PROSPECTUS
6,050,000 Shares
VIRAGEN, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
This Prospectus (the "Prospectus") relates to the offer and sale of up to
6,050,000 shares of Common Stock, $.01 par value (the "Common Stock"), of
Viragen, Inc. (the "Company" or "Viragen") by certain Selling Stockholders (the
"Selling Security Holders"). Of the 6,050,000 shares of Common Stock offered
hereby (the "Shares"), (i) up to an aggregate of 4,650,000 Shares are issuable
upon conversion of 15,000 shares of the Company's 5% Cumulative Convertible
Preferred Stock, Series B (the "Series B Preferred Stock") held by the Selling
Security Holders and (ii) up to 1,400,000 Shares of Common Stock are additional
shares (the "Additional Shares") which may be issued to the Selling Security
Holders in satisfaction of dividends on the Series B Preferred Stock and upon
the occurrence of certain "Triggering Events." A Triggering Event will have
occurred in the event the Registration Statement (the "Registration Statement")
of which this Prospectus forms a part becomes subject to a stop order, or the
Company fails to update the Registration Statement as required by the rules and
regulations of the Securities and Exchange Commission (the "Commission").
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE SECURITIES OFFERED HEREBY INVOLVE A SIGNIFICANT DEGREE OF RISK. SEE
"HIGH RISK FACTORS" ON PAGES 5 THROUGH 12.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this Prospectus is January 8, 1997
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The conversion price for the Series B Preferred Stock is equal to the
lesser of (i) 85% of the closing bid price of the Common Stock (as adjusted as
described herein), as reported by NASDAQ, for the five consecutive trading days
(the "Average Market Price") ending one day prior to the date of each conversion
which percentage may be adjusted downward upon the occurrence of a Triggering
Event, or (ii) the conversion price of $8.74, as agreed to by the Selling
Security Holders and the Company pursuant to the Securities Purchase Agreement
dated June 7, 1996 (the "Securities Purchase Agreement") entered into by the
parties. Accordingly, the actual number of shares of Common Stock issued to the
Selling Security Holders and sold hereby will depend upon the Average Market
Price of the Common Stock at the time of the conversion of the Series B
Preferred Stock (or the fixed conversion price of $8.74 if lower), whether
or not any of the Triggering Events occur, the duration of the Triggering
Events and whether the Company issues shares of its Common Stock in satisfaction
of dividends payable with respect to the Series B Preferred Stock.
The Company believes that the number of shares of Common Stock to which
this Prospectus relates should be the maximum number of shares of Common Stock
that are likely to be issued to the Selling Security Holders and sold hereby.
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The Selling Security Holders have advised the Company that they propose to
sell the Shares, from time to time, publicly through broker-dealers acting as
agents for others, or in private sales. See "Selling Security Holders" and "Plan
of Distribution." The Company will not receive any of the proceeds from the sale
of the Shares offered hereby by the Selling Security Holders.
The Company will pay all offering expenses for the offering, estimated at
approximately $33,000, including (i) the SEC registration fee ($10,652); (ii)
legal fees and expenses ($10,000); (iii) blue sky fees ($500); (iv) accounting
fees and expenses ($10,000); (v) printing expenses ($1,000); and (vi)
miscellaneous expenses ($848), but will not pay any discounts or commissions
incurred by the Selling Security Holders in connection with the sale of their
shares of Common Stock.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies
of such material may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission also maintains a web site on the internet
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
This Prospectus, which constitutes part of a Registration Statement filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Act"), omits certain information contained in the Registration Statement
in accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and to the exhibits relating thereto
for further information with respect to the Company and the securities offered
hereby.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION.................................. 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...... 4
HIGH RISK FACTORS...................................... 5
THE COMPANY............................................ 12
SELLING SECURITY HOLDERS .............................. 13
PLAN OF DISTRIBUTION................................... 17
DESCRIPTION OF SECURITIES.............................. 18
LEGAL MATTERS.......................................... 20
EXPERTS................................................ 20
INDEMNIFICATION........................................ 20
The Common Stock of the Company is traded in the over-the-counter market,
and prices are quoted in the National Association of Securities Dealers
Automated Quotation System (Small Cap) under the symbol "VRGN." The last sale
price of the Common Stock as reported by NASDAQ on January 6, 1997 was
approximately $5.06 per share.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained in this Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Selling Security Holders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
The Company will not receive any proceeds from the sale of Common Stock
for the account of the Selling Security Holders. The Company has informed the
Selling Security Holders that the anti- manipulative rules under the Exchange
Act of 1934, Rules 10b-6 and 10b-7, may apply to their sales in the market and
has furnished the Selling Security Holders with a copy of these rules. The
Company has also informed the Selling Security Holders of the need for delivery
of copies of this Prospectus in connection with any sale of securities
registered hereunder.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission.
The Company has previously and intends to furnish its stockholders with
annual reports containing audited financial statements and may distribute
quarterly reports containing unaudited summary financial information for each of
the first three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
(a) Annual Report of the Company on Form 10-K for the fiscal year ended
June 30, 1996 as amended by Form 10-K/A filed October 18, 1996 and
Form 10-K/A-1 filed December 19, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996 as amended by Form 10-Q/A filed
December 19, 1996.
