PROSPECTUS
3,000,000 Shares
VIRAGEN, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
This Prospectus, as supplemented (the "Prospectus"), relates to the offer
and sale of up to 3,000,000 shares (the "Shares") of Common Stock, $.01 par
value (the "Common Stock"), of Viragen, Inc. (the "Company" or "Viragen") by
Advantage Fund Limited (the "Selling Security Holder"). Of the 3,000,000 shares
of Common Stock offered hereby, (i) up to an aggregate of 2,500,000 Shares have
been issued or are issuable upon conversion of 5,000 shares of the Company's
Convertible Preferred Stock, Series E (the "Series E Preferred Stock"), and
which Shares will be issuable upon conversion of the Company's Convertible
Preferred Stock, Series G (the "Series G Preferred Stock"), which are being
issued in exchange for the outstanding shares of Series E Preferred Stock and
(ii) up to 500,000 Shares of Common Stock are additional shares (the "Additional
Shares") which are issuable to the Selling Security Holder in satisfaction of
dividends on the Series E Preferred Stock or the Series G Preferred Stock and
upon the occurrence of certain "Triggering Events." A Triggering Event will have
occurred in the event the Registration Statement (the "Registration Statement")
of which this Prospectus forms a part becomes subject to a stop order, or the
Company fails to update the Registration Statement as required by the rules and
regulations of the Securities and Exchange Commission (the "Commission").
This Prospectus covers the resale by the Selling Security Holder of
3,000,000 Shares and, in accordance with Rule 416 under the Securities Act of
1933, such presently indeterminate number of additional Shares as may be
issuable upon conversion of the Company's Series G Preferred Stock, based upon
fluctuations in the conversion price of the Series G Preferred Stock. As at
August 15, 1997, there were 4,000 shares of Series E Preferred Stock
outstanding. The reference to the "Shares" includes those shares of Common Stock
of the Company underlying the Series E Preferred Stock, whether or not
heretofore converted, and the Series G Preferred Stock following such exchange.
See "Selling Security Holder."
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.
THE SECURITIES OFFERED HEREBY INVOLVE A SIGNIFICANT DEGREE OF RISK. SEE
"HIGH RISK FACTORS" COMMENCING ON PAGE 6.
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 date of this Prospectus is August 29, 1997
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The Company believes that the number of shares of Common Stock to which
this Prospectus relates should be the maximum number of shares of Common Stock
that are likely to be issued to the Selling Security Holders and sold hereby.
The Selling Security Holder has advised the Company that it proposes to
sell the Shares, from time to time, publicly through broker-dealers acting as
agents for others, or in private sales. See "Selling Security Holder" and "Plan
of Distribution." The Company will not receive any of the proceeds from the sale
of the Shares offered hereby by the Selling Security Holder.
The Company will pay all offering expenses for the offering, estimated at
approximately $22,000, including (i) the SEC registration fee ($7,251); (ii)
legal fees and expenses ($6,000); (iii) blue sky fees ($500); (iv) accounting
fees and expenses ($6,000); (v) printing expenses ($1,000); and (vi)
miscellaneous expenses ($1,249), but will not pay any discounts or commissions
incurred by the Selling Security Holder in connection with the sale of its
shares of Common Stock.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies
of such material may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission also maintains a web site on the internet
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
This Prospectus, which constitutes part of a Registration Statement filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Act"), omits certain information contained in the Registration Statement
in accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and to the exhibits relating thereto
for further information with respect to the Company and the securities offered
hereby.
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TABLE OF CONTENTS
AVAILABLE INFORMATION................................................. 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................... 4
HIGH RISK FACTORS..................................................... 5
THE COMPANY........................................................... 10
SELLING SECURITY HOLDER............................................... 12
PLAN OF DISTRIBUTION.................................................. 16
DESCRIPTION OF SECURITIES............................................. 17
LEGAL MATTERS......................................................... 22
EXPERTS............................................................... 22
INDEMNIFICATION....................................................... 22
The Common Stock of the Company is traded in the over-the-counter market,
and prices are quoted in the Nasdaq National Market under the symbol "VRGN." The
last sale price of the Common Stock as reported by NASDAQ on August 25, 1997 was
approximately $2.37 per share.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
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
or the Selling Security Holder. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
The Company will not receive any proceeds from the sale of Common Stock
for the account of the Selling Security Holder. The Company has informed the
Selling Security Holder that the anti- manipulative rules under the Exchange Act
of 1934, including Regulation M thereunder, may apply to their sales in the
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market, and has furnished the Selling Security Holder with a copy of these
rules. The Company has also informed the Selling Security Holder of the need for
delivery of copies of this Prospectus in connection with any sale of securities
registered hereunder.
