that the
use, copying, distribution, disclosure of
Confidential Information or the Proprietary Rights
shall be restricted for the lives of such
Confidential Information or Proprietary Rights.
(u) "Restricted Area" means the world.
(v) "Schedule" means the Schedule annexed hereto and
which forms part of this Agreement.
(w) "Territory" shall mean throughout the United Kingdom.
6
<PAGE> 7
2. GRANT OF LICENCE
The Licensor grants to the Licensee, within the Territory and
specifically at the Facility and at any Regional Blood
Transfusion Centre involved in supplying Leukocytes to the
Facility, a non-exclusive, personal, non- assignable license
to use the Proprietary Rights in connection with the Licensed
Property, for the lives of such Licensed Property, as
applicable, for the sole purpose of preparation, manufacture
and supply of the Products Licensed Products for and to the
Licensor; provided, however, that in any case and for whatever
reason, this grant shall terminate upon the termination of
this Agreement. This grant shall not be construed as a
license, by implication or otherwise, under any Proprietary
Rights owned by the Licensor or under which Licensor has or
acquires the right to grant licenses, other than those
encompassed within the definition of Licensed Property.
3. OBLIGATIONS OF THE LICENSEE
(a) The obligations to be performed by the Licensee in
connection with the grant of the license contemplated
by this Agreement are as follows:
(i) to undertake all necessary studies utilising
the Licensed Property to manufacture the
Products Licensed Products, such studies to
be agreed in writing between the Licensor and
the Licensee and to be specified in a
Schedule to be annexed to this Agreement
entitled "Studies to be undertaken by CSA
pursuant to Clause 3(a)(i) of the Agreement",
and as may be required in accordance with all
applicable laws, rules, and regulations
promulgated by the United Kingdom, the EC
and/or the United States regulatory agencies
which govern the Licensed Property, the
Products and the Facility and specifically in
accordance with the cGMPs, SOPs, MBR s,
Protocols, process/equipment validation
and/or other procedures promulgated by the
United Kingdom, the EC and/or the United
States and the Licensee and each of their
respective regulatory agencies, as applicable
(collectively the "Procedures"); provided,
however, that to the extent there is a
conflict between any of the laws, rules,
regulations, cGMPs, SOPs, Protocols, or
procedures of the Licensee, on the one hand,
and either the United Kingdom, the EC or the
United States, on the other hand, those of
the United Kingdom, the EC or the United
States shall govern; and provided further
that to the extent there is a conflict
between any of the laws, rules, regulations,
cGMPs, SOPs, Protocols, or procedures of the
United Kingdom, on the one hand and the EC or
the United States on the
7
<PAGE> 8
other hand, those of the United Kingdom shall
govern; and provided further that to the
extent there is a conflict between any of the
laws, rules, regulations, cGMPs, SOPs,
Protocols, or procedures of the EC or the
United States those of the EC shall govern;
(ii) to manufacture the Products for supply to the
Licensor using the Licensed Property in
conformance with the Licensed Processes and
the Procedures;
(iii) to supply the Products to the Licensor in
such quantities as are referred to in Part 1
of the Schedule;
(iv) to procure that there shall be included in
the Licensee s Manufacturing Costs a cost
figure for human leukocytes based on actual
incremental costs plus a reasonable charge
for related handling;
(v) to prepare reports (in form and content
reasonably approved from time to time by the
Licensor) in connection with the preparation
and manufacture of the Products from the
Licensed Property, which shall be provided to
the Licensor as reasonably requested in a
timely manner;
(vi) to procure that only leukocytes produced from
blood donors resident in Scotland are used in
the manufacture of the Products or such other
sources as both parties may agree to in
writing.
(b) At all times relevant hereto, the Licensee shall use
the Licensed Property in accordance with all
Procedures, as set forth more fully in Clause 3(a)(i)
of this Agreement.
(c) The Licensee shall use its best endeavours to comply
with all statutory and regulatory standards for the
manufacture of the Product. If the parties agree
that all or part of the manufacturing process should
comply with ISO9000
8
<PAGE> 9
Standard the parties will endeavour to agree upon the
appropriate steps to be taken.
(d) All site specific obligations undertaken by the
Licensee shall be performed solely at the Facility,
unless otherwise agreed to by the Licensor in
writing. During the term of this Agreement the
Licensee shall procure that the Facility complies
with the Licensed Processes and the Procedures.
(e) All services rendered on behalf of the Licensee shall
be performed by those Persons whose names are set
forth in Part 2 of the Schedule and to the extent
that any duties or responsibilities required to be
performed by the Licensee shall be rendered by any
other third party, such third party shall (i) be
approved in writing by the Licensor prior to the
performance of any services by such party; and (ii)
execute a consent (the "Consent") in substantially
the same form as set forth in Part 3 of the Schedule,
stating, among other things, that such Person agrees
to be bound to the provisions of Clauses 14 and 15 of
this Agreement (specifically the Covenant Not to
Compete and Non-Disclosure of Confidential
Information).
(f) The Licensee shall only use the Licensed Property in
the manner contemplated by this Agreement, unless
otherwise agreed to in writing by the Licensor, which
approval by the Licensor shall not constitute a
waiver of the Licensor's rights under any provision
of this Agreement.