(c) The Company's Current Report on Form 8-K dated June 7, 1996, as
amended by Form 8-K/A filed July 12, 1996 and Form 8-K/A-1 filed
November 29, 1996.
(d) The description of the Company's Common Stock contained in a
registration statement filed under the Securities Exchange Act of
1934, as amended, including any amendment or report filed for the
purpose of updating such description.
(e) All reports and documents filed by the Company pursuant to Section
13, 14 or 15(d) of the Exchange Act shall be deemed to be
incorporated by reference herein and to be a part hereof from the
respective date of filing of such documents. Any statement
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed
document, which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any statement
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of this Prospectus.
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Any statement contained In an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to Corporate Secretary, Viragen,
Inc. at the Company's principal executive office, 2343 West 76th Street,
Hialeah, Florida 33016, Telephone (305) 557-6000.
HIGH RISK FACTORS
The securities offered hereby involve a high degree of risk. Prospective
investors, prior to making an investment decision, should carefully consider the
following risk factors:
History of Losses and Risks of Newly Developed Business
From its inception through September 30, 1996, the Company has incurred
operating losses. The net loss for the fiscal year ended June 30, 1996 was
$4,672,271 and for the three months ended September 30, 1996 was $854,241. At
September 30, 1996, the Company had an accumulated deficit of $22,637,113.
Although the Company has begun to expand its operations and has undertaken
financings for its working capital and investing needs, there can be no
assurance that the Company will be able to obtain regulatory approvals necessary
for the commercialization of its natural human leukocyte alpha interferon
product (the "Product") or be able to produce and market its Product on a
profitable basis in the future. Results of operations in the future will be
influenced by numerous factors including technological developments, regulatory
costs and impediments, increases in expenses associated with sales growth,
market acceptance of the Company's Product, the capacity of the Company to
expand and maintain the quality of its Product, competition and the ability of
the Company to control costs. There can be no assurance that revenue growth or
profitability on a quarterly or annual basis can be obtained. Additionally, the
Company will be subject to all the risks incident to a rapidly developing
business with only a limited history of active operations, including unforeseen
expenses, organizational difficulties, complications and delays, as well as
other factors such as the possibility of competition with larger companies.
Additional Financing Required and Possible Lack of Availability of Funds
Viragen will require substantial financing in the future in order to
initiate and complete the clinical trials required to obtain United States Food
and Drug Administration ("FDA") and European Union ("EU") approvals for the
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Product in the treatment of various viral and immunological diseases, such as
Multiple Sclerosis ("MS"), HIV/AIDS and Hepatitis B and C. The Company is
substantially dependent upon the infusion of capital through its agreements and
commitments from the Selling Security Holders (see "Selling Security Holders -
Securities Purchase Agreements" or in the alternative private placements,
subsequent public financings or joint venture/strategic alliances in order to
initiate and complete the clinical trials necessary for FDA and EU approvals.
There is no assurance that such funding will be available upon terms acceptable
or feasible to the Company or its stockholders. In the absence of such funding
or failure to obtain financing on a timely basis, the Company's ability to
undertake such trials and thereafter to distribute the Product would likely be
delayed or precluded.
Lack of FDA and EU Approval; Additional Funding Needed; Risk of Sole Product
The Product has not been approved by the FDA or EU for use in the
treatment of patients, and the Company may only presently distribute the Product
for its approved HIV/AIDS protocol pursuant to its Florida license under Florida
Statute Section 499.018. The Company intends to seek FDA and EU approval of the
Product for use in treating certain diseases. The Company will require
additional clinical trials in order to obtain FDA and EU approvals. The FDA and
EU approval processes are unpredictable, and the process may take several years
to obtain either FDA or EU approval. There is, however, no assurance that any
FDA or EU approvals will be received at any time in the future. Further trials
will also require significant additional funding in addition to the proceeds
obtained from the financings previously undertaken. There is no assurance that
such funding can be obtained on a cost feasible basis to the Company.
Commencing in December 1994, the Company received notifications from the
Florida Department of Health and Rehabilitative Services ("HRS") (i) to postpone
enrollment of new patients under Viragen's Florida Statute 499 Program until
such time as the Company provided certain administrative reports to HRS and
satisfied certain FDA inspection-related comments concerning the Company's
manufacturing processes and facilities; and (ii) that the Company demonstrate
that its previous production technology complies with FDA current Good
Manufacturing Practices ("cGMP"). As a result of such notifications, changes in
the Company's production technology which have resulted in the development of
Viragen's Omniferon(TM)product and determination by the Company to establish new
facilities in Scotland and elsewhere in the United States in proximity to its
current facilities, the Company entered into a settlement with HRS which
resulted in the discontinuation of Viragen's statutory 499 Program. There can be
no assurances that the Company's current production technology and planned new
facilities will comply with FDA mandated cGMP standards.
Additionally, the Product is the Company's sole product and until such
time as the Product achieves FDA and EU approval, the Company has no other
sources of revenues. To the extent that the Product is the Company's only
potential source of revenues, the failure to attain approval by the FDA and/or
the EU would eventually result in the Company having to discontinue its
operations.