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 is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission.
The Company has previously and 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
(a) Annual Report of the Company on Form 10-K for the fiscal year ended
June 30, 1996 as amended by Form 10-K/A filed October 18, 1996 and Form 10-K/A-1
filed December 19, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1996 as amended by Form 10-Q/A filed December 19, 1996.
(c) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1996.
(d) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997.
(e) The Company's Current Report on Form 8-K dated June 7, 1996, as
amended by Form 8-K/A filed July 12, 1996 and Form 8-K/A-1 filed November 29,
1996.
(f) The Company's Current Report on Form 8-K dated February 14, 1997.
(g) The Company's Current Report on Form 8-K dated March 7, 1997.
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(h) The description of the Company's Common Stock contained in a
Registration Statement on Form 8-A filed under the Securities Exchange Act of
1934, as amended, including any amendment or report filed for the purpose of
updating such description.
(i) All reports and documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated
by reference herein and to be a part hereof from the respective date of filing
of such documents.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement modified or superseded shall not be
deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to Corporate Secretary, Viragen,
Inc. at the Company's principal executive office, 865 S.W. 78th Avenue, Suite
100, Plantation, FL 33324, Telephone (954) 233-8746.
HIGH RISK FACTORS
The securities offered hereby involve a high degree of risk. Prospective
investors, prior to making an investment decision, should carefully consider the
following risk factors:
HISTORY OF LOSSES AND RISKS OF NEWLY DEVELOPED BUSINESS
From its inception through March 31, 1997, the Company has incurred
operating losses. The net loss for the fiscal year ended June 30, 1996 was
$4,672,271 and for the nine months ended March 31, 1997 was $3,332,159. At March
31, 1997, the Company had an accumulated deficit of $25,793,987. 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 commercialization
of its natural human leukocyte alpha interferon product (the "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, including unforeseen expenses,
organizational difficulties, complications and delays, as well as other factors
such as the possibility of competition with larger companies.
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LACK OF FDA AND EU APPROVAL; ADDITIONAL FUNDING NEEDED; RISK OF SOLE PRODUCT
The Product has not been approved by the U.S. Food and Drug Administration
("FDA") or by European Union ("EU") regulatory authorities for use in the
treatment of patients, and the Company may only presently distribute the Product
for its approved HIV/AIDS protocol pursuant to its Florida license under Florida
Statute Section 499.018. The Company intends to seek FDA and EU approval of the
Product for use in treating certain diseases. The Company will require
additional clinical trials in order to obtain FDA and EU approvals. The FDA and
EU approval processes are unpredictable, and the process may take several years
to obtain either FDA or EU approval. There is, however, no assurance that any
FDA or EU approvals will be received at any time in the future. Further trials
will also require significant additional funding in addition to the proceeds
obtained from the financings previously undertaken. There is no assurance that
such funding can be obtained on a cost feasible basis to the Company.
Commencing in December 1994, the Company received notifications from the
Florida Department of Health and Rehabilitative Services ("HRS") (i) to postpone
enrollment of new patients under Viragen's Florida Statute 499 Program until
such time as the Company provided certain administrative reports to HRS and
satisfied certain FDA inspection-related comments concerning the Company's
manufacturing processes and facilities; and (ii) that the Company demonstrate
that its previous production technology complies with FDA current Good
Manufacturing Practices ("cGMP"). As a result of such notifications, changes in
the Company's production technology which have resulted in the development of
Viragen's Omniferon(TM) product and determination by the Company to establish
new facilities in Scotland and elsewhere in the United States, the Company
entered into a settlement with HRS which resulted in the discontinuation of
Viragen's statutory 499 Program with the exception of the Company's limited
HIV/AIDs program in Florida. There can be no assurances that the Company's
current production technology and planned new facilities will comply with FDA
mandated cGMP standards.
Additionally, the Product is the Company's sole product and until such
time as the Product achieves FDA and/or EU approval, the Company has no other
sources of revenues. To the extent that the Product is the Company's only
potential source of revenues, the failure to attain approval by the FDA and/or
the EU would eventually result in the Company having to discontinue its
operations.
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 Multiple Sclerosis ("MS"), cancer and viral
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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.
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.
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.
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.
Although many of 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.
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Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's Product will
be considered cost effective or that adequate third-party reimbursement will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return 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. 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
application will be approved, and if granted, whether such patents will provide
substantial protection to the Company.
