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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
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Commission file number 0-10252
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VIRAGEN, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2101668
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2343 WEST 76TH STREET, HIALEAH, FLORIDA 33016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 557-6000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
10% Series A Preferred Stock
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the average of the bid and asked prices of the common
stock at September 15, 1995 was approximately $29,400,000.
As of September 15, 1995, the Company had outstanding 35,355,532 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Registration Statement on Form S-8, File No. 33-60131, dated
June 9, 1995 - Part IV, Exhibits
Registration Statement on Form SB-2, File No. 33-88070, dated
August 14, 1995 - Part IV, Exhibits.
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VIRAGEN, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I
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Item 1. Business................................ 4
Item 2. Properties.............................. 26
Item 3. Legal Proceedings....................... 27
Item 4. Submission of Matters to a
Vote of Security Holders................ 27
PART II
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Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.. 28
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................... 29
Item 7. Financial Statements and Supplementary
Data.................................... 35
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................... 36
PART III
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Item 9. Directors and Executive Officers of
the Registrant.......................... 37
Item 10. Executive Compensation.................. 40
Item 11. Security Ownership of Certain
Beneficial Owners and Management........ 45
Item 12. Certain Relationships and Related
Transactions............................ 48
PART IV
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Item 13. Exhibits, and Reports on Form 8-K...... 51
</TABLE>
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PART I
Item 1. 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 anti-cancer agents.
Viragen, Inc. has three subsidiaries: Vira-Tech, Inc. ("Vira-Tech"),
Viragen Technology, Inc. ("Viragen Technology"), and Viragen (Scotland) Limited
("Viragen (Scotland)"), hereinafter referred to collectively as the "Company".
The Company's product (the "Product") is a natural human leukocyte
alpha interferon ("Natural Interferon"). Natural Interferon is a protein
substance that stimulates and modulates the human immune system inhibiting
malignant cell growth without materially interfering with normal cells. In
addition, Natural Interferon impedes the growth and propagation of various
viruses. Alpha Leukoferon(TM) and Omniferon(TM) are the trade names for
Viragen's Products in injectable form. Neither of the Company's Products have
been approved by the United States Food and Drug Administration and there can
be no assurance that approval of Omniferon((TM)) 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.
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The Company intends to seek to obtain FDA and European Union ("EU")
approvals for various uses of its Omniferon((TM)) product in the future. Such
approvals are expected to require several years of clinical trials and
substantial additional funding. To date, Viragen has not distributed the
Product other than for research purposes pursuant to its investigatory license,
and until May 1993, Viragen had not actively operated for several prior years
due to insufficient funds. Viragen expects to concentrate its efforts in
preparing, filing and processing its applications and obtaining approvals for
Omniferon((TM)) from the FDA and the EU.
The Company has assembled an advisory committee consisting of
scientists, medical researchers and clinicians to assist the company in its
applications to the FDA and the EU.
In December 1994, the Company received notification from the Florida
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 Omniferon((TM)) and
avoiding complications associated with any further expansion of the 499
Program, which potentially has increasing commercial implications which could
hinder the Company's efforts in securing regulatory approvals. In August 1995,
the Company negotiated an agreement with the Florida HRS which provides for the
elimination of the enrollment of new patients in its 499 Program (with the
possible exception of 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.
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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 submissions represent the focus of the Company's
efforts at the present time.
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).
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RECENT DEVELOPMENTS
The Company recently organized a wholly-owned subsidiary, Viragen
Technology, Inc., in order to facilitate the Company's marketing, technology
transfers and financing capacity in support of the contemplated distribution of
the Company's Product on a worldwide basis. On July 12, 1995, the Company and
its existing wholly-owned subsidiary, Vira-Tech, Inc., assigned all of their
proprietary rights, products and technologies relating to the therapeutic
application of human leukocyte interferon to Viragen Technology. On July 12,
1995, Viragen Technology licensed to Viragen (Scotland) Limited, a newly
organized wholly-owned subsidiary of the Company, the right to manufacture and
market the Product for the countries comprising the European Union on an
exclusive basis and at present on a non-exclusive basis for other parts of the
world except the United States and its territories.
On July 20, 1995, the Company and Viragen (Scotland) entered into a
License and Manufacturing Agreement with the Common Services Agency ("Agency")
on behalf of the National Health Science in Scotland. The Agency owns and
operates a blood fractionation facility in Edinburgh, Scotland, and has the
physical and technical capacity to manufacture the Company's Omniferon((TM))
product, as well as providing a reliable source of human leukocytes, a critical
component in the manufacture of the Company's Product. The Agency will also be
providing the Company, on a fee basis, with certain administrative and
regulatory support in connection with its various regulatory fillings
associated with EU clinical trials.
In connection with the financing necessary to conduct the initial
phases of the clinical trial process in the EU, on September 20, 1995, the
Company and Viragen (Scotland) entered into an Agreement and Plan of
Reorganization with Sector Associates, Ltd. ("Sector") a Delaware corporation,
pursuant to which the Company will acquire approximately 94% of the outstanding
capital stock of Sector in exchange for the transfer of 100% of the capital
stock of Virage (Scotland) into Sector. Sector is a publicly-traded corporation
whose stock is included on the OTC Bulletin Board, and which will have net cash
assets of $800,000 and no operations at closing which is anticipated to occur
in October 1995.
The Company, through Sector, plans to undertake additional financing
transactions to underwrite domestic and European research and clinical trial
activities.
During the first fiscal quarter the Company realized approximately
$2,275,000 representing the balance of the proceeds, net of related
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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 related
expenses, from the Company's second private placement completed in December
1994. Approximately $911,000 in proceeds of the first private placement were
received prior to June 30, 1994. Net proceeds of the Offerings are being
utilized for the acquisition of laboratory production equipment, purchase of a
company-wide computer system, establishment of a production facility in
Scotland, development of FDA and EU study protocols, employment of additional
research 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
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Stock Purchase Agreement with Cytoferon, executed in November 1993, which
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 November 1993, 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 concurred with the
issuance of the 1,750,000 shares of Common Stock, 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 Additional Stock Purchase 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.
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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, had
re-established production of its Alpha Leukoferon(TM) 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, 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 HRS 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 in August 1995, negotiated an agreement with the Florida HRS which
provides for the elimination of the enrollment of new patients in its 499
Program (with the possible exception of 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 other issues.
See "Regulation" below. All other previously approved indications for use of
Alpha Leukoferon((TM)) are inactive.
Although the recent capital investments have allowed the Company to
reestablish 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 approvals for Omniferon((TM)). Clinical
testing toward FDA and EU approval is an expensive process which is expected to
take several years to accomplish with no assurance such approvals would
eventually be obtained.
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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 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, recombinant 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 like 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
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produce and market their respective alpha interferon products for the treatment
of hairy-cell leukemia, hepatitis and Kaposi's Sarcoma, an AIDS-related cancer.
See "Regulation" and "Competition" below.
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.
The medical community's excitement 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 for its recombinant beta interferon for the treatment of
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 multiple sclerosis, 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 multiple sclerosis 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
Alpha Leukoferon(TM) and certain patients receiving a placebo. The agreement
expired January 30, 1991 and the program concluded by mid-1992. Recently
published
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information on these trials indicated that, in many 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 Offerings completed in August and December, 1994, (see "Recent
Developments" above) the Company recommenced research and production and
revenue producing studies focusing on multiple sclerosis and HIV/AIDS patients
residing in Florida. See above under "Operations."
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 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 the Product in conformance with Florida
Statute 499. Due to the Company's limited capital and operations during the
last few years, and the Company's focus on MS, 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 plan to request reactivation of
these protocols.
In July 1990, the Company received approval from the Florida HRS for
an HIV/AIDS treatment protocol with 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 two
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 in August 1995, reached a settlement agreement
with the Florida HRS which provides for the elimination of the enrollment of
new patients in its 499 Program (with the possible
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exception of certain limited enrollments approved by the Florida HRS for
humanitarian purposes), the continued participation by currently enrolled
patients in the 499 Program and the resolution of other issues.
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 in Florida under the
name Alpha Leukoferon(TM). The Company's new Natural Interferon product,
Omniferon((TM)), is currently completing its development stage, is intended to
be submitted to the U.S. and E.U regulatory authorities to begin clinical
testing under the name Omniferon((TM))
Production methods developed by the Company as well as enhanced
methods currently under development (See Research and Development, below) 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 possible
lower dosage requirements for the natural interferon make it 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
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 had entered into an agreement with the University of Nebraska Medical
Center for purposes of assisting the Company refining certain aspects of such
manufacturing process which involved the payment of $100,000 over the term of
such agreement, which was completed in August 1995. The Company is currently
negotiating a second phase to this agreement which is expected to commence in
October, 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 the 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.
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With sufficient inventory to meet current patient demand under the 499
Program and in conjunction with the development of the new proprietary
manufacturing technology, the Company discontinued production of its Alpha-
Leukoferon((TM)) under its previous manufacturing method in January 1995
Subsequently, in December, Viragen received notice from the HRS concerning
production and facilities deficiencies. The Company was 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. In August 1995, the
Company reached an agreement with the Florida HRS which provides for the
elimination of the enrollment of new patients in its 499 Program (with the
possible exception of 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.
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RESEARCH AND DEVELOPMENT
The entire process of research, development and FDA and/or EU approval
(if obtained), of a new pharmaceutical takes several years and requires
substantial funding. The Company is not currently engaged in any FDA or EU
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
continued research and development of Omniferon((TM)) for the treatment of
multiple sclerosis and HIV/AIDS. See "Operations" above.
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. Following the receipt of additional funding from the Company's
private placement offerings completed in August and December 1994, research
efforts and related costs increased further and can be expected to continue to
increase as the Company continues its development efforts towards a new
proprietary production technology for Omniferon((TM)). 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 $605,025 and $17,476 for
fiscal years ended June 30, 1995 and 1994, respectively.
Purification System
The Company has expended a substantial amount of research and
development time and resources towards the development of improved cell
stimulation and purification techniques. These 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
certain improved purification processes. See below under the caption
"Patents."
MARKETING
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Florida legislation permits, on a limited and controlled basis, the
intrastate manufacture, distribution and use of certain investigational drugs,
including human leukocyte alpha interferon, for the treatment of patients
within the State under protocols approved by the Florida 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 Omniferon(TM) 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. In August 1995, the Company reached an
agreement with the Florida HRS which provides for the elimination of the
enrollment of new patients in its 499 Program (with the possible exception of
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 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 Omniferon(TM)
following submission to the FDA and EU, which submissions represent the focus
of the Company's efforts for the foreseeable future.
Primary Applications
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Multiple Sclerosis
The Principal Investigator for the Company's state sanctioned multiple
sclerosis clinical study at the Multiple Sclerosis Center, University of Miami
School of Medicine authored, together with other investigators, an abstract of
the favorable results achieved in many cases with the use of the Company's
Alpha-Leukoferon((TM)) product in the treatment of all types of multiple
sclerosis. The abstract was published in the Annals of Neurology in August
1994. The official journal of the American Neurological Association. See above
under the caption "Application of Interferon - Multiple Sclerosis Program."
The Company has distributed Product to MS patients wishing to participate in
the Florida Clinical Study through enrolled Florida physicians pursuant to its
investigational study protocols. See Item 7, "Management's Discussion and
Analysis", and "Regulation - Florida Regulation" below.
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 permitted 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
multiple sclerosis or HIV/AIDS. Certain private insurers on a limited,
case-by-case basis, have in the past paid for treatments using the Company's
Product.
Royalty Agreement
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In consideration of Medicore, Inc., the Company's former Parent,
having financed the Company and deferring payment of certain indebtedness
(settled for stock in November, 1989, (See Item 13, "Certain Relationships and
Related Transactions")), 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. This amendment further provided that royalties of
approximately $108,000 previously accrued as payable to Medicore prior to the
amendment of the Royalty Agreement to be payable as the final payment due under
the total $2,400,000 royalty obligation.
PATENTS
The Company believes its purification techniques 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 relative to such techniques currently under development as soon as
feasible. The Company has also submitted several foreign patent applications
for this composition and 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 now held or obtained in the future will
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<PAGE> 20
be of substantial protection or commercial benefit to the Company. See
"Competition" below.
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 ("cGMP") 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 extensive testing procedures and
often lengthy clinical trials measuring product safety, potential toxicity, and
efficacy, if any, under specific protocols. The process of obtaining FDA or EU
regulatory 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 application relative
to Omniferon((TM)) before the FDA for the treatment of MS or any other disease
indications, although the Company intends to eventually submit an Investigative
New Drug Application to the FDA. 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 Omniferon((TM)).
In the United States and Europe, 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
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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, Phase III trials are undertaken to
conclusively demonstrate clinical efficacy and safety within an expanded
population of multiple clinical study sites. Regulatory authorities may also
require Phase IV studies to track patients after a product is approved for
commercial sale.
Regulatory approval of a new pharmaceutical product often takes five
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, labeling 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. See "Application of Interferon-Cancer and Viral
Diseases" and "Marketing" above. 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 Alpha Leukoferon(TM), may be distributed to
physicians for investigational use for patient treatment in Florida, but under
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<PAGE> 22
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.
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 in 1993 and 1994
enabled the Company to focus its product marketing in these areas. See
"Operations" and "Marketing" above.
In December 1994, the Company received a notice from the HRS citing
certain alleged deficiencies in the Company's HRS reporting, manufacturing and
distribution process. In March 1995, and in response to various submissions of
the Company, Viragen received further notice from HRS relative to the
distribution of Alpha Leukoferon(TM) under the 499 Program. In such notice,
HRS requested that Viragen demonstrate that both its 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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<PAGE> 23
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 Omniferon(TM) 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. In August 1995, the Company reached an agreement with
Florida HRS which provides for the elimination of the enrollment of new
patients in its 499 Program (with the possible exception of 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. 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 Omniferon(TM) following
submission of its application to the FDA and the EU or its financial capacity
to undertake these application processes.
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
have on increasing the cost of research and development or affect on 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, while there can be no assurance, 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, in July 1995, the Company and its
wholly-owned subsidiary, Viragen (Scotland) Limited ("VSL"), a company
incorporated under the laws of Scotland , entered into a License and
Manufacturing Agreement with the Common Services Agency (The
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<PAGE> 24
"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 source
of blood derived raw materials 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 submissions prerequisite to EU approvals. In
addition, the Scottish National Blood Service has a full time regulatory
department that has 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 that the EU will
approve the manufacturing or permit clinical testing and distribution of
Omniferon(TM) 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 Omniferon((TM)) 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
E.U. 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 expected to conduct certain studies relevant to the Product and cooperate
with VSL and the Company to enable them to comply with the
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<PAGE> 25
laws and regulations of the EU in connection with the production of
Omniferon(TM).
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.
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 conducting clinical trials with
recombinant interferons (alpha and beta) and other immunological products for
the treatment of cancer and viruses, including MS, 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
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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 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 a lack of adequate
capital. The Company reinitiated production and marketing operations in May
1993 and is not presently a competitive factor in revenue volume in the
biopharmaceutical industry. See above under the captions "Recent Developments"
and "Operations" and Item 6, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EMPLOYEES
As of September 15, 1995, the Company has 19 employees, of which 11 are
Research and Development and Quality Assurance/Quality Control personnel. The
remaining 8 employees are administrative. See "Recent Developments" above.
Item 2. 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 in the event the Company
were to default under its mortgage agreement. From
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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 (i) $600,000 or (ii) all sums
due under the note and mortgage and to Medicore, all of which aggregate
approximately $868,000 at June 30, 1995.
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 (exclusive of amounts due under the
amended Royalty Agreement) was $384,671 and $406,141 at June 30, 1995 and 1994,
respectively. This indebtedness is secured by a $429,400 note and mortgage on
the realty and personal property of the Company. See Item 13 "Certain
Relationships and Related Transactions."
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.
Item 3. Legal Proceedings
In August 1995, the Company was named as a co-defendant with Cytoferon
Corp. in a complaint filed in the Circuit Court of the Thirteenth Judicial
Circuit, State of Florida (Infugen Corp. vs. Viragen, Inc. and Cytoferon
Corp.), alleging breach of a verbal sales and marketing agreement with the
plaintiff regarding Alpha Leukoferon(TM) under the 499 program. Plaintiff is
seeking an unspecified amount of monetary damages alleging lost wages, lost
profits, out-of-pocket expenditures, attorneys' fees, court costs and interest.
Discovery has recently commenced, and the Company intends to
vigorously defend this suit and believes these claims are without merit.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year
to a vote of security holders through the solicitation of proxies or otherwise.
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PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company's common stock trades on the OTC Bulletin Board, under the
symbol "VRGN". The table below indicates the high and low bid prices for the
Company's common stock for the two years ended June 30, 1995.