Competition
Competition in the immunological and pharmaceutical products industry is
intense. Competitors include major pharmaceutical, chemical, energy and food
companies, some of which are already marketing genetically engineered alpha and
beta interferon products for MS, cancer and viral treatments, and many of which
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are expanding into modern biotechnology. Competition is expected to increase in
the future based upon the perceived potential commercial applications for such
products. Various of Viragen's competitors have existing programs, FDA approved
and commercially marketed products or products in the FDA clinical trial
process, more experience in research, development and clinical testing of
pharmaceutical and biomedical products, and substantially greater financial,
marketing and human resources than the Company.
Risk of Technological Obsolescence
The research and development of new biomedical products is characterized
by rapid technological change, which can severely alter the production methods,
cost, marketing and acceptance of biomedical products. There is no assurance
that the Company will have the resources to keep pace with technological changes
or that products developed by others will not adversely affect the commercial
feasibility of products that Viragen may distribute.
Government Regulation May Affect Development and Distribution of Product
All pharmaceutical manufacturers are subject to extensive state and
federal rules and regulations, and are required to maintain current Good
Manufacturing Practices as promulgated under FDA guidelines. Additional rules
and regulations are imposed by the EU. These rules and regulations are
constantly changing and may serve to restrict in whole or in part the ability of
the Company to produce and distribute its Product. If Viragen were not
ultimately to achieve compliance with these rules and regulations, it would
likely have a material adverse effect on the Company's activities and delay or
preclude the development of commercially viable operations.
Uncertainty of Health Care Reform Measures and Third Party Reimbursement
The Company's ability to successfully commercialize its products may
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. In September 1993, President Clinton announced a series of
legislative and regulatory proposals aimed at reforming the health care system.
Although the legislative and regulatory proposals have been tabled temporarily
and while the Company cannot predict whether any such future legislative or
regulatory proposals will be adopted, the pendency of such proposals could have
a material adverse effect on the Company's ability to raise capital. Any such
reform measures, if adopted, could adversely affect the pricing of therapeutic
products in the United States or the amount of reimbursement available from
United States governmental agencies or third party insurers and could materially
adversely affect the Company in general.
In both domestic and foreign markets, sales of the Company's Product will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. Third-party payors are increasingly challenging the price
and cost effectiveness of medical products and services. Significant uncertainty
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exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's Product will be considered cost
effective or that adequate third-party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. Legislation and regulations affecting
the pricing of pharmaceuticals may change before the Company's Product is
approved for marketing. Adoption of such legislation or regulations could
further limit reimbursement for medical products and services.
Risk that Patents and Proprietary Technology May Not Provide Proprietary
Protection
The Company has pending a U.S. Patent application relating to interferon
manufacturing technology and processes. Viragen intends to rely in part on
certain proprietary technology in the production of the Product. There can be
no assurances that such proprietary technology will enable the Company to
manufacture its Product more efficiently and with greater efficacy so as to
enable Viragen to compete effectively with other manufacturers of competitive
immunological and pharmaceutical products. In addition, there is no assurance
that others may not independently develop the same or superior technology to
Viragen's technology. Furthermore, to the extent that Viragen's production of
the Product is alleged to breach a third party's patents or proprietary
technology, it could have an adverse impact on the Company, even if the Company
were ultimately determined not to have breached such party's patents or
proprietary technology. There can be no assurance that Viragen's pending patent
applications will be approved, and if granted, whether such patents will provide
substantial protection to the Company.
Risks of Technology Transfers
One of the Company's proposed marketing strategies is to sell the right to
use Viragen's technology and manufacturing protocols to third parties who will
use them to produce the Product outside the United States. There can be no
assurance that the Company's marketing program or the efforts of any brokers
engaged to assist the Company will be commercially successful.
Product Liability and Limitations of Product Liability Insurance
The Company may be subject to claims for personal injuries or other
damages resulting from the Product. A successful claim could have a materially
adverse effect on the Company. The Company maintains product liability insurance
in the amount of $1,000,000 per occurrence and $2,000,000 in the aggregate, but
there can be no assurance that such insurance will be available in the future at
commercially acceptable rates or that such coverage will be adequate for the
Company's purposes.
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Reliance on Foreign Third Party Manufacturer May Disrupt Operations
Viragen (Scotland) Ltd. ("VSL"), a wholly-owned subsidiary of Viragen
(Europe) Ltd., a consolidated majority-owned subsidiary of the Company, has
entered into a License and Manufacturing Agreement with The Common Services
Agency of Scotland, an agency acting on behalf of the Scottish National Blood
Transfusion Service ("SNBTS"). Use of an offshore manufacturer will not provide
for fixed price U.S. denominated pricing, which could expose VSL to the risk of
fluctuations in exchange rates of foreign currencies. In addition, reliance on
such foreign manufacture is subject to all the risks of dealing with a foreign
manufacturing facility including governmental regulations, tariffs, import and
export restrictions, transportation and taxes and local health and safety
regulations. Consummation of such foreign manufacturing arrangements could lead
to disruption of the operations of the Company, product and service
deficiencies, unanticipated and fluctuating expenses and revenues and sales and
marketing dislocations that are beyond the Company's ability to control, and
which may have a material adverse effect on the Company's business and
operations.
