SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
_____
Date of Report (Date of earliest event reported) July 1, 1997
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VIRAGEN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-10252 59-2101668
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(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
865 S.W. 78th Avenue, Suite 100, Plantation, Florida 33324
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (954) 233-8746
2343 West 76th Street, Hialeah, Florida 33016
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(Former name or former address, if changed since last report)
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ITEM 5 - OTHER EVENTS
The Company has reached a series of agreements with the holders of its
Series B, Series C, Series D and Series E Preferred Stock in order to
restructure certain of the terms of such Preferred Stock. At August 15, 1997,
there were no shares of Series B Preferred Stock outstanding, 974 shares of
Series C Preferred Stock outstanding, 8,450 shares of Series D Preferred Stock
outstanding and 4,000 shares of Series E Preferred Stock outstanding. The
Company had initiated the restructuring in order to mitigate concerns of the
Company and the investment community concerning the "overhang" of the Company's
Common Stock represented by the potential conversion of these outstanding series
of Preferred Stock under their original terms. The primary result of such
negotiations was to restrict or eliminate the potential conversion of such
Preferred Stock.
(1.) Effective July 1, 1997, the Company exchanged its Promissory Note in
the principal amount of $9,720,240.86 for 7,445 shares of Series B Preferred
Stock. The Note bears interest at the rate of 10% per annum, and the principal
amount and interest is payable in nine monthly installments beginning October 1,
1997 and ending June 1, 1998. The Note is prepayable without premium or penalty
and is non-convertible.
(2.) The Company has consummated an agreement with the holders of its
Series C Preferred Stock to modify contractually the conversion price and the
conversion lockup arrangements with regard to the Series C Preferred Stock. The
conversion price of the Series C Preferred Stock has now been changed to the
lower of (i) $2.20 per share and (ii) the average closing price of the Company's
Common Stock over the 5 day period ending on the day prior to the conversion of
the Preferred Stock.
(3.) The Company has consummated an agreement to exchange 7,950 shares of
its newly created Series F Preferred Stock, $1,000 face value per share, for an
equal number of shares of its previously existing Series D Preferred Stock. The
most significant change relative to the Series F Preferred Stock is the
limitation imposed on the holder that during any two week period while the
Series F Preferred Shares are outstanding, the holder may not request the
conversion into Common Stock of any Series F Preferred Stock having a stated
value greater than $800,000 (800 shares). The Series F Preferred Stock
designations also provide the Company with a cash-out option in the event that
the conversion price falls below $2.00 U.S. per Common share in which case the
Company has the right to pay the holder cash equal to the stated value of the
Series F Preferred Stock to be converted plus 12% of such amount. In
consideration of the holder of the Series D Preferred Stock agreeing to
this limitation on conversion, the Company increased the dividend rate from
6% for the Series D Preferred Stock to 10% for the Series F Preferred Stock.
No other material changes were made in the substantive terms from the previously
issued Series D Preferred Stock other than certain administrative terms.
(4.) The Company consummated an agreement to exchange 4,000 shares of its
newly created Series G Preferred Stock, $1,000 face value per share, for an
equal number of shares of its previously existing Series E Preferred Stock.
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Under the terms of the newly created Series G Preferred Stock, the holder would
be restricted from converting such shares if the market price of the Company's
Common Stock is less than $2.50, subject to adjustment, at the date the
conversion notice is delivered to the Company. In addition, commencing September
10, 1997 and on the third business day of each of the five consecutive
calendar months thereafter commencing October 1997 through February 1998, the
Company will be required to redeem 667 Shares of Series G Preferred Stock,
less the number of Series G Preferred Stock converted during the preceding
calendar month, at a redemption price equal to the sum of (i) $1,000 divided
by the applicable conversion percentage and (ii) all dividends accrued and
unpaid on the Series G Preferred Stock at the applicable redemption date. In
consideration for these restrictions on conversion of the Series G Preferred
Stock, the Company has agreed to increase the dividend rate from 5% for the
Series E Preferred Stock to 10% for the Series G Preferred Stock. No other
material changes have been made in the substantive terms from the previously
issued Series E Preferred Stock.
ITEM 7 - FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS:
1. 10% Promissory Note.
2. Certificate of Designations, Preferences and Rights of the
Series F Convertible Preferred Stock.
3. Certificate of Designations, Preferences and Rights of 10%
Cumulative Convertible Preferred Stock, Series G.
4. Series F Convertible Preferred Stock Exchange Agreement.
5. Series G Convertible Preferred Stock Exchange Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIRAGEN, INC.
By: /s/ Dennis W. Healey
----------------------------------------
Dennis W. Healey, Executive Vice
President and Principal Financial Officer
DATED: September 22, 1997.
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10% Promissory Note
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VIRAGEN, INC.
11 MONTH 10% PROMISSORY NOTE
$9,720,240.96 Hialeah, Florida
July 1, 1997
FOR VALUE RECEIVED, VIRAGEN, INC., a Delaware corporation (the "Company"),
hereby promises to pay to the order of CLEARWATER FUND IV, LTD. (formerly, GFL
Performance Fund, Ltd.), a corporation organized under the laws of the British
Virgin Islands (together with any successors or assignees, the "Holder"), the
principal amount of NINE MILLION SEVEN HUNDRED TWENTY THOUSAND TWO HUNDRED FORTY
AND 86/100 ($9,720,240.86) DOLLARS in lawful money of the United States of
America, plus interest on the outstanding balance thereof at a rate of 10% per
annum from the date hereof through the date on which all obligations hereunder
have been repaid in full.
The principal amount hereof and interest thereon shall be paid in nine (9)
monthly installments in accordance with the Principal and Interest Amortization
Schedule attached hereto as Schedule A, beginning October 1, 1997 and ending
June 1, 1998. Interest shall begin to accrue as of the date hereof. If any
payment of interest on this Note shall become due on a Saturday, Sunday or a
public holiday under the laws of the United States or the State of New York,
such payment shall be made on the next succeeding business day.
This Note may be prepaid, in whole or in part, at any time or from time to
time, without premium or penalty, but with accrued but unpaid interest through
the date of prepayment.
For purposes hereof, the occurrence of any of the following events shall
constitute an "Event of Default:"
(a) Failure to make any payment of principal or interest under this Note
within three (3) business days following written notice of such failure from the
Holder; or
(b) If the Company makes an assignment for the benefit of its creditors,
is adjudicated bankrupt or insolvent, petitions or applies to any tribunal for
the appointment of a trustee or receiver for it or any substantial part of its
assets, commences any proceedings relating to it under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debts, dissolution or
liquidation law, or similar laws, of any jurisdiction, whether now or hereafter
in effect, consents to, approves of or acquiesces in or to any such petition or
<PAGE>
application being filed, or any such proceedings commenced against it, by any
other person, or fails to remove any order entered appointing any trustee or
receiver or approving the petition or application in any such proceedings or
decreeing its dissolution or liquidation, within 60 days after such order is
entered.
Subject to the provisions hereof, if an Event of Default set forth in
clause (a) above shall occur and be continuing, the Holder may, without notice
or demand to the Company, declare the unpaid principal of this Note, together
with accrued and unpaid interest thereon, to become due and payable. If an Event
of Default set forth in clause (b) above shall occur, the unpaid principal of
this Note, together with accrued and unpaid interest thereon, shall immediately
become due and payable without notice, demand or other act on the part of the
Holder.
The Company hereby waives presentment, demand, protest or notice of any
kind in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
In the event that the principal of and interest on this Note is not paid
in accordance with the terms hereof, the Company agrees to pay, in addition to
principal and accrued interest, all costs and expenses of collection incurred by
the Holder, including reasonable attorneys' fees.
No delay or failure on the part of the Holder in exercising any right,
remedy or option hereunder or otherwise shall operate as a waiver of such right,
remedy or option, nor shall any single or partial exercise of any such right,
remedy or option preclude any or further exercise thereof.
No modification, alteration or change of any of the provisions hereof
shall be effective unless in writing and signed by the Company and the Holder
and only to the extent set forth therein.
This Note shall inure to the benefit and be enforceable by the Holder and
its successors and assigns, and shall not be assignable by the Company without
the prior written consent of Holder.
Payments of principal, interest and any other amounts payable hereunder
are to be made to the Holder by wire transfer of immediately available funds in
accordance with the following instructions, or by such other means or to such
other place as the Holder shall designate to the Company in writing.
Wire transfer instructions:
Chase Manhattan Bank New York, ABA #021-000021
1 New York Plaza, NY 10081 USA
For the account of Citco Banking Corporation N.V.
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a/c no. 001-1-627502
For further credit to: Clearwater Fund IV Ltd., formerly
GFL Performance Fund Ltd.
a/c no. 12.38251.4100.004
This Note shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written.
VIRAGEN, INC.
By: /s/ Dennis W. Healey
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Name: DENNIS W. HEALEY
Title: EXECUTIVE VICE-PRESIDENT
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SCHEDULE A
PRINCIPAL AND INTEREST AMORTIZATION SCHEDULE
Original Principal, July 1, 1997 $ 9,720,240.96
Accrued Interest (10% for July 1-Sept. 30) 243,006.02
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Balance at September 30 9,963,246.88
Principal and Interest Payment (October 1) (1,323,032.78)
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Balance October 1 8,640.214.10
October Interest at 10% 72,001.78
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Balance at October 31 8,712,215.88
Principal and Interest Payment (November 1) (1,152,028.55)
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Balance November 1 7,560,187.33
November Interest at 10% 63,001.56
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Balance at November 30 7,623,188.89
Principal and Interest Payment (December 1) (1,143,028.32)
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Balance December 1 6,480,160.57
December Interest at 10% 54,001.34
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Balance at December 31 6,534,161.91
Principal and Interest Payment (January 1) (1,134,028.10)
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Balance January 1 5,400,133.81
January Interest at 10% 45,001.12
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Balance at January 31 5,445,134.93
Principal and Interest Payment (February 1) (1,125,027.88
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Balance February 1 4,320,107.05
February Interest at 10% 36,000.89
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Balance at February 28 4,356,107.94
Principal and Interest Payment (March 1) (1,116,027.65)
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Balance March 1 3,240,080.29
March Interest at 10% 27,000.67
--------------
Balance at March 31 3,267,080.96
Principal and Interest Payment (April 1) (1,107,027.41)
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Balance April 1 2,160,053.53
April Interest at 10% 18,000.45
--------------
Balance at April 30 2,178,053.98
Principal and Interest Payment (May 1) (1,098,027.21)
--------------
Balance May 1 1,080,026.77
May Interest at 10% 9,000.22
--------------
Balance at May 31 1,089,026.99
Principal and Interest Payment (June 1) (1,089,026.99)
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Balance June 1 -0-
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Certificate of Designations, Preferences and Rights
of the Series F Convertible Preferred Shares
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CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES F CONVERTIBLE PREFERRED STOCK
OF
VIRAGEN, INC.
I, Dennis W. Healey, Executive Vice President of Viragen, Inc., a Delaware
corporation (the "Corporation"), DO HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation, the Board of Directors on
August 28, 1997, adopted the following resolutions creating a series of 15,000
Preferred Shares, $1.00 par value per share, stated value $1,000 per share,
designated as the Series F Convertible Preferred Shares.