(g) The Licensee shall, at all times, cause to appear, in
connection with any of the Licensed Property and
Products, all relevant required legal notices as
required pursuant to all applicable national and
international copyright, trademark and patent laws
and/or as required by the United Kingdom, EC, the
United States or the Licensor. The content of such
labels will be agreed with the Licensor.
(h) To preserve the Licensor's identification with the
Licensed Property and the Products and to avoid
confusion by the public, the Licensee agrees not to
associate other Persons or entities or personalities
with the Licensed Property and/or the Products in
connection with the relevant applications and uses of
the Licensed Property and the Products.
9
<PAGE> 10
(i) The Licensee shall, at the expense of the Licensor,
cooperate fully and in good faith with the Licensor
for the purpose of securing and preserving the
Licensor's (or any grantor of Licensor's) rights in
and to the Licensed Property, the Products, and the
Proprietary Rights in connection with the Licensed
Property and the Products. In the event there has
been no previous registration of the Licensed
Property, the Products, and/or any Proprietary
Rights related thereto, the Licensee shall, at
Licensor's request and expense, register such patent,
copyright, trademark and/or service mark in the
appropriate class, in the name of the Licensor (or,
if the Licensor so requests, in the name of an
Affiliate of the Licensor or the designee of the
Licensor).
(j) The Licensee shall not sell or supply any of the
Products to any Person or party whomsoever other than
the Licensor and/or its Affiliates.
4. OBLIGATIONS OF THE LICENSOR
(a) Subject to the Licensee obtempering in full its
obligations in terms of this Agreement and subject to
the provisions set forth in this Agreement, the
Licensor shall, at the Licensor's cost and expense,
provide the Licensee with:
(i) the Licensed Property which shall
specifically include the know-how and
show-how as to the Licensed Property;
(ii) (a) all equipment unique to the Licensed
Property and
(b) all such other equipment as the
parties may agree is necessary for
the manufacture of the Product (such
agreement not to be unreasonably
withheld), all such equipment shall
remain the property of the Licensor;
and
(iii) adequate personnel as determined by the
Licensor to train the Licensee in the use of
the Licensed Property.
(b) The Licensor shall be responsible for all costs and
expenses in obtaining the necessary permits and
licenses in
10
<PAGE> 11
connection with matters unique to the manufacture of
the Products using the Licensed Property, subject to
the Licensor having approved in writing such costs
and expenses prior to them being incurred.
(c) The Licensor may provide to the Licensee certain
research and development grants that the Licensor, in
its sole discretion, deems advisable.
(d) In the event that either party considers it necessary
or desirable for a new building or extension or
improvement to an existing building to be constructed
for the manufacture of the Product the parties will
consult with a view to agreeing what building work
requires to be carried out. Any building work so
agreed will be carried out at the expense of the
Licensor. No such works will be carried out without
the consent of the Licensor. Any such buildings,
extensions or improvements will become the property
of the Licensee.
(e) Within 30 days after the date of execution of this
Agreement the Licensor shall deliver to the Licensee
details of all patents referred to in Clause 1(j).
The Licensor will give the Licensee written details
of any further patents as described in Clause 1(j)
which may be applied for by or granted to the
Licensor during the period of this Agreement.
5. SALE OF THE PRODUCTS
(a) Subject to the provisions of this Clause 5 and Clause
6, all sales of the Products manufactured by the
Licensee and sold to the Licensor shall subsequently
be made by the Licensor (or any Affiliate of the
Licensor).
(b) The Licensee shall be responsible for obtaining all
necessary documentation from the appropriate
regulatory authority attesting that the Products have
met all requirements of the United Kingdom regulatory
authorities.
6. REIMBURSEMENTS AND PAYMENTS TO LICENSEE
(a) Subject to the provisions of this Clause 6 and
Clauses 5 and 7, the Licensor shall pay to the
Licensee the following amounts for the manufacture of
the Products by the Licensee using the Licensed
Property:
11
<PAGE> 12
(i) For Products manufactured for sales prior to
obtaining a new drug application approval or
equivalent an amount equal to the
Manufacturing Costs in relation to such
Products plus 40% of such Manufacturing
Costs.
(ii) For Products manufactured for use in clinical
trials or otherwise employed for use in
regulatory processes associated with
regulatory approvals of the Products, prior
to the Products having a new drug application
approval or equivalent, an amount equal to
the Manufacturing Costs in relation to such
Products plus 25% of such Manufacturing
Costs.
(iii) For Products manufactured for any use or
sales subsequent to the Products obtaining a
new drug application approval or equivalent,
an amount equal to the Manufacturing Costs in
relation to such Products plus 50% of such
Manufacturing Costs.
(b) In the event that Products are sold by the Licensor
to the Licensee or any other agency of the National
Health Service of the United Kingdom for medical use
by NHS patients resident in Scotland, the sale price
payable by the Licensee or other agency of the
National Health Service shall be an amount equal to
50% of the Manufacturing Costs.
(c) Notwithstanding the terms of Clause 6(a) no payment
shall be made to the Licensee for the manufacture of
the relevant Products referred to in Clause 6(b).
(d) In the event that the Products are sold by the
Licensor to any agency of the National Health Service
of the United Kingdom for medical use by NHS patients
resident in any part of the United Kingdom other than
Scotland the sale price payable by such agency shall
be subject to a significant discount as may be
mutually agreed on the market price.