<TABLE>
<CAPTION>
Bid Price
---------
High Low
---- ---
<S> <C> <C>
1993 - 1994
-----------
1st Quarter ended 9/30/93 $ 7/8 $ 5/16
2nd Quarter ended 12/31/93 7/8 5/16
3rd Quarter ended 3/31/94 27/32 5/16
4th Quarter ended 6/30/94 3/4 13/32
1994 - 1995
-----------
1st Quarter ended 9/30/94 $1 13/16 $ 3/8
2nd Quarter ended 12/31/94 1 13/16 1/2
3rd Quarter ended 3/31/95 1 7/16 1/2
4th Quarter ended 6/30/95 1 7/16 1/8
</TABLE>
(a) The above quotations represent prices between dealers, and do not
include retail mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
(b) As of September 15, 1994 there were approximately 3,138
shareholders of record.
(c) The Company has not paid any 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 (see Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"), has significant capital requirements in the future, and presently
intends to retain future earnings, if any, to finance the expansion of its
business it is not anticipated 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.
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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
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 dividend periods. Upon such
occurrence, the voting would be limited to the election of two directors.
Voting rights terminate upon payment of the requisite cumulation dividends.
Item 6. 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 totaled
$3,952,000 and $1,083,000, for the years ended June 30, 1995, and 1994,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled approximately $1,614,000 at June 30, 1995 and
increase of $819,000 over the June 30, 1994 year end balance of $795,000. This
increase was attributed to the receipt of net proceeds of two private placement
offerings completed during fiscal 1995, being reduced primarily by operational
losses of approximately $3,952,000.
During the first quarter the Company realized approximately $2,275,000
representing the balance of the proceeds, net of related 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 related expenses, from the
Company's second private placement completed in December 1994. Approximately
$911,000 in proceeds of the first private offering were received prior to June
30, 1994.
Certain components of working capital changed significantly between
the June 30, 1995 and June 30, 1994 periods, most notably cash balances, which
increased from $880,000 to $1,905,000 reflecting the completion of the two
private placement offerings and 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
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Company's manufacturing processes and facility. In August 1995, as part of an
ongoing negotiation and determination by management to focus efforts on
obtaining regulatory approvals, the Company entered into an agreement with HRS
which provides for the elimination of 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 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 Alpha Leukoferon(TM) 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.
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
additional 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 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 Company's remaining Product.
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 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 Alpha Leukoferon((TM)) in May 1993, and began limited
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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 newly
developed Omniferon((TM)) product embraced as a standard treatment for both
intermittent and progressive multiple sclerosis and further believes its Alpha
Leukoferon((TM)) and Omniferon((TM)) products 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, realizing
gross proceeds of $2,056,000 in consideration for the issuance of 3,426,667
shares. The proceeds are being 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. See "Part I
- - Business - Recent Developments" and "Research and Development". It is the
Company's intention to commence European clinical trials and seek the necessary
approvals for the sale of Omniferon((TM)) 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 $493,000 and $545,000 at June 30, 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.
While subject to significant limitations, the Company has available
net tax operating loss carryforwards of approximately $14,100,000 expiring
between 1996 and 2010, which may be used to offset in part taxable income, if
any, during those periods.
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<PAGE> 32
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 in August 1995,
reached an agreement with the Florida HRS providing for the elimination of new
enrollments, with the possible exception of a limited study for HIV/AIDS on a
humanitarian basis. The elimination of enrollment of new patients under the
499 Program will causes 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 of Omniferon(TM).
Under its agreement with the Florida HRS, upon completing the course
of treatment of patients currently enrolled under the 499 Program in March
1996, the Company will no longer be authorized to ship any product under the
existing 499 Program protocols.
Management believes that the Company's Omniferon((TM)) product, can be
manufactured in sufficient quantity and will be priced at a level to offer
patients an attractive alternative treatment to the Synthetic Interferons.
Management further believes that working capital currently on-hand, as well as
the continued limited distribution of the Product under the 499 Program through
March 1996 to existing patients will provide the Company with the funds
necessary to continue its current limited level of operations, focused on
current research projects, at least through June 30, 1996.
RESULTS OF OPERATIONS
For the past several years, the Company's limited revenues have been
derived from sales of the Company's Alpha Leukoferon((TM)) product, 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 all revenues under this program will cease in
March 1996.
32
<PAGE> 33
Following the final shipments of Product under the 499 Program in
March 1996, the Company will have no approved source of sales revenue until it
receives the necessary regulatory approvals from the U.S. Food and Drug
Administration and/or comparable European Union authorities. Such approvals
cannot be assured and are subject to the successful completion of lengthy
clinical trials and the Company's ability to raise significant investment
capital to fund such trials. See Part I - Item 1 "Business - Research and
Development and Regulation".
Losses from operations have been incurred since inception and totalled
$3,952,000 and $1,083,000 for the years ended June 30, 1995 and 1994,
respectively.
Sales revenues for the year ended June 30, 1995 totalled $574,000
compared to $625,000 for the previous year and were derived from the
distribution of the Company's Alpha Leukoferon((TM)) product for the clinical
study treatment of Multiple Sclerosis under the State of Florida 499 Program.
Sales revenues during the second half of fiscal 1995 declined sharply due to
discontinuance of 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 the Company
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 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 Omniferon(TM) 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. In August 1995, the Company reached a settlement
agreement with the Florida HRS which provides for the discontinuation of
enrollment of new patients in its 499 Program (except for certain possible
limited enrollments approved by the Florida HRS for humanitarian purposes), the
continued
33
<PAGE> 34
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 discontinuation 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 significantly affect the undertaking of
clinical trials and the necessary approval processes for Omniferon(TM)
following submission to the FDA and EU, which submissions represent the focus
of the Company's efforts at the present time.
Cost of sales as a percentage of sales revenues totalled 61% for the
year ended June 30, 1995 compared to 52% for the comparable period of the
preceding year and is expected to increase as a percentage of sales revenues
during fiscal 1996. 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.
Research and development costs increased significantly during fiscal
1995 over the prior year reflecting the lack of research capital earlier in
fiscal 1994 and significantly expanded research efforts associated with the
Company's Omniferon((TM)). 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. Components of the overall increase of
approximately $600,000 include the hiring of research personnel over the course
of the year with salaries and related taxes and benefits totalling
approximately $167,000 or 27% of the overall increase. Additionally, research
laboratory supplies expense increased approximately $308,000 between the
periods. The increase was also due to increases in consulting fees, research
related travel and equipment rentals.
Selling general and administrative expenses increased approximately
60% in fiscal 1995 over the previous year. Components of this net increase
which totalled $764,000 included the forgiveness of debt for certain officers
and directors associated with Company stock purchases of $338,000 (See "Part
III - Item 10 - Executive
34
<PAGE> 35
Compensation") an increase in administrative salaries of approximately $406,000
a significant portion of which was attributable to, and off-set by, the
cancellation of MMS Agreement and the related assumption of certain related
employment agreements, and the addition of administrative support clerical
personnel with related taxes and benefits. Additionally, fiscal 1995 reflected
an increase in travel related expense of approximately $80,000 a significant
portion of which was attributed to European travel associated with the
establishment of a European production facility and related fact-finding and
marketing efforts. During fiscal 1995 the Company also incurred financial
consulting fees of approximately $52,000 not incurred in the prior year and an
increase in utilities and general office expenses associated with the overall
increase in administrative activities. During fiscal 1994, the Company
incurred expenses of $117,000 attributable to stock options granted during that
period with no similar expense being incurred during fiscal 1995.
Bad debt expense increased significantly over the prior year primarily
due to four patients utilizing the Company's Alpha-Leukoferon((TM)) product
under the 499 Program being unable to obtain anticipated insurance
reimbursement for product shipments due to Alpha Leukoferon(TM) investigational
status. Sales made during fiscal 1994 were not as dependent upon insurance
reimbursement for ultimate realization of the related receivables.
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. (See Part I - Item 1
"Business - Recent Developments" and Part III - Item 12 - "Certain
Relationships and Related Transactions".)
INFLATION
Inflationary factors have not had a significant effect on the
Company's operations during any periods presented.
Item 7. Financial Statements and Supplementary Data
The response to this item is submitted in a separate section of this
report.
35
<PAGE> 36
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None
36
<PAGE> 37
PART III
Item 9. Directors and Executive Officers of the Registrant
<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
Officer and Director 1995
Dennis W. Healey 47 Executive Vice
President, 1993
Treasurer, Chief 1994
Financial Officer, Secretary, 1981
and Director 1989
Charles F. Fistel 34 Executive Vice
President 1994
Peter D. Fischbein 55 Director 1981
1994
Sidney Dworkin, Ph.D. 73 Director 1994
Jay M. Haft 59 Director 1994
William B. Saeger 43 Director 1994
Jerome E. Treisman 58 Director 1994
</TABLE>
Gerald Smith, in accordance with the February 1993 Stock Agreement,
became a director on February 5, 1993, the date of Cytoferon's Initial
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"), which has served as a managing entity and consultant
to several high technology ventures including Compupix Technology Joint
37
<PAGE> 38
Venture. From August, 1991 to December, 1991, Mr. Smith was the Chief
Executive Officer of Electronic Imagery, Inc., 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., computer-oriented companies which developed database
technology using the personal computer for audio, video, animation and real
time communication. Mr. Smith has discontinued BDC's operations in order to
devote all of his time to the Company. See Item 1, "Business" under the
captions "Recent Developments" and Item 12, "Certain Relationships and Related
Transactions."
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 to Knoll Pharmaceutical Company, Whipping New Jersey from 1971 to 1979.
Dennis W. Healey was appointed Chairman of the Board and Chief
Executive Officer on April 13, 1993. 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 is Senior Vice President, Principal 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's 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 upon his
employment in July 1994, which position he relinquished to Mr. Zeiger in May
1995, becoming an Executive Vice President of the Company. Mr. Fistel, prior to
joining the Company served for two years as an independent financial advisor to
publicly-traded and privately-held
38
<PAGE> 39
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 publicly-traded
computer technology development, marketing and distribution company. Mr.
Fistel is also a Certified Public Accountant.
Peter D. Fischbein is an attorney who has been practicing law for
approximately 30 years. Mr. Fischbein served as the Company's Secretary
between May and December 1994. His former firm on occasion represented the
Company, Medicore and the Limited Partnership which has certain contracts with
the Company. See Item 1, "Business-Research and Development." 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. See Item 12, "Certain
Relationships and Related Transactions."
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., an importer and exporter of various health,
beauty aids, groceries and sundries. Between 1988 and the present, Dr. Dworkin
has served as Chairman of the Board of Advanced Modular Systems, 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., 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, 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., 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 has been a
practicing lawyer since 1959. Mr. Haft has specialized in the representation
of emerging growth companies, and has participated in fund raising for a number
of leading edge medical technology companies.
39
<PAGE> 40
William B. Saeger, elected a director in August 1994, is a Certified
Public Accountant with sixteen 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 for a number of funds and is currently Vice
President of Fundamental Management and serves as a Director of Telemac
Cellular Corp. 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.
The term of office for the Company's directors is one year and they
will serve until the next annual meeting of shareholders. The Company has not
held an annual meeting since 1990 although a special meeting was held in May
1993. The Company anticipates holding an annual meeting during the fourth
calendar quarter of 1995.
Cytoferon, a former affiliate of the Company of which Gerald Smith was
an executive officer, director and principal shareholder, failed to file a Form
4 on a timely basis reflecting the conversion of convertible debentures
previously reported as well as the sale of common stock of Cytoferon which
carried the right to acquire 74,999 shares of Common Stock of the Company.
Gerald Smith, as the beneficial holder of such securities in his capacity as an
executive officer, director and principal shareholder of Cytoferon, similarly
failed to file the corresponding Form 4 for such transactions for December
1994.
Item 10. Executive Compensation and Other Matters
The following table sets forth information concerning the compensation
of the Chief Executive Officers of the Company and two other most highly
compensated executive officers as of June 30, 1995.
<TABLE>
<CAPTION>
Name and Other Restricted All
Principal Annual Stock Options/ LTIP Other
Position Salary Bonus Compensation Awards SARS(#) Payouts Compensation
- -------- ------ ----- ------------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith,
Chairman of the
Board and President(1) $ 70,000 --- $ 9,317 ------ 50,000 ------ -------
Dennis W. Healey,
Exec.V.P.,Treasurer,
CFO and Director (2) $ 75,000 --- $10,167 ------ 50,000 ------ -------
Charles F. Fistel
Exec.Vice President,
CEO (former) (3) $106,615 --- $19,208 ------ ----- ------ -------
Robert H. Zeiger,
CEO and Director (4) $ 11,538 --- ---- ------ ----- ------ -------
</TABLE>
40
<PAGE> 41
(1) Mr. Smith is Chairman of the Board, Chief Executive Officer and
President of Cytoferon, a former affiliate of the Company. 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, 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 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 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. (See Item 1, "Business
- Recent Developments").
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 was entitled to participate in
any Cytoferon benefit plans of which there were none. The Cytoferon
employment agreement further provided Mr. Smith with certain severance
arrangements if there was a change in control of Cytoferon or the
Company. In August 1994, the Board of Directors of the Company voted
to terminate the Management and Marketing Services Agreement with
Cytoferon, terminating all fees payable thereunder, concurrent with
the issuance of the 1,750,000 contingently
41
<PAGE> 42
issuable shares 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. See Item 1,
"Business-Recent Developments", and Item 12, "Certain Relationships
and Related Transactions".
(2) In April, 1994, as modified on December 15, 1994, Mr. Healey entered
into an employment agreement expiring November 18, 1995, 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.
(3) On July 1, 1994, as modified on December 15, 1994, the Company entered
into a two-year employment agreement expiring July 1, 1996 with
Charles Fistel to serve as Chief Executive Officer (which position he
relinquished to Mr. 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 expenses. 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,
42
<PAGE> 43
1995 through July 1, 1999, and exercisable for the remaining 150,000
shares commencing June 30, 1996 through July 1, 2000. The right to
exercise such options have accelerated based on the Company having
raised certain minimums in capital referred to above.
(4) 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.
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.
43
<PAGE> 44
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 the 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 optioneers 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 directors 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.
In June 1995, the Company issued 33,000 Incentive Stock Options to
non-executive employees under the the Plan. The options granted vest over
different periods not exceeding two years.
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 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 in May 1996 and 500,000
options become exercisable in May 1997. The options carry a five year term and
are exercisable at $.96 per share.
44
<PAGE> 45
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned at September 15, 1995 (i) by each
person who is known by the Company to own beneficially or exercise voting or
dispositive control over 5% or more of the Company's Common Stock, (ii) by each
of the Company's directors, and (iii) by all officers and directors as a group.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within sixty days. At
September 15, 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 1,767,776(9) 5.0%
Officers and Directors
(as a Group 8 persons) 5,937,866 16.5%
</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.
45
<PAGE> 46
(2) Based on 35,355,532 shares of common stock outstanding. 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; (ii) 3,380,990 shares of
common stock reserved for issuance pursuant to exercise of options and
warrants 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 options exercisable at $.30 per share pursuant to Mr.
Smith's Employment Agreement; and (iii) 50,000 options exercisable at
$1.00 per share granted to all Directors in August, 1994.
(4) Mr. Zeiger is Chief Executive Officer, Chief Operating Officer
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.
(5) Mr. Healey is Executive Vice President, Treasurer, Chief Financial
Officer and a Director of the Company. Includes (i) 425,000 shares
held in Mr. Healey's name; (ii) 125,000 options exercisable at $.30
per share pursuant to Mr. Healey's Employment Agreement; and (iii)
50,000 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 held in Mr. Fischbein's name; (ii) 125,000 options exercisable
at $.30 per share pursuant to a Sale of Stock and Stock Option
Agreement and (iii) 50,000 options exercisable at $1.00 per share
granted to all Directors in August, 1994.
Mr. Fischbein disclaims any beneficial ownership of 250,000 shares of
common stock held in the name of his wife, and 8,750 shares held in
trust for his minor son.
(7) Mr. Dworkin is a Director of the Company. Includes (i) 175,244 shares
owned directly by Mr. Dworkin and his wife; and (ii) 50,000 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 options exercisable at $.30
per share and (iii) 50,000 options
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<PAGE> 47
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) 1,691,676 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 debentures and shares and is considered a
beneficial owner and; (iii) 50,000 options exercisable at $1.00 per
share granted to all Directors in August, 1994.
47
<PAGE> 48
Item 12. Certain Relationships and Related Transactions
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.
Peter D. Fischbein, is a 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. See Item 1, "Business-Research and
Development-Limited Partnership." 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.
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 Cytoferon became a director of 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 (see Item 12, "Security Ownership of Certain Beneficial Owners and
Management") Seymour Friend resigned as director. Mr. Friend is an officer and
director of Medicore. In May, Cytoferon moved its offices to the Company's
facilities in Hialeah, Florida. See Item 2, "Properties." 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 ("MMS 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 ("FDA") 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
48
<PAGE> 49
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
accelerated 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 amounts of $40,000, $62,500,
$150,000, $22,500 and $50,000 which were convertible into Common Stock of the
Company. The principal amount of such Debentures together with accrued
interests 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.
49
<PAGE> 50
In November, 1993, the Company issued $200,000 in 8 1/2%, three-year
convertible debentures. These debentures were converted at $.30 per share in
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.
50
<PAGE> 51
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) The following is a list of documents filed as part of this annual report.