The relative rights and preferences of the Series F Convertible Preferred
Shares are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as the Series F Convertible Preferred Shares (the "Series F Preferred
Shares"), and the number of shares constituting such series shall be 15,000 and
shall not be subject to increase. The number of shares constituting such series
may, unless prohibited by the Certificate of Incorporation, be decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall reduce the
number of Series F Preferred Shares to a number less than the number of shares
then outstanding.
2. DIVIDENDS AND DISTRIBUTIONS. The holders of Series F Preferred
Shares shall be entitled to received a dividend of ten percent (10%) per annum
of the stated value of the Series F Preferred Shares, to accrue commencing on
the date of issuance of the Series F Preferred Shares and payable quarterly in
arrears, in cash, commencing September 30, 1997. Upon conversion, any accrued
but unpaid dividends will be added to the stated value of the Series F Preferred
Shares converted.
3. VOTING RIGHTS. Except as otherwise provided by law, the holders of
Series F Preferred Shares shall have no voting rights and their consent shall
not be required (except to the extent required by law) for taking any corporate
action.
4. REACQUIRED SHARES. Any Series F Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall constitute
authorized but unissued preferred shares and may be reissued as part of a new
series of preferred shares by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designation creating a series of preferred shares or as otherwise required by
law.
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5. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (upon liquidation, dissolution or
winding up) to the Series F Preferred Shares unless, prior thereto, the holders
of Series F Preferred Shares shall have received $1,000 per share, plus an
amount equal to accrued and unpaid dividends thereon to the date of such
payment. The Series F Preferred Shares shall rank junior to the Company's Series
B Convertible Preferred Shares solely upon any liquidation, dissolution or
winding up of the Company, and no amount shall be paid to any holder of Series F
Preferred Shares in connection therewith unless all amounts payable to holders
of the Company's Series B Convertible Preferred Shares have been paid in full.
6. CONSOLIDATION, MERGER, EXCHANGE, ETC. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the Common Shares are exchanged for or changed into
other stock or securities, money and/or any other property, then in any such
case the Series F Preferred Shares shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders
of such preferred shares with (to the extent possible) the same relative rights
and preferences as the Series F Preferred Shares.
7. CONVERSION.
(i) The Series F Preferred Shares will be convertible into shares
of Common Stock, $.01 par value, of the Corporation (the "Common Shares") at the
option of the holder or holders thereof (the "Holders") at any time by
delivering a notice of conversion to the Company. Such conversion shall be
effected by dividing the stated value of the Series F Preferred Shares to be
converted by the conversion price, which shall be calculated at eighteen percent
(18%) off the average closing bid price of the Common Shares, as reported by
Bloomberg, L.P. over the five-day trading period ending on the day prior to
conversion (the "Conversion Price"). Notwithstanding the above, the Conversion
Price may not be more than Seven Dollars ($7.00) U.S. per Common Share and, if
the Conversion Price is below Two Dollars ($2.00) U.S. per Common Share (the
"Floor"), the Company shall have the right to (a) pay to the Holder cash equal
to the stated value of the Series F Preferred Shares to be converted plus twelve
percent (12%) of such amount (the "Cash-Out Option"), or (b) convert the
outstanding Series F Preferred Shares held by the Holder to be converted into
the full number of Common Shares to which the Holder would be entitled at the
Conversion Price, irrespective of the Floor (the "Stock Conversion Option"). The
Corporation must notify the Holder of its intent to exercise the Cash-Out Option
within one (1) business day of receipt of the notice of conversion, and must
effect such cash payment or stock conversion within three (3) business days of
receipt of the notice of conversion. If the Corporation fails to so notify the
Holder of its intent to exercise the Cash-Out Option within such one business
day period, the Corporation must effect the requested stock conversion. All
notices of conversion and other notices given by the Holder or the Corporation
pursuant to this Certificate may be given by telephone line facsimile
transmission, shall be effective only when received, and must be received by
5:00 p.m. (based on the recipient's local time) on the applicable business day
when such notice is due.
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(ii) Any Series F Preferred Shares remaining outstanding on the
second anniversary of the issuance of the Series F Preferred Shares will be
automatically converted into Common Shares on such date, subject to the
limitation of Section 7 (vi) hereof. The Series F Preferred Shares shall have a
liquidation preference over the Common Shares in the event of any liquidation,
dissolution or winding up of the Corporation or the sale of the Corporation.
(iii) In connection with any conversion of the Series F Preferred
Shares by a Holder or in the event the Corporation elects the Stock Conversion
Option as defined in Section 7(i) above, the Corporation shall issue and deliver
to the Holder an unlegended certificate or certificates for the number of Common
Shares to which the Holder shall be entitled within three (3) business days (the
"Deadline") after receipt by the Corporation of the duly executed notice of
conversion and the original Series F Preferred Shares being converted, with an
executed stock power. The Corporation understands that a delay in the issuance
of the Common Shares beyond the Deadline could result in economic loss to the
Holder. As compensation to the Holder for such loss, and not as a penalty, the
Corporation agrees to pay liquidated damages to the Holder for late delivery of
Common Shares upon conversion in the amount of one percent (1%) of the requested
conversion amount, per day, beginning on the fourth (4th) business day after the
Deadline in the event the Common Shares are not received within seven (7)
business days after said Deadline. Said liquidated damages shall accrue each day
through the date the Common Shares are delivered to the Holder upon conversion,
and shall be paid by wire transfer to an account designated by the Holder upon
the earlier to occur of (i) delivery of the Common Shares to the Holder or (ii)
each weekly anniversary of the Deadline. Nothing herein shall waive the
Corporation's obligations to deliver Common Shares upon conversion of the Series
F Preferred Shares or limit the Holder's right to pursue actual damages for the
Corporation's failure to issue and deliver Common Shares to the Holder in
accordance with the terms of the Series F Preferred Shares.
(iv) The Corporation agrees that, in addition to any other remedies
which may be available to the Holder in the event the Corporation fails for any
reason to effect delivery to the Holder of unlegended certificates representing
Common Shares within seven (7) business days following receipt by the
Corporation of notice of conversion, the Holder may revoke the notice of
conversion by delivering notice to such effect to the Corporation, whereupon the
Corporation and the Holder shall each be restored to their respective positions
immediately prior to delivery of such notice of conversion.
(v) In the event the Corporation shall at any time after issuance
of the Series F Preferred Stock declare or pay any dividend on Common Shares
payable in Common Shares, or effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a greater or lesser number of Common Shares, then in each such
case the number of Common Shares issuable upon the conversion of the Series F
Preferred Shares shall be determined as follows:
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X $ = Shares of Common Stock Issuable Upon
--- ---
Y x % x CP Conversion of Series F Preferred Stock
X = the number of Common Shares outstanding immediately after such event
Y = The number of Common Shares that were outstanding immediately
prior to such event.
$ = $1,000
% = 100%
CP = Conversion Price, as defined in Section 7(i)
Notwithstanding the above, the conversion price (% X CP) may not be more
than $7.00 except as otherwise provided in Section 7(i).
(vi) Notwithstanding any other provision of this Certificate, in no
event shall any holder of Series F Preferred Shares be entitled to any time to
convert any Series F Preferred Shares (and accrued and unpaid dividends thereon)
in excess of that number of Series F Preferred Shares (and accrued and unpaid
dividends thereon) upon conversion of which the sum of (1) the number of Common
Shares beneficially owned by such holder and any person whose beneficial
ownership of Common Shares would be aggregated with such holder's beneficial
ownership of Common Shares for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and Regulation 13D-G
thereunder (each a "Restricted Holder") (other than shares of Common Stock
deemed beneficially owned through the ownership of unconverted Series F
Preferred Shares and accrued and unpaid dividends thereon and through the
ownership of unexercised warrants or other securities entitling the holder to
purchase Common Shares which contain limitations similar to this Section 7(vi))
and (2) the number of Common Shares issuable upon conversion of the number of
Series F Preferred Shares and accrued and unpaid dividends thereon with respect
to which the determination in this Section 7(vi) is being made, would result in
beneficial ownership by such Restricted Holder of more than 4.9% of the
outstanding Common Shares. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act, and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the immediately preceding sentence.
8. VOTE TO CHANGE THE TERMS OF SERIES F PREFERRED SHARES.
The Approval of the Board of Directors and the affirmative vote at a
meeting duly called by the Board of Directors for such purpose (or the written
consent without a meeting) of the holders of not less than two-thirds (2/3) of
the then outstanding Series F Preferred Shares shall be required to amend,
alter, change or repeal any of the powers, designations, preferences and rights
of the Series F Preferred Shares.
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IN WITNESS WHEREOF, I have executed this Certificate of Designations,
Preferences and Rights this _____ day of August, 1997.
--------------------------------
Dennis W. Healey,
Executive Vice President
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Certificate of Designations, Preferences and Rights of 10%
Cumulative Convertible Preferred Stock, Series G
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VIRAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES G
Viragen, Inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly called and held on August 28,
1997, adopted resolutions providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Four Thousand (4,000) shares of 10%
Cumulative Convertible Preferred Stock, Series G of the Company, as follows:
RESOLVED, that the Company is authorized to issue 4,000 shares of
10% Cumulative Convertible Preferred Stock, Series G, $1.00 par value (the
"Preferred Shares"), which shall have the following powers, designations,
preferences and other special rights:
(1) DIVIDENDS. The holders of the Preferred Shares shall be
entitled to cumulative dividends of ten percent (10%) per annum of the Stated
Value (as defined below) of each Preferred Share. Dividends shall accrue from
the date of issuance of the Preferred Shares and shall be payable on each
October 1, January 1, April 1 and July 1 commencing October 1, 1997, and in the
case of conversion of a Preferred Share shall be paid on the date of such
conversion through and including the date on which the Preferred Shares are
converted. Dividends shall be calculated on the basis of a year of 360 days
consisting of 12 30-day months. Dividends shall be paid in cash or, at the
Company's option, in fully paid and nonassessable shares of Common Stock valued
based on the Average Market Price (as defined herein) of the Common Stock for
the period of five (5) consecutive trading days ending on the trading day before
the dividend payment date or the date of conversion, as the case may be;
PROVIDED, HOWEVER, that in no event shall accrued dividends be paid in shares of
Common Stock to any holder of Preferred Shares if, after giving effect to such
distribution, the number of shares of Common Stock beneficially owned by such
holder and all other persons whose beneficial ownership of shares of Common
Stock would be aggregated with such holder's beneficial ownership of shares of
Common Stock for purposes of calculating beneficial ownership in accordance with
Sections 13(d) and 16 of the Securities Exchange Act of 1934, as amended, and
the regulations thereunder (collectively, "Sections 13(d) and 16")(each such
other person a "Related Person" of such holder) (other than shares of Common
Stock deemed beneficially owned through the ownership of unconverted Preferred
Shares) would exceed four and nine-tenths percent (4.9%) of the outstanding
<PAGE>
shares of Common Stock and cash shall be paid in lieu of any shares which cannot
be issued pursuant to this proviso. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Sections 13(d) and 16, except as otherwise provided with respect
to unconverted Preferred Shares in the parenthetical clause of the proviso to
the immediately preceding sentence. Notwithstanding the foregoing, in no event
shall accrued dividends be paid in shares of Common Stock if, on the dividend
payment date, such shares of Common Stock would not be freely tradable because
the registration statement (the "Registration Statement") covering the shares of
Common Stock issuable hereunder and required to be filed by the Company pursuant
to the Registration Rights Agreement, as amended, between the Company and the
initial holder (as assignee of all rights thereunder) of the Preferred Shares
(the "Registration Rights Agreement") has not been declared effective by the
U.S. Securities and Exchange Commission ("SEC") (the date on which the
Registration Statement is declared effective by the SEC being hereinafter
referred to as the "Effective Date"), or if, after the Effective Date, sales of
shares of Common Stock cannot be made pursuant to the Registration Statement by
reason of a stop order, the Company's failure to update the Registration
Statement in accordance with the rules and regulations of the SEC or otherwise,
or if the Common Stock is not then listed or included for quotation on the
National Market of the National Association of Securities Dealers Automated
Quotation System (the "NASDAQ-NM"), the New York Stock Exchange (the "NYSE"),
the American Stock Exchange (the "AMEX"), the NASDAQ SmallCap Market (the
"NASDAQ SmallCap") or the NASDAQ Bulletin Board ("NASDAQ Bulletin Board"). The
Company shall not issue any fraction of a share of Common Stock in payment of a
dividend, but shall pay cash therefor. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, such number of shares of Common Stock as
shall from time to time be sufficient to pay dividends hereunder. Every
reference herein to the Common Stock of the Company (unless a different
intention is expressed) shall be to the shares of the Common Stock of the
Company, $.01 par value, as such stock exists immediately after the issuance of
the Preferred Shares provided for hereunder, or to stock into which such Common
Stock may be changed from time to time thereafter.