(e) The Licensor shall pay to the Licensee in
consideration for the performance by the Licensee of
its obligations under Clause 3(a)(i) a fee equal to
40% of the Procedures Costs, provided that in respect
of Virus Validation the Licensor shall pay the
Licensee on a competitive quote basis.
12
<PAGE> 13
(f) In the event that either party wishes to make
Products available to Persons for philanthropic or
charitable purposes, the Licensor shall consult with
the Licensee with a view to agreeing the amount
payable to the Licensee for the manufacture of such
Products.
(g) All sums expressed to be payable to the Licensee by
the Licensor hereunder are exclusive of VAT, if any,
and the Licensor shall on receipt of a VAT invoice
from the Licensee pay to the Licensee any VAT payable
in respect of such sums.
7. ACCOUNTING
(a) Within 10 days following the end of each calendar
month and within 90 days from the date of termination
of this Agreement, the Licensee shall furnish the
Licensor with an accounting (in form and content
approved from time to time by the Licensor) of all
amounts claimed due to the Licensee by the Licensor
pursuant to Clause 6 of this Agreement.
(b) For purposes of this Agreement, the Licensee shall
invoice for the relevant Products and for the
services provided under Clause 3(a)(i) quarterly and
payment to the Licensee by the Licensor shall become
due and payable within 30 days of the date of the
relevant invoice for the relevant Products or
services. In the event of payment not being made
within 7 days after the due date interest shall be
payable by the Licensor to the Licensee on the
outstanding amount such interest to accrue from day
to day from the due date until the date of payment.
The interest payable shall be at the rate of 2% above
the base lending rate of the Bank of Scotland.
(c) The Licensee shall keep accurate books of account and
shall permit independent auditors appointed by
Licensor, at reasonable intervals during ordinary
business hours, to inspect such books of account to
the extent reasonably necessary to ascertain the
accuracy of the accounting hereunder, such inspection
being at the Licensor's expense.
8. TITLE TO INTELLECTUAL PROPERTY
(a) It is agreed that nothing contained in this Agreement
shall be construed as an assignment or grant to the
Licensee of any right, title or interest in or to the
Licensed Property, it being
13
<PAGE> 14
understood that all rights relating thereto are
reserved by the Licensor, except for the license
hereunder to the Licensee of the right to use and
utilise the Licensed Property only as specifically
and expressly provided in this Agreement.
(b) The Licensor shall retain title to the Licensed
Property and any derivative works, modifications,
improvements, translations and new discoveries
pertaining to it, whether or not patented,
copyrighted, servicemarked or trademarked, as
applicable, by the Licensor. The Licensee's use of
the Licensed Property shall enure to the benefit of
the Licensor and the Licensee shall not at any time
acquire any rights in any of the Licensed Property by
virtue of any use the Licensee may make of such
Licensed Property, and which shall specifically
include any proprietary rights originated, conceived,
created or developed by the Licensee or with the
assistance of others as a result of the Licensed
Property.
(c) All rights created by or arising from the use of the
Licensed Property by the Licensee shall be and remain
the sole and exclusive property of the Licensor.
(d) The Licensee shall execute all documents and do all
acts necessary to evidence such ownership interest of
the Licensor in any rights or title set forth in this
Clause 8.
(e) Where any improvements, modifications, translations
or rights referred to in sub-paragraphs (b) and (c)
above have been developed as a result of significant
intellectual input from employees of the Licensee
during the course of the collaboration between the
parties, then the enhanced Licensed Property shall be
and remain the sole exclusive property of the
Licensor. In recognition of such significant
intellectual input from employees of the Licensee to
the enhanced Licensed Property, the Licensor and the
Licensee will negotiate in good faith with a view to
agreeing fair financial compensation to the Licensee.
(f) Where any new discoveries leading to the development
of new products or processes not directly related to
the Licensed Processes or Products as defined in 1(k)
and 1(r), result from the intellectual collaboration
of the parties, the intellectual property arising
shall be owned jointly by the Licensor and the
Licensee in such proportions as may be agreed.
14
<PAGE> 15
(g) Nothing in this Agreement shall give to the Licensor
any rights in any intellectual property of the
Licensee. In the event that it is necessary or
desirable for such intellectual property to be used
the parties will endeavour to agree a royalty bearing
licence.
9. REPRESENTATIONS AND WARRANTIES OF THE LICENSOR
The Licensor represents and warrants:
(a) The Licensor is a Scottish private company, duly
organised, validly existing and in good standing
under the laws of Scotland, No. 155387, and has full
corporate power to enter into this Agreement and to
consummate the transactions contemplated hereby.
(b) The Licensor has taken all action required by law to
authorise the execution and delivery of this
Agreement and the transactions contemplated hereby.
The execution, delivery and performance of this
Agreement constitutes the valid and binding Agreement
of the Licensor enforceable in accordance with its
terms. Neither the execution and delivery of this
Agreement, the consummation of the transaction
contemplated hereby, nor the fulfilment of or
compliance with the terms and provisions of this
Agreement conflict with or result in a breach of any
of the terms, conditions or provisions of any
corporate restriction to which the Licensor is a
Party or by which it is bound.
