<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION STATEMENT NO. 33-88070
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIRAGEN, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 2830 59-2101668
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION INDUSTRIAL IDENTIFICATION NO.)
OR ORGANIZATION) CLASSIFICATION
CODE NUMBER)
2343 WEST 76TH STREET
HIALEAH, FLORIDA 33016 2343 WEST 76TH STREET
(305) 557-6000 HIALEAH, FLORIDA 33016
(ADDRESS AND TELEPHONE (ADDRESS OF PRINCIPAL PLACE
NUMBER OF PRINCIPAL OF BUSINESS OR INTENDED PRINCIPAL
EXECUTIVE OFFICES) PLACE OF BUSINESS)
GERALD SMITH
VIRAGEN, INC.
2343 WEST 76TH STREET
HIALEAH, FLORIDA 33016
(305) 557-6000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
WITH COPIES TO:
JIM SCHNEIDER, ESQ.
GAYLE COLEMAN, ESQ.
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
NEW RIVER CENTER
200 EAST LAS OLAS BOULEVARD
SUITE 1900
FORT LAUDERDALE, FLORIDA 33331
(305) 763-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
VIRAGEN, INC.
CROSS REFERENCE SHEET FOR PROSPECTUS UNDER FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Prospectus Summary; High Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page; High Risk Factors
Price
6. Dilution Not Applicable
7. Selling Security Holders Sales by Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Sales by Selling Security
Holders
9. Legal Proceedings Business
10. Directors, Executive Offi-
cers, Promoters and Control
Persons Management
11. Security Ownership of Cer-
tain Beneficial Owners and
Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters
14. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities Undertakings
15. Organization within Last
Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business - Properties
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------- ---------------------------------
<S> <C> <C>
19. Certain Relationships and Management-Certain Relationships
Related Transactions and Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities;
Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagree-
ments with Accountants on
Accounting and Financial
Disclosure Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 4
PROSPECTUS
VIRAGEN, INC.
22,703,455 SHARES OF COMMON STOCK
On August 14, 1995, an offering commenced of 22,703,455 shares of
Common Stock, par value $.01 per share ("Common Stock" or "Shares") of Viragen,
Inc. (the "Company" or "Viragen") by certain stockholders of the Company (the
"Selling Security Holders"). The Shares, to the extent not heretofore sold,
are being offered by the Selling Security Holders, if at all, on a delayed
basis, including shares previously issued upon conversion of Convertible
Debentures issued by the Company and its affiliate, Cytoferon Corp.
("Cytoferon") (collectively referred to as the "Debentures"), upon exchange of
other securities of Cytoferon, and to be issued upon conversion of the
Company's Series A 10% Convertible Cumulative Preferred Stock (the "Series A
Preferred Stock") or upon exercise of the Company's Common Stock Purchase
Warrants (the "Warrants"). An aggregate of 11,636,167 shares of Common Stock
were acquired by Selling Security Holders in separate private placements during
the Company's 1995 fiscal year at either $.40 or $.60 per share, and the
balance of the shares of Common Stock were issued or will be issued upon
conversion or exercise of the aforementioned securities at prices below the
current market price of the Common Stock of the Company. See "Sales by Selling
Security Holders" and "Description of Securities."
The Company's Common Stock is traded on a limited basis on the OTC
Bulletin Board under the symbol "VRGN," and on May 20, 1996, the closing bid
price for the Common Stock was $4.75. The Company has applied for inclusion of
its Common Stock on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), but there can be no assurances that such
securities will be accepted for inclusion in the NASDAQ System. Furthermore,
there can be no assurances that a substantial trading market for its Common
Stock will develop or be sustained in the future. At March 31, 1996, the net
tangible book value of the Company's Common Stock was approximately $0.10 per
share. Accordingly, it is likely that the purchasers in this offering will
incur an immediate and substantial dilution from the purchase price of their
shares of Common Stock. See "Price Range of Common Stock."
The Company has been advised by the Selling Security Holders that they
may sell all or a portion of the Shares offered hereby from time to time in the
over-the-counter market, in negotiated transactions, directly or through
brokers or otherwise, and that such shares will be sold at market prices
prevailing at the time of such sales or at negotiated prices. The Company will
not receive any of the proceeds from the sale of the Shares offered hereby
except upon exercise of the Warrants. In connection with such sales, the
Selling Security Holders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the Securities Act of 1933.
See "Use of Proceeds" and "Sales by Selling Security Holders."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD
NOT INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The original date of this Prospectus is August 14, 1995
This Prospectus is amended pursuant to a
Post-Effective Amendment dated June ____, 1996
<PAGE> 5
All costs, expenses and fees in connection with the registration of the
shares of Common Stock offered hereby will be borne by the Company. Brokerage
commissions, if any, directly attributable to the sale of the Shares will be
borne by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-6
and 10b-7, may apply to their sales in the market and has furnished each of the
Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of
this Prospectus in connection with any sale of securities registered hereunder.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, New York, New
York 10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard,
Los Angeles, California 90036. Copies of such material can be obtained upon
written request addressed to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information.
THE COMPANY
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
(the "Product") is a natural human leukocyte alpha interferon ("Natural
Interferon"). Natural Interferon is a protein substance that inhibits
malignant cell growth without materially interfering with normal cells.
Natural Interferon stimulates and modulates the human immune system and, in
addition, impedes the growth and propagation of various viruses. The Product
is a natural product produced from human white blood cells. Alpha
Leukoferon(TM) and Omniferon(TM) are the trade names for Viragen's Product in
injectable form. The Company's Product has not been approved by the United
States Food and Drug Administration ("FDA") or the European Union ("EU"), and
there can be no assurances that approval of the Product will be obtained at any
time in the future.
The Company intends to seek to obtain FDA and EU approvals for various
uses of its Omniferon product in the future. Such approval is expected to
require several years of clinical trials and substantial additional funding.
To date, Viragen has not distributed the Product other than for research and
pursuant to its investigatory license from the Florida Department of Health and
Rehabilitative Services ("HRS"), and until May 1993, Viragen had not actively
operated due to insufficient funds. Viragen expects to concentrate its efforts
in preparing, filing and processing its applications and obtaining approvals
for its Product from the FDA and the EU. The Company has assembled an advisory
committee consisting of scientists, medical researchers and clinicians to
assist the Company in its application to the FDA and the EU.
The Company's majority owned subsidiary, Viragen (Europe), Ltd.
("VEL"), acting through its wholly-owned subsidiary Viragen (Scotland) Ltd.
("VSL"), entered into a License and Manufacturing Agreement with The Common
Services Agency of Scotland (the "Agency") an agency acting on behalf of the
Scottish National Blood Transfusion Service ("SNBTS"). Pursuant to such
Licensing and Manufacturing Agreement, SNBTS on behalf of VSL, will manufacture
VSL's Omniferon(TM) product for exclusive distribution within the EU and
non-exclusively worldwide in return for certain royalties and preferential
access to the Product for Scottish patients at discounted prices. The Agency
has committed to manufacture the Product in sufficient scale to accommodate the
EU Clinical Trials and, subsequently, for limited commercial sales in amounts
to be agreed upon by the parties. The Agency is also expected to conduct
studies relevant to the Product and cooperate with the Company to enable it to
comply with the laws and regulations of the EU in connection with production,
client trials and distribution of the Product. See "Business."
Viragen's administrative office and manufacturing facilities are
located at 2343 West 76th Street, Hialeah, Florida 33016 (telephone no.
305/557-6000; telecopier no. 305/364-8158).
3
<PAGE> 7
THE OFFERING AND OUTSTANDING SECURITIES
<TABLE>
<S> <C>
Common Stock Outstanding at
April 30, 1996 37,262,244 shares of Common Stock
Common Stock Offered by Selling
Security Holders 22,703,455 shares of Common Stock
Common Stock issued upon conversion
or exchange of Cytoferon Securities 9,083,333 shares of Common Stock(1)
Common Stock issued upon conversion of
Viragen Debentures 666,668 shares of Common Stock
Series A Preferred Stock Outstanding at 2,650 shares of Series A Preferred
April 30, 1996 Stock(2)
Shares underlying all Common Stock Purchase
Options and Warrants Outstanding at
April 30, 1996 6,563,627 shares of Common Stock(3)
Proceeds to be received upon Exercise
of Warrants $394,588
Risk Factors Investment in these securities involves a high degree of
risk. See "High Risk Factors."
OTC Bulletin Board Symbol VRGN(4)
</TABLE>
_______________________
(1) Includes 7,271,666 shares on conversion of $2,181,500 principal amount
of Cytoferon Debentures, 444,547 shares on conversion of $133,364 of
accrued interest on such Debentures, and 1,367,120 shares received by
equity holders of Cytoferon upon termination of operations of
Cytoferon. See "Business--Recent Developments and Change of Control"
and "Management--Certain Relationships and Related Transactions."
(2) Each share of Series A Preferred Stock is convertible into 4.26 shares
of Common Stock of the Company or an aggregate of 11,289 shares of
Common Stock.
(3) Includes 748,900 shares of Common Stock underlying Warrants offered
hereby.
(4) The Company has applied for inclusion of its Common Stock on NASDAQ
(SmallCap). There can be no assurances that the Common Stock will
qualify for inclusion at any time in the future. Inclusion on NASDAQ
does not imply that an established trading market will develop or be
sustained for the Common Stock.
4
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(NOT COVERED BY AUDITOR'S REPORT)
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information
concerning the Company and is qualified by reference to the audited
consolidated financial statements and notes thereto and unaudited quarterly
financial statements prepared by the Registrant incorporated herein by
reference in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
1996 1995 1995 1994
---- ---- ---- ----
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . $305 $544 $722 $677
Net loss . . . . . . . . . . . . . . . . (3,091) (2,644) (3,952) (1,083)
Loss attributable
to common stock . . . . . . . . . . . . . (3,093) (2,647) (3,955) (1,087)
Loss per average
common share
outstanding . . . . . . . . . . . . . (.09) (.09) (.12) (.06)
Weighted average
shares outstanding . . . . . . . . . 35,813,679 30,637,957 32,137,693 18,686,751
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT MARCH 31, AT JUNE 30,
----------- ----------
1996 1995 1995 1994
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . $4,468 $2,601 $1,614 $ 795
Total Assets . . . . . . . . . . . . . . $6,679 4,071 $3,330 2,744
Long Term debt . . . . . . . . . . . . . $ 110 937 $ 857 976
Stockholders' equity . . . . . . . . . . $3,839 2,742 $1,698 546
</TABLE>
5
<PAGE> 9
HIGH RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of
risk and is highly speculative in nature. Prospective investors should
carefully consider the following risks and speculative factors, among others,
inherent in and affecting both the business of the Company and the value of the
Common Stock, including, among other matters, the following risk factors:
HISTORY OF LOSSES AND RISKS OF NEWLY DEVELOPED BUSINESS
From its inception through March 31, 1996, the Company has incurred
operating losses. Losses for the nine months ended March 31, 1996 and fiscal
year ended June 30, 1995 were $3,090,515 and $3,951,839, respectively. At
March 31, 1996, the Company had an accumulated deficit of $20,201,116, working
capital of $4,467,682 and stockholders' equity of $3,838,507. Although the
Company has begun to expand its operations and has undertaken financings for
its working capital and investing needs, there can be no assurance that the
Company will be able to obtain regulatory approvals necessary for the
distribution of its Product or be able to produce and market its Product on a
profitable basis in the future. Results of operations in the future will be
influenced by numerous factors including technological developments, regulatory
costs and impediments, increases in expenses associated with sales growth,
market acceptance of the Company's Product, the capacity of the Company to
expand and maintain the quality of its Product, competition and the ability of
the Company to control costs. There can be no assurance that revenue growth or
profitability on a quarterly or annual basis can be obtained. Additionally,
the Company will be subject to all the risks incident to a rapidly developing
business with only a limited history of active operations. Prospective
investors should consider the frequency with which relatively newly developed
and/or expanding businesses encounter unforeseen expenses, difficulties,
complications and delays, as well as other factors such as the possibility of
competition with larger companies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ADDITIONAL FINANCING REQUIRED AND POSSIBLE LACK OF AVAILABILITY OF FUNDS
Viragen will require substantial financing in the future in order to
initiate and complete the clinical trials required to obtain FDA and European
Union approvals for the Product in the treatment of various viral and
immunological diseases, such as Multiple Sclerosis ("MS"), HIV/AIDS and
Hepatitis B and C. The Company is substantially dependent upon the infusion of
capital through private placements, subsequent public financings or joint
venture/strategic alliances in order to initiate and complete the clinical
trials necessary for FDA and EU approvals. There is no assurance that such
funding will be available upon terms acceptable or feasible to the Company or
its stockholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LACK OF FDA AND EU APPROVAL; ADDITIONAL FUNDING NEEDED
The Product has not been approved by the FDA or EU for use in the
treatment of patients, and the Company may not presently distribute the Product
except pursuant to its Florida license under Florida Statute Section 499.018,
which the Company has curtailed with respect to the enrollment of new patients
as a result of actions by the HRS and the Company's decision to concentrate its
resources on obtaining FDA and EU approvals. The Company intends to seek FDA
and EU approval of the Product for use in treating certain diseases. The
Company will require additional clinical trials in order to obtain FDA and EU
approvals. The FDA and EU approval processes are unpredictable, and the
process may take several years to obtain either FDA or EU approval. There is,
however, no assurance that any FDA or EU approvals will be received at any time
in the future. Further trials will also require significant additional funding
in addition to the proceeds obtained from the
6
<PAGE> 10
financings previously undertaken. There is no assurance that such funding can
be obtained on a cost feasible basis to the Company. See
"Business--Regulation."
COMPETITION
Competition in the immunological and pharmaceutical products industry
is intense. Competitors include major pharmaceutical, chemical, energy and
food companies, some of which are already marketing genetically engineered
alpha and beta interferon products for MS, cancer and viral treatments, and
many of which are expanding into modern biotechnology. Competition is expected
to increase in the future based upon the perceived potential commercial
applications for such products. Various of Viragen's competitors have existing
programs, FDA approved and commercially marketed products or products in the
FDA clinical trial process, more experience in research, development and
clinical testing of pharmaceutical and biomedical products, and substantially
greater financial, marketing and human resources than the Company. See
"Business--Competition."
RISK OF TECHNOLOGICAL OBSOLESCENCE
The research and development of new biomedical products is
characterized by rapid technological change, which can severely alter the
production methods, cost, marketing and acceptance of biomedical products.
There is no assurance that the Company will have the resources to keep pace
with technological changes or that products developed by others will not
adversely affect the commercial feasibility of products that Viragen may
distribute. See "Business--Research and Development."
GOVERNMENT REGULATION MAY AFFECT DEVELOPMENT AND DISTRIBUTION OF PRODUCT
All pharmaceutical manufacturers are subject to extensive state and
federal rules and regulations, and are required to maintain current Good
Manufacturing Practices as promulgated under FDA guidelines. Additional rules
and regulations are imposed by the EU. These rules and regulations are
constantly changing and may serve to restrict in whole or in part the ability
of the Company to produce and distribute its Product. If Viragen were not
ultimately to achieve compliance with these rules and regulations, it would
likely have a material adverse effect on the Company's activities and delay or
preclude the development of commercially viable operations. See
"Business--Regulation."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its products may
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. In September 1993, President Clinton announced a series of
legislative and regulatory proposals aimed at reforming the health care system.
While the legislative and regulatory proposals have been tabled temporarily and
while the Company cannot predict whether any such future legislative or
regulatory proposals will be adopted, the pendency of such proposals could have
a material adverse effect on the Company's ability to raise capital. Any such
reform measures, if adopted, could adversely affect the pricing of therapeutic
products in the United States or the amount of reimbursement available from
United States governmental agencies or third party insurers and could
materially adversely affect the Company in general.
In both domestic and foreign markets, sales of the Company's Product
will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price and cost effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's Product
will be considered cost effective or that
7
<PAGE> 11
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Legislation and regulations affecting the
pricing of pharmaceuticals may change before the Company's Product is approved
for marketing. Adoption of such legislation or regulations could further limit
reimbursement for medical products and services.
RISK THAT PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT PROVIDE PROPRIETARY
PROTECTION
The Company has pending a U.S. Patent application relating to
interferon manufacturing technology and processes. Viragen intends to rely in
part on certain proprietary technology in the production of the Product. The
Company anticipates filing additional patents relating to its new technology in
the future. There can be no assurances that such proprietary technology will
enable the Company to manufacture its Product more efficiently and with greater
efficacy so as to enable Viragen to compete effectively with other
manufacturers of competitive immunological and pharmaceutical products. In
addition, there is no assurance that others may not independently develop the
same or superior technology to Viragen's technology. Furthermore, to the
extent that Viragen's production of the Product is alleged to breach a third
party's patents or proprietary technology, it could have an adverse impact on
the Company, even if the Company were ultimately determined not to have
breached such party's patents or proprietary technology. There can be no
assurance that Viragen's pending patent applications will be approved, and if
granted, whether such patents will provide substantial protection to the
Company. See "Business--Patents."
RISKS OF TECHNOLOGY TRANSFERS
One of the Company's proposed marketing strategies is to sell the
right to use Viragen's technology and manufacturing protocols to third parties
who will use them to produce the Product outside the United States. There can
be no assurance that the Company's marketing program or the efforts of any
brokers engaged to assist the Company will be commercially successful. See
"Business--Marketing."
PRODUCT LIABILITY AND LIMITATIONS OF PRODUCT LIABILITY INSURANCE
The Company may be subject to claims for personal injuries or other
damages resulting from the Product. A successful claim could have a materially
adverse effect on the Company. The Company maintains product liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate, but there can be no assurance that such insurance will be available
in the future at commercially acceptable rates or that such coverage will be
adequate for the Company's purposes.
RELIANCE ON FOREIGN THIRD PARTY MANUFACTURER MAY DISRUPT OPERATIONS
Viragen (Scotland) Ltd., a wholly-owned subsidiary of VEL, has entered
into a License and Manufacturing Agreement with The Common Services Agency of
Scotland ("SNBTS"), an agency acting on behalf of the Scottish National Blood
Transfusion Service. SNBTS will manufacture VSL's natural human interferon
product for exclusive distribution within the EU and non-exclusively worldwide.
Use of an offshore manufacturer will not provide for fixed price U.S.
denominated pricing, which could expose VSL to the risk of fluctuations in
exchange rates of foreign currencies. In addition, reliance on such foreign
manufacture is subject to all the risks of dealing with a foreign manufacturing
facility including governmental regulations, tariffs, import and export
restrictions, transportation and taxes and local health and safety regulations.
Consummation of such foreign manufacturing arrangements could lead to
disruption of the operations of the Company, product and service deficiencies,
unanticipated and fluctuating expenses and revenues and sales and marketing
dislocations that are beyond the Company's ability to control, which may have a
material adverse effect on the Company's business and operations. See
"Business."
8
<PAGE> 12
EXISTENCE OF OPTIONS AND WARRANTS; POSSIBLE DILUTION
Assuming the exercise of the Warrants and conversion of the Series A
Preferred Stock, there will still be outstanding options and warrants to
purchase up to 5,952,189 shares of Common Stock of the Company exercisable at
prices ranging from $0.30 to $1.81 per share. These options and warrants may
have certain dilutive effects because the holders will be given the opportunity
to profit from a rise in the market price of the underlying shares. The terms
on which the Company could obtain additional capital during the life of such
options and warrants may be adversely affected because the holders may be
expected to exercise them at a time when the Company might otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of such options and warrants. See
"Description of Securities."
RISK OF DEPENDENCE ON KEY PERSONNEL
The Company's day-to-day operations are managed by its Chairman of the
Board and President, Mr. Gerald Smith, its Chief Executive Officer, Robert H.
Zeiger and its Executive Vice President and Chief Financial Officer, Mr. Dennis
W. Healey. The Company has entered into employment agreements with Messrs.
Smith, Zeiger and Healey which restrict competitive activities by them during
the term of their agreements and for a two-year period thereafter. Although
the Company intends to apply for "key man" life insurance on the lives of
Messrs. Smith, Zeiger and Healey for its benefit in the amount of $1,000,000
each, the loss of their services would adversely affect the conduct of the
Company's business. The Company's future success will depend in significant
part on its ability to attract and retain additional skilled personnel in
various phases of its operations. See "Management."
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The future payment of dividends is directly
dependent upon future earnings of the Company, the capital requirements of the
Company, its financial requirements and other factors to be determined by the
Company's Board of Directors. For the foreseeable future, it is anticipated
that earnings, if any, which may be generated from the Company's operations
will be used to finance the growth of the Company, and that cash dividends will
not be paid to common stockholders. See "Dividend Policy."
IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING
Initial purchasers of the Common Stock of the Company offered hereby
will incur an immediate and substantial dilution from the purchase price of
their shares. As of March 31, 1996, the net tangible book value of the
Company's Common Stock was approximately $0.10 per share.
POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of March 31, 1996, there were 36,947,182 shares of the Company's
Common Stock outstanding which were "restricted securities" as that term is
defined by Rule 144 under the Securities Act of 1933 as amended, (the
"Securities Act"), inclusive of shares being registered pursuant to this
Registration Statement of which this Prospectus is a part. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who has held restricted
securities for a period of two years may sell a limited number of shares to the
public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount
of sales of Common Stock covered by the
9
<PAGE> 13
Registration Statement of which this Prospectus is a part, as well as such
subsequently filed registration statement, could also have a depressive effect
on the market price of the Company's Common Stock. See "Shares Eligible for
Future Sales."
USE OF PREFERRED STOCK TO RESIST TAKEOVERS; POTENTIAL ADDITIONAL DILUTION
The Company's Certificate of Incorporation authorizes 375,000 shares
of Preferred Stock, of which 2,650 shares of Series A Preferred Stock are
presently issued and outstanding. As provided in the Company's Certificate of
Incorporation, Preferred Stock may be issued by resolutions of the Company's
Board of Directors from time to time without any action of the stockholders.
Such resolutions may authorize issuance of the Preferred Stock in one or more
series and may fix and determine dividend and liquidation preferences, voting
rights, conversion privileges, redemption terms and other privileges and rights
of the shares of each authorized series. While the Company includes such
Preferred Stock in its capitalization in order to enhance its financial
flexibility, such Preferred Stock could possibly be used by the Company as a
means to preserve control by present management in the event of a potential
hostile takeover of the Company. In addition, the issuance of large blocks of
Preferred Stock could possibly have a dilutive effect with respect to existing
holders of Common Stock of the Company. See "Description of Securities."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
SECURITIES PRICES
There is currently only a limited trading market for the Common Stock
of the Company. The Common Stock of the Company trades on the OTC Bulletin
Board under the symbol "VRGN," which is a limited market and subject to
substantial restrictions and limitations in comparison to the NASDAQ System.