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the Market Prices for such security for
each trading day in such period.
"Market Price" of any security on any date means the closing bid
price of such security on such date on the principal securities exchange or
other market on which such security is listed for trading, as reported by such
exchange or other market (subject to equitable adjustment from time to time on
terms reasonably acceptable to the holders of the outstanding Preferred Shares
for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv) capital
reorganizations, (v) issuance to all holders of Common Stock of rights or
warrants to purchase shares of Common Stock at a price per share less than the
Market Price which would otherwise be applicable, (vi) the distribution by the
Company to all holders of Common Stock of evidences of indebtedness of the
Company or cash (other than regular quarterly cash dividends), (vii) tender
offers by the Company or any subsidiary of the Company or other repurchases of
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shares of Common Stock in one or more transactions which, individually or in the
aggregate, result in the purchase of more than 10% of the Common Stock
outstanding and (viii) similar events relating to the Common Stock, in each such
case which occur on or after the date of filing this Certificate with the
Secretary of State of the State of Delaware); PROVIDED, HOWEVER, that if on any
date there shall be no reported closing bid price of such security, the "Market
Price" on such date shall be the closing bid price of such security on the date
next preceding such date on which a closing bid price for such security has been
so reported; PROVIDED FURTHER, HOWEVER, that if on any date there shall be no
reported closing bid price of such security and at the time the closing bid
price for such date is being determined there shall be known a closing bid price
so reported for the date next subsequent to such date on which a closing bid
price shall have been so reported, then the Market Price on such date for which
there shall have been no reported closing bid price shall be the lower of (x)
the Market Price as determined pursuant to the second proviso to this definition
and (y) the closing bid price as so reported for such succeeding day for which a
closing bid price as so reported is known.
(2) CONVERSION OF PREFERRED SHARES. The holders of the Preferred
Shares shall have the right, at their option, to convert the Preferred Shares
into shares of Common Stock on the following terms and conditions:
(a) CONVERSION RIGHT. Each Preferred Share shall be convertible at
any time (or, if such Preferred Share is called for conversion pursuant to
Section 3 hereof, at any time up to and including, but not after, the close of
business on the fifth (5th) full trading day prior to the date fixed for the
conversion) into fully paid and nonassessable shares (calculated to the nearest
whole share) of Common Stock, at the conversion price in effect at the time of
conversion determined as hereinafter provided (the "Conversion Price");
PROVIDED, HOWEVER, that no conversions of Preferred Shares into Common Stock
shall be permitted pursuant to a Conversion Notice (as defined below) if the
Market Price of the Common Stock is less than $2.50 (subject to equitable
adjustments from time to time on terms acceptable to the holders of the
Preferred Shares for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events occurring on or after
the date of filing of this Certificate with the Secretary of State of the State
of Delaware) on the date such Conversion Notice is delivered to the Company in
accordance with Section 2(e); PROVIDED FURTHER, HOWEVER, that in no event shall
any Restricted Person be entitled to convert Preferred Shares if, after giving
effect to such conversion, the number of shares of Common Stock beneficially
owned by such Restricted Person and all Restricted Persons whose beneficial
ownership of Common Stock would be aggregated with such Restricted Person's
beneficial ownership of Common Stock (other than shares of Common Stock deemed
beneficially owned through the ownership of unconverted Preferred Shares), would
exceed four and nine-tenths percent (4.9%) of the outstanding shares of Common
Stock (calculated in accordance with Sections 13(d) and 16). For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Sections 13(d) and 16, except as otherwise
provided with respect to unconverted Preferred Shares in the parenthetical
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clause of the second proviso to the immediately preceding sentence. Each
Preferred Share shall have a value of One Thousand Dollars ($1,000) (the "Stated
Value") for the purpose of such conversion and the number of shares of Common
Stock issuable upon conversion of each Preferred Share shall be determined by
dividing the Stated Value thereof by the Conversion Price then in effect.
(b) CONVERSION PRICE. The Conversion Price shall be the lesser of
(i) an amount equal to 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 defined below) multiplied by (A) eighty five percent
(85%), subject to adjustment as provided herein, if on the date of the
Conversion Notice shares of Common Stock are traded on NASDAQ-NM or NASDAQ
SmallCap or (B) eighty percent (80%), subject to adjustment as provided herein,
if on the date of the Conversion Notice shares of Common Stock are traded on the
NASDAQ Bulletin Board (the percentage then in effect is referred to hereinafter
as the "Conversion Percentage"), or (ii) $7.00 (the "Fixed Conversion Price"),
subject to adjustment as provided herein.
(c) ADJUSTMENT TO CONVERSION PERCENTAGE AND FIXED CONVERSION
PRICE. If the Effective Date has not occurred within ninety (90) days after the
date of issuance of the Preferred Shares (which period shall be extended to the
extent that any delay in the occurrence of the Effective Date is attributable to
the action or inaction of the holders or their counsel in breach of the holders'
obligations to the Company), or if, after the Effective Date, sales cannot be
made pursuant to the Registration Statement by reason of an SEC stop order, the
Company's failure to update the Registration Statement in accordance with the
rules and regulations of the SEC or otherwise, or if the Common Stock is not
listed or included for quotation on the NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap
or NASDAQ Bulletin Board, then, as partial relief for the damages to the holder
by reason of any such delay in or restriction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity):
(i) The Conversion Percentage shall be reduced by a number of
percentage points equal to two (2) multiplied by the sum of: (i) the number of
periods of 30 consecutive days (prorated for periods of less than 30 consecutive
days) after the end of such 90-day period and prior to the Effective Date; (ii)
the number of periods of 30 consecutive days (prorated for periods of less than
30 consecutive days ) that sales cannot be made pursuant to the Registration
Statement (by reason of an SEC stop order, the Company's failure to update the
Registration or otherwise) or Rule 144 promulgated under the Securities Act of
1933, as amended (or successor rule or regulation, "Rule 144") after the
Effective Date; and (iii) the number of periods of 30 consecutive days (prorated
for periods of less than 30 consecutive days) that the Common Stock is not
listed or included for quotation on the NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap
or NASDAQ Bulletin Board after the Effective Date. (For example, if the
Effective Date occurs 45 days after the end of such 90-day period, the
Conversion Percentage would be 82% (under the circumstances set forth in Section
2(b)(i)(A)) or 77% (under the circumstances set forth in Section 2(b)(i)(B)
until any subsequent adjustment; if thereafter sales could not be made pursuant
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to the Registration Statement for a period of 60 additional days, the Conversion
Percentage would then be 78% (under the circumstances set forth in Section
2(b)(i)(A)) or 73% (under the circumstances set forth in Section 2(b)(i)(B))).
If a holder converts Preferred Shares into Common Stock and an adjustment to the
Conversion Percentage is required subsequent to such conversion, but prior to
the sale of such Common Stock by such holder, the Company shall pay to such
holder, within five (5) days after receipt of a notice of the sale of such
Common Stock from such holder, an amount equal to the Average Market Price of
the Common Stock obtained upon conversion of such Preferred Shares for the five
(5) trading days ending one (1) trading day prior to the date of conversion
multiplied by two-hundredths (.02) times the number of periods of 30 consecutive
days (prorated for periods of less than 30 consecutive days) for which an
adjustment was required. Such amount may be paid at the Company's option in cash
or Common Stock the value of which is based on the Average Market Price of the
Common Stock for the period of five (5) consecutive trading days ending on the
date of the sale of such Common Stock; PROVIDED, HOWEVER, that any amounts due
as to that period during which the shares are not traded or included for
quotation on the NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap, or NASDAQ Bulletin
Board shall be paid in cash only; PROVIDED, FURTHER, HOWEVER, that in no event
shall shares be issued hereunder if, after giving effect to such issuance, the
number of shares of Common Stock beneficially owned by such holder and all
Related Persons of such holder (other than shares of Common Stock deemed
beneficially owned through the ownership of unconverted Preferred Shares) would
exceed four and nine tenths percent (4.9%) of the outstanding shares of Common
Stock; cash shall be paid in lieu of any shares which cannot be issued pursuant
to this second proviso. For purposes of the second proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Sections 13(d) and 16, except as otherwise provided with respect to unconverted
Preferred Shares in the parenthetical clause of the second proviso to the
immediately preceding sentence. (For example, if the Conversion Percentage was
82% at the time of conversion of $1,000,000 in Stated Value of Preferred Shares
(such that such Preferred Shares were converted into Common Stock having an
Average Market Price for the applicable period in aggregate of $1,219,512.10)
and subsequent to conversion there was a further delay of 60 days in the
Registration Statement's being declared effective, and such Common Stock was
sold at the end of such 60-day period, the Company would pay to the holder
$48,780.48 in cash or Common Stock) and
(ii) The Fixed Conversion Price as in effect from time to time
shall be reduced by two (2) percent multiplied by the sum of: (i) the number of
periods of 30 consecutive days (prorated for periods of less than 30 consecutive
days) after the end of such 90-day period and prior to the Effective Date; (ii)
the number of periods of 30 consecutive days (prorated for periods of less than
30 consecutive days) that sales cannot be made pursuant to the Registration
Statement (by reason of an SEC stop order, the Company's failure to update the
Registration or otherwise) or Rule 144 after the Effective Date; and (iii) the
number of periods of 30 consecutive days (prorated for periods of less than 30
consecutive days) that the Common Stock is not listed or included for quotation
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on the NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap or NASDAQ Bulletin Board after the
Effective Date. (For example, if the Effective Date occurs 45 days after the end
of such 90-day period, the Fixed Conversion Price would be $6.79 until any
subsequent adjustment; if thereafter sales could not be made pursuant to the
Registration Statement for a period of 60 additional days, the Fixed Conversion
Price would then be $6.52.) If a holder converts Preferred Shares into Common
Stock and an adjustment to the Fixed Conversion Price is required subsequent to
such conversion, but prior to the sale of such Common Stock by such holder, the
Company shall pay to such holder, within five (5) days after receipt of a notice
of the sale of such Common Stock from such holder, an amount equal to the Fixed
Conversion Price then in effect multiplied by two-hundredths (.02) times the
number of periods of 30 consecutive days (prorated for periods of less than 30
consecutive days) for which an adjustment was required. Such amount may be paid
at the Company's option in cash or Common Stock whose value is based on the
Average Market Price of the Common Stock for the period of five (5) consecutive
trading days ending on the date of the sale of such Common Stock; PROVIDED,
HOWEVER, that any amounts due as to that period during which the shares are not
traded or included for quotation on the NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap
or NASDAQ Bulletin Board shall be paid in cash only; PROVIDED, FURTHER, HOWEVER,
that in no event shall shares be issued hereunder if, after giving effect to
such issuance, the number of shares of Common Stock beneficially owned by such
holder and all Related Persons of such holder would exceed four and nine tenths
percent (4.9%) of the outstanding shares of Common Stock (than shares of Common
Stock deemed beneficially owned through the ownership of unconverted Preferred
Shares); cash shall be paid in lieu of any shares which cannot be issued
pursuant to this second proviso. For purposes of the second proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Sections 13(d) and 16, except as otherwise provided with respect
to unconverted Preferred Shares in the parenthetical clause of the second
proviso to the immediately preceding sentence.
