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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-10252
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VIRAGEN, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 59-2101668
(State or other jurisdiction of incorporated (I.R.S. Employer identification No.)
or organization)
865 SW 78TH AVENUE, SUITE 100, PLANTATION, 33324
FLORIDA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code:
(954) 233-8746
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the common stock on September 16,
1998 was approximately $79,302,000.
As of September 16, 1998, the Company had outstanding 54,425,121 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Registration Statement on Form S-3, File No. 333-50429, dated April 17,
1998.
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VIRAGEN, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1998
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 13
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 21
Item 11. Executive Compensation and Employment Agreements............ 24
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 29
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits and Reports on Form 8-K............................ 32
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Viragen, Inc., (the "Company" or "Viragen") was organized in December 1980
to engage in the research, development and manufacture of certain immunological
products for commercial application, particularly human leukocyte interferon,
for antiviral and therapeutic applications.
Viragen, Inc. has five subsidiaries: Viragen (Europe), Ltd. ("VEL"),
Vira-Tech, Inc. ("Vira-Tech"), Viragen Technology, Inc. ("Viragen Technology"),
Viragen, U.S.A., Inc. ("VUSA") and Viragen Reagents, Inc. ("Viragen Reagents").
VEL is a majority-owned publicly traded subsidiary of which Viragen holds 70.3%
of the outstanding Common Stock. VEL (NASDAQ Small Cap: "VERP"), owns all of the
Common Stock of Viragen (Scotland) Limited, ("VSL"), and Viragen (Germany) GmbH.
Viragen, VEL, Vira-Tech, Viragen Technology, VUSA, Viragen Reagents and VSL are
hereinafter referred to collectively as the "Company," unless the context
otherwise requires.
The Company's operations focus on the development of immunological products
developed from human blood derivatives. The Company's first product is a
multi-species, human leukocyte-derived alpha interferon ("Natural Interferon").
Natural Interferon is a protein substance that stimulates and modulates the
human immune system inhibiting malignant cell growth. In addition Natural
Interferon impedes the growth and propagation of various viruses. The Company's
second generation Natural Interferon, trade named Omniferon(TM), is currently
under development in its injectable form for the potential treatment of
Hepatitis B & C, Multiple Sclerosis ("MS"), HIV/AIDS and other autoimmune
disorders. Omniferon has not been approved by the United States Food and Drug
Administration ("FDA") nor the European Union ("EU") regulatory authorities, and
there can be no assurance that such approvals will be obtained at any time in
the future. In August 1998, the Company acquired a 10% equity interest, with an
option to acquire up to an 80% interest, in Inflammatics Inc. ("Inflammatics").
Inflammatics obtained a license to the rights to LeukoVAX(TM), a human blood
derived natural product for the treatment of rheumatoid arthritis. LeukoVAX is
currently in FDA, Phase I/II clinical trials. (The Company's Omniferon and
LeukoVAX products are sometime collectively referred to as the "Products" or
individually as a "Product.")
The Company intends to obtain FDA and EU approvals for various uses of its
Omniferon and LeukoVAX products in the future. Such approvals are expected to
require several years of clinical trials and substantial additional funding. To
date, Viragen has not commercially distributed either product. Vira-Tech has
previously manufactured Alpha Leukoferon(TM), the Company's first generation
Natural Interferon product. This product was distributed for research purposes
pursuant to a limited Florida investigatory license and protocols program which
was discontinued in August 1995 (with the exception of certain limited
enrollments approved by the Florida HRS for humanitarian purposes under an
HIV/AIDS study protocol conducted at no charge to patients). Viragen is
concentrating its efforts on preparing, filing and processing its applications
and obtaining approvals for Omniferon, initially within the EU, and
subsequently, in the United States. The Company commenced preclinical studies
with Omniferon in March 1998 and plans to commence clinical trials during the
first calendar quarter of 1999.
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 regulatory authorities.
The Company's majority-owned subsidiary, Viragen (Europe) Ltd., acting
through its wholly-owned subsidiary VSL, entered into a License and
Manufacturing Agreement with The Common Services Agency of Scotland (the
"Agency"), an agency acting on behalf of the Scottish National Blood Transfusion
Service ("SNBTS"). Pursuant to such Licensing and Manufacturing Agreement,
SNBTS, on behalf of VSL, will assist in the manufacture of VSL's Omniferon
product for exclusive distribution within the EU and non-exclusively worldwide
in return for certain royalties and preferential access to the Product for
Scottish Agency patients at preferential prices. The Agency has committed to
assist in the manufacture of Omniferon in sufficient scale to accommodate the EU
clinical trials and, subsequently, for commercial sales in amounts to be agreed
upon by the parties. The Agency will also work with the Company in conducting
studies relevant to
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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
commercial distribution of Omniferon.
RECENT DEVELOPMENTS
In furtherance of the Company's strategic plan to secure reliable and safe
sources of human white blood cells ("leukocytes" or "buffy coats") critical to
the production of both Omniferon and LeukoVAX, the Company has entered into a
series of strategic alliance and supply agreements with major worldwide
suppliers of blood products. During 1998, Viragen consummated agreements with
the American Red Cross and America's Blood Centers, which between them annually
collect a substantial majority of the U.S. blood supply, and a series of
agreements covering a majority of the blood supply in Germany, a major European
supplier.
In July 1998, the Company and VUSA entered into a strategic alliance and
supply agreement with America's Blood Centers ("ABC") for the supply of human
white blood cells (leukocytes). ABC is a national network of non-profit,
independent community blood centers operating in 45 states. ABC members annually
collect in excess of 45% of the U.S. blood supply through its member blood
donation centers and mobile collection facilities. Under the terms of the ABC
Agreement, the Company was granted first and preferential access to all
leukocytes produced by ABC members who have elected to participate in the
program. The Company has agreed to pay a fixed cost per buffy coat provided
during the first two years of the ABC Agreement. Thereafter, the price may vary
based upon incremental costs incurred by participating ABC members.
In August 1998, the Company and its majority owned subsidiary VUSA, Inc.
entered into a fifteen year Agreement with the American Red Cross ("ARC") for
the supply of human white blood cells. ARC collects approximately half of the
U.S. blood supply. The ARC Agreement provides for the Company's purchase of
buffy coats, consistent with agreed upon specifications, based on quarterly
forecasts provided by the Company. Buffy coats may be paid for in cash or Common
Stock of the Company at the option of ARC, with the valuation of shares paid
determined by the average closing price of the Company's shares for the five
days prior to the payment due date less a discount. The ARC Agreement further
contains an initial price per buffy coat modified by a volume discount pricing
schedule and rebate program, subject to periodic renegotiation. Upon execution
of the Agreement, ARC received a Warrant to purchase up to 500,000 shares of
Common Stock of the Company at exercise prices ranging from $5.50 to $11.00 per
share and entered into a Stockholder's Agreement and Registration Rights
Agreement relating to shares underlying the Warrant and shares received, if any,
in lieu of cash for buffy coat purchases.
In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc., a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has focused
on the development of therapeutic drugs for autoimmune disorders. Its lead
product is LeukoVAX, an immunomodulating therapy derived from leukocytes
currently in FDA Phase I/II clinical trials for rheumatoid arthritis.
Under the terms of the Inflammatics Agreement, the Company made an initial
investment by purchasing Series A Convertible Preferred Stock of Inflammatics
for $1 million and warrants to purchase 200,000 shares of Common Stock of the
Company exercisable at $1.00 dollar per share, representing an initial 10%
equity interest in Inflammatics. The Company further obtained two options to
acquire up to an additional 70% equity position in Inflammatics through two
additional fundings to be made at the sole option of the Company. Additional
funding, if any, will be made based upon the Company's evaluation of LeukoVAX
clinical trial data and would be utilized to underwrite a FDA Phase III clinical
trial. As part of these options, the Company may issue up to 3 million shares of
its Common Stock and 300,000 additional warrants to purchase Common Stock of the
Company in exchange for additional Series A Convertible shares of Inflammatics
bringing the Company's total equity position in Inflammatics to 80%.
On September 22, 1998 the Company entered into an Equity Line Financing
Agreement ("Equity Line Agreement") for a maximum offering amount of $20 million
over three years. Provisions of the Equity Line Agreement provide that the
Company, at its option, may "Put" shares of Common Stock to the investor,
following an effective Registration Statement, at a "Put Share Price" equal to
the lesser of (a) 87.5% of the
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Market Price for such Put or (b) the difference of (i) the Market Price of such
Put minus (ii) $0.225 where the Market Price is defined as the lowest Closing
Bid Price during the 10 to 20 trading days (depending upon the size of the Put)
following each Put.
The amount of Common Stock that may be Put in any 30 day period, is limited
to one half (1/2) of the aggregate daily reported trading volume in the
outstanding Common Stock reported during the 10 trading days preceding the Put
date. In addition, on each six month anniversary of the Subscription Agreement
date, the Company shall issue to the Subscriber a Purchase Warrant to purchase a
number of shares of Common Stock equal to 10% of the number of Put Shares issued
to the Subscriber during the preceding 6 calendar months. Each Purchase Warrant
shall be exercisable at 108% of the lowest closing bid price for the 10 trading
days immediately preceding each six month anniversary.
In connection with the Equity Line Agreement, the Company also entered into
a Placement Agent Agreement which provides for a Cash Placement Fee on the gross
proceeds from the sale of the securities in any Put of: 7% on the first $5
million; 6% from $5 million to $10 million; and 3.5% for amounts in excess of
$10 million. If the Company were to Put securities for the entire $20 million
available under the Equity Line Agreement, the Cash Placement Fee would total 5%
of the total gross proceeds derived. In addition, the Placement Agent Agreement
provides for the issuance of Placement Agent Warrants to the Placement Agent
equal to: (i) 7%, 6% and 3.5%, respectively, on all shares issued in connection
with Put Shares at the same thresholds as the Cash Placement Fee, exercisable at
125% of the average Put Share Price of all Put Shares issued during the
preceding six calendar months; and (ii) a warrant to purchase a number of Common
Shares in the same percentages as above for which the subscriber has been issued
a Purchase Warrant, exercisable at 108% of the lowest closing bid price for the
10 trading days immediately preceding the applicable six month anniversary.
As of the closing of the Equity Line Agreement, the Company had
approximately 1,900,000 shares of Common Stock available from total authorized
shares. Accordingly, to utilize the total funding available under the Equity
Line Agreement, the Company must obtain Stockholder approval to increase the
number of authorized shares in the Company. In addition, to comply with NASDAQ
National Market regulations regarding potential dilution limitations, the
Company intends to seek Shareholder's approval of the Equity Line Financing
Agreement.
OPERATIONS
In March 1998, the Company commenced safety and preclinical trials in
Europe of its multi-species, human leukocyte-derived alpha interferon,
Omniferon. The Company anticipates the commencement of clinical trials in the
first calendar quarter of 1999.
Viragen initially obtained approval for use of Alpha Leukoferon through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 (the "499 Program"), was amended to include the Company's
protocols and Florida Statute 402.36 was repealed. In 1986, the Company received
approval from the Florida HRS under the 499 Program, to distribute Alpha
Leukoferon under specific investigative clinical study protocols through
hospitals, pharmacies and Florida licensed physicians for the treatment of
patients within the State of Florida. The Company subsequently received State of
Florida regulatory approval for the investigational use of Alpha Leukoferon in
the treatment of Multiple Sclerosis ("MS"), HIV/AIDS, AIDS Related Complex,
AIDS/Kaposi Sarcoma, 32 types of cancers, hepatitis and certain other viral
diseases. In December 1994, the Company discontinued enrollment of new patients
in its Multiple Sclerosis Study 499 Program. In August 1995, the Company
negotiated an agreement with the Florida Department of Health and Rehabilitative
Services ("HRS") which provided for the elimination of the enrollment of new
patients in its existing 499 Program (with the exception of certain limited
enrollments approved by the Florida HRS in 1996 for humanitarian purposes
including the Company's HIV/AIDS study conducted at no charge to patients), the
continued participation by previously enrolled patients in the 499 Program and
resolution of other issues. The Company believes, while there can be no
assurance as to future regulatory approvals, if any, the discontinuation of the
Company 499 Program will facilitate efforts in obtaining FDA and EU approvals
for Omniferon. This is based on management's concern that the continuation of
the 499 Program, which involved the ongoing distribution of Alpha Leukoferon and
receipt of limited revenues, was an impediment to obtaining
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such approvals. All other previously approved indications and protocols for the
use of Alpha Leukoferon are inactive.
The Company will require additional financing to conduct and complete
clinical trials for the purpose of obtaining FDA and/or EU approvals for
Omniferon or LeukoVAX (if the Company exercises its right to acquire a
controlling interest in Inflammatics). Clinical testing toward FDA and/or EU
approval is an expensive process, which is expected to take several years to
accomplish with no assurance such approvals will eventually be obtained.
THE PRODUCTS
The Company derives its Omniferon from human white cells (leukocytes).
Natural Interferon is one of the body's natural defensive responses to foreign
substances such as viruses, and is so named because it "interferes" with viral
growth. Natural Interferon consists of protein molecules that induce antiviral,
antitumor and immunomodulatory responses within the body. Medical studies have
indicated that interferons may inhibit malignant cell and tumor growth without
affecting normal cell activity.
There are two basic types of interferon, differentiated primarily by their
method of manufacture and resultant composition. The first, as produced by the
Company, is multi-species natural, human leukocyte-derived alpha interferon
produced by cultivated human white blood cells, which are stimulated by the
introduction of a harmless agent. This process induces the cells to produce
natural interferon. Natural interferon is then separated from other natural
proteins and purified to produce a highly concentrated product for clinical use.
The second, recombinant interferon (alpha or beta), is a genetically engineered
synthetic interferon generally produced from a single human gene in bacterial
cells by recombinant DNA techniques ("Synthetic Interferon").
Clinical studies suggest that there may be significant therapeutic
differences between the use of Natural Interferon and Synthetic Interferon. The
Company is advised that studies have found that treatment with Synthetic
Interferon in certain cases may cause an immunological response (the production
by the human immune system of neutralizing and/or binding antibodies) that
reduces the effectiveness of the treatment or which may cause adverse side
effects. The Company believes that the production of neutralizing and/or binding
antibodies is virtually non-existent in patients treated with Natural
Interferon. Furthermore, primarily due to biological differences, the side
effects of treatment with Natural Interferon, in certain instances, may be less
severe than with Synthetic Interferon.
THE INTERFERON INDUSTRY
Prior to 1985, Natural Interferon was the only type of interferon
available. Research institutions and other biomedical companies like the Company
were working to solve the problem of the high cost related to the
industrial-scale production of Natural Interferon. In 1985, Hoffman-LaRoche,
Inc. and Schering-Plough Corporation, two major pharmaceutical companies,
successfully developed Synthetic Interferon using DNA technology and
subsequently received FDA approval to produce and market their respective
recombinant alpha interferon products for the treatment of hairy-cell leukemia,
hepatitis and Kaposi's Sarcoma, an AIDS-related skin cancer. See "Regulation"
and "Competition" below.
After the emergence of recombinant alpha interferon, the medical
community's interest in Natural Interferon diminished due primarily to its
limited availability and its higher cost of production, and most clinical
studies thereafter utilized a synthetic product.
Hoffman-LaRoche, Inc. and Schering-Plough Corporation continue to actively
market their products and promote the therapeutic benefits of their respective
Synthetic Interferon products. In 1993 Chiron Corp. received FDA approval of
BetaSeron(TM), its recombinant beta interferon for the treatment of
relapsing/remitting MS. In 1996, Biogen, Inc. received FDA approval for
Avonex(TM) its recombinant beta interferon for relapsing/remitting MS. In 1997,
Teva Pharmaceuticals received FDA approval of its peptide chemical compound,
Copaxone(TM), for relapsing/remitting MS. In addition to the manufacturers of
Synthetic Interferons, a domestic manufacturer of natural interferon-alpha,
Interferon Sciences, Inc., received FDA
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approval in 1989 to sell, in injectable form, Alferon(TM) their natural
interferon product for genital warts. They continue to conduct FDA sanctioned
clinical trials for additional indications.
APPLICATIONS OF INTERFERON
Hepatitis C
The hepatitis C virus (HCV) is a major worldwide cause of acute and chronic
hepatitis. Hepatitis C, previously known as "non-A, non-B hepatitis", affects an
estimated 4 million Americans with approximately 30,000 new cases diagnosed each
year and is responsible for an estimated 8,000 deaths annually. Hepatitis C is
currently the leading cause of liver transplantation in the United States. Based
on a review of published literature and evaluation by the Company's scientific
staff and advisors, the Company believes that its Omniferon product may prove
efficacious in the treatment of this indication.
Hepatitis B
Approximately 45% of the world population live in areas with a high
prevalence of hepatitis B ("HBV") infection where the lifetime risk of infection
can exceed 60%. Most infections in these areas are acquired at birth or during
early childhood where the risk of developing chronic infection is highest. In
the United States, which is not in a high prevalence area, approximately 300,000
cases of acute HBV are diagnosed annually with 2% to 10% of these patients
developing chronic infections, putting the patients at risk of progressive liver
disease possibly leading to cirrhosis and/or hepatocellar carcinoma.
Synthetic Interferon alpha is the only FDA approved drug for HBV and has
been found to be an efficacious treatment in some cases. The Company believes
that Omniferon may also prove effective in the treatment of HBV.
Multiple Sclerosis
In 1988, following State of Florida regulatory approval for use of the
Company's product by HRS for the treatment of multiple sclerosis, the Company,
entered into a research agreement with the University of Miami School of
Medicine, Department of Neurology Multiple Sclerosis Center. Pursuant to the 499
Program this study was a patient funded, multi-phase clinical trial for the
treatment of multiple sclerosis with Alpha Leukoferon. The study was conducted
on a double-blind basis with certain patients receiving different dosage levels
of that product and certain patients receiving a placebo. The study terminated
in mid-1992. Published information on these trials indicated that, in many
cases, the Company's interferon product provided favorable results in the
treatment of patients afflicted with relapsing/remitting, relapsing progressive
and chronic progressive MS.
The Principal Investigator for this study authored, together with other
investigators, an abstract of the favorable results achieved in many cases with
the use of the Company's Alpha Leukoferon product in the treatment of various
types of multiple sclerosis. The abstract was published in the Annals of
Neurology, the official journal of the American Neurological Association in
1994. An additional article was published by the investigators and the Company
appearing in the Journal of International Medical Research in 1996.
Chronic Myelogenous Leukemia
Chronic Myelogenous Leukemia ("CML") is one of a group of diseases called
myeloproliferative disorders and is usually recognized by a distinctive
cytogenetic abnormality, the Philadelphia Chromosome. The current treatment for
CML is high dose chemotheraphy with bone marrow transplantation. Interferon
therapy has emerged as a possible effective initial treatment in this disease
affecting both the presence of Leukemia cells as well as the number of bone
marrow cells having the Philadelphia Chromosome.
HIV/AIDS
In July 1990, the Company received approval from the Florida HRS for an
HIV/AIDS treatment protocol using Alpha Leukoferon in injectable form. In
September 1993, the Company initiated distribution
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on a limited basis of its Product under this protocol. However, in December
1994, HRS informed the Company that no new patients may be enrolled under the
499 Program, including those patients with HIV/ AIDS, ARC and Kaposi's Sarcoma,
until the Company had satisfied HRS regarding compliance with FDA promulgated
current Good Manufacturing Practice ("cGMP") requirements. In July 1995, the
Company discontinued enrollment of new patients in its 499 Program and in August
1995, reached a settlement agreement with the Florida HRS which provided for the
elimination of the enrollment of new patients in its 499 Program (with the
possible exception of certain limited enrollments approved by the Florida HRS
for humanitarian purposes), the continued participation by previously enrolled
patients in the 499 Program and the resolution of other issues.
In March 1996, the Company in collaboration with Biodoron, a Hollywood,
Florida based clinic, received approval from HRS under Florida's Investigational
Drug Program to conduct an investigational study in Florida of Viragen's natural
human alpha interferon product, Alpha Leukoferon, for the treatment of HIV/ AIDS
in hemophiliacs. The Company entered into an agreement with Quantum Health
Resources, Inc., ("Quantum") which provided to the Company $330,000 toward to
the cost of the study. Quantum, a subsidiary of Olsten Services Corp., is a
national provider of alternate site therapies and support services for people
affected by chronic disorders, including hemophilia. The study commenced in
March 1996, pursuant to which 35 patients enrolled to receive Alpha Leukoferon
for a minimum of six months in combination with a comprehensive HIV/AIDS
treatment program. As yet, the Company has not received the final results of the
study which includes the patient's follow-up period.
MANUFACTURE OF INTERFERON
Human white blood cells (leukocytes) and a stimulating agent, raw materials
which are readily available to the Company, are needed to produce human
interferon. An FDA approved stimulating agent, which is harmless to humans, is
introduced into the white blood cell, which induces the cell to produce
interferon. The interferon is then separated from other proteins, extracted and
purified.
The Company's Omniferon product is currently being manufactured in its
Scottish facility for use in ongoing animal safety and preclinical studies in
the EU commenced in March 1998, and for human clinical testing anticipated to
commence in the first quarter of calendar 1999. The Company's first generation
of Natural Interferon was manufactured and distributed in Florida under the 499
Program under the name Alpha Leukoferon. Production of Alpha Leukoferon was
discontinued in January 1995.
Production methods developed by the Company, as well as enhanced methods
currently under development (see "Research and Development", below) could serve
to reduce the Company's costs of production and, therefore, the market price.
However, there can be no assurance that such new manufacturing technology will
enable the Company to achieve the level of manufacturing proficiency and product
improvement anticipated by management.
RESEARCH AND DEVELOPMENT
The entire process of research, development and FDA and/or EU approvals, if
obtained, of a new pharmaceutical takes several years and requires substantial
funding. The Company is currently engaged in animal safety and preclinical
studies of Omniferon and, through its equity investment in Inflammatics, FDA
Phase I/II clinical trials of LeukoVAX. The completion of requisite clinical
studies for either Product prior to marketing approval is dependent upon
obtaining significant additional funding. The Company's present focus is the
continued research and development of Omniferon for the treatment of hepatitis B
and C, Multiple Sclerosis, CML, Herpes and HIV/AIDS.
The Company has expended a substantial amount of time and resources towards
the research and development of improved cell stimulation and purification
techniques of its Omniferon Product. These processes are believed to enhance the
purity of the product while increasing production yields. It is believed that
efforts focused on increased production yields, if successful, would
significantly lower related costs of production, ultimately allowing a lower
more competitive sales price of the Product.
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In 1991, the Company, due to its then absence of available funds, suspended
its research and development activities. In 1993, following receipt of new
equity financing and the election of new management, the Company recommenced
limited research efforts focusing on improving production techniques. Following
receipt of additional funding from private placement offerings which were
completed in August and December 1994, respectively, research efforts and
related costs increased and can be expected to continue to increase as the
Company continues its development of Omniferon.
Research and development costs totaled $3,866,267, $2,168,914, and
$1,503,434 for fiscal years ended June 30, 1998, 1997 and 1996, respectively.
ROYALTY AGREEMENT
The Company and Medicore, a former affiliate of the Company, have a Royalty
Agreement that provides for a maximum cap on royalties to be paid to Medicore of
$2,400,000, with a schedule of royalty payments of 5% of the first $7,000,000 of
sales of interferon and related products, 4% of the next $10,000,000 of sales
and 3% of the next $55,000,000 of sales until the total of $2,400,000 royalty is
paid. The agreement further provided that royalties of approximately $108,000
previously accrued as payable to Medicore will be the final payment due under
the agreement.
The Company recognized royalty expense of $11,901 for the year ended June
30, 1996.
PATENTS
The Company believes its production techniques are unique and are capable
of yielding a superior quality product while reducing production costs which may
enable the Company, subject to regulatory approval, to offer Omniferon at a
price competitive with the recombinant interferons currently being marketed. The
Company intends to file patent applications relative to certain production
techniques currently under development. The Company has also submitted several
foreign patent applications relating to Natural Interferon for topical use,
several of which have been granted.
United States patents have been issued to others with respect to
genetically engineered and human-derived interferon. Subject to the extent of
such existing patent claims, the Company may have to negotiate license
agreements with such patent holders to use such processes and products. The
Company believes that it does not infringe upon any current patent.
The validity and enforceability of a patent can be challenged by litigation
after its issuance and if the outcome of such litigation is adverse to the owner
of the patent, other parties may be free to use the subject matter covered by
the patent. The degree of protection afforded by foreign patents may be
different than in the United States. There can be no assurance that patents
obtained in the future will be of substantial protection or commercial benefit
to the Company. (See "Competition" below).
REGULATION
United States and European Union
The Company's activities and the Products and processes resulting from such
activities are subject to substantial government regulation in the United States
at both state and federal levels and within the EU member nations. The
manufacturing, advertising and sale of biologic substances and pharmaceutical
products is regulated by, and requires the approval of, the FDA, EU, state and
local agencies. The Company followed strict production and distribution
procedures under State of Florida HRS guidelines relating to its limited
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distribution of its Alpha Leukoferon within the State of Florida. The FDA has
established mandatory procedures and standards which apply to the clinical
testing, marketing and manufacture of the Products. Obtaining FDA and/or EU
approval for commercialization of any new product can take significant time and
capital since it involves extensive testing procedures and often lengthy
clinical trials including the measurement of product safety, toxicity, and
efficacy, if any, under specific protocols. The process of obtaining FDA and/or
EU regulatory approval initially includes extensive animal testing to
demonstrate product safety and preferred dosages. Subsequent human tests are
then undertaken to show the same and to document such findings as effectiveness,
toxicity and side effects. Biostatistical analysis of data is then gathered in
such studies, followed by the submission of all information and data to the
regulatory authorities.