Risk of Dependence on Key Personnel
The Company's day-to-day operations are managed by its Chairman of the
Board and President, Mr. Gerald Smith, its Chief Executive Officer, Robert H.
Zeiger, its Executive Vice President and Chief Financial Officer, Mr. Dennis W.
Healey, and its Executive Vice President, Mr. Charles F. Fistel. The Company has
entered into employment agreements with Messrs. Smith, Zeiger, Healey and
Fistel, which restrict competitive activities by them during the term of their
agreements and for a two-year period thereafter. Although the Company intends to
apply for "key man" life insurance on the lives of Messrs. Smith, Zeiger, Healey
and Fistel for its benefit in the amount of $1,000,000 each, the loss of their
services would adversely affect the conduct of the Company's business. The
Company's future success will depend in significant part on its ability to
attract and retain additional skilled personnel in various phases of its
operations.
No Dividends Anticipated to be Paid
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. The future payment of dividends is directly dependent
upon future earnings of the Company, the capital requirements of the Company,
its financial requirements and other factors to be determined by the Company's
Board of Directors. For the foreseeable future, it is anticipated that earnings,
if any, which may be generated from the Company's operations will be used to
finance the growth of the Company, and that cash dividends will not be paid to
common stockholders.
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Immediate Substantial Dilution to Purchasers in This Offering
Initial purchasers of the Common Stock of the Company offered hereby will
incur an immediate and substantial dilution from the purchase price of their
shares. As of September 30, 1996, the net tangible book value of the Company's
Common Stock was approximately $0.44 per share.
Possible Resales of Securities by Current Stockholders and Depressive Effect on
Market
As of December 2, 1996, there were 9,236,582 shares of the Company's
Common Stock outstanding which were "restricted securities" as that term is
defined by Rule 144 under the Securities Act of 1933 (the "Securities Act").
Such shares will be eligible for public sale only if registered under the
Securities Act or if sold in accordance with Rule 144. Under Rule 144, a person
who has held restricted securities for a period of two years may sell a limited
number of shares to the public in ordinary brokerage transactions. Sales under
Rule 144 may have a depressive effect on the market price of the Company's
Common Stock due to the potential increased number of publicly held securities.
The timing and amount of sales of Common Stock covered by the Registration
Statement of which this Prospectus is a part, as well as such subsequently filed
registration statement, could also have a depressive effect on the market price
of the Company's Common Stock.
Use of Preferred Stock to Resist Takeovers; Potential Additional Dilution
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
Preferred Stock, of which at October 31, 1996, 2,650 shares of Series A
Preferred Stock and 15,000 shares of Series B Preferred Stock were issued and
outstanding. As provided in the Company's Certificate of Incorporation,
Preferred Stock may be issued by resolutions of the Company's Board of Directors
from time to time without any action of the stockholders. Such resolutions may
authorize issuance of the Preferred Stock in one or more series and may fix and
determine dividend and liquidation preferences, voting rights, conversion
privileges, redemption terms and other privileges and rights of the shares of
each authorized series. While the Company includes such Preferred Stock in its
capitalization in order to enhance its financial flexibility, such Preferred
Stock could possibly be used by the Company as a means to preserve control by
present management in the event of a potential hostile takeover of the Company.
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In addition, the issuance of large blocks of Preferred Stock could possibly have
a dilutive effect with respect to existing holders of Common Stock of the
Company. The Company has received a commitment for additional shares of
Preferred Stock, subject to market and other conditions, which while subject to
negotiation of the specific terms thereof, is likely to be substantially
comparable to the shares of Series B Preferred Stock currently issued.
Possible Delisting of Securities from the NASDAQ System; Risks of Low Priced
Stocks; Restrictions on Resale of Low Priced Stock; Restrictions on
Broker-Dealer Sales
The Company's Common Stock is included on the NASDAQ System. There can be
no assurance that the Company will meet the criteria for continued listing of
securities on the NASDAQ System. These continued listing criteria include a
minimum of $2,000,000 in total assets, $1,000,000 in capital and surplus and a
minimum bid price of $1.00 per share of common stock. If an issuer does not meet
the $1.00 minimum bid price standard, it may, however, remain in the NASDAQ
System if the market value of its public float is at least $1,000,000 and the
issuer has capital and surplus of at least $2,000,000. If the Company became
unable to meet the continued listing criteria of the NASDAQ System and became
delisted therefrom, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, "Electronic Bulletin Board" administered by the National
Association of Securities Dealers, Inc. As a result, an investor would likely
find it more difficult to dispose of, or to obtain accurate quotations as to the
value of, the Company's securities.
If the Company's securities were delisted from the NASDAQ System, they may
become subject to Rule 15c2-6 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), which imposes additional sales practice requirements
on broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this Rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
Rule may affect the ability of broker-dealers to sell the Company's securities
and may affect the ability of purchasers in this offering to sell any of the
securities acquired hereby in the secondary market.
The Securities and Exchange Commission (the "Commission") has also adopted
regulations which define a "penny stock" to be any equity security that has a
market price (as therein defined) less than $5.00 per share or with an exercise
price of less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the regulations require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
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mandated by the Commission relating to the penny stock market. Disclosure is
also required to be made about compensation payable to both the broker-dealer
and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on the NASDAQ System and have certain
price and volume information provided on a current and continuing basis, or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the 1934 Act,
which gives the Commission the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a distribution of penny
stock if the Commission finds that such a restriction would be in the public
interest.