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.
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.
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RELIANCE ON FOREIGN THIRD PARTY MANUFACTURER MAY DISRUPT OPERATIONS
Viragen (Scotland) Ltd. ("VSL"), a wholly-owned subsidiary of Viragen
(Europe) Ltd., a consolidated majority-owned subsidiary of the Company, has
entered into a License and Manufacturing Agreement with The Common Services
Agency of Scotland, an agency acting on behalf of the Scottish National Blood
Transfusion Service ("SNBTS"). 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 manufacturer 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, and
which may have a material adverse effect on the Company's business and
operations.
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, its Executive Vice President and Chief Financial Officer, Mr. Dennis W.
Healey, and its Executive Vice President, Mr. Charles F. Fistel. The Company has
entered into employment agreements with Messrs. Smith, Zeiger, Healey and
Fistel, 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, Healey
and Fistel 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.
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.
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POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of August 15, 1997, there were 6,102,965 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 (the "Securities Act"). 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 one year may sell a limited number of
shares to the public in ordinary brokerage transactions. Sales under Rule 144
may have a depressive effect on the market price of the Company's Common Stock
due to the potential increased number of publicly held securities. The timing
and amount of sales of Common Stock covered by the Registration Statement of
which this Prospectus is a part, as well as sales pursuant to other filed
registration statements, could also have a depressive effect on the market price
of the Company's Common Stock. The Company has registered 18,684,683 shares of
the Company's Common Stock on behalf of certain selling stockholders, including
the Shares offered hereby.
USE OF PREFERRED STOCK TO RESIST TAKEOVERS; POTENTIAL ADDITIONAL DILUTION
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
Preferred Stock, of which at August 15, 1997, 2,650 shares of Series A Preferred
Stock, 974 shares of Series C Preferred Stock, 8,450 shares of Series D
Preferred Stock and 4,000 shares of Series E Preferred Stock were 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. The Company
anticipates issuing additional shares of Preferred Stock as part of its
financing program. 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.
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
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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
or the European Union, 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 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 applications to the FDA and the EU.
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 agent acting on behalf of the Scottish National Blood
Transfusion Service. Pursuant to such Licensing and Manufacturing Agreement,
SNBTS on behalf of VSL, will assist in the manufacture of VSL's Omniferon
product for exclusive distribution within the EU and non-exclusively worldwide
in return for certain royalties and preferential access to the Product for
Scottish Agency patients at preferential prices. The Agency has committed to
assist in the manufacture of Omniferon 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 will also work with the Company in
conducting studies relevant to Omniferon and cooperate with the Company to
enable it to comply with the laws and regulations of the EU in connection with
production, clinical trials and distribution of Omniferon.
In June 1996, the Company entered into a Letter of Intent with the
American Red Cross -- Biomedical Services Division. The Company is also
conducting negotiations with foreign governments and several international Red
Cross organizations.
Viragen's administrative office and research facilities are located at 865
S.W. 78th Avenue, Suite 100, Plantation, FL 33324 (Telephone (954) 233-8746;
Facsimile No. (954) 233- 1414.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS SET FORTH
IN THIS PROSPECTUS ARE FORWARD LOOKING AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DESCRIBED FOR A VARIETY OF FACTORS. SUCH FACTORS COULD INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS" IN THE COMPANY'S FORM 10K-A-1 ANNUAL REPORT FILED FOR THE FISCAL YEAR
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ENDING JUNE 30, 1996, AS WELL AS THOSE DISCUSSED ELSEWHERE IN OTHER PUBLIC
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD
LOOKING STATEMENTS INCLUDE THE COMPANY'S STATEMENTS REGARDING LIQUIDITY,
ANTICIPATED CASH NEEDS AND AVAILABILITY, AND ANTICIPATED EXPENSE LEVELS IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" INCLUDING EXPECTED PRODUCT CLINICAL TRIAL INTRODUCTIONS, EXPECTED
RESEARCH AND DEVELOPMENT EXPENDITURES, NEW FACILITY COMPLETION DATES AND RELATED
ANTICIPATED COSTS. ALL FORWARD LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE
BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD LOOKING STATEMENTS. IT
IS IMPORTANT TO NOTE THAT THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE IN SUCH FORWARD LOOKING STATEMENTS.