At the present time, the Company is in preclinical studies of its Omniferon
product in the EU with no pending clinical trial application relative to
Omniferon before the EU regulatory authorities or the FDA for the treatment of
any disease indications, although the Company intends to commence clinical
trials in the EU during the first calendar quarter of 1999 and eventually submit
an Investigative New Drug Application to the FDA. For these purposes, the
Company has assembled a Clinical Advisory Committee comprised of scientists,
medical researchers and clinicians who will act in an advisory capacity in order
to assist the Company in developing the medical, scientific and clinical aspects
in support of the Company's anticipated applications to be filed initially with
the EU and eventually FDA regulatory authorities.
In the United States and Europe, human clinical trial programs generally
involve a three phase process. Typically, Phase I trials are conducted in
healthy volunteers to determine the early side effect profile and the pattern of
drug distribution and metabolism. Phase II trials are conducted in groups of
patients afflicted with the target disease to provide sufficient data for the
statistical proof of efficacy and safety required by regulatory agencies. If
Phase II evaluations indicate that a product demonstrated potential
effectiveness and has an acceptable safety profile, Phase III trials are
undertaken to conclusively demonstrate clinical efficacy and safety within an
expanded patient population from multiple clinical study sites. Regulatory
authorities may also require Phase IV studies to track patients after a product
is approved for commercial sale.
Regulatory approvals of a new pharmaceutical product can often take five
years or longer (unless accelerated in certain instances for life-threatening
diseases) and involves the utilization and expenditure of substantial resources.
Approval depends on a number of factors, including the severity of the disease
in question, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials.
American pharmaceutical manufacturers who sell outside of the United States
are also subject to FDA jurisdiction. Semi-finished drugs may be shipped under
certain controlled circumstances for further processing, packaging, labeling and
distribution to third parties residing in approved foreign countries, subject to
such laws as apply in those countries. The Company must comply with all FDA
rules and regulations as well as those of the country to which the Company
intends to ship the Product before it would be permitted to export crude or
finished interferon products outside the United States.
License and Manufacturing Agreement
In certain instances, EU regulations may require less stringent preclinical
studies for naturally occurring substances such as the Company's Omniferon
product than for genetically engineered products. Accordingly, while there can
be no assurance, the Company expects to possibly receive a more expeditious
review of the various EU processes and clinical trials prerequisite to market
approval in the EU.
In July 1995, Viragen (Scotland) Limited ("VSL"), a company incorporated
under the laws of Scotland, entered into a License and Manufacturing Agreement
with the Common Services Agency of Scotland to secure a sufficient source of
needed raw materials as well as expertise in the area of blood-derived products
and the regulatory approval process. The Agency is an adjunct of the Scottish
Government which acts on behalf of the National Health Service in Scotland and
the Scottish National Blood Transfusion Service. The Agency owns and operates a
blood fractionation facility in Edinburgh, Scotland, and has the physical and
technical capacity to supply leukocytes and manufacture alpha interferon from
human leukocytes employing the Company's processes. Securing a sufficient
qualified source of blood-derived raw materials within the EU
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<PAGE> 11
was considered critical to enable the Company to conduct EU clinical trials as
well as providing a sufficient source of raw materials necessary for subsequent
commercial manufacturing.
During fiscal 1998, the Company was notified that due to concerns over the
possible presence of New Varient Creutzfeld-Jacob disease ("nvCJD") also known
as Mad Cow disease, in the UK blood supply, human leukocytes collected in
Scotland, including those intended to be supplied under the Scottish Agreement,
would not be approved for use in the Company's planned clinical trials or
potential commercial production until the European regulatory authorities were
satisfied that the risk of nvCJD contamination had been minimized. The Company
intends to utilize leukocytes produced in Germany under its German Red Cross
contractual arrangements as well as other approved sources to continue with its
planned clinical trials and possibly the commencement of commercial scale
production if needed.
Prior to the commencement of clinical trials, the Company's Scottish
manufacturing facility must be licensed by EU regulatory authorities to conduct
such trials. The Company has engaged professionally recognized consultants
familiar with the EU regulatory process to assist in the manufacturing and
product submissions prerequisite to EU approvals. In addition, the SNBTS has a
full-time regulatory department that has obtained approval in the EU of numerous
EU blood-derived products. The SNBTS will provide its best efforts, working in
conjunction with the Company, to obtain a manufacturing license and subsequent
product approvals at the conclusion of the EU clinical studies. At such time as
a manufacturing license is obtained for Omniferon, the Company intends to seek
FDA manufacturing approval of the Scottish manufacturing facility. There can be
no assurance that the EU regulatory authorities will approve the manufacturing
or permit clinical testing and distribution of Omniferon within the EU, or that
the FDA will license or approve the Scottish manufacturing facility or the
Company's Product for clinical trials and subsequent distribution in the United
States.
VSL has been organized by the Company to manufacture and distribute
Omniferon and related products in the EU and other countries outside the United
States. Through Viragen Technology Inc., Viragen has transferred patent and
proprietary rights associated with the production of its Product and related
technology to VSL under a grant of license. VSL has provided the SNBTS with an
exclusive license to use the proprietary rights covered by the License and
Manufacturing Agreement for the manufacture and distribution of Omniferon within
the EU. SNBTS has committed to participate with the Company in the manufacture
of Omniferon in sufficient scale to accommodate the EU clinical trials and also
to conduct certain studies relevant to the Product and cooperate with VSL and
the Company in complying with the laws and regulations of the EU in connection
with the production of Omniferon.
Pursuant to the License and Manufacturing Agreement, VSL, VEL and the
Company are providing SNBTS with full access to the proprietary technology and
specialized equipment, providing suitable training as needed to SNBTS personnel
and defraying all costs associated with securing permits and regulatory
approvals, augmenting SNBTS facilities, if necessary, to participate in the
manufacture of Omniferon and securing documentation substantiating compliance
with EU regulatory requirements. SNBTS will receive compensation for Product
manufactured for use in clinical trials in the EU, for Product manufactured for
sales prior to obtaining new drug application approval, and for sales following
such approval, at varying percentages in relation to costs. Products
manufactured and utilized for humanitarian purposes or for medical use by
patients of the Scottish National Health Services or the United Kingdom National
Health Services will involve either no payments to the Agency or payments at
substantially discounted prices. The Company has further agreed to compensate
SNBTS for the provision of process documentation for further production
facilities established by the Company.
The term of the License and Manufacturing Agreement is for a five-year
period with two additional five-year extension terms at the option of VSL. The
Agreement also contains provisions protecting the proprietary rights of VSL and
the Company and the preclusion of certain competitive activities by SNBTS.
As a result of the completion of the private placements undertaken in March
1996, VEL received net proceeds of $5,102,000 which is being used for (i) the
leasing and improvement of production facilities in Edinburgh, Scotland,
utilized in the manufacture of Omniferon; (ii) the purchase of equipment for use
of VSL's Scottish facilities; (iii) the payment of royalties to Viragen
Technology, commenced in calendar 1997
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<PAGE> 12
and (iv) for working capital purposes. VSL is currently engaged in animal safety
and preclinical studies and will require significant additional financing to
complete clinical trials required to obtain EU regulatory approval for
distribution of the Product. Clinical testing toward EU approval is an expensive
process, which is expected to take several years to accomplish with no assurance
that such approval will eventually be obtained.
COMPETITION
Competition in the research, development and production of interferon, and
other immunological products is intense and involves major, well-established and
abundantly financed pharmaceutical and commercial entities, as well as major
educational and scientific institutions. Many researchers, some of whom have
substantial private and government funding, are involved with interferon
production, including production of interferon through recombinant DNA
technology. A number of large companies including Hoffman-LaRoche, Inc.,
Schering-Plough Corporation, Glaxo-Wellcome, Biogen, Inc., Chiron Corp., Berlex
Laboratories and Ares-Serono are producing, selling and conducting clinical
trials with recombinant interferons (alpha and beta) and other immunological
products for the treatment of certain cancers, viral infections, MS, HIV/IDS, KS
and hepatitis.
In addition to the manufacturers of Synthetic Interferons, Interferon
Sciences, Inc. a domestic manufacturer of Natural Interferon received FDA
approval in 1989 to sell, in injectable form, their natural interferon product
for genital warts. They continue to conduct FDA sanctioned clinical trials for
additional indications.
The Company believes that competition is also based on production ability,
technological superiority and administrative and regulatory expertise in
obtaining governmental approvals for testing, manufacturing and marketing of the
Product.
The timing of the entry of a new pharmaceutical product into the market is
an important factor in determining that product's eventual success. Early
marketing has advantages in gaining product acceptance and market share. The
Company's ability to develop products, complete clinical studies and obtain
governmental approvals in the past had been hampered by a lack of adequate
capital. The Company is not presently a competitive factor in revenue
participation in the biopharmaceutical industry.
EMPLOYEES
As of September 21, 1998, the Company has 41 employees, of which 23 are
Research and Development and Quality Assurance/Quality Control personnel. The
remaining 18 employees are management, regulatory and/or administrative.
ITEM 2. PROPERTIES
In November 1996, the Company entered into a ten year lease for 14,800
square feet in Plantation, Florida. This location houses the Company's
administrative and executive offices as well as potential laboratory expansion
space. The lease contains an option for up to two additional five year terms.
Base lease payments on the facility total $15,700 per month. The Company's
administrative offices are located at 865 SW. 78th Avenue, Suite 100,
Plantation, Florida 33324; phone (954) 233-8746.
The Company owns a 14,000 square foot building in Hialeah, Florida. This
facility includes a laboratory for biomedical research and development
activities. The Company refinanced its building through a $600,000 borrowing
with a Florida bank under a five year note and mortgage in August 1991. The loan
was reduced in equal monthly principal payments of $2,500 with interest at 2% in
excess of the prime rate. The mortgage was on the land, building and
improvements, equipment and fixtures used in connection with the realty. A
balloon payment of $450,000, due in August 1996 was paid-in-full at maturity.
In November 1996, the Company, through VSL, entered into a five year lease
agreement in a biotechnology park in the Edinburgh area of Scotland. This
facility, comprised of approximately 12,000 sq. ft., contains the Company's
European laboratory and production facilities. This location will augment other
productive assets located within the SNBTS facility, which are available to the
Company under the Scottish
11
<PAGE> 13
Agreement. The annual base lease rate for the facility is 71,700 UK pounds or
approximately US$120,000 plus adjustment for common area maintenance charges.
The Company has the right to renew the lease for four additional five year
terms.
The Company considers that its properties are generally in good condition,
well-maintained and generally suitable and adequate to carry on the Company's
business. The Company further believes that it maintains sufficient insurance
coverage on the Company's real and personal property.
ITEM 3. LEGAL PROCEEDINGS
In May 1997, the Company, through its majority owned subsidiary Viragen
(Europe) Ltd. (formerly Sector Associates, Ltd. -- "Sector"), was named as a
defendant in an action brought in the United States Bankruptcy Court, Southern
District of Florida by the bankruptcy trustee for Florida West Airlines, Inc.
The suit alleged that during the period from December 1993 to May 1994, prior to
the Company's reverse acquisition of Sector, Sector received preferential
transfers of approximately $2.1 million. The Company denied that such transfers
were preferential and vigorously defended the claims. This litigation was
settled for $25,000 in July 1998, which amount the Company believed represented
less than its anticipated costs of further litigation.
In October 1997, the Company, the Company's President and Cytoferon Corp.,
a former affiliate of the President, were named as defendants in a civil action
brought in the United States District Court for the Southern District of Florida
(Walter L Smith v Cytoferon Corp. et al; Case No: 97-3187-CIV-MARCUS) by a
stockholder of the Company and investor in Cytoferon Corp. The suit alleged the
defendants violated federal and state securities laws, federal and state RICO
statutes, fraud, conspiracy, breach of fiduciary duties and breach of contract.
The plaintiff was seeking an unspecified monetary judgement and the delivery of
441,368 shares of Common Stock. The Company filed a Motion to Dismiss denying
the allegations and requesting reimbursement of its costs.
In November 1997, the plaintiff in this litigation filed a Notice of
Voluntary Dismissal with the Federal Court concurrently notifying the Company of
his intent to refile a complaint in Circuit Court in the State of Florida. The
plaintiff subsequently filed a complaint in the Circuit Court of the 11th
Judicial Circuit for Miami-Dade County, Florida (Case No: 97-25587 CA30) naming
the same defendants. The suit alleges breach of contract, fraud, violation of
Florida's RICO statute and breach of fiduciary duties and seeks a judgement
similar to that of the dismissed Federal suit. In March 1998 the Circuit Court
granted the Company's Motion to Dismiss the complaint. Subsequently, the
plaintiff filed an Amended Complaint alleging similar claims and seeking
comparable remedies. In April 1998, the Company filed a Motion to Dismiss
plaintiff's amended complaint which was denied by the Court. The Company has
filed its answer denying the plaintiff's claims and discovery is proceeding.
The Company denies the allegations of the complaint and, while it cannot
predict the ultimate outcome, it intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the NASDAQ Small Cap Market between
June 4, 1996 and December 28, 1996 and on the NASDAQ National Market since
December 29, 1996 under the symbol "VRGN". The following table sets forth the
high and low bid quotations for the Common Stock since July 1, 1996.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1997-1998
First Quarter ended 09/30/97................................ $3 $2 5/32
Second Quarter ended 12/31/97............................... 2 1/4 1 3/32
Third Quarter ended 03/31/98................................ 2 3/4 1 23/32
Fourth Quarter ended 06/30/98............................... 2 3/4 1 25/32
1996-1997
First Quarter ended 09/30/96................................ 5 7/8 3 1/2
Second Quarter ended 12/31/96............................... 6 13/16 3 5/8
Third Quarter ended 03/31/97................................ 5 9/16 2 1/4
Fourth Quarter ended 06/30/97............................... 3 3/8 1 3/8
</TABLE>
The above quotations represent prices between dealers, and do not include
retail mark-ups, markdowns or commissions, and may not necessarily represent
actual transactions.
As of September 21, 1998 there were approximately 2,700 stockholders of
record. At that date the closing price of the Common Stock was $1.50 per share.
The Company has not paid any dividends on its Common Stock since its
incorporation in 1980. Since the Company had been in the development stage, has
experienced losses since inception (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), has significant
capital requirements in the future and presently intends to retain future
earnings, if any, to finance the expansion of its business, it is not
anticipated that any cash dividends will be paid in the foreseeable future.
Future dividend policy will depend on the Company's earnings, if any, capital
requirements, expansion plans, financial condition and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 1,143 $ 1,404 $ 739 $ 722 $ 677
Net loss............................. (7,856) (4,775) (4,672) (3,952) (1,083)
Loss attributable to Common Stock.... (10,354) (14,674) (5,570) (3,955) (1,087)
Loss per average Common Share........ (.21) (.37) (.15) (.12) (.06)
Weighted average Shares
outstanding........................ 50,502,503 39,134,631 36,198,302 32,137,693 18,686,751
</TABLE>
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<PAGE> 15
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Working capital.......................... $ 7,842 $29,331 $18,266 $1,614 $ 795
Total assets............................. 15,895 37,462 20,617 3,330 2,744
Long-term debt........................... 280 239 116 857 976
Stockholder's equity..................... 6,072 32,144 17,275 1,698 546
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this report on Form 10-K that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include the Company's statements regarding liquidity, anticipated
cash needs and availability, and anticipated expense levels in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including expected Product clinical trial commencement dates, product
introductions, expected research and development expenditures and related
anticipated costs. All forward looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statement. It
is important to note the Company's actual results could differ materially from
those in such forward looking statements. Among the factors that could cause
actual results to differ materially are the factors detailed below and the risks
discussed in the "Risk Factors" section included in the Company's Registration
Statement Form S-3, as filed with the Securities and Exchange Commission on
April 17, 1998. You should also consult the risk factors listed from time to
time in the Company's Reports on Forms 10-Q, 8-K, S-3, 10-K and Annual Reports
to the Stockholders.
The biopharmaceutical industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the pharmaceutical and
biopharmaceutical markets include product efficacy, price and timing of new
product introductions. Increased competition from existing biopharmaceutical
companies as well as the entry into the market of new competitors could
adversely affect the Company's financial condition or results of operations.
The Company's future success depends in part upon its intellectual
property, including patents, trade secrets, know-how and continuing
technological innovation. There can be no assurance that the steps taken by the
Company to protect its intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive technologies or
products. There can be no assurance that any current or future patent, if any,
owned by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the Company
or that any of the Company's future patent applications will be issued with the
scope of the claims sought by the Company, if at all. Furthermore, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents, if any, owned by the Company.
The Company has incurred operational losses and operated with a negative
cash flows since its inception in December 1980. Losses have totaled $7,856,136,
$4,775,245, and $4,672,271 for the years ended June 30, 1998, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled approximately $7,842,000 on June 30, 1998, a
decrease of approximately $21,489,000 from the previous year end balance. This
decrease was due in part to the exchange of a Convertible Preferred Stock series
for a note payable totaling $9,720,241 which was paid in full during the year,
as well as additional cash redemptions, refunds and dividends in certain other
convertible preferred stock
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<PAGE> 16
series totaling approximately $8,967,000, additions to property, plant and
equipment of approximately $1,623,000, and operational losses of $7,856,136
being offset by the proceeds of two Convertible Stock Offerings (Series H and
Series I) during the period.
Commencing in June 1996 through February 1997, the Company completed four
Convertible Preferred Stock issuances with gross proceeds of $40,000,000: Series
B- $15,000,000; Series C-$5,000,000; Series D-$15,000,000 and Series
E-$5,000,000.
During July and August of 1997, the terms of the four series of preferred
stock were modified in order to limit or otherwise restrict the timing or number
of conversions of the preferred stock into Common Stock over a given period.
This restructuring was initiated in order to mitigate concerns of the Company
and the investment community concerning the "overhang" on the Company's Common
Stock represented by the potential conversion of these outstanding series of
preferred stock under their original terms.
In July 1997, the then remaining unconverted Series B Preferred Stock was
exchanged for a 10% Promissory Note in the amount of $9,720,241. The Note
provided for principal and interest payments over nine monthly installments
commencing in October 1997. The Note could be prepaid without penalty and was
not convertible into Common Stock of the Company. The Note was paid off during
fiscal 1998. Also in July 1997, the holders of the Series C Preferred Stock
agreed to modify their conversion price and limit conversions of their then
remaining 974 shares ($1,000 face value per share) over a minimum two month
period. The modified conversion price was the lower of (i) $2.20 per share or
(ii) the average closing price of the Company's Common Stock over the five day
period ending the day prior to the notice of conversion. The remaining shares of
Series C Preferred Stock were completely converted into Common Stock in December
1997.
In September 1997, the Company concluded two Exchange Agreements whereby
the terms of the Series D Preferred Stock and Series E Preferred Stock were
modified. The then remaining unconverted preferred shares ($1,000 face value per
share) of Series D (7,950 Preferred Shares) were exchanged for a like number of
Series F Preferred Shares, and Series E (4,000 Preferred Shares) was exchanged
for a like number of Series G Preferred Shares.
The Series F Preferred Stock provided for a limitation on the holder
limiting conversion during any two-week period of $800,000 including accrued and
unpaid dividends. The terms also provided the Company with a cash-out option at
the face amount being converted plus 12% if the Conversion Price is below $2.00
per share. In consideration for the holder of the Series D Preferred Stock
agreeing to a limitation on the speed of future conversion, the Company agreed
to increase the dividend rate from 6% for the Series D Preferred Stock to 10%
for the Series F Preferred Stock. During the third fiscal quarter of 1998, the
remaining Series F Preferred Stock outstanding totalling 4,200 shares
($4,200,000), was converted (1,750 shares) or redeemed through cash payments
(2,450 shares).
The terms of the Series G Preferred Stock provided that commencing in
September 1997, the holder was limited to converting 667 shares ($667,000) per
month over a 6-month period. The provisions further provided that the Company
would be required to redeem 667 shares ($667,000) per month less the number of
Series G Preferred Stock converted during the proceeding calendar month. In
addition, the holder was restricted from converting into Common Stock if the
market price of the Company's Common Stock was less than $2.50, subject to
adjustment, at the date of the conversion notice. In consideration for the
restrictions on conversion, the Company 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 were made in the substantive terms from the
previously issued Series E Preferred Stock. The final redemption of the Series G
Preferred Stock occurred in February 1998.
During the third and fourth fiscal quarters of 1998, the Company closed $7
million in financings replacing a portion of the funds used to redeem previous
preferred stock issuances. In February 1998, the Company received net proceeds
of approximately $4,625,000 from the sale of 500 shares of its Series H
Convertible Preferred Stock (the "Series H Preferred Stock") with an aggregate
stated value of $5 million. In April 1998, the Company received net proceeds of
approximately $1,840,000 from the sale of 200 shares of its Series I
15
<PAGE> 17
Convertible Preferred Stock (the "Series I Preferred Stock"). The Company
incorporated certain restrictions as part of the Series H and Series I Preferred
Stock designations which the Company believes will facilitate a more orderly
market relative to the underlying shares of its Common Stock. The Series H and
Series I Preferred Stock bear no dividends although, upon liquidation or
conversion, an 8% accretion factor will be included in the calculation for
purposes of determining the liquidation and conversion amount.
Both the Series H and Series I Preferred Stock issuances were not
convertible until six months following the closing date for the Series H
transaction. The conversion price is the lower of (i) the fixed conversion
price, which will be equal to the lower of the average closing price per share
for the 5 days prior to closing ($2.15 per share) or the market price of Common
Stock six months following the final closing date ($1.94 per share), and (ii)
the variable conversion price which will be equal to 82% of the market price at
the date of conversion. The Company retained the right to redeem both issuances
of Preferred Stock at various prices upon receipt of a notice of conversion. In
addition, the right of conversion is further limited to a maximum of 15% of the
aggregate amount of the Series H and Series I Preferred Stock issued to each
holder for each one month period cumulatively to a maximum of not in excess of
25% for such month in the event the holder has converted less than 15% in any of
the preceding months. As of September 21, 1998 $1,045,000 in principal of the
Series H and Series I Preferred Stock issuances had been presented to the
Company for conversion into 1,064,486 shares of Common Stock.
The Series H Preferred Stock and Series I Preferred Stock have certain
events of default which include bankruptcy or the failure of the Company to (i)
remain qualified for trading; (ii) convert preferred shares to common stock; and
(iii) maintain an effective registration statement. Upon the occurrence of an
event of default, the holders of the Series H Preferred Stock and Series I
Preferred Stock have the right to redeem all or any portion of the then
outstanding amount. The amount outstanding is calculated as the greater of 1.3
times the value of the Preferred Stock for which demand is being made plus the
accreted but unpaid amounts (calculated at 8%) earned on the Preferred Stock
plus liquidated damages and other cash payments then due or the product of the
highest price at which the Company's Common Stock is traded on the date of an
event of default divided by the conversion price as of that date and the amount
being redeemed. Since the 8% accretion is due upon mandatory redemption, the
Company has increased the carrying amount of the Series H Preferred Stock and
Series I Preferred Stock by this amount.
In April 1998, the Company entered into an option agreement with Southern
Health SDN.DHD ("Southern") a private Malaysian/Australian-based healthcare
investment group. The option agreement provides Southern the right to acquire,
through September 30, 1998, subsequently extended to December 31, 1998, an
exclusive private-label Manufacturing and Distribution License for the Company's
proprietary production process in exchange for an initial cash licensing fee of
$20 million and a continuing royalty of 12% of Southern's related revenues.
Southern has paid the Company a $200,000 option fee, $100,000 of which is non
refundable and intended to defer the costs of related due diligence with the
remaining $100,000 refundable if the Company elects not to proceed with this
transaction. There can be no assurance that this transaction will ultimately be
successfully concluded. Also, the Company believes that this transaction may be
negatively affected by instability in Asian financial markets.
While subject to significant limitation, the Company at June 30, 1998 has
available approximately $26,424,000 in net tax operating loss carryforwards
expiring between 1999 and 2013, which may be used to offset taxable income, if
any, during those periods. The Company's ability to generate revenues during
future periods is dependent upon obtaining regulatory approvals of its Omniferon
and/or LeukoVAX products. As the Company cannot be assured as to its ultimate
success in obtaining the necessary regulatory approvals, the Company is unable
to conclude that realization of benefits from its deferred tax assets is more
likely than not, as prescribed by SFAS 109. Accordingly, the Company has
recognized a valuation allowance to offset 100% of the deferred tax assets
related to these carryforwards.
On September 22, 1998 the Company entered into an Equity Line Financing
Agreement ("Equity Line Agreement") for a maximum offering amount of $20 million
over three years. Provisions of the Equity Line Agreement provide that the
Company, at its option, may ("Put") shares of Common Stock to the investor,
following an effective Registration Statement, at a "Put Share Price" equal to
the lesser of (a) 87.5% of the
16
<PAGE> 18
Market Price for such Put or (b) the difference of (i) the Market Price of such
Put minus (ii) $0.225 where the Market Price is defined as the lowest Closing
Bid Price during the 10 to 20 trading days (depending upon the size of the Put)
following each Put.