There can be no assurance that a substantial trading market will develop (or be
sustained, if developed) for the Common Stock upon completion of this offering,
or that purchasers will be able to resell their securities or otherwise
liquidate their investment without considerable delay, if at all. Recent
history relating to the market prices of newly public or recently listed
companies indicates that, from time to time, there may be significant
volatility in the market price of the Company's securities because of factors
unrelated, as well as related, to the Company's operating performance. There
can be no assurances that the Company's Common Stock will ever qualify for
inclusion within the NASDAQ System or that more than a limited market will ever
develop for its Common Stock. See "Price Range of Common Stock."
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY
While the Company has applied for the inclusion of its Common Stock on
the NASDAQ System, there can be no assurances that the Company will ultimately
qualify for inclusion within that system. In order for an issuer to be
included in the NASDAQ System, it is required to have total assets of at least
$4,000,000, capital and surplus of at least $2,000,000, a minimum price per
share of not less than $3.00, have publicly held shares with a market value of
at least $1,000,000 as well as certain other criteria. While the Company
currently meets these criteria there can be no assurance that the Common Stock
of the Company will otherwise qualify for inclusion on the NASDAQ System.
Until the Company's shares qualify for inclusion in the NASDAQ system, the
Company's Common Stock will be traded in the over-the-counter markets on the
OTC Bulletin Board. As a result, the Company's Common Stock is covered by a
Securities and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
10
<PAGE> 14
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's securities and
may also affect the ability of stockholders to sell their shares in the
secondary market. See "Description of Securities."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated. These quotations
reflect prices between dealers, do not include retail mark-ups, mark-downs or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
First Quarter ended 09/30/92 $ 7/26 $ 5/32
Second Quarter ended 12/31/92 13/32 1/16
Third Quarter ended 03/31/93 5/8 1/16
Fourth Quarter ended 06/30/93 1 1/4
First Quarter ended 09/30/93 $ 7/8 $ 5/16
Second Quarter ended 12/21/93 7/8 5/16
Third Quarter ended 03/31/94 27/32 5/16
Fourth Quarter ended 06/30/94 3/4 13/32
First Quarter ended 09/30/94 $1 13/16 $ 3/8
Second Quarter ended 12/31/94 1 13/16 1/2
Third Quarter ended 03/31/95 1 7/16 1/2
Fourth Quarter ended 06/30/95 1 7/16 1/8
First Quarter ended 09/30/95 1 1/16 1/4
Second Quarter ended 12/31/95 15/16 1/8
Third Quarter ended 03/31/96 4 9/16 1/8
Period ended 4/30/96 6 3/32 17/32
</TABLE>
On May 20, 1996, the closing bid price for the Common Stock was $4.75.
As of March 31, 1996, the approximate number of record holders of the
Company's Common Stock was 3,400.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
its incorporation in December 1980. Since the Company had been in the
development stage, has experienced losses since inception, and has significant
capital requirements in the future, it is not anticipated that funds will be
available for the issuance of dividends in the foreseeable future. The Company
presently intends to retain future earnings, if any, to finance the expansion
of its business and does not anticipate that any cash dividends will be paid in
the foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
The Company has 2,650 shares of 10% Series A Preferred Stock
outstanding which are listed in the "pink sheets" published by the National
Quotation Bureau, Inc. (not trading on the OTC Bulletin Board). Each share of
Series A Preferred Stock is immediately convertible into 4.26 shares of Common
Stock. Dividends on the Series A Preferred Stock are cumulative, have priority
in relation to the Common Stock and are payable in either cash or Common Stock
at the option of the Company. The Series A Preferred Stock has voting rights
only if dividends are in arrears for five annual dividends. Upon such
occurrence, the voting would be limited to the election of two directors.
Voting rights terminate upon payment of the requisite cumulative dividends.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at March 31, 1995, and as adjusted to give effect to the conversion of
the Series A Preferred Stock and the exercise of Warrants. All of the Warrants
are exercisable at exercise prices below the current market prices of the
Company's Common Stock.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Notes Payable, less current portion(1) . . . . . . . . . . . $110,034 $110,034
Stockholders' equity:
Series A Preferred Stock, $1.00 par value
per share; 375,000 shares authorized;
3,450 shares issued and outstanding;
no shares to be outstanding . . . . . . . . . . . . . . . 3,450 -0-
Common Stock, $.01 par value per share;
50,000,000 shares authorized;
36,947,182 shares issued and outstanding;
37,710,779 shares to be outstanding . . . . . . . . . . . 369,472 377,108
Additional paid-in capital . . . . . . . . . . . . . . . . . 23,972,901 24,363,303
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (20,201,116) (20,201,116)
Foreign currency translation adjustment . . . . . . . . . . (16,200) (16,200)
Notes due from officers . . . . . . . . . . . . . . . . . . . (290,000) (290,000)
------------ -----------
Total stockholders' equity . . . . . . . . . . . . . . . 3,838,507 4,233,095
------------ -----------
Notes payable and total stockholders' equity . . . . . . $ 3,948,541 $ 4,343,129
============ ===========
</TABLE>
(1) See Notes to Consolidated Financial Statements included elsewhere
herein for a description of terms of the Company's promissory notes,
long term obligations and capital lease obligations.
12
<PAGE> 16
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock for the accounts of the Selling Security Holders. There is included in
the Registration Statement of which this Prospectus is a part 480,340 shares of
Common Stock underlying warrants issued to consultants and 765,650 shares
underlying warrants issued to the placement agent and its designees in
connection with the Company's recently completed private placement. If all of
the warrants sold to consultants were exercised at $.30/.60 per share, the
Company would receive proceeds of approximately $163,452, and if the warrants
issued to the Company's placement agent and designees were exercised in their
entirety at an exercise price of $.52 per Share, the Company would receive
proceeds of approximately $398,138. Through March 31, 1996, exercise of a
portion of such warrants has resulted in the receipt of proceeds in the amount
of $135,589. Inasmuch as the Holders of all of the aforementioned Warrants
have no obligation to exercise such Warrants, the Company is not in a position
to evaluate when and if such derivative securities will ever be exercised and
the amount of proceeds that may be realized therefrom. Accordingly, the
Company is not able to allocate at this time the proceeds that may be received
from the exercise of such derivative securities, and any proceeds realized will
be utilized for working capital purposes, and the development of FDA and EU
protocols and clinical trial programs. To the extent the proceeds of such
exercise are not used immediately, they will be invested in certificates of
deposit, savings deposits, other interest bearing instruments or will be left
in the checking accounts of the Company.
SELECTED CONSOLIDATED FINANCIAL DATA
The financial data included in the following table has been selected
by the Company and has been derived from the consolidated financial statements
for the periods indicated. The following financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31, YEAR ENDED JUNE 30,
1996 1995 1995 1994
---- ---- ---- ----
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . $305 $544 $722 $677
Net loss . . . . . . . . . . . . . . (3,091) (2,644) (3,952) (1,083)
Loss attributable
to common stock . . . . . . . . . . . (3,093) (2,647) (3,955) (1,087)
Net loss per average
common share
outstanding . . . . . . . . . . . (.09) (.09) (.12) (.06)
Weighted average
shares outstanding . . . . . . . 35,813,679 30,637,957 32,137,693 18,686,751
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT MARCH 31, AT JUNE 30,
---------------- -----------------
1996 1995 1995 1994
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . $4,468 $2,601 $1,614 $ 795
Total Assets . . . . . . . . . . . . . . $6,679 4,071 $3,330 2,744
Long Term debt . . . . . . . . . . . . . $ 110 937 $ 857 976
Stockholders' equity (deficit) . . . . . $3,839 2,742 $1,698 546
</TABLE>
13
<PAGE> 17
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 and approximately $3,091,000 for the nine months ended
March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled approximately $4,468,000 at March 31, 1996,
an increase of $2,854,000 over the year end balance. This increase was
attributable primarily to the receipt during the third quarter of approximately
$5,156,000 in proceeds of VEL's private placement offerings completed in March
1996 after related expenses of $317,000.
While subject to significant limitation, the Company at March 31, 1996
has available net tax operating loss carryforwards of approximately
$17,000,000 expiring between 1996 and 2010, which may be used to offset
taxable income, if any, during those periods.
On September 20, 1995, the Company entered into an Agreement and Plan
Reorganization ("Agreement") with Sector Associates, Ltd., since renamed
Viragen (Europe), Ltd., a Delaware corporation. Under the terms of the
Agreement, the Company acquired a 94% interest in VEL in a reverse acquisition
transaction. VEL is publicly traded and had net cash assets of $800,000 at the
transaction closing date.
In March 1996, VEL completed two private placement offerings, issuing
768,000 shares of Common Stock and 216,500 Common Stock purchase Warrants
having an exercise price of $12.00 per share. These two offerings yielded net
proceeds of approximately $5,156,000 after related expenses of $317,000. The
Company intends to use these proceeds to undertake domestic and European
research and clinical trial activities including the construction of a
laboratory and manufacturing facility in Scotland.
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 of fiscal 1995, 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 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 provided 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.
14
<PAGE> 18
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 was 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. In August 1995, the Company was
shipping product with an expiration date of June 1996. Accordingly, an
additional inventory valuation adjustment stemming from product expiration was
then 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 would not impact the
marketability of the Company's then 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 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
15
<PAGE> 19
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.
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 exception of a limited study for HIV/AIDS on a
humanitarian basis. The elimination of enrollment of new patients under the
499 Program will cause the loss of revenues the Company would have been able to
generate upon enrollment of new paying patients under its 499 Program, which
revenues could have offset, in part, the significant cost of conducting
clinical trials and obtaining regulatory approvals of Omniferon(TM). Under its
agreement with the Florida HRS, upon the completion of the course of treatment
of patients then enrolled under the 499 Program in March 1996, the Company is
no longer authorized to ship any product under the 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, will provide
the Company with the funds necessary to continue its current limited level of
operations, focused on current research projects, at least through March 31,
1997.
RESULTS OF OPERATIONS
For the past several years, the Company's limited revenues have been
derived from sales of the Company's Alpha LeukoferonTM 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. In
an agreement reached with the State of Florida, the Company discontinued
enrollment of new patients in its 499 Program and all revenues under this
program ceased in March 1996.
Following the final shipments of Product under the 499 Program in
March 1996, the Company has 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.
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; $3,091,000 and $2,644,000 for the nine months ended March 31,
1996 and March 31, 1995, 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 for the nine months ended March 31, 1996 totalled $230,000 and
16
<PAGE> 20
were also derived from distribution of the Company's Alpha Leukoferon(TM)
product. Sales during the comparable period of the preceding year totalled
$455,000. These declines were due to patients previously enrolled under the
499 Program completing their course of treatment coupled with the
discontinuance of new enrollments as discussed above.
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.
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 provided for the discontinuation of
enrollment of new patients in its 499 Program (except for certain limited
enrollments approved by the Florida HRS for humanitarian purposes), the
continued participation by previously 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 then 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 preceding year and is expected
to increase as a percentage of sales revenues during fiscal 1996. Cost of
sales as a percentage of sales revenues totalled 78% nine months ended March
31, 1996 compared to 59% for the comparable period of the preceding year.
These increases are 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). 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. Research and development costs totalled $858,503 for the nine months
ended March 31, 1996 compared to $342,738 for the same period of the preceding
year. The fiscal 1996 figures reflect the receipt of a research grant of
$165,000 during the third quarter from a national healthcare company to
17
<PAGE> 21
help support the Company's HIV study conducted in Florida under Florida Statute
499. These sharp increases were attributable to expanded research efforts
associated with the Company's newly developed Natural Interferon (alpha)
product Omniferon(TM). These costs are expected to continue to significantly
increase for at least the next three quarters, as the Company continues its
process development refinement efforts and works towards regulatory approval
submissions in the EU for Omniferon(TM). The expanded research efforts are
focused on improved methods of manufacturing aimed at maintaining or improving
product quality and manufacturing efficiencies. Components of the overall
increase of approximately $516,000 for the nine months ended March 31, 1996
include the hiring of additional research personnel with salaries and related
taxes and benefits totalling approximately $295,000, of the overall increases.
Additionally, research laboratory supplies expense increased approximately
$176,000 for the nine months ended March 31, 1995 over the comparable period
of the preceding year. The increase also reflects an increase in consulting
fees, travel and equipment rentals associated with the overall increases in the
level of research activities.
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, 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.
Selling and general administrative expenses totalled $1,959,873 for
the nine months ended March 31, 1996 compared to $1,132,859 for the same period
of the preceding year. Components of this increase included $298,000 in
consulting expenses resulting from the issuance of 336,000 common stock
purchase warrants and an increase in administrative salaries with related
taxes and benefits of approximately $291,000. Additionally, the nine
months period ended March 31, 1996 reflected an increase in accounting and
legal fees of $185,000, attributable to the increase in the overall level of
administrative activity including European travel associated with the
establishment of a European production facility and related fact-finding and
marketing efforts.
Bad debt expense during fiscal 1995 increased significantly over the
prior year primarily due to four patients utilizing the Company's
Alpha-LeukoferonTM 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 had 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.
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In September 1995, the Board of Directors granted 2,935,000
non-statutory options to directors, officers and key employees of the Company
under the provisions of the 1995 Stock Option Plan. The options granted have
an exercise price of $.50 per share and are exercisable for a period of five
years. During September 1995, the Company recognized compensation expense of
$183,144 as a result of the issuances of these options.
In March 1996, the Company issued 636,000 Common Stock Purchase
Warrants, 300,000 of which were associated with the Company's Florida HIV
study, with the balance issued for financial consulting services. The Company
recognized expense resulting from these issuances of $316,300.
During the third quarter, 1,000,000 options were exercised by officers
and directors of the Company at $.30 per share pursuant to their employment and
stock option agreements. The shares underlying the options were purchased
through a bonus for the par value of the shares purchased ($.01 per share) and
a promissory note for the balance of the purchase price secured by the optioned
shares purchased. Accrued interest on the promissory notes totalled $2,114.58
at March 31, 1996.
Inflationary factors have not had a significant effect on the
Company's operations during any periods presented.
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GENERAL
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 (Europe), Ltd.
("VEL"). VEL is a majority owned publicly traded subsidiary of which Viragen
holds 94% of the outstanding Common Stock. VEL (OTC Bulletin Board Symbol:
"VERP"), owns all of the Common Stock of Viragen (Scotland)"), Limited, a
Scottish private company ("VSL"). Viragen, Vira-Tech, Viragen Technology, VEL
and VSL are hereinafter referred to collectively as the "Company," unless the
context otherwise requires.
The Company's product is a natural human leukocyte alpha 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 ("FDA") nor the European Union ("EU"), and there can be
no assurance that approval of the Product will be obtained at any time in the
future.
Viragen has been granted an investigatory license by the Florida
Department of Health and Rehabilitative Services ("HRS") under Florida Statute
499 of the Florida Drug and Cosmetic Act to conduct Investigation Study
Programs (hereinafter referred to as the "499 Program") and distribute the
Product to physicians for use in the treatment of Florida residents with
multiple sclerosis ("MS"), HIV/AIDS, AIDS-Related Complex ("ARC") and Kaposi's
Sarcoma. Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. Under its HRS investigatory license, Viragen had
been able to distribute the Product to authorized Florida physicians for use in
treating their Florida patients under approved study protocols. Presently, the
primary application for Viragen's Product is the treatment of MS.
The Company intends to seek FDA and 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.
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<PAGE> 24
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 negotiated an agreement with
the Florida HRS which provided for the elimination of the enrollment of new
patients in its 499 Program (with the exception of certain limited enrollments
approved by the Florida HRS for humanitarian purposes), the continued
participation by previously enrolled patients in the 499 Program and resolution
of all other issues. Final shipments of the Product occurred in March 1996.
The Company's majority owned subsidiary, Viragen (Europe), Ltd.,
acting through its wholly-owned subsidiary Viragen (Scotland) Ltd., entered
into a License and Manufacturing Agreement with The Common Services Agency of
Scotland (the "Agency") an agency acting on behalf of the Scottish National
Blood Transfusion Service ("SNBTS"). Pursuant to such Licensing and
Manufacturing Agreement, SNBTS on behalf of VSL, will manufacture VSL's
Omniferon(TM) product for exclusive distribution within the EU and
non-exclusively worldwide in return for certain royalties and preferential
access to the Product for Scottish patients at preferential prices. The Agency
has committed to manufacture the Product in sufficient scale to accommodate the
EU Clinical Trials and, subsequently, for limited commercial sales in amounts
to be agreed upon by the parties. The Agency is also expected to conduct
studies relevant to the Product and cooperate with the Company to enable it to
comply with the laws and regulations of the EU in connection with production,
client trials and distribution of the Product. See "Business."
While the elimination of enrollment of new patients has limited the
revenues that would have otherwise 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.
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 VSL 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.
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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 VSL entered into an Agreement and Plan of Reorganization with
Sector Associates, Ltd. ("Sector") a Delaware corporation, pursuant to which
the Company acquired approximately 94% of the outstanding capital stock of
Sector in exchange for the transfer of 100% of the capital stock of VSL into
Sector. On May 2, 1996, Sector changed its name to Viragen (Europe), Ltd. and
effective May 2, 1996 completed a 1:14 reverse split of its Common Stock. The
Company, through VEL, has undertaken certain financing transactions to
underwrite domestic and European research and clinical trial activities.
Between November 1995 and March 1996, VEL realized net proceeds of
approximately $6,000,000 from a series of private offerings. Net proceeds of
the offerings are being utilized for the acquisition of laboratory production
equipment, 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 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
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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 had
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.
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. The Company is currently providing product under the Florida
Statutes Chapter 499 for the treatment of 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 provided for
the elimination of the enrollment of new patients in its 499 Program (with the
exception of certain limited enrollments approved by the Florida HRS for
humanitarian purposes), the continued participation by previously 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 previous capital investments had allowed the Company to
reestablish its interferon production and expand its Florida Clinical studies
prior to their termination, 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 produce and market their
respective alpha interferon products for the treatment of hairy-cell leukemia,
hepatitis and Kaposi's Sarcoma and 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
Interferons 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.
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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.
APPLICATIONS 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. Published
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."
HIV/AIDS, 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.
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 had been approved for treatment of patients, who were
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. 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 exception of certain limited
enrollments approved by the Florida HRS for humanitarian purposes), the
continued participation by previously enrolled patients in the 499 Program and
the resolution of other issues.
In March, 1996, the Company received approval from the HRS under
Florida's Investigational Drug Program to conduct an investigational study in
Florida, in collaboration with Biodoron of Viragen's natural human alpha
interferon product, Alpha Leukoferon(TM) for the treatment of HIV/Aids in
hemophiliacs. In connection with such investigational study, the Company has
entered into a relationship with Quantum Health Resources, Inc., which is
providing $330,000 in financial support for the conduct of the study. Quantum
Health Resources, Inc. is a national provider of alternate site therapies and
support services for people affected by chronic disorders, including
hemophilia. It is contemplated that 90 patients will be enrolled in the study
which commenced in March 1996, pursuant to which 60 patients
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will receive Alpha Leukoferon(TM) for a minimum of six months in combination
with a comprehensive HIV treatment program.
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.
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 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.
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
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.
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
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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.
MARKETING
Florida legislation permits, on a limited and controlled basis, the
intrastate manufacture, distribution and use of certain investigational drugs,
including human leukocyte alpha interferon, 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.
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 exception of limited enrollments approved
by the Florida HRS for humanitarian purposes), the continued participation by
previously enrolled patients in the 499 Program and resolution of all other
issues.
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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
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.
In March, 1996, the Company received approval from the HRS under
Florida's Investigational Drug Program to conduct an investigational study in
Florida, in collaboration with Biodoron of Viragen's natural human alpha
interferon product, Alpha LeukoferonTM for the treatment of HIV/Aids in
hemophiliacs. In connection with such investigational study, the Company has
entered into a relationship with Quantum Health Resources, Inc., which is
providing $330,000 in financial support for the conduct of the study. Quantum
Health Resources, Inc. is a national provider of alternate site therapies and
support services for people affected by chronic disorders, including
hemophilia. It is contemplated that 90 patients will be enrolled in the study
which commenced in March 1996, pursuant to which 60 patients will receive Alpha
LeukoferonTM for a minimum of six months in combination with a comprehensive
HIV treatment program.
ROYALTY AGREEMENT
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), 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
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<PAGE> 32
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 may 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 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).
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<PAGE> 33
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 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
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
30
<PAGE> 34
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.
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 exception of certain limited enrollments
approved by the Florida HRS for humanitarian purposes), the continued
participation by previously enrolled patients in the 499 Program and resolution
of all other issues. Final shipment of the Product occurred in March 1996.
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.
In March, 1996, the Company received approval from the HRS under
Florida's Investigational Drug Program to conduct an investigational study in
Florida, in collaboration with Biodoron of Viragen's natural human alpha
interferon product, Alpha LeukoferonTM for the treatment of HIV/Aids in
hemophiliacs. In connection with such investigational study, the Company has
entered into a relationship with Quantum Health Resources, Inc., which is
providing $330,000 in financial support for the conduct of the study. Quantum
Health Resources, Inc. is a national provider of alternate site therapies and
support services for people affected by chronic disorders, including
hemophilia. It is contemplated that 90 patients will be enrolled in the study
which commenced in March 1996, pursuant to which 60 patients will receive Alpha
LeukoferonTM for a minimum of six months in combination with a comprehensive
HIV treatment program.
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.
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<PAGE> 35
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, Viragen (Scotland) Limited
("VSL"), a company incorporated under the laws of Scotland, entered into a
License and Manufacturing Agreement with the Common Services 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 laws and regulations of the EU in
connection with the production of Omniferon(TM).
VSL, VEL 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 EU 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
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<PAGE> 36
also contains provisions protecting proprietary rights of VSL and the Company
and the preclusion of certain competitive activities by the Agency.
As a result of the completion of the private placements undertaken in
March 1996, VEL received net proceeds of $5,156,000 which will be used for (i)
construction of a building and related facilities in Scotland for the
manufacture of Omniferon(TM), (ii) the purchase of equipment for use of VSL's
Scottish facilities, (iii) to pay a minimum royalty to Viragen Technology in
the amount of $2,000,000 of which $704,500 has been paid at March 31, 1996 and
(iv) for working capital purposes. VSL will require additional financing to
engage in clinical trials for the purpose of obtaining EU approval for the
Product. Clinical testing toward EU approval is an expensive process which is
expected to take several years to accomplish with no assurance that such
approval will eventually be obtained.