SELLING SECURITY HOLDER
SECURITIES PURCHASE AGREEMENT AND EXCHANGE AGREEMENT
The Series E Preferred Stock was originally issued by the Company pursuant
to a Securities Purchase Agreement dated as of December 31, 1996 (the
"Securities Purchase Agreement"). The Selling Security Holder subsequently
acquired all of the Series E Preferred Stock from an initial purchaser in a
private placement transaction. In connection therewith, all rights and
obligations of the initial purchaser under the Securities Purchase Agreement and
the Registration Rights Agreement described below (the "Registration Rights
Agreement") were transferred and assigned to the Selling Security Holder. In
order to effectuate certain changes in the terms that pertain to the Series E
Preferred Stock, the Company and the Selling Security Holder have entered into
an Exchange Agreement dated as of August 27, 1997 (the "Exchange Agreement"),
pursuant to which the Company's Series G Preferred Stock is being exchanged for
outstanding shares of Series E Preferred Stock on a one-for-one basis. The
Company believes that the exchange of such Preferred Stock will facilitate a
more orderly market relative to the underlying shares of Common Stock. The
stated value of the Series G Preferred Stock is $1,000 per share. In addition to
the shares of Common Stock to be received upon conversion of the Series G
Preferred Stock, the Additional Shares are issuable pursuant to the terms of the
Certificate of Designations, Preferences and Rights of 10% Cumulative
Convertible Series G Preferred Stock (the "Certificate of Designations") should
the Company choose to satisfy its obligation to pay dividends payable on the
Series G Preferred Stock, as provided therein, and upon the occurrence of
certain Triggering Events.
The Series G Preferred Stock (as represented by the stated value), as was
the case with the Series E Preferred Stock, is convertible into shares of Common
Stock of the Company at the lesser of (i) the Average Market Price for the five
(5) consecutive trading days ending one (1) trading day prior to the date of the
Conversion Notice multiplied by 85%, subject to adjustment, or (ii) $7.00,
subject to adjustment. The foregoing notwithstanding, no conversions of the
Series G Preferred Stock will be permitted if the Market Price of the Company's
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Common Stock is less than $2.50, subject to adjustment, at the date of such
conversion notice. The percentage of the Average Market Price or the fixed
conversion price which determines the conversion price of the Series G Preferred
Stock is adjustable downward in the event a Triggering Event occurs. Should a
Triggering Event occur, the percentage of the Average Market Price which
determines the conversion price or the fixed conversion price for the Series G
Preferred Stock will be reduced by the number of percentage points equal to two
times the sum of the number of months (prorated) during which a Triggering Event
exists. Should a Triggering Event occur subsequent to conversion of the Series G
Preferred Stock, but prior to the sale of the Common Stock obtained upon
conversion by the holder of the Series G Preferred Stock, then upon such
holder's sale of such Common Stock, the Company will pay to the holder an amount
equal to the Average Market Price of the Common Stock received upon conversion
ending one trading day prior to such conversion, multiplied by two-hundredths
(.02) times the sum of the number of months (prorated) during which a Triggering
Event exists. At the option of the Company, such amount may be paid in Common
Stock of the Company based on the Average Market Price of the Common Stock on
the date prior to the sale of such shares of Common Stock issued upon conversion
of the Series G Preferred Stock, or in cash provided that the Company is
required to pay such amount in cash if the Triggering Event which occurred was
the Company's failure to maintain the listing of the Common Stock on NASDAQ or
other markets specified in the Certificate of Designations.
The Exchange Agreement also mandates the Company to redeem a certain
number of shares of Series G Preferred Stock under certain conditions. On each
Mandatory Redemption Date, as defined in the Certificate of Designations,
Preferences and Rights (i.e., each of September 10, 1997 and the third business
day of each of the five consecutive calendar months commencing October 1997
through February 1998), the Company will be required to redeem 667 shares of
Series G Preferred Stock, less the number of shares of Series G Preferred Stock
converted during the preceding calendar month, at a redemption price per share
equal to the sum of (i) $1,000 divided by the applicable conversion percentage
described above, and (ii) all dividends accrued and unpaid thereon to the
applicable Redemption Date. The Company's obligation to redeem the Series G
Preferred Shares may be waived in writing by the Holder at any time prior to the
Mandatory Redemption Date.