THE COMPANY
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
(the "Product") is a natural human leukocyte alpha interferon ("Natural
Interferon"). Natural Interferon is a protein substance that inhibits malignant
cell growth without materially interfering with normal cells. Natural Interferon
stimulates and modulates the human immune system and, in addition, impedes the
growth and propagation of various viruses. The Product is a natural product
produced from human white blood cells. Alpha Leukoferon(TM) and Omniferon(TM)
are the trade names for Viragen's Product in injectable form. The Company's
Product has not been approved by the United States Food and Drug Administration
("FDA") or the European Union ("EU"), and there can be no assurances that
approval of the Product will be obtained at any time in the future.
The Company intends to seek to obtain FDA and EU approvals for various
uses of its Omniferon product in the future. Such approval is expected to
require several years of clinical trials and substantial additional funding. To
date, Viragen has not distributed the Product other than for research and
pursuant to its investigatory license from the Florida Department of Health and
Rehabilitative Services and until May 1993, Viragen had not actively operated
due to insufficient funds. Viragen expects to concentrate its efforts in
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preparing, filing and processing its applications and obtaining approvals for
its Product from the FDA and the EU. The Company has assembled an advisory
committee consisting of scientists, medical researchers and clinicians to assist
the Company in its applications to the FDA and the EU.
The Company's majority owned subsidiary, Viragen (Europe) Ltd., acting
through its wholly-owned subsidiary Viragen (Scotland) Ltd., entered into a
License and Manufacturing Agreement with The Common Services Agency of Scotland
(the "Agency") an agent acting on behalf of the Scottish National Blood
Transfusion Service ("SNBTS"). Pursuant to such Licensing and Manufacturing
Agreement, SNBTS on behalf of VSL, will assist in the manufacture of VSL's
OmniferonTM product for exclusive distribution within the EU and non-exclusively
worldwide in return for certain royalties and preferential access to the Product
for Scottish Agency patients at preferential prices. The Agency has committed to
assist in the manufacture of Omniferon in sufficient scale to accommodate the EU
Clinical Trials and, subsequently, for limited commercial sales in amounts to be
agreed upon by the parties. The Agency will also work with the Company in
conducting studies relevant to Omniferon and cooperate with the Company to
enable it to comply with the laws and regulations of the EU in connection with
production, clinical trials and distribution of OmniferonTM.
In June 1996, the Company entered into a Letter of Intent with the
American Red Cross -- Biomedical Services Division. It is the Company's
intention to form a strategic alliance with the American Red Cross focusing on
joint research projects relating to the development of blood-derived products
and processes including the Company's OmniferonTM product in the United States.
The Company is currently negotiating the terms of the agreement establishing the
scope of the relationship and respective obligations of the parties.
In November 1996, the Company entered into a private placement agreement to
raise, on a best efforts basis, up to $20,000,000 through the issuance of
Convertible Preferred Series C stock ("Preferred Shares"). The Preferred Shares
are convertible at the option of the holder at the market price of the common
stock at the date of conversion. The amount that may be converted is limited to
25% on or after the 10th day of the effective date of the related registration
statement with an additional 25% of the Preferred Shares becoming convertible
30, 60 and 90 days from the first conversion date, respectively. The conversion
price may not be more than $7.00 nor less that 70% of the market price on the
date of the private placement agreement ("floor"). In the event the conversion
price falls below the floor, the difference will be paid to the investor in
cash. Any Preferred Shares remaining outstanding one year from their issuance
will automatically be converted into common shares. The Preferred Shares pay no
dividend and have liquidation preference over the common shares. Each investor
will also receive a three year Common Stock Purchase Warrant exercisable at
$2.00 per share for every four common shares that would have been received if
the investor had converted at closing.
In December 1996, the Company issued 5,000 Series B Preferred Shares for
$4,750,000 net of the related 5% placement fees.
Viragen's administrative office and research facilities are located at
2343 West 76th Street, Hialeah, Florida 33016 (Telephone No. (305) 557-6000;
Facsimile No. (305) 364-8158).
SELLING SECURITY HOLDERS
Securities Purchase Agreement
The Selling Security Holders purchased the Series B Preferred Stock in a
private placement transaction pursuant to a Securities Purchase Agreement dated
June 7, 1996. The stated value of the Series B Preferred Stock is $1,000 per
share. In addition to the shares of Common Stock to be received upon conversion
of the Series B Preferred Stock, the Additional Shares are issuable pursuant to
the terms of the Securities Purchase Agreement should the Company choose to
satisfy its obligation to pay dividends payable on the Series B Preferred Stock,
as provided therein, and upon the occurrence of certain Triggering Events.