(c) Neither the execution nor the delivery of this
Agreement, nor the consummation by the Licensor of
the transactions contemplated hereby or thereby, nor
the compliance with and fulfilment of the terms and
provisions hereof or thereof by the Licensee will
violate or conflict with or result in a breach of or
constitute a default under any term, condition or
provision of any agreement or instrument to which the
Licensor is a party or by which it is bound.
(d) With respect to the Licensed Property, the Licensor
has the legal power to extend the rights granted to
the Licensee pursuant to this Agreement and that it
has not made any commitments to others inconsistent
with or in derogation of such rights.
15
<PAGE> 16
(e) The Licensee's use of the Licensed Property in
accordance with this Agreement will not infringe any
third party s rights.
10. REPRESENTATIONS AND WARRANTIES OF THE LICENSEE
The Licensee represents and warrants:
(a) The Licensee is an agency of the National Health
Service of the United Kingdom, duly organised,
validly existing and in good standing under the laws
of the United kingdom and has full legal power to
enter into this Agreement and to consummate the
transactions contemplated hereby.
(b) The Licensee has taken all action required by law to
authorise the execution and delivery of this
Agreement and the transactions contemplated hereby.
The execution, delivery and performance of this
Agreement constitutes the valid and binding Agreement
of the Licensee enforceable in accordance with its
terms. Neither the execution and delivery of this
Agreement the consummation of the transaction
contemplated hereby, nor the fulfilment of or
compliance with the terms and provisions of this
Agreement conflict, with or result in a breach of any
of the terms, conditions or provisions of any
corporate restriction to which the Licensee is a
party or by which it is bound.
(c) Neither the execution nor the delivery of this
Agreement, nor the consummation by the Licensee of
the transactions contemplated hereby or thereby, nor
the compliance with and fulfilment of the terms and
provisions hereof or thereof by the Licensee, will
violate or conflict with or result in a breach of or
constitute a default under any term, condition, or
provision of any Agreement or instrument to which the
Licensee is a party or by which it is bound.
(d) The Licensee has the capacity and capability to
manufacture the Products and operate the Facility in
accordance with the terms and conditions set forth
and contemplated in and by this Agreement including,
but not limited to, in conformance with the
Procedures, and it has not made any commitments to
others inconsistent with or in derogation thereof.
(e) The Licensee shall ensure and procure that all
Products purchased by it or its designees in
accordance with the
16
<PAGE> 17
provisions of Clause 6(b) shall be solely for medical
use by Persons resident in Scotland.
(f) The Licensee shall not subcontract or sublicense any
of its obligations in terms of this Agreement,
including but not limited to its obligations to
manufacture and supply the Product without the prior
written consent of the Licensor.
11. NOTIFICATION OF POTENTIAL OR ACTUAL INFRINGEMENT
The Licensee shall notify the Licensor, (and Licensor shall
notify Licensee) in writing, of any possible infringements or
imitations by others of the Licensed Property, or properties
similar to those covered in this Agreement which may come to
the Licensee's (or Licensor's) attention and provide the
Licensor (or Licensee) with all information which it has
relating to such claim at the time of sending such notice.
The Licensor shall endeavour to investigate unauthorised uses
of the Licensed Property brought to its attention by the
Licensee. The Licensor shall have the sole right to determine
whether or not any action shall be taken on account of any
such infringements or imitations.
12. COOPERATION BY LICENSEE
In the event there may be possible infringements or
imitations, the Licensee agrees to cooperate fully and in good
faith with the Licensor at the Licensor's request and at the
Licensor's expense, to the extent necessary in the procurement
of any protection or to protect any of the Licensor's rights
with regard to that Licensor's Licensed Property and/or
Proprietary Rights in the Licensed Property and Products.
13. INDEMNIFICATION
(a) BY THE LICENSOR
The Licensor shall indemnify and hold the Licensee
harmless from and against any and all losses, claims,
damages and liabilities, jointly or severally, to
which the Licensee may become subject under any
applicable law or otherwise related to or arising out
of any obligation on the Licensor contemplated by
this Agreement and the performance or otherwise by
the Licensor of the obligations of the Licensor
contemplated by this Agreement, and shall reimburse
the Licensee for all reasonable expenses
17
<PAGE> 18
(including reasonable Counsel fees and expenses) as
they are incurred in connection with the
investigation of, preparation for or defence of any
pending or threatened claim or any action or
proceeding arising therefrom, whether or not the
Licensee is a party thereto. In the event that the
foregoing indemnity is unavailable or insufficient to
hold the Licensee harmless, then the Licensor shall
contribute to amounts paid or payable by the Licensee
in respect of such losses, claims, damages and
liabilities in such proportion as appropriately
reflects the relative benefits received by, in fault
of, the Licensee in connection with the matters as to
which such losses, claims, damages and liabilities
relate and other equitable considerations.