In the event the Selling Security Holder is unable to convert into shares
of Common Stock the full amount of Series G Preferred Stock held by such Selling
Security Holder at the conversion price by reason of the Company's failure to
obtain Stockholder Approval (as defined herein) or a waiver thereof from the
National Association of Securities Dealers, Inc. (the "NASD") as required by
Rule 4460(i) of the NASD, then the Selling Security Holder shall be entitled to
convert any or all of its Series G Preferred Stock at a conversion price equal
to the lesser of (i) the Fixed Conversion Price, subject to adjustment as
provided herein and (ii) the Average Market Price for the Common Stock for the
five (5) consecutive trading days ending one trading day prior to the date of
the Conversion Notice. As used in this paragraph, "Stockholder Approval" means
the approval by a majority of the votes cast by the holders of shares of Common
Stock (in person or by proxy) at a meeting of the stockholders of the Company
(duly convened at which a quorum was present), or a written consent of holders
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<PAGE>
of shares of Common Stock entitled to such number of votes given without a
meeting, of the issuance by the Company of 20% or more of the outstanding Common
Stock of the Company for less than the greater of the book or market value of
such Common Stock on conversion of the Series G Preferred Stock, as and to the
extent required under Section 4460(i)(1)(D) of the rules of the NASD (or any
successor or replacement provision thereof).
The Securities Purchase Agreement and the Exchange Agreement provide that
if at any time the Company is obligated by Section 4460(i) of the rules of the
NASD to obtain Stockholder Approval, and Stockholder Approval is not obtained or
the Company abandons its efforts to obtain Stockholder Approval such that the
Selling Security Holder is prevented from converting the Series G Preferred
Stock at the Conversion Price, then the Company shall be obligated to pay the
Selling Security Holder certain liquidated damages.
The Series G Preferred Stock provides for a dividend of 10% per annum of
the stated value of the Series G Preferred stock on a cumulative basis.
Dividends accrue from the date of issuance and are payable quarterly commencing
October 1, 1997. Dividends may be paid in cash or, at the Company's option and
subject to certain other conditions, in shares of Common Stock of the Company.
Except as otherwise provided by law, the Holder of the Series G Preferred Stock
does not have voting rights. Upon liquidation, dissolution or winding-up of the
Company, no distribution may be made to the holder of shares of capital stock
ranking junior to the Series G Preferred Stock unless, prior thereto, the Holder
of the Series G Preferred Stock shall have received $1,000 per share, plus an
amount equal to accrued and unpaid dividends thereon to the date of such
payment. A vote of not less than two-thirds of the then outstanding shares of
Series G Preferred Stock is required prior to any amendment, alteration, change
or repeal of any of the designations of the Series G Preferred Stock.
Pursuant to the terms of the Certificate of Designations, the Securities
Purchase Agreement, the Exchange Agreement and related agreements, the Selling
Security Holder may not convert the Series G Preferred Stock, and the Company
may not require the conversion of the Series G Preferred Stock or issue Common
Stock of the Company in lieu of cash dividends attributable to the Series G
Preferred Stock or issue the Additional Shares in the event a Triggering Event
occurs if, as a result thereof, the shares of Common Stock beneficially owned by
the Selling Security Holder would exceed 4.9% of the outstanding shares of
Common Stock of the Company.
Pursuant to the Registration Rights Agreement, the Company agreed to file
a Registration Statement registering the resale by the Selling Security Holder
of the Shares underlying the Series G Preferred Stock as well as any of the
Additional Shares. The Registration Statement has been filed by the Company to
fulfill these obligations to the Selling Security Holder under the Registration
Rights Agreement. The Company is required to maintain the effectiveness of the
Registration Statement covering the resale of the Shares of the Selling Security
Holder until the earlier of (i) the date on which the Selling Security Holder
may sell all of their Shares without restriction pursuant to Rule 144(k)
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promulgated under the Securities Act of 1933, or (ii) the date on which the
Selling Security Holder has sold all of their Shares included in the Prospectus
and none of the shares of Series G Preferred Stock remain outstanding.
The Company has agreed to indemnify the Selling Security Holder against
any liabilities under the Securities Act of 1933 or otherwise, arising out of or
based upon any untrue or alleged untrue statement of a material fact in the
Registration Statement or this Prospectus or by any omission of a material fact
required to be stated therein except to the extent that such liabilities arise
out of or are based upon any untrue or alleged untrue statement or omission in
any information furnished in writing to the Company by the Selling Security
Holder expressly for use in the Registration Statement. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
its Certificate of Incorporation and By-laws, the Company has been informed 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 connection with the registration of the resale of the Shares offered
hereby, the Company will supply Prospectuses to the Selling Security Holder and
use its best efforts to qualify the Shares for sale in states reasonably
designated by the Selling Security Holder.