The amount of Common Stock that may be Put in any 30 day period, is limited
to one half (1/2) of the aggregate daily reported trading volume in the
outstanding Common Stock reported during the 10 trading days preceding the Put
date. In addition, on each six month anniversary of the Subscription Agreement
date, the Company shall issue to the Subscriber a Purchase Warrant to purchase a
number of shares of Common Stock equal to 10% of the number of Put Shares issued
to the Subscriber during the preceding 6 calendar months. Each Purchase Warrant
shall be exercisable at 108% of the lowest closing bid price for the 10 trading
days immediately preceding each six month anniversary.
In connection with the Equity Line Agreement, the Company also entered into
a Placement Agent Agreement which provides for a Cash Placement Fee on the gross
proceeds from the sale of the securities in any Put of: 7% on the first $5
million; 6% from $5 million to $10 million; and 3.5% for amounts in excess of
$10 million. If the Company were to Put securities for the entire $20 million
available under the Equity Line Agreement, the Cash Placement Fee would total 5%
of the total gross proceeds derived. In addition, the Placement Agent Agreement
provides for the issuance of Placement Agent Warrants to the Placement Agent
equal to: (i) 7%, 6% and 3.5%, respectively, on all shares issued in connection
with Put Shares at the same thresholds as the Cash Placement Fee, exercisable at
125% of the average Put Share Price of all Put Shares issued during the
preceding six calendar months; and (ii) a warrant to purchase a number of Common
Shares in the same percentages as above for which the subscriber has been issued
a Purchase Warrant, exercisable at 108% of the lowest closing bid price for the
10 trading days immediately preceding the applicable six month anniversary.
As of the closing of the Equity Line Agreement, the Company had
approximately 1,900,000 shares of Common Stock available from total authorized
shares. Accordingly, to utilize the total funding available under the Equity
Line Agreement, the Company must obtain Stockholder approval to increase the
number of authorized shares in the Company. In addition, to comply with NASDAQ
National Market regulations regarding potential dilution limitations, the
Company intends to seek Shareholder's approval of the Equity Line Financing
Agreement.
Management believes that the Company's Omniferon product currently under
development can be manufactured in sufficient quantity and will be priced at a
level to offer patients an attractive alternative treatment to the Synthetic
Interferons currently being marketed. Management further believes that working
capital currently on hand and available under its Equity Line Agreement will
provide the Company with the funds necessary for at least the next fiscal year
to continue its current level of operations, focused on current development and
production scale-up projects relating to Omniferon in the Company's laboratory
and manufacturing facility in Scotland, including EU preclinical trials
currently being conducted and the commencement of clinical trials. Clinical
trials in the EU are scheduled to commence in the first quarter of calendar
1999.
Additional funding will be required to complete the clinical trial process
relating to Omniferon both in the EU and domestically prior to receiving
regulatory approval to market the Product. Anticipated funding requirements in
the EU include: preclinical, Phase I and Phase II trials -- $1.5-$2.0 million
and Phase III studies -- $12-$14 million. In addition, anticipated funding
requirements for U.S. operations include: the establishment of domestic
manufacturing capacity -- $6 million; joint research and development projects --
$4 million and commencement of domestic preclinical Phase I and Phase II studies
- -- $1.5-$2.0 million. Funding will also be utilized for continued product
development research, general working capital purposes including administrative
support functions and the possible equity investments in businesses
complementary to the Company's operations.
In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc. a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has
focussed on the development of therapeutic drugs for autoimmune disorders. Its
lead product is LeukoVAX, an immunomodilating white blood cell (leukocyte)
preparation currently in FDA Phase I/II clinical trials for rheumatoid
arthritis.
17
<PAGE> 19
Under the terms of the Inflammatics Agreement, the Company made an initial
investment in the form of Series A Convertible Preferred Stock of Inflammatics
for $1 million and warrants to purchase 200,000 shares of the Company's Common
Stock at $1.00 dollar per share. The Company further obtained two options to
acquire an additional 70% equity position in Inflammatics through two additional
fundings to be made at the sole option of the Company. Additional funding, if
any, will be made based upon the evaluation of LeukoVAX clinical trial data and
will be utilized to underwrite a Phase III clinical trial. The Agreement also
provides for the Company to issue up to 3 million shares of its Common Stock and
warrants to acquire 300,000 shares at the then current market price of the
Company's Common Stock in exchange for additional Series A Convertible shares of
Inflammatics if all funding phases are completed.
The Company commenced pre-clinical trials with Omniferon in the EU in March
1998 and intends to commence clinical trials in the EU during the first calendar
quarter of 1999 and eventually submit an Investigational New Drug Application to
the U.S. FDA. Such approvals cannot be assured and are subject to the successful
completion of clinical trials and the Company's ability to raise significant
additional investment capital to fund the completion of such trials.
RESULTS OF OPERATIONS
No sales revenue or related costs of sales were recognized for the fiscal
years ended June 30, 1998 or 1997, respectively. The termination of sales
revenues was due to patients previously enrolled under the Company's State of
Florida HRS 499 program, the Company's only sources of sales revenue, completing
their course of treatments in fiscal 1996. The Company discontinued enrollment
of new patients in its 499 Program (with the exception of certain limited
enrollments approved by HRS for humanitarian purposes including an HIV/AIDS
study conducted at no charge to patients) and all revenues under this program
ceased in March 1996. The Company has no other source of revenues from the sale
of its products unless or until it receives the necessary regulatory approvals
from the U.S. Food and Drug Administration and/or comparable European
authorities. At the present time, the Company has no pending application
relative to Omniferon, the Company's multi-species, natural human
leukocyte-derived alpha interferon, before the EU regulatory authorities or the
FDA for the treatment of any disease indications, although the Company commenced
pre-clinical trials in the EU in March 1998 and intends to commence clinical
trials in the EU during the first calendar quarter of 1999 and eventually submit
an Investigational New Drug Application to the FDA. Such approvals cannot be
assured and are subject to the successful completion of clinical trials and the
Company's ability to raise significant additional investment capital to fund the
completion of such trials.
1998 COMPARED TO 1997
Interest and other income of $1,143,112 represented earnings on invested
cash balances during the year and reflects a 19% decline from the previous
fiscal year. As the Company's cash balances have declined significantly from the
previous year, due primarily to cash redemptions on Convertible Preferred Stock
issuances and operational losses (see "Liquidity and Capital Resources" above)
this trend is expected to continue into the next fiscal year.
Research and development costs totaled $3,866,267, for fiscal 1998 compared
to $2,168,914 for the previous year. This increase reflects the overall increase
in research activities being conducted between the periods both in the U.S. and
Scotland, related primarily to the scale-up of the Company's manufacturing
technology in its Scottish manufacturing facility. Components of this increase
included increases in laboratory supplies expense of $466,900, increases in
research related salaries and support fees of $440,100, an increase in research
related scientific professional fees paid to SNBTS of $200,100, increased
consulting and outside laboratory testing of $208,400, and increased travel
related expenses associated with the transfer of technology and process
development between the Company's Florida and Scottish facilities.
Selling, general and administrative expenses totaled $5,429,345 for fiscal
1998, reflecting an increase of $1,470,677 (37%) over the preceding year. This
increase included increases in administrative salaries and related taxes of
$599,400, due primarily to the addition of administrative staff in the Company's
Florida facility and domestic salary increases. The Company also recognized
increases in rent expense commencing in
18
<PAGE> 20
August 1997 related to its new administrative facility in Plantation, Florida
and the expansion of leased space in its Scottish manufacturing facility. Rent
expense for the Company's facilities increased by $393,600 over the prior year.
Legal fees between the periods have increased by $559,000, due to increases in
fees associated with research of technology patents of $111,300, expanded
efforts in collaborative agreements and general contractual transactions both
domestically and in Europe of $211,200 and increased costs associated with
litigation of $222,900. The Company also recognized $109,900 in bad debt expense
attributable to a Director loan with related accrued interest (see Item 13
"Certain Relationships and Related Transactions"). These increases were offset
by compensation expense in the prior year of $396,500 attributable to the
issuance of options not incurred in fiscal 1998 and a loss settlement in the
prior year of $250,400. The Company has also experienced increased travel costs
attributable to administrative support functions related to the establishment of
the Company's Scottish facility.
Depreciation expense increased to $506,934, compared with $281,920 for the
preceding year. This increase was attributable primarily to the acquisition and
commencement of utilization of laboratory equipment in the Company's Scottish
laboratory and manufacturing facilities during fiscal 1997 and fiscal 1998. The
balance of the increase between the periods was primarily due to the utilization
of additional laboratory and research equipment in the Company's Florida
laboratory facility acquired during the same period. Depreciation expense will
continue to increase over comparable periods of the preceding year as the
Company continues its technology transfer and process development and scale-up
projects related to its Omniferon product and enters its clinical trial phases
scheduled to commence in the first quarter of calendar 1999.
Interest expense totaled $590,867 for fiscal 1998, reflecting a significant
increase over the preceding year. This increase was due primarily to interest
expense attributable to the 10%, $9,720,240 Note Payable issued in July 1997 in
exchange for the Company's Series B Convertible Stock then outstanding. This
Note was paid-in-full in April 1998. See "Liquidity and Capital Resources"
above.
1997 COMPARED TO 1996
Interest and other income, which totaled $1,404,000 for fiscal 1997,
reflected a sharp increase over the prior year. This increase was attributable
to interest income earned on the net proceeds of a series of Convertible
Preferred Stock Offerings made during June 1996 and fiscal 1997. See "Liquidity
and Capital Resources" above.
Research and development costs totaled $2,168,914 during the year compared
to $1,503,434 for fiscal 1996. This increase of $665,480 (44%) reflects an
overall increase in research activities and was primarily attributable to an
increase in laboratory supplies expenses of approximately $326,000, an increase
in fees paid to SNBTS relating to contracted reimbursements of $71,000,
increased travel expenses associated with the transfer of technology and process
development between the Company's Florida and Scottish facilities of $120,000,
an increase in research related consulting fees and increased salaries and
related taxes for laboratory personnel.
Selling general and administrative expenses totaled $3,938,323 in fiscal
1997, an overall increase of approximately $438,000 from the prior year. This
increase reflects the net of changes in numerous components in general and
administrative expense items. Fiscal 1997 includes an increase in administrative
salaries and related taxes of approximately $351,500 due to the addition of
administrative staff in the Company's Scottish laboratory and manufacturing
facility, increased administrative staff in the Company's Miami facility and
domestic salary increases. During fiscal 1997, the Company also recognized
compensation expense of $450,000 associated with options granted during the
period compared to $426,000 in the previous year and recognized $288,000 in
expenses associated with the settlement, for treasury stock, of a potential
litigation claim.
The Company also recognized increases in insurance expenses associated with
employee related insurance coverage and increased liability coverages of
$128,00, increased travel related costs of $109,000, primarily attributable to
administrative support related to the establishment of the Company's Scottish
facility, increased building and equipment leasing costs of $105,000 and
additional fees associated with the
19
<PAGE> 21
Company's listing on the NASDAQ National Market of approximately $73,000. These
increases were offset by the reduction in officer loans forgiven in the prior
year of $282,000 and a loss recognized on the valuation of the Company's Florida
laboratory facilities of $316,000 pursuant to FAS 121 in fiscal 1996.
YEAR 2000
The Company recognizes the potential problem posed to its operations by its
dependence upon date sensitive computer systems and applications throughout its
business and the operations of third parties upon whom the Company is dependent.
The Company relies heavily on computerized laboratory equipment both for its
ongoing research and production scale-up projects as well as computer controlled
commercial scale manufacturing equipment in place in the Company's Scottish
facility. In addition, the Company, through strategic alliance and supply
agreements currently in place, is also dependent upon Year 2000 compliance by
third parties for the supply of critical raw materials as well as certain
manufacturing steps and storage of Products produced for planned clinical trials
and eventually for commercial scale production.
The Company will utilize both internal and external resources to isolate
and as necessary, reprogram, update or replace hardware or software found to be
non Year 2000 compliant. The evaluation phase of the Company's Year 2000
compliance program began in the fourth quarter of fiscal 1998. Due to the
limited size of the Company's administrative staff, it is expected that most of
this work will be performed by outside contractors retained specifically for
this project. The Company expects to complete its internal Year 2000 project by
March 1999. The total estimated cost to the Company to complete its internal
Year 2000 project is $50,000 to $70,000, including projected hardware
replacements indicated. Funding for the evaluation and corrective phases will be
provided from general working capital.
The Company has contacted certain external third parties, including raw
material vendors and scientific equipment manufacturers considered critical to
its current and planned future operations to discuss and evaluate their own
compliance programs.
The costs and projected completion dates of the Company's Year 2000
compliance program is based on management's best estimates and is dependent in
large part upon compliance programs of external third parties or scientific
equipment and software vendors over whom the Company has no direct control.
Accordingly, the inability of the Company or critical vendors to meet Year 2000
compliance deadlines could have a material adverse impact on the Company's
operations from a product development, clinical trial or commercial
manufacturing standpoint, negatively affecting its financial condition, results
of operations and cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
20
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
SERVED AS
OFFICER AND/OR
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE CLASS
- ---- --- ---------------------------------------- -------------- -----
<S> <C> <C> <C> <C>
Gerald Smith................... 68 Chairman of the Board and 1994 C
President 1993
Robert Zeiger.................. 54 Chief Executive Officer and Director 1995 B
Dennis W. Healey............... 50 Chief Financial Officer and Treasurer 1980 B
Director, Executive Vice President 1984
And Secretary 1993
1994
Dr. Jay Sawardeker............. 60 Chief Operating Officer and 1996
Executive Vice-President -- Technical
Affairs
Charles F. Fistel.............. 37 Executive Vice President 1994
Dr. Joseph P. Morris........... 45 Vice President -- Research and Development 1995
Robert C. Rech................. 34 Senior Vice President 1997
Carl N. Singer................. 80 Director 1997 C
Peter D. Fischbein............. 58 Director 1981 B
Sidney Dworkin, Ph.D........... 77 Director 1994 A
Charles J. Simons.............. 80 Director 1998 A
Jose I. Ortega................. 26 Controller 1996
</TABLE>
On February 28, 1997, the Company amended its Certificate of Incorporation
and established a classified Board of Directors commencing with the 1997 Annual
Meeting, pursuant to which the Directors of the Company were divided into three
subclasses consisting of Class A, Class B and Class C, respectively. The term of
the Class A Directors initially will expire after the 1998 Annual Meeting of
Stockholders; the term of the Class B Directors initially shall expire after the
1999 Annual Meeting of Stockholders; and the term of the Class C Directors
initially shall expire after the 2000 Annual Meeting of Stockholders. At each
Annual Meeting of Stockholders, Directors of the respective class whose term
expired shall be elected, and the Directors chosen to succeed those whose terms
shall have expired shall be elected to hold office for a term to expire at the
third ensuring Annual Meeting of Stockholders after their election, and until
their respective successors are elected and qualified.
Gerald Smith, In May 1993, Mr. Smith became President of the Company. Since
1982, Mr. Smith was a principal stockholder, President, Chief Executive Officer
and director of Business Development Corp. ("BDC"), which has served as a
managing entity and consultant to several high technology ventures including
Compupix Technology Joint Venture. From August 1991 to December 1991, Mr. Smith
was the Chief Executive Officer of Electronic Imagery, Inc., a company engaged
in the development of imaging software. Mr. Smith is also the President, Chief
Executive Officer and a director of Cinescopic Corporation and International
Database Service, Inc., computer-oriented companies which developed database
technology using the personal computer for audio, video, animation and real time
communication.
Mr. Smith has discontinued BDC's operations in order to devote all of his
time to the Company. Mr. Smith is also Chairman of the Board and President of
Viragen (Europe) Ltd ("VEL") and its subsidiaries and Viragen U.S.A., Inc.
Robert H. Zeiger, was appointed Chief Executive Officer and Chief Operating
Officer and was elected as a Director in May 1995. Mr. Zeiger has served as a
pharmaceutical executive since 1971. From 1985 to 1994, Mr. Zeiger was employed
by Glaxo, Inc., Research Triangle Park, North Carolina, serving as Vice
President and General Manager of their Dermatological Division from 1985 to 1988
and Vice President and General Manager of Glaxo Pharmaceuticals from 1991 to
1994. Mr. Zeiger also served as Vice President, Marketing
21
<PAGE> 23
and Sales with Stiefel Laboratories, Inc., Coral Gables, Florida, from 1979 to
1985 and as National Sales Manager to Knoll Pharmaceutical Company, Whipping,
New Jersey from 1971 to 1979. Mr. Zeiger was also Chief Executive Officer and a
Director of VEL. On July 31, 1998 Mr. Zeiger resigned for health reasons his
position as Chief Executive Officer of the Company and Director of VEL,
effective September 30, 1998. He will continue to serve as Vice Chairman and
Senior Pharmaceutical Advisor to the Board and a member of the Executive
Committee of the Board of Directors.
Dennis W. Healey, is a Certified Public Accountant and was appointed
Chairman of the Board and Chief Executive Officer on April 13, 1993. In June
1994, Mr. Healey relinquished that position as Chairman of the Board to Mr.
Smith and in July 1994, relinquished the position of Chief Executive Officer
upon the employment of Mr. Fistel. Upon Gerald Smith becoming President in May
1993, Mr. Healey became Executive Vice President and has served as Chief
Financial Officer and Treasurer of the Company since 1980. Mr. Healey was
appointed Secretary in 1994. Until his resignation in July 1996, Mr. Healy
served as Senior Vice President, Principal Financial Officer and Treasurer of
Medicore, Inc. a public company engaged primarily in electronics assembly and
ownership of dialysis centers ("Medicore") and Executive Vice President of its
Techdyne affiliate. He also served as Treasurer of most of Medicore's
subsidiaries and as a Vice President of Dialysis Corporation of America ("DCA"),
a subsidiary of Medicore and Secretary, Treasurer and director of other DCA
subsidiaries. Mr. Healey joined Medicore in 1976 as its Controller. Mr. Healey
is also Executive Vice President, Treasurer, Secretary and a Director of VEL and
VUSA.
Dr. Jay Sawardeker, the Company's Chief Operating Officer, joined the
Company in 1996 as Executive Vice President, Technical Affairs. For over 25
years, Dr. Sawardeker has served in various pharmaceutical senior technical
management capacities, primarily with the Glaxo Holdings organization. Most
recently, he served as Corporate Vice President -- Worldwide Quality Assurance
for Glaxo Holdings. Prior thereto, he served as Corporate Vice
President -- Manufacturing and Vice President -- Quality Assurance of Glaxo,
Inc. Dr. Sawardeker also previously served as Director of QA for the Whitehall
Laboratories division of American Home Products and Group Manager of QA for the
Ortho Pharmaceutical division of Johnson & Johnson.
Charles F. Fistel, was appointed Chief Executive Officer of the Company
upon his employment in July 1994, which position he relinquished to Mr. Robert
H. Zeiger in May 1995, becoming an Executive Vice President of the Company. Mr.
Fistel served as a Director of the Company from June 1996 to July 1998. Mr.
Fistel, prior to joining the Company, served for two years as an independent
financial advisor to publicly-traded and privately held emerging growth
companies. Prior thereto, between 1986 to 1992, he served as Executive Vice
President, Chief Financial Officer and a director of Tiger Direct, Inc., a
Miami, Florida-based publicly-traded computer technology development, marketing
and distribution company. From 1981 to 1986, Mr. Fistel, who is a Certified
Public Accountant, actively practiced public accounting. Mr. Fistel is also
Executive Vice President and a Director of VUSA.
Dr. Joseph Morris joined the Company as Director of Research & Development
in January 1995 and was appointed Vice President in March 1996. Prior to joining
the Company Dr. Morris served as Laboratory Head of the Production Development
Group of Genetics Institute, Inc. From 1991-1993 he was Senior Scientist and
Head of Process Biochemistry at Biogen, Inc., working on process development of
Avonex(TM), Biogen's recombinant beta-interferon. He also served as Director of
Bioprocess Development for PerSeptive Biosystems, Inc. Dr. Morris has specific
expertise in the areas of biopharmaceutical protein characterization and
purification, liquid phase chromatography with cytokines, and interferon
biochemistry. He received his Ph.D. in Biochemistry and Biophysics in 1984 from
the University of Notre Dame.
Robert Rech joined Viragen as Senior Vice President in May 1997. Mr. Rech
is responsible for the Company's relationships with the healthcare/life science
investment community and its acquisition and strategic alliance activities. From
1988 to 1997, Mr. Rech served in various capacities in the Investment Banking
Department at the Sumitomo Bank, Limited New York, NY, most recently as Vice
President and Deputy Head of North American Operations. Mr. Rech provided the
bank's clients with advisory services primarily relating to mergers,
acquisitions and strategic alliances in the biotechnology area. During his last
four years at Sumitomo, Mr. Rech advised North American life science and
Japanese pharmaceutical/medical device companies with respect to cross-border
strategic alliances.
22
<PAGE> 24
Carl N. Singer was elected a Director in August 1997 and also serves as
Chairman of the Executive Committee of the Board of Directors. Mr. Singer is the
Chairman of Fundamental Management Corporation, a Florida-based institutional
investment fund. Mr. Singer has served as a Director, President and CEO of
Sealy, Inc., Scripto, Inc. and the BVD Company.
Peter D. Fischbein, is an attorney who has been practicing law for
approximately 33 years. Mr. Fischbein served as the Company's Secretary between
May and December 1994. His former law firm on occasion represented the Company,
Medicore and the Viragen Research Associates Limited Partnership which has
certain contracts with the Company. Mr. Fischbein is also a director of Medicore
(since 1984) and Techdyne (since 1985). Mr. Fischbein has been general partner
of several limited partnerships engaged in oil exploration and real estate
development.
Sidney Dworkin, Ph.D., elected a Director in August 1994, was a founder,
former President, Chief Executive Officer and Chairman of Revco, Inc. Between
1987 and the present, Dr. Dworkin has also served as Chairman of Stonegate
Trading, Inc., an importer and exporter of various health, beauty aids,
groceries and sundries. Between 1988 and the present, Dr. Dworkin has served as
Chairman of the Board of Advanced Modular Systems, which is engaged in the sale
of modular buildings. Between June 1993 and the present, Dr. Dworkin has also
served as Chairman of Comtrex Systems, Inc., which is engaged in development and
sale of programmable cash registers. Dr. Dworkin also serves on the Board of
Directors of CCA Industries, Inc., Interactive Technologies, Inc., Northern
Technologies International Corporation and Crager Industries, Inc., all of which
are publicly-traded companies.
Charles J. Simons was elected to the Board of Directors in July 1998 and
serves as Chairman of the Audit, Finance and Compensation Committee of the Board
of Directors. Mr. Simons retired in 1981 as Vice Chairman of the Board and
Executive Vice President of Eastern Airlines, Inc., where he served for more
than 41 years. Mr. Simons also served as a Director and Chairman of the
Executive Committee of the Board of Directors of American West Airlines until
his resignation in September 1986. Mr. Simons currently serves as a Director and
Vice Chairman of the Board of G.W. Plastics, Inc., a manufacturer of plastic
products, Director and Chairman of the Finance Committee of Veridian
Corporation, an aerospace subcontracting and consulting company, Director and
Chairman of the Finance Committee or Renex Corp., a provider of hemodialysis
services, Director and Chairman of the Finance Committee of DSS Corp., which
provides training and markets products for use by diabetics, and Director of
Arrow Air Corp., which is engaged in cargo transportation.
Jose I. Ortega is a Certified Public Accountant and joined the Company as
its Controller in June 1996. From 1993 until joining the Company, Mr. Ortega was
a member of the Audit Staff of Ernst & Young LLP, the Company's independent
audit firm.
There is no family relationship between any of the officers and directors.
During Fiscal 1998, the Company's Board of Directors met twice. The Company
has constituted an Executive Committee and an Audit, Finance and Compensation
Committee. The Executive Committee consists of Messrs. Singer (Chairman), Smith
and Zeiger. The Audit, Finance and Compensation Committee consists of Messrs.
Simons (Chairman), Healey, and Dworkin.
The Executive Committee is empowered to act for the full Board in intervals
between Board meetings, with the exception of certain matters which by law may
not be delegated. The Executive Committee will meet as necessary, and all
actions by the committee are to be reported at the next Board of Directors
meeting.
The Audit, Finance and Compensation Committee oversees the Company's audit
activities to protect against improper and unsound practices and to furnish
adequate protection to all assets and records. The Audit, Finance and
Compensation Committee also acts as liaison to the Company's independent
certified public accountants, and conducts such work as is necessary and
receives written reports, supplemented by such oral reports as it deems
necessary, from the audit firm. The Audit, Finance and Compensation Committee
also provides overall guidance for officer compensation programs, including
salaries and other forms of compensation, and for implementation of the
Company's budget process. Prior to fiscal 1998, the Company's Board of
23
<PAGE> 25
Directors acted as a whole as the Audit, Finance and Compensation Committee.
During fiscal 1998, the Audit, Finance and Compensation Committee met three
times with all Committee members present.
AUDIT, FINANCE AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
Currently, there are three members of the Audit, Finance and Compensation
Committee, which was reorganized in February 1998, two of whom are outside
Directors and one is an inside Director. The one inside Director is Dennis W.
Healey, an Executive Vice President, Treasurer, Chief Financial Officer, and
Secretary of the Company. Mr. Healey also serves in a similar capacity for one
or more of the Company's subsidiaries. Mr. Healey abstains from any discussions
or votes concerning his salary and other forms of compensation received from the
Company.