(b) BY THE LICENSEE
The Licensee shall indemnify and hold the Licensor
harmless from and against any and all losses, claims,
damages and liabilities, jointly or severally, to
which the Licensor may become subject under any
applicable law or otherwise related to or arising out
of any obligation on the Licensee contemplated by
this Agreement and the performance or otherwise by
the Licensee of the obligations of the Licensee
contemplated by this Agreement, and shall reimburse
the Licensor for all reasonable expenses (including
reasonable Counsel fees and expenses) as they are
incurred in connection with the investigation of,
preparation for or defence of any pending or
threatened claim or any action or proceeding arising
therefrom, whether or not the Licensor is a party
thereto. In the event that the foregoing indemnity
is unavailable or insufficient to hold the Licensor
harmless, then the Licensee shall contribute to
amounts paid or payable by the Licensor in respect of
such losses, claims, damages and liabilities in such
proportion as appropriately reflects the relative
benefits received by, in fault of, the Licensor in
connection with the matters as to which such losses,
claims, damages and liabilities relate and other
equitable considerations.
(c) Subject as hereinafter provided the Licensee shall on
behalf of the respective interests of the Licensor
and the Licensee take out and maintain product
liability insurance in respect of the Products in
such amount and for such periods as the Licensor and
the Licensee shall mutually agree. Such insurance
shall be for the respective benefit of the Licensor
18
<PAGE> 19
and the Licensee. The Licensor shall reimburse the
Licensee the annual cost of such insurance. The
Licensee shall use its best endeavours to obtain
such insurance on as competitive a basis as possible.
In the event that the Licensor can obtain such
insurance cover at a lower cost the Licensor shall be
entitled to take out and maintain such insurance.
14. COVENANT NOT TO COMPETE
The Licensee acknowledges and recognises the highly
competitive nature of the Licensor's Business and the
goodwill, continued patronage and the Licensor's Clients
constitute a substantial asset of the Licensor having been
acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this
Agreement by the Licensor, the Licensee agrees to the
following:
(a) That during the Restricted Period within the
Restricted Area, the Licensee will not in competition
with the Business, individually or in conjunction
with any other Person(s), directly or indirectly,
engage in any Business Activities other than on
behalf of the Licensor and as agreed by the Licensor.
(b) That during the Restricted Period and within the
Restricted Area, the Licensee will not, individually
or in conjunction with any other Person(s),
indirectly or directly, compete with the Business by
soliciting, inducing or influencing any of the
Licensor's Clients which have a business relationship
with the Licensor (or any of the Licensor's
Affiliates), at any time during the Restricted Period
to discontinue or reduce the extent of such
relationship with the Licensor (or any of the
Licensor's Affiliates). Except that during the term
of this Agreement, the foregoing limitations as to
Restricted Area shall not be applicable.
(c) That during the Restricted Period and within the
Restricted Area, the Licensee will not, individually
or in conjunction with any other Person(s), directly
or indirectly (a) recruit, solicit or otherwise
influence any employee or agent of the Licensor (or
any of the Licensor's Affiliates) to discontinue such
employment or agency relationship with the Licensor
(or any of the Licensor's Affiliates), or (b) employ
or seek to employ, or cause or permit any Person or
business which competes
19
<PAGE> 20
directly or indirectly with the Business Activities
of Licensor (or any of the Licensor's Affiliates)
("the Competitive Business") to employ or seek to
employ for any Competitive Business any Person who is
then (or was at any time within twelve months prior
to the date the Licensee or the Competitive Business
employs or seeks to employ such Person) employed by
or contracted with the Licensor (or any of the
Licensor's Affiliates).
(d) That during the Restricted Period, the Licensee will
not individually or in conjunction with any other
Person(s) interfere with, disrupt or attempt to
disrupt any past, present or prospective
relationship, contractual or otherwise, between the
Licensor (or any of the Licensor's Affiliates) and
any of the Licensor's Clients, employees, agents,
vendors, suppliers or customers.
(e) That during the Restricted Period (but only so long
as the Licensor or its Affiliates are carrying on the
Business) and within the Restricted Area, the
Licensee will not individually or in conjunction with
any other Person(s) directly or indirectly supply to
any other Person(s) leukocytes to manufacture natural
alpha interferon.
(f) That during the Restricted Period and within the
Restricted Area the Licensee will not enter into any
commercial arrangements with any third party in
relation to research and/or development carried on by
the Licensee in connection with the Product.
(g) The foregoing obligations shall be deemed to be
separate and severable and shall be construed
accordingly.
15. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) The Licensee acknowledges that the Licensor's
Confidential Information are valuable, special and
unique assets of the Licensor, access to and
knowledge of which are essential to the performance
of the Licensee hereunder. In light of the highly
competitive nature of the industry in which the
Licensor's Business is conducted, the Licensee agrees
that all Confidential Information, heretofore or in
the future obtained by the Licensee as a result of
the Licensee's association with the Licensor shall be
considered confidential.
20
<PAGE> 21
(b) Excluded from the Confidential Information, and
therefore not subject to the provisions of this
Agreement, shall be any Confidential Information
which:
(i) At the time of disclosure, is, in the public
domain, as evidenced by printed publications;
(ii) After the disclosure, enters the public
domain by way of printed publication through
no fault of the Licensee or those in privity
with it;
(iii) The Licensee can show by written
documentation was in its possession at the
time of disclosure and which was not
acquired, directly or indirectly, from the
Licensor; or
(iv) The Licensee can show, by written
documentation, was acquired, after
disclosure, from a third party who did not
receive it from the Licensor, and who had the
right to disclose the information without any
obligation to hold such information
confidential.