STOCK OWNERSHIP
The following table sets forth the name of the Selling Security Holder,
the amount of shares of Common Stock held directly or indirectly or underlying
the Series G Preferred Stock to be exchanged for the Series E Preferred Stock
owned by the Selling Security Holder as of August 15, 1997, the amount of shares
of Common Stock to be offered by the Selling Security Holder and the amount to
be owned by the Selling Security Holder following sale of such shares of Common
Stock. As of August 15, 1997, there were outstanding 47,928,604 shares of Common
Stock of the Company.
Shares to be
Name of Selling Number of Shares to Owned After
Security Holder Shares Owned(1) be Offered(1) Offering
- --------------- --------------- ------------- -------------
Advantage Fund
Limited(2)(3) 1,600,000 1,600,000 0
________________
(1) Represents maximum number of shares of Common Stock issuable upon exercise
of 4,000 shares of Series G Preferred Stock based on a minimum conversion
price of $2.50 per share, but does not include the Additional Shares. This
Prospectus also covers the resale of such presently indeterminate number
of additional Shares as may be issuable upon conversion of the Series G
Preferred Stock based upon such fluctuations in the conversion price. As
of August 15, 1997, there were outstanding 4,000 shares of Series E
Preferred Stock which are being exchanged on a share-for-share basis for
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Series G Preferred Stock. At the time the Securities Purchase Agreement
dated as of December 31, 1996 was consummated, there were 5,000 shares of
Series E Preferred Stock issued and at that time the number of shares of
Common Stock listed in the initial Prospectus as owned and to be offered
was 3,000,000 Shares.
(2) Address is c/o CITCO, Kaya Flamboyan 9, Curacao, Netherland, Antilles.
(3) Pursuant to the terms of the Certificate of Designations pertaining to the
Series G Preferred Stock, the Securities Purchase Agreement, the Exchange
Agreement and related agreements, the holders of the Series G Preferred
Stock may not convert the Series G Preferred Stock and the Company may not
require the conversion of the Series G Preferred Stock or issue Common
Stock of the Company in lieu of cash dividends attributable to the Series
E Preferred Stock if, as a result thereof, the shares of Common Stock
beneficially owned by the Selling Security Holder would exceed 4.9% of the
outstanding shares of Common Stock of the Company. The Company has agreed
to pay for all costs and expenses incident to the issuance, offer, sale
and delivery of the Shares, 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 Holder.
The Company has agreed to indemnify the Selling Security Holder against
civil liabilities including liabilities under the Securities Act of 1933.
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holder may be sold from
time to time by the Selling Security Holder, or by pledgees, donees, transferees
or other successors in interest. Such sales may be made on one or more exchanges
or in the over-the-counter market (including the Nasdaq National Market of The
Nasdaq Stock Market), or otherwise at prices and at terms then prevailing or at
prices related to the then current market price, or in negotiated transactions.
The Shares may be sold by one or more of the following methods, including,
without limitation: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the Shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face or
other direct transactions between the Selling Security Holder and purchasers
without a broker-dealer or other intermediary. In addition, the Selling Security
Holder may from time to time, subject to the restrictions set forth below, sell
short the Common Stock of the Company, and in such instances, this Prospectus
may be delivered in connection with such short sale and the Shares offered
hereby may be used to cover such short sale. In effecting sales, broker-dealers,
or agents engaged by the Selling Security Holder may arrange for other
broker-dealers or agents to participate. Such broker-dealers may receive
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<PAGE>
commissions or discounts from the Selling Security Holder in amounts to be
negotiated immediately prior to the sale. Such broker-dealers and agents and any
other participating broker-dealers, or agents may be deemed to be "underwriters"
within the meaning of the Act, in connection with such sales. In addition, any
securities covered by this Prospectus that qualify for sale pursuant to Rule 144
might be sold under Rule 144 rather than pursuant to this Prospectus.
Upon the Company being notified by the Selling Security Holder that any
material arrangement has been entered into with a broker-dealer, agent or
underwriter for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a
broker-dealer, agent or underwriter, a supplemented Prospectus will be filed, if
required, pursuant to Rule 424(c) under the Act, disclosing (a) the name of each
such broker-dealer, agent or underwriter (b) the number of Shares involved, (c)
the price at which such Shares were sold, (d) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), agent(s) or underwriter(s) or
other items constituting compensation or indemnification arrangements with
respect to particular offerings, where applicable, (e) that such
broker-dealer(s), agent(s) or underwriter(s) did not conduct any investigation
to verify the information set out or incorporated by reference in this
Prospectus, as supplemented, and (f) other facts material to the transaction.