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 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.
EMPLOYEES
As of March 31, 1996, the Company has 24 employees, of which 11 are
Research and Development and Quality Assurance/Quality Control personnel. The
remaining 13 employees are administrative.
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
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<PAGE> 37
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 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 $665,000 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 $385,000 and $437,000 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.
The Company, through VSL, is currently conducting negotiations for a
facility lease for approximately 6,000 square feet in a newly constructed
biotechnology park located in the Edinburgh area near the Scottish National
Blood Transfusion Service. Once these negotiations are concluded, which is
expected to occur in early June 1996, the Company will complete the
construction and equipping of its research and manufacturing facility.
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
the Company has filed Motions to Dismiss and Strike and is awaiting a hearing
date on these motions. The Company intends to vigorously defend this suit and
file counterclaims against Infugen Corp and its principals and believes
Infugen's claims are without merit.
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<PAGE> 38
MANAGEMENT
The Board of Directors is responsible for the overall affairs of the
Company. The names of the nominees, their principal occupations and the year
in which they became Directors, are set forth below. Each Director is elected
for a period of one year at the Company's annual meeting of stockholders.
Executive officers are elected annually and, except to the extent governed by
employment contracts, serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
SERVED AS
OFFICER AND/OR
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- ---- --- ------------------------- --------------
<S> <C> <C> <C>
Gerald Smith 65 Chairman of the Board and President 1994
1993
Robert H. Zeiger 52 Chief Executive Officer and Director 1995
Dennis W. Healey 47 Executive Vice President, Treasurer, 1993
Chief Financial Officer, Secretary 1994
and Director 1981
1989
Charles F. Fistel 35 Executive Vice President 1994
Peter D. Fischbein 56 Director 1981
1994
Sidney Dworkin, Ph.D. 75 Director 1994
Jay M. Haft 60 Director 1994
William B. Saeger 44 Director 1994
</TABLE>
Gerald Smith, in accordance with the February 1993 Stock Agreement,
became a Director on February 5, 1993, the date of the Initial Purchase by
Cytoferon Corp. ("Cytoferon"). 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 remains as Chairman of
the Board and President of the Company. 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
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. Mr. Smith is also Chairman of the Board and President of VEL.
See Transactions with Management.
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, Inc., Coral Gables, Florida, from 1979 to 1985, as National Sales
Manager to Knoll Pharmaceutical Company, Whipping, New Jersey from 1971 to
1979. Mr. Zeiger is also Chief Executive Officer and a Director of VEL.
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<PAGE> 39
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, Inc. ("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
currently devotes approximately 75% of his business time to the affairs of the
Company, but will resign his positions with Medicore effective July 1996. Mr.
Healey is also Executive Vice President, Treasurer, Secretary and a Director of
VEL.
Charles F. Fistel was appointed Chief Executive Officer of the Company
upon his employment in July 1994, which position he relinquished to Mr. Robert
H. Zeiger in May 1995, becoming an Executive Vice President of the Company. Mr.
Fistel will be assuming the position of President of the Company's
dermatological division, once formed. Mr. Fistel, prior to joining the Company,
served for two years as an independent financial advisor to publicly-traded and
privately-held emerging growth companies. Prior thereto, between 1986 and 1992,
her served as Executive Vice President, Chief Financial Officer and a director
of Tiger Direct, Inc. (formerly BLOC Development Corporation), a Miami,
Florida-based publicly-traded computer technology development, marketing and
distribution company. From 1981 to 1986, Mr. Fistel, who is also a Certified
Public Accountant, actively practiced public accounting.
Peter D. Fischbein is an attorney who has been practicing law for
approximately 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 Viragen Research Associates Limited Partnership
("Limited Partnership") which has certain contracts with the Company. 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
Transactions with Management.
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 1993 and the present, Dr. Dworkin has
also served as Chairman of the Board of Comtrex Systems, which is engaged in
development and sale of programmable cash registers. 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, NY and Ruden, McCloskey,
Smith, Schuster & Russell, P.A., Ft. Lauderdale, FL 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.
William B. Saeger, elected a Director in August 1994, is a Certified
Public Accountant with 16 years experience in corporate strategic planning,
financial and tax planning, acquisitions, corporate capitalizations, 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.
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<PAGE> 40
On August 15, 1994, the Company expanded its Board of Directors to
include Messrs. Sidney Dworkin, Jay M. Haft and William B. Saeger. At that
time, the Company constituted its Audit, Executive and Compensation Committees.
The audit committee consists of Messrs. Healey, Dworkin and Saeger. The
Executive Committee consists of Messrs. Smith, Zeiger, Healey and Fistel. The
Compensation Committee consists of Messrs. Haft and Dworkin.
The Audit Committee oversees the Company's audit activities to protect
against improper and unsound practices and to furnish adequate protection to
all assets and records. The Audit Committee also acts as liaison to the
Company's independent certified public accountants, and conducts such work as
is necessary and receives written reports, supplemented by such oral reports as
it deems necessary, from the audit firm. The Executive Committee is empowered
to act for the full Board in intervals between Board meetings, with the
exception of certain matters which by law may not be delegated. The Executive
Committee will meet, as necessary, and all actions by the Committee are to be
reported at the next Board of Directors meeting. The Compensation Committee
provides overall guidance for officer compensation programs, including salaries
and other forms of compensation.
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<PAGE> 41
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth information concerning the compensation
and employment agreements of the Chief Executive Officers of the Company and
two other most highly compensated executive officers as of June 30, 1995.
<TABLE>
<CAPTION>
RESTRICTED ALL OTHER
---------
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP OTHER
------------
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) PAYOUTSCOMPENSATION
- ------------------ ---- ------ ----- ------------ ------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith, Chairman 1995 $ 70,000 $ 0 $ 9,317 -- 50,000(5) -- --
of Board and Pres.(1) 1994 0 7,500 0 -- -- -- --
1993 0 0 0 -- -- -- --
Robert H. Zeiger, CEO, 1995 $ 11,538 $ 0 $ 0 -- -- -- --
Director(2) 1994
1993
Dennis W. Healey, 1995 $ 75,000 $ 0 $10,167 -- 50,000(6) -- --
Exec., V.P., Treas., 1994 75,000 0 0 -- -- -- --
CFO and Director(3) 1993 7,200 0 -- -- -- -- --
Charles F. Fistel, Exec.
V.P., CEO (former)(4) 1995 $106,615 $ 0 $19,208 -- -- -- --
1994
1993
</TABLE>
(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, as modified on December 15, 1994, Mr. Smith entered
into a two-year employment agreement expiring November 18, 1995, with
the Company at no salary. The agreement provided for the sale 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.
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 issuable shares subject to
receipt of a fairness opinion which was subsequently received. In
connection with this
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<PAGE> 42
transaction, the Company agreed to assume the obligations of Mr.
Smith's employment agreement with Cytoferon through November 18, 1995.
The Company entered into a two-year employment agreement with Mr.
Smith, effective October 6, 1995, under terms similar to his current
employment agreement, modified to increase his salary by $20,000 and
$10,000 for the first and second years, respectively. See
Transactions with Management.
(2) On May 9, 1995, the Company entered into a two-year employment
agreement expiring May 1, 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, 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.
(3) 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, accordingly,
these options became exercisable. The Company entered into a two-year
employment agreement with Mr. Healey, effective October 6, 1995, under
terms similar to his current employment agreement, modified to
increase his salary by $5,000 and $5,000 for the first and second
years, respectively.
(4) 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 at an exercise price of $.30 per share, exercisable with
respect to 150,000 shares commencing June 30, 1995, through July 1,
1999, and exercisable for the remaining 150,000 shares commencing June
30, 1996, through July 1, 2000. The right to exercise such options
have accelerated based on the Company having raised certain minimums
in capital.
39
<PAGE> 43
(5) Does not include 1,600,000 options granted subsequent to June 30,
1995, pursuant to the provisions of the Plan.
(6) Does not include 500,000 options granted subsequent to June 30, 1995,
pursuant to the provisions of the Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant
of options to purchase shares of Common Stock during the fiscal year ended June
30, 1995 to each person named in the Summary Compensation Table. The exercise
price of each option is equal to the fair market value of a share of Common
Stock on the date of grant.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
GRANTED(#) FISCAL YEAR ($/SHARES) DATE
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Gerald Smith 50,000 2.5% $1.00 08/15/99
Robert H. Zeiger 100,000 50.3 0.9 05/08/99
Dennis W. Healey 50,000 2.5 1.00 08/15/99
Charles H. Fistel 300,000 15.0 0.30 07/01/99
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the
exercise of options to purchase shares of Common Stock during the fiscal year
ended June 30, 1995 to each person named in the Summary Compensation Table and
the unexercised options held as of the end of the 1995 fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1995 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
LESS EXERCISE VALUE OF UNEXERCISED
VALUE REALIZED IN THE MONEY OPTIONS AT
MARKET PRICE NUMBER OF UNEXERCISED FY-END (BASED ON FY-END
SHARES AT EXERCISE OPTIONS AT FY-END PRICE OF $0.75/SHARE)
ACQUIRED LESS PRICE ----------------- ---------------------
NAME ON EXERCISE EXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith -- -- -- 750,000 -- $270,000
Robert H. Zeiger -- -- -- -- -- --
Dennis W. Healey -- -- -- 125,000 -- 45,000
Charles F. Fistel -- -- -- -- -- --
</TABLE>
1995 AMENDED STOCK OPTION PLAN
On May 15, 1995 the Board of Directors adopted, subject to approval by
the stockholders, a stock option plan called the "1995 Amended Stock Option
Plan." On September 22, 1995, the Board of Directors amended the 1995 Stock
Option Plan (collectively the "Plan") to define certain terms and clarify the
minimum exercise price of the Non-Qualified Options, described herein, as not
less than 55% of the fair market value. The Plan was submitted to the
stockholders of the Company at the Annual Meeting of Stockholders held on
December 15, 1995, and the Stockholders ratified the Plan at that time.
The Board of Directors have determined that the Plan will work to
increase the employees', consultants' and non-employee directors' proprietary
interest in the Company and to align more closely their interests with the
interests of the Company's stockholders. The Plan will also maintain the
Company's ability to
40
<PAGE> 44
attract and retain the services of experienced and highly qualified employees
and non-employee directors. The Board of Directors believes that the Plan is
in the Company's best interests and therefore recommends adoption of the Plan
on essentially the terms and conditions as are set forth below.
Under the Plan, the Company has reserved an aggregate of 4,000,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Compensation Committee of the Board of Directors (the
"Committee") of the Company administers the Plan including, without limitation,
the selection of the persons who will be granted Plan Options under the Plan,
the type of Plan Options to be granted, the number of shares subject to each
Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying
as incentive stock options ("Incentive Options") under Section 422 of the
Internal Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible
person to pay the exercise price of the Plan Option with shares of Common Stock
owned by the eligible person and receive a new Plan Option to purchase shares
of Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant,
but the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of
such fair market value as determined on the date of the grant. The term of
each Plan Option and the manner in which it may be exercised is determined by
the Board of the Directors or the Committee, provided that no Plan Option may
be exercisable more than 10 years after the date of its grant and, in the case
of an Incentive Option granted to an eligible employee owning more than 10% of
the Company's Common Stock, no more than five years after the date of the
grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and
its subsidiaries are eligible to receive Non-Qualified Options under the Plan.
Only officers, directors and employees of the Company who are employed by the
Company or by any subsidiary thereof are eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment
is terminated for any reason, other than his death or disability or termination
for cause, or if an optionee is not an employee of the Company but is a member
of the Company's Board of Directors and his service as a director is terminated
for any reason, other than death or disability, the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date or
30 days following the date of termination. If the optionee dies during the
term of his employment, the Plan Option granted to him shall lapse to the
extent unexercised on the earlier of the expiration date of the Plan Option or
the date one year following the date of the optionee's death. If the optionee
is permanently and totally disabled within the meaning of Section 22(c)(3) of
the Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
41
<PAGE> 45
The Board of Directors or Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i)
increases the total number of shares subject to the Plan or changes the minimum
purchase price therefor (except in either case in the event of adjustments due
to changes in the Company's capitalization), (ii) affects outstanding Plan
Options or any exercise right thereunder, (iii) extends the term of any Plan
Option beyond ten years, or (iv) extends the termination date of the Plan.
Unless the Plan shall theretofore have been suspended or terminated by the
Board of Directors, the Plan shall terminate on May 15, 2005. Any such
termination of the Plan shall not affect the validity of any Plan Options
previously granted thereunder.
ADDITIONAL STOCK OPTIONS
In June 1995, the Company issued 33,000 Incentive Stock Options to
non-executive employees under 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.
On October 6, 1995, the Board of Directors awarded options to purchase
2,835,000 shares of Common Stock to the officers and directors of the Company
exercisable of $0.50 per share at any time on or prior to October 6, 2000. The
options were granted to the following individuals: Gerald Smith (1,600,000),
Robert H. Zeiger (100,000), Dennis W. Healey (500,000), Charles F. Fistel
(110,000), Peter D. Fischbein (225,000), Sidney Dworkin (100,000), Jay W. Haft
(100,000) and William B. Saeger (100,000). In addition, between October 1995
and February 1996, the Company awarded options to purchase up to 151,000 shares
of Common Stock to other employees of the Company, which options are
exercisable at prices ranging from $0.50 to $1.81 per share during the
five-year term of the options.
TRANSACTIONS WITH MANAGEMENT
Gerald Smith, Chairman of the Board of Directors, President and
Director of the Company, is the sole stockholder 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. 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 a bonus for
the 1995 fiscal year, following unanimous approval of the independent members
of the Board of Directors.
42
<PAGE> 46
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, Seymour Friend resigned as director. Mr. Friend is an officer and
director of Medicore. In May 1993, Cytoferon moved its offices to the
Company's facilities in Hialeah, Florida. In November 1993, the Company
entered into the Additional Stock Purchase Agreement with Cytoferon and
thereafter, issued 1,333,333 shares of common stock to Cytoferon for an
additional investment of $400,000.
In connection with Cytoferon's investments, the Company entered into
a Marketing and Management Services Agreement ("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 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.
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
43
<PAGE> 47
Fundamental Management Corp. and Hedge Fund Management, which are investment
funds managed by William B. Saeger, a Director of the Company.
On December 8, 1995, the Company consummated an Agreement and Plan of
Reorganization with Sector Associates, Ltd. (the former name for Viragen
(Europe), Ltd.) pursuant to which VEL acquired 100% of the outstanding capital
stock of Viragen (Scotland) Ltd. and in exchange for which Viragen received
newly issued shares of convertible securities of VEL which represented
approximately 94% of the issued and outstanding capital stock of VEL. Prior
thereto, on July 12, 1995, Viragen Technology, Inc., a wholly-owned subsidiary
of the Company, entered into a License Agreement with VSL pursuant to which VSL
obtained certain exclusive rights applicable to the EU countries and
non-exclusive rights throughout the world (except within the United States and
its territories) to engage in the research, development and manufacture of
certain proprietary products and technologies relating to the therapeutic
application of human leukocyte interferon. The term of the license is for 15
years, which is automatically renewed for successive 15-year periods. At the
present time, the Company maintains a 74% capital stock interest in VEL, which
in turn owns all of the capital stock of VSL. Under the terms of the License
Agreement, VEL is obligated to pay a minimum royalty to VTI of $2,000,000 and
through April 30, 1996, VEL had paid royalties of $822,500 to VTI.
Messrs. Gerald Smith, Robert Zeiger and Dennis W. Healey, who are
principal executive officers with the Company, also serve as the principal
executive officers of VEL. While none of these individuals have received any
salary or related compensation from VEL or VSL, commencing July 1, 1996, Mr.
Dennis Healey, who is serving as VEL's Executive Vice President, Treasurer and
Secretary, will receive an annual salary of $85,000 commencing in July 1996.
In addition, in November 1995, VSL issued options to purchase 100,000 shares of
each of its Common Stock to Messrs. Smith, Zeiger and Healey, which following
the consummation of the Sector reorganization agreement were converted into
options to purchase and aggregate of 300,000 shares of Common Stock of VEL
exercisable at $.001 per share. All of such options were exercised at January,
1996.
CLINICAL ADVISORY COMMITTEE
The Company formed a Clinical Advisory Committee in February 1995
comprised of scientists, medical researchers and clinicians who have expertise
primarily in areas of relevance to the Company's research and development
activities. All of the members of the Clinical Advisory Committee participated
in a full day conference and program to evaluate procedures and to recommend a
course of action for obtaining FDA and EU approvals of the Company's Natural
Interferon product, which program was held in February immediately following
the organization of the Clinical Advisory Committee. The Clinical Advisory
Committee is expected to assist the Company in developing the medical,
scientific and clinical aspects of formal Multiple Sclerosis clinical protocols
and trials for its investigational, natural human interferon-alpha product.
The Company views this as its initial step towards seeking FDA and EU approvals
of its Product.
KENNETH JOHNSON, M.D., who serves as Chairman of the Clinical Advisory
Committee, is Professor and Chairman of the Department of Neurology for the
University of Maryland School of Medicine. Among previous appointments, Dr.
Johnson has been Professor of Neurology at the University of California and
Associate Professor at Case Western Reserve University. Dr. Johnson is listed
in the publication "Best Doctors in America". He is currently on the Editorial
Board for the Archives of Neurology and the Journal of Neuroimmunology. Dr.
Johnson is an Ad Hoc reviewer for various medical journals including,
Neurology, Annals of Neurology, Annals of Internal Medicine, New England
Journal of Medicine, the American Journal of Virology as well as for other
publications. Dr. Johnson has lectured extensively on the subject of
Interferon therapy in Multiple Sclerosis as well as on Copolymer-I and Beta
Interferon. Dr. Johnson was a co-author in the Landmark 1983 medical article
on "New Diagnostic Criteria for Multiple Sclerosis"
44
<PAGE> 48
which became the seminal source for diagnostic typing within Multiple
Sclerosis. In addition, Dr. Johnson has published in excess of twenty
articles regarding the use of Interferon in Multiple Sclerosis. Dr. Johnson
has also received research support from Schering Plough relative to a 1982-1985
trial of Alpha Interferon, from the Kroc Foundation and from Sandoz
Pharmaceutical for 1981-1985 study of cyclosporine therapy, from the Triton
Viro Science Corporation for the study of Beta Interferon and from the National
Multiple Sclerosis Society for the study of Copolymer-I.
JEFFREY A. COHEN, M.D., is currently the Director of the Experimental
Therapeutics Program at the Mellen Center for Multiple Sclerosis Treatment and
Research for the Cleveland Clinic Foundation. Dr. Cohen is also presently a
member of the staff of the Department of Neurology of the Cleveland Clinic. He
is currently a reviewer for ten Neurology Journals, including Annals of
Neurology, Archives of Neurology and Neurology. Dr. Cohen has been a
consultant for the R.W. Johnson Pharmaceutical Research Institute, and Ortho
Pharmaceutical Corporation and participated in the standardization of the
clinical rating scales for the Cladribine clinical trial and has been a
participant in the Copolomer-1 studies. Dr. Cohen has been a recipient of
grants for various clinical studies including the Tizanidine Study. Dr. Cohen
is a frequent contributor to various publications on the subject of
Neurovirology.
GEORGE W. ELLISON, M.D., is currently Professor In-residence of
Neurology at the University of California, Los Angeles. Prior thereto, Dr.
Ellison was Adjunct Professor of Neurology at the University of California, Los
Angeles. Dr. Ellison has served since 1971 as a director of the Multiple
Sclerosis Research Clinic and Treatment Center at the Reed Neurological
Research Center at the University of California, Los Angeles. Dr. Ellison
also has served through hospital appointments and teaching activities at
various medical institutions and hospitals and has functioned as a consultant
to various professional societies and governmental agencies. Dr. Ellison has
also been a frequent participant in various lecture programs, has published
extensively in the area of Neurobiology and the treatment of Multiple Sclerosis
and has been the recipient of several research grants in the field.
ROBERT HERNDON, M.D., was a full Professor of Neurology at the Oregon
Health Sciences University and the Chairman of the Combined Neurology Services
Department at the Legacy Health System which is the combined departments of
Neurology, Neurosurgery, Psychiatry, and Rehabilitation at the University of
Oregon in Portland. Prior thereto, Dr. Herndon was full professor at the
University of Rochester, an Associate Professor at John Hopkins Medical School
and Chief of the Neurology Service at the Veteran's Administration in Palo
Alto, California. Dr. Herndon is a Board Member of the Portland Chapter of
the National Multiple Sclerosis Society and is on the Editorial Board of the
Annals of Neurology, Neurology and the Journal of Neuropathology, and
Experimental Neurology. In addition, Dr. Herndon has been extensively
involved with the National Multiple Sclerosis Society and was a co-investigator
for the Beta Interferon trial conducted on behalf of Biogenic, Inc. Dr.
Herndon has published extensively on research issues in Vironeurologic diseases
and has also published on the immunopathologic aspects of Multiple Sclerosis.
Specifically in the clinical area, Dr. Herndon was the third author on the
Jacobs study on intrathecal administration of Human Fibroblast Interferon. He
is also published on MRI imagining in the treatment of Multiple Sclerosis and
is the first of two authors on the cerebrospinal fluid. Dr. Herndon has also
participated in various clinical trials including the DATATOP trial in
Parkinson's Diseases, and Cyclophosphamide Pulse Therapy trial in Multiple
Sclerosis, and most recently was a member of the Optic Neuritis Study Group
which presented a number of articles in the New England Journal of Medicine
regarding the relationship between Multiple Sclerosis and Optic Neuritis.
WILLIAM SHEREMATA, M.D., is currently Associate Professor of Neurology
and Immunology at the University of Miami, and prior thereto was Assistant
Professor of
45
<PAGE> 49
Neurology at McGill University in Montreal. Dr. Sheremata is an Ad Hoc
reviewer for Neurology, New England Journal of Medicine, Archives of Neurology
and Archives of Opthalmology. He is an active participant through counsel
membership in organizations involved with Multiple Sclerosis including the
National Multiple Sclerosis Society, and has received various grants in
connection with the treatment and evaluation of Multiple Sclerosis. Dr.
Sheremata has been an active participant in various lectureship programs and
has published extensively in the area of Multiple Sclerosis and Neurology.