1. All financial statements
See Index to Consolidated Financial Statements
2. Exhibits
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession
(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)
(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)
(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
51
<PAGE> 52
(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)
(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)
(iii) Specimen Certificate for Class B Warrant
(incorporated by reference to 1986 Form S-2,
Part II, Item 16, 4.6)
(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))
(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)
(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))
(vii) Amendment No. 1 to the Addendum to and to the
Amended and Restated Warrant Agreement
(incorporated by 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))
(10) Material contracts
(i) Research Agreement between the Registrant and
Viragen Research Associates Limited
Partnership dated December 29, 1983
(incorporated by reference to Medicore's S-1,
File No. 2-89390, dated February 10, 1984
("Medicore's S-1"), Part II, Item
16(a)(10)(xxxiii))
52
<PAGE> 53
(ii) License Agreement between the Registrant and
Viragen Research Associates Limited
Partnership dated December 29, 1983
(incorporated by reference to Medicore's S-1,
Part II, Item 16 (a)(10)(xxxiv))
(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))
(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))
(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))
(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))
(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))
(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))
(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))
53
<PAGE> 54
(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)
54
<PAGE> 55
(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))
(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))
(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))
(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))
(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))
(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))
(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))
(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))
55
<PAGE> 56
(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))
56
<PAGE> 57
(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))
(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))
(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))
(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))
(xxiv) Agreement for Sale of Stock between Cytoferon
and the Company dated November 19, 1993
(incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part IV, Item
14(a)(10)(xxiv))
(xxv) Employment Agreement between Gerald Smith and
the Company dated November 19, 1993
(incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part IV, Item
14(a)(10)(xxv)) as amended by modified
Employment Agreement dated December 15, 1994
(incorporated by reference to the Company's
1995 Form SB-2, Part II, Item 27(10)(xxv))
(xxvi) Common Stock Purchase Warrant Agreement
between Northlea Partners Ltd. and the
Company dated January 6, 1994 (incorporated
by reference to the Company's June 30, 1994
Form 10-K, Part IV, Item 14(a)(10)(xxvi))
(xxvii) Employment Agreement between Dennis W. Healey
and the Company dated April 8, 1994
(incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part IV, Item
14(a)(10)(xxvii))as amended by Modified
Employment Agreement dated December 15,
57
<PAGE> 58
1994 (incorporated by reference to the
Company's 1995 SB-2, Part II, Item
27(10)(xxvii))
58
<PAGE> 59
(xxviii) Promissory Note between the Company and
Gerald Smith dated April 18, 1994
(incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part IV, Item
14(a)(10)(xxviii))
(xxix) Employment Agreement between Charles F.
Fistel and the Company dated July 1, 1994
(incorporated by reference to the Company's
June 30, 1994 Form 10-K, Par IV, Item
14(a)(10) (xxix)) as amended by Modified
Employment Agreement dated December 15, 1994
(incorporated by reference to the Company's
1995 From SB-2, Part II, Item 27(10)(xxix))
(xxxi) Placement Agent Agreement and Common Stock
Purchase Warrant issued to Laidlaw Equities,
Inc. and designees (incorporated by reference
to the Company's 1995 Form SB-2, Part II,
Item 27(10)(xxxi))
(xxxii) Amendment No. 1 to Agreement for Sale of
Stock with Cytoferon (incorporated by
reference to the Company's 1995 Form SB-2,
Part II, Item 27(10)(xxxii))
(xxxiii) Modified Sale of Stock and Stock Option
Agreement with Peter D. Fischbein
(incorporated by reference to the Company's
1995 Form SB-2, Part II, Item 27(10)(xxxiii))
(xxxiv) Agreement with Moty Hermon (incorporated by
reference to the Company's 1995 Form SB-2,
Part II, Item 27(10)(xxxiv))
(xxxv) Agreement with University of Nebraska Medical
Center (incorporated by reference to the
Company's 1995 Form SB-2, Part II, Item
27(10)(xxxv))
(xxxvi) License and Manufacturing Agreement with
Common Services Agency (incorporated by
reference to the Company's 1995 Form SB-2,
Part II, Item 27(10)(xxxvi))
(xxxvii) Agreed Motion for Consent Final Order and
Settlement Agreement dated August 29, 1995.
59
<PAGE> 60
(11) Statement re computation of loss per share
(21) Subsidiaries of the registrant
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K filed during the fourth quarter
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIRAGEN, INC.
By /s/ Dennis W. Healey
-------------------------------
DENNIS W. HEALEY,
Executive Vice President, Treasurer,
Principal Financial and Accounting Officer
Dated: September 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Gerald Smith Chairman of the September 21, 1995
- -------------------- Board of Directors,
GERALD SMITH Principal Executive
Officer and President
/s/ Robert H. Zeiger Chief Executive September 21, 1995
- ----------------------- Officer and Director
ROBERT H. ZEIGER
/s/ Dennis W. Healey Executive Vice September 21, 1995
- -------------------- President, Treasurer
DENNIS W. HEALEY and Principal Financial
Officer
/s/ Charles F. Fistel Executive Vice September 21, 1995
- --------------------- President
CHARLES F. FISTEL
/s/ Peter D. Fischbein Director September 21, 1995
- ----------------------
PETER D. FISCHBEIN
61
<PAGE> 62
/s/ Sidney Dworkin Director September 21, 1995
- ---------------------- --
SIDNEY DWORKIN
/s/ Jay M. Haft Director September 21, 1995
- ---------------------- --
JAY M. HAFT
/s/ William B. Saeger Director September 21, 1995
- ---------------------- --
WILLIAM B. SAEGER
62
<PAGE> 63
ANNUAL REPORT ON FORM 10-KSB
ITEM 7
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED JUNE 30, 1995
VIRAGEN, INC.
HIALEAH, FLORIDA
<PAGE> 64
FORM 10-KSB
VIRAGEN, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and
subsidiaries are included in Item 7:
Consolidated balance sheet -- June 30, 1995.
Consolidated statements of operations -- Years ended
June 30, 1995 and 1994.
Consolidated statements of stockholders' equity--
Years ended June 30, 1995 and 1994.
Consolidated statements of cash flows -- Years ended
June 30, 1995 and 1994.
Notes to consolidated financial statements -- June 30, 1995.
F-1
<PAGE> 65
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 subsidiaries as of June 30, 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of two years in
the period then ended. 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 subsidiaries at June 30, 1995, and the consolidated results
of their operations and their cash flows for each of the two years in the
period then ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Miami, Florida
September 5, 1995, except
for Note I as to
which the date is
September 20, 1995
F-2
<PAGE> 66
CONSOLIDATED BALANCE SHEET
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30,
1995
-------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,904,687
Accounts and notes receivable,
less allowance of $19,039 52,884
Inventory 211,200
Prepaid expenses 104,525
Other current assets 7,928
--------
TOTAL CURRENT ASSETS 2,281,224
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,191,183
Equipment and furniture 1,353,068
---------
2,544,251
Less accumulated depreciation (1,512,069)
---------
1,032,182
DEPOSITS AND OTHER ASSETS 16,300
---------
$3,329,706
=========
</TABLE>
F-3
<PAGE> 67
CONSOLIDATED BALANCE SHEET--Continued
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30,
1995
--------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 205,543
Accrued expenses and other
liabilities 399,190
Current portion of long-term debt 62,728
---------
TOTAL CURRENT LIABILITIES 667,461
ROYALTIES PAYABLE,
less current portion 107,866
LONG-TERM DEBT, less current portion 856,593
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative
preferred stock, $1.00 par value.
Authorized 375,000 shares; issued
and outstanding 3,450 shares.
Liquidation preference value: $10
per share, aggregating $34,500. 3,450
Common stock, $.01 par value.
Authorized 50,000,000 shares;
issued and outstanding 35,355,532 shares. 353,555
Capital in excess of par value 18,406,086
Common stock subscribed 45,296
Deficit (17,110,601)
----------
TOTAL STOCKHOLDERS' EQUITY 1,697,786
----------
$ 3,329,706
==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 68
CONSOLIDATED STATEMENTS OF OPERATIONS
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
June 30,
1995 1994
----------- -----------
<S> <C> <C>
INCOME
Revenues $ 573,677 $624,814
Interest and other income 148,219 51,807
-------- -------
721,896 676,621
COST AND EXPENSES
Cost of goods sold 348,642 322,262
Inventory valuation 788,052
Depreciation and amortization 97,329 47,257
Research and development costs 605,025 17,476
Selling, general and administra-
tive expenses 2,028,747 1,264,334
Bad debt expense 186,220 20,600
Contract termination fee 525,000
Interest expense 94,720 88,038
--------- ---------
4,673,735 1,759,967
--------- ---------
NET LOSS (3,951,839) (1,083,346)
Deduct required dividends on
convertible preferred stock 3,450 3,450
---------- ----------
LOSS ATTRIBUTABLE TO COMMON
STOCK $(3,955,289) $(1,086,796)
========== ==========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (.12) $ (.06)
========== ==========
Weighted average shares
outstanding 32,137,693 18,686,751
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 69
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
VIRAGEN, INC., AND SUBSIDIARIES
<TABLE>
<CAPTION>
Capital
in Excess Common
Preferred Common of Par Stock
Stock Stock Value Subscribed (Deficit)
--------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at July 1,
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
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
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
(584,160 shares) (14,604)
Conversion of
Convertible Debentures
(666,668 shares) 6,666 193,334
</TABLE>
F-6
<PAGE> 70
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--Continued
VIRAGEN, INC., AND SUBSIDIARIES
<TABLE>
<CAPTION>
Capital
in Excess Common
Preferred Common of Par Stock
Stock Stock Value Subscribed (Deficit)
--------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Shares to Cytoferon from
modification of $ $ 17,500 $ 507,500 $ $
Agreement
Purchase of Stock by
Officers and Affiliates
(375,000 shares) 3,750 108,750 (112,500)
Private Placement of
Common Stock
(8,919,000 shares) 89,190 3,478,410 (1,013,750)
Issuance costs (382,633)
Private Placement of
Common Stock
(3,426,667 shares) 34,267 2,021,733
Issuance costs (77,096)
Registration on Form SB-2 (128,031)
Stock issued to Financial
Consultants 45,296
Net loss (3,951,839)
------ -------- ----------- ---------- ------------
Balance at June 30,
1995 $3,450 $353,555 $18,406,086 $ 45,296 $(17,110,601)
====== ======== =========== ========== ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 71
CONSOLIDATED STATEMENTS OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
June 30,
1995 1994
---------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,951,839) $(1,083,346)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 97,329 47,257
Interest paid through stock issue 11,438
Issuance of common stock to
officers, employees and others 11,250
Consulting fees to be paid in stock
warrants 45,296
Compensation expense on stock options 117,033
Officers notes forgiven on stock purchases 326,250
Gain on sale of equipment (6,000)
Provision for bad debt expense 186,220 20,600
Loss due to write-down of inventory 788,052
Increase (decrease) relating
to operating activities from:
Escrow account 68,535
Accounts and notes receivable (142,130) (117,574)
Inventory (232,781) (676,345)
Prepaid expenses (68,336) (19,080)
Other current assets 1,725 (7,968)
Deposit and other assets (5,993) (3,572)
Accounts payable (214,506) 224,792
Accrued expenses and other
liabilities (152,215) 350,559
-------- -------
Net cash used in operating activities (3,328,928) (1,056,421)
INVESTING ACTIVITIES
Proceeds from sale of equipment 6,000
Additions to property, plant and
equipment, net (287,038) (11,643)
-------- --------
Net cash used in investing activities (281,038) (11,643)
</TABLE>
F-8
<PAGE> 72
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
June 30,
1995 1994
---------- --------
<S> <C> <C>
FINANCING ACTIVITIES
Payments on long-term debt $(54,459) $(51,066)
Proceeds from borrowing 54,200
Proceeds from sale of common
stock, to Cytoferon 400,000
Sale (repurchase) of warrants (14,604) 20,000
Proceeds from issuance of
convertible debentures 200,000
Proceeds from sale of common
stock, net 4,252,621 911,250
Contract termination fee paid in stock 525,000
Private Placement issuance costs (112,100)
Expense payments on SB-2 Registrations (128,031)
------- -----------
Net cash provided by financing activities 4,634,727 1,368,084
Increase in cash 1,024,761 300,020
Cash and cash equivalents
at beginning of period 879,926 579,906
--------- -------
Cash and cash equivalents
at end of period $1,904,687 $ 879,926
========= =========
Supplemental Cash Flow Information:
During the year ended June 30, 1995 and 1994 the Company had the following non-cash financing and other disclosable activity:
1995 1994
---------- ----------
Issuance of Common Stock to
directors and officers $326,250
Issuance of Common Stock to
stockholder in payment of note 66,600
payable
Issuance of Common Stock for
convertible debentures $200,000
Issuance of Common Stock to
officers and affiliate 112,500
Stock subscriptions receivable 102,500
Interest paid 87,297 74,930
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen, Inc. and subsidiaries 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 subsidiaries,
Vira-Tech, Inc. and Viragen (Scotland) Limited. All material intercompany
accounts and transactions have been eliminated in consolidation.
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. During the year as part of an agreement reached with the Florida
Department of Health and Rehabilitation Services and determination by
management to focus efforts on obtaining regulatory approvals, the Company
discontinued new patient enrollments under the State of Florida 499 Program.
Accordingly, the Company recorded a write-down of its interferon inventory,
effective December 1994, of $788,000. At June 30, 1995, the remaining
interferon inventory is comprised of finished goods.
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.
F-10
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
Reclassifications: Certain reclassifications have been made to the 1994
financial statements to conform to the 1995 presentations.
NOTE B--CAPITAL STOCK
In August 1994, the Company concluded a Private Placement of its common stock
with the issuance of 8,919,000 shares at $.40 per share. At June 30, 1994,
2,534,375 of these shares had been recorded as subscribed. In connection with
this offering, the Company agreed to issue 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 a stock purchase agreement. Also
during the period, the Company entered into stock purchases 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. In December
1994, 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.
F-11
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE B--CAPITAL STOCK - Continued
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 charged to operations as compensation expense
and a note receivable was recorded for the remaining balance of $217,500. In
May 1995, the Board of Directors forgave this note receivable and related
interest.
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
charged to operations as compensation expense and a note receivable from each
individual was recorded on the remaining balance of $36,250. In May 1995, the
Board of Directors forgave these notes and related interest.
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.
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 being used for the establishment of a research and
manufacturing facility in Europe and for general working capital purposes.
On March 31, 1995, 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 expired with no warrants being exercised.
There are 3,450 shares of 10% Cumulative, Convertible Series A preferred stock
of the Company outstanding at June 30, 1995. 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.
F-12
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE B--CAPITAL STOCK--Continued
In 1994, 250 shares of the convertible 10% series A cumulative preferred stock
were converted into 1,065 shares of the Company's common stock.
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"). 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.
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.
Shares of the Company's common stock reserved at June 30, 1995 for possible
future issuance are as follows:
<TABLE>
<S> <C>
Warrants - consultants 480,340
Convertible preferred stock 14,697
Option plans 2,563,000
Directors options 650,000
Warrants - private placement 765,650
---------
4,473,687
=========
</TABLE>
In October 1994, $200,000 of convertible debentures were converted into 666,668
shares of common stock.
On May 15, 1995, the Company adopted its 1995 Stock Option Plan under which
4,000,000 shares of Common Stock have been reserved for issuance to officers,
directors, employees and consultants of the Company for stock options
designated as "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code. During fiscal 1995, 33,000 options were granted at
the market price at the respective date of grant. No options were exercised as
of June 30, 1995.
F-13
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE C--ROYALTY AGREEMENT
In May 1993, the Company renegotiated its royalty agreement with Medicore, Inc.
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 royalties payable. This
amount will be paid as the final payment under the $2,400,000 total royalty
agreement. Royalties expense incurred totalled $28,826 and $28,000 in 1995 and
1994, respectively.
NOTE D--LONG TERM DEBT
Long-term debt at June 30, 1995 is as follows:
<TABLE>
<S> <C>
Mortgage note secured by land,
building and equipment with a
net book value of $1,032,182
at June 30, 1995. Monthly
principal payments of $2,500
plus interest at prime plus
2% with the unpaid balance
due August 1, 1996 $483,439
Second mortgage secured by land,
building, equipment and accounts
receivable. Monthly principal
payments of $1,789.17 plus
interest at prime plus 1% with
the unpaid balance due
August 1, 1996 384,671
Capital lease obligations
resulting from acquisition of
equipment, with a cost of
$54,200, capitalized at 10%
over the term of the leases
ranging from three to five years 51,211
--------
919,321
Less current portion 62,728
--------
$856,593
========
</TABLE>
F-14
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE D--LONG TERM DEBT--Continued
The prime rate was 9.00% and 7.25% as of June 30, 1995 and 1994, respectively.
Scheduled maturities of long-term debt at June 30, 1995 are: 1996-$62,728;
1997-$828,988; 1998-$9,487; 1999-$9,046;.2000-$9,072
At June 30, 1995 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, 1996.