In connection with distributions of the Shares the Selling Security Holder
may (i) enter into hedging transactions with broker-dealers and the
broker-dealers may engage in short sales of the Shares in the course of hedging
the positions they assume with such Selling Security Holder, and (ii) enter into
option or other transactions with broker-dealers that involve the delivery of
the Shares to the broker-dealers, who may then resell or otherwise transfer such
Shares; provided, however, that no such transaction undertaken in connection
with this plan of distribution may occur prior to the filing of the required
notices of conversion; provided further, however, that the Selling Security
Holder has agreed with the Company that any such short sales or hedging
transactions may not involve a number of shares of Common Stock in excess of the
number of shares for which a notice of conversion with regard to the Series E
Preferred Stock and the Additional Shares, respectively, has been submitted by
the Selling Security Holder to the Company.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 75,000,000 shares of
Common Stock, par value $.01 per share, of which 47,928,604 shares were
outstanding as of August 15, 1997. The Company is also authorized to issue up to
1,000,000 shares of Preferred Stock, par value $1.00 per share, of which 2,650
shares of Series A Preferred Stock, 974 shares of Series C Preferred Stock,
8,450 shares of Series D Preferred Stock (the shares outstanding at the time of
exchange to be exchanged for an equal number of shares of Series F Preferred
Stock) and 4,000 shares of Series E Preferred Stock (to be exchanged for 4,000
shares of Series G Preferred Stock) were outstanding as of August 15,1997.
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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 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 a total of 1,000,000 shares of
Preferred Stock, par value $1.00 per share. 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. 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.
SERIES A PREFERRED STOCK
Series A Preferred Stock was established by the Board of Directors in
January 1984. Each share of Series A Preferred Stock is immediately convertible
into 4.26 shares of Common Stock. Dividends on the Series A Preferred Stock are
cumulative, have priority to the Common Stock and are payable in either cash or
Common Stock, at the option of the Company.
The Series A Preferred Stock has voting rights only if dividends are in
arrears for five annual 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 Series A Preferred Stock.
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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.
SERIES C PREFERRED STOCK
The Series C Preferred Stock (as represented by the stated value) is
convertible into shares of Common Stock of the Company by dividing the stated
value of the Series C Preferred Stock by the closing price of the Company's
Common Stock over the five-day trading period ending on the day prior to
conversion.
At the option of the holder of the Series C Preferred Stock, up to 25% of
such shares may be convertible, on or after 10 days from the date that the
underlying shares of Common Stock have been registered with the SEC for public
resale, into shares of the Company's Common Stock on the basis of one share of
Series C Preferred Stock for shares of Common Stock equal in number to the
amount determined by dividing $1,000 (representing the stated value thereof) by
the closing price of the Company's Common Stock over the five-day trading period
ending on the day prior to the conversion of the Series C Preferred Stock. An
additional 25% of the Series C Preferred Stock will be convertible on or after
the 30th, 60th and 90th day thereafter on a cumulative basis. The conversion
price per share may not be less than $3.46 nor more than $7.00; provided,
however, in the event the conversion price would be less than $3.46 but for such
minimum conversion price, the difference between $3.46 and what the conversion
price would have been except for such minimum price, multiplied by the number of
shares of Common Stock issued upon conversion, will be paid to the holder in
cash upon conversion. Any shares of Series C Preferred Stock which are
outstanding on December 5, 1997 will be automatically converted into shares of
Common Stock based on the conversion price at such time computed in accordance
with the above procedure.
The Series C Preferred Stock does not accrue any dividend. The Series C
Preferred Stock has no voting rights, except as required by law and except that
a majority of the outstanding Series B Preferred Stock is required to approve a
consolidation, merger or reclassification of outstanding shares of the Series C
Preferred Stock, and the approval of two-thirds of the outstanding Series B
Preferred Stock is required to amend the Certificate of Designations.