(d) ADJUSTMENT TO CONVERSION PRICE. In case the Company shall (i)
declare a dividend or make a distribution on the outstanding shares of its
Common Stock in shares of its Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision or combination shall be
proportionately adjusted so that the holder of any Preferred Shares converted
after such time shall be entitled to receive the aggregate number of shares of
Common Stock which the holder would have owned or been entitled to receive had
such Preferred Shares been converted immediately prior to such record date or
effective date and the resulting Common Stock had been subject to such dividend,
distribution, subdivision or combination. Such adjustment shall be made
successively whenever any event specified above shall occur.
(e) CONVERSION NOTICE. (1) The right of the holders of the
Preferred Shares to convert Preferred Shares shall be exercised by delivering to
the Company a notice stating the number of Preferred Shares to be converted (a
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"Conversion Notice"). On presentation to the Company (or at any office or agency
maintained for the transfer of the Common Stock) of a Conversion Notice, the
holder of such Preferred Shares shall be entitled, subject to the limitations
herein contained, to receive a certificate or certificates for fully paid and
nonassessable shares of Common Stock in accordance herewith and cash for
fractional shares, of Common Stock on the foregoing basis. The Preferred Shares
shall be deemed to have been converted, and the person converting the same to
have become the holder of record of Common Stock, for all purposes as of the
close of business on the date of delivery of the Conversion Notice.
(2) If a holder of Preferred Shares elects to convert any
Preferred Shares in accordance with this Section 2, such holder shall not be
required to physically surrender the certificate for such Preferred Shares to
the Company unless all of the Preferred Shares represented by such certificate
are being so converted. Each holder of Preferred Shares and the Company shall
maintain records showing the number of Preferred Shares represented by each
certificate for Preferred Shares so converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the holder of such
certificate and the Company, so as not to require physical surrender of such
certificate upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if any portion
of the Preferred Shares represented by a certificate therefor is converted as
aforesaid, the holder of such certificate may not transfer the remaining shares
represented by such certificate unless such holder first physically surrenders
such certificate to the Company, whereupon the Company will forthwith issue and
deliver upon the order of such holder a new certificate, registered as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining Preferred Shares
represented by such certificates. Each holder of Preferred Shares and any
assignee, by acceptance of such certificate, acknowledges and agrees that, by
reason of the provisions of this paragraph, following conversion of a portion of
the Preferred Shares represented by such certificate, the number of Preferred
Shares represented by such certificate may be less than the number stated on the
face thereof and the Company may place a legend to that effect on the
certificates for the Preferred Shares.
(3) Upon receipt by the Company from the Holder of a telephone
line facsimile transmission of a Conversion Notice meeting the requirements for
conversion as provided in Section 2(e)(1), the Company shall issue and deliver
or cause to be issued and delivered to or upon the order of the holder
submitting such Conversion Notice certificates for the Common Stock issuable
upon such conversion within three business days after such receipt and otherwise
in accordance herewith and the Securities Purchase Agreement, as amended (the
"Securities Purchase Agreement"), applicable to the Company and the initial
holder of the Preferred Shares (as assignee of all rights thereunder) pursuant
to which the Company issued shares of a prior series of preferred stock which
were subsequently exchanged for the Preferred Shares pursuant to an Exchange
Agreement (the "Exchange Agreement") between the Company and the initial holder
of the Preferred Shares (including, without limitation, in accordance with the
requirement of the Securities Purchase Agreement and the Exchange Agreement that
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certificates for shares of Common Stock issued on or after the Effective Date
upon conversion of Preferred Shares shall not bear any restrictive legend). If a
holder of Preferred Shares shall have given a Conversion Notice as provided
herein, the Company's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Company to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder of any obligation to the Company, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with such conversion. If the Company shall fail to issue
and deliver or cause to be issued and delivered the certificates for shares of
Common Stock upon any such conversion as and when required by the first sentence
of this Section 2(e)(3), then, in addition to any other liability which the
Company may have to the holder, the Conversion Percentage used to calculate the
Conversion Price with respect to such conversion shall be reduced by one
percentage point for each day after the third trading day following the date
such Conversion Notice is received by the Company to the date of delivery of
such shares of Common Stock to such holder.
(f) MAJOR TRANSACTIONS. If the Company shall consolidate with or
merge into any corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares), or in case of
any sale or transfer of all or substantially all of the assets of the Company,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, (each a
"Major Transaction"), then the Company shall make appropriate provision or cause
appropriate provision to be made so that each holder of Preferred Shares shall
have the right thereafter to convert Preferred Shares into the kind of shares of
stock and other securities and property receivable upon such consolidation,
merger, sale, transfer or share exchange by the persons who were holders of
Common Stock immediately prior to the effective date of such consolidation,
merger, sale, transfer or share exchange and on a basis which preserves the
economic benefits of the conversion rights of the holder of Preferred Shares on
a basis as nearly as practical as such rights existed prior to such
consolidation, merger, sale, transfer or share exchange. If, in connection with
any such consolidation, merger, sale, transfer or share exchange each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Company shall provide
or cause to be provided to holders of Preferred Shares the right to elect the
securities, cash or other assets into which Preferred Shares shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). The Company shall not effect any such transaction unless
the provisions of this paragraph have been complied with. The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers or
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share exchanges. The Company shall give the holders of the Preferred Shares
written notice of any Major Transaction promptly upon the execution of any
agreement whether or not binding in connection therewith (including without
limitation a letter of intent or agreement in principle) and in no event shall a
Major Transaction be consummated prior to forty-five (45) days after such
notice. Such notice shall specify the action proposed to be taken by the Company
and the date as of which holders of record of the Common Stock shall participate
in any such actions or be entitled to exchange their Common Stock for securities
or other property, as the case may be.
(g) RESERVATION OF SHARES. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all the
Preferred Shares then outstanding.
(h) FRACTIONAL SHARES. The Company shall not issue any fraction of
a share of Common Stock upon any conversion, but shall pay in cash therefor at
the Average Market Price then in effect multiplied by such fraction. If a holder
converts more than one Preferred Share on the same date, any fractional share
otherwise issuable upon such conversion shall be determined by aggregating all
Preferred Shares converted by such holder on such date.
(i) TAXES. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common Stock upon
conversion of Preferred Shares as herein provided. The Company shall not be
required in any event to pay any transfer or other taxes by reason of the
issuance of such Common Stock in names other than those in which the Preferred
Shares surrendered for conversion are registered on the Company's records, and
no such conversion or issuance of Common Stock shall be made unless and until
the person requesting such issuance has paid to the Company the amount of any
such tax, or has established to the satisfaction of the Company and its transfer
agent, if any, that such tax has been paid.
(j) CONVERSION UPON FAILURE TO OBTAIN STOCKHOLDER APPROVAL.
Notwithstanding the applicable Conversion Price pursuant to this Section (2), in
the event any holder of Preferred Shares is unable to convert into shares of
Common Stock the full amount of Preferred Shares held by such 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 holder shall be entitled to convert any or all of its Preferred
Shares 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 Section
(2)(j), "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
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present), or a written consent of holders 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
Preferred Shares, 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).
(3) CONVERSION AT THE COMPANY'S OPTION. So long as at the time the
Company is in compliance in all material respects with its obligations under
this Certificate, the Registration Rights Agreement, the Securities Purchase
Agreement and the Exchange Agreement, the Company may, at any time subsequent to
two hundred seventy (270) days after the Effective Date, require the holders of
the then outstanding Preferred Shares to convert all, but not less than all, of
such Preferred Shares into Common Stock by delivering written notice to such
holders (the "Mandatory Conversion Notice") in accordance with the terms hereof;
PROVIDED, HOWEVER, that in no event shall the Company be entitled to require any
holder to convert its Preferred Shares if, and no such conversion shall be
effective to the extent that, after giving effect to such conversion, the number
of shares of Common Stock issued in such conversion and otherwise beneficially
owned by such holder and all Related Persons of such holder, would exceed four
and nine-tenths percent (4.9%) of the outstanding shares of Common Stock (other
than shares of Common Stock deemed beneficially owned through the ownership of
unconverted Preferred Shares) and that as to those Preferred Shares which the
Company is prohibited from converting by operation of this proviso, the
Company's obligation to pay dividends thereon shall terminate as of the date of
the Mandatory Conversion Notice. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Sections 13(d) and 16, except as otherwise provided with respect to unconverted
Preferred Shares in the parenthetical clause of the proviso to the immediately
preceding sentence. The Conversion Price for the purposes of this Section 3
shall be the lesser of (i) the product obtained by multiplying the Average
Market Price for the Common Stock for the five (5) consecutive trading days
ending one trading day prior to the conversion date specified in the Mandatory
Conversion Notice by the Conversion Percentage then in effect, or (ii) the Fixed
Conversion Price then in effect. Any Mandatory Conversion Notice shall be given
by telephone line facsimile transmission and U.S. mail to the holders of the
then outstanding Preferred Shares at least fifteen (15) trading days prior to
the date fixed as the date for the conversion thereof at their telephone line
facsimile numbers and addresses provided to the Company for such purpose and
shall state that the then outstanding Preferred Shares shall be converted at the
Conversion Price in effect on the date fixed for the conversion, upon the
surrender, at the time and place designated in such notice, of the certificates
therefor. Within four (4) business days after the date fixed for conversion, the
Company shall deliver to the holders (i) that number of shares of Common Stock
for the Preferred Shares converted as shall be determined in accordance
herewith, and (ii) payment of the accrued and unpaid dividends thereon (which
payment of dividends may be made in shares of Common Stock in accordance with
Section 1 hereof if the requirements thereof are satisfied). Notwithstanding the
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foregoing, if, at the time fixed for such conversion, the Common Stock to be
issued pursuant thereto is not listed or included for quotation on the
NASDAQ-NM, NYSE, AMEX, NASDAQ SmallCap or NASDAQ Bulletin Board, then the
Mandatory Conversion Notice shall be null and void.