JERRY WOLINSKY, M.D., is a full professor of Neurology at the
University of Texas, and at the Houston Health Science Center, School of
Medicine. Dr. Wolinsky has held appointments at the University of California
in San Francisco and from John Hopkins University. Previously, Dr. Wolinsky
worked for Carter Wallace between 1991 and 1992 and Elan Pharmaceuticals from
1992 to the present. Dr. Wolinsky is presently on the Medical Advisory Board
for Multiple Sclerosis for Sandoz Pharmaceuticals and is listed in the
publication "Best Doctors in America". Dr. Wolinsky has been a participant on
the Executive Board of the National Multiple Sclerosis Society and is on the
Editorial Board for the Annals of Neurology and Critical Reviews in Clinical
Neurobiology. He is an Ad Hoc reviewer for most of the neurologic journals as
well as for the New England Journal of Medicine. Dr. Wolinsky has been a
participant in various studies for which grants have been awarded and has been
published extensively in the area of immunovirology. Dr. Wolinsky has also
worked for Sandoz Pharmaceuticals as a participant in their cyclosporine
studies and has published extensively on the Herpes Simplex Virus.
Each member of the Clinical Advisory Committee has entered into an
agreement with the Company which requires the member to maintain the
confidentiality of the Company's trade secrets and other proprietary data
derived by the member during the course of his relationship with the Company.
The agreements also provide that all discoveries and trade secrets conceived
and developed by such members in conjunction with their services to the Company
will become the proprietary property of the Company. The Company expects to
structure compensation arrangements with each of the members, based on the
level of their involvement with the Company, which may include cash payments
and/or a combination of securities.
Since the date of the initial organization of the Clinical Advisory
Committee, Dr. Johnson has been active in advising the Company as to
procedures for the preparation of clinical trials and Dr. Sheremata has
continued to advise the Company on clinical aspects of its 499 Program. As
Chairman of the Clinical Advisory Committee, Dr. Johnson is expected to assign
to the members in forthcoming months various responsibilities relative to
developing the Company's Multiple Sclerosis clinical protocols and trials.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned at April 30, 1996, (i) by each person
who is known by the Company to own beneficially or exercise voting or
dispositive control over 5% or more 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 60 days. At April
30, 1996, there were 37,262,244 shares of Common Stock of the Company
outstanding.
46
<PAGE> 50
<TABLE>
<CAPTION>
AMOUNT
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------- ------------ --------
<S> <C> <C>
Gerald Smith 2,400,000(3) 6.3%
Robert H. Zeiger 1,050,000(4) 2.7
Dennis W. Healey 960,000(5) 2.5
Peter D. Fischbein 400,000(6) 1.1
Sidney Dworkin, Ph.D. 325,244(7) 0.9
Jay M. Haft 212,744(8) 0.6
William B. Saeger 1,919,855(9) 5.1
Officers & Directors (as a Group 8 persons) 7,934,098 19.5%
</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.
(2) Based on 37,262,244 shares of Common Stock outstanding as of April 30,
1996. Exclusive of (i) 14,697 shares of Common Stock reserved for
issuance pursuant to conversion of 2,650 outstanding shares of
Preferred Stock each convertible into 4.26 shares of Common Stock; and
(ii) 6,563,627 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) 750,000 shares owned directly by Mr. Smith;
(ii) 50,000 options exercisable at $1.00 per share granted to all
Directors in August 1994; and (iii) 1,600,000 options exercisable at
$.50 per share granted in October 1995 pursuant to the provisions of
the Plan.
(4) Mr. Zeiger is Chief Executive Officer, Chief Operating Officer and a
Director of the Company. Includes (i) 1,000,000 Common Stock purchase
options exercisable at $.96 per share pursuant to Mr. Zeiger's
Employment Agreement; and (ii) 50,000 options exercisable at $.50 per
share granted in October 1995 pursuant to the provisions of the Plan.
(5) Mr. Healey is Executive Vice President, Treasurer, Chief Financial
Officer, Secretary and a Director of the Company. Includes (i)
410,000 shares held in Mr. Healey's name; (ii) 50,000 options
exercisable at $1.00 per share granted to all Directors in August
1994; and (iii) 500,000 options exercisable at $.50 per share granted
in October 1995 pursuant to the provisions of the Plan.
(6) Mr. Fischbein is a Director of the Company. Includes (i) 125,000
shares held in Mr. Fischbein's name; (ii) 50,000 options exercisable
at $1.00 per share granted to all Directors in August 1994; and (iii)
225,000 options exercisable at $.50 per share granted in October 1995
pursuant to the provisions of the Plan.
(7) Mr. Dworkin is a Director of the Company. Includes (i) 175,244 shares
owned directly by Mr. Dworkin and his wife; (ii) 50,000 options
exercisable at $1.00 per share granted to all Directors in August
1994; and (iii) 100,000 options exercisable at $.50 per share granted
in October 1995 pursuant to the provisions of the Plan.
(8) Mr. Haft is a Director of the Company. Includes (i) 62,744 shares
owned directly by Mr. Haft; (ii) 50,000 options exercisable at $1.00
per share granted to all Directors in August 1994; and (iii) 100,000
options exercis-
47
<PAGE> 51
able at $.50 per share granted in October 1995 pursuant to the
provisions of the Plan.
(9) Mr. Saeger is a Director of the Company. Includes (i) 99,100 shares
owned directly by Mr. Saeger; (ii) 1,670,775 shares held by
Fundamental Management Corp. and Hedge Fund Management. Mr. Saeger
holds a controlling position as Fund Manager of the Fundamental Fund
Group, holder of these shares and is considered a beneficial owner;
(iii) 50,000 options exercisable at $1.00 per share granted to all
Directors in August 1994; and (iv) 100,000 options exercisable at $.50
per share granted in October 1995, pursuant to the provisions of the
Plan.
SALES BY SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security
Holder, the amount of shares of Common Stock held directly or indirectly by
each holder on January 31, 1995, the amount of shares of Common Stock to be
offered by each such holder, the amount of Common Stock to be owned by each
such holder following sale of such shares of Common Stock and the percentage of
shares of Common Stock to be owned by each such holder following completion of
such offering. The number of shares of Common Stock have not been adjusted to
reflect shares sold by such Selling Security Holder subsequent to August 14,
1995, and nor is the Company aware as to the number of shares of Common Stock
sold or retained by the Selling Security Holders. Various of the Selling
Security Holders may be able to avail themselves of Rule 144 under the Act in
order to dispose of their shares inasmuch as they will have satisfied the
requisite holding period under Rule 144.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES TO TO BE
NUMBER OF TO BE BE OWNED OWNED AFTER
NAME OF SELLING SECURITY HOLDER SHARES OWNED OFFERED AFTER OFFERING OFFERING
- ---------------------------------------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Tom Payne..................................... 848,997 848,997 0 *
Northlea Partners............................. 813,846 813,846 0 *
Broad & Cassel, PA............................ 523,548 523,548 0 *
Penfield Partners............................. 500,000 500,000 0 *
Harry Schwartz................................ 425,749 425,749 0 *
Laboratorios Andromaco........................ 355,845 355,845 0 *
Feron, Inc.................................... 355,845 355,845 0 *
MDA Financial, Inc............................ 348,756 348,756 0 *
Fundamental Growth Partners, Ltd.............. 344,589 344,589 0 *
Fundamental Resources, Ltd.................... 344,589 344,589 0 *
Hedge Fund Partners, Ltd. .................... 344,589 344,589 0 *
Eugene DeBlasio............................... 338,333 338,333 0 *
The Jaymee Company............................ 325,127 325,127 0 *
Laidlaw Equities, Inc......................... 313,567 313,567 0 *
W. Richard Lueck.............................. 305,903 305,903 0 *
Charles F. Fistel............................. 261,255 261,255 0 *
Moty Hermon................................... 260,584 260,584 0 *
Susan Kaufman................................. 258,750 258,750 0 *
Avi & Irma Samuel, JTWROS..................... 250,000 250,000 0 *
Frederick Adler............................... 250,000 250,000 0 *
Katheryn Eckstein............................. 250,000 250,000 0 *
Peters Securities............................. 250,000 250,000 0 *
Roger D. Benson............................... 250,000 250,000 0 *
Richard M. Lilly/RM Lilly Trust............... 228,061 228,061 0 *
Jay Haft...................................... 220,744 220,744 0 *
Jaswant & Debra Pannu......................... 211,255 211,255 0 *
Wisdom Tree Associates LP..................... 208,333 208,333 0 *
Marvin Kogod.................................. 191,906 191,906 0 *
Rueben Peters................................. 180,310 180,310 0 *
Avtar Sandhu.................................. 177,922 177,922 0 *
Martin Kartagener............................. 177,922 177,922 0 *
Charles Evans................................. 175,355 175,355 0 *
James Warner and Keelin Hayden................ 173,769 173,769 0 *
Melvin Gershman............................... 168,811 168,811 0 *
Fundamental Associates, Ltd. ................. 166,667 166,667 0 *
Uri Elias..................................... 166,667 166,667 0 *
Wellington Hill Financial, Inc. .............. 166,667 166,667 0 *
Felix and Joyce Campos........................ 159,005 159,005 0 *
Arthur Gottman................................ 156,831 156,831 0 *
Kenneth M. Reichle, Jr. ...................... 150,239 150,239 0 *
Irving Davies................................. 150,122 150,122 0 *
Eugene & Nazeli DeBlasio, JTWROS.............. 150,000 150,000 0 *
Herbert F. Holin.............................. 150,000 150,000 0 *
Robert M. Rosin............................... 146,072 146,072 0 *
Joel Friedman................................. 133,750 133,750 0 *
Robert W. Hill/RW Hill Trust.................. 133,333 133,333 0 *
Aaron Priest.................................. 125,000 125,000 0 *
Edward R. Falkner Profit Sharing Trust........ 125,000 125,000 0 *
Intergalactic Growth Fund, Inc. .............. 125,000 125,000 0 *
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES TO TO BE
NUMBER OF TO BE BE OWNED OWNED AFTER
NAME OF SELLING SECURITY HOLDER SHARES OWNED OFFERED AFTER OFFERING OFFERING
- ---------------------------------------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
LEF Investments, Inc. ........................ 125,000 125,000 0 *
R & J Trust DTD: 7/1/93....................... 125,000 125,000 0 *
Sidelmar...................................... 125,000 125,000 0 *
Uzi Zucker.................................... 125,000 125,000 0 *
Vincent R. Keating............................ 125,000 125,000 0 *
Wesley Wood................................... 125,000 125,000 0 *
Leonard Berke................................. 112,736 112,736 0 *
Tina D. and Richard M. Lilly.................. 112,431 112,431 0 *
Walter Smith & Kathleen King JTWROS........... 110,586 110,586 0 *
Gerald Richter................................ 106,282 106,282 0 *
Barry Shemaria................................ 104,167 104,167 0 *
Rozel International Holdings, Ltd............. 104,167 104,167 0 *
Steven Zenker................................. 102,500 102,500 0 *
Oscar Zimmerman............................... 101,875 101,875 0 *
Gary Waxman IRA............................... 100,000 100,000 0 *
James & Janet Jordan JTWROS................... 100,000 100,000 0 *
Kevin J. Wiltz................................ 100,000 100,000 0 *
Eugene Mascarenhas............................ 96,169 96,169 0 *
Eric & Florence Stein, JTWROS................. 93,333 93,333 0 *
Hilaire & Sandra Fernandez.................... 88,961 88,961 0 *
Ritchie Jacobs................................ 88,961 88,961 0 *
Edward Falkner................................ 87,855 87,855 0 *
Michael & Martha Bushey, JTWROS............... 87,816 87,816 0 *
Edward Rosenthal.............................. 87,739 87,739 0 *
Lee Hartzmark................................. 87,739 87,739 0 *
Dorris R. Dworkin............................. 87,622 87,622 0 *
Sidney Dworkin................................ 87,622 87,622 0 *
Phyllis Froimson.............................. 87,622 87,622 0 *
James Shoke................................... 87,428 87,428 0 *
Tina Lilly.................................... 84,347 84,347 0 *
Diamondback, Ltd.............................. 83,334 83,334 0 *
Dale R. Warren................................ 83,333 83,333 0 *
Donald E. Kaplan.............................. 83,333 83,333 0 *
Gary & Carolyn Bodzin, TITE................... 83,333 83,333 0 *
George Gayle Darville......................... 83,333 83,333 0 *
Heinz Gisin................................... 83,333 83,333 0 *
Mark S. Block................................. 83,333 83,333 0 *
Nell A. Ramo.................................. 83,333 83,333 0 *
Radix Associates.............................. 83,333 83,333 0 *
Ronald C. Smith............................... 83,333 83,333 0 *
Sandra & Jose Yglesias, JTWROS................ 83,333 83,333 0 *
Willoughby Holin and Rentner PSP.............. 83,333 83,333 0 *
Amtech Services Defined Benefit Plan.......... 81,250 81,250 0 *
Jerome Treisman............................... 78,668 78,668 0 *
Gilbert & Cristi Shapiro, JTWROS.............. 77,814 77,814 0 *
Raymond & Margaret McKnight, JTWROS........... 77,814 77,814 0 *
Hymie Akst.................................... 75,236 75,236 0 *
Suzanne Schiller.............................. 75,000 75,000 0 *
Jeffrey & Martha Pearl........................ 71,753 71,753 0 *
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES TO TO BE
NUMBER OF TO BE BE OWNED OWNED AFTER
NAME OF SELLING SECURITY HOLDER SHARES OWNED OFFERED AFTER OFFERING OFFERING
- ---------------------------------------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Christopher Rosman............................ 70,734 70,734 0 *
David Nuelle.................................. 70,734 70,734 0 *
Robert Peters................................. 70,734 70,734 0 *
Steven Helms.................................. 70,719 70,719 0 *
Ray A. Eckstein............................... 62,847 62,847 0 *
Elizabeth A. Krause........................... 62,551 62,551 0 *
1520 Family Partners Ltd...................... 62,500 62,500 0 *
Adam L. Henick................................ 62,500 62,500 0 *
Anthony C. & Marilyn Dalessio, JTWROS......... 62,500 62,500 0 *
David T. Atkins IRA Plan #2................... 62,500 62,500 0 *
G.R.P. Industries Inc. ....................... 62,500 62,500 0 *
Glen Lebowitz................................. 62,500 62,500 0 *
H. James Catlin, Jr........................... 62,500 62,500 0 *
James A. Schoke, ADMIN........................ 62,500 62,500 0 *
James Blanchard............................... 62,500 62,500 0 *
Joan F. Forshew............................... 62,500 62,500 0 *
Josef & Shelley Patadis, JTWROS............... 62,500 62,500 0 *
Lawrence W. Mullman........................... 62,500 62,500 0 *
Michael E. & Martha L. Bushey, JTWROS......... 62,500 62,500 0 *
Michael G. Lucci -- Revocable Living Trust.... 62,500 62,500 0 *
Michael Lilly................................. 62,500 62,500 0 *
Miller Advisory Corp. P/P/T................... 62,500 62,500 0 *
Nannette Wasserman............................ 62,500 62,500 0 *
Robert G. Gottesman........................... 62,500 62,500 0 *
Ronald G. & Ellen Caravello, JTWROS........... 62,500 62,500 0 *
Sallie Felzen................................. 62,500 62,500 0 *
Sidelman, A Partnership....................... 62,500 62,500 0 *
Victor J. Scaravilli.......................... 62,500 62,500 0 *
John & Vivian Scarmadella, JTWROS............. 60,000 60,000 0 *
Westin Investors PSP.......................... 60,000 60,000 0 *
Garry Friedberg............................... 57,307 57,307 0 *
Ruth S. Russ.................................. 53,750 53,750 0 *
Manuel Iribar................................. 53,377 53,377 0 *
Dacia Marie Lueck............................. 52,638 52,638 0 *
Tiara Lynn Lueck.............................. 52,638 52,638 0 *
Beverly Segal................................. 52,550 52,550 0 *
Roger H. Willoughby........................... 52,083 52,083 0 *
Francine Rodin................................ 50,000 50,000 0 *
Frank Merklein................................ 50,000 50,000 0 *
Hermina Rosenberg............................. 50,000 50,000 0 *
Louise Bassano................................ 50,000 50,000 0 *
Michael W. Pure............................... 50,000 50,000 0 *
Muriel Gottesman.............................. 50,000 50,000 0 *
Phillip J. Schiller........................... 50,000 50,000 0 *
Than M. Jain.................................. 50,000 50,000 0 *
Vinod & Manju Joshi, JTWROS................... 50,000 50,000 0 *
James D. & Judith A. Rentner, JTWROS.......... 47,792 47,792 0 *
Beatrice Murphy & Kathy Griffin JTWROS........ 45,842 45,842 0 *
Harvey Polly.................................. 43,801 43,801 0 *
</TABLE>
50
<PAGE> 54
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES TO TO BE
NUMBER OF TO BE BE OWNED OWNED AFTER
NAME OF SELLING SECURITY HOLDER SHARES OWNED OFFERED AFTER OFFERING OFFERING
- ---------------------------------------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Ramchandra & Rashmi Jakhotias, JTWROS......... 43,750 43,750 0 *
Cabell & Joyce Payne, JTWROS.................. 41,667 41,667 0 *
Dean Cundey, Trustee.......................... 41,667 41,667 0 *
Donald Lipsy S................................ 41,667 41,667 0 *
Gale K. Sostek................................ 41,667 41,667 0 *
Howard & Jill Schwartz, TITE.................. 41,667 41,667 0 *
Jose Luis Ferriz.............................. 41,667 41,667 0 *
Nagia Elias................................... 41,667 41,667 0 *
Patrick & Dawn Kearney Trustees............... 41,667 41,667 0 *
Larry Griffin................................. 41,666 41,666 0 *
Lawrence Hurwitz, MD Trustee.................. 41,666 41,666 0 *
Dolores Hartzmark............................. 37,500 37,500 0 *
Hans Pojer.................................... 36,324 36,324 0 *
Rolando & Maria Del Rio....................... 35,584 35,584 0 *
Kathy Griffin................................. 35,176 35,176 0 *
David & Adele Hast, JTWROS.................... 35,000 35,000 0 *
Michel Beno................................... 35,000 35,000 0 *
Russel Anmuth................................. 33,334 33,334 0 *
Herbert & Marlia Josephart, TTEES............. 33,333 33,333 0 *
Max Silkowitz................................. 33,333 33,333 0 *
Charles and Patricia Goldsmith ,TITE.......... 31,250 31,250 0 *
Daniel Abramson............................... 31,250 31,250 0 *
Elaine Schwartz............................... 31,250 31,250 0 *
James M. Goldfarb............................. 31,250 31,250 0 *
John C. & Joan C. Levine, JTWROS.............. 31,250 31,250 0 *
Joseph & Hermina Rosenberg, JTWROS............ 31,250 31,250 0 *
Julius Krammer................................ 31,250 31,250 0 *
Michael G. & Eileen P. Smith, JTWROS.......... 31,250 31,250 0 *
RFD Associates................................ 31,250 31,250 0 *
Richard & Robin Alman , JTWROS................ 31,250 31,250 0 *
Samuel A. & Carol Cassell, JTWROS............. 31,250 31,250 0 *
Steven & Kim Silvers, JTWROS.................. 31,250 31,250 0 *
Steven Silvers D.O., P.A. Pension Plan........ 31,250 31,250 0 *
Irwin H. Blau................................. 30,000 30,000 0 *
Kevin E. Potter............................... 30,000 30,000 0 *
Alan Hartzmark Revocable Trust................ 25,000 25,000 0 *
Allan E. Glickman............................. 25,000 25,000 0 *
Barbara Akst.................................. 25,000 25,000 0 *
Brent Adamson................................. 25,000 25,000 0 *
Elliot Dworkin................................ 25,000 25,000 0 *
Izhr & Nitza Shy.............................. 25,000 25,000 0 *
Lee Kaplan.................................... 25,000 25,000 0 *
Mark Schwartz................................. 25,000 25,000 0 *
Marvin Pastor................................. 25,000 25,000 0 *
Renee Nadel Trust............................. 25,000 25,000 0 *
Ritchie and Estelle Jacobs.................... 25,000 25,000 0 *
Rosemary Valente, IRA......................... 25,000 25,000 0 *
Stanley & Marilyn Boyle, Trustees............. 25,000 25,000 0 *
Theodore J. & Edith Wins, JTWROS.............. 25,000 25,000 0 *
Miriam J. Pearl, Trustee...................... 25,000 25,000 0 *
Timothy & Bryan Reed, JTWROS.................. 25,000 25,000 0 *
Varda & Moshe Yalon, JTWROS................... 25,000 25,000 0 *
Janine P. Gia................................. 21,901 21,901 0 *
Jeffrey Polly................................. 21,901 21,901 0 *
Alfred B. Schuler............................. 20,833 20,833 0 *
Howard Gross PNCIRA Custodian................. 20,833 20,833 0 *
Peter & Bettle Kuzmick, JTWROS................ 20,833 20,833 0 *
Scott & Lisa Goldberg TITE.................... 20,833 20,833 0 *
Leonard R. Schenker........................... 20,000 20,000 0 *
Marian Heiser................................. 20,000 20,000 0 *
Seth Kaufman, Trustee......................... 20,000 20,000 0 *
Mark Alan Rosenberg........................... 18,000 18,000 0 *
Lee Collins................................... 17,513 17,513 0 *
Andrew Sostek................................. 16,667 16,667 0 *
Bernard & Estelle Jacobs JTWROS............... 16,667 16,667 0 *
Jerry F. Nichols.............................. 16,667 16,667 0 *
June Busby.................................... 16,667 16,667 0 *
Kenneth D & Janice B. Lent U/T/D.............. 16,667 16,667 0 *
Richard Burack................................ 16,667 16,667 0 *
Sidney & Alene Workman, JTWROS................ 16,667 16,667 0 *
William Herbst, IRA........................... 16,667 16,667 0 *
Steven Sanders................................ 15,979 15,979 0 *
Michael Smith................................. 15,000 15,000 0 *
Phyllis Cohen................................. 15,000 15,000 0 *
Roberta Lamb.................................. 13,653 13,653 0 *
James R. Postinpack........................... 13,500 13,500 0 *
Anand V. Khandelwal........................... 12,500 12,500 0 *
Claude Memmi.................................. 12,500 12,500 0 *
Claude Wall................................... 12,500 12,500 0 *
Daniel Shek................................... 12,500 12,500 0 *
David & Muriel Kaufman, JTWROS................ 12,500 12,500 0 *
Michael G. & Susan A. Green, JTWROS........... 12,500 12,500 0 *
Mukesh & HemaxiBhatt, JTWROS.................. 12,500 12,500 0 *
Natwara Jethva................................ 12,500 12,500 0 *
Betty Smith................................... 12,480 12,480 0 *
Donald Hagen.................................. 11,860 11,860 0 *
Carlson & Bales, P.A.......................... 11,738 11,738 0 *
Paul Abbey.................................... 10,861 10,861 0 *
Amanda B. Pearl............................... 10,000 10,000 0 *
Andrew Sroka.................................. 10,000 10,000 0 *
Govind K. Mehta............................... 10,000 10,000 0 *
James A. Baker................................ 10,000 10,000 0 *
Manuel V. Fernandez........................... 10,000 10,000 0 *
Martin Scharf................................. 10,000 10,000 0 *
Melvin Waxman................................. 10,000 10,000 0 *
Allen & Joan VanWinkle, TITE.................. 8,333 8,333 0 *
Ilyne Kobrin, SEP-IRA......................... 8,333 8,333 0 *
Lazlo Szekely................................. 7,500 7,500 0 *
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES TO TO BE
NUMBER OF TO BE BE OWNED OWNED AFTER
NAME OF SELLING SECURITY HOLDER SHARES OWNED OFFERED AFTER OFFERING OFFERING
- ---------------------------------------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Mark Kogod.................................... 6,667 6,667 0 *
Bruce Hartzmark............................... 6,250 6,250 0 *
Hershel Krasnow............................... 6,250 6,250 0 *
Lal C. Jagetia................................ 6,250 6,250 0 *
Louis A. Horwitz.............................. 6,250 6,250 0 *
Steven L. Wasserman........................... 6,000 6,000 0 *
Anil Jagetta.................................. 5,000 5,000 0 *
Ceaser Fraschilla............................. 3,000 3,000 0 *
Jeffrey Buick................................. 2,083 2,083 0 *
Ann Greene.................................... 2,000 2,000 0 *
Bruce Kogod................................... 1,667 1,667 0 *
Karen Kogod................................... 1,667 1,667 0 *
---------- ----------
Total....................................... 22,703,455 22,703,455
========== ==========
</TABLE>
- ---------------
* Denotes less than 1% ownership.