(v) The Licensee acknowledges that, as between
the Licensor and the Licensee, the
Confidential Information and, any and all
rights ,and privileges provided under the
trademark, copyright, patent, trade secret
and other laws of the United States, the
individual states thereof, and jurisdictions
foreign thereto, and the goodwill associated
therewith, are and at all times will be the
property of the Licensor.
(vi) The Licensee is obliged by law to disclose.
(c) The Licensee agrees that it shall:
(i) Hold in confidence and not disclose or make
available to any third party any such
Confidential Information unless so authorised
in writing by the Licensor;
(ii) Exercise all reasonable efforts to prevent
third parties from gaining access to the
Confidential Information;
21
<PAGE> 22
(iii) Not use, directly or indirectly, the
Confidential Information in any respect of
its business, except as necessary to evaluate
the information;
(iv) Restrict the disclosure or availability of
the Confidential Information to those of the
Licensee's Affiliates who have read and
understand this Agreement and who have a need
to know the information in order to achieve
the purposes of this Agreement;
(v) Not copy or modify any Confidential
Information without prior written consent of
the Licensor;
(vi) Take such other protective measures as may be
reasonably necessary to preserve the
confidentiality of the Confidential
Information;
(vii) Relinquish and require all of its Affiliates
to relinquish all rights it and its
Affiliates may have concerning any matter,
including but not limited to, the Products
and the Licensed Property which may contain,
or make use of the Confidential Information
and promptly deliver to the Licensor any such
matter as the Licensor may direct at any
time; and not retain any copies or other
reproductions thereof; and
(viii) Procure the observance by the Licensee's
Affiliates of the terms of this Agreement and
it shall be responsible for any breach by any
Affiliate of its terms.
(d) The Licensee further agrees:
(i) That it shall promptly disclose in writing to
the Licensor all ideas, inventions,
improvements and discoveries which may be
conceived, made or acquired by the Licensee
or its Affiliates as the direct or indirect
result of the disclosure by the Licensor of
the Confidential Information to the Licensee
or the use of Licensed Property by Licensee
or the manufacture of the Products by the
Licensee.
(ii) That all such ideas, inventions, improvements
and discoveries conceived, made or acquired
by the
22
<PAGE> 23
Licensee, alone or with the assistance of
another Person(s), relating to the
Confidential Information, shall promptly be
disclosed in writing to Licensor and such
ideas, inventions, improvements and
discoveries shall be the property of the
Licensor and shall be treated as Confidential
Information in accordance with the provisions
hereof and that Licensee shall not acquire
any intellectual property rights under this
Agreement except the limited right to use set
forth in this Agreement.
(iii) That Licensee and its Affiliates shall assist
in the preparation and execution of all
applications, assignments and other documents
which the Licensor may deem necessary to
obtain patents, copyrights, regulatory
approvals and the like in the United States
and in jurisdictions foreign thereto, and to
otherwise protect the Licensor and the
Licensed Property.
(e) Upon written request of the Licensor, the
Licensee shall return to the Licensor all
written materials, photographs and electronic media
containing the Confidential Information. The
Licensee shall also deliver to the Licensor written
statements signed by the Licensee certifying all
materials have been returned within five days of
receipt of the request.
16. AFFILIATES OF THE LICENSEE
(a) Clauses 14 and 15 specifically relate to any
Affiliate of the Licensee and each and every
Affiliate of the Licensee who participates (with the
prior written consent of the Licensor) in any manner
with the Licensee in the manufacture of the Products,
shall sign and acknowledge a written consent that
such Person agrees to abide by the terms and
conditions set forth in Clause 14 and 15 of this
Agreement, which consent shall be substantially set
forth in Part 3 of the Schedule.
(b) It shall be the responsibility of the Licensee to
obtain and deliver to the Licensor such written
documents from the Persons described in Clause 16(a)
of this Agreement.
(c) To the extent that the Licensee does not obtain such
written consent from the Persons described in Clause
16(a) of this Agreement, such Person shall not in any
manner
23
<PAGE> 24
whatsoever, have any relationship or be privy to any
Licensed Property.
17. COVENANTS AS ESSENTIAL ELEMENTS OF THIS AGREEMENT
It is understood by and between the parties hereto that
the foregoing covenants by the Licensee contained in Clauses
15 and 16 of this Agreement shall be construed to be
agreements independent of any other element of the Licensee's
services to the Licensor. The existence of any other claim or
cause of action, whether predicated on any other provision in
this Agreement, or otherwise, as a result of the relationship
between the parties shall not constitute a defence to the
enforcement at the covenants in this Agreement against the
Licensee.
18. REMEDIES
(a) The Licensee acknowledges and agrees that the
Licensor's remedy at law for a breach or threatened
breach of any of the provisions of this Agreement
including but not limited to Clauses 14, 15 and 16
herein would be inadequate and the breach shall be
per se deemed as causing irreparable harm to
the Licensor. In recognition of this fact, in the
event of a breach by the Licensee of any of the
provisions of this Agreement including but not
limited to Clauses 14, 15 and 16, the Licensee agrees
that, in addition to any remedy at law available to
the Licensor, including, but not limited to monetary
damages, the Licensor, without posting any caution or
bond, shall be entitled to obtain, and the Licensee
agrees not to oppose the Licensor's request for
equitable relief in the form of specific performance,
temporary restraining order, interim interdict or
interdict, temporary or permanent injunction or any
other equitable remedy which may then be available to
the Licensor.