Medicore has guaranteed the principal and interest on the mortgage note 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 $87,297 and $74,930 for the years ended June
30, 1995 and 1994, respectively.
During fiscal 1995, the Company acquired equipment under capital lease
agreements at a cost of $54,200, with a carrying value of $50,700, net of
related depreciation at June 30, 1995. Depreciation expense for this equipment
totalled $3,513 during the year. The aggregate lease commitments at June 30,
1995 are: 1996-$15,719; 1997-$15,719; 1998-$11,772; 1999-$10,456 and
2000-$9,585.
F-15
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE E--INCOME TAXES
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, 1995 are as
follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Tax over book depreciation $ 65,000
Other 15,000
--------
Total deferred tax liabilities 80,000
Deferred tax assets:
Net operating loss carryforwards 4,781,000
Research and development credit 230,000
Investment tax credit 40,000
Other 255,000
---------
Total deferred tax assets 5,306,000
Valuation allowance for deferred
tax assets 5,226,000
---------
80,000
---------
Net deferred taxes $ -0-
=========
</TABLE>
The increase in the valuation allowance in 1995 was primarily a result of
operating losses during the year ended June 30, 1995.
At June 30, 1995, the Company has net operating loss carryforwards of
approximately $14,100,000 and tax credits of approximately $270,000 for income
tax purposes that expire in years 1996 through 2010. For financial reporting
purposes, a valuation allowance has been recognized to offset the deferred tax
assets related to these carryforwards. On December 31, 1994, the Company had
an ownership change as defined by Internal Revenue Code #382 which causes the
utilization of the above mentioned net operating loss and tax credits to be
limited to approximately $1,266,000 per year.
The difference between the amount that results from applying the statutory
income tax rate to the loss before income tax benefit and the amount of benefit
recognized ($-0- for both year) results primarily from the change in the
valuation allowance.
F-16
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE F--TRANSACTIONS WITH RELATED PARTIES
In November 1993, the Company issued $200,000 in 8 1/2%, three year convertible
debentures. The debentures, at the holders option were immediately convertible
into common stock of the Company at $.30 per share. These debentures were 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.
Legal fees of $24,000 were paid to the former secretary of the Company during
the year ended June 30, 1994.
During the fourth quarter 1994, the Company made a series of short-term
borrowings from Cytoferon Corp. (see Note G) 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
Corp. ("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, 1993, 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 AIDS related cancer patients residing in the State of Florida.
F-17
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
NOTE G--AGREEMENT FOR SALE OF STOCK--Continued
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 for 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 provided for the Company to pay Cytoferon 50% of fees paid
for foreign licensing, franchising and transfer of technology plus 20% of any
royalties the Company would have received from foreign agreements. All such
fees and commissions were subject to the Company generating certain minimum
sales under the MMS Agreement. For the years ended June 30, 1995 and 1994, the
Company incurred management fees of $140,000 and $100,100 and sales commission
expenses of $10,690 and $25,100 respectively, under the terms of the MMS
Agreement.
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 was 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.
F-18
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
VIRAGEN, INC. AND SUBSIDIARIES
June 30, 1995
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 topical 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 EVENT
On September 20, 1995, the Company entered into an agreement and Plan of
Reorganization ("Agreement") with Sector Associates, Ltd.("Secto"), a Delaware
corporation. Under the terms of the Agreement, the Company will acquire a 94%
interest in Sector in exchange for it's 100% interest in Viragen (Scotland)
Limited in a reverse acquisition transaction. Sector is a publicly traded
corporation which will contain net cash assets of $800,000 at the transaction
closing date scheduled to occur in October 1995. The Company, through Sector,
plans to undertake additional financing transactions to underwrite domestic and
European research and clinical trial activities.
F-19
<PAGE> 83
EXHIBIT INDEX
(10) Material Contracts
(xxxvii) Agreed Motion for Consent Final Order and Settlement Agreement
dated August 29, 1995.
(xxxviii) Agreement and plan of reorganization with Sector Associates,
Ltd. Dated September 19, 1995.
(11) Statement re computation of per share earnings
(21) Subsidiaries of the registrant.
(27) Financial Data Schedule (for SEC use only).
<PAGE> 1
EXHIBIT 10xxxvii
STATE OF FLORIDA
DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES
DEPARTMENT OF HEALTH AND
REHABILITATIVE SERVICES,
Petitioner,
vs. Case No.: 95-26PH
VIRAGEN, INC.
Respondent.
_____________________________/
AGREED MOTION FOR CONSENT FINAL ORDER
AND SETTLEMENT AGREEMENT
Petitioner, Department of Health and Rehabilitative Services, by and
through its Office of Pharmacy Services (hereinafter referred to as the
"HRS-PS"), and Respondent, Viragen, Inc., together with its wholly owned
subsidiary, Vira-Tech, Inc. (hereinafter referred to as "Viragen"), by and
through their authorized representatives and attorneys, in consideration of the
mutual promises contained herein, move the Secretary of HRS for entry of a
Consent Final Order based upon this Agreed Motion and Settlement Agreement
("Agreement'). In support of this motion the Parties (as defined herein)
confirm, stipulate, and agree as follows:
1. HRS-PS and Viragen (hereinafter referred to as the "Parties")
freely and voluntarily enter this Agreement to resolve all issues communicated
in correspondence between the Parties initiated by HRS-PS and subsequently
responded to by Viragen from August 1992 through the Effective Date of this
Agreement, including but not limited to, this administrative action case no:
95-26PH, the Notice of Violation letter for case no: 94-02753, HRS-PS' letter
to Viragen dated July 19, 1995 and Viragen's patient reporting documentation
submitted from time to time to HRS-PS (hereinafter referred to collectively as
the "Prior Correspondence"), regarding the investigation by Viragen under the
Florida investigational drug program (hereinafter referred to as the "State's
IDP"), pursuant to section 499.018, F.S., of Viragen's human leukocyte-derived
interferon-alpha (hereinafter referred to as "Alpha Leukoferon(TM)").
<PAGE> 2
2. It is understood and agreed that this Agreement is the
settlement of doubtful and disputed claims, that the Parties are entering into
this Agreement solely for the purpose of settlement, that the terms reflected
in this Agreement are not to be construed as an admission of liability,
wrongdoing, or noncompliance with any statute, law or regulation on the part of
either of the Parties hereto, and that the Parties deny any and all liability
and intend to avoid litigation and amicably resolve their disputes.
3. Viragen intends to file a completed Investigational New Drug
Application ("IND") with the U.S. Department of Health and Human Services,
Food and Drug Administration ("FDA") in accordance with 21 CFR Part 312, to
investigate the use of Viragen's interferon currently under development and to
be produced under a new manufacturing process.
4. Notwithstanding the representation in paragraph 3 of this
Agreement, Viragen will, effective the earlier of (a) ten (10) business days
after the IND referred to in paragraph 3 of this Agreement becomes effective as
defined in 21 CFR Section 312.40(b) or (b) midnight, March 31, 1996, withdraw
its current MS applications and protocols #007-108 and #005-077 for the
treatment of MS using Alpha Leukoferon(TM), approved by HRS-PS for Viragen
under the State's IDP. Viragen will advise all investigating physicians
(hereinafter referred to as "IPs") and all patients who have been approved by
HRS-PS under the State's IDP to use Alpha Leukoferon(TM) for the treatment of
MS that Viragen's MS protocols #007-108 and #005-077 will cease to be in effect
no later than midnight, March 31, 1996, and that after such date, Alpha
Leukoferon(TM) will no longer be available to them under either of these
protocols.
5. As of the Effective Date of this Agreement, Viragen will not
apply for, nor will HRS-PS approve, any new protocols, IPs or patients for the
use of Alpha Leukoferon(TM) except as provided for in paragraph 9 of this
Agreement.
6. HRS-PS authorizes Viragen to continue to supply, consistent
with the approved MS protocols #007-108 and #005-077, existing inventory of
Alpha Leukoferon(TM) (hereinafter referred to as "Existing Inventory") to MS
patients HRS-PS had approved prior to March 17, 1995, to receive Alpha
Leukoferon(TM) through an approved IP. This authorization to supply Existing
Inventory to currently enrolled MS patients will expire on the earlier of (a)
ten (10) business days after the IND referred to in paragraph 3 of this
Agreement becomes effective as defined in 21 CFR Section 312.40(b) or (b)
midnight, March 31, 1996.
7. Notwithstanding the representation in paragraph 3 of this
Agreement, Viragen will, effective the earlier of (a) ten (10) business days
after
2
<PAGE> 3
the IND referred to in paragraph 3 of this Agreement becomes effective as
defined in 21 CFR Section 312.40(b) or (b) midnight, March 31, 1996, withdraw
its current HIV protocol #006-104 for the treatment of HIV, AIDS, AIDS-Related
Complex ("ARC") and AIDS/Kaposi's Sarcoma (hereinafter referred to collectively
as "HIV/AIDS"), using Alpha Leukoferon(TM), approved by HRS-PS for Viragen
under the State's IDP. Viragen will advise all IPs and all patients who have
been approved by HRS-PS under the State's IDP to use Alpha Leukoferon(TM) for
the treatment of HIV/AIDS that Viragen's HIV/AIDS protocol #006-104 will cease
to be in effect no later than midnight, March 31, 1996, and that after such
date, Alpha Leukoferon(TM) will no longer be available to them under this
protocol.
8. HRS-PS authorizes Viragen to continue to supply, consistent
with the protocol #006-104 for the treatment of HIV/AIDS, Existing Inventory to
patients HRS-PS had approved prior to March 17, 1995, to receive Viragen's
Alpha Leukoferon(TM) through an approved IP. This authorization to supply
Existing Inventory to currently enrolled HIV/AIDS patients will expire on the
earlier of (a) ten (10) business days after the IND referred to in paragraph 3
of this Agreement becomes effective as defined in 21 CFR Section 312.40(b) or
(b) midnight, March 31, 1996.
9. (A) Notwithstanding anything to the contrary contained herein,
Viragen may submit a new protocol to HRS-PS in accordance with the HRS-PS
Protocol Guideline Form (hereinafter referred to collectively as the "New
Protocol"), for expedited determination for authorization to supply and
distribute, without charge to an IP or the patient (excluding shipping costs),
Existing Inventory (limited to the lots and quantities identified in Attachment
A, which is attached to and by reference made part of this Agreement) for the
study and treatment of HIV/AIDS.
(B) HRS-PS agrees to agenda the New Protocol submitted by Viragen for
presentation before HRS-PS and the Florida Drug Technical Review Panel (the
"Tech Panel") at a meeting on October 25, 1995 in Jacksonville, Florida, or if
this becomes impossible for any reason, then for presentation before HRS-PS as
soon thereafter as is practically possible for the Parties, but not later than
October 31, 1995 (hereinafter referred to as the "Meeting").
(C) At the Meeting, Viragen will present the merits of the New Protocol and the
benefits to be derived by patients therefrom. The agenda provides for
discussion by and between the Parties and any other persons participating at
the Meeting regarding the New Protocol, and identification of modifications, if
any, to the New Protocol which may be necessary so that Viragen can revise the
New Protocol into an acceptable final form and content. The Tech Panel or any
other
3
<PAGE> 4
persons participating at the Meeting may assert and consider without
restriction or limitation any issue they deem appropriate in making
recommendations to HRS-PS regarding the New Protocol. HRS-PS has advised
Viragen that at a prior meeting of the Tech Panel and HRS-PS regarding the use
of existing Alpha Leukoferon(TM), some Tech Panel members expressed the view
that more tolerance regarding the application of Alpha Leukoferon(TM) may be
appropriate if it is to be studied for the treatment of terminally ill HIV/AIDS
patients. Nothing in this Agreement shall prevent or restrict HRS-PS from
adopting the recommendations of the Tech Panel, or any other persons HRS-PS has
assembled to advise it to accept, modify or reject the New Protocol.
(D) Viragen will submit ten copies of the New Protocol and any substantive
material to be presented at the Meeting to HRS-PS no later than October 10,
1995, for circulation prior to the Meeting.
(E) The New Protocol submitted by Viragen will provide that all patients who
may be approved for treatment under the New Protocol must initiate treatment
from Existing Inventory no later than July 1, 1996, and that in no event shall
Viragen distribute Existing Inventory after July 1, 1997. If the New Protocol
is approved by HRS-PS, Viragen is authorized to supply Existing Inventory to
IPs for patients enrolled in the New Protocol throughout the course of
treatment with the Existing Inventory. Such authorization to supply Existing
Inventory for the New Protocol will cease at midnight, July 1, 1997.
(F) The New Protocol must be approved by an Institutional Review Board ("IRB")
prior to HRS-PS's final determination on the New Protocol.
(G) Viragen will have thirty (30) calendar days from the Meeting to submit a
final New Protocol for determination by HRS-PS. Material changes to the New
Protocol must be limited to satisfying or addressing issues discussed during
the Meeting or raised by the IRB. Non-material changes will be allowed based
on mutual consent of the Parties, which will not be unreasonably withheld or
delayed by either of the Parties.
(H) HRS-PS will notify Viragen in writing of its approval or denial of the New
Protocol no later than ten (10) business days after Viragen's submission of the
final New Protocol. If denied, HRS-PS will include a statement of the facts
supporting the rejection, as well as a notification to Viragen of its right to
request an administrative hearing on the denial of the New Protocol.
(I) If HRS-PS approves the New Protocol, HRS-PS will notify Viragen in writing
within ten (10) business days of receipt of a completed IP or patient
enrollment package submission by Viragen to HRS-PS, of HRS-PS' approval or
rejection of
4
<PAGE> 5
each IP's or patient's participation in the State's IDP under the New Protocol.
10. Attachment A to this Agreement itemizes Viragen's Existing
Inventory, indicated by lot number, quantity and expiration date, as referred
to in paragraphs 6, 8, 9 and 13 of this Agreement. Viragen will not distribute
any lot of Existing Inventory beyond its stated expiration date, unless Viragen
receives authorization in writing from HRS-PS to assign a new expiration date
to such lot.
11. Viragen agrees to adhere to and will use reasonable efforts to
obtain from approved IPs adherence to Viragen's approved protocols under the
State's IDP. Viragen will notify approved IPs of their protocol adherence
obligation by certified mail within 45 days after the Effective Date of this
Agreement. Viragen understands that as the manufacturer-sponsor, it has a
responsibility to monitor IP compliance with the approved protocols. The
Parties agree to establish in writing, within 45 days after the Effective Date
of this Agreement, reasonable IP monitoring procedures that Viragen shall be
responsible to conduct. Deviations by Viragen from these monitoring procedures
may result in HRS-PS levying the maximum administrative fines authorized by
law and any other sanction or regulatory action authorized by law. HRS-PS
shall be precluded from bringing any sanctions or actions against or levying
any fines on Viragen for any violation of or deviation from Viragen's approved
protocols that are the result of any third party act or omission of act,
provided that such act is committed not in concert with Viragen. However,
nothing in this Agreement shall preclude HRS-PS from taking any such action
authorized by law against any third party to ensure compliance by such third
party with Viragen's approved protocols.
12. HRS-PS agrees to waive any requirements of the protocols
#007-108 and #005-077 that are deemed, by mutual agreement of Viragen's Medical
Director and HRS-PS' neurologist/consultant, unnecessary in light of current
medical or clinical practice standards for the study and treatment of MS. The
Parties agree to finalize in writing such waived requirements within 45 days
after the Effective Date of this Agreement.
13. Viragen discontinued the manufacture of Alpha Leukoferon(TM)
as of January 27, 1995, and will not resume the manufacture of Alpha
Leukoferon(TM) under the process used at that time (the "Discontinued
Manufacturing Process"). Viragen is developing a new manufacturing process
that would be used to produce interferon to be supplied under any FDA IND
(hereinafter referred to as the "New Manufacturing Process"). The
implementation of a New Manufacturing Process which complies with Federal and
state current good manufacturing practice requirements shall not affect
retention by Viragen of its Prescription
5
<PAGE> 6
Drug Manufacturer's permit (#20:00018) issued pursuant to Chapter 499 F.S.;
however, the drug product registration (#08:00852) for the Existing Inventory
will expire on March 31, 1996, except that HRS-PS will extend the drug product
registration in conjunction with approval of the New Protocol under paragraph 9
of this Agreement, if so granted.
14. Notwithstanding any contrary interpretation, construction, or
application of sections 499.018-499-022, F.S., ten (10) business days after
Viragen's interferon has received a Product License Application ("PLA")
approval from the FDA for the treatment of any condition, any and all protocols
approved under the State's IDP for the use of Viragen's interferon for the
treatment of any and all conditions will cease to be in effect. Viragen will
include the substance of this paragraph 14 in any and all applications or new
protocols submitted to HRS-PS for approval under the State's IDP.