An aggregate of 14,697 shares of Common Stock included in the
shares of Common Stock listed above to be sold by Selling Security Holders are
issuable upon exercise of 3,450 shares of Series A Preferred Stock of the
Company issued in January 1984. See "Description of Securities--Preferred
Stock."
An aggregate of 7,716,213 shares of Common Stock were received upon
conversion of convertible subordinated debentures and accrued interest of
Cytoferon and are included in the shares of Common Stock listed above to be sold
by the Selling Security Holders. These debentures were issued by Cytoferon in
separate transactions between February 1993 and March 1994 and were convertible
into Common Stock of the Company at a conversion price of $.30 per share. On
September 30, 1994, these debentures were converted into Common Stock of the
Company, at which time accrued interest on such debentures were converted into
Common Stock of Viragen also at a conversion ratio at $.30 per share. There is
also included above 1,367,120 shares received by the equity holders of Cytoferon
upon termination of operations of Cytoferon. Between February 1993 and August
1994, the Company and Cytoferon entered into a series of stock purchase and
management and marketing agreements which were subsequently terminated as a
result of the Subsequent Agreement entered into in August 1994. See previous
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Marketing and Management Services
Agreement."
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000 exercisable at $.30 per share
as previously described. Under the terms of the agreement with Northlea
Partners, Ltd., the Company repurchased 584,160 warrants resulting in warrants
to purchase 415,840 shares of Common Stock remaining outstanding, all of which
are currently exercisable. All of the shares underlying such warrants are
included in the shares of Common Stock listed above to be sold by the Selling
Security Holders.
In August 1994, the Company completed its $3.5 million private placement
offering of its Common Stock to accredited investors at $.40 per share resulting
in the issuance of 8,919,000 shares. The offering was conducted by Laidlaw
Equities, Inc. ("Laidlaw") which acted as the placement agent for the offering.
In connection therewith, Laidlaw, in consideration for serving as the placement
agent for such offering, received warrants to purchase 765,650 shares of Common
Stock exercisable at $.52 per share. The purchase price for the Common Stock
and the exercise price of the warrants issued to Laidlaw and its designees were
the result of arms-length bargaining and represented approximately a 39%
discount from the market price of the Common Stock at the time of agreement but
in excess of the offering price of the Common Stock in such private offering.
All of the shares of Common Stock included in such private offering and
underlying the aforementioned warrants are included in the shares of Common
Stock listed above to be sold by the Selling Security Holders.
52
<PAGE> 56
See previous discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In December 1994, the Company completed a second private placement
during its 1995 fiscal year of Common Stock at $.60 per share which enabled the
Company to realize gross proceeds of $2,056,000 in consideration for the
issuance of 3,426,667 shares of Common Stock. The offering price for the
shares was determined by management of the Company and represented a discount
of approximately 31% from the market price of the Company's Common Stock at the
date of determination in October, 1994. All of the shares of Common Stock
issued in such private offering are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders. See previous
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to Mr. Moty Hermon and designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants
are exercisable at $.60 per share and the exercise price was determined through
arms-length negotiations with the consultant and represented a discount of
approximately 34% from the market price of the Company's Common Stock at the
date of the transaction. The shares of Common Stock underlying such warrants
are listed above in the shares of Common Stock to be sold by the Selling
Security Holders.
The Company has agreed to pay for all costs and expenses incident to
the issuance, offer, sale and delivery of the Common Stock, including, but not
limited to, all expenses and fees of preparing, filing and printing the
Registration Statement and Prospectus and related exhibits, amendments and
supplements thereto and mailing of such items. The Company will not pay
selling commissions and expenses associated with any such sales by the Selling
Security Holders. The Company has agreed to indemnify the Selling Security
Holders against civil liabilities including liabilities under the Securities
Act of 1933. The Selling Security Holders have advised the Company that sales
of shares of their Common Stock may be made from time to time by or for the
accounts of the Selling Security Holders in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise, at prices
related to the prevailing market prices or at negotiated prices.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 50,000,000 shares
of Common Stock, par value $.01 per share, of which 37,262,244 shares were
outstanding as of April 30, 1996. The Company is also authorized to issue up
to 375,000 shares of Preferred Stock, par value $1.00 per share, of which 2,620
shares of Series A Preferred Stock were outstanding as of April 30, 1996.
COMMON STOCK
Subject to the dividend rights of the holders of Preferred Stock,
holders of shares of Common Stock are entitled to share, on a ratable basis,
such dividends as may be declared by the Board of Directors out of funds,
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors and holders of Preferred Stock that may be
outstanding, the assets of the Company will be divided pro rata on a per share
basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect all of the Directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any Directors. The
By-Laws of the Company require that only a majority of the issued and
outstanding shares of Common
53
<PAGE> 57
Stock of the Company need be represented to constitute a quorum and to transact
business at a stockholders' meeting. The Common Stock has no preemptive,
subscription or conversion rights and is not redeemable by the Company.
PREFERRED STOCK
The Company is authorized to issue 375,000 shares of Preferred Stock,
par value $1.00 per share. The Company currently has 2,650 shares of Series A
Preferred Stock outstanding. The Preferred Stock may be issued by resolutions
of the Company's Board of Directors from time to time without any action of the
stockholders. Such resolutions may authorize issuances of such Preferred Stock
in one or more series and may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms and other
privileges and rights of the shares of each authorized series. The Company has
no present intention to issue any additional shares of its Preferred Stock for
any purpose. While the Company includes such Preferred Stock in its
capitalization in order to enhance its financial flexibility, such Preferred
Stock could possibly be used by the Company as a means to preserve control by
present management in the event of a potential hostile takeover of the Company.
In addition, the issuance of large blocks of Preferred Stock could possibly
have a dilutive effect with respect to the existing holders of Common Stock of
the Company.
The Series A Preferred Stock was established by the Board of Directors
January 1984. Each share of Series A Preferred Stock is immediately
convertible into 4.26 shares of Common Stock. Dividends on the preferred stock
are cumulative, have priority to the Common Stock and are payable in either
cash or Common Stock, at the option of the Company. The Company anticipates
approval by its Board of Directors of a preferred stock dividend during the
third fiscal quarter of 1995.
The Series A Preferred Stock has voting rights only if dividends are
in arrears for five annual dividends. Upon such occurrence, the voting would
be limited to the election of two directors. Voting rights terminate upon
payment of the cumulative dividends. The Series A Preferred Stock is
redeemable at the option of the Company at any time after expiration of ten
consecutive business days during which the bid or last sale price for the
Common Stock is $6.00 per share or higher. There is no mandatory redemption or
sinking fund obligation with respect to the preferred stock.
Owners of the Series A Preferred Stock of which there are eight record
holders, will be entitled to receive $10.00 per share (plus accrued and unpaid
dividends) before any distribution or payment is made to holders of the Common
Stock or other stock of the Company junior to the Series A Preferred Stock upon
liquidation, dissolution or winding up of the Company. If in any such event
the assets of the Company distributable among the holders of Series A Preferred
Stock or any stock of the Company ranking on a par with the Series A Preferred
Stock upon liquidation, dissolution or winding up are insufficient to permit
such payment, the holders of the Series A Preferred Stock and of such other
stock will be entitled to ratable distribution of the available assets in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full.
The resale of the Common Stock issuable upon conversion of the Series
A Preferred Stock is included as part of the Registration Statement of which
this Prospectus is a part.
CONVERTIBLE DEBENTURES
In November 1993, the Company issued $200,000 principal amount of its
8% three-year convertible debentures. These debentures were converted into
666,668 shares of Common Stock of the Company at a conversion price of $.30 per
share on
54
<PAGE> 58
October 31, 1994. These shares are included in the Registration Statement of
which this prospectus is a part.
COMMON STOCK PURCHASE WARRANTS
In connection with the completion of the Company's $3.5 private
placement offering in August 1994, the Company issued to the placement agent
and its designees Common Stock Purchase Warrants to purchase 765,650 shares of
Common Stock. These warrants are exercisable at $.52 per share on/or prior to
August 15, 1999. The shares of Common Stock underlying these warrants are
included in the Registration Statement of which this Prospectus is a part.
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000, exercisable at $.30 per share
on or prior to January 6, 1999. The Company repurchased warrants to acquire
584,160 shares of Common Stock at the time of the termination of the Management
Consulting Agreement with Northlea Partners, Ltd. in July 1994, leaving
415,840 warrants, all of which are currently exercisable. In March 1995, the
Company issued 64,500 Common Stock purchase warrants to Mr. Moty Hermon and
designees in consideration for financial consulting services to be undertaken
on behalf of the Company. The warrants are for a five year term and are
exercisable currently at $.60 per share. The shares underlying these warrants
are included in the Registration Statement of which this Prospectus is a part.
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The Company has applied for inclusion of its Common Stock on
the NASDAQ System (Small Cap) at such time as the price of the Company's Common
Stock satisfies NASDAQ minimum bid. If for any reason the Common Stock is not
accepted for inclusion on the NASDAQ System, then in such case the Company's
Common Stock would be expected to continue to be traded in the over-the-counter
markets through the "pink sheets" or the NASD's OTC Bulletin Board. In the
event the Common Stock were not included in the NASDAQ System, the Company's
Common Stock would be covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of purchasers in this
offering to sell their shares in the secondary market. The ability of the
Company to secure a symbol on the NASDAQ System does not imply that a
meaningful trading market in its Common Stock will ever develop.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is Chemical Mellon
Shareholder Services, Overpeck Centre, 85 Challenger Road, Ridgefield Park, New
Jersey 07660-2108.
CERTAIN MARKET INFORMATION
As of April 30, 1996, 37,262,244 shares of the Company's Common Stock
are outstanding of which 24,541,053 shares will be "restricted securities," as
such term is defined under the Securities Act of 1933, exclusive of the Common
Stock to be sold pursuant to the Registration Statement of which this
Prospectus is a part.
55
<PAGE> 59
In general, Rule 144 (as presently in effect), promulgated under the
Act, permits a stockholder of the Company who has beneficially owned restricted
shares of Common Stock for at least two years to sell without registration,
within any three-month period, such number of shares not exceeding the greater
of 1% of the then outstanding shares of Common Stock or, if the Common Stock is
quoted on NASDAQ, the average weekly trading volume over a defined period of
time, assuming compliance by the Company with certain reporting requirements of
Rule 144. Furthermore, if the restricted shares of Common Stock are held for
at least three years by a person not affiliated with the Company (in general, a
person who is not an executive officer, director or principal stockholder of
the Company during the three-month period prior to resale), such restricted
shares can be sold without any volume limitation. Any sales of shares by
stockholders pursuant to Rule 144 may have a depressive effect on the price of
the Company's Common Stock.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for the Company by Atlas, Pearlman & Trop, P.A., 3200 North
Military Trail, Suite 205, Boca Raton, Florida 33431.
EXPERTS
The consolidated financial statements of Viragen, Inc. and
subsidiaries at June 30, 1995 and for each of the two years in the period then
ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent certified public accountants, as set
forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits filed as a part thereof. The
statements contained in this Prospectus as to the contents of any contract or
other document identified as exhibits in this Prospectus are not necessarily
complete, and in each instance, reference is made to a copy of such contract or
document filed as an exhibit to the Registration Statement. The Registration
Statement, including exhibits, may be inspected without charge at the principal
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
upon payment of fees prescribed by the Commission from the Public Reference
Section of the Commission at its principal office in Washington, D.C. set forth
above.
56
<PAGE> 60
FORM SB-2--ITEM 22
POST-EFFECTIVE AMENDMENT NO.1
VIRAGEN, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and
subsidiaries are included:
Consolidated balance sheets -- March 31, 1996 (unaudited) and June 30,
1995.
Consolidated statements of operations -- Nine months ended March 31, 1996
and 1995 (unaudited), years ended June 30, 1995 and 1994.
Consolidated statements of stockholders' equity -- Nine months ended
March 31, 1996 (unaudited), years ended June 30, 1995 and 1994.
Consolidated statements of cash flows -- Nine months ended March 31, 1996
and 1995 (unaudited), years ended June 30, 1995 and 1994.
Notes to consolidated financial statements -- March 31, 1996 (unaudited)
and June 30, 1995.
F-1
<PAGE> 61
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 the 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 the first paragraph of
Note F as to which the date
is September 20, 1995
F-2
<PAGE> 62
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,443,356 $1,904,687
Accounts and notes receivable,
less allowance of $11,668 at
March 31, 1996 and $19,039 at
June 30, 1995 36,582 52,884
Inventory - 211,200
Prepaid expenses 57,709 104,525
Other current assets 8,014 7,928
---------- ----------
TOTAL CURRENT ASSETS 5,545,661 2,281,224
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,193,875 1,191,183
Equipment and furniture 1,586,728 1,353,068
---------- ----------
2,780,603 2,544,251
Less accumulated depreciation (1,660,910) (1,512,069)
---------- ----------
1,119,693 1,032,182
DEPOSITS AND OTHER ASSETS 13,858 16,300
---------- ----------
$6,679,212 $3,329,706
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 63
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54,916 $ 205,543
Accrued expenses and other liabilities 315,148 399,190
Current portion of long-term debt 707,915 62,728
------------ ------------
TOTAL CURRENT LIABILITIES 1,077,979 667,461
ROYALTIES PAYABLE 107,866 107,866
LONG-TERM DEBT, less current portion 110,034 856,593
OTHER LONG TERM DEBT, less current portion 10,173 -
MINORITY INTEREST 1,534,653 -
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 3,450
Common stock, $.01 par value.
Authorized 50,000,000 shares;
issued and outstanding 36,947,182
at March 31, 1996 and 35,355,532
at June 30, 1995 369,472 353,555
Capital in excess of par value 23,972,901 18,406,086
Common stock subscribed - 45,296
Deficit (20,201,116) (17,110,601)
Foreign currency translation adjustment (16,200) -
Notes due from officers (290,000) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,838,507 1,697,786
------------ ------------
$ 6,679,212 $ 3,329,706
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
1996 1995 1995 1994
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCOME (UNAUDITED)
Revenues $ 229,967 $ 454,902 $ 573,677 $ 624,814
Interest and other income 74,918 89,400 148,219 51,807
----------- ----------- ------------ -----------
304,885 544,302 721,896 676,621
COST AND EXPENSES
Cost of goods sold 178,369 268,566 348,642 322,262
Inventory valuation -- 788,000 788,052 --
Depreciation and amortization 150,127 60,503 97,329 47,257
Research and development costs 858,503 342,738 605,025 17,476
Selling, general and
administrative expenses 1,959,873 1,132,859 2,028,747 1,264,334
Bad debt expense 186,220 20,600
Contract termination fee -- 525,000 525,000 --
Directors and officers options
granted 183,144 -- -- --
Interest Expense 71,811 70,884 94,720 88,038
----------- ----------- ------------ -----------
3,401,827 3,188,550 4,673,735 1,759,967
----------- ----------- ------------ -----------
Loss before minority interest (3,096,942) (2,644,248) (3,951,839) (1,083,346)
Minority interest in loss of
consolidated subsidiaries (6,427) - - -
----------- ----------- ------------ -----------
NET LOSS (3,090,515) (2,644,248) (3,951,839) (1,083,346)
Deduct required dividends on
convertible preferred stock 2,588 2,588 3,450 3,450
----------- ----------- ------------ -----------
LOSS ATTRIBUTABLE TO COMMON STOCK $(3,093,103) $(2,646,836) $ (3,955,289) $(1,086,796)
=========== =========== ============ ===========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (0.09) $ (0.09) $ (0.12) $ (0.06)
=========== =========== ============ ===========
Weighted average shares
outstanding 35,813,679 30,637,957 32,137,693 18,686,751
=========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 65
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> FOREIGN
CAPITAL IN COMMON CURRENCY NOTES
PREFERRED COMMON EXCESS OF STOCK TRANSLATION DUE FROM
STOCK STOCK PAR VALUE SUBSCRIBED (DEFICIT) ADJUSTMENT OFFICERS
--------- -------- ---------- ---------- --------- ----------- --------
<S> <C> <C> <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 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 (217,500)
Stock purchases by officer,
director, and affiliate
(375,000 shares) 112,500 (108,750)
Conversion of Series A
Preferred Stock (250) 11 239
Private Placement of Common
Stock (2,534,375 shares) 1,013,750
Private Placement issuance cost (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) (326,250)
Repurchase of Warrants
(584,160 shares) (14,604)
Conversion of Convertible
Debentures (666,668 shares) 6,666 193,334
Shares to Cytoferon from
modification of Agreement 17,500 507,500
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 costs for form SB-2 (128,031)
Stock subscribed by Financial
Consultants 45,296
Officers' notes forgiven on
stock purchases 326,250
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-6
<PAGE> 66
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION> FOREIGN
CAPITAL IN COMMON CURRENCY NOTES
PREFERRED COMMON EXCESS OF STOCK TRANSLATION DUE FROM
STOCK STOCK PAR VALUE SUBSCRIBED (DEFICIT) ADJUSTMENT OFFICERS
--------- -------- ---------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $3,450 $353,555 $18,406,086 $ 45,296 $(17,110,601) $ $
Issuance of Common Stock to
Consultants (59,600 shares) 596 44,700 (45,296)
Exercise of Warrants by
Consultants (75,000 shares) 750 21,750
Compensation expense on
directors, officers, and
employees options 183,144
Exercise of warrants from
private placement (397,050
shares) 3,971 127,531
Exercise of warrants by
Directors (50,000 shares) 500 14,500
Exercise of Warrants by
management, officers and
employees (1,010,000 shares) 10,100 292,900 (290,000)
Compensation expense on
consultants' options 316,300
Proceeds from subsidiary
offering 3,776,066
Proceeds from initial invest-
ment in Sector 789,924
Foreign currency translation
adjustment (16,200)
Net loss (3,090,515)
------ -------- ----------- -------- ------------ -------- ---------
Balance at March 31, 1996
(unaudited) $3,450 $369,472 $23,972,901 $ $(20,201,116) $(16,200) $(290,000)
====== ======== =========== ======== ============ ======== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 67
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Loss $ (3,090,515) $(2,644,248) $(3,951,839) $(1,083,346)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 150,127 98,217 97,329 47,257
Interest paid through stock issue 11,438
Issuance of common stock to
officers, employees and others 10,000 11,250
Consulting fees paid in
stock warrants 316,300 45,296
Compensation expense on stock
options 183,144 117,033
Officers notes forgiven on stock
purchases 326,250
Gain on sale of equipment (6,000)
Minority interest (6,426)
Provision for bad debt expense 53,970 35,000 186,220 20,600
Loss due to write-down of
inventory 788,052 788,052
Increase (decrease) relating to
operating activities from:
Escrow account 68,535
Accounts and notes receivable (37,668) (97,213) (142,130) (117,574)
Inventory 211,200 (312,909) (232,781) (676,345)
Prepaid expenses 54,744 (38,763) (68,336) (19,080)
Other current assets (8,014) 1,725 (7,968)
Deposit and other assets 2,442 1,287 (5,993) (3,572)
Accounts payable (150,627) (278,660) (214,506) 224,792
Accrued expenses and other
liabilities (84,042) (352,556) (152,215) 350,559
------------ ----------- ----------- -----------
Net cash used in operating
activities (2,395,365) (2,801,793) (3,328,928) (1,056,421)
INVESTING ACTIVITIES
Proceeds from sale of equipment 6,000
Additions to property, plant and
equipment, net (237,638) (233,987) (287,038) (11,643)
------------ ----------- ----------- -----------
Net cash used in investing
activities (237,638) (233,987) (281,038) (11,643)
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 68
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED)
FINANCING ACTIVITIES
<S> <C> <C> <C> <C>
Payment on long term debt $ (173,600) $ (38,602) $ (54,459) $ (51,066)
Proceeds from borrowing 82,401 54,200
Proceeds from sale of Common Stock
to Cytoferon 400,000
Sale (repurchase) of warrants 40,750 (14,604) (14,604) 20,000
Proceeds for exercise of options 131,252
Proceeds from subsidiary offering 5,156,416
Proceeds from issuance of
convertible debentures 200,000
Proceeds from sale of common
stock, net 4,232,706 4,252,621 911,250
Proceeds from investment in Sector 918,253
Contract termination fee paid in
common stock 525,000 525,000
Private placement issuance cost (112,100)
Expense payments on SB-2
registrations (128,031)
---------- ---------- ---------- ----------
Net cash provided by financing
activities 6,155,472 4,704,500 4,634,727 1,368,084
Effect of exchange rate fluctuations
on cash 16,200
---------- ---------- ---------- ----------
Increase in cash 3,538,669 1,668,720 1,024,761 300,020
Cash and cash equivalents at
beginning of period 1,904,687 879,926 879,926 579,906
---------- ---------- ---------- ----------
Cash and cash equivalent at
end of period $5,443,356 $2,548,646 $1,904,687 $ 879,926
========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 71,742 $ 70,884 $ 87,297 $ 74,930
During the year ended June 30, 1995 and 1994, the Company had the following
non-cash financing and other disclosable activity:
Issuance of Notes for Purchase of Common
Stock $ 290,000 $ $ $
Issuance of Common Stock to directors
and officers 326,250
Issuance of Common Stock to
stockholders in payment of note
payable 66,600
Issuance of Common Stock for convertible
debentures 200,000 200,000
Issuance of Common Stock to officers
and affiliates 112,500
Stock subscriptions receivable 102,500
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND 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 Technology, Inc. and its majority owned subsidiary Viragen (Europe) Ltd.