ITEM 11. EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth information concerning the compensation and
employment agreements of the Chief Executive Officers of the Company and four
other most highly compensated executive officers as of June 30, 1998.
<TABLE>
<CAPTION>
ALL
OTHER RESTRICTED OTHER
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS (#) PAYOUTS SATION
- ------------------ ---- -------- ------ ------------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith............. 1998 $263,000
Chairman of 1997 175,885 1,050,000
Board and President(1) 1996 154,615 $7,500 $14,000 1,600,000
Robert H. Zeiger......... 1998 111,347
CEO and 1997 65,250 5,000 50,000
Director(2) 1996 66,653 100,000
Dennis W. Healey......... 1998 240,500
Exec. V.P., Treas., 1997 163,345 350,000
CFO and Director(3) 1996 78,653 1,250 8,500 500,000
Charles F. Fistel........ 1998 150,000
Exec. V.P 1997 138,886 300,000
and Director(4) 1996 110,000 6,000 110,000
Jay Sawardeker........... 1998 148,470
Exec. V.P., and 1997 113,462 200,000
Director (5) 1996 250,000
</TABLE>
- ---------------
(1) The Company entered into a two-year employment agreement with Mr. Smith,
effective October 6, 1995 providing for an annual salary of $160,000 and
$170,000 for the first and second years, respectively. The agreement
provided for health, life insurance and similar employee benefits generally
available to other employees of the Company, use of an automobile and
related maintenance expenses and reimbursement of expenses incurred in
fulfilling his normal responsibilities to the Company. In January 1996, Mr.
Smith exercised options to purchase 750,000 shares of Common Stock through
the issuance of a note in the principal amount of $217,500 with the shares
being issued into escrow pending cash payments further providing the shares
may be released from escrow in increments of no less than $3,000. Mr. Smith
received a bonus equal to the par value ($7,500) of the shares purchased.
On June 6, 1996, the Company forgave Mr. Smith's note in lieu of bonus for
the 1996 fiscal year, following unanimous approval of the independent
members of the Board of Directors. On March 1, 1997 Mr. Smith entered into
a two-year employment agreement, superceding all previous agreements, under
terms similar to his previous employment agreement. The agreement provided
for a salary of $190,000 and $200,000 for the first and second years,
respectively, and further provided for options to purchase 1,000,000 shares
of common
24
<PAGE> 26
stock at $3.22 per share, exercisable over five years. See Item 13,
"Certain Relationships and Related Transactions."
On March 1, 1997 Viragen (Europe) Ltd. entered into a two-year employment
agreement with Mr. Smith under terms similar to his employment agreement
with the Company, providing for an annual salary of $10,000 and $20,000 for
the first and second years, respectively. This agreement was amended on
July 3, 1997, providing for an annual salary of $72,000 for the period July
1, 1997 through June 30, 1998 and $82,000 for the period from July 1, 1998
through February 28, 1999. Mr. Smith serves as the President and Chairman
of Viragen (Europe) Ltd.
(2) On May 9, 1995, the Company entered into a two-year employment agreement
expiring May 1, 1997, with Robert H. Zeiger to serve as Chief Executive
Officer and Chief Operating Officer of the Company at an annual salary of
$120,000. The agreement provided for health, life and similar employee
benefits generally made available to other employees of the Company, use of
an automobile and related maintenance expenses and reimbursement for
expenses incurred in fulfilling his normal responsibilities to the Company.
The agreement provided for the issuance of options to purchase the
aggregate of 1,000,000 shares of Common Stock of the Company at an exercise
price of $.96 per share, exercisable with respect to 500,000 shares
commencing May 8, 1996 through May 8, 2001 and exercisable for the
remaining 500,000 shares commencing May 8, 1997 through May 8, 2002. The
options are terminable prior to the lapse of their respective terms only if
Mr. Zeiger's employment should be terminated for cause, and, in that event,
the options must be exercised to the extent that they have vested within 90
days of such termination. On August 1, 1997 Mr. Zeiger entered into a one
year employment agreement under terms similar to his previous agreement
except for certain notice of termination provisions. This agreement
provided for a salary of $120,000 per year with an additional $5,000 per
month, payable monthly, for the first six months of the contract term. In
July 1998, Mr. Zeiger resigned for health reasons his position as Chief
Executive Officer of the Company and Director of VEL, effective September
30, 1998. Mr. Zeiger will continue to serve as Vice Chairman and as Senior
Pharmaceutical Advisor to the Board and a member of the Executive Committee
of the Board of Directors.
(3) The Company entered into a two-year employment agreement with Mr. Healey,
effective October 6, 1995, providing for an annual salary of $80,000 and
$85,000 for the first and second years, respectively. In July 1996, Mr.
Healey entered into an additional employment agreement with Viragen
(Europe) Ltd. This agreement provided for a salary of $85,000 per year and
expired in September 1997. In January 1996, Mr. Healey exercised options to
purchase 125,000 shares of Common Stock though the issuance of a note in
the principal amount of $36,250 with the shares being issued into escrow
pending cash payments further providing the shares may be released from
escrow in increments of no less than $3,000. Mr. Healey received a bonus
equal to the par value ($1,250) of the shares purchased. On June 6, 1996,
the Company forgave Mr. Healey's note in lieu of bonus for the 1996 fiscal
year, following unanimous approval of the independent members of the Board
of Directors. On March 1, 1997 Mr. Healey entered into two-year employment
agreement, superceding all previous agreements, under terms similar to his
previous employment agreements. The agreement as amended July 1, 1997,
provided for a salary $190,000 and $195,000 for the first and second years,
respectively, and further provided for options to purchase 300,000 shares
of common stock at $3.22 per share, exercisable over five years.
On July 30, 1996 Viragen (Europe) Ltd. entered into a two-year employment
agreement with Mr. Healey under the terms similar to his employment
agreement with the Company, providing for a salary of $14,200 for the two
month period ending September 30, 1996 and $85,000 for the year ended
September 30, 1997. On March 1, 1997 Mr. Healey entered into a two-year
employment agreement subsequently amended on July 3, 1997, to run
concurrent with Mr. Smith's and superceding all previous agreements. This
agreement provided for a salary of $31,700 for the four month period ending
June 30, 1997, $52,000 for the year ended June 30, 1998 and $38,000 for the
eight month period ending February 28, 1998. Mr. Healey serves as Executive
Vice President, Chief Financial Officer, Secretary and Director of Viragen
(Europe) Ltd.
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<PAGE> 27
(4) On July 1, 1996, the Company entered into a two-year employment agreement
with Charles Fistel to serve as Executive Vice President, providing for an
annual salary of $140,000 and $150,000 for the first and second years,
respectively. The agreement provided for health and life insurance, and
similar employee benefits generally made available to other employees of
the Company, use of an automobile and related expenses. In February 1997,
the Company issued to Mr. Fistel five-year options to purchase 250,000
shares at $2.75 per share. The Company recognized $218,750 in compensation
expenses as a result of the issuance of these options. On July 1, 1998,
upon the expiration of Mr. Fistel's 1996 agreement, the Company entered
into a two year employment agreement with Mr. Fistel under terms similar to
his previous employment, modified to increase his salary to $172,500 during
the two year term.
(5) From March 1996 to May 1996, Dr. Sawardeker served as an consultant to the
Company in scientific affairs. On May 6, 1996, Dr. Sawardeker entered into
two year employment agreement effective July 1, 1996, providing for a
salary of $100,000 for the first and second years, respectively, and the
issuance of a five year option to acquire 250,000 shares of Common Stock,
exercisable at $1.80 per share, with one third of the options vesting on
the effective date of the employment agreement and an additional one third
vesting on the first and second anniversary dates, respectively. Dr.
Sawardeker's employment agreement was subsequently amended and extended
through June 30, 1999, providing for an annual salary of $150,000 for the
period from February 10, 1997 to February 9, 1998 and $160,000 for the
period from February 10, 1998 to June 30, 1999. Dr. Sawardeker's amended
employment agreement also provided for the grant of an option to acquire
200,000 shares of Common Stock, exercisable at $1.59 per share with all
options vesting June 30, 1999.
In November 1995, VSL, a wholly-owned subsidiary of VEL issued an aggregate
of 7.144 shares of VSL common stock at $56.00 per share to individuals serving
as officers and directors of VEL and one employee of the Company. Pursuant to
the Agreement and Plan of Reorganization, these shares were exchangeable into an
aggregate of 400,000 shares of VEL. Of these options, 100,000 were granted each
to (i) Mr. Gerald Smith, (ii) Mr. Robert H. Zeiger, and (iii) Mr. Dennis W.
Healey, all serving as officers and directors of VEL, and one employee of the
Company. All options on VSL were exercised and the related shares exchanged for
VEL common stock. The Company recognized $243,000 in compensation expense in
fiscal 1996 as a result of the issuance of these shares.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended June 30,
1998 to each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARES) DATE
- ---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Gerald Smith................................ -- -- -- --
Robert H. Zeiger............................ -- -- -- --
Dennis W. Healey............................ -- -- -- --
Charles F. Fistel........................... -- -- -- --
Jay Sawardeker.............................. -- -- -- --
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise of
options to purchase shares of Common Stock during the fiscal year ended June 30,
1998 to each person named in the Summary Compensation Table and the unexercised
options held as of the end of the 1998 fiscal year.
26
<PAGE> 28
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND 1998 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE REALIZED
MARKET PRICE VALUE OF UNEXERCISED
SHARES AT EXERCISE IN THE MONEY OPTIONS AT
ACQUIRED LESS PRICE NUMBER OF UNEXERCISED FY-END (BASED ON FY-
NAME ON EXERCISE EXERCISABLE OPTIONS AT FY-END PRICE OF $1.87 END/SHARE)
---- ----------- -------------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith......... -- $ -- 2,700,000 $2,235,500 $
Robert H. Zeiger..... -- -- 1,050,000 910,000
Dennis W. Healey..... -- -- 900,000 728,500
Charles F. Fistel.... -- -- 710,000 621,700
Jay Sawardeker....... -- -- 250,000 200,000 17,500 56,000
</TABLE>
1997 AMENDED STOCK OPTION PLAN AND 1995 AMENDED STOCK OPTION PLAN
On May 15, 1995 the Board of Directors adopted, subject to approval by the
stockholders, a stock option plan subsequently amended, called the "1995 Stock
Option Plan." On September 22, 1995, the Board of Directors amended the 1995
Stock Option Plan (collectively the "95 Plan") to define certain terms and
clarify the minimum exercise price of the Non-Qualified Options, described
herein, as not less than 55% of the fair market value. The 95 Plan was submitted
to the stockholders of the Company at the Annual Meeting of Stockholders held on
December 15, 1995, and the Stockholders ratified the Plan at that time.
On January 27, 1997 the Board of Directors adopted, subject to approval by
the stockholders, a stock option plan called the "1997 Stock Option Plan" (the
"97 Plan"), containing terms and provisions similar to the 95 Plan. The 97 Plan
was submitted to the Stockholders for approval at the Annual Meeting of
Stockholders held on February 28, 1997 at which time the Plan was ratified. On
April 24, 1998 the Board of Directors adopted, subject to ratification by the
stockholders, an amendment to the 1997 Plan reserving an additional 1,000,000
shares of Common Stock for issuance under the 1997 Plan, thereby reserving an
aggregate of 4,000,000 shares of Common Stock for issuance pursuant to options
granted under the 1997 Plan. On July 31, 1998, the stockholders rectified this
amendment to the 1997 Plan.
Under both the 95 Plan and the 97 Plan (collectively the "Plans"), the
Company has reserved 8,000,000 shares (4,000,000 shares -- 95 Plan and 4,000,000
shares -- 97 Plan) of Common Stock for issuance pursuant to options granted
under the Plans ("Plan Options"). The Audit, Finance and Compensation Committee
of the Board of Directors (the "Committee") and the Board of Directors currently
administer the Plans including, without limitation, the selection of the persons
who will be granted Plan Options under the Plans, the type of Plan Options to be
granted, the number of shares subject to each Plan Options and the Plan Options
price.
Plan Options granted under the Plans may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plans also allow for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
Directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the Company's
Common Stock, no more than five years after the date of the grant.
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<PAGE> 29
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plans may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plans.
Officers, directors, key employees and consultants of the Company and its
subsidiaries are eligible to receive Non-Qualified Options under the Plans. Only
officers, directors and employees of the Company who are employed by the Company
or by any subsidiary thereof are eligible to receive Incentive Options.
Incentives Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. Under a recent amendment to
the 1997 Plan, Non-qualified Options may be transferable under limited
circumstances to facilitate estate planning if authorized by the Board of
Directors or the Committee. If an optionee's employment is terminated for any
reason, other than his death or disability or termination for cause, or if an
optionee is not an employee of the Company but is a member of the Company's
Board of Directors and his service as a director is terminated for any reason,
other then death or disability, the Plan Option granted to him shall lapse to
the extent unexercised on the earlier of the expiration date or 30 days
following the date of termination unless otherwise extended by the Board. If the
optionee dies during the term of his employment, the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date of
the Plan Option or the date one year following the date of the optionee's death.
If the optionee is permanently and totally disabled within the meaning of
Section 22(c) (3) of the Internal Revenue Code of 1986, the Plan Option granted
to him lapses to the extent unexercised on the earlier of the expiration date of
the option or one year following the date of such disability.
The Board of Directors or Committee may amend, suspend or terminate the
Plans at any time, except that no amendment shall be made which (i) changes the
minimum purchase price therefor (except in either case in the event of
adjustments due to changes in the Company's capitalization), (ii) affects
outstanding Plan Options or any exercise right thereunder, (iii) extends the
term of any Plan Option beyond ten years, or (iv) extends the termination date
of the Plans. Unless the Plans shall theretofore have been suspended or
terminated by the Board of Directors, the 95 Plan shall terminate on May 15,
2005 and the 97 Plan shall terminate on January 27, 2007. Any such termination
of either Plan shall not affect the validity of any Plan Options previously
granted thereunder.
As of September 21, 1998, 3,991,500 options have been issued under the 1995
Amended Stock Option Plan and 2,987,000 options have been issued under the 1997
Stock Option Plan.
28
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned at September 21, 1998, (i) by each person who is
known by the Company to own beneficially or exercise voting or dispositive
control over 5% or more of the Company's Common Stock, (ii) by each of the
Company's directors, and (iii) by all officers and directors as a group. A
person is deemed to be a beneficial owner of any securities of which the person
has the right to acquire beneficial ownership within 60 days. At September 21,
1998, there were 54,425,121 shares of Common Stock of the Company outstanding.
<TABLE>
<CAPTION>
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
- ------------------------------------ ------------- ----------
<S> <C> <C>
Gerald Smith................................................ 3,000,000(3) 5.3%
Robert H. Zeiger............................................ 1,050,000(4) 1.9%
Carl N. Singer.............................................. 1,664,541(5) 3.1%
Dennis W. Healey............................................ 1,025,000(6) 1.9%
Peter D. Fischbein.......................................... 450,000(7) 0.8%
Sidney Dworkin, Ph.D........................................ 375,244(8) 0.7%
Charles J. Simons........................................... 35,000 0.1%
Officers & Directors as a Group (12 persons)................ 9,580,240 15.7%
</TABLE>
- ---------------
(1) Based upon information furnished to the Company by the principal security
holders or obtained from the stock transfer books of the Company. Other than
indicated in the notes, the Company has been informed that such persons have
sole voting and dispositive power with respect to their shares.
(2) Based on 54,425,121 shares of Common Stock outstanding as of September 21,
1998. Exclusive of (i) 11,289 shares of Common Stock reserved for issuance
pursuant to conversion of 2,650 outstanding shares of Preferred Stock each
convertible into 4.26 shares of Common Stock; and (ii) 12,429,674 shares of
Common Stock reserved for issuance pursuant to exercise of options and
warrants of the Company.
(3) Mr. Smith is Chairman of the Board of Directors and President of the
Company. Includes (i) 550,000 shares owned directly by Mr. Smith; (ii)
1,400,000 options exercisable at $.50 per share granted pursuant to Mr.
Smith's October 6, 1995 Employment Agreement; (iii) 1,000,000 options
exercisable at $3.22 per share granted pursuant to Mr. Smith's March 1, 1997
Employment Agreement and (iv) 50,000 options exercisable at $3.22 granted to
all Directors in February 1997.
(4) Mr. Zeiger is Chief Executive Officer and a Director of the Company.
Includes (i) 1,000,000 Common Stock purchase options exercisable at $.96 per
share pursuant to Mr. Zeiger's May 9 1995 Employment Agreement and (ii)
50,000 options exercisable at $3.22 granted to all Directors in February
1997.
(5) Mr. Singer is a director of the Company. Includes (i) 23,500 shares owned
directly by Mr. Singer (ii)1,591,041 shares held by Fundamental Management
Corporation, an institutional investment fund for which Mr. Singer serves as
Chairman and (iii) 50,000 options exercisable at $1.19 granted on January 7,
1998.
(6) Mr. Healey is Executive Vice President, Treasurer, Chief Financial Officer,
Secretary and a Director of the Company. Includes (i) 375,000 shares held in
Mr. Healey's name; (ii) 300,000 options exercisable at $.50 per share
granted pursuant to Mr. Healey's October 6, 1995 Employment Agreement; (iii)
300,000 options exercisable at $3.22 per share granted pursuant to Mr.
Healey's March 1, 1997 Employment Agreement and (iv) 50,000 options
exercisable at $3.22 granted to all Directors in February 1997.
(7) Mr. Fischbein is a Director of the Company. Includes (i) 125,000 shares held
in Mr. Fischbein's name; (ii) 50,000 options exercisable at $1.00 per share
granted to all Directors in August 1994; (iii) 225,000 options exercisable
at $.50 per share granted in October 1995; (iv) and 50,000 options
exercisable at $3.22 granted to all Directors in February 1997.
(8) Mr. Dworkin is a Director of the Company. Includes (i) 175,244 shares owned
directly by Mr. Dworkin and his wife; (ii) 50,000 options exercisable at
$1.00 per share granted to all Directors in August 1994; (iii) 100,000
options exercisable at $.50 per share granted in October 1995; and (iv)
50,000 options exercisable at $3.22 granted to all Directors in February
1997.
29
<PAGE> 31
(9) Mr. Simons was elected a Director of the Company in July 1998. Includes (i)
10,000 shares owned directly by Mr. Simons and (ii) 25,000 options
exercisable at $1.88 granted on July 31, 1998.
On April 27, 1998, Viragen U.S.A. Inc., entered into a two year Employment
Agreement with Mr. Melvin Rothberg to serve as its Chief Executive Officer. The
Employment Agreement provided for an annual salary of $150,000 and options to
purchase 125,000 shares of VUSA Common Stock, exercisable at $.22 per share,
vesting 50,000 shares and 75,000 shares on the first and second anniversaries,
respectively. The Stock Option Agreement further provided that if VUSA did not
complete an Initial Public Offering of its stock within two years of the
effective date of the Employment Agreement, the Company and Mr. Rothberg will
negotiate an exchange of his VUSA options into options of the Company or a
publicly traded subsidiary with equal value to Mr. Rothberg's VUSA options.
During fiscal 1998, the Company issued 449,500 options to purchase Common
Stock to a consultant and employees of the Company exercisable at prices varying
from $ 1.00 to $2.50 per share during the five-year term of the option.
In February 1997, the Board of Directors awarded options to purchase
1,750,000 shares of Common Stock to officers and directors of the Company
exercisable over five years at an exercise price of $3.22 per share. The options
were granted to the following individuals: Gerald Smith (1,050,000), Robert H.
Zeiger (50,000), Dennis W. Healey (350,000), Charles F. Fistel (50,000), Peter
D. Fischbein (50,000), Sidney Dworkin (50,000), and former Directors; Jay Haft
(50,000), William B. Saeger (50,000) and Fred D. Hirt (50,000). In addition,
between August 1996 and June 1997, the Company awarded options to purchase up to
459,500 shares of Common Stock to other employees of the Company (inclusive of
250,000 of Charles F. Fistel), which options are exercisable at prices ranging
from $1.97 to $3.69 per share during the five year term of the options.
On October 6, 1995, the Board of Directors awarded options to purchase
2,935,000 shares of Common Stock to the officers and directors of the Company
exercisable of $0.50 per share at any time on or prior to October 6, 2000. The
options were granted to the following individuals: Gerald Smith (1,600,000),
Robert H. Zeiger (100,000), Dennis W. Healey (500,000), Charles F. Fistel
(110,000), Peter D. Fischbein (225,000), Sidney Dworkin (100,000), and former
Directors; Jay M. Haft (100,000) and William B. Saeger (100,000). In addition,
between October 1995 and June 1996, the Company awarded options to purchase up
to 500,500 shares of Common Stock to other employees of the Company, which
options are exercisable at prices ranging from $0.50 to $5.90 per share during
the five-year term of the options.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent (10%) stockholders are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent (10%) beneficial owners were completed and timely filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 8, 1995, the Company consummated an Agreement and Plan of
Reorganization with Sector Associates, Ltd. (the former name for Viragen
(Europe), Ltd.) ("VEL") pursuant to which VEL acquired 100% of the outstanding
capital stock of Viragen (Scotland) Ltd. in exchange for which Viragen received
newly issued shares of convertible securities of VEL which represented
approximately 94% of the then issued and outstanding capital of VEL. Prior
thereto, on July 12, 1995, Viragen Technology, Inc., a wholly-owned subsidiary
of the Company, entered into a License Agreement with VSL pursuant to which
30
<PAGE> 32
VSL obtained certain exclusive rights applicable to the EU countries and
none-exclusive rights throughout the world (except within the United States and
its territories) to engage in the manufacture and distribution of certain
proprietary products and technologies relating to the therapeutic application of
human leukocyte interferon. The term of the license is for 15 years, which is
automatically renewed for successive 15-year periods. At the present time, the
Company maintains at 70.3% capital stock interest in VEL, which in turn owns all
of the capital stock of VSL.
Messrs. Gerald Smith, Robert H. Zeiger and Dennis W. Healey, who are
principal executive officers with the Company, also serve as the principal
executive officers of VEL. Messrs. Smith, Healey and Fistel also serve as
principal executive officers of the Company's majority-owned subsidiary Viragen
U.S.A., Inc. Commencing in July 1996, following his resignation from Medicore
and subsidiaries, Mr. Healey who is serving as VEL's Executive Vice President,
Treasurer and Secretary, began receiving an annual salary of $85,000 per year
from VEL. On March 1, 1997, Messrs. Smith and Healey entered into two year
employment agreements, subsequently amended, with VEL until terms similar to
their employment agreements with the Company. The Agreements provide for annual
salaries of $72,000 and $52,000, respectively. In November 1995, VSL issued
options to purchase 100,000 share of each of its Common Stock to Messrs. Smith,
Zeiger and Healey, which following the consummation of the Sector reorganization
agreements, were converted into options to purchase and aggregate of 300,000
shares of Common Stock of VEL exercised at $.001 per share. All of such options
were exercised on January 31, 1996.
On April 25, 1997, the Company loaned William Saeger, a former Director
$100,000, receiving a one year Promissory Note bearing interest at 8 1/2%. In
April 1998, Mr. Saeger defaulted on the Note. Due to a subsequent deterioration
in Mr. Saeger's health and financial condition, the Company was unable to
ascertain the amounts, if any, which could ultimately be realized on the
Promissory Note. Accordingly, the entire amount due under the Note with related
accrued interest of approximately $10,000 was written-off as uncollectable at
year end. The Company intends to pursue collection efforts relative to this
transaction.
On September 1, 1998, Messrs. Smith and Healey each exercised 250,000
options to purchase Common Stock of the Company. The options were exercised
through the issuance of Promissory Notes payable to the Company totaling
$300,000, and related Pledge and Escrow Agreements. The Promissory Notes bear
interest at the greater of (i) 3.5% or (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986), payable
semi-annually and are secured by the underlying Common Stock purchased, which
shares are being held in escrow pending payment of the related Notes pursuant to
the provisions of the Pledge and Escrow Agreements.
31
<PAGE> 33
PART IV
ITEM 14. EXHIBIT AND REPORTS ON FORM 8-K
(a) THE FOLLOWING IS A LIST OF DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT.