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<PAGE>
The Series B Preferred Stock (as represented by the stated value) are
convertible into shares of Common Stock commencing August 21, 1996. The
conversion price is equal to the lesser of 85% of the Average Market Price of
the Common Stock at the time of conversion (reduced by an additional 2% per
month commencing September 5, 1996 until the related Registration Statement is
declared effective by the Securities and Exchange Commission) or $8.74. The
percentage of the Average Market Price or the fixed conversion price which
determines the conversion price of the Series B Preferred Stock is adjustable
downward in the event a Triggering Event occurs. Should a Triggering Event
occur, the percentage of the Average Market Price which determines the
conversion price or the fixed conversion price for the Series B Preferred Stock
will be reduced by the number of percentage points equal to two times the sum of
the number of months (prorated) during which a Triggering Event exists. Should a
Triggering Event occur subsequent to conversion of the Series B Preferred Stock,
but prior to the sale of the Common Stock obtained upon conversion by the holder
of the Series B Preferred Stock, then upon such holder's sale of such Common
Stock, the Company will pay to the holder an amount equal to the Average Market
Price of the Common Stock received upon conversion ending one trading day prior
to such conversion, multiplied by two-hundredths (.02) times the sum of the
number of months (prorated) during which a Triggering Event exists. At the
option of the Company, such amount may be paid in Common Stock of the Company
based on the Average Market Price of the Common Stock on the date prior to the
sale of such shares of Common Stock issued upon conversion of the Series B
Preferred Stock, or in cash provided that the Company is required to pay such
amount in cash if the Triggering Event which occurred was the Company's failure
to maintain the listing of the Common Stock on NASDAQ or other markets specified
in the Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Series B Preferred Stock (the "Certificate of Designations").
The Series B Preferred Stock provides for a cash dividend of 5% per annum
of the stated value of the Series B Preferred Stock on a cumulative basis.
Dividends accrue from the date of issuance and are payable quarterly commencing
September 7, 1996 through and including the date on which the Series B Preferred
Stock are converted. A cash dividend of $187,500 was declared and paid to the
Selling Security Holders on October 11, 1996 for the initial quarterly dividend.
Subject to certain limitations provided in the Certificate of Designations,
dividends may be paid at the Company's option in cash or Common Stock of the
Company. Commencing 180 days following the effective date of the Registration
Statement of which this Prospectus is a part, the Company may require the
holders of the then outstanding shares of Series B Preferred Stock to convert
all of the remaining shares of Series B Preferred Stock into Common Stock of the
Company at the conversion price previously described. The Series B Preferred
Stock has no voting rights, except as required by law and except that a majority
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<PAGE>
of the outstanding Series B Preferred Stock is required to approve a
consolidation, merger or reclassification of outstanding shares of the Series B
Preferred Stock, and the approval of two-thirds of the outstanding Series B
Preferred Stock is required to amend the Certificate of Designations.
In connection with the Securities Purchase Agreement, the Company and the
Selling Security Holders entered into a Registration Rights Agreement pursuant
to which the Company agreed to file a Registration Statement on Form S-3
registering the resale by the Selling Security Holders of the Common Stock
underlying the Series B Preferred Stock as well as any of the Additional Shares.
The Registration Statement has been filed by the Company to fulfill these
obligations to the Selling Security Holders under the Registration Rights
Agreement. Subject to certain limitations, the Company is also required, if
necessary, to include the Common Stock underlying the Series B Preferred Stock
and any of the Additional Shares on registration statements which may be filed
by the Company in the future. The Company is required to maintain the
effectiveness of the Registration Statement covering the resale of the Common
Stock of the Selling Security Holders until the earlier of (i) the date on which
the Selling Security Holders may sell all of their shares of Common Stock
without restriction pursuant to Rule 144(k) promulgated under the Securities Act
of 1933, or (ii) the date on which the Selling Security Holders have sold all of
their shares of Common Stock included in the Prospectus and none of the shares
of Series B Preferred Stock remain outstanding.
Pursuant to the terms of the Certificate of Designations, the Selling
Security Holders may not convert the Series B Preferred Stock, and the Company
may not require the conversion of the Series B Preferred Stock or issue Common
Stock of the Company in lieu of cash dividends attributable to the Series B
Preferred Stock or issue the Additional Shares in the event a Triggering Event
occurs if, as a result thereof, the shares of Common Stock beneficially owned by
any Selling Security Holders or the Selling Security Holders (if their
collective holdings would be aggregated under the Securities Exchange Act of
1934) would exceed 4.9% of the outstanding shares of Common Stock of the
Company.
The Company has agreed to indemnify each of the Selling Security Holders
against any liabilities under the Securities Act of 1933 or otherwise, arising
out of or based upon any untrue or alleged untrue statement of a material fact
in the Registration Statement or this Prospectus or by any omission of a
material fact required to be stated therein except to the extent that such
liabilities arise out of or are based upon any untrue or alleged untrue
statement or omission in any information furnished in writing to the Company by
the Selling Security Holders expressly for use in the Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to its Certificate of Incorporation and By-laws, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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<PAGE>
In connection with the registration of the resale of the shares of Common
Stock offered hereby, the Company will supply Prospectuses to the Selling
Security Holders and use its best efforts to qualify the shares for sale in
states reasonably designated by the Selling Security Holders.