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SERIES D PREFERRED STOCK
The Series D Preferred Stock (as represented by the stated value) is
convertible into shares of Common Stock of the Company by dividing the stated
value of the Series D Preferred Stock to be converted by the conversion price in
effect at the time of conversion. The conversion price shall be calculated at
18% discounted from the average closing bid price of the Company's Common Stock,
as reported by Bloomberg L.P., over the five-day trading period on the day prior
to conversion. Notwithstanding the foregoing, the conversion price may not be
more than $7.00 per share of Common Stock nor less than $2.00 per share of
Common Stock (the "Floor"). In addition, the holder may not convert any Series D
Preferred Stock during the conversion period if the conversion price, averaged
over any rolling consecutive five-day trading period, falls below the Floor (a
"Non-Converting Period"). Upon occurrence of the twenty-first Non-Converting
Period, the holder shall thereafter have the right to convert, but the Company
shall have the right to (i) pay to the holder cash equal to the amount
originally paid by the holder for the outstanding Series D Preferred Stock to be
converted plus 10% of such amount (the "Cash-Out Option"), or (ii) convert the
outstanding Series D Preferred Stock held by the holder to be converted into the
full amount of Common Stock to which the holder would be entitled at the
conversion price irrespective of the Floor. Any Series D Preferred Stock
remaining outstanding on February 5, 1999, will be automatically converted into
shares of Common Stock on such date subject to certain limitations. The holder
of the Series D Preferred Stock may not convert his/her shares if, as a result
thereof, the shares of Common Stock beneficially owned by the holder will exceed
4.9% of the outstanding shares of Common Stock of the Company.
The Series D Preferred Stock provides for a cash dividend of 6% per annum
of the stated value of the Series D Preferred Stock on a cumulative basis.
Dividends accrue from the date of issuance and are payable quarterly commencing
March 31, 1997. Except as otherwise provided by law, the holders of Series D
Preferred Stock do not have voting rights. Upon liquidation, dissolution or
winding-up of the Company, no distribution may be made to the holders of shares
of capital stock ranking junior to the Series D Preferred Stock unless, prior
thereto, the holders of the Series D Preferred Stock shall have received $1,000
per share, plus an amount equal to declared and unpaid dividends thereon to the
date of such payment. A vote of not less than two-thirds of the outstanding
shares of Series D Preferred Stock is required to amend, alter, change or repeal
the Series D Certificate of Designations.
The Company has reached an agreement to exchange shares of its newly
created Series F Preferred Stock for an equal number of shares of its Series D
Preferred Stock then outstanding. The terms of the Series F Preferred Stock
provides comparable terms with those of the Series D Preferred Stock. However,
if the conversion price were to be below $2.00 per share (the "Floor"), the
Company would have the right to (i) pay to the holder cash equal to the amount
originally paid by the holder for the outstanding Series F Preferred Stock to be
converted plus 12% of such amount (the "Cash-Out Option"), or (ii) convert the
outstanding Series F Preferred Stock held by the holder to be converted into the
full amount of Common Stock to which the holder would be entitled at the
conversion price irrespective of the Floor. Any Series F Preferred Stock
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<PAGE>
remaining outstanding on February 5, 1999 will be automatically converted into
Common Stock of the Company on such date subject to certain limitations. The
holder of the Series F Preferred Stock may not convert its shares if, as a
result thereof, the shares of Common Stock beneficially owned by the holder will
exceed 4.9% of the outstanding shares of Common Stock of the Company.
In addition to the terms of conversion set forth in the Certificate of
Designations, Preferences and Rights pertaining to the Series F of Preferred
Stock, under the terms of such exchange agreement, the holder agreed to certain
restrictions on submitting notices of conversion to the Company; i.e., during
each two-week period, and continuing for as long as the holder shall hold any
Series F Preferred Stock, the holder may not request the conversion into Common
Stock of any Series F Preferred Stock having a stated value (including accrued
and unpaid dividends for which conversion into Common Stock is requested by the
holder) greater than $800,000.
In consideration for these restrictions on conversion of the Series F
Preferred Stock, the Company has agreed to increase the dividend rate from 6%
for the Series D Preferred Stock to 10% for the Series F Preferred Stock which
will be payable quarterly commencing September 30, 1997. No other material
changes are being made in the substantive terms from the terms of the Series D
Preferred Stock.
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded in the Nasdaq National Market under
the symbol "VRGN." If for any reason the Common Stock does not remain accepted
for inclusion on NASDAQ, 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 on NASDAQ, 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 NASDAQ
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 Chase Mellon
Shareholder Services, Overpeck Centre, 85 Challenger Road, Ridgefield Park, New
Jersey 07660-2108.
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LEGAL MATTERS
Certain legal matters in connection with the Shares being offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. Members
of that firm or members of their family own an aggregate of 37,000 shares of
Common Stock of the Company.
EXPERTS
The consolidated financial statements of Viragen, Inc. incorporated by
reference in the Viragen, Inc. Annual Report (Form 10-K/A1) for the year ended
June 30, 1996, have been audited by Ernst & Young LLP, Certified Public
Accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
INDEMNIFICATION
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:
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"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.
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
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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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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 Company 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.
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