15. Notwithstanding any contrary interpretation, construction, or
application of Section 499.018(3), F.S., the Parties agree that for the
purposes of the State's IDP, the interferon to be produced by Viragen under the
New Manufacturing Process shall be considered a different product from Alpha
Leukoferon(TM). If Viragen applies for investigational use in humans of an
interferon product to be produced by Viragen in the State of Florida under the
New Manufacturing Process, a new product registration application must be
submitted by Viragen to HRS-PS for such interferon product. Except as provided
for in paragraph 9 of this Agreement, and provided a PLA for Viragen's
interferon has not been approved, prior to the submission for approval under
section 499.018, F.S. of any new protocol for its interferon for any use,
Viragen shall comply with all of the conditions and terms of section
499.018(1), F.S., including but not limited to the submission to FDA of an IND
addressing the intended use, which application must be accepted for filing by
FDA as a complete IND, but which IND is not effective as defined in 21 CFR
Section 312.40 within 180 days from Viragen's filing the IND with the FDA.
16. HRS-PS will apply the unexpended balance, if any, of the
$5,000 paid by Viragen to HRS-PS for the contractual services of a medical
consultant as full satisfaction of the administrative fine for reporting
delinquencies as described in paragraph (1), subparagraph (3) of the Notice of
Violation letter for case number 94-02753 dated December 16, 1994 (hereinafter
referred to as the "Letter"). In the event the entire $5,000 was expended for
the medical consultant's services, HRS-PS agrees to waive the entire
administrative fine previously levied under paragraph (1), subparagraph (3) of
the Letter. Without regard to the foregoing, HRS-PS agrees to waive all fines
previously levied under paragraph (1), subparagraphs (1) and (2) of the Letter.
Viragen waives its right to an administrative hearing under section 120.57,
F.S., or any other law,
6
<PAGE> 7
with respect to the administrative fine as set forth in paragraph (1),
subparagraph (3) of the Letter and the satisfaction of that fine under the
terms and conditions of this Agreement.
17. HRS-PS waives its enforcement authority with respect to any
alleged deficiencies or violations cited in any of the Prior Correspondence as
defined in paragraph 1 of this Agreement. HRS-PS, however, does not waive its
enforcement authority with respect to any deficiencies or violations not cited
in any of its Prior Correspondence as defined in paragraph 1 of this Agreement.
Any failure by HRS-PS subsequent to the Effective Date of this Agreement to
cite Viragen with a violation within the jurisdiction of HRS-PS does not waive
Viragen's obligation to comply with Chapter 499, F.S., Fla. Admin. Code R.
1OD-45, its approved protocols and this Agreement nor HRS-PS's authority to
enforce same.
18. As of the Effective Date of this Agreement, Viragen hereby
dismisses with prejudice its request dated April 17, 1995, for an informal
administrative hearing pursuant to section 120.57(2), F.S., and further waives
its right to a hearing or further proceedings under section 120.57, F.S. or any
other law prior to entry of a consent final order which adopts this Agreement
and directs the Parties to comply with this Agreement's terms. Viragen further
waives its right to a hearing under section 120.57, F.S. or any other law as to
all actions or determinations specified in this Agreement, except in any action
by HRS-PS under paragraphs 9,11, 12, 13 and 17 of this Agreement.
19. KNOW ALL MEN BY THESE PRESENTS, that in consideration of the
mutual promises, acts and forbearance made in this Agreement, the sufficiency
of which is hereby acknowledged, the Parties hereby fully, finally and forever
waive, release and discharge each other, together with their directors,
officers, employees, agents, representatives and attorneys, and any other
person or entity, of and from any and all claims, demands, actions, causes of
actions, suits, disputes, rights, charges, damages, costs, losses and expenses,
of any and every kind and nature whatsoever, whether in tort, contract,
statutory, by fine or otherwise, sounding in any jurisdiction or forum, whether
known or unknown, including, but not limited to, those claims asserted, or any
federal, state, civil or administrative action or other claims that were or
might have been asserted by or on behalf of either of the Parties in any
jurisdiction or forum, from the beginning of the earth to the Effective Date of
this Agreement, except as provided for in paragraph 17 of this Agreement.
Moreover, each of the Parties makes this waiver, release and discharge for
itself in its respective right and also for its attorneys, predecessors,
successors, representatives, assigns, affiliates, subsidiaries, parent
corporations or entities, subcontractors and sureties, past, present or future,
and any and all persons or entities which may claim now or in
7
<PAGE> 8
the future by or through either of the Parties.
20. Each of the Parties is responsible for its own attorney's
fees/costs.
21. This Agreement contains the entire agreement of the Parties,
and any and all prior understandings and agreements between the Parties are
hereby superseded and rendered null and void.
22. This Agreement shall be construed in accordance with Florida
law and may be enforced in a court of competent jurisdiction in Florida.
23. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In addition, this
Agreement may be executed and accepted by facsimile signature and such
signature shall be of the same force and effect as an original signature.
Subsequent to the Effective Date of this Agreement, two original documents will
be circulated for original signatures to confirm this Agreement.
24. The undersigned represent that they have fully read this
Agreement and are duly authorized to bind the respective Parties to its terms.
25. The effective date of this Agreement is August 29, 1995, or
the date of the last signature required below, whichever occurs first (referred
to herein as the "Effective Date").
8
<PAGE> 9
WHEREFORE, the undersigned have set their hands and seals on the dates
indicated below and respectfully request entry of a consent final order
consistent with this Agreement and agreed motion.
For The Florida Department of Health and For Viragen, Inc.
Rehabilitative Services
______________________ ____________________
Jerry Hill, R. Ph. Gerald Smith, President
Chief of Pharmacy Services, HRS Viragen, Inc.
1317 Winewood Boulevard 2343 West 76th Street
Tallahassee, FL 32399-0700 Hialeah, FL 33016
904-487-1257 305-557-6000
Dated: ________________ Dated: _______________
_______________________ _____________________
Robert P. Daniti, Esquire Michael M. Landa, Esquire
Senior Attorney Attorney for Viragen, Inc.
Emergency Medical Services Fenwick & West
Florida Department of Health and 1920 N Street, N.W.
Rehabilitative Services Suite 650
2002 Old St. Augustine Road Washington, D.C.20036
Tallahassee, FL 32301 202-463-4600
904-487-1911
Fla. Bar No.: 191599
Dated: _________________ Dated: _______________
9
<PAGE> 1
EXHIBIT 10xxxviii
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
VIRAGEN (SCOTLAND) LIMITED,
SECTOR ASSOCIATES, LTD.
AND
VIRAGEN, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. DELIVERY OF SHARES AND POWERS OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE AND THE STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . 3
4.1 Organization of Acquiree and Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Binding Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Capitalization of the Acquiree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Business of Acquiree; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5.1 Business of Acquiree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5.2 Acquiree Newly Formed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5.3 Financial Statements of Acquiree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.6 Securities Exchange Act of 1934 Reports; Registration Statement . . . . . . . . . . . . . . . . . . 5
4.7 Exclusive License Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.8 Assignment of Proprietary Technologies and Products . . . . . . . . . . . . . . . . . . . . . . . . 6
4.9 Proprietary Technologies and Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.10 Binding Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.11 Obligations; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.12 Adverse Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.13 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.14 Management Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.15 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. REPRESENTATIONS OF ACQUIROR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Binding Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Capitalization of the Acquiror . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.6 Securities Exchange Act of 1934 Reports; Financial Statements; Other Financial Information . . . . . 10
5.7 Obligations; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S><C> <C>
5.8 Adverse Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. COVENANTS OF THE PARTIES TO THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.3 Nondisclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 All Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.7 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.8 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.9 Investor Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.10 Delivery of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.11 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.12 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.13 Interim Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.14 Shares to be Issued to the Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIREE AND THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . 17
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIROR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. CONDITIONS SUBSEQUENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. NATURE AND SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. DOCUMENTS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
14. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.3 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
15.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.7 Facsimile Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.9 Binding Effect and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.12 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION dated as of September __,
1995, by and among SECTOR ASSOCIATES, LTD. a Delaware corporation,
(hereinafter "Acquiror"), VIRAGEN (SCOTLAND) LIMITED, a Scottish private
limited company (hereinafter "Acquiree") and VIRAGEN, INC., a Delaware
corporation (the "Stockholder").
W I T N E S S E T H:
WHEREAS, Acquiror is a Delaware corporation that has a class of
securities registered with the Securities and Exchange Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934;
WHEREAS, Stockholder is a Delaware corporation that has a class of
securities registered with the Securities and Exchange Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934;
WHEREAS, Acquiree is a newly formed wholly-owned subsidiary of
Stockholder;
WHEREAS, Stockholder and certain affiliates thereof, have since
inception been engaged in the research, development and manufacture of certain
proprietary products and technologies that relate to the therapeutic
application of human leukocyte interferon to various diseases that affect the
human immune system (the "Proprietary Technologies and Products");
WHEREAS, through a license granted by an affiliate of the Stockholder,
Acquiree has secured certain rights to the Proprietary Technologies and
Products and based upon such rights has entered into an agreement with an
agency on behalf of the Scottish National Blood Transfusion Service ("SNBTS"),
pursuant to which the SNBTS has agreed to, among other things, continue the
1
<PAGE> 6
development and manufacturing of certain of the Stockholder's Proprietary
Technologies and Products on behalf of Acquiree, under and subject to the terms
of a License and Manufacturing Agreement, attached hereto and made a part
hereof as Exhibit "A" (the "License and Manufacturing Agreement");
WHEREAS, for good and valid consideration, the receipt and sufficiency
of which is hereby acknowledged, Stockholder, Acquiree and Acquiror seek to
engage in a Plan of Reorganization whereby Acquiror, pursuant to the terms
hereof, shall acquire all of the issued and outstanding common stock of
Acquiree owned by the Stockholder, thus making Acquiree a wholly-owned
subsidiary of Acquiror; and
WHEREAS, in pursuance of such Plan of Reorganization, the Stockholder
has agreed and will, pursuant to the terms hereof, agree to exchange its shares
of Acquiree's common stock for shares of Acquiror's common stock as more
particularly described hereafter.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, intending to be legally bound hereby, the
parties hereto do covenant and agree as follows:
1. PLAN OF REORGANIZATION.
The Stockholder is the owner of one hundred percent (100%) of
the issued and outstanding common stock of Acquiree. It is the intention of
the parties hereto that the shares of common stock of Acquiree (the "Acquiree
Shares") shall be acquired by Acquiror in exchange solely for Acquiror voting
preferred stock subject to the terms and conditions herein stated in this Plan
of Reorganization.
2. EXCHANGE OF SHARES.
2.1 Under and subject to the terms of this Plan of
Reorganization, upon the "Closing Date" (as hereinafter defined), the Acquiror
shall issue an aggregate of 2,000,000 shares of its
2
<PAGE> 7
newly designated Class B Convertible Preferred Stock to the Stockholder (the
"Acquiror Shares") in exchange for one hundred percent (100%) of the common
stock of Acquiree held by the Stockholder (the "Acquiree Shares"). The terms
and conditions of the Class B Convertible Preferred Stock are set forth upon
Exhibit "F", attached hereto and made a part hereof.
2.2 The Acquiror Shares will permit the Stockholder to
convert into 84,507,976 shares of common stock of the Acquiror (that number of
shares of common stock of the Acquiror that as of the Closing Date would
constitute approximately ninety-four (94%) percent of the issued and
outstanding shares of common stock of the Acquiror) following the effective
date of those transactions identified at Paragraph 10.2 hereafter, and
represent the consideration that Acquiror is giving for the Acquiree Shares (as
set forth above), and the Stockholder agrees to accept the Acquiror Shares in
full, complete and final exchange for the Acquiree Shares.
3. DELIVERY OF SHARES AND POWERS OF ATTORNEY.
On or at the Closing Date, the Stockholder will deliver
certificates representing the Acquiree Shares, duly endorsed or accompanied by
duly executed stock powers with signatures guaranteed, so as to render Acquiror
the sole holder thereof, free and clear of all liens, levies, pledges, claims,
encumbrances, warrants, options, mortgages, security interests and rights of
others; and on such Closing Date, the delivery of the Acquiror Shares, which
will be appropriately restricted as to transfer, as set forth at Paragraph 7.14
hereof, will be made to the Stockholder as set forth herein. The Acquiree
Shares to be delivered to Acquiror and the Acquiror Shares to be delivered to
Stockholder shall be restricted as to transfer, as set forth at Paragraph 7.14,
such shares having not been subject to registration with the United States
Securities and Exchange Commission ("SEC").
3
<PAGE> 8
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE AND THE
STOCKHOLDER.
The Acquiree and the Stockholder do hereby jointly and
severally represent, warrant and covenant to the Acquiror, as an inducement for
the Acquiror to enter into this Plan of Reorganization and to consummate the
transactions contemplated hereby, that, as of the date hereof:
4.1 Organization of Acquiree and Stockholder. Each of
the Acquiree and Stockholder is a corporation duly organized, validly existing
and in good standing under the laws of Scotland and Delaware, respectively; is
duly qualified to do business and in good standing in each other jurisdiction
in which such qualification is necessary; and, has the requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted.
4.2 Binding Plan of Reorganization. This Plan of
Reorganization constitutes the valid and binding obligations of the Stockholder
and Acquiree, enforceable against each of them in accordance with its terms.
The Acquiree and the Stockholder have all requisite power and authority to
execute and deliver this Plan of Reorganization, and to consummate the
transactions contemplated thereby. Neither the execution and delivery of this
Plan of Reorganization, nor the consummation of the transactions contemplated
thereby will: (a) violate any provision of the Articles of Incorporation,
Charter and By-Laws of the Acquiree or the Stockholder; (b) violate, conflict
with, or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a material default (by
way of substitution, novation or otherwise) under the terms of any material
contract, franchise, lease, license, agreement or instrument to which the
Acquiree or the Stockholder are a party, all of which shall continue to remain
in full force and effect in accordance with their respective terms following
the consummation of the transactions contemplated thereby; (c) to Acquiree's
and Stockholder's knowledge result in the creation of any lien, charge or
encumbrance upon the properties, assets or other securities of
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the Acquiree or the Stockholder; (d) violate any judgment, order, injunction,
decree or award against, binding upon, or effecting the securities, assets,
properties, operations or business of the Acquiree or the Stockholder; or (e)
violate any law or regulation as such law or regulation relates to the
securities, assets, properties, operations or business of the Acquiree or the
Stockholder, the breach of which would have a material adverse effect on the
business of the Acquiree or Stockholder.
4.3 Authority. The execution and delivery of this Plan
of Reorganization and the documents and instruments to be delivered and
executed pursuant thereto, and the consummation of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of
Acquiree and of the Stockholder and no other action or proceedings on the part
of Acquiree or Stockholder is necessary to authorize the execution and delivery
of such agreements or such other documents and instruments necessary or
required to consummate the transactions contemplated hereby and thereby.
4.4 Capitalization of the Acquiree.
The authorized capital stock of the Acquiree consists of 100
shares of common stock, of which 100 shares of common stock are issued and
outstanding on the date hereof (the "Acquiree Shares"). The Stockholder owns,
in the aggregate, one hundred percent (100%) of the Acquiree Shares, free and
clear of any liens, levies, pledges, claims, encumbrances, warrants, options,
mortgages, security interests and rights of others. The Acquiree Shares are
duly authorized, have been validly issued and fully paid and are
non-assessable.
4.5 Business of Acquiree; Financial Statements.
4.5.1 Business of Acquiree. The Acquiree has been
formed as a wholly-owned subsidiary of the Stockholder for the purpose of,
among other things, engaging in the utilization and commercial application of
the Proprietary Technologies and Products, including, but not limited to,
engaging in those
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activities provided for in the License and Manufacturing Agreement.
4.5.2 Acquiree Newly Formed. Acquiree is a newly
formed corporation that, with the exception of information contained within the
Financial Statements or otherwise provided to Acquiror under Schedule 4.5.2,
has no material assets or liabilities, debts or obligations or claims asserted
against it, whether accrued, absolute, contingent or otherwise. Schedule 4.5.2
also includes a list, if applicable, and description of: (i) all pending or
threatened law suits, actions and administrative, arbitration or other similar
legal proceedings and investigations; and (ii) all contracts and agreements of
the Acquiree.
4.5.3 Financial Statements of Acquiree. The
Acquiree will prior to the Closing Date deliver to Acquiror financial
statements representing the financial condition and results of operations of
Acquiree for the period ended June 30, 1995 which shall be attached hereto as
Schedule 4.5.3. The financial statements set forth in Schedule 4.5.3 (in the
aggregate, the "Financial Statements"), shall be accurate and complete and
present fairly and accurately the financial condition, assets, liabilities and
results of operations for the period therein indicated in accordance with
generally accepted accounting principles, consistently applied. Throughout the
periods covered by the foregoing Financial Statements there have been no
changes in accounting principles or practices or their application. The
Financial Statements are accurate and complete, and to the best of
Stockholder's and Acquiree's knowledge and belief, have been prepared and
conform in all material respects with the provisions of Item 310 of Regulation
S-B ("Regulation S-B"), promulgated under the Securities Act of 1933, as
amended (the "Act").
4.6 Securities Exchange Act of 1934 Reports; Registration
Statement.