(4) MANDATORY REDEMPTION. (a) On each Mandatory Redemption Date (as
defined below), the Company shall redeem from all holders of Preferred Shares
(on a pro rata basis if there shall be more than one holder) a number of
Preferred Shares equal to (i) 667 (or such lesser number of Preferred Shares
then outstanding) LESS (ii) the number of Preferred Shares converted into Common
Stock by such holders during the calendar month preceding such Mandatory
Redemption Date. The Company's obligation to redeem Preferred Shares pursuant to
this Section 4 may be waived in writing by any holder at any time prior to the
Mandatory Redemption Date.
(b) On each Mandatory Redemption Date, the Company shall make
payment in immediately available funds of the applicable Mandatory Redemption
Price (as defined below) to such holder of Preferred Shares to be redeemed to or
upon the order of such holder as specified by such holder in writing to the
Company at least one business day prior to such Mandatory Redemption Date. If
the Company is required to redeem all or any portion of a holder's outstanding
Preferred Shares pursuant to this Section 4, the Company shall make payment to
such holder of the Preferred Shares to be redeemed in respect of each Preferred
Share to be redeemed of an amount equal to the Mandatory Redemption Price. Upon
redemption of less than all of the Preferred Shares evidenced by a particular
certificate, promptly, but in no event later than three business days after
surrender of such certificate to the Company, the Company shall issue a
replacement certificate for the Preferred Shares evidenced by such certificate
which have not been redeemed. Only whole Preferred Shares may be redeemed.
(c) For purposes of this Certificate,
"Mandatory Redemption Date" shall mean each of September 10, 1997
and the third business day of each of the five consecutive calendar months
thereafter commencing October 1997 through February 1998;
"Mandatory Redemption Price" shall mean the Redemption Price
determined as of the last trading day of the immediately preceding calendar
month; and
"Redemption Price" with respect to each Preferred Share to be
redeemed shall mean an amount equal to the sum of (A) $1,000 divided by the
applicable Conversion Percentage (expressed as a decimal number) and (B) all
dividends accrued and unpaid thereon to the applicable redemption date.
(5) OPTIONAL REDEMPTION BY THE COMPANY. So long as the Company is
in compliance in all material respects with its obligations to the holders of
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Preferred Shares (including, without limitation, its obligations under the
Exchange Agreement, the Subscription Agreement, the Registration Rights
Agreement and the provisions of this Certificate), the Company shall have the
right, exercisable on not less than 5 days or more than 20 days written notice
to the holders of record of the Preferred Shares to be redeemed, at any time to
redeem all, and from time to time to redeem any part of the outstanding
Preferred Shares in accordance with this Section 5. Any Notice of Redemption (as
defined below) under this Section shall be delivered to the holders of the
Preferred Shares at their addresses appearing on the records of the Company;
PROVIDED, HOWEVER, that any failure or defect in the giving of notice to any
such holder shall not affect the validity of notice to or the redemption of
Preferred Shares of any other holder. On the redemption date and after receipt
by the Company of certificates for Preferred Shares to be redeemed pursuant to
this Section, the Company shall make payment of the applicable Redemption Price
to each holder of Preferred Shares to be redeemed to or upon the order of such
holder as specified by such holder in writing to the Company at least one
business day prior to the redemption date. If the Company exercises its right to
redeem all or a portion of the outstanding Preferred Shares, the Company shall
make payment to the holders of the Preferred Shares to be redeemed in respect of
each Preferred Share to be redeemed of an amount equal to the Redemption Price.
Upon redemption of less than all of the Preferred Shares evidenced by a
particular certificate, promptly, but in no event later than three business days
after surrender of such certificate to the Company, the Company shall issue and
deliver to the holder of record of the surrendered certificate (or such holder's
assignee) a replacement certificate for the Preferred Shares which have not been
redeemed. Only whole Preferred Shares may be redeemed. If the Company exercises
its right to redeem less than all outstanding Preferred Shares, then such
redemption shall be made, as nearly as practical, pro rata among the holders of
record of the Preferred Shares. No Preferred Share as to which the holder
exercises the right of conversion pursuant to Section 2 or the optional
repurchase right pursuant to Section 6 may be redeemed by the Company pursuant
to this Section 5 on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the Notice
of Redemption shall have been given prior to the date of exercise of such
conversion right or optional redemption right, as the case may be.
"Notice of Redemption" shall mean a notice given by the Company to
the holders of Preferred Shares pursuant to this Section 5, which notice shall
state (1) that the Company is exercising its right to redeem all or a portion of
the outstanding Preferred Shares pursuant to this Section 5, (2) the number of
Preferred Shares held by such holder which are to be redeemed, (3) the
Redemption Price per share of the Preferred Shares to be redeemed or the formula
for determining the same, determined in accordance herewith and (4) the
applicable redemption date.
(6) REDEMPTION AT OPTION OF HOLDERS. (a) Each holder of Preferred
Shares shall be entitled, at such holder's option, by notice to the Company
given within 20 days after the occurrence of an Optional Redemption Event, to
require the Company to redeem all or a portion of such shares (but in no event
less than ten shares, unless such holder holds less than ten shares, in which
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case the Company must redeem all of such holder's shares) upon the occurrence of
an Optional Redemption Event. An "Optional Redemption Event" means, during any
consecutive two month period, a change in a majority of either (i) the executive
officers or (ii) the members of the Board of Directors of the Company from those
persons serving in such capacities at the beginning of such period. The Company
shall notify each holder of Preferred Shares within three (3) business days of
the occurrence of an Optional Redemption Event.
(b) To exercise the optional redemption right, a holder of
Preferred Shares shall deliver to the Company a notice of redemption (a "Holder
Redemption Notice"), accompanied by the certificate for the Preferred Shares to
be redeemed. Any Holder Redemption Notice shall state (1) that the holder
delivering such notice is thereby requiring the Company to redeem Preferred
Shares pursuant to this Section 6 and (2) the number of Preferred Shares held by
such holder which are to be redeemed. In no event later than five business days
following receipt of such notice by the Company, the Company shall make payment
in immediately available funds of the applicable Redemption Price with respect
to the Preferred Shares to be redeemed to or upon the order of such holder as
specified by such holder in the Holder Redemption Notice. Upon redemption of
less than all of the Preferred Shares evidenced by a particular certificate,
promptly, but in no event later than five business days after surrender of such
certificate to the Company, the Company shall issue a replacement certificate
for the Preferred Shares which have not been redeemed. Only whole shares of
Preferred Stock may be redeemed.
(7) VOTING RIGHTS. Holders of Preferred Shares shall have no
voting rights, except as required by law and by Section 10 hereof.
(8) LIQUIDATION, DISSOLUTION, WINDING UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Preferred Funds"), before any amount
shall be paid to the holders of the Common Stock, an amount equal to the Stated
Value per Preferred Share plus any accrued and unpaid dividends, provided that,
if the Preferred Funds are insufficient to pay the full amount due to the
holders of Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Preferred Shares
as to payments of Preferred Funds (the "Pari Passu Shares"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a percentage of the full amount of Preferred Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Company of stock of any class, in any manner permitted by law, shall not,
for the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Neither the consolidation nor merger of the Company with or into
any other corporation or corporations, nor the sale or transfer by the Company
of less than substantially all of its assets, shall, for the purposes hereof, be
deemed to be a liquidation, dissolution or winding up of the Company. No holder
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of Preferred Shares shall be entitled to receive any amounts with respect
thereto upon any liquidation, dissolution or winding up of the Company other
than the amounts provided for herein.
(9) PREFERRED RANK. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution or winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. The Company may only authorize and
issue additional or other preferred stock which is of junior rank with the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution or winding up of the Company (except for
shares of Series F Convertible Preferred Stock, $1.00 par value, of the Company
issued in exchange for its Series D Convertible Preferred Stock, $1.00 par
value, which may be of equal rank in respect of such preferences).
Notwithstanding the foregoing, the Company may issue to the original holders of
the Preferred Shares or affiliates thereof preferred stock which is of equal
rank with the Preferred Shares in respect of the preferences as to distributions
and payments upon the liquidation, dissolution or winding up of the Company. In
the event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein.
(10) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The approval of
the Board of Directors and the affirmative vote at a meeting duly called by the
Board of Directors for such purpose or the written consent without a meeting of
the holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares shall be required to amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares.
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Dennis W. Healey, its Executive Vice President, as of the 28th day of
August, 1997.
VIRAGEN, INC.
By:
--------------------------------------
Executive Vice President
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Series F Convertible Preferred Stock
Exchange Agreement
================================================================================
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of July 23, 1997 (this
"Agreement"), by and between VIRAGEN, INC., a Delaware corporation (the
"Company"), located at 865 Southwest 78th Avenue, Suite 100, Plantation, Florida
33324, and P.R.I.F., L.P., a limited partnership organized under the laws of
Ontario, Canada (the "Holder") located at 175 Bloor Street East, South Tower,
6th Floor, Toronto, Ontario M4W 3R8, Canada.
W I T N E S S E T H:
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WHEREAS, on February 5, 1997 the Company issued to the Holder 15,000
shares of its Series D Convertible Preferred Stock, $1.00 par value ("Series D
Preferred Stock"), pursuant to a Private Securities Subscription Agreement,
dated as of December 31, 1996, between the Company and the Holder (the
"Subscription Agreement");
WHEREAS, in order to change the dividend rate and the optional
redemption premium applicable to the Holder's securities, the parties desire to
exchange (the "Exchange") the Holder's outstanding Series D Preferred Stock for
a like number of newly issued shares of Series F Convertible Preferred Stock,
$1.00 par value, of the Company ("Series F Preferred Stock"); and
WHEREAS, the parties intend that all of their respective rights and
obligations under the Subscription Agreement and the Registration Rights
Agreement, dated as of December 31, 1996, between the Company and the Holder
(the "Registration Rights Agreement"), shall, upon the Exchange and subject to
the other terms of this Agreement, continue to apply in full force and effect to
the Series F Preferred Stock issued to the Holder;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO EXCHANGE; AMENDMENT OF SUBSCRIPTION AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT.
(A) EXCHANGE. The Company and the Holder hereby agree to exchange
on the Closing Date (as defined herein) a number of shares (the "Series F
Preferred Shares") of Series F Preferred Stock of the Company equal to the
number of shares (the "Series D Preferred Shares") of Series D Preferred Stock
held by the Holder on the Closing Date for the number of Series D Preferred
Shares held by the Holder on the Closing Date. The Series F Preferred Shares
shall have the rights, designations and terms as set forth in the form of
Certificate of Designations attached as ANNEX I to this Agreement (the
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"Certificate of Designations"). The shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), issuable upon conversion of the Series F
Preferred Shares are referred to herein as the "Common Shares." The Common
Shares and the Series F Preferred Shares are referred to herein collectively as
the "Shares."
(B) CLOSING. (1) The exchange of Series F Preferred Shares for
Series D Preferred Shares shall occur at a closing (the "Closing") to be held on
the next business day (the "Closing Date") following the Stockholder Notice
Period (as defined in Section 4(e)(1)) but which in no event shall be later than
August 21, 1997. Either party may terminate this Agreement if the Closing does
not occur on or before August 21, 1997. The Closing shall occur on the Closing
Date at Law Offices of Brian W Pusch, 29 West 57th Street, New York, New York.
(2) Each of the parties acknowledges that time is of the essence
in effecting the Closing hereunder and shall use its best efforts timely to
satisfy each of the conditions to the other party's obligations to complete the
Exchange set forth in Section 6 or 7, as the case may be, of this Agreement on
or before the Closing Date.