Stock Ownership
The following table sets forth the name of the Selling Security Holders,
the amount of shares of Common Stock held directly or indirectly or underlying
the Series B Preferred Stock of the Company owned by the Selling Security
Holders on the date hereof, the amount of shares of Common Stock to be offered
by the Selling Security Holders, the amount to be owned by the Selling Security
Holders following sale of such shares of Common Stock and the percentage of
shares of Common Stock to be owned by the Selling Security Holders following
completion of such offering. As of October 31, 1996, there were outstanding
38,254,239 shares of Common Stock of the Company.
<TABLE>
<CAPTION>
Percentage
Percentage Shares to be
to be Owned
Name of Selling Number of Shares to Owned Before Owned After
After
Security Holder Shares Owned(1) be Offered Offering Offering
Offering
- --------------- --------------- ---------- -------- --------
- --------
<S> <C> <C> <C> <C>
<C>
GFL Performance
Fund(2) 4,033,000 4,033,000 9.6% 0
- -
GFL Advantage
Fund(3) 1,613,000 1,613,000 4.1% 0
- -
Proton Global Asset
Management, LDC(4) 404,000 404,000 1.1% 0
- -
</TABLE>
- ----------------
(1) Represents shares of Common Stock issuable upon exercise of Series B
Preferred Stock based at a conversion price of $3.25 per share, but
subject to adjustment in the event that the Average Market Price on
conversion is lower. In addition, to the extent Additional Shares, if any,
are issued as a result of the occurrence of a Triggering Event or the
issuance of Common Stock in satisfaction of the dividend payable with
respect to the Series B Preferred Stock, the number of shares, being
offered will be adjusted accordingly.
(2) Address is CITCO Building, Wickhams Cay, Road Town, Tortola, British
Virgin Islands. All investment decisions relative to GFL Performance Fund
are made by Genesee International, Inc. which is located at the same
address.
(3) Address is CITCO Building, Wickhams Cay, Road Town, Tortola, British
Virgin Islands. All investment decisions relative to GFL Performance Fund
are made by Genesee International, Inc. which is located at the same
address.
(4) Address for Proton Global Asset Management is CITCO Fund Services,
Corporate Center, Leeward One, SMB, Grand Cayman, British West Indies. All
investment decisions for Proton Global Asset Management are made by Encore
Global Asset Management LLC which is located at the same address.
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<PAGE>
None of the Selling Security Holders nor their affiliates have held any
position, office or had any material relationship with the Company previously.
The investment advisor of GFL Performance Fund is Genesee International, Inc.
The investment advisor for GFL Advantage Fund is Genesee International, Inc. The
investment advisor for Proton Global Asset Management, LDC is Encore Global
Asset Management LLC.
The Company has agreed to pay for all costs and expenses incident to the
issuance, offer, sale and delivery of the Shares, including, but not limited to,
all expenses and fees of preparing, filing and printing the Registration
Statement and Prospectus and related exhibits, amendments and supplements
thereto and mailing of such items. The Company will not pay selling commissions
and expenses associated with any such sales by the Selling Security Holders. The
Company has agreed to indemnify the Selling Security Holders against civil
liabilities including liabilities under the Securities Act of 1933. The Selling
Security Holders have advised the Company that sales of the Shares may be made
from time to time by or for the account of the Selling Security Holders in one
or more transactions in the over-the-counter market, in negotiated transactions
or otherwise, at prices related to the prevailing market prices or at negotiated
prices.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Security Holders.
Such sales may be made in the over-the-counter market or otherwise at prices and
at terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The Shares may be sold by one or more of the
following methods: (i) a block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent for the Selling Security Holder; and
(ii) ordinary brokerage transactions, (iii) transactions in which the broker
solicits purchasers and (iv) privately negotiated transactions. In effecting
sales, brokers or dealers engaged by the Selling Security Holders may arrange
for other brokers or dealers to participate. Brokers or dealers will receive
commission from the Selling Security Holders in amounts to be negotiated
immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
17
<PAGE>
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 50,000,000 shares of
Common Stock, par value $.01 per share, of which 38,254,239 shares were
outstanding as of October 31, 1996. The Company is also authorized to issue up
to 1,000,000 shares of Preferred Stock, par value $1.00 per share, of which
2,620 shares of Series A Preferred Stock and 15,000 shares of Series B Preferred
Stock were outstanding as of October 31, 1996.
Common Stock
Subject to the dividend rights of the holders of Preferred Stock, holders
of shares of Common Stock are entitled to share, on a ratable basis, such
dividends as may be declared by the Board of Directors out of funds, legally
available therefor. Upon liquidation, dissolution or winding up of the Company,
after payment to creditors and holders of Preferred Stock that may be
outstanding, the assets of the Company will be divided pro rata on a per share
basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect all of the Directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any Directors. The
By-Laws of the Company require that only a majority of the issued and
outstanding shares of Common Stock of the Company need be represented to
constitute a quorum and to transact business at a stockholders' meeting. The
Common Stock has no preemptive, subscription or conversion rights and is not
redeemable by the Company.
Preferred Stock
The Company is authorized to issue a total of 1,000,000 shares of
Preferred Stock, par value $1.00 per share. The Preferred Stock may be issued by
resolutions of the Company's Board of Directors from time to time without any
action of the stockholders. Such resolutions may authorize issuances of such
Preferred Stock in one or more series and may fix and determine dividend and
liquidation preferences, voting rights, conversion privileges, redemption terms
and other privileges and rights of the shares of each authorized series. While
the Company includes such Preferred Stock in its capitalization in order to
enhance its financial flexibility, such Preferred Stock could possibly be used
by the Company as a means to preserve control by present management in the event
of a potential hostile takeover of the Company. In addition, the issuance of
large blocks of Preferred Stock could possibly have a dilutive effect with
respect to the existing holders of Common Stock of the Company.