4.6.1 The Stockholder has heretofore delivered to
the Acquiror a true and complete copy of its Annual Report on Form
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10-K for the fiscal year ended June 30, 1994, as well as most recent Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 1995, (hereinafter
referred to in the aggregate as the "Reports"). A true and correct copy of
such Reports is attached hereto as Schedules 4.6.1(a) and 4.6.1(b). The
Reports have been prepared in compliance with all applicable securities
regulations, including but not limited to the Securities Exchange Act of 1934.
These Reports contain all information required to be included therein, do not
contain any untrue statement of a material fact and do not omit to state a
material fact required to be stated therein or necessary in order to make the
statements contained therein not misleading.
4.6.2 The Stockholder has filed all reports required
to be filed under the Securities Exchange Act of 1934.
4.6.3 (a) The Stockholder has prior hereto
delivered to Acquiror a definitive Prospectus dated August 14, 1995 (the
"Prospectus").
(b) The Prospectus was prepared by the
Stockholder in conformity with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder. The
Prospectus contained all statements which were required to be stated therein,
did not contain any untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary in order to
make the statements contained therein not misleading.
4.7 Exclusive License Rights. The Acquiree has the
exclusive rights, by assignment or by license, to engage in the utilization and
commercial application of the Proprietary Technologies and Products in the
manner and to the extent set forth within the License Agreement between
Acquiree as "licensee" and Viragen Technology, Inc. (a wholly-owned subsidiary
of Stockholder) as "licensor" (the "License Agreement"), a true and correct
copy of which is attached hereto and made a part hereof as Exhibit "B".
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4.8 Assignment of Proprietary Technologies and Products.
Viragen Technology, Inc. ("VTI") acquired all of the right, title and interest
in and to all of the Proprietary Technologies and Products by virtue of an
assignment from the Stockholder and Vira-Tech, Inc. (a wholly-owned subsidiary
of Stockholder) (the "Assignment"), a true and correct copy of which is
attached hereto and made a part hereof as Exhibit "C". For this purpose, the
term "Proprietary Technologies and Products" shall include any and all
information, confidential or otherwise, trade secrets, proprietary material and
information, fabrications, production materials or data, designs, drawings and
techniques, formulations and know-how utilized in connection with the business
of Stockholder, Acquiree and any affiliates thereof; any patents, registered
trademarks, service marks, copyrights or applications therefor, owned, licensed
or utilized by the Stockholder, Acquiree and any affiliates thereof as defined
in the Assignment.
4.9 Proprietary Technologies and Products. To the best
knowledge of Stockholder and Acquiree; (i) The development and use of the
Proprietary Technologies and Products does not infringe upon or conflict with
the rights of any third party; (ii) no proceeding has been instituted,
threatened, nor has any claim been made, alleging an infringement or violation
of the rights of any third party in connection with the ownership, licensure or
utilization by the Stockholder, Acquiree or any affiliates thereof of any of
the Proprietary Technologies and Products; and (iii) all such patents,
trademarks, service marks, or copyrights are validly issued and enforceable in
the United States and in all applicable countries in which the Acquiree intends
to undertake business pursuant to the terms of the License and Manufacturing
Agreement.
4.10 Binding Agreements.
4.10.1 The Assignment is a valid and binding
obligation of the parties thereto, which remains in full force and effect,
enforceable in accordance with its terms. There has not occurred any default
or event which, with the giving of notice or passage of time, or both, has been
or will become a default under the Assignment.
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4.10.2 The License Agreement is a valid and binding
obligation of the parties thereto, which remains in full force and effect,
enforceable in accordance with its terms. There has not occurred any default
or event which, with the giving of notice or passage of time, or both, has been
or will become a default under the License Agreement.
4.10.3 The License and Manufacturing Agreement,
attached hereto and made a part here of as Exhibit A," is a valid and binding
obligation of the parties thereto, which remains in full force and effect,
enforceable in accordance with its terms. There has not occurred any default
or event which, with the giving of notice or passage of time, or both, has been
or will become a default under the License and Manufacturing Agreement.
4.11 Obligations; Authorization. Except as disclosed in
Schedule 4.11, the Acquiree and the Stockholder, to their knowledge, are not:
(i) in violation of any judgment, order, injunction, award or decree which is
binding on them or any of their assets, properties, operations, securities or
business; or (ii) in violation of any law or regulation or any other
requirement of any governmental body, court or arbitrator relating to them, or
to any of their securities, assets, operations, properties or businesses which
violation, by itself or in conjunction with other violations of any other law,
regulation or other requirement could reasonably be expected to materially
adversely affect the Acquiree, Stockholder or any of their securities, assets,
operations, properties or business or result in a cost, expense, liability or
other damage or loss to the Acquiree, Stockholder or any of their securities,
assets, operations, properties or businesses. Except as disclosed in Schedule
4.11 attached hereto and made a part hereof, the Acquiree and the Stockholder
to their knowledge have in all material respects performed all obligations
required to be performed by them, are not in default or violation in any
material respect and are not aware of any material default or violation that
has occurred or imminent to occur under any of their respective agreements,
obligations or undertakings. All licenses, permits,
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and other governmental authorizations that are required for the conduct of the
business of the Acquiree and Stockholder as now conducted are in full force and
effect. Except as disclosed in Schedule 4.11, the Acquiree and Stockholder
have not taken any action, or failed to take any action, or permitted or
allowed to exist any condition which, with notice or lapse of time or both,
would result in the termination, cancellation, forfeiture of, or cause a
default under, any such license, permit or other governmental authorization.
4.12 Adverse Events. Since the date hereof, there has not
been any occurrence, event, or condition which has or is anticipated to have a
materially adversely affect on the assets, properties, business, operations or
condition (financial or otherwise) of the Acquiree or Stockholder.
4.13 Consents. To the knowledge of Stockholder and
Acquiree, all requisite consents of third parties, including, but not limited
to, governmental or other regulatory agencies, federal, state or municipal,
required to be received by or on the part of the Acquiree or Stockholder for
the execution and delivery of any of this Plan of Reorganization and the
License and Manufacturing Agreement, as well as the performance of the
obligations of the Stockholder or Acquiree hereunder or under such other
agreements have been or, prior to the Closing Date, will be obtained and are,
or will be in full force and effect, except as otherwise disclosed herein. The
Stockholder and Acquiree have fully complied, or will, on or prior to the
Closing Date, fully comply with all conditions of such consents.
4.14 Management Biographies. Attached hereto as Schedule
4.15 are copies of the biographical and other information required by Item 401
of Regulation S-B for individuals, who are anticipated to serve as directors
and officers of Acquiror subsequent to the Closing Date.
4.15 Disclosure. No representations or warranties
contained within this Plan of Reorganization, and no statements contained in
any of the schedules attached hereto, or any instru-
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ment, list, certificate or right delivered by any of the parties hereto to the
Acquiror pursuant to this Plan of Reorganization contains or will contain any
untrue statement of a material fact or will omit or fail to state any material
fact necessary to make these statements herein or therein misleading.
5. REPRESENTATIONS OF ACQUIROR. The Acquiror represents,
warrants and covenants as an inducement for the Acquiree and the Stockholder to
enter into this Plan of Reorganization and to consummate the transactions
contemplated hereby, that, as of the date hereof:
5.1 Organization. The Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; is duly qualified to do business and in good standing in each other
jurisdiction in which such qualification is necessary; and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
5.2 Binding Plan of Reorganization. This Plan of
Reorganization constitutes the valid and binding obligation of the Acquiror,
enforceable in accordance with its terms. The Acquiror has all requisite power
and authority to execute and deliver this Plan of Reorganization and to
consummate the transactions contemplated hereby. Neither the execution and
delivery of this Plan of Reorganization nor the consummation of the
transactions contemplated hereby will: (a) violate any provision of the
Certificate of Incorporation or By-Laws of the Acquiror; (b) violate, conflict
with or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default (by way of
substitution, novation or otherwise) under the terms of any contract,
franchise, lease, license, agreement or instrument to which the Acquiror is a
party, all of which shall continue to remain in full force and effect in
accordance with their respective terms following the consummation of the
transactions contemplated hereby; (c) result in the creation of any lien,
charge or encumbrance upon the shares of common stock of Acquiror or the
properties, assets or other
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securities of the Acquiror; (d) violate any judgment, order, injunction, decree
or award against, binding upon, or affecting the shares of common stock of
Acquiror, or upon the securities, assets, properties, operations or business of
the Acquiror; or (e) violate any law or regulation as such law or regulation
relates to the shares of common stock of Acquiror, or to the securities,
assets, properties, operations or business of the Acquiror.
5.3 Authority. The execution and delivery of this Plan
of Reorganization and the documents and instruments to be delivered and
executed by Acquiror pursuant hereto and the consummation by the Acquiror of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of Acquiror and no other corporate or other proceedings
on the part of Acquiror are necessary to authorize the execution and delivery
of this Plan of Reorganization or such other documents or instruments necessary
or required to consummate the transactions contemplated hereby and thereby.
5.4 Shares to be Issued. The shares of Acquiror's newly
designated Class B Convertible Preferred Stock, (as well as the Shares of
Acquiror's common stock issuable upon conversion of the Class B Convertible
Preferred Stock) to be issued to the Stockholder pursuant to this Plan of
Reorganization will, when issued, be validly issued, fully paid, non-assessable
and free and clear of all liens, levies, pledges, claims, encumbrances,
warrants, options, mortgages, security interests and rights of others, except
as set forth at Paragraph 7.14 hereof.
5.5 Capitalization of the Acquiror. The authorized capital
stock of the Acquiror presently consists of 50,000,000 shares of common stock,
of which 2,034,129 shares are issued and outstanding on the date hereof and
2,500,000 shares of Preferred Stock, none of which are presently outstanding.
As of the Closing Date, Acquiror will have no more than approximately 5,394,129
shares of its common stock outstanding. The shares of common stock presently
outstanding are duly authorized, have been validly issued and fully paid and
are non-assessable. There are also presently outstanding 618,750 Class F
Warrants and 2,638,000 Class
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B Warrants, the terms of which are described in the Acquiror's Annual Report on
Form 10-KSB for the year ended June 30, 1994. Except as set forth upon
Schedule 5.5, Acquiror has outstanding no additional securities including any
derivative instruments (including options, warrants or debentures) that may be
converted or exercised for additional securities of Acquiror. Acquiror intends
to undertake a private placement of 336,000 Units prior to the Closing of this
Plan of Reorganization. Each Unit shall include ten (10) shares of common
stock and thirty-five (35) common stock purchase warrants, each warrant bearing
an exercise price per share of $.43. The Acquiror anticipates that the Units
will be priced at $2.00.
5.6 Securities Exchange Act of 1934 Reports; Financial
Statements; Other Financial Information. The Acquiror has heretofore delivered
to the Acquiree a true and complete copy of its Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994. Copies of Quarterly Reports on Form
10-QSB for the quarters ended September 30, 1994, December 31, 1994 and March
31, 1995 will be delivered to the Stockholder before the Closing. (The
aforementioned Annual Report and Quarterly Reports shall be referred to in the
aggregate as the "Reports.") The Reports contained all statements which were
required to be stated therein, did not contain any untrue statement of a
material fact and did not omit to state a material fact required to be stated
therein or necessary in order to make the statements contained therein not
misleading; the financial statements contained within the Reports (the
"Acquiror Financial Statements"), are accurate and complete and, to the best of
Acquiror's knowledge and belief, have been prepared in accordance with all
applicable securities regulations including, but not limited to the Securities
Exchange Act of 1934. The Acquiror Financial Statements have been prepared in
accordance with generally accepted accounting principals and present fairly and
accurately the financial condition, assets, liabilities, profit, loss and
results of operations for the periods therein indicated in accordance with
generally accepted accounting principles, consistently applied. As of the
Closing Date, the Acquiror shall have filed all Reports required to be filed
under the Securities Exchange Act of 1934.
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5.7 Obligations; Authorization. Except as disclosed in
Schedule 5.7, the Acquiror, to its knowledge, is not: (i) in violation of any
judgment, order, injunction, award or decree which is binding on it or any of
its assets, properties, operations, securities or business; or (ii) in
violation of any law or regulation or any other requirement of any governmental
body, court or arbitrator relating to it, or to any of its securities, assets,
operations, properties or businesses which violation, by itself or in
conjunction with other violations of any other law, regulation or other
requirement could reasonably be expected to materially adversely affect the
Acquiror or any of its securities, assets, operations, properties or business
or result in a cost, expense, liability or other damage or loss to the Acquiror
or any of its securities, assets, operations, properties or businesses. Except
as disclosed in Schedule 5.7 attached hereto and made a part hereof, the
Acquiror to its knowledge has in all material respects performed all
obligations required to be performed by it, is not in default or violation in
any material respect and is not aware of any material default or violation that
has occurred or imminent to occur under any of its respective agreements,
obligations or undertakings.
5.8 Adverse Events. Since the date hereof, there has not
been any occurrence, event, or condition which has or is anticipated to have a
materially adversely affect on the assets, properties, business, operations or
condition (financial or otherwise) of the Acquiror.
5.9 Consents. To the knowledge of Acquiror, all
requisite consents of third parties, including, but not limited to,
governmental or other regulatory agencies, federal, state or municipal,
required to be received by or on the part of the Acquiror for the execution and
delivery of this Plan of Reorganization has been or, prior to the Closing Date,
will be obtained and are, or will be in full force and effect. The Acquiror
has fully complied, or will, n or prior to the Closing Date, fully comply with
all conditions of such consents.
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5.10 Disclosure. No representations or warranties
contained within this Plan of Reorganization, and no statements contained in
any of the Schedules attached hereto, or in any instrument, list, certificate
or right delivered by Acquiror pursuant to this Plan of Reorganization contains
or will contain any untrue statement of a material fact or omits or will omit
to state any material fact necessary to make the statements herein or therein
misleading.
6. CLOSING DATE. The Closing of the transactions contemplated by
this Plan of Reorganization shall take place at the offices of Acquiree or its
counsel the later of fifteen (15) business days following the date hereof, at
such later date as the Conditions Precedent to the Obligations of Acquiree and
Stockholder identified at Paragraph 8 hereof and the Conditions Precedent to
the Obligations of Acquiror identified at Paragraph 9 hereof, however, in no
event later than forty-five (45) days from the date hereof unless the parties
may mutually agree. The date of Closing shall hereafter be referred to as the
"Closing Date".
7. COVENANTS OF THE PARTIES TO THIS AGREEMENT.
7.1 Access to Information. At all times prior to the
Closing Date or the earlier termination of this Plan of Reorganization, each of
the parties hereto shall provide to the other parties (and the other parties'
authorized representatives) full access during normal business hours to the
premises, properties, books, records, assets, liabilities, operations,
contracts, personnel, financial information and other data and information of
or relating to such party, and will cooperate with the other party in
conducting its due diligence investigation of such party.
7.2 Confidentiality.
(i) With respect to information concerning
Stockholder or Acquiree that is made available to Acquiror pursuant to the
provisions of this Subparagraph (i), Acquiror agrees that it shall hold such
information in strict confidence, shall not use such information except for the
sole purpose of evaluating this
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Plan of Reorganization and related transactions and shall not disseminate or
disclose any of such information other than to its directors, officers,
employees, shareholders, affiliates, agents, lenders and representatives who
need to know such information for the sole purpose of evaluating this Plan of
Reorganization and the related transactions (each of whom shall be informed in
writing by Acquiror of the confidential nature of such information, the
prohibition under federal securities laws of trading upon any material
non-public information and directed by Acquiror in writing to treat such
information confidentially.) If this Plan of Reorganization is terminated,
Acquiror shall immediately return all such information, all copies thereof and
all information prepared by Acquiror based upon the same, upon Stockholder's
request; provided, however, that one copy of all such material may be retained
by Acquiror's outside legal counsel for purposes only of resolving any disputes
under this Plan of Reorganization. The above limitations on use, dissemination
and disclosure shall not apply to information that; (a) is learned by Acquiror
from a third party entitled to disclose it; (b) becomes known publicly other
than through Acquiror or any party who received the same through Acquiror (c)
is required by law or court order to be disclosed by Acquiror or; (d) is
disclosed with the express prior written consent thereto of Stockholder.
Acquiror shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this subparagraph (i).
(ii) With respect to information concerning
Acquiror that is made available to Stockholder or Acquiree pursuant to the
provisions of this Subparagraph (ii), Stockholder and Acquiree jointly and
severally agree that they shall hold such information in strict confidence,
shall not use such information except for the sole purpose of evaluating the
Plan of Reorganization and the related transactions and shall not disseminate
or disclose any of such information other than to their directors, officers,
employees, shareholders, affiliates, agents, lenders and representatives who
need to know such information for the sole purpose of evaluating the Plan of
Reorganization and the related transactions (each of whom shall be
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informed in writing by Stockholder or Acquiree, as appropriate, of the
confidential nature of such information and directed by such party in writing
to treat such information confidentially). If this Plan of Reorganization is
terminated, Stockholder and Acquiree jointly and severally agree to return
immediately all such information, all copies thereof and all information
prepared by either of them based upon the same, upon Acquiror's request;
provided, however, that one copy of all such material may be retained by
Stockholder's outside legal counsel for purposes only of resolving any disputes
under this Plan of Reorganization. The above limitations on use, dissemination
and disclosure shall not apply to information that: (a) is learned by
Stockholder or Acquiree from a third party entitled to disclose it; (b) becomes
known publicly other than through Stockholder or Acquiree or any party who
received the same through either of them; (c) is required by law or court order
to be disclosed by Stockholder or Acquiree; or (d) is disclosed with the
express prior written consent thereto of Acquiror. Stockholder and Acquiree
jointly and severally agree to undertake all necessary steps to ensure that the
secrecy and confidentiality of such information will be maintained in
accordance with the provisions of this subparagraph (ii).