(C) AMENDMENT OF SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT. Subject to the terms of this Agreement which shall govern any
inconsistent provisions, effective upon the Closing, (1) the parties hereby
amend each of the Subscription Agreement and the Registration Rights Agreement
such that all references to the Series D Preferred Shares therein shall be
deemed to be references to the Series F Preferred Shares; and (2) the respective
rights and obligations of the parties with respect to the Series D Preferred
Shares as of the date hereof shall apply with full force and effect to the
Series F Preferred Shares and the Common Shares issuable pursuant thereto.
Except as amended hereby or as otherwise provided herein, the Subscription
Agreement (including, without limitation, the proviso to Section 2(x) thereof)
and the Registration Rights Agreement shall continue in full force and effect.
2. HOLDER REPRESENTATIONS, WARRANTIES, ETC.
The Holder represents and warrants to, and covenants and agrees
with, the Company as follows:
(A) INVESTMENT PURPOSE. The Holder is acquiring the Series F
Preferred Shares for its own account for investment only and not with a view
towards the public sale or distribution thereof.
(B) ACCREDITED INVESTOR. The Holder is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
Securities Act of 1933, as amended (the "1933 Act") by reason of Rule 501(a)(3).
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(C) REOFFERS AND RESALES. All subsequent offers and sales of the
Shares by the Holder shall be made pursuant to registration of the Shares being
offered and sold under the 1933 Act or pursuant to an exemption from
registration.
(D) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Holder and is a valid and
binding agreement of the Holder enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees
with, the Holder that:
(A) CONCERNING THE SHARES. The Shares have been duly authorized
and the Series F Preferred Shares, when issued in exchange for the Series D
Preferred Shares in accordance with this Agreement, and the Common Shares, when
issued upon conversion of the Series F Preferred Shares, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire any of
the Shares. The Common Stock is listed for trading on the Nasdaq National Market
("Nasdaq") and (1) the Company and the Common Stock meet the criteria for
continued listing and trading on Nasdaq; (2) the Company has not been notified
since January 1, 1997 by the National Association of Securities Dealers, Inc.
(the "NASD") of any failure or potential failure to meet the criteria for
continued listing and trading on Nasdaq and (3) no suspension of trading in the
Common Stock is in effect. The Common Shares are listed for trading on Nasdaq.
(B) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is a valid and binding
agreement of the Company enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
(C) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the issuance of
the Series F Preferred Shares and the other transactions contemplated by this
Agreement, and the terms of the Series F Preferred Stock do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the certificate of incorporation
or by-laws of the Company, or any indenture, mortgage, deed of trust or other
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material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, or any applicable law, rule or
regulation or any applicable decree, judgment or order of any court, United
States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its properties
or assets.
(D) APPROVALS. No authorization, approval or consent of or filing
with any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the issuance and sale of the Series F
Preferred Shares and the Common Shares as contemplated by this Agreement, except
for the filing of the Certificate of Designations with the Secretary of State of
the State of Delaware.
(E) SEC REPORTING STATUS AND FILINGS. The Company has filed with
the Securities and Exchange Commission (the "SEC") all reports and other
information required to be filed under Sections 13(a), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
(F) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Holder in connection with the transactions contemplated by
this Agreement, including, without limitation, all reports and other information
filed with the SEC since January 1, 1996 (the "SEC Reports"), does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(G) ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company, except as disclosed in the SEC Reports.
(H) ABSENCE OF LITIGATION. Except as set forth in SCHEDULE 3(H)
attached hereto, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, wherein an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other), results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
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<PAGE>
(I) EXCHANGES OF STOCK. The Company has not and will not pay any
commission or other remuneration for soliciting exchanges of Series D Preferred
Shares for Series F Preferred Shares.
(J) REGISTRATION STATEMENT. Registration Statement (Registration
No. 333-23061) (as amended to date, the "Registration Statement") registering
the resale of the shares of Common Stock issuable upon conversion of the Series
D Preferred Shares has been declared effective by the SEC and no stop-order or
similar proceeding relating to the Registration Statement is pending or
threatened.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(A) TRANSFER RESTRICTIONS. The Holder and the Company acknowledge
and agree that (1) the Series F Preferred Shares have not been and are not being
registered under the provisions of the 1933 Act and may not be transferred
unless (A) subsequently registered thereunder or (B) the Holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Series F Preferred
Shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Series F Preferred Shares
made in reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any such resale of Series F Preferred Shares under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
wit some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; (3) neither the Company nor any other person is under any
obligation to register the Series F Preferred Shares under the 1933 Act or to
comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(c) hereof), with respect to the sale or other transfer of
the Series F Preferred Shares; and (4) the Company shall agree in writing with
any transferee of the Series F Preferred Share that the Company and such
transferee shall be bound by and entitled to the respective rights and
obligations of the Company and the Holder as set forth in this Section 4.
(B) RESTRICTIVE LEGEND. The Holder acknowledges and agrees that
the certificates for the Series F Preferred Shares may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Series F Preferred Shares):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
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PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. THE HOLDER OF
THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY
SET FORTH IN A PRIVATE SECURITIES SUBSCRIPTION AGREEMENT BETWEEN THE
COMPANY AND P.R.I.F., L.P., DATED DECEMBER 31, 1996, AS AMENDED BY THE
EXCHANGE AGREEMENT BETWEEN THE COMPANY AND P.R.I.F., L.P., DATED AS OF
JULY 23, 1997. A COPY OF THE AFORESAID SUBSCRIPTION AGREEMENT AND EXCHANGE
AGREEMENT MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.
Upon conversion of the Series F Preferred Shares into Common Shares,
the Company shall issue a Common Stock certificate or certificates without any
restrictive legend to the holder of such shares. Such Common Shares shall not be
subject to any stop transfer instructions and shall be freely transferable on
the books and records of the Company.
(C) REPORTING STATUS. So long as the Holder beneficially owns any
of the Series F Preferred Shares or the Common Shares, the Company shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination.
(D) RESTRICTION ON CONVERSIONS. Effective on the Closing Date, the
Holder hereby agrees that during each two (2) week period commencing on the
Closing Date, and continuing for as long as the Holder shall hold any Series F
Preferred Shares, the Holder may not request the conversion into Common Shares
of Series F Preferred Shares having a stated value (including accrued and unpaid
dividends for which conversion into Common Shares is requested by the Holder)
greater than $800,000; PROVIDED, HOWEVER, that the foregoing restriction shall
apply only so long as the Company is in compliance with all of its material
obligations to the Holder under this Agreement, the Certificate of Designations,
the Subscription Agreement and the Registration Rights Agreement.
(E) NASD MATTERS. (1) The Company represents and warrants to the
Holder that (A) it has received the NASD's concurrence ("NASD Approval") with
the Company's position that the approval by the Company's stockholders given at
a Special Meeting of the Stockholders held on June 27, 1997 of the issuance of
the Series D Preferred Shares shall be deemed shareholder approval of the
issuance of the Series F Preferred Shares for purposes of Rule 4460(i)(1)(D)(ii)
(the "Rule") of the Nasdaq National Market Issuer Designation Requirements such
that the issuance of Common Shares upon conversion of the Series F Preferred
Shares would not be subject to any restrictions under the Rule and (B) as a
condition of such NASD Approval, the NASD has required the Company to mail a
notice to all stockholders (the "Notice") advising them of the Exchange ten days
prior to the Closing Date (such ten day period is referred to herein as the
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"Stockholder Notice Period") and to file a Current Report on Form 8-K with the
SEC reporting the Exchange. The Company agrees to promptly prepare the Notice,
obtain the NASD's prior approval thereof (if so required), and mail the Notice
to its stockholders.
(2) If, notwithstanding the NASD Approval, at any time the Holder
is unable to receive on a timely basis Common Shares upon submission to the
Company of a notice of conversion of the Series F Preferred Shares by reason of
the Rule or the provisions of Section 4(v) of the Subscription Agreement, within
five days of receipt of a written request from the Holder, the Company shall
redeem such inconvertible Series F Preferred Shares (the "Inconvertible Shares")
by paying the Holder for each such Inconvertible Share a cash amount equal to
(A) the sum of (1) $1,000 and (2) an amount equal to the accrued but unpaid
dividends on such Inconvertible Shares through the payment date TIMES (B) 118%.
(F) FAILURE TO REDEEM. If at any time the Company shall exercise
its Cash-Out Option (as defined in Section 7(i) of the Certificate of
Designations) with respect to a requested conversion of Series F Preferred
Shares and thereafter fail to make the required cash payment to the Holder
within ten business days after receipt by the Company of the notice of
conversion (the "Notice Date") with respect to such Series F Preferred Shares,
the Company shall compensate the Holder for such late paymen by paying the
Holder an additional amount, as liquidated damages and not as a penalty, equal
to one-half of one percent (0.5%) of the requested conversion amount (equal to
the stated value plus accrued interest on the Series F Preferred Shares
requested to be converted), per day, beginning on the eleventh business day
after the Notice Date. Such additional amounts shall accrue each day through the
date the entire cash amount due the Holder pursuant to the Cash-Out Option plus
such additional amounts are paid in full, and shall be paid by wire transfer to
an account designated by the Holder on each weekly anniversary of the eleventh
business day after the Notice Date.
(G) AMENDED PROSPECTUS. At least three business days prior to the
Closing Date, the Company shall provide to the Holder and its counsel for review
a draft amended prospectus, forming part of the Registration Statement, to be
filed by the Company on or before the Closing Date with the SEC covering the
resale of the Common Shares under the 1933 Act.
(H) PAYMENT OF DIVIDENDS ON SERIES D PREFERRED STOCK. For the
period commencing June 23, 1997 to and including the date prior to the Closing
Date, the Company agrees to pay the Holder dividends on its Series D Preferred
Stock at the rate of ten percent (10%) per annum of the stated value of the
Series D Preferred Stock as if such 10% rate were set forth in Section 2 of the
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Certificate of Designations, Preferences and Rights of the Series D Preferred
Stock. Prior to the Closing Date, the Company shall pay to the Holder in cash an
amount equal to all accrued and unpaid dividends on the Series D Preferred Stock
payable to and including the date prior to the Closing Date.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
On or prior to the Closing Date, the Company will irrevocably
instruct (the "Transfer Agent Instructions") its transfer agent for the Common
Stock, ChaseMellon Shareholder Services L.L.C. (the "Transfer Agent"), to issue
certificates for Common Shares from time to time upon conversion of Series F
Preferred Shares in such amounts as specified from time to time to the Transfer
Agent in the conversion notices surrendered in connection with such conversions.
The Transfer Agent Instructions shal provide that the certificates for the
Common Shares shall not bear any restrictive legend and the Common Shares shall
not be subject to any stop transfer instructions. The Company warrants that no
instruction other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof with respect to the
Series F Preferred Shares will be given by the Company to the Transfer Agent and
that the Common Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement. Nothing
in this Section 5 shall affect in any way the Holder's obligations and agreement
to comply with all applicable securities laws upon resale of the Common Shares
and to comply with the terms and conditions of the Certificate of Designations.
If the Holder provides the Company with an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that registration of a
resale by the Holder of any of the Series F Preferred Shares in accordance with
clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933
Act, the Company shall permit the transfer of such Series F Preferred Shares.