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 ended June 30, 1995 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 by using the
straight-line method over the estimated useful life for financial reporting
purposes and using accelerated methods for income tax purposes.
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.
Reclassification: Certain reclassifications have been made to the June 30, 1994
and March 31, 1995 financial statement amounts to conform to the presentation
for the June 30, 1995 and March 31, 1996 financial statements, respectively.
F-10
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE B -- INTERIM ADJUSTMENTS and USE OF ESTIMATES
The unaudited consolidated financial statements as of March 31, 1996 and for the
nine months ended March 31, 1996 and 1995 include, in the opinion of management
of the Company, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation of the financial position and the
results of operations for these periods.
Operating results for the nine months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending June
30, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
NOTE C-CAPITAL STOCK
In August 1994, the Company concluded a Private Placement of its common
stock which concluded subsequent to year end with the issuance of 8,919,000
shares at $.40 per share. At June 30, 1994, 2,534,375 shares had been recorded
as subscribed. In connection with this offering, the Company has issued
765,650 common stock purchase warrants entitling the holder to purchase one
share of common stock at $0.52 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.
F-11
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE C--CAPITAL STOCK -- Continued
During fiscal 1994, Cytoferon Corporation purchased 1,333,333 shares of common
stock at $.30 per share under the terms of an additional stock purchase
agreement. Also during the period, the Company entered into stock purchase and
option agreements with officers and directors totaling 2,250,000 shares
obtainable at $.30 per share, of which 1,125,000 shares were immediately
exercisable and 1,125,000 shares were subject to certain performance criteria.
Subsequent to year end, the option related performance criteria were met and the
remaining 1,125,000 options became exercisable. During the year ended June 30,
1994, $117,000 was charged to operations upon the issuance of the officer and
director options.
In April 1994, an officer purchased 750,000 shares of common stock at $.30 per
share, in accordance with the provisions of his employment agreement, $7,500,
the par value of the stock, was treated as compensation expense and a note
receivable was recorded on the remaining balance of $217,500. 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 treated
as compensation expense and a note receivable from each individual/entity 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 intended to be utilized for the establishment of a research and
manufacturing facility in Europe during fiscal 1995 and for general working
capital purposes. Subject to receipt of additional funding to conduct
F-12
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE C--CAPITAL STOCK -- Continued
European-based clinical trials, it is the Company's intention to commence
European clinical trails and seek the necessary approvals for the sale of its
Alpha Leukoferon(TM) product in Europe.
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 March 31, 1996 and 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.
In 1994, 250 shares of the convertible 10% series A cumulative preferred stock
were converted into 1,065 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.
Shares of the Company's common stock reserved at March 31, 1996 and June 30,
1995 for possible future issuance are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Warrants - consultant 1,253,000 480,340
Convertible preferred stock 14,697 14,697
Option plans 5,086,500 2,563,000
Directors options - 650,000
Warrants - private placement 684,400 765,650
--------- ---------
7,038,597 4,473,687
========= =========
</TABLE>
F-13
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE C--CAPITAL STOCK -- Continued
In October 1994, the $200,000 of Convertible Debentures were converted into
666,668 share of common stock.
On May 15, 1995, as amended in September 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.
During the nine month period ended March 31, 1996, 1,532,050 options and
warrants were exercised by consultants, officers, directors and employees.
In September 1995, the Board of Directors granted 2,935,000 non-statutory
options to directors, officers and key employees of the Company under the
provisions of the 1995 Stock Option Plan. The options granted have an exercise
price of $.50 per share and are exercisable for a period of five years. The
Company recognized compensation expense of $183,144 as a result of these grants.
During September 1995, 75,000 warrants issued to a financial consultant having
an exercise price of $.30 per share and 6,250 warrants issued in connection with
the Company's August 1994 Private Placement offering with an exercise price of
$.52 per share were exercised into common stock of the Company. In December
1995, a Director of the Company exercised 50,000 options with an exercise price
of $.30 per share.
In March 1996, the Company issued 636,000 Common Stock Purchase Warrants,
300,000 of which were associated with the Company's Florida HIV Study with the
balance issued for financial consulting services. The Company recognized
expense during the quarter resulting from these issuances of $316,300.
During the third quarter of fiscal 1996, officers and directors exercised
1,000,000 options granted in June 1994, at $.30 per share through the issuance
of promissory notes secured by the related stock which is held in escrow pending
payment of the related promissory notes.
F-14
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE C -- CAPITAL STOCK -- Continued
The Company has the authority to issue 1,000,000 shares of preferred stock, of
which 375,000 shares have been designated as Series A. No other classes of
preferred stock have been designated.
In a special meeting held on May 11, 1993, shareholders of the Company approved
an amendment to the certificate of incorporation to increase the Company's
authorized capital to provide sufficient shares for Cytoferon's investment;
therefore, the authorized shares of the Company's common stock were increased
from 20,000,000, $.01 par value, to 50,000,000, $.01 par value.
NOTE D -- ROYALTY AGREEMENT
In May 1993, the Company renegotiated its royalty agreement with Medicore. Under
the new terms, the Company will pay Medicore 5% of sales to $7,000,000, 4% of
the next $10,000,000, and 3% on the next $55,000,000 to a maximum of $2,400,000
in royalty payments. Royalties incurred in prior years under the previous
agreement, totaling $108,000 are included in 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.
F-15
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE E -- LONG TERM DEBT
Long-term debt at March 31, 1996 and June 30, 1995 is as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Mortgage note secured by land, building
and equipment with a net book value of
$1,119,693 and $1,032,182 at March 31,
1996 and June 30, 1995, respectively.
Monthly principal payments of $2,500
plus interest at prime plus 2% with the
unpaid balance due August 1, 1996 $460,939 $483,439
Second mortgage secured by land, building,
equipment and accounts receivable.
Monthly principal payments of $1,789
plus interest at prime plus 1% with the
unpaid balance due August 1, 1996 203,568 384,671
Capital lease obligations resulting from
acquisition of equipment, with a cost
totalling $207,067 and $54,200, at
March 31, 1996 and June 30, 1995,
respectively, capitalized from three
to five years 153,442 51,211
-------- --------
817,949 919,321
Less current portion 707,915 62,728
-------- --------
$110,034 $856,593
======== ========
</TABLE>
The prime rate was 8.75% and 9.00% at March 31, 1996 and 1995, respectively
and 9.00% and 7.25% at 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 and 2000 -- $9,072.
At June 30, 1995, the Company was in default of certain non-financial covenants
on its mortgage note. The lender waived these defaults and waived compliance
with these covenants through July 1, 1996.
Medicore, Inc. 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 totalled $71,811 and $70,884 for the nine months ended
March 31, 1996 and 1995, respectively, and $87,297 and $74,930 for the years
ended June 30, 1995 and 1994, respectively.
F-16
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE E -- LONG TERM DEBT -- Continued
The Company acquired equipment under capital lease agreements at a cost
of $207,067 with a carrying value of $189,920 net of related depreciation as of
March 31, 1996. Depreciation expense for this equipment totaled $14,297 for
the nine months ended March 31, 1996.
Future minimum lease payments under capital lease obligations and the present
value of the minimum lease payments as of March 31, 1996 are as follows:
<TABLE>
<S> <C>
1996 $ 35,873
1997 50,529
1998 46,581
1999 46,581
2000 12,905
--------
Total minimum lease payments 192,469
Less amount representing
estimated executory costs (12,510)
--------
Net minimum lease payments 179,959
Less: amount representing
interest (26,517)
--------
Present value of minimum
lease payments $153,442
========
</TABLE>
NOTE F - ADDITIONAL PRIVATE PLACEMENT OFFERINGS
On September 20, 1995, the Company entered into an agreement and Plan
of Reorganization ("Agreement") with Sector Associates, Ltd. ("Sector"), a
Delaware corporation. Under the terms of the Agreement, the Company acquired a
94% interest in Sector, a publicly traded corporation which contained net cash
assets of $800,000 at the transaction closing date.
The Agreement was finalized and became effective on December 8, 1995.
F-17
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE F - ADDITIONAL PRIVATE PLACEMENT OFFERINGS -- Continued
On November 7, 1995, the Agreement was amended to provide for an interim loan of
$500,000 by Sector to Viragen (Scotland) Limited, the filing of certain
financial reports by Sector prior to closing, an additional capital contribution
of $300,000 into Sector within thirty days, and the modification of a related
investment banking agreement. The $500,000 loan was funded November 9, 1995,
bearing interest at 4% per annum, secured by a 3.77% equity interest in Viragen
(Scotland) Limited, and was guaranteed by Viragen, Inc. Upon the closing of the
Agreement on December 8, 1995, the principal amount of the note was deemed
contributed capital to Sector.
In March 1996, Sector completed two additional private Placement Offerings,
issuing 768,000 shares of Common Stock and 216,500 Common Stock Purchase
Warrants having an exercise price of $12.00 (post reverse split) per share.
These two Offerings yielded net proceeds of approximately $5,156,000 after
related expenses of $317,500. The Company intends to use these proceeds to
undertake domestic and European research and clinical trial activities including
the construction of a laboratory and manufacturing facility in Scotland.
Effective May 2, 1996, Sector's name was changed to Viragen (Europe) Ltd., the
stock was reverse split one share for fourteen (1:14) and the par value was
changed from $.10 per share to $.01 per share.
NOTE G--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:
F-18
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE G--INCOME TAXES -- Continued
<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
$14,100,000 and tax credits of $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 Section 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 years) results primarily from the change in the
valuation allowance.
NOTE H--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
F-19
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE H--TRANSACTIONS WITH RELATED PARTIES -- Continued
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 I) represented by notes payable
bearing interest at 10%. At June 30, 1994 such notes totalled $60,000 and were
repaid in July 1994.
NOTE I--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, 1994, the Company entered into an Additional Stock
Purchase Agreement under which terms Cytoferon purchased an additional
1,333,333 common shares at $.30 per share.
The funds invested enabled the Company to reinitiate production of its
interferon product, Alpha Leukoferon(TM), and to reinitiate the marketing of
the product through physicians specializing in the treatment of multiple
sclerosis and AIDS related cancer patients residing in the State of Florida.
F-20
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE I--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-21
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARIES
MARCH 31, 1996 (UNAUDITED) AND JUNE 30, 1995
NOTE J--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 K-FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiary, Viragen
(Scotland) Ltd. have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52. All balance sheet accounts
have been translated using the current exchange rates at the balance sheet
dates. Statement of operations accounts have been translated using the average
exchange rate for the period. The translation adjustments resulting from the
change in exchange rates from period to period have been reported separately as
a component of stockholders' equity. Foreign currency transaction gains and
losses, which are not material, are included in results of operations. These
gains and losses result from exchange rate changes between the time
transactions are recorded and settled and, for unsettled transactions, exchange
rate changes between the time transactions are recorded and the balance sheet
date.
NOTE L - STOCK BASED COMPENSATION
In 1996, the Company has adopted the provisions of FAS 123-Accounting for Stock
Based Compensation. The Company will continue to account for stock-based
compensation plans under the provisions of APB-25 Accounting for Stock Issued
to Employees. The Company will disclose the pro forma information required for
stock-based compensation plans in its annual financial statements in accordance
with FAS 123.
F-22
<PAGE> 82
VIRAGEN, INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED)
PRIMARY AND FULLY DILUTED
<S> <C> <C> <C> <C>
Weighted average shares outstanding 35,813,679 30,637,957 32,137,693 18,686,751
=========== =========== =========== ===========
Net Loss $(3,090,515) $(2,644,248) $(3,951,839) $(1,083,346)
Deduct required dividends on
convertible preferred stock 2,588 2,588 3,450 3,450
----------- ----------- ----------- -----------
Net loss attributable to common stock $(3,093,103) $(2,646,836) $(3,955,289) $(1,086,796)
=========== =========== =========== ===========
Loss per common share after deduction
for required dividends on convertible
preferred stock $ (0.09) $ (0.09) $ (0.12) $ (0.06)
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. A corporation may indemnify
against expenses (including attorneys' fees) and, other than in respect of an
action by or in the right of the corporation, against judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the right of the corporation, no
indemnification of expenses may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine that, despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145 of
the General Corporation Law of Delaware further provides that to the extent a
director, officer, employee or agent of the corporation has been successful in
the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him or her in connection therewith.
Article VII of the By-Laws of the Company require the Company to
indemnify its Directors and officers as follows:
"The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
suit, action or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, that
in the case of an action or suit by or in the right of the corporation, (a)
such person shall be indemnified only to the extent of his expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement thereof and not for any judgments, fines or amounts paid
in settlement and (b) no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless, and only to the extent that, the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
II-1
<PAGE> 84
Any indemnification hereunder (unless required by law or ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in this Article. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders of the corporation.
The indemnification provided herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware or of
these By-Laws.
The corporation's indemnity of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amounts such person may collect as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the corporation
or (ii) from such other corporation, partnership, joint venture, trust or other
enterprise.
Nothing contained in this Article VII, or elsewhere in these By-Laws,
shall operate to indemnify any director or officer of such indemnification is
for any reason contrary to law, either as a matter of public policy, or under
the provisions of the Federal Securities Act of 1933, the Securities Exchange
Act of 1934, or any other applicable state or federal law.
For the purposes of this Article, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporations so that any person who is or
was a director, officer, employee or agent of such a constituent corporation or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would if he had served the resulting or surviving corporation in the same
capacity."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred
in connection with the issuance and resale of the securities offered hereby.
The Company is responsible for the payment of all expenses in connection with
the Offering.
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933 $21,000.00
Blue Sky filing fees and expenses 2,000.00*
</TABLE>
II-2
<PAGE> 85
<TABLE>
<S> <C>
Printing and engraving expenses 20,000.00*
Legal fees and expenses 25,000.00*
Accounting fees and expenses 25,000.00*
Miscellaneous 2,000.00*
----------
Total $95,000.00*
==========
</TABLE>
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1992, the Company issued 797,400 shares of Common Stock to
officers, directors and a consultant to the Company. An aggregate of 600,000 of
such shares were issued to Mr. Tom Langbein and Mr. Dennis Healey in
consideration for cancellation of their employment contracts with the Company
and the remaining 197,400 shares were issued to employees and a consultant in
lieu of cash payments and bonuses owing to such persons. Inasmuch as such
persons had a pre-existing relationship with the Company and had access to
relevant information concerning the Company, the issuance of such shares was
exempt from the registration requirements of the Securities Act of 1933 (the
"Act"), pursuant to the exemption set forth in Section 4(2) of the Act.
In May 1993, the Company issued 6,000,000 shares of Common Stock to
Cytoferon Corp. ("Cytoferon") for an investment of $1,000,000 and in November
1993, the Company issued 1,333,333 shares of Common Stock for a cash investment
of $400,000. In December 1994, following receipt of a fairness opinion, the
Company consummated an additional agreement with Cytoferon terminating all
prior agreements and compensation to be paid to Cytoferon, in consideration for
which the Company agreed to issue 1,750,000 shares of Common Stock to
Cytoferon. Inasmuch as Cytoferon had adequate financial resources to bear the
economic risk of the transaction, had a pre-existing relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such shares was exempt from the registration requirements of the
Act of 1933, pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued 750,000 shares of its Common
Stock for prior services (equal to the par value) and a promissory note and an
option to purchase 750,000 shares of Common Stock at an exercise price of $.30
per share to Mr. Gerald Smith as part of his employment agreement with the
Company. Inasmuch as Mr. Smith had a preexisting relationship with the Company
and had access to relevant information concerning the Company, the issuance of
such securities was exempt from the registration requirements of the Act
pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued $200,000 principal amount of its
convertible debentures to four investment funds managed by a director of the
Company for a consideration of $200,000. Inasmuch as such accredited investors
had adequate financial resources to bear the economic risk of the transaction,
had knowledge and experiences in investments of this type and had access to
relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Act pursuant to the
exemptions set forth in Sections 4(2) and 4(6) of the Act.
In January 1994, the Company issued 260,130 shares of Common Stock to
Mr. Seymour Friend in satisfaction of a demand note in the principal amount of
$66,700 and related interest. Inasmuch as Mr. Friend, a former director of the
Company, had a pre-existing relationship with the Company and had access to
relevant information concerning the Company, the issuance of such shares was
exempt from the registration requirements of the Act pursuant to the exemption
set forth in Section 4(2) of the Act.
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<PAGE> 86
In January 1994, the Company issued warrants to purchase 415,850
shares of Common Stock exercisable at $.30 per share to a medical consultant in
connection with a consulting agreement with the latter involving the issuance
of warrants to purchase 1,000,000 shares of Common Stock at an exercise price
of $.30 per share for $20,000 to Northlea Partners Ltd. The Company
subsequently repurchased 584,160 warrants under the terms of the issuing
agreement. Inasmuch as the consultant was an accredited investor and had access
to relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Act pursuant to the
exemptions set forth in Sections 4(2) and 4(6) of the Act.
Between April 1994 and July 1994, the Company issued (i) 125,000
shares of Common Stock to Mr. Dennis Healey in consideration for prior services
as a director (equal to the par value) and a promissory note and options to
purchase an additional 125,000 shares of Common Stock exercisable at $.30 per
share; (ii) 125,000 shares of Common Stock to Mr. Peter Fischbein in
consideration for prior services as a director (equal to the par value) and a
promissory note and options to purchase an additional 125,000 shares of Common
Stock exercisable at $.30 per share; (iii) options to purchase 300,000 shares
to Mr. Charles Fistel at an exercise price of $.30 per share. All of the
aforementioned securities were issued to officers and/or directors of the
Company as part of their service as a director, employment contracts or
compensation arrangements with the Company. Inasmuch as each of these
individuals had a preexisting relationship with the Company and had access to
relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Act pursuant to the
exemptions set forth in Section 4(2) of the Act.
In August 1994, the Company issued 8,856,500 shares of its Common
Stock for an aggregate consideration of $3,500,000 to an aggregate of 140
accredited investors in a private placement of such securities undertaken
pursuant to Rule 505 of Regulation D and Section 4(6) of the Act. The offering
was conducted by Laidlaw Equities, Inc. ("Laidlaw") which acted as the
placement agent for the offering. In connection therewith, Laidlaw, in
consideration for serving as the placement agent for such offering, received
warrants to purchase 765,650, shares of Common Stock exercisable at $.52 per
share. Each of the investors executed subscription agreements verifying their
personal financial resources, their qualifications as accredited investors and
knowledge of investments. In addition, each of the investors was provided with
information and had access to relevant additional information concerning the
Company. Accordingly, the issuance of the aforementioned securities was exempt
from the registration requirements of the Act pursuant to the exemptions set
forth in Section 4(6) of the Act and Rule 504 under Regulation D and Section
4(2) of the Act.
Between May 1994 and March 1995, the Company issued five-year warrants
to purchase an aggregate of 570,000 shares of Common Stock at exercise prices
ranging from $.62 to $1.00 per share to six key employees. In August 1994, the
Company issued options to purchase an aggregate of 350,000 shares exercisable
at $1.00 per share which were divided equally among the then seven directors of
the Company. Inasmuch as each of the directors had a pre-existing relationship
with the Company and had access to relevant information concerning the Company,
the issuance of such securities was exempt from the registration requirements
of the Act pursuant to the exemption set forth in Section 4(2) of the Act.
In December 1994, the Company issued 3,426,667 shares of its Common
Stock in consideration of $2,056,000 to an aggregate of 77 accredited investors
in a private placement of such securities undertaken pursuant to Rule 506 of
Regulation D and Section 4(6) of the Act. Each of the investors executed
subscription agreements verifying their personal financial resources, their
qualifications as accredited investors and knowledge of investments. In
addition, each of the investors was provided with information and had access to
relevant additional information concerning the Company. Accordingly, the
issuance of the aforementioned securities
II-4
<PAGE> 87
was exempt from the registration requirements of the Act pursuant to the
exemption set forth in Section 4(6) of the Act and Rule 506 under Regulation D
and Section 4(2) of the Act.
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to a consultant and his designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants are
for a five year term and are exercisable at $.60 per share. Inasmuch as the
consultant was an accredited investor and had access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Act pursuant to the exemptions set forth in
Sections 4(2) and 4(6) of the Act.
In May 1995, the Company issued 1,000,000 Common Stock purchase
options to Mr. Robert H. Zeiger pursuant to the terms of his Employment
Agreement. Under the terms of his Agreement, 500,000 options become
exercisable May, 1996 and 500,000 options become exercisable May, 1997. The
options remain exercisable for a five year term and are exercisable at $.96
per share. Mr. Zeiger was also elected to the Board of Directors in May, 1995.
Inasmuch as Mr. Zeiger had access to relevant information concerning the
Company, the issuance of such securities was exempt from registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
Between October 1995 and February 1996, the Company issued options to
purchase an aggregate of 3,486,000 shares of Common Stock at prices ranging
from $0.50 to $1.81 per share to eight executive officers and directors and
______ employees of the Company. Inasmuch as each of the directors, executive
officers and employees had a pre-existing relationship with the Company and had
access to relevant information concerning the Company, the issuance of such
securities was exempt from the registration requirements of the Act pursuant to
the exemption set forth in Section 4(2) of the Act.