7.3 Nondisclosure. Neither Stockholder, Acquiror, or
Acquiree shall disclose to the public or to any third party the existence of
this Plan of Reorganization or the transactions contemplated hereby or any
other material non-public information concerning or relating to the other
parties hereto, other than with the express prior written consent of the other
party hereto, except as may be required by applicable securities laws as they
pertain to public companies, law or court order or to enforce the rights of
such disclosing party under this Plan of Reorganization, in which event the
contents of any proposed disclosure shall be discussed with the other party
before release; provided, however, that notwithstanding anything to the
contrary contained in this Plan of Reorganization, any party hereto may
disclose this Plan of Reorganization to any of its directors, officers,
employees, shareholders, affiliates, agents and representative who need to know
such information for the sole purpose of evaluating this Plan
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<PAGE> 22
of Reorganization, to any party whose consent is required in connection with
this Plan of Reorganization this Plan of Reorganization; or to any regulatory
body where such disclosure is required under federal or state law.
7.4 Consents. Stockholder, Acquiror and Acquiree shall
cooperate and use their best efforts to obtain, prior to the Closing Date, all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts as are necessary
for the consummation of the transactions contemplated by this Plan of
Reorganization.
7.5 Filings. Stockholder, Acquiror and Acquiree shall,
as promptly as practicable, make any required filings and submissions, under
any law, statute, order rule or regulation with respect to this Plan of
Reorganization and the related transactions and shall cooperate with each other
with respect to the foregoing.
7.6 All Reasonable Efforts. Subject to the terms and
conditions of this Plan of Reorganization and to the fiduciary duties and
obligations of their respective boards of directors, each of the parties to
this Plan of Reorganization shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate this Plan of Reorganization and the other
transactions contemplated by this Plan of Reorganization.
7.7 Notification of Certain Matters. Acquiror shall give
prompt notice to Stockholder and Acquiree, and Stockholder and Acquiree shall
give prompt notice to Acquiror, of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which would cause any of its
representations or warranties in this Plan of Reorganization to be untrue or
inaccurate in any material respect at or prior to the Closing Date and (ii) any
material failure of Acquiror, on the one hand, or Stock-
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holder or Acquiree, on the other hand, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it under this Plan of Reorganization; provided, however, the delivery of any
notice pursuant to this Section shall not limit or otherwise affect the
remedies available to the party receiving such notice under this Plan of
Reorganization.
7.8 Registration Rights. On or prior to the Closing
Date, Acquiror shall have agreed to the registration provisions set forth in
paragraph 10.7 hereafter, and in confirmation thereof shall agree to conduct
such registration in accordance with the terms set forth in Paragraph 10.7 and
the registration procedures identified in substantially the form and substance
of Exhibit "D", attached hereto and made a part hereof.
7.9 Investor Representation Letter. On or prior to the
Closing Date, the Stockholder shall execute an Investor Representation Letter
substantially in form and substance similar to that attached hereto and made a
part hereof as Exhibit "E".
7.10 Delivery of Schedules. Except as otherwise noted
herein, the parties hereto shall deliver all of the Schedules required herein,
and copies of the documents referred to therein, to each other within five (5)
business days following the execution of this Plan of Reorganization and such
Schedules and documents shall be in reasonably acceptable form and substance to
Stockholder and Acquiror.
7.11 Officer's Certificate. On or prior to the Closing Date,
Acquiree and Stockholder shall deliver an officer's certificate to Acquiree to
the effect that all of the representations and warranties contained in this
Plan of Reorganization are true and complete in all respects as of the Closing
Date, and that the Acquiree and Stockholder have complied in all material
respects with the covenants and agreements set forth herein required to be
complied with by the Closing; and there shall be delivered to Stockholder and
Acquiree a officer's certificate provided by the Acquiror to the effect that
the representations
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and warranties of the Acquiror set forth herein are true and correct in all
material respects and that the Acquiror has complied in all material respects
with the covenants and agreements set forth herein required to be complied with
by the Closing.
7.12 Resignations. On or prior to the Closing Date, Acquiror
shall take all actions necessary to secure and effect the resignation of all of
the current directors and officers subject to the provisions of paragraph 10.6
hereafter.
7.13 Interim Operations. During the period from the date of
this Plan of Reorganization and continuing until the Closing Date, Acquiror,
Acquiree and Stockholder agree (except as expressly contemplated by this Plan
of Reorganization, including any Exhibits and Schedules hereto, or to the
extent that the other parties shall otherwise consent in writing) to carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such businesses, use all reasonable efforts to preserve intact
their respective present business organizations, keep available the services of
their present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them. Acquiror
shall conduct a private placement of Units in the manner identified at
Paragraph 5.5.
7.14 Shares to be Issued to the Stockholder. The Acquiror
Shares issuable to the Stockholder in exchange for the Acquiree Shares will,
when issued and delivered in accordance with the terms and conditions of this
Plan of Reorganization, be validly issued, fully paid and non-assessable, free
and clear of all liens, levies, pledges, claims, encumbrances, warrants,
options, mortgages, security interests and rights of others. The Stockholder
acknowledges and agrees (a) that it has reviewed the quarterly, annual and
periodic reports of the Acquiror as filed with the Securities and Exchange
Commission, and that it has such knowledge and experience in financial and
business matters that it is capable of utilizing the information set forth
therein
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concerning the Acquiror to evaluate the risks of investing in the Acquiror; (b)
that it has been advised that the Acquiror Shares to be issued to it by the
Acquiror will not be registered under the Act, and accordingly, it may not be
able to sell or otherwise dispose of Acquiror Shares when it wishes to do so;
(c) that the Acquiror Shares so issued are being acquired by Stockholder for
its own benefit and for investment purposes and not with a view to, or for
resale in connection with a public offering or distribution thereof; (d) that
the Acquiror Shares so issued will not be resold (i) without registration
thereof under the Act (unless in the opinion of counsel to the Acquiror, an
exemption from such registration is available), or (ii) in violation of any
law; (e) that the certificate or certificates representing the Acquiror Shares
to be issued will be imprinted with a legend in form and substance as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER
THE SECURITIES ACT OF 1933, BASED ON AN OPINION LETTER OF
COUNSEL FOR THE CORPORATION OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION".
and the Acquiror is hereby authorized to notify its transfer agent of the
status of the Acquiror Shares and to take such other action including, but not
limited to, the placing of a "stop-transfer" order on the transfer agents'
books and records to insure compliance with the Act.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIREE AND THE
STOCKHOLDER. All of the obligations of the Stockholder and Acquiree under this
Plan of Reorganization are subject to the fulfillment, prior to or as of the
Closing Date, of each of the following conditions:
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8.1 The representations and warranties by or on behalf of
Acquiror contained in this Plan of Reorganization, or in any certificate or
document delivered pursuant to the provisions hereof, shall be true in all
material respects at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
8.2 Acquiror shall have performed and complied with all
covenants, agreements, and conditions required by this Plan of Reorganization
to be performed or complied with by it prior to or on the Closing Date.
8.3 The present Board of Directors of Acquiror shall have, as
of the Closing Date, tendered their resignations in favor of a newly
constituted Board of Directors consisting of designees of the Stockholder,
inclusive of those designees provided at Paragraph 10.5 hereof. The present
Board of Directors shall also have obtained the resignations of the existing
officers of Acquiror effective immediately upon the Closing Date.
8.4 Acquiror shall upon the Closing Date have on hand
assets net of liabilities consisting of cash of $800,000; and shall have an
outstanding capitalization that consists of no more than approximately
5,394,129 Shares of its common stock and those common stock purchase warrants
described within Paragraph 5.5;
8.5 Acquiror shall execute and deliver any and all
agreements, documents or instruments of any kind whatsoever necessary to
effectuate this Plan of Reorganization and the transactions referred to herein,
contemplated hereby or requested by Acquiree, which shall be in form and
substance satisfactory to Acquiree and Stockholder.
8.6 There shall be delivered to Acquiree a Certificate of the
Acquiror's President and Secretary to the effect that all of the
representations and warranties set forth within Section 5 of this Plan of
Reorganization are true and complete in all respects as of the Closing Date,
and that the Acquiror has
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complied in all material respects with the covenants and agreements set forth
in this Plan of Reorganization.
8.7 Acquiror shall have delivered all of the Schedules
referred to herein, and copies of the documents referred to therein, to
Stockholder and such schedules and documents shall have been reasonably
acceptable to Stockholder.
8.8 Stockholder shall have completed prior to the Closing
Date, to its satisfaction, a due diligence review of the financial condition,
properties, assets, liabilities, business or prospects of the Acquiror,
including but not limited to the indemnification being provided to Acquiror by
one of Acquiror's former principal stockholders relating to potential or
pending liabilities, claims or litigation of Acquiror's former subsidiaries.
8.9 Acquiror shall have as of the Closing Date filed all
Reports required to be filed with the SEC under the Securities Exchange Act of
1934 so that Acquiror shall be current in its filing obligations under the
Securities Exchange Act of 1934.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIROR. All
obligations of Acquiror under this Plan of Reorganization are subject to the
fulfillment, prior to or at the Closing on the Closing Date, of each of the
following conditions:
9.1 The representations and warranties contained within
Section 4 of this Plan of Reorganization, or in any certificate or document
delivered to Acquiror pursuant to the provisions hereof, shall be true at and
as of the time of the Closing Date as though such representations and
warranties were made at and as of such time.
9.2 Acquiree and Stockholder shall have performed and
complied with all covenants, agreements, and conditions required by this Plan
of Reorganization to be performed or complied with by them prior to or at the
Closing Date; including the delivery of the stock of Acquiree being exchanged
hereunder.
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9.3 Stockholder and Acquiree shall have delivered all of the
Schedules referred to herein, and copies of the documents referred to therein,
to Acquiror, and such Schedules and documents shall have been reasonably
acceptable to Acquiror.
9.4 There shall be delivered to Acquiror a Certificate of the
Acquiree and Stockholder's President and Secretary to the effect that all of
the representations and warranties set forth within Section 4 of this Plan of
Reorganization are true and complete in all respects as of the Closing Date,
and that the Acquiree and Stockholder have complied in all material respects
with the covenants and agreements set forth in this Plan of Reorganization.
9.5 Acquiror shall have completed prior to the Closing
Date, to its satisfaction, a due diligence review of the contracts, agreements,
licenses, financial condition, results of operations, properties, assets,
liabilities, business or prospects of the Acquiree.
9.6 The execution of those Registration Procedures
substantially in form and substance similar to that attached hereto and made a
part hereof as Exhibit "D."
9.7 Stockholder shall deliver to Acquiror an Investor
Representation Letter in form and substance set forth in Schedule F, attached
hereto and made a part hereof, agreeing that the Acquiror Shares are being
acquired for investment purposes.
9.8 Acquiree and Stockholder shall execute and deliver
any and all agreements, documents or instruments of any kind whatsoever
necessary to effectuate this Plan of Reorganization and the transactions
referred to herein, contemplated hereby or requested by Acquiror, which shall
be in form and substance satisfactory to Acquiror.
10. CONDITIONS SUBSEQUENT TO CLOSING.
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Subsequent to the Closing Date, Acquiror and/or Acquiree, as
appropriate, will take the following actions or consent thereto to the
effectuation of the following transactions:
10.1 Acquiror will, as promptly as possible, prepare and file
with the Securities and Exchange Commission a Current Report on Form 8-K for
the purpose of disclosing the effectuation of the transactions within this Plan
of Reorganization.
10.2 Acquiror will take whatever actions are necessary to
amend its Certificate of Incorporation in order to: (i) change its name to
"Viragen (Europe), Ltd."; (ii) effectuate a fourteen for one reverse split of
its outstanding shares of common stock; and (iii) increase to 50,000,000 the
number of shares of common stock authorized.
10.3 Acquiror will use its best efforts to undertake the sale
of additional securities and whatever other actions are necessary to increase
its total assets and capital and surplus (in the manner provided at Paragraph
10.4 hereafter) and to make application for and resume the listing of its
outstanding common stock on The NASDAQ Stock Market(TM) Small-Cap Index.
10.4(i) Within thirty (30) days following the completion of
those matters set forth at Paragraph 10.2 above, Acquiror shall have
successfully completed the sale of Common Stock which yields net proceeds to
the Acquiror of no less than $1,200,000. The obligation to secure such net
proceeds shall be unconditionally guaranteed by the Stockholder who shall have
an additional period of fifteen (15) days in order to either: (i) arrange for
and secure proceeds from third party investors to the extent such investors
contribute net proceeds of $1,200,000 to Acquiror; or (ii) provide an infusion
of equity capital to Acquiror of a net amount of $1,200,000.
10.5. The Stockholder acknowledges that the Acquiror
presently owns securities of The Eastwind Group, Inc. ("Eastwind") and that
Eastwind has filed a Registration Statement with the SEC relating to the
distribution of such securities by the Acquiror to
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its stockholders. In recognition of this pending distribution, the Stockholder
agrees to the following: (i) to effectuate the distribution of the Eastwind
Securities to the Stockholders of Acquiror upon being advised by counsel to
Eastwind as to the effectiveness of the Registration Statement; (ii) to waive
all right, title and interest in and to the distribution of the securities of
Eastwind at such time of distribution, and (iii) to secure similar waivers from
any other individuals or entities that become stockholders of Acquiror
following the Closing Date in conjunction with the sale of securities
identified at Paragraph 10.4 herein.
10.6 For a period of two (2) years from the Closing Date, the
Stockholder will vote its Acquiror Shares for the election of a single designee
of the individuals who presently are members of Acquiror's Board of Directors
as of the date hereof (the "Designee"), to the Board of Directors of Acquiror
following the Closing Date.
10.7 The Acquiror shall within sixty (60) days following the
Closing Date, prepare and file, at its sole cost and expense, a Registration
Statement with the SEC, the purpose of which is to register the resale of any
shares of common stock (or common stock which may be acquired upon the exercise
or conversion of common stock purchase warrants, convertible preferred stock or
any other derivative securities) (in the aggregate, the "Restricted Stock")
issued by the Acquiror from November 1993 until the Closing Date in private
placement transactions that have not previously been subject to registration
with the SEC and which otherwise are not available for public sale pursuant to
Rule 144, promulgated under the Securities Act of 1933, as amended. The
Acquiror shall use its best efforts to facilitate and secure effectiveness of
such Registration Statement, as promptly as is practicable. With the exception
of the registration rights granted to Rozel International Holdings Limited, the
Acquiror shall not, without the written consent of those individuals serving as
members of its Board of Directors as of the date hereof, register with the SEC,
the public sale or resale of any further securities other than the Restricted
Stock until at least
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ninety (90) days after the effectiveness of the Registration Statement referred
to above. The Registration Statement to be filed by the Acquiror pursuant to
the terms of this Paragraph 10.7, shall adhere to and follow those registration
procedures established and set forth upon Exhibit "D," attached hereto and made
a part hereof.
10.8 Acquiror shall not make distributions or payments to
Stockholder, or any affiliates thereof, except in accordance with Paragraphs
10.8.1 below.
10.8.1 The first $2,000,000 of net equity capital
secured by Acquiree or Acquiror (including those funds available upon the
Closing Date) shall be made available and reserved exclusively for the purposes
of establishing, administering and maintaining the working capital necessary to
fund the operations of the Acquiree's project with the SNBTS under the License
and Manufacturing Agreement. These funds shall be set aside for these purposes
and shall not be utilized as a source from which any payments to Stockholder
are to be made. Net equity capital secured by Acquiree or Acquiror in excess
of $2,000,000 may be utilized for corporate purposes.
10.9 The relative interests as of the Closing Date of the
historic Acquiror stockholders (the "Historic Acquiror Stockholders") in the
common stock of the Acquiror as an aggregate percentage of six (6%) percent
shall be preserved and protected against dilution in accordance with the
following provisions. The Historic Acquiror Stockholders shall retain an
aggregate six (6%) percent interest (the "Protected Interest") in the
outstanding common stock of the Acquiror following the Closing Date and shall
be preserved and protected against further dilution or reduction of their
aggregate six (6%) percent ownership until after that period in which Acquiror
has secured net equity capital of $4,000,000 (the "Restricted Period")
following the Closing Date (including for this purpose, any net equity funding
that was available upon the Closing Date). To the extent that during the
Restricted Period the Company issues any "Securities" (as hereafter defined),
it shall in conjunction therewith immediately
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issue to the Historic Acquiror Stockholders that number of shares of common
stock that shall be equal to the product of the Protected Interest and the
aggregate number of Securities issued. For this purpose, the term "Securities"
shall include shares of common stock issued, as well as that number of shares
of common stock that may be issued upon the exercise of warrants or options or
upon the conversion of convertible preferred stock, convertible debt
instruments or any other derivative-based securities.