18
<PAGE>
In addition to the Series B Preferred Stock previously described, the
Company is authorized to issue 375,000 shares of Series A Preferred Stock. The
Company currently has 2,650 shares of Series A Preferred Stock outstanding. The
Series A Preferred Stock was established by the Board of Directors in January
1984. Each share of Series A Preferred Stock is immediately convertible into
4.26 shares of Common Stock. Dividends on the Series A Preferred Stock are
cumulative, have priority to the Common Stock and are payable in either cash or
Common Stock, at the option of the Company.
The Series A Preferred Stock has voting rights only if dividends are in
arrears for five annual dividends. Upon such occurrence, the voting would be
limited to the election of two directors. Voting rights terminate upon payment
of the cumulative dividends. The Series A Preferred Stock is redeemable at the
option of the Company at any time after expiration of ten consecutive business
days during which the bid or last sale price for the Common Stock is $6.00 per
share or higher. There is no mandatory redemption or sinking fund obligation
with respect to the Series A Preferred Stock.
Owners of the Series A Preferred Stock, of which there are eight record
holders, will be entitled to receive $10.00 per share (plus accrued and unpaid
dividends) before any distribution or payment is made to holders of the Common
Stock or other stock of the Company junior to the Series A Preferred Stock upon
liquidation, dissolution or winding up of the Company. Cumulative dividends of
$16,000 were declared and paid to the holders of Series A Preferred Stock on
October 11, 1996. If in any such event the assets of the Company distributable
among the holders of Series A Preferred Stock or any stock of the Company
ranking on a par with the Series A Preferred Stock upon liquidation, dissolution
or winding up are insufficient to permit such payment, the holders of the Series
A Preferred Stock and of such other stock will be entitled to ratable
distribution of the available assets in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full.
Over-The-Counter Market
The Company's Common Stock is traded on the NASDAQ (SmallCap) under the
symbol "VRGN." If for any reason the Common Stock does not remain accepted for
inclusion on the NASDAQ System, then in such case the Company's Common Stock
would be expected to continue to be traded in the over-the-counter markets
through the "pink sheets" or the NASD's OTC Bulletin Board. In the event the
Common Stock were not included in the NASDAQ System, the Company's Common Stock
would be covered by a Securities and Exchange Commission rule that imposes
19
<PAGE>
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of purchasers in this
offering to sell their shares in the secondary market. The ability of the
Company to secure a symbol on the NASDAQ System does not imply that a meaningful
trading market in its Common Stock will ever develop.
Transfer Agent
The Transfer Agent for the shares of Common Stock is Chase Mellon
Shareholder Services, Overpeck Centre, 85 Challenger Road, Ridgefield Park, New
Jersey 07660-2108.
LEGAL MATTERS
Certain legal matters in connection with the Shares being offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. Members
of that firm or members of their family own an aggregate of 37,000 shares of
Common Stock of the Company.
EXPERTS
The consolidated financial statements of Viragen, Inc. incorporated by
reference in the Viragen, Inc. Annual Report (Form 10-K/A1) for the year ended
June 30, 1996, have been audited by Ernst & Young LLP, Certified Public
Accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
INDEMNIFICATION
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
20
<PAGE>
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. A corporation may indemnify against
expenses (including attorneys' fees) and, other than in respect of an action by
or in the right of the corporation, against judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification of expenses may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 of the General Corporation Law of Delaware further provides
that to the extent a director, officer, employee or agent of the corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Article VII of the By-Laws of the Company require the Company to indemnify
its Directors and officers as follows:
"The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such suit, action or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful,
provided, however, that in the case of an action or suit by or in the right of
the corporation, (a) such person shall be indemnified only to the extent of his
expenses (including attorneys' fees) actually and reasonably incurred by him in
21
<PAGE>
connection with the defense or settlement thereof and not for any judgments,
fines or amounts paid in settlement and (b) no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless, and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Any indemnification hereunder (unless required by law or ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in this Article. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.
The indemnification provided herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware or of
these By-Laws.
The corporation's indemnity of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amounts such person may collect as indemnification (i) under any
22
<PAGE>
policy of insurance purchased and maintained on his behalf by the corporation or
(ii) from such other corporation, partnership, joint venture, trust or other
enterprise.
Nothing contained in this Article VII, or elsewhere in these By-Laws,
shall operate to indemnify any director or officer of such indemnification is
for any reason contrary to law, either as a matter of public policy, or under
the provisions of the Federal Securities Act of 1933, the Securities Exchange
Act of 1934, or any other applicable state or federal law.
For the purposes of this Article, references to "the corporation" include
all constituent corporations absorbed in a consolidation or merger as well as
the resulting or surviving corporations so that any person who is or was a
director, officer, employee or agent of such a constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would if he had served the resulting or surviving corporation in the same
capacity."
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a Director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
23