6. CONDITIONS TO THE HOLDER'S OBLIGATIONS.
The Holder's obligation to exchange its Series D Preferred Shares
for Series F Preferred Shares is conditioned upon the following:
(a) Delivery by the Company to the Holder on the Closing Date of
duly executed certificates representing the Series F Preferred Shares duly
registered in the name of the Holder;
(b) Receipt by the Holder on or before the Closing Date of
confirmation of the filing of the Certificate of Designations with the Secretary
of State of the State of Delaware, in form reasonably satisfactory to the
Holder;
(c) The Company shall have transmitted to the SEC for filing,
pursuant to Rule 424(b) under the 1933 Act, an amended prospectus, in form and
substance reasonably satisfactory to the Holder, relating to the resale of the
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Common Shares issuable upon conversion of the Series F Preferred Shares, and
shall have provided the Holder with a reasonable number of copies of such
amended prospectus;
(d) The Registration Statement shall have been declared effective
by the SEC, no stop-order or similar proceeding relating to the Registration
Statement shall be pending or threatened and the Registration Statements
register the Common Shares for resale in compliance with the 1933 Act;
(e) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(f) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Closing Date as if given on and as of the
Closing Date, and on or before the Closing Date the Company shall have performed
all covenants and agreements of the Company contained herein required to be
performed by the Company on or before the Closing Date;
(g) On the Closing Date, the Holder having received an opinion of
Atlas, Pearlman, Trop & Borkson, P.A., counsel for the Company, dated the
Closing Date, addressed to the Holder, in form, scope and substance reasonably
satisfactory to the Holder, substantially in the form of ANNEX II attached
hereto; and
(h) On or before the Closing Date, the Holder shall have received
a copy of the Transfer Agent Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligations to exchange the new Series F Preferred
Shares for the Holder's Series D Preferred Shares is conditioned upon the
following:
(a) Delivery by the Holder to the Company for cancellation on the
Closing Date of certificates representing all outstanding Series D Preferred
Shares, together with executed stock powers;
(b) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement; and
(c) The representations and warranties of the Holder contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Closing Date as if given on and as of the
Closing Date, and on or before the Closing Date the Holder shall have performed
all covenants and agreements of the Holder required to be performed by the
Holder on or before the Closing Date.
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8. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida.
(b) This Agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall constitute
one and the same instrument. A facsimile transmission of this Agreement bearing
a signature on behalf of a party hereto shall be legal and binding on such
party.
(c) The headings, captions and footers of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between the
parties, shall operate as a waiver thereof or amendment of this Agreement, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or exercise of any other right or
power.
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless such
amendment, change, waiver, discharge or termination is in writing signed by the
party to be charged with enforcement.
(g) Any notices, deliveries and payments required or permitted to
be given or made under the terms of this Agreement shall be given or made in
accordance with the terms of the Subscription Agreement; provided that notices
to the Company should be addressed to the Company at the address shown in the
introductory paragraph of this Agreement and may be sent by telephone line
facsimile to (954) 233-1414.
(h) This Agreement and the Certificate of Designations, together
with the Subscription Agreement and the Registration Rights Agreement, each as
amended hereby, contain the entire understanding of the parties with respect to
the matters covered herein and therein.
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IN WITNESS WHEREOF, the parties have caused this Exchange Agreement
to be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
VIRAGEN, INC.
By: /s/ Dennis W. Healey
------------------------------------
Name: Dennis W. Healey
Title: Executive Vice President
P.R.I.F., L.P.
By: /s/ Henry Brachfeld
------------------------------------
Henry Brachfeld
President, HB and Co., Inc.
General Partner,
P.R.I.F., L.P.
11
================================================================================
Series G Convertible Preferred Stock
Exchange Agreement
================================================================================
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of August 27, 1997 (this
"Agreement"), by and between VIRAGEN, INC., a Delaware corporation (the
"Company"), located at 865 Southwest 78th Avenue, Suite 100, Plantation, Florida
33324, and ADVANTAGE FUND LIMITED, a British Virgin Islands corporation (the
"Holder") located at c/o CITCO, Kaya Flamboyan 9, Curacao, Netherlands Antilles.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in April 1997 the Holder acquired 5,000 shares of the
Company's 5% Cumulative Convertible Preferred Stock, Series E, $1.00 par value
(the "Series E Preferred Stock"), and assumed all rights and obligations of the
transferor of such shares (the "Transferor") pursuant to the Securities Purchase
Agreement, dated as of December 31, 1996, by and between the Company and the
Transferor (the "Securities Purchase Agreement") and the Registration Rights
Agreement, dated as of December 31, 1996, by and between the Company and the
Transferor (the "Registration Rights Agreement");
WHEREAS, in order to effect certain changes in the terms of the
Series E Preferred Stock, the parties desire to exchange (the "Exchange") the
Holder's Series E Preferred Stock outstanding at the Closing hereunder for a
like number of newly issued shares of 10% Cumulative Convertible Preferred
Stock, Series G, $1.00 par value, of the Company (the "Series G Preferred
Stock"); and
WHEREAS, the parties intend that all of their respective rights and
obligations under the Securities Purchase Agreement and the Registration Rights
Agreement shall, upon the Exchange and subject to the other terms of this
Agreement, continue to apply in full force and effect to the Series G Preferred
Stock issued to the Holder;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO EXCHANGE; AMENDMENT OF SECURITIES PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT.
(A) EXCHANGE. The Company and the Holder hereby agree to exchange
on the Closing Date (as defined herein) 4,000 shares (the "Series G Preferred
Shares") of Series G Preferred Stock of the Company for the 4,000 shares (the
"Series E Preferred Shares") of Series E Preferred Stock to be held by the
Holder on the Closing Date. The Series G Preferred Shares shall have the rights,
designations and terms as set forth in the form of Certificate of Designations
attached as ANNEX I to this Agreement (the "Certificate of Designations"). The
shares of the Company's Common Stock, par value $.01 per share ("Common Stock"),
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issuable upon conversion of the Series G Preferred Shares are referred to herein
as the "Common Shares." The Common Shares and the Series G Preferred Shares are
referred to herein collectively as the "Shares."
(B) CLOSING. (1) The exchange of Series G Preferred Shares for
Series E Preferred Shares shall occur at a closing (the "Closing") to be held on
the next business day (the "Closing Date") following the Stockholder Notice
Period (as defined in Section 4(d)(1)) but which in no event shall be later than
August 21, 1997. Either party may terminate this Agreement if the Closing does
not occur on or before September 5, 1997. The Closing shall occur on the Closing
Date at Law Offices of Brian W Pusch, 29 West 57th Street, New York, New York.
(2) Each of the parties acknowledges that time is of the essence
in effecting the Closing hereunder and shall use its best efforts timely to
satisfy each of the conditions to the other party's obligations to complete the
Exchange set forth in Section 6 or 7, as the case may be, of this Agreement on
or before the Closing Date.
(C) AMENDMENT OF SECURITIES PURCHASE AGREEMENT AND REGISTRATION
RIGHTS AGREEMENT. Subject to the terms of this Agreement which shall govern any
inconsistent provisions, effective upon the Closing, (1) the parties hereby
amend each of the Securities Purchase Agreement and the Registration Rights
Agreement such that all references to the Series E Preferred Shares therein
shall be deemed to be references to the Series G Preferred Shares; and (2) the
respective rights and obligations of the parties with respect to the Series E
Preferred Shares as of the date hereof shall apply with full force and effect to
the Series G Preferred Shares and the Common Shares issuable pursuant thereto.
Except as amended hereby or as otherwise provided herein, the Agreement
(including, without limitation, Section 4(k) thereof) and the Registration
Rights Agreement shall continue in full force and effect.
2. HOLDER REPRESENTATIONS, WARRANTIES, ETC.
The Holder represents and warrants to, and covenants and agrees
with, the Company as follows:
(A) INVESTMENT PURPOSE. The Holder is acquiring the Series G
Preferred Shares for its own account for investment only and not with a view
towards the public sale or distribution thereof.
(B) ACCREDITED INVESTOR. The Holder is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
Securities Act of 1933, as amended (the "1933 Act") by reason of Rule 501(a)(3).
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<PAGE>
(C) REOFFERS AND RESALES. All subsequent offers and sales of the
Shares by the Holder shall be made pursuant to registration of the Shares being
offered and sold under the 1933 Act or pursuant to an exemption from
registration.
(D) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Holder and is a valid and
binding agreement of the Holder enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees
with, the Holder that:
(A) CONCERNING THE SHARES. The Shares have been duly authorized
and the Series G Preferred Shares, when issued in exchange for the Series E
Preferred Shares in accordance with this Agreement, and the Common Shares, when
issued upon conversion of the Series G Preferred Shares, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire any of
the Shares. The Common Stock is listed for trading on the Nasdaq National Market
("Nasdaq") and (1) the Company and the Common Stock meet the criteria for
continued listing and trading on Nasdaq; (2) the Company has not been notified
since January 1, 1997 by the National Association of Securities Dealers, Inc.
(the "NASD") of any failure or potential failure to meet the criteria for
continued listing and trading on Nasdaq and (3) no suspension of trading in the
Common Stock is in effect. The Common Shares are listed for trading on Nasdaq.
(B) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is a valid and binding
agreement of the Company enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
(C) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the issuance of
the Series G Preferred Shares and the other transactions contemplated by this
Agreement, and the terms of the Series G Preferred Stock do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the certificate of incorporation
or by-laws of the Company, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which it
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or any of its properties or assets are bound, or any applicable law, rule or
regulation or any applicable decree, judgment or order of any court, United
States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its properties
or assets.
(D) APPROVALS. No authorization, approval or consent of or filing
with any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the issuance and sale of the Series G
Preferred Shares and the Common Shares as contemplated by this Agreement, except
for the filing of the Certificate of Designations with the Secretary of State of
the State of Delaware.
(E) SEC REPORTING STATUS AND FILINGS. The Company has filed with
the Securities and Exchange Commission (the "SEC") all reports and other
information required to be filed under Sections 13(a), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act").
(F) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Holder in connection with the transactions contemplated by
this Agreement, including, without limitation, all reports and other information
filed with the SEC since January 1, 1996 (the "SEC Reports"), does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(G) ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company, except as disclosed in the SEC Reports.
(H) ABSENCE OF LITIGATION. Except as set forth in SCHEDULE 3(H)
attached hereto, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, wherein an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other), results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
(I) EXCHANGES OF STOCK. The Company has not and will not pay any
commission or other remuneration for soliciting exchanges of Series E Preferred
Shares for Series G Preferred Shares.
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<PAGE>
(J) REGISTRATION STATEMENT. The Registration Statement
(Registration No. 333-25187) (as amended to date, the "Registration Statement")
registering the resale of the shares of Common Stock issuable upon conversion of
the Series E Preferred Stock has been declared effective by the SEC and no
stop-order or similar proceeding relating to the Registration Statement is
pending or threatened.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(A) TRANSFER RESTRICTIONS. The Holder and the Company acknowledge
and agree that (1) the Series G Preferred Shares have not been and are not being
registered under the provisions of the 1933 Act and may not be transferred
unless (A) subsequently registered thereunder or (B) the Holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Series G Preferred
Shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Series G Preferred Shares
made in reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any such resale of Series G Preferred Shares under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
wit some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; (3) neither the Company nor any other person is under any
obligation to register the Series G Preferred Shares under the 1933 Act or to
comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(c) hereof), with respect to the sale or other transfer of
the Series G Preferred Shares; and (4) the Company shall agree in writing with
any transferee of the Series G Preferred Share that the Company and such
transferee shall be bound by and entitled to the respective rights and
obligations of the Company and the Holder as set forth in this Section 4.