(b) The Licensee acknowledges that the granting of an
interim interdict or interdict, a temporary
injunction, temporary restraining order or permanent
injunction merely prohibiting the use of Confidential
Information would not be an adequate remedy upon
breach or threatened breach of the provisions of this
Agreement including but not limited to Clauses 14 and
15 and consequently agrees, upon proof of any such
breach, to the granting of an interim interdict,
interdict or injunctive relief, as the case may be,
prohibiting
24
<PAGE> 25
any form of competition with the Licensor.
Nothing herein contained shall be construed as
prohibiting the Licensor from pursuing any other
remedies available to it for such breach or
threatened breach.
(c) The Licensee specifically acknowledges that to the
extent there is a violation of this Agreement
including but not limited to Clauses 14, 15 and 16 by
any Person described in Clause 16(a), the Licensee
and the Person(s) violating the provisions of this
Agreement shall be jointly and severally liable to
the Licensor (or any of the Licensor's Affiliates)
for any damages to the Licensor (or any of the
Licensor's Affiliates).
19. TERM
The term of this Agreement shall begin as of the Effective
Date and shall continue for a period of 5 years, which
term shall be automatically renewed for two successive 5 year
periods, unless the Licensor shall prior to the end of any
such 5 year period provide 60 days prior written notice of its
intent not to renew the Agreement. The above notwithstanding,
and notwithstanding the termination of this Agreement
howsoever otherwise arising, the provisions set forth in
Clauses 14 to 18 inclusive shall survive the term of this
Agreement plus any renewal thereof.
20. TERMINATION
(a) MUTUAL TERMINATION
The Licensor and the Licensee may terminate this
Agreement by mutual agreement of the parties hereto
at any time.
(b) IMMEDIATE TERMINATION
This Agreement may be terminated immediately by the
Licensor or the Licensee as the case may be
upon the occurrence of any of the following events:
(i) Any assignment of this Agreement by the other
party in violation of Clause 25 hereof; or
25
<PAGE> 26
(ii) Inability or failure of the Licensee or the
Licensor to meet its obligations hereunder
or the breach of any material provisions
herein and failure to remedy such failure or
breach within 30 days after receipt of
notice from the other party specifying the
failure or breach;
(iii) Any of the circumstances specified in Clause
27 persisting for a period of six months or
more.
(c) This Agreement may be terminated immediately by the
Licensor in the event of the privatisation or
equivalent of the Licensee or in the event of an act
or acts of the Licensee causing the Licensee to lose
any of the Licensee's professional licenses or
regulatory approvals necessary to the performance of
the Licensee s obligations set forth in this
Agreement;
(d) The waiver of any default under this Agreement by the
Licensor or the Licensee shall not constitute a
waiver of the right to terminate and/or cancel this
Agreement for any subsequent or like default, and the
exercise of the right of termination/cancellation
shall not impose any liability by reason of
termination/cancellation nor have the effect of
waiving any damages to which the Licensor or the
Licensee might otherwise be entitled.
21. RELATIONSHIP OF THE PARTIES
The Licensee shall be, and be deemed to be, an independent
contractor in the performance of the Licensee's obligations
hereunder. The Licensee shall not, by reason of this
Agreement or the performance of the Licensee's duties
hereunder unless otherwise agreed to in writing by the
parties be or deemed to be, an Affiliate or partner of the
Licensor. The Licensee shall have no power to enter into any
agreement on behalf of or otherwise bind the Licensor. The
Licensee is not an agent of the Licensor.
22. NOTICES
Any and all notices, designations, consents, offers,
acceptances or other communication provided for herein shall
be given in writing and delivered in person or by recorded,
registered or certified mail, return receipt requested,
directed to the address shown below, unless notice of a change
of address is furnished:
26
<PAGE> 27
If to the Licensor:
Viragen (Scotland), Limited
6/7 Blythswood Square
Glasgow G2 4AD
Scotland
Attn: Magnus Nicolson, Director
Telephone No: 0141 221 9880
With a copy to
Dorman Jeffrey & Co., Solicitors
6/7 Blythswood Square
Glasgow G2 4AD
Scotland
Attn: David Gibson, Esq.
Telephone No: 0141 221 9880
and
If to the Licensee;
Scottish National Blood Transfusion Service
Ellen's Glen Road
Edinburgh, EH17 7QT
Attn: David McIntosh, Managing Director
23. WAIVER
Unless agreed in writing, the failure of either party,
at any time, to require performance by the other of any
provisions hereunder shall not affect its right thereafter to
enforce the same, nor shall a waiver by either party of any
breach of any provision hereof be taken or held to be a waiver
of any other preceding or succeeding breach of any term or
provision of this Agreement. No extension of time for the
performance of any obligation or act shall be deemed to be an
extension of time for the performance of any other obligation
or act hereunder.
24. COMPLETE AGREEMENT
This Agreement contains the entire agreement between
the parties hereto with respect to the contents hereof and
supersedes all prior agreements and understandings between the
parties with respect to such matters, whether written or oral.
Neither this Agreement
27
<PAGE> 28
nor any term or provision hereof may be changed, waived,
discharged or amended in any manner other than by an
instrument in writing, signed by the party against which the
enforcement of the change, waiver, discharge or amendment is
sought.