1. All financial statements See Index to Consolidated Financial
Statements
2. Exhibits
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(i) Plan of Merger between Florida Immunological Institute, Inc.
and Vira-Tech, Inc., dated September 30, 1986 (incorporated by
reference to the Company's registration statement on Form S-2,
dated October 24, 1986, as amended File No. 33-9714 ("1986 Form
S-2"), Part II, Item 16, 2.1)
(ii) Articles of Merger of Florida Immunological Institute into
Vira-Tech, Inc., dated September 30, 1986 (incorporated by
reference to 1986 Form S-2, Part II, Item 16, 2.2)
(3)
(i) Articles of Incorporation and By-Laws (incorporated by
reference to the Company's (ii) Amended Certificate of
Incorporation (incorporated by reference to 1986 Form S-2, Part
II, Item 16, 4.2)
(4) Instruments defining the rights of security holders, including indentures
(i) Certificate of Designation for Series A Preferred Stock, as
amended (incorporated by reference to 1986 Form S-2, Part II, Item
16, 4.4)
(ii) Specimen Certificate for Unit (Series A Preferred Stock and
Class A Warrant) (incorporated by reference to 1986 Form S-2, Part
II, Item 15, 4.5)
(iii) Omitted
(iv) Omitted
(v) Omitted
(vi) Omitted
(vii) Omitted
(viii) Form of three years 8.5% Convertible Subordinated Debenture
(incorporated by reference to the Company's Current Report on Form
8-K dated November 17, 1993)
(ix) Form of Stock Option Agreement dated November 19, 1993, issued
to Messrs. Dennis W. Healey and Peter D. Fischbein (incorporated
by reference to the Company's Current Report on Form 8-K dated
November 17, 1993)
(x) 1995 Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 filed June 9, 1995)
(xi) Certificate of Designation of Series B Preferred Stock
(incorporated by reference to the Company's Current Report on Form
8-K dated June 7, 1996)
(10) Material contracts
(i) Research Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983
(incorporated by reference to Medicore's S-1, File No. 2-89390,
dated February 10, 1984 ("Medicore's S-1"), Part II, Item 16(a)
(10) (xxxiii))
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<PAGE> 34
(ii) License Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983
(incorporated by reference to Medicore's S-1, Part II, Item 16 (a)
(10) (xxxiv))
(iii) Omitted
(iv) Royalty Agreement between the Company and Medicore, Inc. dated
November 7, 1986 (incorporated by reference to the November 1986
Form 8-K, Item 7(c) (i))
(v) Amendment to Royalty Agreement between the Company and Medicore,
Inc. dated November 21, 1989 (incorporated by reference to the
Company's Current Report on Form 8-K dated December 6, 1989, Item
7(c) (i))
(vi) Promissory Note from the Company to Medicore, Inc. dated August
6, 1991 (incorporated by reference to the Company's 1991 Form
10-K, Part
IV, Item 10(a) (10) (xx))
(vii) Loan Agreement between the Company and Medicore, Inc. dated
January 31, 1991 (incorporated by reference to the Company's
Current Report of Form 8-K dated February 26, 1991, Item 79c)
(ii))
(viii) Amendment to Loan Agreement between the Company and Medicore,
Inc. dated August 6, 1991 (incorporated by reference to the
Company's 1991 Form 10-K, Part IV, Item 14(a) (10) (xxi))
(ix) Florida Real Estate Mortgage and Security Agreement from the
Company to Medicore, Inc. dated August 6, 1991 (incorporated by
reference to the Company's 1991 Form 10-K, Part IV, Item 14(a)
(10) (xxii))
(x) Omitted
(xi) Omitted
(xii) Promissory Note to Equitable Bank dated August 2, 1991
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the second quarter ended June 30, 1991 ("June, 1991
Form 10-Q"), Part II, Item 6(a) (28) (i))
(xiii) Mortgage and Security Agreement issued to the Equitable Bank
dated August 2, 1991 (incorporated by reference to the Company's
June, 1991 Form 10-Q, Part II, Item 6(a) (28) (ii))
(xiv) Acquisition Agreement between the Company and Medicore, Inc.
dated August 2, 1991 (incorporated by reference to the Company's
1991 Form 10-K, Part II, Item 14(a) (10) (xxiii))
(xv) Lease between the Company and Medicore, Inc. dated December 8,
1992 (incorporated by reference to the Company's Current Report on
Form 8-K, dated January 21, 1993 ("January 1993 Form 8-K"), Item
7(c) (10) (i))
(xvi) Addendum to Lease between the Company and Medicore, Inc. dated
January 15, 1993 (incorporated by reference to the Company's
January 1993 Form 8-K, Item 7(c) (10) (ii))
(xvii) Agreement for Sale of Stock between the Company and Cytoferon
Corp. dated February 5, 1993 (incorporated by reference to the
Company's Current Report on Form 8-K dated February 11, 1993 Item
7(c) (28))
(xviii) Addendum to Agreement for Sale of Stock between the Company and
Cytoferon Corp. dated May 4, 1993 (incorporated by reference to
the Company's Current Report on Form 8-K dated May 5, 1993, Item
7(c) (28) (i))
33
<PAGE> 35
(xix) Amendment No. 2 to the Royalty Agreement between the Company and
Medicore, Inc. dated May 11, 1993 (incorporated by reference to
the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a) (10)
(xix))
(xx) Note and Mortgage Modification Agreement between the Company and
Medicore, Inc. dated August 18, 1993 (incorporated by reference to
the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a) (10)
(xx))
(xxi) Amendment No. 2 to the Loan Agreement between the Company and
Medicore, Inc. dated August 18, 1993 (incorporated by reference to
the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a) (10)
(xxi))
(xxii) Amendment to Acquisition Agreement between the Company and
Medicore, Inc. dated August 18, 1993 (incorporated by reference to
the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a) (10)
(xxii))
(xxiii) Marketing and Management Services Agreement between the Company
and Cytoferon Corp. dated August 18, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item
14(a) (10) (xxiii))
(xxiv) Agreement for Sale of Stock between Cytoferon and the Company
dated November 19, 1993 (incorporated by reference to the
Company's June 30, 1994 Form 10-K, Part IV, Item 14(a) (10)
(xxiv))
(xxv) Employment Agreement between Gerald Smith and the Company dated
November 19, 1993 (incorporated by reference to the Company's June
30, 1994 Form 10-K, Part IV, Item 14(a) (10) (xxv)) as amended by
modified Employment Agreement dated December 15, 1994
(incorporated by reference to the Company's 1995 Form SB-2, Part
II, Item 27(10) (xxv))
(xxvi) Common Stock Purchase Warrant Agreement between Northlea
Partners Ltd. and the Company dated January 6, 1994 (incorporated
by reference to the Company's June 30, 1994 Form 10-K, Part IV,
Item 14(a) (10) (xxvi))
(xxvii) Management Consulting Agreement between the Company, Medvest,
Inc. and Dr. John Abeles dated January 6, 1994 (incorporated by
reference to the Company's Current Report on Form 8-K, dated
November 17, 1993)
(xxviii) Employment Agreement between Dennis W. Healey and the Company
dated April 8, 1994 (incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part IV, Item 14(a) (10) (xxvii) as
amended by Modified Employment Agreement dated December 15, 1994
(incorporated by reference to the Company's 1995 SB-2, Part II,
Item 27 (10) (xxvii))
(xxix) Promissory Note between the Company and Gerald Smith dated April
18, 1994 (incorporated by reference to the Company's June 30, 1994
Form 10-K, Part IV, Item 14(a) (10) (xxviii))
(xxx) Employment Agreement between Charles F. Fistel and the Company
dated July 1, 1994 (incorporated by reference to the Company's
June 30, 1994 Form 10-K, Part V, Item 14(a) (10) (xxix)) as
amended by Modified Employment Agreement dated December 15, 1994
(incorporated by reference to the Company's 1995 Form SB-2, Part
II, Item 27 (10) (xxix))
(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant
issued to Laidlaw Equities, Inc. and designees (incorporated by
reference to the Company's 1995 Form SB-2, Part II, Item 27 (10)
(xxxi))
34
<PAGE> 36
(xxxii) Amendment No. 1 to Agreement for Sale of Stock with Cytoferon
(incorporated by reference to the Company's 1995 Form SB-2, Part
II, Item 27 (10) (xxxii))
(xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter D.
Fischbein (incorporated by reference to the Company's 1995 Form
SB-2, Part II, Item 27 (10) (xxxiii))
(xxxiv) Agreement with Moty Hermon (incorporated by reference to the
Company's 1995 Form SB-2, Part II, Item 27 (10) (xxxiv))
(xxxv) Agreement with University of Nebraska-Medical Center
(incorporated by reference to the Company's 1995 Form SB-2, Part
II, Item 27 (10) (xxxv))
(xxxvi) License and Manufacturing Agreement with Common Services Agency
(incorporated by reference to the Company's 1995 Form SB-2, Part
II, Item 27 (10) (xxxvi))
(xxxvii) Agreed Motion for Consent Final Order and Settlement Agreement
dated August 29, 1995 (incorporated by reference to the Company's
June 30, 1995 Form 10-KSB)
(xxxviii) Agreement and Plan of Reorganization dated November 8, 1995 and
Amendment thereto (incorporated by reference to the Company's
Post-Effective Amendment No. 1 to Registration Statement on Form
SB-2)
(xxxix) Securities Purchase Agreement dated June 7, 1996 (incorporated
by references to the Company's current report on Form 8-K dated
June 7, 1996).
(xl) Employment Agreement between Charles F. Fistel and the Company
dated July 1, 1996 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996)
(xli) Stock Option Agreement between the Company and Fred D. Hirt
dated August 2, 1996 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996)
(xlii) Form of Private Securities Subscription Agreement dated
November 27, 1996 and related Registration Rights Agreement and
Common Stock Purchase Warrant (incorporated by reference to the
Company's Current Report on Form 8-K dated February 14, 1997)
(xliii) Private Securities Subscription Agreement dated February 3,1
997 and related Regulation Rights Agreement, Common Stock Purchase
Warrant and related agreements (incorporated by reference to the
Company's Current Report on Form 8-K dated February 14, 1997)
(xliv) Securities Purchase Agreement dated as of December 31, 1996 and
related Registration Rights Agreement (incorporated by reference
to the Company's Current Report on Form 8-K dated March 6, 1997)
(xlv) Employment Agreement between Gerald Smith and the Company dated
March 1, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)
(xlvi) Employment Agreement between Dennis W. Healey and the Company
dated March 1, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997)
(xlvii) Employment Agreement between Robert C. Rech and the Company
dated May 19, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997)
(xlviii) 11 month 10% Promissory Note dated July 1, 1997 (incorporated
by reference to the Company's Current Report on Form 8-K dated
August 28, 1997)
(xlix) Employment Agreement between Robert H. Zeiger and the Company
dated August 1, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997)
35
<PAGE> 37
(l) Certificate of Designations, Preferences and Rights of the
Series F Convertible Preferred Shares (incorporated by reference
to the Company's Current Report on Form 8-K dated August 28, 1997)
(li) Certificate of Designations, Preferences and Rights of 10%
Cumulative Convertible Preferred Stock, Series G (incorporated by
reference to the Company's Current Report on Form 8-K dated August
28, 1997)
(lii) Series F Convertible Preferred Stock Exchange Agreement, dated
July 23, 1997 (incorporated by reference to the Company's Current
Report on Form 8-K dated August 28, 1997)
(liii) Series G Convertible Preferred Stock Exchange Agreement, dated
August 27, 1997 (incorporated by reference to the Company's
Current Report on Form 8-K dated August 28, 1997)
(liv) 10% Promissory Note to Clearwater Fund IV, Ltd. (incorporated
by reference to the Company's current Report on Form 8-K dated
September 22, 1997, Item 7 (c)1)
(lv) Omitted.
(lvi) Series H Convertible Preferred Stock, Form of Subscription
Agreement dated February 17, 1998 and related Registration
Agreement and Common Stock Purchase Warrants (incorporated by
reference to the Company's Registration Statement on Form S-3
dated April 17, 1998)
(lvii) Series I Convertible Preferred Stock, Form of Subscription
Agreement dated April 2, 1998 and related Registration Rights
Agreement and Common Stock Purchase Warrants (incorporated by
reference to the Company's Registration Statement on Form S-3
dated April 17, 1998)
(lviii) Cooperation and Supply Agreement between the Company, Viragen
Deutschland GmbH and German Red Cross dated March 19, 1998
(Certain portions of this exhibit have been redacted pursuant to a
Confidentiality Request submitted to the Securities and Exchange
Commission)
(lix) Buffycoat Supply Agreement between America's Blood Centers and
the Company dated July 15, 1998 (Certain portions of this exhibit
have been redacted pursuant to a Confidentiality Request submitted
to the Securities and Exchange Commission)
(lx) Agreement between the Company and the American Red Cross dated
August 18, 1998.
(lxi) Strategic Alliance Agreement between the Company and
Inflammatics, Inc. and Inflammatics Inc. Series A Convertible
Preferred Stock Purchase Agreement
(lxii) Common Stock Private Equity Line Subscription Agreement,
Registration Rights Agreement, Private Placement Agreement,
Placement Agent Warrant and Investor Warrant dated September 22,
1998
(11) Statement re computation of loss per share
(21) Subsidiaries of the registrant
(23) Consent of Independent Certified Public Accountants.
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K filed during the fourth quarter
None
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIRAGEN, INC.
By: /s/ DENNIS W. HEALEY
--------------------------------------
Dennis W. Healey
Executive Vice President, Treasurer
Principal Financial Officer
Dated: September 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ GERALD SMITH Chairman of the Board of Directors, September 23, 1998
- --------------------------------------------- Principal Executive Officer and
Gerald Smith President
/s/ ROBERT H. ZEIGER Chief Executive Officer and September 23, 1998
- --------------------------------------------- Director
Robert H. Zeiger
/s/ CARL N. SINGER Director and Chairman of the September 23, 1998
- --------------------------------------------- Executive Committee
Carl N. Singer
/s/ DENNIS W. HEALEY Executive Vice President, September 23, 1998
- --------------------------------------------- Treasurer, Principal Financial
Dennis W. Healey Officer and Director
/s/ CHARLES J. SIMONS Director and Chairman of the Audit, September 23, 1998
- --------------------------------------------- Finance and Compensation Committee
Charles J. Simons
/s/ CHARLES F. FISTEL Executive Vice President September 23, 1998
- ---------------------------------------------
Charles F. Fistel
/s/ PETER D. FISCHBEIN Director September 23, 1998
- ---------------------------------------------
Peter D. Fischbein
/s/ SIDNEY DWORKIN Director September 23, 1998
- ---------------------------------------------
Sidney Dworkin
/s/ JOSE I. ORTEGA Controller and Principal Accounting September 23, 1998
- --------------------------------------------- Officer
Jose I. Ortega
</TABLE>
37
<PAGE> 39
FORM 10-K -- ITEM 8
VIRAGEN, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and
subsidiaries are included:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated balance sheets -- June 30, 1998 and 1997....... F-3
Consolidated statements of operations -- Years ended June
30, 1998, 1997 and 1996................................... F-5
Consolidated statements of stockholders' equity -- Years
ended June 30, 1998, 1997 and 1996........................ F-6
Consolidated statements of cash flows -- Years ended June
30, 1998, 1997 and 1996................................... F-11
Notes to consolidated financial statements.................. F-14
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Viragen, Inc.
We have audited the accompanying consolidated balance sheets of Viragen,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viragen, Inc. and subsidiaries at June 30, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Miami, Florida
September 18, 1998
F-2
<PAGE> 41
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,708,317 $12,873,301
Marketable securities, available-for-sale................. 6,105,076 18,541,616
Prepaid expenses.......................................... 206,995 237,569
Due from employees........................................ 60,597 53,980
Other current assets...................................... 470,353 674,992
----------- -----------
Total Current Assets.................................... 9,551,338 32,381,458
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements........................... 3,538,926 3,011,044
Equipment and furniture................................... 5,311,327 3,909,182
Construction in progress.................................. 48,655 370,364
----------- -----------
8,898,908 7,290,590
Less accumulated depreciation............................. (2,744,827) (2,252,392)
----------- -----------
6,154,081 5,038,198
DEPOSITS AND OTHER ASSETS................................... 189,806 41,887
----------- -----------
$15,895,225 $37,461,543
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 42
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 829,661 $ 1,431,211
Accrued expenses and other liabilities.................... 708,005 1,573,464
Current portion of long-term debt......................... 171,277 45,703
----------- -----------
Total Current Liabilities............................... 1,708,943 3,050,378
ROYALTIES PAYABLE........................................... 107,866 107,866
DEFERRED INCOME............................................. 200,000 --
LONG-TERM DEBT, less current portion........................ 280,094 238,895
MINORITY INTEREST........................................... 525,936 1,920,100
Series H cumulative convertible preferred stock, $1.00 par
value. Authorized 500 shares; issued and outstanding 500
shares at June 30, 1998................................... 5,146,851 --
Series I cumulative convertible preferred stock, $1.00 par
value. Authorized 200 shares; issued and outstanding 200
shares at June 30, 1998................................... 2,039,014 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative preferred stock, $1.00
par value. Authorized 375,000 shares; issued and
outstanding 2,650 shares. Liquidation preference value:
$10 per share, aggregating $26,500........................ 2,650 2,650
Convertible 5% Series B cumulative preferred stock, $1.00
par value. Authorized 15,000 shares; issued and
outstanding 7,445 at June 30, 1997........................ -- 7,445
Convertible Series C preferred stock, $1.00 par value.
Authorized 5,000 shares; issued and outstanding 974 shares
at June 30, 1997.......................................... -- 974
Convertible 6% Series D cumulative preferred stock, $1.00
par value. Authorized 15,000 shares; issued and
outstanding 10,200 shares at June 30, 1997................ -- 10,200
Convertible 5% Series E cumulative preferred stock, $1.00
par value. Authorized, issued and outstanding 5,000 shares
at June 30, 1997.......................................... -- 5,000
Common stock, $.01 par value. Authorized 75,000,000 shares;
issued 53,416,912 and 46,260,360 shares at June 30, 1998
and 1997, respectively, of which 606,277 shares and
386,777 shares are held as treasury stock at June 30, 1998
and 1997, respectively.................................... 534,168 462,601
Capital in excess of par value.............................. 45,686,143 59,995,768
Treasury stock.............................................. (996,541) (699,150)
Retained deficit............................................ (39,624,889) (27,802,624)
Foreign currency translation adjustment..................... 287,081 273,469
Note due from director...................................... -- (101,417)
Unrealized loss on marketable securities,
available-for-sale........................................ (2,091) (10,612)
----------- -----------
Total Stockholders' Equity.............................. 5,886,521 32,144,304
----------- -----------
$15,895,225 $37,461,543
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 43
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
INCOME
Revenues......................................... $ -- $ -- $ 229,967
Research subsidy................................. -- -- 330,000
Interest and other income........................ 1,143,112 1,403,610 179,069
------------ ------------ -----------
1,143,112 1,403,610 739,036
COST AND EXPENSES
Cost of goods sold............................... -- -- 178,368
Research and development costs................... 3,866,267 2,168,914 1,503,434
Selling, general and administrative expenses..... 5,429,344 3,958,668 3,549,464
Depreciation and amortization.................... 506,934 281,920 200,209
Interest expense................................. 590,867 30,713 92,576
------------ ------------ -----------
10,393,412 6,440,215 5,524,051
------------ ------------ -----------
Loss before minority interest...................... (9,250,300) (5,036,605) (4,785,015)
Minority interest in loss of consolidated
subsidiaries..................................... 1,394,164 261,360 112,744
------------ ------------ -----------
NET LOSS......................................... (7,856,136) (4,775,245) (4,672,271)
Deduct required dividends on convertible preferred
stock, Series A.................................. 2,823 20,760 2,650
Deduct required dividends on convertible preferred
stock, Series B.................................. -- 4,441,676 894,976
Deduct required dividends on convertible preferred
stock, Series C.................................. -- 844,960 --
Deduct required dividends on convertible preferred
stock, Series D.................................. 169,221 3,619,407 --
Deduct required dividends on convertible preferred
stock, Series E.................................. 127,918 971,936 --
Deduct required dividends on convertible preferred
stock, Series F.................................. 524,416 -- --
Deduct required dividends on convertible preferred
stock, Series G.................................. 708,139 -- --
Deduct required dividends on convertible preferred
stock, Series H.................................. 733,681 -- --
Deduct required dividends on convertible preferred
stock, Series I.................................. 232,154 -- --
------------ ------------ -----------
LOSS ATTRIBUTABLE TO COMMON STOCK.................. $(10,354,488) $(14,673,984) $(5,569,897)
============ ============ ===========
LOSS PER COMMON SHARE, after deduction for required
dividends on convertible preferred stock......... $ (0.21) $ (0.37) $ (0.15)
============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......... 50,502,503 39,134,631 36,198,302
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 44
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995.................. $3,450 $ -- $ -- $ -- $ -- $ -- $353,555
Issuance of common stock to consultants
(59,600 shares)......................... 596
Exercise of warrants by consultants
(772,028 shares)........................ 7,719
Compensation expense on directors,
officers, and employees options.........
Exercise of warrants from private
placement (358,912 shares).............. 3,589
Exercise of warrants by directors (50,000
shares)................................. 500
Exercise of warrants by management,
officers and employees (1,293,500
shares)................................. 12,935
Compensation expense on consultants'
options.................................
Proceeds from subsidiary offering........
Proceeds from initial investment in
Sector Associates Ltd...................
Issuance of Viragen (Europe) Ltd. stock
to directors and affiliate of
subsidiary..............................
Officers' notes forgiven on stock
purchase................................
Conversion of Series A preferred stock... (800) 65
Sale of Series B preferred stock, net of
issuance costs of $940,935.............. 15,000
Foreign currency translation
adjustment..............................
Net loss.................................
------ ------- ------ ------- ------ ------ --------
Balance at June 30, 1996................. $2,650 $15,000 $ -- $ -- $ -- $ -- $378,959
<CAPTION>
FOREIGN NOTES DUE
CAPITAL IN COMMON CURRENCY FROM
EXCESS OF STOCK TREASURY RETAINED TRANSLATION OFFICERS/
PAR VALUE SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
----------- ---------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995.................. $18,406,086 $ 45,296 $ -- $(17,110,601) $ -- $ --
Issuance of common stock to consultants
(59,600 shares)......................... 44,700 (45,296)
Exercise of warrants by consultants
(772,028 shares)........................ 451,945
Compensation expense on directors,
officers, and employees options......... 183,144
Exercise of warrants from private
placement (358,912 shares).............. 183,212
Exercise of warrants by directors (50,000
shares)................................. 14,500
Exercise of warrants by management,
officers and employees (1,293,500
shares)................................. 445,437 (290,000)
Compensation expense on consultants'
options................................. 316,300
Proceeds from subsidiary offering........ 3,511,061
Proceeds from initial investment in
Sector Associates Ltd................... 774,206
Issuance of Viragen (Europe) Ltd. stock
to directors and affiliate of
subsidiary.............................. 243,000
Officers' notes forgiven on stock
purchase................................ 290,000
Conversion of Series A preferred stock... 735
Sale of Series B preferred stock, net of
issuance costs of $940,935.............. 14,044,065
Foreign currency translation
adjustment.............................. 43,057
Net loss................................. (4,672,271)
----------- -------- ------ ------------ ------- ---------
Balance at June 30, 1996................. $38,618,391 $ -- $ -- $(21,782,872) $43,057 $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 45
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996................. $2,650 $15,000 $ -- $ -- $ -- $ -- $378,959
Exercise of options by employees......... 1,990
Exercise of warrants..................... 3,193
Exercise of Viragen (Europe) Ltd.
warrants................................
Exercise of Viragen U.S.A., Inc.
options.................................
Additional issuance costs for Series B
convertible preferred stock.............
Sale of Series C convertible preferred
stock, net of issuance costs............ 5,000
Sale of Series D convertible preferred
stock, net of issuance costs............ 15,000
Sale of Series E convertible preferred
stock, net of issuance costs............ 5,000
Conversion of Series D convertible
preferred stock......................... (3,800) 24,425
Dividends on preferred stock, paid in
common stock............................ 235
Forgiveness of officer note..............
Loan to director.........................
Interest income on director loan.........
------ ------- ------ ------- ------ ------ --------
Subtotal................................. $2,650 $15,000 $5,000 $11,200 $5,000 $ -- $408,802
<CAPTION>
FOREIGN NOTES DUE
CAPITAL IN COMMON CURRENCY FROM
EXCESS OF STOCK TREASURY RETAINED TRANSLATION OFFICERS/
PAR VALUE SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
----------- ---------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996................. $38,618,391 $ -- $ -- $(21,782,872) $43,057 $ --
Exercise of options by employees......... 85,470 (12,500)
Exercise of warrants..................... 293,184
Exercise of Viragen (Europe) Ltd.
warrants................................ 697,464
Exercise of Viragen U.S.A., Inc.
options................................. (4,128)
Additional issuance costs for Series B
convertible preferred stock............. (24,996)
Sale of Series C convertible preferred
stock, net of issuance costs............ 4,735,923
Sale of Series D convertible preferred
stock, net of issuance costs............ 14,035,349
Sale of Series E convertible preferred
stock, net of issuance costs............ 4,676,744
Conversion of Series D convertible
preferred stock......................... (20,625)
Dividends on preferred stock, paid in
common stock............................ 35,039 (37,086)
Forgiveness of officer note.............. 12,500
Loan to director......................... (100,000)
Interest income on director loan......... (1,417)
----------- ------ ------ ------------ ------- ---------
Subtotal................................. $63,127,815 $ -- $ -- $(21,819,958) $43,057 $(101,417)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 46
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Forward......................... $2,650 $15,000 $ 5,000 $11,200 $5,000 $ -- $408,802
Cash dividends on preferred stock.......
Conversion of Series B convertible
preferred stock........................ (7,555) 42,163
Conversion of Series C convertible
preferred stock........................ (4,026) 11,636
Purchase of treasury stock..............
Issuance of treasury stock for
settlement of litigation...............
Exercise of cash-out option on
conversion of Series D convertible
preferred stock........................ (1,000)
Compensation expense on options granted
to officers............................
Compensation expense on options granted
to employee............................
Foreign currency translation
adjustment.............................
Net loss................................