In March 1996, the Company issued 335,000 shares of its Common Stock
in consideration of $2,010,000 to an aggregate of 30 accredited investors in a
private placement undertaken pursuant to Rule 506 of Regulation D and Section
4(6) of the Act. In addition, in March 1996, the Company issued 433,000 shares
of its Common Stock and Warrants to purchase up to 216,500 shares of its Common
Stock in consideration of $3,464,000 to an aggregate of 50 accredited investors
in a private placement of such securities undertaken pursuant to Rule 506 of
Regulation D and Section 4(6) of the Act. Each of the aforementioned investors
executed subscription agreements verifying their personal financial resources,
their qualifications as accredited investors and knowledge of investments. In
addition, each of the investors was provided with information and had access to
relevant additional information concerning the Company. Accordingly, the
issuances of the aforementioned securities were exempt from the registration
requirements of the Act pursuant to the exemption set forth in Section 4(6) of
the Act and Rule 506 under Regulation D and Section 4(2) of the Act.
Except with respect to the private placement completed in July 1994
and described above, no underwriters were involved in any of the transactions
described above, nor were any commissions paid in connection therewith.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(2)(i) Plan of Merger between Florida Immunological Institute, Inc. and Vira-Tech, Inc., dated
September 30, 1986 (incorporated by reference to the Company's registration statement on Form
S-2,
</TABLE>
II-5
<PAGE> 88
<TABLE>
<S> <C>
dated October 24, 1986, as amended File No. 33-9714 ("1986 Form S-2"), Part II, Item 16, 2.1)
(2)(ii) Articles of Merger of Florida Immunological Institute into Vira-Tech, Inc., dated September 30,
1986 (incorporated by reference to 1986 Form S-2, Part II, Item 16, 2.2)
(3)(i) Articles of Incorporation and By-Laws (incorporated by reference to the Company's registration
statement on Form S-1, dated June 8, 1981, as amended, File No. 2-72691, "Form S-1", Part II,
Item 30(b) 3.1 and 3.2)
(3)(ii) Amended Certificate of Incorporation (incorporated by reference to 1986 Form S-2, Part II, Item
16, 4.2)
(4) Instruments defining the rights of security holders, including indentures
(4)(i) Certificate of Designation for Series A Preferred Stock, as amended (incorporated by reference
to 1986 Form S-2, Part II, Item 16, 4.4)
(4)(ii) Specimen Certificate for Unit (Series A Preferred Stock and Class A Warrant) (incorporated by
reference to 1986 Form S-2, Part II, Item 16, 4.5)
(4)(iii) Specimen Certificate for Class B Warrant (incorporated by reference to 1986 Form S-2, Part II,
Item 16, 4.6)
(4)(iv) Specimen Certificate for Class C Warrant (incorporated by reference to the Company's Annual
Report on Form 10-K, December 31, 1986 ("1986 Form 10-K"), Part IV, Item 14(a)(4) (vii))
(4)(v) Amended and Restated Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company (incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.12)
(4)(vi) Addendum to the Amended and Restated Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company dated March 24, 1987 (incorporated by reference to the 1986 Form
10-K, Part IV, Item 14(a) (4) (ix))
(4)(vii) Amendment No. 1 to the Addendum to and to the Amended and Restated Warrant Agreement
(incorporated by reference to the Company's Annual Report on Form 10-K, December 31, 1991
("1991 Form 10-K"), Part IV, Item 14(a)(10)(xxiv))
(4)(viii) Form of three year 8.5% Convertible Subordinated Debenture (incorporated by reference to the
Company's Current Report on Form 8-K dated November 17, 1993)
(4)(ix) Form of Stock Option Agreement dated November 19, 1993, issued to Messrs. Dennis W. Healey and
Peter D. Fischbein (incorporated by reference to the Company's Current Report on Form 8-K dated
November 17, 1993)
(4)(x) 1995 Stock Option Plan(2)
(5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the validity of the securities being
registered(1)
</TABLE>
II-6
<PAGE> 89
EXHIBIT NO. DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
(10) Material contracts
(10)(i) Research Agreement between the Registrant and Viragen Research Associates Limited Partnership
dated December 29, 1983 (incorporated by reference to Medicore S-1, File No. 2-89390, dated
February 10, 1984 ("Medicore S-1"), Part II, Item 16(a)(10)(xxxiii))
(10)(ii) License Agreement between the Registrant and Viragen Research Associates Limited Partnership
dated December 29, 1983 (incorporated by reference to Medicore S-1, Part II, Item 16
(a)(10)(xxxiv))
(10)(iii) Novation Agreement between the Company, Medicore, Inc. and Immuno International AG, dated
October 27, 1986 (incorporated by reference to the Company's Current Report on Form 8-K, dated
November 14, 1986 ("November 1986 Form 8-K"), Item 7(c)(iv))
(10)(iv) Royalty Agreement between the Company and Medicore, Inc. dated November 7, 1986 (incorporated
by reference to the November 1986 Form 8-K, Item 7(c)(i))
(10)(v) Amendment to Royalty Agreement between the Company and Medicore, Inc. dated November 21, 1989
(incorporated by reference to the Company's Current Report on Form 8-K dated December 6, 1989,
Item 7 (c)(i))
(10)(vi) Promissory Note from the Company to Medicore, Inc. dated August 6, 1991 (incorporated by
reference to the Company's 1991 Form 10-K, Part IV, Item 10(a)(10)(xx))
(10)(vii) Loan Agreement between the Company and Medicore, Inc. dated January 31, 1991 (incorporated by
reference to the Company's Current Report on Form 8-K dated February 26, 1991, Item 7 (c)(ii))
(10)(viii) Amendment to Loan Agreement between the Company and Medicore, Inc. dated August 6, 1991
(incorporated by reference to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(ix) Florida Real Estate Mortgage and Security Agreement from the Company to Medicore, Inc. dated
August 6, 1991 (incorporated by reference to the Company's 1991 Form 10-K, Part IV, Item
14(a)(10)(xxii))
(10)(x) Human Source Leukocyte Agreement among the Company, Orlando Plasma Corporation and Immuno
International AG dated December 4, 1986 (incorporated by reference to 1986 Form S-2, Part II,
Item 16, 10.15)
(10)(xi) Research Agreement between the Company and the University of Miami dated January 31, 1990
(incorporated by reference to the Company's Current Report on Form 8-K dated March 7, 1990
("March Form 8-K"), Item 7 (c)(i))
</TABLE>
II-7
<PAGE> 90
EXHIBIT NO. DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
(10)(xii) Promissory Note to Equitable Bank dated August 2, 1991 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the second quarter ended June 30, 1991 ("June, 1991
Form 10-Q"), Part II, Item 6(a)(28)(i))
(10)(xiii) Mortgage and Security Agreement issued to the Equitable Bank dated August 2, 1991 (incorporated
by reference to the Company's June, 1991 Form 10-Q, Part II, Item 6 (a) (28) (ii))
(10)(xiv) Acquisition Agreement between the Company and Medicore, Inc. dated August 2, 1991 (incorporated
by reference to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xv) Lease between the Company and Medicore, Inc. dated December 8, 1992 (incorporated by reference
to the Company's Current Report on Form 8-K, dated January 21, 1993 ("January 1993 Form 8-K"),
Item 7(c)(10)(i))
(10)(xvi) Addendum to Lease between the Company and Medicore, Inc. dated January 15, 1993 (incorporated
by reference to the Company's January 1993 Form 8-K, Item 7(c)(10)(ii))
(10)(xvii) Agreement for Sale of Stock between the Company and Cytoferon Corp. dated February 5, 1993
(incorporated by reference to the Company's Current Report on Form 8-K, dated February 11,
1993, Item 7(c)(28))
(10)(xviii) Addendum to Agreement for Sale of Stock between the Company and Cytoferon Corp. dated May 4,
1993 (incorporated by reference to the Company's Current Report on Form 8-K dated May 5, 1993,
Item 7(c)(28)(i))
(10)(xix) Amendment No. 2 to the Royalty Agreement between the Company and Medicore, Inc. dated May 11,
1993 (incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xix))
(10)(xx) Note and Mortgage Modification Agreement between the Company and Medicore, Inc. dated August
18, 1993 (incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xx))
(10)(xxi) Amendment No. 2 to the Loan Agreement between the Company and Medicore, Inc. dated August 18,
1993 (incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xxi))
(10)(xxii) Amendment to Acquisition Agreement between the Company and Medicore, Inc. dated August 18, 1993
(incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xxii))
(10)(xxiii) Marketing and Management Services Agreement between the Company and Cytoferon Corp. dated
August 18, 1993 (incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV,
Item 14(a)(10)(xxiii))
</TABLE>
II-8
<PAGE> 91
EXHIBIT NO. DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
(10)(xxiv) Agreement for Sale of Stock between Cytoferon and the Company dated November 19, 1993
(incorporated by reference to the Company's current report on Form 8-K, dated November 12,
1993)
(10)(xxv) Employment Agreement between Gerald Smith and the Company dated November 19, 1993 (incorporated
by reference to the Company's current report on Form 8-K, dated November 12, 1993) as amended
by Modified Employment Agreement dated December 15, 19941
(10)(xxvi) Common Stock Purchase Warrant Agreement between Northlea Partners Ltd. and the Company dated
January 6, 1994 (incorporated by reference to the Company's Current Report on Form 8-K, dated
November 17, 1993)
(10)(xxvii) Management Consulting Agreement between the Company, Medvest, Inc. and Dr. John Abeles dated
January 6, 1994 (incorporated by reference to the Company's Current Report on Form 8-K, dated
November 17, 1993)
(10)(xxviii) Employment Agreement between Dennis W. Healey and the Company dated April 8, 1994 (incorporated
by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994) as
amended by Modified Employment Agreement dated December 15, 1994(1)
(10)(xxx) Employment Agreement between Charles F. Fistel and the Company dated July 1, 1994 (incorporated
by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994) as
amended by Modified Employment Agreement dated December 15, 1994(1)
(10)(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant issued to Laidlaw Equities, Inc.
and designees(1)
(10)(xxxii) Amendment No. 1 to Agreement for Sale of Stock with Cytoferon(1)
(10) (xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter D. Fischbein(1)incorporated by
reference to the Company's 1995 Form SB-2, Part II, Item 27(10)(xxxiii))
(10)(xxxiv) Agreement with Moty Hermon incorporated by reference to the Company's 1995 Form SB-2, Part II,
Item 27(10)(xxxiv))(1)
(10)(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))(2)
(10)(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)(xxxiv))(2)
(10)(xxxvii) Agreed Motion for Consent Final Order and Settlement Agreement dated August 29, 1995
(incorporated by reference to the Company's June 30, 1995 Form 10-KSB)(1)
</TABLE>
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<PAGE> 92
EXHIBIT NO. DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
(10)(xxxviii) Agreement and Plan of Reorganization dated November 8, 1995) and Amendment thereto (2)
(21) Subsidiaries of the Registrant(1)
(23)(i) Consent of Ernst & Young, LLP(2)
(23)(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included as part of Exhibit (5))
</TABLE>
1. Previously filed.
2. Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities
Act of 1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and the offering of
the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-10
<PAGE> 93
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Post- Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned in the City of Hialeah, State of Florida, on May 22, 1996.
VIRAGEN, INC.
By: /s/Gerald Smith
----------------------------------------
Gerald Smith, Chairman of
Board, Principal Executive Officer
and President
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Gerald Smith Chairman of the May 24, 1996
- ------------------------------------- Board of Directors,
Gerald Smith Principal Executive Officer
and President
/s/ Robert H. Zeiger Chief Executive Officer May 24, 1996
- ------------------------------------- Chief Operating Officer
Robert H. Zeiger
/s/ Dennis W. Healey Executive Vice President, May 24, 1996
- ------------------------------------- Treasurer and Principal
Dennis W. Healey Financial Officer and
Accounting Officer
/s/ Charles F. Fistel Executive Vice-President May 24, 1996
- -------------------------------------
Charles F. Fistel
/s/ Peter D. Fischbein Director May 22, 1996
- -------------------------------------
Peter D. Fischbein
/s/ Sidney Dworkin Director May 22, 1996
- -------------------------------------
Sidney Dworkin
Director ______, 1996
- -------------------------------------
Jay M. Haft
/s/ William B. Saeger Director May 22, 1996
- -------------------------------------
William B. Saeger
</TABLE>
II-11
<PAGE> 1
EXHIBIT 10(xxxviii)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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
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
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
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
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> 3
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
VIRAGEN (SCOTLAND) LIMITED,
SECTOR ASSOCIATES, LTD.
AND
VIRAGEN, INC.
<PAGE> 4
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
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");
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<PAGE> 5
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 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%)
2
<PAGE> 6
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").
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.
3
<PAGE> 7
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 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").
4
<PAGE> 8
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 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
5
<PAGE> 9
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 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
6
<PAGE> 10
"licensor" (the "License Agreement"), a true and correct copy of which is
attached hereto and made a part hereof as Exhibit B.
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.
7
<PAGE> 11
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, 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
8
<PAGE> 12
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 instrument, 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:
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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 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
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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 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
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<PAGE> 15
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.
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,
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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, on or prior to the Closing Date, fully comply with
all conditions of such consents.
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.
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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 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,
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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 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 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.
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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 Stockholder 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
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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 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
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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 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
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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:
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;
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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 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
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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.
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.
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10. CONDITIONS SUBSEQUENT TO CLOSING.
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 MarketTM 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 its stockholders. In
recognition of this pending distribution, the Stockholder agrees to the
following: (i) to effectuate the
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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 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.
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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 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.
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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 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
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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 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;
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(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
(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.
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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;
(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:
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If to Acquiror:
SECTOR ASSOCIATES, LTD.
401 City Avenue, Ste 725
Bala Cynwyd, PA 19004
With copies to:
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, administrators, 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.
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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.
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
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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.
(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.
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(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).
(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.
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(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 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.
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IN WITNESS WHEREOF, the parties have executed this Plan of
Reorganization the day and year first above written.
ATTEST: SECTOR ASSOCIATES, LTD.
BY:/s/Andrew Panzo
- -------------------------- --------------------------
ATTEST: VIRAGEN (SCOTLAND) LTD.
/S/Patricia Zambrano BY:/s/Gerald Smith
- -------------------------- ---------------------------
ATTEST: VIRAGEN, INC.
/S/Patricia Zambrano BY:/s/Dennis W. Healey
- -------------------------- ---------------------------
Executive Vice President
35
<PAGE> 39
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
Amendment ("Amendment") to Agreement and Plan of Reorganization
entered into as of November 8, 1995 by and among Sector Associates, Ltd., a
Delaware corporation ("Acquiror"), Viragen (Scotland) Limited, a Scottish
private limited company ("Acquiree") and Viragen, Inc., a Delaware corporation
("Stockholder").
W I T N E S S E T H:
WHEREAS, Acquiror, Acquiree and Stockholder entered into an Agreement
and Plan of Reorganization, dated September 20, 1995, as modified by that
letter of agreement dated October 2, 1995 ("Agreement and Plan of
Reorganization");
WHEREAS, Acquiror, Acquiree and Stockholder deem it to be in their
respective best interests to amend the Agreement and Plan of Reorganization in
order to complete arrangements for the closing of the transaction identified
within the Agreement and Plan of Reorganization; and
WHEREAS, upon the terms and conditions set forth herein, Acquiror,
Acquiree and Stockholder have agreed to the following amendments to the
Agreement and Plan of Reorganization.
<PAGE> 40
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Closing Date. The Closing Date of the Agreement and Plan of
Reorganization shall occur five (5) days following the filing by Acquiror of
its Annual Report on Form 10-KSB for the year ended June 30, 1995 and its
Quarterly Report on Form 10-QSB for the quarterly period ended September 30,
1995; provided, however, that the Closing Date shall occur no later than 30
days from the date hereof unless the parties mutually agree otherwise. The
parties agree that the extension of the Closing Date to accommodate the filing
of the aforementioned periodic reports are not intended to extend the period
for the undertaking of due diligence by Acquiree and Stockholder, and that such
period for completion of due diligence shall expire as of the date hereof,
notwithstanding Section 9.5 of the Agreement and Plan of Reorganization.
Acquiror represents and warrants that it is unaware of any material changes to
be included in the aforementioned periodic reports to be filed not otherwise
previously disclosed in the periodic reports filed by Acquiror or information
delivered in writing to Acquiree and Stockholder pursuant to the Agreement and
Plan of Reorganization.
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<PAGE> 41
2. Interim Loan. Pending the closing contemplated by Paragraph
1 above, Acquiror agrees to make an interim loan to Acquiree of $500,000
pursuant to a Secured Promissory Note attached hereto as Exhibit A and Pledge
and Escrow Agreement attached hereto as Exhibit B. In the event the
aforementioned closing under the Agreement and Plan of Reorganization is not
undertaken as provided in Paragraph 1 above, the Secured Promissory Note shall
be due and payable on May 8, 1996. At such time as the contemplated closing
takes place, the Secured Promissory Note shall be deemed satisfied, and the
principal amount thereof and related interest shall be contributed to and shall
become part of the capital of the Acquiror to be on hand net of liabilities as
referred to in Section 8.4 of the Agreement and Plan of Reorganization.
3. Additional Contribution. Not later than 30 days from the date
hereof, there shall be contributed to the capital of Acquiror the sum of
$300,000 through a private placement to be undertaken on behalf of Acquiror of
the equivalent of 1,790,490 shares of common stock of Acquiror.
4. Determination of Net Worth. For purposes of determining cash
assets on hand net of liabilities of $800,000 as provided in Section 8.4 of the
Agreement and Plan of Reorganization and consisting of the sum of $500,000 to
be delivered simultaneously
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with the execution hereof as provided in Paragraph 2 above and the additional
$300,000 to be delivered as provided in Paragraph 3 above, such $800,000 of
assets on hand shall be net of those liabilities (existing, accrued or
contingent) as of the Closing Date, as well as those expenses associated with
(i) completing a private placement required to raise the balance of the
$800,000 and (ii) the preparation and filing of the Form 10-KSB for the fiscal
year ended June 30, 1995 and the Form 10-QSB for the quarterly period ended
September 30, 1995. It is understood, however, that information concerning the
Acquiree and the Stockholder provided to the Acquiror to be included in such
periodic reports shall be prepared at the costs of the Acquiree, and the costs
associated with filing of the Form 8-K Current Report subsequent to the closing
and reflecting (i) the completion of the acquisition of Acquiree and (ii) the
anticipated change in accountants will be borne by the Acquiree.
5. Capitalization. Upon the 30th day immediately following the
Closing Date and the issuance of the additional shares of Common Stock as
provided in Paragraph 3 above, Acquiror shall have an outstanding
capitalization that consists of no more than approximately 5,037,617 shares of
its common stock, inclusive of the shares issued in order to comply with
Section 8.4 and exclusive
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of the shares issued to the Stockholder on the Closing Date and any shares
issued other than in connection with Paragraph 8.4 of the Agreement and Plan of
Reorganization. The parties hereto do adopt the terms of correspondence dated
October 2, 1995 as though the same were set forth within this Amendment.
6. Composition of Board of Directors Immediately following the
Closing Date. On or prior to the Closing Date, all members except one member
of the present board of directors of Acquiror shall have tendered their
resignation in favor of a new member of the board of directors, with such
remaining member being a designee of the Stockholder. The new board of
directors shall remain in effect until the earlier of 30 days following the
Closing Date or the date of delivery of the balance of the funds necessary to
satisfy the requirements of Section 8.4 of the Agreement and Plan of
Reorganization.
7. Conversion of Acquiror Shares. The Acquiror Shares will
permit the Stockholder to convert into 78,400,000 shares of common stock of the
Acquiror, each share of Class B Convertible Preferred Stock to be convertible
into 39.2 shares of common stock of the Acquiror such that the Stockholder
shall hold no less than 94% of the capital stock and interest of the Acquiror.
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8. Investment Banking Arrangements. Pursuant to an Investment
Banking Agreement, FAC Enterprises, Inc. shall receive from the Stockholder
71,429 shares of the Acquiror Shares ("FAC Shares") upon delivery of the
balance of the funds necessary to satisfy the requirements of Section 8.4.
Until that time, the FAC Shares shall remain held by the Stockholder as
collateral for performance of delivery of the balance of the funds required
pursuant to Section 8.4 and this Amendment. In the event requirements of
Section 8.4 are not satisfied within 30 days of the Closing Date, the right to
the FAC Shares by FAC Enterprises, Inc. shall be forfeited. Furthermore, to the
extent that the outstanding capitalization of Acquiror exceeds 5,037,617 Shares
of common stock, exclusive of the shares held by Stockholder and those shares
not issued in connection with completing the funding requirements of Section 1
of this Amendment, at the end of the 30 days immediately following the Closing
Date, such excess amount shall be deducted from the FAC Shares in its common
stock equivalent (39.2 shares of common stock equal to one share of Class B
Convertible Preferred Stock.) The previous Investment Banking Agreement between
Stockholder and Rozel International Holdings Limited ("Rozel") has been
terminated and a release therefrom shall be provided by Rozel on or prior to
the Closing Date.
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9. Supersedes. Each of Acquiror, Acquiree and Stockholder agree
that this Amendment shall be read in conjunction with the Agreement and Plan of
Reorganization and all the terms and provisions contained herein, shall
supersede those terms and provisions of the Agreement and Plan of
Reorganization which are not currently stated or are contrary to those terms
and provisions of the Agreement and Plan of Reorganization.
10. Full Force and Effect. This Amendment only affects those
terms and provisions of the Agreement and Plan of Reorganization that are not
currently stated or are contrary to this Amendment, and the balance of the
Agreement and Plan of Reorganization shall remain in full force and effect.
11. Binding Agreement. This Amendment shall be binding upon the
parties hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns. The parties hereto shall
not assign their respective rights nor delegate their respective obligations
hereunder to any other party without the prior written consent of all other
parties hereto.
12. Counterparts. This Amendment may be executed simultaneously
in two or more counterparts, each of which shall be
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<PAGE> 46
deemed an original, but all of which together shall constitute one and the same
instrument.
13. Facsimile Signature. This Amendment may be executed and
accepted by facsimile signature and such signature shall be in the same force
and effect as an original signature.
14. Governing Law. This Amendment shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, intending to be legally bound hereby the parties
hereto have caused this Amendment to be executed by their duly authorized
officers on the date first appearing above.
Attest: SECTOR ASSOCIATES, LTD.
/s/ Cecil Coady By: /s/ Andrew Panzo
- -------------------------- -----------------------
Attest: VIRAGEN (SCOTLAND) LIMITED
/s/ Steven Sanders By: /s/ Dennis W. Healey
- -------------------------- -----------------------
Managing Director
Attest: VIRAGEN, INC.
/s/ Charles F. Fistel By: /s/ Gerald Smith
- --------------------------- ------------------------
AGREED AND ACKNOWLEDGED:
Attest: FAC ENTERPRISES, INC.