25. BINDING EFFECT/ASSIGNMENT.
This Agreement shall not be assignable by either party without
the prior written consent of the other.
26. GUARANTEE
The Guarantor hereby guarantees on demand payment of
all sums properly due by the Licensor to the Licensee under or
pursuant to this Agreement in the event that the Licensor has
failed to make payment. In the event that this guarantee
shall be unenforceable for any reason the Guarantor undertakes
as primary obligant to pay to the Licensee all sums properly
due by the Licensor to the Licensee in the event that the
Licensor has failed to make payment. This Guarantee shall be
unenforceable in the event that and/or so long as the net
worth of the Licensor is L.3,000,000 or more.
27. FORCE MAJEURE
Neither the Licensor nor the Licensee shall be liable
for delays or failure in the performance of this Agreement
arising from (i) acts of God, public enemy or war (declared or
undeclared) or governmental action; (ii) acts of persons
engaged in subversive activities or sabotage; (iii) fires,
flood, explosives, earthquakes, or other catastrophes; (iv)
epidemics or quarantines; (v) strikes, slowdowns, lockouts or
labour stoppages or disputes of any kind; (vi) freight
embargoes, interruption of transportation or interruption or
shortage of supply of materials or components; (vii) unusually
severe weather; (viii) the inability of suppliers or
manufacturers to supply parts, materials or equipment; (ix)
inability of Licensee to obtain adequate supplies of blood
from Scottish donors; (x) any other causes similar or
dissimilar beyond the reasonable control of the Licensor or
the Licensee.
28. GOVERNING LAW
This Agreement shall be construed and governed by the
Laws of Scotland and the parties hereto hereby prorogate the
non-exclusive jurisdiction of the Scottish Courts.
28
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29. HEADINGS
The headings of the sections are for convenience only
and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this
Agreement.
30. SURVIVAL
Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall
survive such termination in accordance with their terms.
31. SEVERABILITY
Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction
but this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein. If any court
determines that any provision of Clause 14 or 15 hereof is
unenforceable because of the duration or scope of such
provision, such court shall have the power to reduce the scope
or duration of such provision, as the case may be, and in its
reduced form, such provision shall then be enforceable.
32. CONSTRUCTION
This Agreement shall be construed within the fair meaning of
each of its terms and not againast the party drafting the
Agreement and related documents.
IN WITNESS WHEREOF, these presents consisting of this and the <> preceding
pages are, together with the Schedule annexed hereto, executed in duplicate as
follows:
SUBSCRIBED for and on behalf of VIRAGEN (SCOTLAND) LIMITED at Edinburgh on the
Twentieth day of July Nineteen hundred and Ninety-five by GERALD SMITH one of
its Directors in the presence of these witnesses:
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Witness Witness
------------------------ -----------------------
Full Name Full Name
------------------------ -----------------------
Address Address
------------------------ -----------------------
------------------------------- ------------------------------
Designation Designation
------------------------ -----------------------
SUBSCRIBED for and on behalf of THE COMMON SERVICES AGENCY at Edinburgh on the
Twentieth day of July Nineteen hundred and Ninety-five by JOHN DAVID CASH one
of its duly authorised officials in the presence of these witnesses:-
Witness Witness
------------------------ -----------------------
Full Name Full Name
------------------------ -----------------------
Address Address
------------------------ -----------------------
------------------------------- ------------------------------
Designation Designation
------------------------ -----------------------
SUBSCRIBED for and on behalf of VIRAGEN INC. at Edinburgh on the Twentieth day
of July Nineteen hundred and Ninety-five by GERALD SMITH one of its Directors
in the presence of these witnesses:-
Witness Witness
------------------------ -----------------------
Full Name Full Name
------------------------ -----------------------
Address Address
------------------------ -----------------------
------------------------------- ------------------------------
Designation Designation
------------------------ -----------------------
30
<PAGE> 31
SCHEDULE
PART I
PRODUCT MANUFACTURE QUANTITIES
Quantities to be agreed but to include the following phased elements:
1. Small scale manufacture for clinical trialling purposes.
2. Manufacture for sale.
31
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THE SCHEDULE
PART 2
or such suitable substitute personnel as CSA may designate and such additional
personnel as may be required.
32
<PAGE> 33
THE SCHEDULE
PART 3
FORM OF ACKNOWLEDGEMENT
This Form of Acknowledgement should be addressed to the Licensor and the
Licensee and should include the following:
I, ___________________________ have read the attached form of Covenant Not to
Compete and Non-Disclosure and agree to be bound by the terms and conditions
set forth therein. Additionally, I agree and covenant not to use, copy,
distribute, or disclose any Confidential Information except as expressly
provided for in the performance of my duties to the Licensee or the Licensor.
Such agreement and covenant shall survive the termination of this or any
agreements (oral or written) or my association in any manner with the Licensee
or Licensor.
33
<PAGE> 1
EXHIBIT (23)(i)
CONSENT OF ERNST & YOUNG LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 7, 1994, in Amendment No. 3 to the Registration
Statement (Form SB-2 No. 33-88070) and related Prospectus of Viragen, Inc., for
the Registration of 22,703,455 shares of its common stock.
/s/ Ernst & Young LLP
August 7, 1995
Miami, Florida