------ ------- ------- ------- ------ ------- --------
Balance at June 30, 1997................ $2,650 $ 7,445 $ 974 $10,200 $5,000 $ -- $462,601
<CAPTION>
FOREIGN NOTES DUE
CAPITAL IN COMMON CURRENCY FROM
EXCESS OF STOCK TREASURY RETAINED TRANSLATION OFFICERS/
PAR VALUE SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
----------- ---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Forward......................... $63,127,815 $ -- $ -- $(21,819,958) $ 43,057 $(101,417)
Cash dividends on preferred stock....... (1,095,257)
Conversion of Series B convertible
preferred stock........................ (34,608)
Conversion of Series C convertible
preferred stock........................ (2,548,739)
Purchase of treasury stock.............. (987,395)
Issuance of treasury stock for
settlement of litigation............... 288,245
Exercise of cash-out option on
conversion of Series D convertible
preferred stock........................ (999,000) (112,164)
Compensation expense on options granted
to officers............................ 287,550
Compensation expense on options granted
to employee............................ 162,750
Foreign currency translation
adjustment............................. 230,412
Net loss................................ (4,775,245)
----------- ---------- --------- ------------ -------- ---------
Balance at June 30, 1997................ $59,995,768 $ -- $(699,150) $(27,802,624) $273,469 $(101,417)
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 47
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK,
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997................................ $2,650 $ 7,445 $ 974 $10,200 $ 5,000 $ --
Exercise of options and warrants........................
Compensation expense on stock options and warrants
granted................................................
Cost of issuance of Series H convertible preferred
stock, net.............................................
Cost of issuance of Series I convertible preferred
stock, net.............................................
Exchange of Series B preferred stock for a promissory
note................................................... (7,445)
Exchange of Series D preferred stock for Series F
preferred stock........................................ (7,950) 7,950
Exchange of Series E preferred stock for Series G
redeemable preferred stock............................. (4,000)
Purchase of treasury stock..............................
Exercise of cash-out option on conversion of Series F
preferred stock........................................ (2,450)
Conversion of Series C preferred stock.................. (974)
Conversion of Series D preferred stock.................. (2,250)
Conversion of Series E preferred stock.................. (1,000)
Conversion of Series F preferred stock.................. (5,500)
Conversion of Series G redeemable preferred stock.......
------ ------- ------ ------- ------- -------
Sub-Total............................................... $2,650 $ -- $ -- $ -- $ -- $ --
<CAPTION>
CAPITAL IN COMMON
COMMON EXCESS OF STOCK TREASURY RETAINED
STOCK PAR VALUE SUBSCRIBED STOCK DEFICIT
-------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997................................ $462,601 $59,995,768 $ -- $(699,150) $(27,802,624)
Exercise of options and warrants........................ 2,305 115,583
Compensation expense on stock options and warrants
granted................................................ 57,530
Cost of issuance of Series H convertible preferred
stock, net............................................. (374,520)
Cost of issuance of Series I convertible preferred
stock, net............................................. (159,689)
Exchange of Series B preferred stock for a promissory
note................................................... (7,437,555) (2,247,748)
Exchange of Series D preferred stock for Series F
preferred stock........................................
Exchange of Series E preferred stock for Series G
redeemable preferred stock............................. (3,996,000)
Purchase of treasury stock.............................. (297,391)
Exercise of cash-out option on conversion of Series F
preferred stock........................................ (2,447,550) (294,000)
Conversion of Series C preferred stock.................. 2,814 (554,881)
Conversion of Series D preferred stock.................. 13,903 (11,653)
Conversion of Series E preferred stock.................. 5,060 (4,060)
Conversion of Series F preferred stock.................. 43,377 (37,877)
Conversion of Series G redeemable preferred stock....... 3,511 454,489
-------- ----------- ------ --------- ------------
Sub-Total............................................... $533,571 $45,599,585 $ -- $(996,541) $(30,344,372)
<CAPTION>
FOREIGN NOTES DUE
CURRENCY FROM
TRANSLATION OFFICERS/
ADJUSTMENT DIRECTORS
----------- ---------
<S> <C> <C>
Balance at June 30, 1997................................ $273,469 $(101,417)
Exercise of options and warrants........................
Compensation expense on stock options and warrants
granted................................................
Cost of issuance of Series H convertible preferred
stock, net.............................................
Cost of issuance of Series I convertible preferred
stock, net.............................................
Exchange of Series B preferred stock for a promissory
note...................................................
Exchange of Series D preferred stock for Series F
preferred stock........................................
Exchange of Series E preferred stock for Series G
redeemable preferred stock.............................
Purchase of treasury stock..............................
Exercise of cash-out option on conversion of Series F
preferred stock........................................
Conversion of Series C preferred stock..................
Conversion of Series D preferred stock..................
Conversion of Series E preferred stock..................
Conversion of Series F preferred stock..................
Conversion of Series G redeemable preferred stock.......
-------- ---------
Sub-Total............................................... $273,469 $(101,417)
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 48
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Forward...................... $2,650 $ -- $ -- $ -- $ -- $ -- $533,571
Cash dividends on preferred stock....
Dividends on preferred stock, paid in
common stock........................ 597
Accretion of Series H and Series I
preferred stock.....................
Redemption of Series G redeemable
preferred stock.....................
Interest income on director loan.....
Bad debt expense on director's
loan................................
Foreign currency translation
adjustment..........................
Net loss.............................
------ ------- ------ ------- ------- ------- --------
Balance at June 30, 1998............. $2,650 $ -- $ -- $ -- $ -- $ -- $534,168
====== ======= ====== ======= ======= ======= ========
<CAPTION>
FOREIGN NOTES DUE
CAPITAL IN COMMON CURRENCY FROM
EXCESS OF STOCK TREASURY RETAINED TRANSLATION OFFICERS/
PAR VALUE SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
----------- ---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Forward...................... $45,599,585 $ -- $(996,541) $(30,344,372) $273,469 $(101,417)
Cash dividends on preferred stock.... (521,725)
Dividends on preferred stock, paid in
common stock........................ 86,558 (91,732)
Accretion of Series H and Series I
preferred stock..................... (185,865)
Redemption of Series G redeemable
preferred stock..................... (625,059)
Interest income on director loan..... (8,500)
Bad debt expense on director's
loan................................ 109,917
Foreign currency translation
adjustment.......................... 13,612
Net loss............................. (7,856,136)
----------- ------ --------- ------------ -------- ---------
Balance at June 30, 1998............. $45,686,143 $ -- $(996,541) $(39,624,889) $287,081 $ --
=========== ====== ========= ============ ======== =========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 49
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Loss.......................................... $(7,856,136) $(4,775,245) $(4,672,271)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................... 506,934 281,920 200,209
Issuance of treasury stock for expenses......... -- 288,245 --
Consulting fees paid in stock warrants.......... -- -- 316,300
Compensation expense on stock options........... 57,530 450,300 183,144
Officers and directors notes forgiven on stock
purchases.................................... -- 12,500 294,652
Minority interest in loss of subsidiary......... (1,394,164) (261,360) (112,744)
Loss due to write-down of land, building and
improvements................................. -- -- 316,267
Issuance of Viragen (Europe) Ltd. stock to
Directors and affiliate of subsidiary........ -- -- 243,000
Bad debt expense on Director Note............... 109,917 -- --
Accrued interest income on Director Note........ (8,500) (1,417) --
Increase (decrease) relating to operating
activities from:
Inventory....................................... -- -- 211,200
Prepaid expenses................................ 73,097 (149,804) 16,760
Other current assets............................ 198,022 (501,277) 120,805
Deposit and other assets........................ 19,705 (26,932) 1,345
Accounts payable................................ (601,550) 1,121,172 57,155
Accrued expenses and other liabilities.......... 133,663 49,053 104,150
Deferred income................................. 200,000 -- --
----------- ----------- -----------
Net cash used in operating activities........... (8,561,482) (3,512,845) (2,720,028)
INVESTING ACTIVITIES
Sale of marketable securities,
available-for-sale........................... 27,347,892 8,915,872 --
Purchase of marketable securities,
available-for-sale........................... (14,897,903) (27,468,100) --
Additions to property, plant and equipment,
net.......................................... (1,622,817) (4,482,166) (163,316)
----------- ----------- -----------
Net cash provided by (used in) investing
activities................................... 10,827,172 (23,034,394) (163,316)
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 50
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Payments on long-term debt...................... (43,374) (682,176) (277,477)
Proceeds from long-term debt.................... -- 166,000 --
Proceeds from sale of preferred stock Series B,
C, D and E, net.............................. -- 23,448,020 14,059,065
Proceeds from sale of preferred stock Series H
and I, net................................... 6,465,791 -- --
Proceeds from exercise of options and
warrants..................................... 117,888 371,337 732,496
Preferred dividends paid to preferred stock
Series A, B, D,E, F and G.................... (664,702) (914,764) --
Payments on promissory note..................... (9,720,241) -- --
Refund of capital investment to preferred stock
Series C investors........................... (1,391,198) (1,702,971) --
Exercise of cash-out option on conversion of
preferred stock Series D..................... -- (1,111,556) --
Exercise of cash-out option on conversion of
preferred stock Series F..................... (2,744,000) -- --
Redemption of redeemable preferred stock Series
G............................................ (4,167,059) -- --
Purchase of treasury stock...................... (297,391) (987,395) --
Loan to Director................................ -- (100,000) --
Proceeds from exercise of subsidiaries' options
and warrants................................. -- 1,254,574 --
Cash acquired through reverse acquisition of
Sector Associates, Ltd....................... -- -- 768,823
Proceeds from subsidiary's sale of common stock,
net.......................................... -- -- 5,101,752
----------- ----------- -----------
Net cash (used in) provided by financing
activities................................... (12,444,286) 19,741,069 20,384,659
Effect of exchange rate fluctuations on cash...... 13,612 230,412 43,057
----------- ----------- -----------
(Decrease) increase in cash....................... (10,164,984) (6,575,758) 17,544,372
Cash and cash equivalents at beginning of
period.......................................... 12,873,301 19,449,059 1,904,687
----------- ----------- -----------
Cash and cash equivalents at end of period........ $ 2,708,317 $12,873,301 $19,449,059
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................... $ 580,271 $ 31,172 $ 91,194
Income taxes paid................................. -- 13,840 --
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 51
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
During the years ended June 30, 1998, 1997 and 1996, the Company had the
following non-cash investing and financing activities:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Preferred dividends paid in common stock................ $ 91,732 $ 35,274 $ --
Conversion of preferred stock into common shares........ 467,724 78,224 --
Conversion of preferred stock Series B principal and
accrued dividends to a short-term note payable........ 9,720,241 -- --
Modification of preferred stock Series D terms into
preferred stock Series F.............................. 7,950 -- --
Modification of preferred stock Series E terms into
redeemable preferred stock Series G................... 4,000,000 -- --
Accretion of Series H and Series I preferred stock...... 185,865 -- --
Purchase of Directors & Officers insurance with notes
payable............................................... 210,147 -- --
Issuance of treasury stock for settlement of
litigation............................................ -- 288,245 --
Issuance of notes for purchase of common stock.......... -- -- 290,000
Equipment acquired through capital leases............... -- -- 158,930
Issuance of Viragen (Europe) Ltd. stock to directors and
affiliate............................................. -- -- 243,000
Other receivables acquired through reverse acquisition
of Sector Associates, Ltd............................. -- -- 195,000
Liabilities assumed through reverse acquisition of
Sector Associates, Ltd................................ -- -- 47,341
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 52
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen, Inc. and its subsidiaries are
engaged in the research, development and manufacture of certain immunological
products for commercial application. The consolidated financial statements
include the accounts of Viragen, Inc. and its wholly-owned subsidiaries, Vira-
Tech, Inc., Viragen Reagents, Inc. and Viragen Technology, Inc., and its
majority-owned subsidiaries Viragen U.S.A., Inc. ("VUSA") and Viragen (Europe)
Ltd. ("VEL"), including its wholly-owned subsidiaries, Viragen (Scotland) Ltd.
("VSL") and Viragen (Germany) GmbH ("VGG"), collectively known as the Company.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Property, Plant and Equipment: Property, plant and equipment is stated at
the lower of cost or net realizable value. Depreciation was computed by using
the straight-line method over the estimated useful life for financial reporting
purposes and using accelerated methods for income tax purposes.
FAS 121 -- Accounting for the Impairment of Long-Lived Assets, requires
impairment losses to be recorded on long-lived assets when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less then the assets' carrying amount. The Company believes
no impairment indicators exist at June 30, 1998.
Sale of Stock By Subsidiaries: The Company accounts for sales of stock by
its subsidiaries as capital transactions for financial reporting purposes.
Loss Per Common Share: Loss per common share has been computed based on the
weighted average number of shares outstanding during each period. The effect of
warrants and stock options (common stock equivalents) are antidilutive. Diluted
loss per share data, which includes the assumed conversion of the convertible
preferred stock, has not been presented because it is not dilutive. Loss
attributable to common stock reflects adjustments for cumulative preferred
dividends, as well as, embedded dividends arising from discounted conversion
terms on the Company's Convertible Preferred Stocks and related Warrants.
Effective during the quarter ended December 31, 1997, the Company adopted
FAS 128 -- Earnings per Common Share. All periods presented reflect the adoption
of FAS 128.
Financial Instruments: The carrying amount of financial instruments
including cash and cash equivalents, marketable securities, and accounts payable
approximate fair value as of June 30, 1998. The Company's long-term unsecured
note with the Scottish Regional Development Authority approximates fair value as
it had been recently negotiated at June 30, 1997.
Marketable securities, available-for-sale: The Company has invested in debt
securities, rated A or better, issued by the U.S. Treasury, other U.S.
government agencies and corporations. These investments are classified as
current assets, in accordance with ARB No. 43, at their fair market value based
upon published quotations. Amortized cost of the Company's investment in
marketable securities, available-for-sale totaled $6,108,503 and $18,559,013 at
June 30, 1998 and 1997, respectively. Realized gains and losses are computed
based on the cost of securities sold using the specific identification method.
Reclassification: Certain reclassifications have been made to June 30, 1997
and 1996 financial statement amounts to conform to the presentation for the June
30, 1998 financial statements.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-14
<PAGE> 53
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
Deferred Income: The Company has deferred the recognition of income from an
option fee until the period in which it is earned.
Income Taxes: Deferred income taxes at the end of each period are
determined by applying enacted tax rates applicable to future periods in which
the taxes are expected to be paid or recovered to differences between financial
accounting and tax basis of assets and liabilities.
Foreign Currency Translation: The financial statements of VSL have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. All balance sheet accounts have been translated
using the current exchange rates at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the reporting
period. The translation adjustments resulting from the change in exchange rates
from year to year have been reported separately as a component of stockholders'
equity. Foreign currency transaction gains and losses, which are not material,
are included in results of operations. These gains and losses result from
exchange rate changes between the time transactions are recorded and settled
and, for unsettled transactions, exchange rate changes between the time
transactions are recorded and the balance sheet date.
Stock Based Compensation: The Company accounts for stock-based compensation
plans under the provisions of APB 25-Accounting for Stock Issued to Employees
and, accordingly, recognizes no compensation expense for stock option grants
where the exercise price equals or exceeds fair market value at date of grant.
The Company provided supplemental disclosures as required by the provisions of
FAS 123 -- Accounting for Stock-Based Compensation.
Recent Pronouncements: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) which establishes standards for reporting
and displaying comprehensive income. SFAS No. 130 will be adopted by the Company
in the first quarter of fiscal 1999.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements July 1, 1998.
Management believes that the impact of SFAS No. 130 and SFAS No. 131 will
not be significant to the Company.
NOTE B -- REDEEMABLE PREFERRED STOCK
SERIES G CONVERTIBLE PREFERRED STOCK
In September 1997, the Company concluded an Exchange Agreement whereby
4,000 of the outstanding shares of Series E Preferred Stock were exchanged for a
like number of Series G Preferred Shares. The terms of the Series G Preferred
Stock provided that commencing in September 1997, the holder was limited to
converting 667 preferred shares ($667,000) per month over a 6 month period. The
provisions further provided that the Company was required to redeem 667 shares
($667,000) per month less the number of Series G Preferred Stock shares
converted during the preceeding calendar month. In addition, the holder was
restricted from converting into common stock if the market price of the
Company's common stock was less than $2.50, subject to adjustment, at the date
of the conversion notice. In consideration for the restrictions on conversion,
the Company agreed to increase the dividend rate from 5% for the Series E
Preferred Stock to 10% for the Series G Preferred Stock.
F-15
<PAGE> 54
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
The monthly redemption amount of the Series G Preferred Stock was
calculated by dividing the number of shares to be redeemed by the preferential
conversion rate of 85%. As a result, the maximum aggregate redemption could have
totaled $4,705,882, if all 4,000 shares of Series G Preferred Stock were
redeemed by the holder. This cash redemption amount would have been reduced to
account for conversions of the preferred shares during the redemption period.
All shares of Series G Preferred Stock were redeemed for cash or converted into
Common Stock by February 28, 1998.
SERIES H AND I CONVERTIBLE PREFERRED STOCK
During the third and fourth fiscal quarters of 1998, the Company closed $7
million of financing replacing a portion of the funds used to redeem previous
preferred stock issuances. In February 1998, the Company received net proceeds
of approximately $4,625,000 from the sale of 500 shares of its Series H
Convertible Preferred Stock (the "Series H Preferred Stock") with an aggregate
stated value of $5 million. In April 1998, the Company received net proceeds of
approximately $1,840,000 from the sale of 200 shares of its Series I Convertible
Preferred Stock (the "Series I Preferred Stock"). The Company incorporated
certain restrictions as part of the Series H and Series I Preferred Stock
designations which the Company believes will facilitate a more orderly market
relative to the underlying shares of its Common Stock. The Series H and Series I
Preferred Stock bear no dividends although, upon liquidation or conversion, an
8% accretion factor will be included in the calculation for purposes of
determining the liquidation and conversion amount.
Neither the Series H Preferred Stock nor the Series I Preferred Stock
issuances were convertible until August 19, 1998, the six month anniversary of
the Series H closing. The conversion price is the lower of (i) the fixed
conversion price, which was equal to the lower of the average closing price per
share for the 5 days prior to closing ($2.15 per share) or the market price of
the Common Stock six months following the closing date ($1.59 per share), and
(ii) the variable conversion price which will be equal to 82% of the market
price at the date of conversion. The Company retained the right to redeem both
issuances of Preferred Stock at various prices upon receipt of a notice of
conversion.
In addition, the right of conversion is further limited to a maximum of 15%
of the aggregate principal amount of the Series H and Series I Preferred Stock
issued to each holder for each one month period cumulatively to a maximum of not
in excess of 25% for such month in the event the holder has converted less than
15% in any of the preceding months.
The Series H Preferred Stock and Series I Preferred Stock have certain
events of default which include bankruptcy or the failure of the Company to (i)
remain qualified for trading; (ii) convert preferred shares to common stock; and
(iii) maintain an effective registration statement. Upon the occurrence of an
event of default, the holders of the Series H Preferred Stock and Series I
Preferred Stock have the right to redeem all or any portion of the then
outstanding amount. The amount outstanding is calculated as the greater of 1.3
times the value of the Preferred Stock for which demand is being made plus the
accreted but unpaid amounts (calculated at 8%) earned on the preferred stock
plus liquidated damages and other cash payments then due or the product of the
highest price at which the Company's Common Stock is traded on the date of an
event of default divided by the conversion price as of that date and the amount
being redeemed. Since the 8% accretion is due upon mandatory redemption, the
Company has increased the carrying amount of the Series H Preferred Stock and
Series I Preferred Stock by this amount.
Pursuant to the terms of the Subscription Agreements, the holders of the
Series H Preferred Stock and Series I Preferred Stock also received Nine Month
Warrants, Twelve Month Warrants and Fifteen Month Warrants to purchase shares of
Common Stock of the Company.
The Nine Month Warrants are exercisable from November 19, 1998 to February
19, 2003 and entitle the holders to purchase Common Stock at an exercise price
calculated by averaging the 2 lowest closing bid
F-16
<PAGE> 55
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
prices during the 20 trading days of the Common Stock prior to November 19,
1998. The number of Shares the Nine Month Warrants may be converted into will be
calculated at 10% of the quotient obtained by dividing the stated amount of
preferred stock purchased by the exercising holder less any preferred stock of
that series transferred or converted by the holder by the Nine Month Market
Price.
The Twelve Month Warrants and the Fifteen Month Warrants are identical in
all respects to the Nine Month Warrants with the exception of the calculation of
exercise prices, and the Twelve Months Warrants and the Fifteen Months Warrants
may not be exercisable prior to February 19, 1999 and May 19, 1999,
respectively. The Twelve Month Warrants entitle the holders to purchase Common
Stock at an exercise price calculated by averaging the 2 lowest closing bid
prices during the 20 trading days of the Common Stock prior to February 19,
1999. The number of shares the Twelve Month Warrants may be converted into will
be calculated at 15% of the quotient obtained by dividing the stated amount of
preferred stock purchase by the exercising holder less any preferred stock of
that series transferred or converted by the Holder by the Twelve Month Market
Price. The Fifteen Month Warrants entitle the holders to purchase Common Stock
at an exercise price calculated by averaging the 2 lowest closing bid prices
during the twenty (20) trading days of the Common Stock prior to May 19, 1999.
The number of shares the Fifteen Month Warrants may be converted into will be
calculated as 20% of the quotient obtained by dividing the principal amount of
preferred stock purchased by the exercising holder less any preferred stock of
that series transferred or converted by the holder by the Fifteen Month Market
Price.
Pursuant to the Series H and Series I Placement Agent Agreements between
the Company and the Placement Agent, the Placement Agent received a commission
of $490,000 for the placement of the Series H Preferred Stock and H Warrants and
Series I Preferred Stock and I Warrants. In addition, the Placement Agent
received the Placement Agent Warrants to purchase an aggregate of 402,052 shares
of Common Stock of the Company, which were subsequently transferred to
affiliates and employees of the Placement Agent. The Placement Agent Warrants
entitle the holders thereof to exercise the Placement Agent Warrants at an
exercise price of $1.684 per share ("Initial Exercise Price") at any time
between the date of their respective issuances and February 19, 2003; provided
that if the date of exercise occurs after February 19, 1999, the exercise price
of the Placement Agent Warrants will be the lesser of the Initial Exercise Price
or the lowest reset price as calculated on each one year anniversary of the Date
of Issuance during the Warrant Term.
NOTE C -- CAPITAL STOCK
PREFERRED STOCK
The Series A Preferred Stock provides for a 10% cumulative dividend,
payable at the option of the Company, in either cash or common stock and is
convertible into 4.26 shares of common stock. The holders of the Series A
Preferred Stock are not entitled to vote unless dividends are in arrears for
five annual dividend periods. The Company has the right to call the preferred
stock for redemption, in whole or in part, if the closing bid for common stock
is $6.00 per share or higher for a period of ten consecutive business days
("Redemption Trigger Date"). The preferred stock is redeemable at $11.00 per
share for a period of five years from the Redemption Trigger Date, and
thereafter at $10.00 per share.
In fiscal 1996, 800 shares of Series A Preferred Stock, including dividends
in arrears, were converted into 6,500 shares of Common Stock.
On June 7, 1996, the Company entered into a Securities Purchase Agreement
(the "Agreement") with GFL Performance Ltd., GFL Advantage Fund Ltd. and Proton
Global Asset Management, LDC (collectively the "Purchaser") pursuant to which
the Purchaser acquired 15,000 shares of the Company's 5% Cumulative Convertible
Preferred Stock, Series B (the "Series B Preferred Stock") for $15 million.
F-17
<PAGE> 56
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
In connection with the sale and issuance of the Series B Preferred Stock,
the Company issued warrants to purchase 225,000 shares of Common Stock of the
Company at $10.59 per share for a period of 3 years from date of issuance along
with approximately $900,000 in cash fees to certain finders and an investor
representative who participated in the transaction plus certain additional
expenses. These costs were netted against the proceeds of the sale.
The Series B Preferred Stock provided for a cash dividend equal to 5% of
the stated value of the Series B Preferred Stock, payable quarterly commencing
September 7, 1996, although the Company had the option to utilize shares of its
Common Stock, under certain conditions, to satisfy the dividend requirement. The
Purchaser had the right to convert the Series B Preferred Stock commencing
August 21, 1996 into shares of Common Stock of the Company at a conversion price
equal to the lesser of 85% of the average market price (reduced by an additional
2% per month commencing the 90th day following the closing date, until the
related Registration Statement was declared effective by the SEC) for the
Company's Common Stock, as described in the Agreement, prior to the conversion
date or $8.74. The final conversion rate was set at 76.8% of the average market
price. In July 1997, the unconverted Series B Preferred Stock was exchanged for
a Promissory Note in the amount of $9,720,241. The Note provided for interest at
10% per annum with principal and interest payable over nine monthly installments
commencing in October 1997. The Note could be prepaid without penalty and was
not convertible into common stock of the Company. The principal value of the
Note was comprised of the following components: 1) face value of Series B
preferred stock outstanding at July 1, 1997; 2) preferred dividends earned
through the date of the Note; and 3) an amount reflecting the preferential
conversion terms. The Note was paid-in-full in April 1998.
In December 1996, the Company issued 5,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Stock") in consideration
for $4,740,923 (net of issuance costs totaling $259,077). The purchases were
made by Strome Hedgecap Limited, Strome Offshore Limited, Strome Partners, L.P.
and Strome Susskind Hedgecap, L.P. (collectively the "Series C Purchasers"),
pursuant to separate Securities Purchase Agreements. In addition, warrants to
purchase an aggregate of 214,593 shares of Common Stock, exercisable at $2.00
per share on or prior to December 9, 1999, were issued to the Series C
Purchasers.