By:
- -------------------------- -------------------------
<PAGE> 47
EXHIBIT A
SECURED PROMISSORY NOTE
November 8, 1995 $500,000.00
FOR VALUE RECEIVED, the undersigned, VIRAGEN (SCOTLAND) LIMITED
("Maker"), a Scottish private limited company, hereby promises to pay to the
order of SECTOR ASSOCIATES, LTD. ("Payee"), a Delaware corporation, the
principal sum of Five Hundred Thousand Dollar ($500,000.00) with interest on
the unpaid principal amount at the rate of 4% per annum and on any overdue
payment of principal or interest at the rate of 1% per month (12% per annum),
and with the principal balance and all accrued interest being due and payable
on May 7, 1996, all as hereinafter provided. This Note shall be subject to the
terms and conditions of an Agreement and Plan of Reorganization dated as of
September 20, 1995, as Amended, between Maker, Payee and Viragen, Inc. (the
"Agreement and Plan of Reorganization"), particularly as it relates to the
satisfaction of this Note upon the Closing of the Agreement and Plan or
Reorganization.
1. Payments of Interest and Principal.
(a) Interest. Maker shall pay interest to Payee on the
unpaid outstanding principal balance owed to Payee hereunder at the rate of
four percent (4%) per annum to be paid at the time of payment of the principal
as herein provided.
(b) Principal. Maker shall have no duty or obligation to
pay any portion of the outstanding principal owed hereunder, except as
hereinafter provided, until May 7, 1996. On May 7, 1996, all accrued interest
and outstanding principal shall be due and payable, and shall be paid, to
Payee.
(c) Payments. All payments made hereunder shall be
applied as made first to the payment of interest then due, and the balance of
said payment shall be applied to the payment of the principal sum.
2. Place of Payment. So long as Payee shall hold this Note, all
payments of principal and interest shall be made at the address of Maker as
specified herein upon presentment of this Note.
<PAGE> 48
3. Prepayment. From and after the date hereof, Maker shall have
the option to prepay any portion or all of the remaining principal balance of
this Note without penalty or premium. All optional prepayments of principal
made pursuant to this Note shall be accompanied by the payment of all accrued
interest on such principal through the date of payment.
4. Security Interest.
(a) Security Interest. As collateral security for the
payment of this Note, Maker hereby pledges, transfers, assigns, sets over and
grants to Payee a first priority security interest in the Collateral (as
hereinafter defined) wherever located.
(b) Continuation of Security Interest. The security
interest granted in this Agreement shall continue in full force and effect
until the payment in full of this Note.
(c) Collateral. The term "Collateral" shall inventory,
shares of capital stock and refer to 3.77 shares of Common Stock of Maker,
including all replacements, modifications, alterations, additions,
substitutions and replacements therefore and all proceeds and products of the
foregoing now owned or hereafter acquired by Maker. The Collateral shall be
provided as security pursuant to a Pledge and Escrow Agreement entered into
simultaneously herewith.
(d) Further Assurance. Maker shall take such steps and
execute and deliver such financing statements and other documents relating to
the creation, validity or perfection of the security interests provided for
herein.
(e) Representations and Warranties. Maker hereby
represents and warrants that Maker has due authorization to issue the
Collateral free and clear of any and all liens, encumbrances or other security
interests whatsoever.
(f) Covenants of Maker. Until payment in full of the
Note, Maker hereby covenants and agrees as follows:
(i) Observe Covenants, etc. Maker shall observe,
perform and comply with the covenants, terms and conditions of this
Note.
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<PAGE> 49
(ii) Payment of Proceeds. After the occurrence of
an "Event of Default," as hereinafter defined, and for so long as such
default is continuing, Maker shall forthwith upon receipt of any
proceeds of Collateral, pay such proceeds over for the benefit of
Payee, and such proceeds shall thereupon be used to the full extent
necessary to satisfy Maker's obligations to Payee.
(iii) Other Liens. Maker shall not incur, create
or permit to exist any mortgage, assignment, pledge, hypothecation,
security interest, lien or other encumbrance on any of the Collateral.
(g) Default. The occurrence of any of the following
shall constitute an event of default ("Event of Default"):
(i) Failure to Pay. Maker fails to pay, when
due, any of the obligations provided for in this Note at their due
date or under any other note or obligations of Maker to the Payee.
(ii) Denominated Events. The occurrence of any
event expressly denominated as an Event of Default in this Note.
(iii) Failure to Perform. Maker fails to perform
or observe any material covenant, term or condition of this Note, or
any other note or obligation issued or owing in respect to Payee and
to be performed or observed by Maker, and such failure continues
unremedied for a period of ten (10) days after written or facsimile
notice from Payee to Maker of such failure.
(iv) Petition By or Against Maker. There is filed
by or against Maker any petition or complaint with respect to its own
financial condition under any state or federal bankruptcy law or any
amendment thereto (including without limitation a petition or
reorganization, arrangement or extension of debts) or under any other
similar or insolvency laws providing for the relief of debtors; or
(v) Appointment of Receiver. A receiver,
trustee, conservator or liquidator is appointed for Maker, or for all
or a substantial part of its assets; or Maker shall be
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<PAGE> 50
adjudicated bankrupt or in need of any relief provided to debtors by
any court.
(h) Remedies.
(i) Acceleration, Proceed Against Collateral.
Upon the occurrence of an Event of Default and for so long as such
default is continuing:
(1) The total amount of (i) of this Note
and all other sums owing to Payee which are (A) then due and
unpaid or (B) thereafter to become due and payable; and (ii)
interest on the foregoing sums, at the rate of one percent
(1%) per month from said occurrence until paid in full (the
"Default Amount") shall, at the option of Payee, become
immediately due and payable without notice or demand;
(2) The proceeds of the Collateral shall
be applied. First, to the payment of all reasonable fees and
expenses incurred by Payee as a result of such Event of
Default, including without limitation any legal fees and
expenses incurred in connection therewith; Second to pay the
Default Amount to the extent not previously paid by Maker; and
Third to pay any excess remaining thereafter to Maker;
(3) In lieu of any such sale, Payee may
retain the Collateral in full satisfaction of Maker's
obligations under this Note; and
(4) Payee may exercise any of the other
remedies provided under applicable laws.
(ii) Cumulative Remedies; Waivers. No remedy
referred to herein is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or
otherwise available to Payee at law or in equity. No express or
implied waiver by Payee of any default or Event of Default hereunder
shall in any way be, or be construed to be, a waiver of any future or
subsequent default or Event of Default. The failure or delay of Payee
in exercising any rights granted it hereunder under any occurrence of
any of the contingencies set forth herein shall not constitute a
waiver of any such right upon the continuation or recurrence of any
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<PAGE> 51
such contingencies or similar contingencies, and any single or partial
exercise of any particular right by Payee shall not exhaust the same
or constitute a waiver of any other right provided herein.
(iii) Costs and Expenses. Maker shall be liable
for all costs, charges and expenses incurred by Payee by reason of the
occurrence of any Event of Default or the exercise of Payee's remedies
with respect thereto.
(iv) No Marshalling. Payee shall be under no
obligation to proceed against any or all of the collateral before
proceeding directly against Maker. Payee shall be under no obligation
whatsoever to proceed first against any of the collateral before
proceeding against any other of the Collateral. It is expressly
understood and agreed that all of the collateral stands as equal
security for all obligations described above, and that Payee shall
have the right to proceed against any or all of the collateral in any
order, or simultaneously, as in its sole discretion it shall
determine. It is further understood and agreed that Payee shall have
the right, as it, in its sole discretion, shall determine, to retain,
sell or dispose of any or all of the Collateral in any order or
simultaneously.
(v) Other Remedies. The remedies granted to
Payee herein upon an Event of Default are not restrictive of any and
all other rights and remedies of Payee provided for by this Agreement,
any of the relevant documents and applicable law.
5. Contribution to Capital Upon Closing of Agreement and Plan of
Reorganization.
Upon closing of the Agreement and Plan of Reorganization, the
principal amount of this Note together with related interest shall be deemed
contributed to the capital of Sector Associates, Ltd., the payee of this Note,
and this Note shall be deemed satisfied at that time.
Miscellaneous
(a) Waivers. No waiver of any term or condition of this
Note shall be construed to be a waiver of any succeeding breach of the same
term or condition. No failure or delay of Payee
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<PAGE> 52
to exercise any power hereunder, or it insists upon strict compliance by Maker
of any obligations hereunder, and no custom or other practice at variance with
the terms hereof shall constitute a waiver of the right of Payee to demand
exact compliance with such terms.
(b) Invalid Terms. In the event any provision contained
in this Note shall, for any reason, be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Note, and this Note shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
(c) Successors. This Note shall be binding upon Maker,
its legal representatives, successors and assigns, and insure to the benefit of
Payee, its legal representatives, successors and assigns.
(d) Controlling Law. This Note shall be read, construed
and governed in all respects in accordance with the laws of the State of
Delaware.
(e) Amendments. This Note may be amended only by an
instrument in writing executed by the party against which enforcement of the
amendment is sought.
(f) Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be
sufficiently given if addressed to the Maker at 2343 W. 76th Street, Hialeah,
Florida 33016, and to the Payee at 401 City Avenue, Suite 725, Bala Cynwyd,
Pennsylvania 19004, posted in the U.S. Mail by certified or registered mail,
return receipt requested or by overnight mail, including appropriate receipts.
Any party may change said address by giving the other party hereto notice of
such change of address. Notice given as hereinabove prescribed shall be deemed
given on the date of its deposit in the U.S. Mail or with the overnight
delivery service.
(g) Headings. All section and subsection headings
herein, wherever they appear, are for convenience only and shall not affect the
construction of any terms herein.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed by its duly authorized officer and its seal affixed hereto, as of the
day and year first above written.
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<PAGE> 53
VIRAGEN (SCOTLAND) LIMITED
By: /s/Dennis W. Healey
-------------------
Managing Director
ATTEST:
- ----------------------------
Secretary
Guaranty
In consideration of the acceptance by Payee of the above Note and for
other good and valuable consideration, the undersigned hereby unconditionally
guarantees to Payee the payment of the Note together with all reasonable
attorneys' fees, costs and expenses of collection incurred by Payee. The
guarantee of payment of such interest on the Note shall not exceed the maximum
amount prescribed by law. The undersigned guarantor consents that at any time,
and without notice to the undersigned, payment of any sums due on the Note may
be extended, or the Note may be renewed, in whole or in part, without affecting
the liability of the undersigned. The undersigned hereby waives notice of
acceptance, presentment, demand for payment, protest or notice of dishonor or
non-payment of the Note.
VIRAGEN, INC.
By:/s/Gerald Smith
---------------
President
7
<PAGE> 54
EXHIBIT B
PLEDGE AND ESCROW AGREEMENT
THIS PLEDGE AND ESCROW AGREEMENT made and entered into as of this 8th
day of November, 1995, by and between VIRAGEN (SCOTLAND), LIMITED ("Viragen
(Scotland)"), VIRAGEN, INC. ("Viragen") (Viragen (Scotland) and Viragen being
collectively referred to as "Pledgor"), SECTOR ASSOCIATES, LTD. (referred to as
"Pledgee"), and ATLAS, PEARLMAN, TROP & BORKSON, P.A. (hereinafter referred to
as "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Viragen (Scotland) has heretofore executed a Promissory Note
(the "Note") in favor of Pledgee and Viragen has guaranteed the Note, a copy of
which is attached hereto as Exhibit "A;"
WHEREAS, to secure the payment of said Note, Pledgor has agreed to
grant to Pledgee a security interest in 3.77 shares of the Common Stock of the
Pledgor (the "Pledged Shares");
WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent
to act as escrow agent for the Pledged Shares in accordance with the terms of
this Agreement;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements hereinafter set forth, the parties mutually agree as follows:
1. SECURITY INTEREST. Pledgor hereby grants to Pledgee a first
lien security interest, superior to all other liens and encumbrances, in and to
the Pledged Shares. Copies of Stock Powers representing such Pledged Shares,
endorsed in blank, and copies of the Certificates representing such Pledged
Shares, are attached as Exhibit "B." The Pledged Shares and Stock Powers shall
be held by Escrow Agent as collateral for the indebtedness owed by the Company
to Pledgee pursuant to the Note.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants that, except for the security interest
granted hereunder, the Pledged Shares are free and clear of all liens, charges,
encumbrances and security interest of every kind and nature, and that Pledgor
will make no assignment, pledge, mortgage, hypothecation or transfer of the
Pledged Shares;
<PAGE> 55
that Pledgor has good right and legal authority to pledge the Pledged Shares in
the manner hereby done or contemplated and will defend Pledgor's title to such
Pledged Shares against the claim of all person whomsoever; that the pledge of
the Pledged Shares is effective to vest in Pledgee the rights of the Pledgee in
such Pledged Shares set forth herein; and that the Pledged Shares have been
duly and validly authorized and issued and are fully paid and non-assessable.
3. ADJUSTMENTS. In the event that, during the term of this
Agreement, any stock dividend shall be declared on or with respect to any of
the Pledged Shares, or there is a reclassification, readjustment, merger,
consolidation, stock split or any other change is made in the capital structure
of the Pledgor, all new, substituted and additional shares or other securities
issued by reason of such a change shall be delivered and held by Escrow Agent
under the terms of this Agreement in the same manner as the Pledged Shares.
4. ESCROW. Pledgor shall deposit with Escrow Agent the Pledged
Shares, along with the aforesaid Stock Powers (all of which items shall
hereinafter be referred to as the "Pledged Documents," including all stock
assignments), to be held in escrow for future delivery as follows:
(a) Escrow Agent shall deliver the Pledged Documents to
Pledgee within ten (10) days after receiving an affidavit signed by
Pledgee stating that:
(i) Pledgor is in default under the Note and all
periods of time within which to cure such default have
expired;
(ii) Pledgee is accelerating the entire unpaid
balance due under the Note; and
(iii) Pledgee demands delivery of the Pledged
Documents.
Pledgee shall simultaneously furnish Pledgor with a copy of
said affidavit. Upon such delivery of the Pledged Documents, Escrow Agent's
duties hereunder shall terminate.
(b) In the event Escrow Agent has not delivered the
Pledged Documents pursuant to subparagraph (a) above, then
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<PAGE> 56
Escrow Agent shall deliver the Pledged Documents to Pledgor within ten
(10) days after receipt of the original of the Note marked "satisfied
in full," accompanied by instructions from Pledgee indicating that
said Note has been satisfied in full and the Pledged Documents shall
be delivered to Pledgor at the address specified therein. Upon such
delivery of the Pledged Documents, Escrow Agent's duties hereunder
shall terminate. Pledgee agrees to deliver the Note to Pledgor marked
"satisfied in full," immediately upon satisfaction thereof.
5. DISPUTE. It is specifically understood and agreed that should
any dispute arise between the parties hereto concerning this Agreement or its
construction, or for any other reason, the Escrow Agent in its sole discretion,
shall have the right to deposit the Pledged Documents held by it pursuant to
this Escrow Agreement and Escrow Agent, with the Clerk of the Circuit Court of
Broward County, Florida, and notify all parties concerned, and whereupon, all
liability hereunder on the part of the Escrow Agent shall fully cease except to
the extent of accounting for the Pledged Documents and any other documents that
may have been delivered to it.
6. INTERPLEADER. In the event the Escrow Agent places the
Pledged Documents that have actually been delivered to Escrow Agent in the
registry of the Circuit Court in and for Broward County, Florida, and files an
action of interpleader naming Pledgor and Pledgee, and other necessary parties,
Escrow Agent shall be released and relieved from any and all further
obligations and liabilities hereunder or in connection herewith. Pledgor and
Pledgee hereby , jointly and severally, indemnify and hold Escrow Agent
harmless from any damages or losses arising hereunder or in connection
herewith, including, but not limited to, all costs and expenses incurred by
Escrow Agent in connection with the filing of such action and reasonable
attorneys' fees and costs for Escrow Agent's attorney(s) through and including
all appeals.
7. NATURE OF ESCROW AGENT'S DUTIES. It is agreed that the duties
of Escrow Agent are only such as are herein specifically provided and are
purely ministerial in nature. Hence, Escrow Agent shall not be held liable for
any matter or thing except for Escrow Agent's gross negligence or willful
misconduct. Pledgor and Pledgee shall at all times hereafter, jointly and
severally, indemnify Escrow Agent and hold Escrow Agent harmless from any claim
asserted against it and from any damages, costs, expenses, liability and/or
losses sustained by Escrow Agent (except for Escrow Agent's gross negligence or
willful misconduct), including,
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but not limited to, reasonable attorneys' fees and costs for Escrow Agent's
attorneys(s) through and including all appeals and whether or not litigation is
instituted. The obligations and duties of the Escrow Agent are confined to
those specifically enumerated in this Agreement. The Escrow Agent shall not be
subject to nor be under any obligation to ascertain or construe the terms and
conditions of any obligation to ascertain or construe the terms and conditions
of any instrument whether or not now or hereafter deposited with or delivered
to the Escrow Agent be obliged to inquire as to the form, execution and
sufficiency or validity or any instruments, or to inquire as to the identity,
authority or rights of any person executing or delivering the same.
8. RETENTION OF LEGAL COUNSEL. It is agreed that Escrow Agent
shall have full discretion as to whom it may retain as legal counsel to protect
its interests (including retaining itself as a law firm) and same shall not
affect or in any way prejudice or limit Escrow Agent's entitlement to
reasonable attorneys' fees for the services of such attorneys as set forth in
this Escrow Agreement.
9. VENUE. It is recognized that this Escrow Agreement shall be
deemed to have been entered into by the parties hereto in Broward County,
Florida, and that the property which is the subject of this Escrow Agreement is
located in Broward County, Florida. Therefore, it is agreed that venue with
respect to any matter arising herefrom shall only lie in Broward County,
Florida, except to the extent, and only to the extent, that this provision with
respect to venue is deemed in contravention of any applicable law.
10. AMBIGUITY; CONFLICTING INSTRUCTIONS. In the event the Escrow
Agent shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands from any of the parties hereto or from third
persons with respect to the Pledged Documents held hereunder, which in its sole
opinion, care in conflict with any provision of this Agreement, it shall be
entitled to refrain from taking any action until it shall be directed otherwise
in writing by all the parties hereto and said third persons, if any, or by a
final order or judgment of a court of competent jurisdiction.
11. NOTICES. Notices and deliveries under this Agreement shall be
given or made by certified mail, return receipt requested, as follows:
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PLEDGOR:
VIRAGEN (SCOTLAND), LIMITED
VIRAGEN, INC.
2343 W. 76th Street
Hialeah, FL 33016
PLEDGEE:
SECTOR ASSOCIATES LTD.
401 City Avenue, Suite 725
Bala Cynwyd, PA 19004
ESCROW AGENT:
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 E. Las Olas Boulevard, Suite 1900
Ft. Lauderdale, FL 33301
or such other address as any of the above-mentioned parties shall have
designated in writing to the other parties.
12. TERMINATION. All parties agree that the services of the
Escrow Agent may be terminated by the Escrow Agent or by the joinder of both
Pledgee and Pledgor upon ten (10) days written notice to the other. In the
event of such termination, the Pledgee and Pledgor shall mutually agree to a
Successor Escrow Agent. Failing such mutual agreement, application shall be
made to the appropriate court of Broward County, Florida, for the appointment
of a Successor Escrow Agent. Upon such appointment, ATLAS, PEARLMAN, TROP &
BORKSON, P.A. shall deliver all escrow documents to such successor for
continuation of the escrow in accordance with the terms of this Agreement.
13. MISCELLANEOUS.
(a) Benefit of Agreement. This Agreement shall be
binding upon the parties hereto and their successors and assigns.
(b) Modification. The Escrow Agent shall not be bound by
any modification, cancellation or rescission of this Agreement unless in
writing and signed by the parties hereto. In no event, however, shall any
modification of this Agreement, which shall affect the rights or duties of the
Escrow Agent, be binding upon Escrow Agent unless it shall have given its prior
written consent.
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<PAGE> 59
(c) Attorneys' Fees. In the event Pledgor or Pledgee
shall seek to enforce this Agreement, whether or not through litigation, the
prevailing party shall be entitled to receive reasonable attorneys' fees and
all costs incurred in connection with such enforcement, including fees and
costs of appeal.
(d) Further Cooperation. From and after the date of this
Agreement, each of the parties hereto agrees to execute whatever additional
documentation or instruments as are necessary to carry out the intent and
purposes of this Agreement.
(e) Waiver. No indulgences extended by any party hereto
or any other party shall be construed as a waiver of any breach on the part of
such other party, nor shall any waiver of one breach be construed as a wavier
of any rights or remedies with respect to any subsequent breach.
(f) Construction. It is the intention of the parties
that the laws of the State of Florida shall govern the validity of this
Agreement, the construction of its terms, and the interpretation of the rights
and duties of the parties. The parties agree and acknowledge that each party
has reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting parties shall not be employed in the interpretation of this Agreement
or any amendment or exhibits thereto.
(g) Truth of Recitals. The recitals and statements
contained on page 1 of this Agreement are true and correct and are hereby
incorporated into this Agreement.
(h) Entire Agreement. This Agreement sets forth the
entire agreement and understanding of the parties on the subject matter hereof
and supersedes all prior agreements and understandings relating thereto.
(i) Severability. The invalidity or unenforceability of
any particular provision of this Agreement shall not affect the other
provisions hereof and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision was omitted.
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<PAGE> 60
(j) Headings. The headings used in this Agreement are
used for reference purposes only and are not to be deemed controlling with
respect to the contents thereof.
(k) Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall for all purposes be
deemed to be an original.
(l) Incorporation by Reference. The Exhibits referred to
in this Agreement are hereby incorporated into this Agreement by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PLEDGOR:
VIRAGEN (SCOTLAND), LIMITED
By: /s/Dennis W. Healey
------------------------------
Managing Director
VIRAGEN, INC.
By: /s/Gerald Smith, President
------------------------------
Managing Director
PLEDGEE:
SECTOR ASSOCIATES, LTD.
By: /s/Andrew Panzo
------------------------------
ESCROW AGENT:
ATLAS,PEARLMAN,TROP & BORKSON, P.A.
By:
------------------------------
<PAGE> 1
Exhibit 23(i)
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 5, 1995, except for the first paragraph of
Note F as to which the date is September 20, 1995 in the Post-Effective
Amendment No. 1 to the Registration Statement (Form SB-2 No. 33-88070) and
related Prospectus of Viragen, Inc. for the Registration of 22,703,455 shares
of its common stock.
ERNST & YOUNG LLP
Miami, Florida
May 22, 1996