(B) LEGEND. (1) The Holder acknowledges and agrees that the
certificates for the Series G Preferred Shares will bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the
certificates for the Series G Preferred Shares):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM,
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<PAGE>
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
THE ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Upon conversion of the Series G Preferred Shares into Common Shares,
the Company shall issue a Common Stock certificate or certificates without any
restrictive legend to the holder of such shares. Such Common Shares shall not be
subject to any stop transfer instructions and shall be freely transferable on
the books and records of the Company.
(2) The certificates for the Series G Preferred Shares shall bear
the following additional legends:
SECTION 2(e)(2) OF THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES G, PURSUANT TO
WHICH THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PERMITS A
HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO CONVERT SUCH
SECURITIES IN ACCORDANCE WITH THE CERTIFICATE OF DESIGNATIONS WITHOUT
BEING REQUIRED TO PHYSICALLY SURRENDER THIS CERTIFICATE TO THE CORPORATION
UNLESS ALL OF THE SECURITIES REPRESENTED HEREBY ARE SO CONVERTED.
CONSEQUENTLY, FOLLOWING CONVERSION OF ANY OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE, THE NUMBER OF SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE LESS THAN THE NUMBER OF SHARES STATED HEREON.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
(C) REPORTING STATUS. So long as the Holder beneficially owns any
of the Series G Preferred Shares or the Common Shares, the Company shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination.
(D) NASD MATTERS. (1) The Company represents and warrants to the
Holder that (A) it has received the NASD's concurrence ("NASD Approval"), a copy
of which is attached hereto as EXHIBIT 4(D), with the Company's position that
the approval by the Company's stockholders given at a Special Meeting of the
Stockholders held on June 27, 1997 of the issuance of the Series E Preferred
Stock shall be deemed shareholder approval of the issuance of the Series G
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Preferred Stock for purposes of Rule 4460(i)(1)(D)(ii) (the "Rule") of the
Nasdaq National Market Issuer Designation Requirements such that the issuance of
Common Shares upon conversion of the Series G Preferred Stock would not be
subject to any restrictions under the Rule and (B) as a condition of such NASD
Approval, the NASD has required the Company to mail a notice to all stockholders
(the "Notice") advising them of the Exchange ten days prior to the Closing Date
(such ten day period is referred to herein as the "Stockholder Notice Period ).
The Company agrees to promptly prepare the Notice, obtain the NASD's prior
approval thereof, mail the Notice to its stockholders and file a Current Report
on Form 8-K with the SEC reporting the Exchange.
(2) If, notwithstanding the NASD Approval, at any time the Holder
is unable to receive on a timely basis Common Shares upon submission to the
Company of a notice of conversion of the Series G Preferred Shares by reason of
the Rule or the provisions of Section 4(i)(ii) of the Securities Purchase
Agreement, the Company shall be entitled to convert its Series G Preferred
Shares in accordance with Section 2(j) of the Certificate of Designations and
shall be entitled to receive liquidated damages pursuant to Section 4(i) of the
Securities Purchase Agreement.
(E) AMENDED PROSPECTUS. At least three business days prior to the
Closing Date, the Company shall provide to the Holder and its counsel for review
a draft amended prospectus, forming part of the Registration Statement, to be
filed by the Company on or before the Closing Date with the SEC covering the
resale of the Common Shares under the 1933 Act.
(F) PAYMENT OF DIVIDENDS ON SERIES E PREFERRED STOCK. For the
period commencing July 18, 1997 to and including the date prior to the Closing
Date, the Company agrees to pay the Holder dividends on its 4,000 Series E
Preferred Shares at the rate of ten percent (10%) per annum of the stated value
of the Series E Preferred Stock as if such 10% rate were set forth in Section 1
of the Certificate of Designations, Preferences and Rights of the Series E
Preferred Stock. Prior to the Closing Date the Company shall pay to the Holder
in cash an amount equal to all accrued and unpaid dividends on the Series E
Preferred Stock payable to and including the date prior to the Closing Date.
(G) EXPENSES. Whether or not the Closing occurs, the Company will
pay or reimburse up to $7,000 of the out-of-pocket expenses (including, without
limitation, legal fees and expenses) incurred by the Holder in connection with
this Agreement and the transactions contemplated hereby.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
On or prior to the Closing Date, the Company will irrevocably
instruct (the "Transfer Agent Instructions") its transfer agent for the Common
Stock, ChaseMellon Shareholder Services L.L.C. (the "Transfer Agent"), to issue
certificates for Common Shares from time to time upon conversion of Series G
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Preferred Shares in such amounts as specified from time to time to the Transfer
Agent in the conversion notices surrendered in connection with such conversions.
The Transfer Agent Instructions shal provide that the certificates for the
Common Shares shall not bear any restrictive legend and the Common Shares shall
not be subject to any stop-transfer instructions. The Company warrants that no
instruction other than such instructions referred to in this Section 5 and
stop-transfer instructions to give effect to Section 4(a) hereof with respect to
the Series G Preferred Shares will be given by the Company to the Transfer Agent
and that the Common Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement.
Nothing in this Section 5 shall affect in any way the Holder's obligations and
agreement to comply with all applicable securities laws upon resale of the
Common Shares and to comply with the terms and conditions of the Certificate of
Designations. If the Holder provides the Company with an opinion of counsel
reasonably satisfactory in form, scope and substance to the Company that
registration of a resale by the Holder of any of the Series G Preferred Shares
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall permit the transfer of such
Series G Preferred Shares.
6. CONDITIONS TO THE HOLDER'S OBLIGATIONS.
The Holder's obligation to exchange its Series E Preferred Shares
for Series G Preferred Shares is conditioned upon the following:
(a) Delivery by the Company to the Holder on the Closing Date of
duly executed certificates representing the Series G Preferred Shares duly
registered in the name of the Holder;
(b) Receipt by the Holder on or before the Closing Date of
confirmation of the filing of the Certificate of Designations with the Secretary
of State of the State of Delaware, in form reasonably satisfactory to the
Holder;
(c) The Company shall have transmitted to the SEC for filing,
pursuant to Rule 424(b) under the 1933 Act, an amended prospectus, in form and
substance reasonably satisfactory to the Holder, relating to the resale of the
Common Shares issuable upon conversion of the Series G Preferred Shares, and
shall have provided the Holder with a reasonable number of copies of such
amended prospectus;
(d) The Registration Statement has been declared effective by the
SEC, no stop-order or similar proceeding relating to the Registration Statement
shall be pending or threatened and the Registration Statement registers the
Common Shares for resale in compliance with the 1933 Act;
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<PAGE>
(e) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(f) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Closing Date as if given on and as of the
Closing Date, and on or before the Closing Date the Company shall have performed
all covenants and agreements of the Company contained herein required to be
performed by the Company on or before the Closing Date (including, without
limitation, payment of the expenses of the Holder in accordance with Section
4(g));
(g) On the Closing Date, the Holder having received an opinion of
Atlas, Pearlman, Trop & Borkson, P.A., counsel for the Company, dated the
Closing Date, addressed to the Holder, in form, scope and substance reasonably
satisfactory to the Holder, substantially in the form of ANNEX II attached
hereto; and
(h) On or before the Closing Date, the Holder shall have received
a copy of the Transfer Agent Instructions together with confirmation that the
same have been given to and accepted by the Transfer Agent.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligations to exchange the new Series G Preferred
Shares for the Holder's Series E Preferred Shares is conditioned upon the
following:
(a) Delivery by the Holder to the Company for cancellation on the
Closing Date of certificates representing the Series E Preferred Shares,
together with executed stock powers;
(b) On the Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement; and
(c) The representations and warranties of the Holder contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Closing Date as if given on and as of the
Closing Date, and on or before the Closing Date the Holder shall have performed
all covenants and agreements of the Holder required to be performed by the
Holder on or before the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida without regard to principles of
conflict of laws.
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(b) This Agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall constitute
one and the same instrument. A facsimile transmission of this Agreement bearing
a signature on behalf of a party hereto shall be legal and binding on such
party.
(c) The headings, captions and footers of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between the
parties, shall operate as a waiver thereof or amendment of this Agreement, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or exercise of any other right or
power.
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless such
amendment, change, waiver, discharge or termination is in writing signed by the
party to be charged with enforcement.
(g) Any notices required or permitted to be given under the terms
of this Agreement, the Certificate of Designations, the Securities Purchase
Agreement or the Registration Rights Agreement shall be sent by mail or
delivered personally, by courier or by telephone line facsimile transmission and
shall be effective five days after being placed in the mail, if mailed,
certified, return receipt requested, or upon receipt, if delivered personally,
by courier or by telephone line facsimile transmission, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Viragen, Inc.
865 Southwest 78th Avenue
Suite 100
Plantation, Florida 33324
Telephone: (954) 233-8746
Facsimile: (954) 233-1416
Attention: Mr. Gerald Smith or Mr. Dennis W. Healey
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With a copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
New River Center
200 East Las Olas Blvd.
Fort Lauderdale, FL 33331
Telephone: (954) 763-1200
Facsimile: (954) 766-7800
Attention: James M. Schneider, Esq.
If to the Holder:
Advantage Fund Limited
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
With a copy to:
Genesee International, Inc.
10500 N.E. 8th Street
Suite 1920
Bellevue, Washington 98004-4332
Telephone: (425) 462-1698
Facsimile: (425) 462-4645
(h) This Agreement and the Certificate of Designations, together
with the Securities Purchase Agreement and the Registration Rights Agreement,
each as amended hereby, contain the entire understanding of the parties with
respect to the matters covered herein and therein.
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IN WITNESS WHEREOF, the parties have caused this Exchange Agreement
to be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
VIRAGEN, INC.
By: /s/ Dennis W. Healey
------------------------------------
Name: Dennis W. Healey
Title: Executive Vice President
ADVANTAGE FUND LIMITED
By: /s/ A.P. de Groot
------------------------------------
Name: A.P. de Groot
Title: President
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SCHEDULE 3(H)
The Company is named as a defendant in KENNETH WELT, AS TRUSTEE, VS.
HOWARD APPEL, ET AL. Case No. 94-14243-BKC-AJC, ADV. No. 97-0473-BKC-AJC-A. This
is an action filed by a bankruptcy trustee against the Company and other
defendants seeking a return of alleged preferential transfers. This matter is
preliminarily set for trial in November, 1997. Discovery is proceeding. This
action relates to alleged preferential transfers made to Sector & Associates
Ltd., now Viragen (Europe) Limited, prior to the Company's acquisition of the
latter. The Company denies that preferential transfers were made and will
vigorously defend the claims. In any event, to the extent any preferential
transfers were involved, they would pertain to the Company's majority-owned
subsidiary, Viragen (Europe) Limited, and not the Company.
The Company and its management have received from stockholders
various allegations of improper conduct and breach of fiduciary responsibilities
in connection with the issuance of various series of its Preferred Stock and
associated dilution. In the event of any litigation by its stockholders, the
Company would vigorously defend such claims.