The terms of the Series C Preferred Stock provided that up to 25% of the
Series C Preferred Stock could be converted into Common Stock of the Company on
or after 10 days from the date the registration statement registering the
underlying shares is deemed effective by the Securities and Exchange Commission.
Thereafter 25% could be converted on or after the 30th, 60th and 90th day on a
cumulative basis. The Preferred Stock was convertible into a number of Common
Shares determined by dividing the stated value of the Preferred Stock ($1,000
per share) by the closing price of the Company's Common Stock over the five day
period preceding notice of conversion ("conversion price"). The conversion price
could not be less than $3.46 nor more than $7.00. In the event the conversion
price fell below $3.46, the difference between $3.46 and the conversion price
would be paid to the holder in cash. Any shares of Series C Preferred Stock
which were outstanding on December 5, 1997 would be automatically converted into
shares of Common Stock based on the conversion price at that time in accordance
with the above procedures.
In July 1997, the holders of the Series C Preferred Stock agreed to modify
their conversion price and limit conversions of their remaining 974 shares
($1,000 face value per share) over a two month period. The modified conversion
price was the lower of (i) $2.20 per share or (ii) the average closing price of
the Company's Common Stock over the five day period ending the day prior to the
notice of conversion. The terms addressing conversions below $3.46 contained in
the original agreement were not modified. As a result, the Company was committed
to refund a minimum of $354,694 to the Series C Purchasers, upon conversion of
the remaining Series C Preferred Stock. The refund amount would increase if
conversions occurred below $2.20. All shares of Series C Preferred Stock were
converted into Common Stock by December 31, 1997. During fiscal 1998, the
Company paid $1,391,198 in capital refunds to the Series C Purchasers. Of the
total
F-18
<PAGE> 57
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
refunds, $553,041 were related to conversions, occurring under the modified
terms, during fiscal 1998. The balance of $838,157 related to conversions, under
the original terms, during the end of fiscal 1997.
In February 1997, the Company issued 15,000 shares of its 6% Series D
Convertible Preferred Stock (the "Series D Preferred Stock") to P.R.I.F., L.P.
in consideration for $14,050,349 (net of issuance costs totaling $949,651). The
Series D Preferred Stock was convertible into a number of shares of Common Stock
of the Company determined by dividing the five day trading average price of the
Company's Common Stock prior to conversion, discounted by 18%, into the stated
value of the Preferred Shares being converted. In connection with the issuance
of the Series D Preferred Stock, the Company also issued 375,000 Common Stock
Purchase warrants, exercisable at $6.00 per share.
In September 1997, the Company concluded an Exchange agreement whereby the
Series D Preferred Stock were exchanged for Series F Preferred Shares. The
Series F Preferred Stock provided for a limitation on the holder limiting
conversion during any two week period to 800 preferred shares ($800,000). The
terms also provided the Company with a cash-out option at the face amount being
converted plus 12%. In consideration for the holder of the Series D Preferred
Stock agreeing to a limitation on future conversions, the Company agreed to
increase the dividend rate from 6% for the Series D Preferred Stock to 10% for
the Series F Preferred Stock. All shares of Series F Preferred Stock were
redeemed for cash or converted into Common Stock by March 31, 1998. During
fiscal 1998, the Company paid $2,744,000 to the Series F holder upon exercise of
the cash-out option on conversions.
In February 1997, the Company also issued 5,000 shares of its 5% Series E
Convertible Preferred Stock (the "Series E Preferred Stock") in consideration
for $4,681,744 (net of issuance costs totaling $318,256). Dividends on the
Series E Preferred accrued from the date of issuance and were payable quarterly
commencing April 1, 1997 and were payable in cash or, at the Company's option
and subject to certain other conditions, in shares of Common Stock of the
Company.
The Series E Preferred Stock was convertible into shares of Common Stock of
the Company commencing May 11, 1997 at a conversion price of the lesser of (i)
the Average Market Price for the five trading days prior to the Notice of
Conversion multiplied by 85%, subject to adjustment, or (ii) $7.00, subject to
adjustment.
COMMON STOCK
Shares of the Company's common stock reserved at June 30, 1998 for possible
future issuance are as follows:
<TABLE>
<S> <C>
Convertible preferred stock, series A....................... 11,289
Convertible preferred stock, series H....................... 5,194,805
Convertible preferred stock, series I....................... 2,077,922
Warrants -- consultants (exercisable through June 2003)..... 359,000
Employee option plans (exercisable through June 2005)....... 763,000
Officers and directors options (exercisable through June
2004)..................................................... 7,450,000
Warrants -- private placements (exercisable through February
2003)..................................................... 3,845,174
----------
19,701,190
==========
</TABLE>
As further discussed in Note O -- Subsequent Events, the Company has closed
an Equity Line Agreement to provide additional funding through the issuance of
common stock. As a result of this transaction, the Company intends to seek
Stockholder approval to increase the number of authorized shares. The Company
intends to reserve 15,000,000 shares of Common Stock for possible future
issuance related to the Equity Line Agreement and related warrants.
F-19
<PAGE> 58
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
OPTIONS AND WARRANTS
On May 15, 1995, as amended in September 1995, the Company adopted its 1995
Stock Option plan under which 4,000,000 shares of Common Stock were reserved for
issuance to officers, directors, employees and consultants of the Company for
stock options designated as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code. Options granted under the plan have
various vest dates and all options granted have five-year terms from the vesting
date.
In September 1995, the Board of Directors granted 2,935,000 non-statutory
options to directors, officers and key employees of the Company under the
provisions of the 1995 Stock Option Plan. The options granted have an exercise
price of a $.50 per share and are exercisable for a period of five years. The
Company recognized compensation expense of $183,144 in fiscal 1996 as a result
of these grants.
During September 1995, 75,000 warrants issued to a financial consultant
having an exercise price of $.30 per share and 6,250 warrants issued in
connection with the Company's August 1994 Private Placement offering with an
exercise price of $.52 per share were exercised into common stock of the
Company. In December 1995, a Director of the Company exercised 50,000 options
with an exercise price of $.30 per share.
In March 1996, the Company issued 636,000 Common Stock Purchase Warrants,
300,000 of which were associated with the Company's Florida HIV Study with the
balance issued for financial consulting services. The Company recognized expense
during fiscal 1996 resulting from this issuance of $316,300.
During the third quarter of fiscal 1996, officers and directors exercised
1,000,000 options granted in June 1994, at $.30 per share through the issuance
of promissory notes totaling $290,000 secured by the related stock which was
held in escrow pending payment of the related promissory notes. The notes and
related interest due were forgiven by the Company during the fourth quarter of
fiscal 1996.
In June 1996, a new Director was elected into the Board of Directors. The
Director was granted 25,000 common stock options upon election to the Board. The
options are exercisable at $3.96 per share for a period of five years.
The Company's 1997 Incentive Stock Option Plan (the "1997 Plan"), adopted
February 1997, authorized the grant of options to management personnel,
directors and employees for up to 3,000,000 shares of the Company's common
stock. In April 1998, the 1997 Plan was amended increasing the number of common
shares authorized to 4,000,000 shares. Options granted under the plan have
various vest dates and all options granted have 5 year terms from the vesting
date.
During fiscal 1997, the Company granted a total of 2,941,500 options to
purchase common stock of the Company. Of these, 1,750,000 were granted to the
directors of the Company. The options vested immediately and are exercisable for
a period of five years. The exercise price on these options is $3.22, which was
market price at the date of grant.
During fiscal 1997, the Company also granted options to an officer and an
employee, with exercise prices below market price. The total options granted
were for 400,000 shares. The Company recognized an expense of $381,500 related
to the granting of these options.
The Company issued 518,229 shares of common stock upon the conversion and
exercise of stock options and warrants during fiscal 1997. Proceeds from these
issuances totaled $371,337.
During fiscal year 1997, the Company issued 120,000 options that were not
part of the above Plans to an employee. The options vested immediately and have
a 5 year term from that date.
For the year ended 1997 the Company recognized $3,710 in compensation
expense on warrants granted to consultants.
F-20
<PAGE> 59
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
In January 1998, the Company granted 50,000 options to a Director. The
options vested immediately and are exercisable at $1.19 per share, which was the
market price at the date of grant, for a period of five years.
During fiscal 1998, the Company granted a total of 367,500 options to
employees. The options vest over various dates and are exercisable for five
years from the vesting dates. The exercise prices of these options, which
represent the market price at the date of grant, range from $1.50 to $2.50 per
share.
The Company also issued 32,000 warrants during fiscal 1998 to a consultant
as compensation for services provided. The warrants are exercisable at $1.00 per
share for a period of five years. The Company recognized $57,530 in compensation
expense on warrants issued to consultants.
At June 30, 1998, 8,500 shares and 1,013,000 shares remain available under
the 1995 Stock Option Plan and the 1997 Stock Option Plan, respectively.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("Statement 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, the Company recognized
compensation expense in the amount of $-0-, $381,500 and $499,444 in 1998, 1997
and 1996, respectively, because the exercise price of a portion of the Company's
employee stock options and warrants was less than the market price of the
underlying stock on the date of grant. During 1998, the Company recognized
$57,530 in compensation expense on options and warrants granted to consultants
pursuant to FAS 123.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options and warrants under the fair value
method of that Statement. The fair value for these options and warrants was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: dividend yield of zero percent for
all periods; expected life of the option of 3 years; risk-free interest rates
within a range of 5.60% to 6.00%; and a volatility factor of the expected market
price of the Company's common stock of .75, .64 and .60 for 1998, 1997 and 1996,
respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and warrants have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value
F-21
<PAGE> 60
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options and warrants.
For purposes of pro forma disclosures, the estimated fair value of the
options and warrants is amortized to expense over the option's or warrant's
vesting period. The effect of applying Statement 123 for providing pro forma
disclosure are not indicative of future amounts until the new rules are applied
to all nonvested awards. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Pro forma net loss.............................. $ (8,897,455) $ (8,267,089) $(7,420,592)
Pro forma net loss attributable to common
stock......................................... (11,395,807) (18,165,828) (8,318,218)
Pro forma loss per share........................ (.23) (.46) (.23)
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended June 30, follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................. 5,135,000 $0.74
Options granted with exercise prices equal to market...... 2,559,500 3.02
Options granted with exercise prices less than market..... 400,000 2.07
Exercised................................................. (199,000) 0.50
Canceled.................................................. -- --
----------
Outstanding at June 30, 1997................................ 7,895,500 $1.59
Granted................................................... 417,500 2.08
Exercised................................................. (100,000) 0.50
Canceled.................................................. -- --
----------
Outstanding at June 30, 1998................................ 8,213,000 $1.62
========== =====
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER EXERCISE PRICE OF
OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE EXERCISABLE
RANGE OF EXERCISE PRICE AS OF 6/30/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 6/30/98 OPTIONS
- ----------------------- ------------- ----------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.30 -- $0.50 2,960,000 2.25 $0.48 2,960,000 $0.48
$0.81 -- $1.19 1,605,500 3.45 0.96 1,605,500 0.96
$1.50 -- $2.50 1,201,000 5.15 1.96 493,500 1.89
$2.75 -- $4.13 2,434,500 2.66 3.25 2,308,500 3.20
$7.13 12,000 3.55 7.13 12,000 7.13
---------- ----------
$0.30 -- $7.13 8,213,000 3.03 $1.62 7,379,500 $1.54
========== ==========
</TABLE>
The weighted average fair value of each Viragen option granted in fiscal
1998 and 1997 was $1.10 and $1.51, respectively.
F-22
<PAGE> 61
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
A summary of the Company's warrant activity, excluding warrants issued in
conjunction with the Series B, C and D Preferred Stock offerings, and related
information for the years ended June 30, follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................. 1,083,550 $ 0.99
Granted................................................... 12,000 2.22
Exercised................................................. (319,229) 0.93
Canceled.................................................. (30,000) 5.12
----------
Outstanding at June 30, 1997................................ 746,321 $ 0.87
Granted................................................... 32,000 1.00
Exercised................................................. (130,565) 0.52
Canceled.................................................. (12,500) 0.80
----------
Outstanding at June 30, 1998................................ 635,256 $ 1.06
</TABLE>
The following table summarizes information about stock warrants outstanding
at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED AVERAGE NUMBER EXERCISE PRICE OF
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE EXERCISABLE
EXERCISE PRICE AS OF 6/30/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 6/30/98 WARRANTS
-------------- ------------- ----------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.52-$0.80 291,256 1.20 $0.53 291,256 $0.53
$1.00-$1.18 282,000 1.14 1.16 282,000 1.16
$1.81-$2.22 62,000 1.62 1.89 62,000 1.89
-------- --------
$0.52-$2.22 635,256 1.22 $1.06 635,256 $1.06
======== ========
</TABLE>
The weighted-average fair value of each Viragen warrant granted in fiscal
1998 and 1997 was $1.52 and $1.05, respectively.
The fair value of VEL options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of zero percent for all periods; risk-free interest
rates of 6.09% for 1998 and 6.00% for 1996; volatility factor of the expected
market price of the Company's common stock of .723 for 1998 and .600 for 1996;
and an expected life of the options of 3 years.
A summary of VEL's stock option activity, and related information for the
years ended June 30 follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- OPTION-PRICE ----------------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1996.......................... 50,000 $7.00 $ 7.00
Granted............................................ --
Exercised.......................................... --
Canceled........................................... --
--------
Outstanding at June 30, 1997......................... 50,000 $7.00 $ 7.00
Granted at market price............................ 75,000 5.72 5.72
Exercised.......................................... -- -- --
Canceled........................................... -- -- --
-------- ------------ ----------------
Outstanding at June 30, 1998......................... 125,000 $5.72- $7.00 $ 6.23
========
Exercisable at June 30, 1998......................... 50,000
========
Exercisable at June 30, 1997......................... 50,000
========
</TABLE>
F-23
<PAGE> 62
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
The weighted average remaining contractual life of options outstanding as
of June 30, 1998 is five years.
The fair value of VUSA options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for options granted: dividend yield of zero percent for all periods;
risk-free interest rates of 5.75% and 6.00% for 1998 and 1997, respectively;
volatility factors of .765 and .640 for 1998 and 1997, respectively; and an
expected life of the option of 3 years and .01 year for 1998 and 1997,
respectively.
A summary of VUSA's stock option activity, and related information for the
years ended June 30 follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................. -- --
Granted below market price................................ 320,000 $.01
Exercised................................................. (320,000) .01
Canceled.................................................. -- --
----------
Outstanding at June 30, 1997................................ --
Granted at market price................................... 125,000 $.22
Exercised................................................. --
Canceled.................................................. --
----------
Outstanding at June 30, 1998................................ 125,000 $.22
</TABLE>
The weighted average fair value of each VUSA option granted in fiscal 1998
and 1997 was $0.05 and $0.22, respectively. There are no VUSA options
exercisable at June 30, 1998. The weighted average remaining contractual life of
options outstanding at June 30, 1998, is 6.77 years.
NOTE D -- LONG-TERM DEBT
Long-term debt at June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Notes payable resulting from purchase of Directors &
Officers Insurance. Notes range in term from 18 months to
24 months, with interest rates of 8.75% and 7.00%
respectively.............................................. $ 207,272 $ --
Unsecured loan from Scotland Regional Development Authority.
Payable quarterly over 20 years, with an effective
interest rate of 8.68%. Note matures on August 28, 2017... 162,906 163,911
Capital lease obligations resulting from acquisition of
equipment, with a cost totaling $213,130 capitalized from
three to five years....................................... 81,193 120,687
---------- --------
451,371 284,598
Less current portion........................................ (171,277) (45,703)
---------- --------
$ 280,094 $238,895
========== ========
</TABLE>
Scheduled maturities of long-term debt at June 30, 1998 are:
1999 -- $171,277; 2000 -- $116,025; 2001 -- $7,658; 2002 -- $2,064; and 2003 and
thereafter -- $154,347.
F-24
<PAGE> 63
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
NOTE E -- CORPORATE REORGANIZATION
On September 20, 1995, the Company entered into an agreement and Plan of
Reorganization ("Agreement") with Sector Associates, Ltd. ("Sector"), a Delaware
corporation. Under the terms of the Agreement, the Company acquired a 94%
interest in Sector, a publicly-traded corporation, in consideration for a 100%
interest in VSL. VSL was organized during April 1995, by Viragen, Inc. to
manufacture and distribute Viragen's natural leukocyte-derived alpha interferon
and related products in the EU and other countries outside the United States.
Viragen retained an 84% ownership interest in Sector, as shares in Sector were
disbursed to the new Directors and to an affiliate. Shares were also disbursed
as finders' fees.
On November 7, 1995, the Agreement was amended to provide for an interim
loan of $500,000 by Sector to VSL, the filing of certain financial reports by
Sector prior to closing, an additional capital contribution of $300,000 into
Sector within thirty days, and the modification of a related investment banking
agreement. The $500,000 loan was funded November 9, 1995, bearing interest at 4%
per annum, secured by a 3.77% equity interest in VSL, and was guaranteed by
Viragen, Inc. Upon the closing of the Agreement on December 8, 1995, the
principal amount of the note was deemed contributed capital to Sector.
The Agreement was finalized and became effective on December 8, 1995.
In March 1996, Sector completed two Private Placement Offerings, issuing
768,000 shares of Common Stock and 216,500 Common Stock Purchase Warrants having
an exercise price of $12.00 per share. These two Offerings yielded net proceeds
of approximately $5,102,000 after related cash expenses of $371,500. The Company
is using these proceeds to undertake European research and pre-clinical trials
activities including the construction of its laboratory and manufacturing
facility in Scotland.
Effective May 2, 1996, Sector's name was changed to Viragen (Europe) Ltd.
NOTE F -- INCOME TAXES
Viragen, Inc. and its majority-owned subsidiaries, as defined by the
Internal Revenue Code, ("Viragen") file consolidated federal and state income
tax returns.
F-25
<PAGE> 64
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Viragen's deferred tax liabilities and assets as of June 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation................................ $ 118,000 $ 59,000
Other..................................................... 21,000 21,000
----------- ----------
Total deferred tax liabilities......................... 139,000 80,000
Deferred tax assets
Net operating loss carryforwards.......................... 9,875,000 7,985,000
Research and development credit........................... 478,000 145,000
Other..................................................... 249,000 579,000
----------- ----------
Total deferred tax assets.............................. 10,602,000 8,709,000
Valuation allowance for deferred tax assets............... 10,463,000 8,629,000
----------- ----------
139,000 80,000
----------- ----------
Net deferred taxes..................................... $ -- $ --
=========== ==========
</TABLE>
The change in the valuation allowance was a net increase of $1,834,000 for
the year ended June 30, 1998.
Viragen has undergone two ownership changes, as defined by Internal Revenue
Code Section 382, which will cause the utilization of the net operating losses
and tax credits to be limited. The effects of these limitations have not been
calculated at this time.
Viragen has net operating loss carryforwards, with expiration dates, as
follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
----------- ----------
<S> <C>
$ 780,000 1999
270,000 2000
2,870,000 2001-2003
3,120,000 2004-2006
19,384,000 2007-2013
-----------
$26,424,000
===========
</TABLE>
In addition, tax credits of $478,000 and $145,000 for income tax purposes
are being carried forward that expire in years 2001 through 2013, at June 30,
1998 and 1997, respectively. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to these
carryforwards.
F-26
<PAGE> 65
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
The reconciliation of income tax computed at the U.S. federal statutory
rate applied to Viragen's net loss is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Tax at U.S. statutory rate.................................. (34.00)% (34.00)%
State taxes, net of federal benefit......................... (3.63)% (3.63)%
Non-deductible items........................................ (2.89)% 4.46%
Change in valuation allowance............................... 40.00% 30.68%
Other....................................................... 0.52% 2.49%
------ ------
--% --%
====== ======
</TABLE>
VEL was included in Viragen's consolidated federal and state income tax
returns for the period December 8, 1995 through March 15, 1996, as Viragen,
Inc.'s percentage ownership of VEL exceeded 80% only during this period. VSL
files separate income tax returns in the United Kingdom. VGG files separate
income tax returns in Germany.
Deferred tax assets of VEL's U.S. operations (which files a separate
U.S.tax return) at June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Total deferred tax assets................................... $1,164,700 $1,035,700
Valuation allowance for deferred tax assets................. 1,164,700 1,035,700
---------- ----------
$ -- $ --
========== ==========
</TABLE>
At June 30, 1998, VEL has net operating and capital losses totaling
approximately $3,100,000, expiring between 2000 and 2013. VSL has approximately
$5,280,000 in net operating losses available to carryforward at June 30, 1998.
For financial reporting purposes, net loss before income taxes includes the
following components:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
U.S......................................................... $(3,615,140) $(4,192,302)
Foreign..................................................... (4,240,996) (582,943)
----------- -----------
$(7,856,136) $(4,775,245)
=========== ===========
</TABLE>
NOTE G -- TRANSACTIONS WITH RELATED PARITIES
In June 1996, the Company loaned $50,000 to an employee. The promissory
note is for a term of five years with an annual interest rate of 6.48% (the
Mid-Term Applicable Federal Rate in effect at that time). Interest is to be paid
semi-annually with the principal balance and unpaid interest payable on the
fifth anniversary of the note.
F-27
<PAGE> 66
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
In November 1996, the Company forgave a $12,500 balance due to the Company
by its Chief Executive Officer.
In April 1997, the Company loaned $100,000 to a director of the Company.
The secured promissory note is for a term of one year with the principal and
interest payable upon maturity. The note bears interest at 8.50% per annum (the
Prime Interest Rate in effect at that time). In April 1998, the director
defaulted on the Note. The Company is unable to ascertain the amounts, if any,
which could ultimately be realized on the promissory note. Accordingly, the
entire amount due under the note with related accrued interest of approximately
$10,000 has been written-off as uncollectable at year end. The Company intends
to pursue collection efforts relative to this transaction.
On July 31, 1998, the Company held its 1997 Annual Shareholders Meeting.
Certain directors did not seek reelection to serve as Directors of the Company.
In appreciation of their past service, the Company waived the requirement to
exercise outstanding stock options within 90 days of their last day as
Directors. All outstanding stock options will expire under their normal terms.
Subsequent to June 30, 1998, certain officers and directors of the Company
exercised 750,000 stock options to purchase Common Stock of the Company. The
options were exercised through the issuance of Promissory Notes payable to the
Company with related Pledge and Escrow Agreements. The Promissory Notes bear
interest at the greater of (i) 3.5% or (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986), payable
semi-annually and are secured by the underlying Common Stock purchased, which
shares are being held in escrow pending payment of the related notes pursuant to
the provisions of the Pledge and Escrow Agreements.
NOTE H -- IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1997, the Company entered into negotiations with Medicore,
Inc. ("Medicore"), a former affiliate, for the sale of its land, building and
related improvements located in Hialeah, Florida. Preliminary negotiations
established the fair value of the land, building and improvements to be
$400,000. At June 30, 1996, the land, building and improvements had a net
carrying value of $716,267. In accordance with FAS 121, the Company recorded an
impairment loss of $316,267, which was included as part of selling, general and
administrative expenses for the year ended June 30, 1996.
The Company and Medicore terminated discussions relating to the sale of the
Company's Hialeah, Florida facilities during fiscal 1997. The Company intends to
maintain this location as a research facility for the foreseeable future.
NOTE I -- LICENSE AND MANUFACTURING AGREEMENTS
Through a fifteen-year License Agreement (the "License") granted by
Viragen, Inc., VEL and its wholly-owned subsidiary, VSL, secured certain rights
to engage in the research, development, and manufacture of certain proprietary
products and technologies that relate to the therapeutic application of human
leukocyte-derived interferon (the "Product") for various diseases that affect
the human immune system. Pursuant to these rights, on July 20, 1995, VSL entered
into a License and Manufacturing Agreement ("Scottish Agreement") with the
Common Services Agency ("Agency"), an agency acting on behalf of the Scottish
National Blood Transfusion Service ("SNBTS") pursuant to which SNBTS, on behalf
of VSL, will manufacture and supply VSL's Product to VSL for distribution in the
European Union in return for certain fees. It was considered critical to VSL's
operations and to planned clinical trials to secure a sufficient qualified
source of human source leukocyte, a critical component in the manufacture of the
Product. VSL commenced operations concurrent with the execution of its agreement
with SNBTS. The term of the Scottish Agreement is five years with two additional
five-year extension terms exercisable at the option of VSL.
F-28
<PAGE> 67
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
Pursuant to the terms of the License, VSL was to prepay $2 million to VTI,
within six months of the Effective Date (July 12, 1995). Commencing one year
from the Effective Date, VSL is to pay to VTI fees, as follows: the greater of
$2 million annually or 10% of gross revenues until the sum of $18 million has
been paid; 8% of gross revenues until the sum of $25 million has been paid; and
5% of gross revenues thereafter. The License will renew automatically for two
consecutive fifteen-year terms.
Both parties modified the License deferring the initial payment until the
date when VTI transferred the processes and technology, as defined by the
License, to VSL. VTI had substantially transferred the processes and technology
to VSL by the end of May 1997. At that time, VTI required the initial royalty
payment be made. Completion of the transfer occurred on November 1, 1997.