10.10 The parties hereto will use their best efforts to
comply with all legal requirements imposed upon them with respect to the
transactions contemplated by this Plan of Reorganization. Each party agrees to
execute and deliver any and all further agreements, documents or instruments
necessary to effectuate this Plan of Reorganization and the transactions
referred to herein, contemplated hereby or reasonably requested by the other
party. Each party hereto will use its best efforts to effectuate this Plan of
Reorganization and to complete the transactions contemplated by this Plan of
Reorganization as promptly as practicable and will promptly notify the other
part of any information, that would prevent or materially affect the
consummation of the transactions contemplated by this Plan of Reorganization,
or would indicate or constitute a breach of the terms, conditions,
representations, warranties or agreement of any of the parties to this Plan of
Reorganization.
11. REMEDIES.
11.1 In the event that any party to this Plan of
Reorganization has breached any of the terms, conditions or covenants of this
Plan of Reorganization, the consequence of which is that a Closing hereunder
does not occur, the other party shall have the option to pursue either of the
following remedies:
(i) To immediately recover liquidated damages from
the breaching party to the extent of the costs and expenses incurred by the
non-breaching party during the course of negotiation, preparation and due
diligence review relating to the
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transactions contemplated by this Plan of Reorganization, including accounting
and legal fees related thereto; or
(ii) To seek injunctive or other equitable relief
seeking to enforce any covenant or agreement made by the breaching party, which
action shall, if successful, require the payment of costs and reasonable
counsel fees by the breaching party.
11.2 In the event that any party to this Plan of
Reorganization breaches any of the terms, conditions or covenants of this Plan
of Reorganization following the Closing, the breaching party shall: (i)
indemnify and hold harmless the non-breaching party from and against any and
all demands, claims, actions or causes or action, judgments, assessments,
losses, liabilities, damages or penalties and reasonable attorneys' fees and
related disbursements incurred by the non-breaching party which arise out of,
or result from, a misrepresentation, breach of warranty, or breach of any
covenant contained in this Plan of Reorganization or in the Schedules annexed
hereto, or in any exhibit, closing certificate, Schedule or any ancillary
certificates or other documents or instruments furnished in connection with the
transactions contemplated hereby; or; (ii) at its option, the non-breaching
party may seek injunction or other equitable relief seeking to enforce any
covenant or agreement made by the breaching party, which action shall, if
successful, requires the payment of costs and reasonable counsel fees by the
breaching party.
12. NATURE AND SURVIVAL OF REPRESENTATIONS.
All representations, warranties and covenants made by any
party to this Plan of Reorganization shall survive the Closing hereunder and
the consummation of the transactions contemplated hereby for six (6) months
from the Closing Date. All of the parties hereto are executing and carrying
out the provisions of this Plan of Reorganization in reliance solely on the
representations, warranties and covenants and agreements contained in this Plan
of Reorganization or at the Closing of the transactions herein provided for and
not upon any investigation
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upon which it might have made or any representation, warranty, agreement,
promise or information, written or oral, made by the other party or any other
person other than as specifically set forth herein.
13. DOCUMENTS AT CLOSING.
At the Closing, the following transactions shall occur, all of
such transactions being deemed to occur simultaneously:
13.1 Stockholder and Acquiree will deliver, or cause to be
delivered, to Acquiror the following:
(a) stock certificates for the Acquiree Shares being
tendered hereunder, duly endorsed in blank, or accompanied by duly executed
stock powers;
(b) a certificate executed by the President and
Secretary of Acquiree and Stockholder to the effect that all of the
representations and warranties made in this Plan of Reorganization are true and
correct as of the Closing Date, the same as though originally given to Acquiror
on said date;
(c) a certificate from the appropriate authority in
Scotland and from the Secretary of State of the State of Delaware dated at or
about the Closing Date to the effect that Acquiree and Stockholder are in
corporate good standing under the laws of said jurisdictions;
(d) a certificate from the appropriate officer of
the SNBTS establishing that the License and Manufacturing Agreement remains in
full force and that no breaches or events of default have occurred thereunder;
(e) The Investment Representation Letter executed by
the Stockholder;
(f) Acknowledgement of the Registration Procedures;
and
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(g) Certified copies of resolutions by the Board of
Directors of Acquiree and Stockholder authorizing the consummation of the
transactions set forth herein.
13.2 Acquiror will deliver or cause the following documents
to be delivered to the Stockholder and Acquiree;
(a) stock certificates representing Acquiror Shares
to be issued as a part of this Plan of Reorganization;
(b) a certificate of the President and Secretary of
Acquiror to the effect that all representations and warranties of Acquiror made
under this Plan of Reorganization are reaffirmed on the Closing Date, the same
as though originally given to the Stockholder on said date;
(c) copies of resolutions by Acquiror's Board of
Directors authorizing this transaction;
(d) a certificate from the Secretary of State of
Delaware dated at or about the date of Closing that Acquiror is in good
standing under the laws of said State;
(e) such other instruments and documents as are
required to be delivered pursuant to the provisions of this Plan of
Reorganization.
14. TERMINATION.
14.1 This Plan of Reorganization may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing
Date;
(a) by mutual consent of all of the parties hereto;
(b) by any of the parties hereto;
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(i) if the Plan of Reorganization shall not
have occurred by the Closing Date unless such date is extended by the mutual
written agreement of all of the parties hereto, and in such event, only until
the Closing Date has been so extended; provided, however, that the right to
terminate this Plan of Reorganization under this Section shall not be available
to any party whose failure to fulfill any obligation under this Plan of
Reorganization has been the cause of, or resulted in, the failure of the
Closing Date to occur on or before that date; or
(ii) if any court of competent jurisdiction,
or any governmental body, regulatory or administrative agency or commission
having appropriate jurisdiction shall have issued an order, decree or filing or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Plan of Reorganization, and such order,
decree, ruling or other action shall have become final and nonappealable.
(c) Any of the parties hereto upon a breach of this
Plan of Reorganization by either of the other parties, which breach continues
for ten (10) days after written notice thereof is given to all parties, in each
case with reservation of rights against the breaching party or parties for
indemnification for resulting damages as provided elsewhere herein.
15. MISCELLANEOUS.
15.1 Notices. All notices given hereunder shall be in
writing and shall be effective if personally delivered or if sent by registered
or certified mail, postage prepaid, addressed to the appropriate party at the
following address:
If to Acquiror:
SECTOR ASSOCIATES, LTD.
401 City Avenue, Ste 725
Bala Cynwyd, PA 19004
With copies to:
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Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square
2005 Market Street, 22nd Floor
Philadelphia, PA 19103
If to Acquiree:
Viragen (Scotland) Limited
6/7 Blythswood Square
Glasgow, Scotland G24AD
With a copies to:
Dorman Jeffrey & Co., Solicitors
Attn: David Gibson, Esq.
6/7 Blythswood Square
Glasgow, Scotland G24AD
If to the Stockholder:
Viragen, Inc.
2343 West 76th Street
Hialeah, Florida 33016
With copies to:
Jim Schneider, Esquire
Atlas, Pearlman, Trop & Borkson, P.A.
New River Center
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Any party hereto may change the address to which any notice
hereunder is to be sent to it by giving notice of such change of address as
provided in this Paragraph 15.1.
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15.2 Waiver. Any failure on the part of any party hereto to
comply with any of its obligations, agreements or conditions hereunder will not
constitute a waiver, however, may be waived in writing by the party to whom
such compliance is owed.
15.3 Brokers. Other than as set forth upon Schedule 15.3,
attached hereto and made a part hereof, neither party has employed any brokers
or finders with regard to this Plan of Reorganization unless otherwise
described in writing to all parties hereto.
15.4 Expenses. The parties hereto shall each pay their
respective expenses and costs incurred or to be incurred by them in negotiating
and preparing this Plan of Reorganization and in closing and carrying out the
transactions contemplated by this Plan of Reorganization, including, without
limitation, all of their attorney's fees and accounting fees.
15.5 Headings. The section and subsection headings in this
Plan of Reorganization are inserted for convenience only and shall not affect
in any way the meaning or interpretation of this Plan of Reorganization.
15.6 Counterparts. This Plan of Reorganization may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
15.7 Facsimile Signature. This Plan of Reorganization may be
executed and accepted by facsimile signature and such signature shall be of the
same force and effect as an original signature.
15.8 Governing Law. This Plan of Reorganization shall be
governed by the laws of the State of Florida.
15.9 Binding Effect and Assigns. This Plan of Reorganization
shall be binding upon the parties hereto and inure to the benefit of the
parties, their respective heirs, administra-
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tors, executors, successors and assigns. Neither party hereto shall assign its
respective rights nor delegate its respective obligations hereunder to any
other party without the prior written consent of all other parties hereto.
15.10 Entire Agreement. This Plan of Reorganization
represents the entire agreement of the parties hereto with respect to the
transactions contemplated hereby, and shall not be amended or terminated except
by written instrument duly executed by all of the parties hereto. Any and all
previous agreements, correspondence, letters of intent or understandings
between the parties regarding the subject matter hereof are superseded in their
entirety by this Plan of Reorganization.
15.11 Severability. If any part of this Plan of
Reorganization is deemed to be unenforceable the balance of the Plan of
Reorganization shall remain in full force and effect.
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15.12 Arbitration.
(i) If a dispute,controversy or claim arises between
any of the parties to this Plan of Reorganization including without limitation
any dispute, controversy or claim that arises out of or relates to this Plan of
Reorganization or any other agreement or instrument between the parties, or the
breach, termination or invalidity of the Plan of Reorganization or any such
other agreement or instrument, and if said dispute cannot be settled through
direct discussions, the parties agree to first endeavor to settle the dispute
in an amicable manner by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules, before resorting to
arbitration; provided, that nothing contained herein shall preclude any party
from commencing arbitration if said mediation is not completed within 30 days
of such party requesting or agreeing to mediation. Thereafter, any unresolved
dispute, controversy or claim arising between the parties, shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules (the "Rules"), and judgment upon any
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Any mediation or arbitration hereunder shall be pursuant
to the applicable rules of the American Arbitration Association as set out
above except to the extent expressly provided otherwise in this Plan of
Reorganization.
(ii) The parties hereto expressly agree that any
court with jurisdiction may order the consolidation of any arbitrable
dispute,controversy or claim under this Plan of Reorganization with any related
arbitrable dispute, controversy or claim not arising under this Plan of
Reorganization, as the court may deem necessary in the interests of justice or
efficiency or on such other grounds as the court may deem appropriate.
(iii) The site of the mediation and, if necessary,
the arbitration shall be in Miami, Florida and shall take place in the officers
of the American Arbitration Association or such other place as the parties may
agree.
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(iv) The parties agree that the Federal and state
courts located in the State of Florida shall have exclusive jurisdiction over
an action brought to enforce the rights and obligations created in or arising
from this Plan of Reorganization to arbitrate, and each of the parties hereto
irrevocably submits to the jurisdiction of said courts. Notwithstanding the
above, application may be made by a party to any court of competent
jurisdiction wherever situated for enforcement of any judgment and the entry of
whatever orders are necessary for such enforcement.
(v) Process in any action arising out of or relating
to this Plan of Reorganization may be served on any party to the Plan of
Reorganization anywhere in the world by delivery in person against receipt or
by registered or certified mail, return receipt requested.
(vi) No party nor the arbitrators may disclose the
existence, content, or results of any arbitration hereunder without the prior
written consent of both parties.
(vii) The parties agree that all questions
concerning the arbitrator's jurisdiction shall be decided by the arbitrator.
(viii) All fees and expenses of the arbitration
(exclusive of filing fees for claims and counterclaims) shall be borne by the
parties equally. Each party shall bear the expense of its own counsel,
experts, witnesses, and presentation of proofs.
(ix) This agreement to arbitrate is intended to be
binding upon the signatories hereto, their principals, successors, assigns,
subsidiaries or affiliates.
(x) The arbitrator shall determine the rights and
obligations of the parties according to the substantive laws of the State of
Florida (excluding conflicts of laws principles).
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(xi) The arbitrator shall hear and determine any
preliminary issue of law asserted by a party to be dispositive of any claim, in
whole or part, in the manner of a court hearing a motion to dismiss for failure
to state a claim or for summary judgment, pursuant to such terms and procedures
as the arbitrator deems appropriate.
(xii) It is the intent of the parties that, barring
extraordinary circumstances, any arbitration shall be concluded within three
months of the date the statement of claim is received by the arbitrator.
Unless the parties otherwise agree, once commenced, hearings shall be held five
days a week, four weeks a month, with each hearing day to begin at 9:00 A.M.
and to conclude at 5:00 P.M. These time limits can be extended or altered by
an agreement by the parties or by a determination by the arbitrator that such
extension or alteration is in the interests of justice. The arbitrator shall
use his or her best efforts to issue the final award or awards within a period
of thirty days after closure of the proceedings. Failure to do so shall not be
a basis for challenging the award.
(xiii) The procedures to be followed in any
arbitration hereunder shall be as prescribed herein and in such directives that
shall be issued by the arbitrator following consultation with the parties.
Unless otherwise agreed by the parties, the procedures shall provide for the
submission of briefs by the parties the introduction of documents and the oral
testimony of witnesses, cross-examination of witnesses, oral arguments, the
closure of the proceedings and such other matters as the arbitrator may deem
appropriate. Further, the arbitrator shall regulate all matters relating to
the conduct of the arbitration not otherwise provided for in this Plan of
Reorganization or in the Rules.
(xiv) In the event a party, having been given notice
and opportunity, shall fail or shall refuse to appear or participate in an
arbitration hereunder or in any stage thereof, the proceedings shall
nevertheless be conducted to conclusion and final award. Any award rendered
under such circumstances shall be as valid and enforceable as if both parties
had appeared and participated fully at all stages.
(xv) The parties agree that discovery shall be
limited and shall be handled expeditiously. Discovery procedures available in
litigation before the courts shall not apply in an
38
<PAGE> 43
arbitration conducted pursuant to this Plan of Reorganization. However, each
party shall produce relevant and non-privileged documents or copies thereof
requested by the other parties within the time limits set and to the extent
required by order of the arbitrator. All disputes regarding discovery shall be
promptly resolved by the arbitrator.
(xvi) It is the intent of the parties that the
testimony of witnesses be subject to cross-examination. It is agreed that the
direct testimony of a witness may be submitted by sworn affidavit, provided
that such affiant be subject to cross-examination.
(xvii) Strict rules of evidence shall not apply in
an arbitration conducted pursuant to this Plan of Reorganization. The parties
may offer such evidence as they desire and the arbitrator shall accept such
evidence as the arbitrator deems relevant to the issues and accord it such
weight as the arbitrator deems appropriate.
(xviii) No witness or party may be required to waive
any privilege recognized by law.
39
<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Plan of
Reorganization the day and year first above written.
ATTEST: SECTOR ASSOCIATES, LTD.
_________________________ BY:_____________________________
ATTEST: VIRAGEN (SCOTLAND) LIMITED
_________________________ BY:_____________________________
ATTEST: VIRAGEN, INC.
_________________________ BY:_____________________________
40
<PAGE> 1
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
VIRAGEN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year
Ended
June 30,
1995 1994
------ ------
<S> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 32,137,693 18,686,751
=========== ===========
Net Loss $(3,951,839) $(1,083,346)
Deduct required dividends
on convertible
preferred stock 3,450 3,450
----------- -----------
Net loss attributable
to common stock $(3,955,289) $(1,086,796)
=========== ===========
Loss per common
share after deduction
for required dividends
on convertible preferred
stock $ (.12) $ (.06)
=========== ===========
</TABLE>
<PAGE> 1
Exhibit (21) Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage
Jurisdiction of owned by
Subsidiaries Incorporation Registrant
- ------------ ------------- ----------
<S> <C> <C>
Vira-Tech, Inc. Florida 100%
Viragen (Scotland) Ltd. (1) Scotland (UK) 100%
Viragen Technology, Inc. (2) Florida 100%
</TABLE>
(1) Incorporated January 17, 1995.
(2) Incorporated June 13, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,904,687
<SECURITIES> 0
<RECEIVABLES> 52,884
<ALLOWANCES> 0
<INVENTORY> 211,200
<CURRENT-ASSETS> 2,281,224
<PP&E> 2,544,251
<DEPRECIATION> 1,512,069
<TOTAL-ASSETS> 3,329,706
<CURRENT-LIABILITIES> 667,461
<BONDS> 856,593
<COMMON> 353,555
0
3,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,329,706
<SALES> 573,677
<TOTAL-REVENUES> 721,896
<CGS> 348,642
<TOTAL-COSTS> 4,044,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 186,220
<INTEREST-EXPENSE> 94,720
<INCOME-PRETAX> (3,951,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,951,839)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