The Company, through VTI, has executed an option for Southern Health
SDN.BHD ("Southern"), a private Malaysian/Australian-based healthcare investment
group to purchase a Manufacturing and Distribution License Agreement for
Viragen's natural alpha interferon product. Upon exercise of the option, the
Company is to receive a license fee of $20 million, payable in advance, and a
continuing royalty of 12% of gross revenues from the sale of the licensed
product. Southern has paid the Company a $200,000 option fee, $100,000 of which
is non-refundable and intended to deter the costs related to due diligence, with
the remaining $100,000 refundable, if the Company elects not to proceed with
this transaction. The Company has deferred recognition of revenue related to the
fee.
Within the first two years of the Manufacturing and Distribution License
Agreement, Southern would be required to commence construction of at least one
regulatory approved manufacturing facility within the defined territory, which
includes Australia, New Zealand and seven other Asian countries exclusive of
China and Japan. The manufacturing facility would be built and operated in
compliance with Viragen's specifications. In addition, Southern will be
responsible for funding and conducting any clinical trials necessary within the
defined territory.
Pursuant to an extension granted by the Company, Southern has until
December 31, 1998, to exercise the option. The Company believes that this
transaction may be negatively affected by instability in Asian financial
markets. Accordingly, there can be no assurance that this transaction will
ultimately be successfully concluded.
NOTE J -- RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has a contract with Viragen Research Associated Limited
Partnership, ("Limited Partnership") for the Company to perform the research and
development with respect to two therapeutic products for the topical treatment
of herpes virus infections. Pursuant to the contract, the Company assigned all
of its patent rights to the processes and topical products to the Limited
Partnership in exchange for an exclusive worldwide licensing agreement. The
Limited Partnership is to receive 5% of the gross revenues of such products
until it has received approximately $900,000 and, thereafter, it is to receive
2% of the gross revenues of such products. The Company is not presently pursuing
the development or commercialization of a topically applied product.
NOTE K -- ROYALTY AGREEMENT
The Company has a royalty agreement with Medicore that will pay Medicore a
maximum of $2,400,000 in royalties. Royalties are to be paid as follows: 5% on
the first $7 million of sales of interferon and related products; 4% of the next
$10 million of sales; and 3% on the next $55 million of sales up to the maximum
of $2,400,000 in royalty payments. Royalties incurred in prior years under the
agreement, totaling approximately $108,000, are included in Royalties Payable.
This amount will be paid as the final payment under the royalty agreement.
Royalties expense incurred totaled $11,901 in 1996.
F-29
<PAGE> 68
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
NOTE L -- COMMITMENTS
In November 1996, the Company executed a five-year lease on property
located in Edinburgh, Scotland that will serve as the Company's laboratory and
production facilities. Base monthly rental on the property is approximately
$9,975. In addition, the Company may extend the term of the lease at its option,
for four-five year periods.
In November 1996, the Company entered into a ten-year lease on property in
Plantation, Florida. This facility contains the executive and administrative
offices for the Company and VEL. Monthly rental on the property is approximately
$15,700. The lease contains provisions for two additional five-year periods at
the Company's option.
During the years ended June 30, 1998 and 1997, the Company recognized rent
expense and related charges of $290,000 and $47,000 for its Plantation, Florida
property lease and $202,000 and $29,000 attributable to its Edinburgh, Scotland
facility. Future minimum lease payments on the two facilities are:
1999 -- $290,009; 2000 -- $300,912; 2001 -- $307,255; 2002 -- $224,019; and 2003
and thereafter -- $1,018,252.
The Company has entered into Employment Agreements with officers of the
Company and its subsidiaries. These agreements represent a commitment by the
Company to pay an aggregate amount of approximately $1,483,000 per year in
salaries to these individuals.
NOTE M -- CONTINGENCIES
In May 1997, the Company in the name of Sector Associates, Ltd. (now VEL)
was named as a defendant in an action brought in the United States Bankruptcy
Court, Southern District of Florida by the bankruptcy trustee. The suit alleged
that during the period from December 1993 to May 1994, prior to the Company's
reverse acquisition of Sector, Sector received preferential transfers of
approximately $2.1 million. The suit was settled on July 8, 1998 for a total of
$25,000. The loss arising from settlement of the suit has been accrued at June
30, 1998.
In October 1997, the Company, the Company's President and Cytoferon Corp.,
a former affiliate of the President, were named as defendants in a civil action
brought in the United States District Court for the Southern District of Florida
(Case No: 97-3187-CIV-MARCUS) by a shareholder of the Company and investor in
Cytoferon Corp. The suit alleges the defendants violated federal and state
securities laws, federal and state RICO statutes, fraud, conspiracy, breach of
fiduciary duties and breach of contract. The plaintiff was seeking an
unspecified monetary judgement and the specific performance delivery of 441,368
shares of common stock. The Company filed a Motion to Dismiss denying the
allegations and requesting reimbursement of its costs.
In November 1997, the plaintiff in this litigation filed a Notice of
Voluntary Dismissal with the Federal Court concurrently notifying the Company of
their intent to refile a complaint in Circuit Court in the State of Florida. The
plaintiff subsequently filed a complaint in the Circuit Court of the 11th
Judicial Circuit in and for Miami-Dade County, Florida (Case No: 97-25587 CA30)
naming the same defendants. The suit alleges breach of contract, fraud,
violation of Florida's RICO statute and breach of fiduciary duties and seeks a
judgement similar to that of the dismissed Federal suit.
In March 1998, the Circuit Court granted the Company's Motion to Dismiss in
this matter. Subsequently, the plaintiff filed an Amended Complaint alleging
similar claims and seeking a judgement similar to that of the dismissed Federal
and initial State of Florida suits. In April 1998, the Company filed a Motion to
Dismiss the Plaintiff's Amended Complaint which was denied by the Court. The
Company denies the
F-30
<PAGE> 69
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
allegations of the complaint and intends to vigorously defend the claims with
regard to this matter. The ultimate liability, if any, cannot be determined at
this time and no accrual for loss has been recorded.
NOTE N -- GEOGRAPHIC INFORMATION
In 1997, the Company completed a manufacturing facility in Edinburgh,
Scotland. Identifiable assets in Scotland totaled $4,745,000 and $7,178,000 at
June 30, 1998 and 1997, respectively. Identifiable assets represent those assets
used in the operations of the geographic area.
NOTE O -- SUBSEQUENT EVENTS
In furtherance of the Company's strategic plan to secure reliable and safe
sources of human white blood cells ("leukocytes" or "buffy coats") critical to
the production of both Omniferon and LeukoVAX, the Company has entered into a
series of strategic alliance and supply agreements with major worldwide
suppliers of blood products. During 1998, Viragen consummated agreements with
the American Red Cross and America's Blood Centers, which between them annually
collect a substantial majority of the U.S. blood supply, and a series of
agreements covering a majority of the blood supply in Germany, with a major
European supplier.
In July 1998, the Company and VUSA entered into a strategic alliance and
supply agreement with America's Blood Centers ("ABC") for the supply of human
white blood cells (leukocytes). ABC is a national network of non-profit,
independent community blood centers operating in 45 states. ABC members annually
collect in excess of 45% of the U.S. blood supply through its member blood
donation centers and mobile collection facilities. Under the terms of the ABC
Agreement, the Company was granted first and preferential access to all
leukocytes produced by ABC members who have elected to participate in the
program. The Company has agreed to pay a fixed cost per buffy coat provided
during the first two years of the ABC Agreement. Thereafter, the price may vary
based upon incremental costs incurred by participating ABC members.
In August 1998, the Company and VUSA entered into a fifteen year Agreement
with the American Red Cross ("ARC") for the supply of human white blood cells.
ARC collects approximately half of the U.S. blood supply. The ARC Agreement
provides for the Company's purchase of buffy coats, consistent with agreed upon
specifications, based on quarterly forecasts provided by the Company. Buffy
coats may be paid for in cash or Common Stock of the Company at the option of
ARC, with the valuation of shares paid determined by the average closing price
of the Company's shares for the five days prior to the payment due date less a
discount. The ARC Agreement further contains an initial price per buffy coat
modified by a volume discount pricing schedule and rebate program, subject to
periodic renegotiation. Upon execution of the Agreement, ARC received a Warrant
to purchase 500,000 shares of Common Stock of the Company and entered into a
Stockholder's Agreement and Registration Rights Agreement relating to shares
underlying the Warrant and shares received, if any, in lieu of cash for buffy
coat purchases. The Warrant vests over a six year period with exercise prices
ranging between $5.50 per share and $11.00 per share.
In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc. a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has focused
on the development of therapeutic drugs for autoimmune disorders. Its lead
product is LeukoVAX, an immunomodulating therapy derived from leukocytes
currently in FDA Phase I/II clinical trials for rheumatoid arthritis.
Under the terms of the Inflammatics Agreement, the Company made an initial
investment by purchasing Series A Convertible Preferred Stock of Inflammatics
for $1 million and warrants to purchase 200,000 shares of Common Stock of the
Company exercisable at $1.00 dollar per share, representing an initial 10%
equity interest in Inflammatics. The Company further obtained two options to
acquire up to an additional 70% equity
F-31
<PAGE> 70
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
position in Inflammatics through two additional fundings to be made at the sole
option of the Company. Additional funding, if any, will be made based upon the
Company's evaluation of LeukoVAX clinical trial data and would be utilized to
underwrite a FDA Phase III clinical trial. As part of these options, the Company
may issue up to 3 million shares of its Common Stock and 300,000 additional
warrants to purchase Common Stock of the Company in exchange for additional
Series A Convertible shares of Inflammatics bringing the Company's total equity
position in Inflammatics to 80%.
On September 22, 1998 the Company entered into an Equity Line Financing
Agreement ("Equity Line Agreement") for a maximum offering amount of $20 million
over three years. Provisions of the Equity Line Agreement provide that the
Company, at its option, may "Put" shares of Common Stock to the investor,
following an effective Registration Statement, at a "Put Share Price" equal to
the lesser of (a) 87.5% of the Market Price for such Put or (b) the difference
of (i) the Market Price of such Put minus (ii) $0.225 where the Market Price is
defined as the lowest Closing Bid Price during the 10 to 20 trading days
(depending upon the size of the Put) following each Put.
The amount of Common Stock that may be Put in any 30 day period, is limited
to one half (1/2) of the aggregate daily reported trading volume in the
outstanding Common Stock reported during the 10 trading days preceding the Put
date. In addition, on each six month anniversary of the Subscription Agreement
date, the Company shall issue to the Subscriber a Purchase Warrant to purchase a
number of shares of Common Stock equal to 10% of the number of Put Shares issued
to the Subscriber during the preceding 6 calendar months. Each Purchase Warrant
shall be exercisable at 108% of the lowest closing bid price for the 10 trading
days immediately preceding each six month anniversary.
In connection with the Equity Line Agreement, the Company also entered into
a Placement Agent Agreement which provides for a Cash Placement Fee on the gross
proceeds from the sale of the securities in any Put of: 7% on the first $5
million; 6% from $5 million to $10 million; and 3.5% for amounts in excess of
$10 million. If the Company were to Put securities for the entire $20 million
available under the Equity Line Agreement, the Cash Placement Fee would total 5%
of the total gross proceeds derived. In addition, the Placement Agent Agreement
provides for the issuance of Placement Agent Warrants to the Placement Agent
equal to: (i) 7%, 6% and 3.5%, respectively, on all shares issued in connection
with Put Shares at the same thresholds as the Cash Placement Fee, exercisable at
125% of the average Put Share Price of all Put Shares issued during the
preceding six calendar months; and (ii) a warrant to purchase a number of Common
Shares in the same percentages as above for which the subscriber has been issued
a Purchase Warrant, exercisable at 108% of the lowest closing bid price for the
10 trading days immediately preceding the applicable six month anniversary.
As of the closing of the Equity Line Agreement, the Company had
approximately 1,900,000 shares of Common Stock available from authorized shares.
Accordingly, to utilize the total funding available under the Equity Line
Agreement, the Company must obtain Stockholder approval to increase the number
of authorized shares in the Company. In addition, to comply with NASDAQ National
Market regulations regarding potential dilution limitations, the Company intends
to seek Shareholder's approval of the Equity Line Financing Agreement.
F-32
<PAGE> 1
Exhibit (10)(LViii)
Translation from German into English
Cooperation and Supply Agreement
between
1. VIRAGEN INC.
having its registered office at
865 SW 78th Avenue, Suite 100
Plantation, Florida 33324 USA
hereinafter referred to as "Viragen"
2. VIRAGEN DEUTSCHLAND GmbH
having its registered office at
Frankfurt
-hereinafter referred to as "VGer"-
- parties of the first part -
and
1. DRK-BLUTSPENDEDIENST BADEN-WURTTEMBERG gGmbH
having its registered office in Baden-Baden
2. BLUTSPENDEDIENST DER DRK-LANDESVERBANDE NORDRHEIN UND WESTFALEN-LIPPE
gGMBH
having its registered office at Hagen
3. Blutspendedienst Hessen des Deutschen Roten Kreutzes gGmbH
having its registered office at Frankfurt am Main
4. Blutspendedienst des Bayerischen Roten Krenzes gGmbH
having its registered office at Munich
- parties of the second part
*the information redacted herefrom is the subject of a Confidentiality Request
submitted to the Securities and Exchange Commission.
<PAGE> 2
I.
PRELIMINARY STATEMENT
In medical practice, whole blood preserves are being used less and less.
Instead, blood components are more frequently being fractionally distilled into
blood plasma and erythrocytes depending on the medical indices. During this
first phase of fractionation (centrifugation), a layer is created alongside the
blood plasma and erythrocytes, the so called 'buffycoats", that contains
various cells: the different types of leukocytes which, for medical reasons,
must be strictly separated from the erythrocytes. An alternative method for
separating the leukocytes is filtration. When whole blood is filtered the
leukocytes remain in the filter. Unlike blood plasma and erythrocytes,
leukocytes may not be used directly for medical purposes. Certain leukocytes
contained in the buffycoats (source leukocytes) produce different interferon.
Viragen bas developed a medical product. Omniferon(TM), the production of which
requires substantial quantities of source leukocytes, Since source leukocytes
cannot be stored for longer periods of time, the processing must take place in
the Federal Republic of Germany. Viragen intends to establish the processing
facilities through a subsidiary ("VGer") in Germany.
Omniferon has not yet been approved as a drug.
Thus the use of source leukocytes lies in Viragen's interest because the source
leukocytes is the originating material for the production of Omniferon. A
prerequisite for VGer in establishing processing facilities in Germany is that
a sufficient quantity of source leukocytes be yielded and available.
The DRK-BSD's interest in this matter lies in putting to further, medically
meaningful use the source leukocytes which are automatically yielded during the
first fractionation of the valuable basic blood plasma (Guts Blut)
Based on the foregoing reasons. Viragen. VGer and DRK-Blutspendedicnstc are
interested in working together as partners.
Wherefore, the parties agree as follows:
II.
COOPERATION AND SUPPLY AGREEMENT
SS. 1
SUBJECT MATTER OF THE AGREEMENT
(1) The subject matter of this Agreement is the collaboration of the
Contracting Parties to use DRK source leukocytes in the manufacture of
biological medical products.
(2) In furtherance hereof, DRK-BSD shall, on a preferential basis, supply
to VGer source leukocytes which have been produced from whole blood
preserves and which were examined in accordance with the applicable
statutory and regulatory provisions (Appendix 1) under the laws of the
Federal Republic of Germany. Such source leukocytes will be supplied
for purposes of producing and Interferon compound. Delivery shall be
made in the form of buffycoats containing source leukocytes. DRK-BSD
shall not conduct a prior second fractionation of the buffycoats. The
buffycoats are not a finished pharmaceutical product, but rather a
by-product.
(3) VGer agrees to derive the source leukocytes from the raw material
supplied (buffycoats or filter). If new production methods are
employed, then the agreements memorialized in this contract will
<PAGE> 3
apply to the separated leukocytes only. If necessary, VGer will be
responsible for yielding the leukocytes.
(4) The DRK-BSD agree at their own expense to adjust their production
conditions to the extent required in order to comply with the approval
requirements for the other compounds created from the whole blood. The
DRK-BSD further agree to adapt their production conditions to VGer's
production conditions and specifications if this is possible as part of
the approval process for the other compounds extracted from while blood
and provided that VGer expresses its willingness to assume the
additional expenses resulting therefrom. The quality features of the
buffycoats as well as the requirements of production, transport and
specifications which must be observed in any given case are set forth
in detail in Annex 2 to this Agreement. The DRK-BSD shall bear all
costs arising from the production of raw material in this respect.
SS. 2
DELIVERY, ANNUAL SCHEDULING, ACCEPTANCE
(1) The DRK-BSD agree to deliver the quantity of source leukocytes required
by VGer for operating and fully utilizing a production facility
(1 million buffycoats annually)
(2) VGer agrees to accept for the upcoming year the buffycoats that have
been ordered by 30 September of a current year. The deliveries will be
ordered on a quarterly basis with a margin of fluctuation of plus or
minus 15%. Such margin of fluctuation will be based on one-fourth of
the annual amount ordered. VGer shall project the estimated annual
quantity each calendar year and notify the DRK-BSD thereof.
(3) VGer is free to determine the annual order quantity (preferential
deliveries) during a transitional two-year period beginning with the
acceptance of deliveries. After such two-year period, the annual order
quantity shall be one million buffycoats, plus or minus 15%.
(4) The order must be in writing and shall be submitted to a contact
person as defined in SS.15.
(5) Each of the DRK-BSD agrees, under this Agreement and up to their
respective capacity limit, to supply a proportional quantity of
buffycoats or source leukocytes corresponding to its respective
donations in the previous year. VGcr shall be informed of such in
writing no later than 31 January of the following calendar year. The
delivery of small quantities shall be carried out by internal
arrangement of the DRK-BSD through individual DRK-BSD.
The time-table for on-going deliveries by the individual DRK.BSD shall
be mutually stipulated by all the parties from time to time during the
term of the Agreement.
If one DRK-BSD cannot fulfill this obligation, in whole or in part, the
other DRK-BSD agree to supply, within the scope of this Agreement and
their respective capacity limits, the deficient quantity. The delivery
shall be arranged internally by the DRK-BSD in accordance with sentence
3 of SS.2(5). This also applies to the mutual duty to inform and any
agreements among the DRK-BSD regarding internal financial settlement
arrangements. In the event of a non-culpable interruption in business
operations, the DRK-BSD that are privy to this Agreement may discharge
their delivery obligations by also supplying VGer with source
leukocytes which are obtained from other DRK-BSD and which meet the
quality requirements under this Agreement.
<PAGE> 4
( ) VGer may export any buffycoats supplied by the DRK-BSD to other
production facilities within the Viragen group of affiliated companies.
VGer shall obtain the necessary governmental permits and approvals.
( ) VGer shall notify the DRK-BSD six months prior to the date on which the
DRK-BSD should initiate regular deliveries (following the approval of
Omniferon) as part of the production procedure. Once the deliveries
have commenced, the DRK-BSD are obliged to initially supply half of the
contractually stipulated quantity for a period of six months.
SS.3
DISTRIBUTION
(1) Pursuant to a special agreement yet to be concluded. VGer shall grant
DRK-BSD the right to use Omniferon - a substance produced from the
source leukocytes supplied by the DRK-BSD - at the institutions which
are listed in Annex 3 and in which the associations of the German Red
Cross have a majority interest or which are operated by one or more
associations of the German Red Cross at wholesale prices which VGer
changes from time to time in Germany and which are otherwise based on
terms which have yet to be mutually stipulated. The Contracting Parties
shall use their best efforts to negotiate a definitive sales agreement
as soon as all documents necessary for approval (product license
application) have been submitted to the competent authorities.
(2) VGer further agrees that, to the extent commercially reasonable, the
Federal Republic of Germany will receive priority distribution of the
Omniferon made from the source leukocytes supplied by the DRK-BSD after
it has been approved in there.
SS.4
COMPENSATION, PAYMENT DATES, CONFIRMATION
(1) The compensation for the source leukocytes supplied by the DRK-BSD
shall be (*) of the consolidated sales of Omniferon as
achieved by the Viragen group affiliated companies (Viragen, Inc. and
all subsidiaries in which Viragen, Inc. is a majority owner). The basis
for this calculation will not be the actual realized sale price, but
rather the final sales price to consumers (without turnover tax) as
shown in the so-called "Red List". The lowest sales price shall be DEM
(*)/buffycoat plus turnover tax and the highest sales price shall be
DEM (*)/buffycoat plus turnover tax. If no end sale price is indicated
on the Red List, then the sales price will be the lowest sales price
per buffycoat. Section 12(4) governs adjustments to the lowest and
highest sale price.
(2) Compensation is due each year after the annual Viragen group
financial statements have been reviewed. Installment payments toward
the compensation must be made for the supplied buffycoats based on the
lowest purchase price. The installment payments are due 90 days after
delivery is made. Upon demand by DRK-BSD, Viragen or VGer shall furnish
a bank guaranty (Bankburgschaft) in the amount if DEM (*) million to
cover the amounts outstanding.
(3) The DRK-BSD have the right to obtain from the Viragen group financial
statement auditor a certification as to the relevant annual sales of
the Omniferon which is the subject matter of this Agreement. The
certification shall be sent to DRK-BSD within 30 days after the
auditor has presented this audited Viragen annual financial statements.
(4) If turnover tax is due on services performed under this Agreement, then
such taxes shall be paid by the recipient of the services. The DRK-BSD
agree to clarify the turnover tax treatment of the services.
(5) To discharge the obligation owed, payments must be made to a bank
account specified in the future.
<PAGE> 5
(6) Claims arising from this Agreement may not be assigned.
SS.5
PLACE OF PERFORMANCE, RISK OF LOSS
(1) With respect to any processing in Germany, the place of performance is
the VGer production facility. With respect to any processing abroad,
the place of performance is the airport in Germany which VGer has
designated to the DRK-BSD as the place of delivery.
(2) The DRK-BSD bears the risk of loss for the accidental destruction or
accidental deterioration of the buffycoats during their transport to
the place of performance.
SS.7
COMPENSATORY DAMAGES, WARRANTY, DUTIES OF CARE, INSURANCE
(1) DRK-BSD's liability for product defects and consequential damages due
to product defects is expressly limited to cases where the defect is
the result of fault and the causality of the damage has been proven.
The fault of the DRK-BSD vicarious agents will be imputed to the
DRK-BSD. If the fact surrounding the faulty act occurred within the
DRK-BSD sphere of risk, then DRK-BSD shall have the burden to prove
that it was not at fault. Where fault exists, DRK-BSD will be liable
for all damages including any pecuniary harm arising when products
produced by Viragen or one of its affiliated companies cannot be sold
or can be sold only at a reduced price. The total liability for all
parties is limited to a maximum of DEM 2 million annually. The DRK-BSD
are also obligated to replace all original material they had delivered
in the event damages arose as a result of their fault.
In all other cases, DRK-BSD's liability shall be governed by statute or
the legal principles developed by case law. Liability will attach only
if the relevant Contracting Parties are responsible for the
circumstances upon which the liability is based. Compensatory damage
claims for VGer's lost profits based on the non-performance of the
delivery obligation under SS.2(5) are precluded.
(2) The Contracting Parties are aware that not all rare infectious diseases
(e.g., Creutzfeldt-Jacob Syndrome) can be identified under today's
current testing procedures. The legal reporting requirements which are
partially in place today may in some cases lead to a recall actions
many years down the road. The DRK-BSD agree to promptly inform Viragen
and VGer in the event that recall action criteria arise. The
Contracting Parties hereby establish that henceforth in such cases the
DRK-BSD shall replace free of charge the delivered source material
produced from a contaminated production batch. Any additional losses
shall be borne by each Contracting Party individually.
(3) The DRK-BSD also otherwise agree to recall promptly any buffycoats
which fail to meet the requirements set forth in SS.1(4). The DRK-BSD
agree to comply with all statutory and regulatory provisions together
with the requirements implicit therein as prescribed under the laws of
the European Union and Germany and applicable to the production and
introduction into commerce of source leukocytes (see also SS.1(4). The
current quality requirements for the buffycoats, the production
conditions, and the specifications are reproduced in Annex 2 to this
Agreement.
(4) The DRK-BSD agree to obtain a general liability insurance policy for a
reasonable amount with a reputable insurance company, to maintain such
policy for the duration of the Agreement, and to furnish proof thereof
to VGer. The current insurance policies are listed in Annex 4 of this
Agreement.
<PAGE> 6
SS.7
PARTICIPATION IN APPROVAL PROCEEDINGS
At the request of the DRK-BSD, the clinics (German Red Cross member associations
or a companies of which a German Red Cross member association holds a majority
interest) listed in Annex 5 of this Agreement may be included in the
implementation of clinical studies within the scope of the approval proceedings
if these clinics fulfill the clinical and technical requirements for such and
also have the requisite licenses.
SS.8
TERM OF THE AGREEMENT, TERMINATION
(1) The Agreement shall enter into force on 1 July 1998 for an initial
definite term of ten years. The Agreement shall be automatically
extended for an additional year in the event that a termination notice
has not been given twelve months before the expiration of the Agreement
or the expiration of any extension of the Agreement.
(2) A party to the Agreement may, without notice, prematurely terminate the
Agreement for cause if the terminating party is not responsible for the
facts or circumstances underlying the cause for termination. Cause will
be deemed to exist if:
- Viragen, VGer or a subsidiary has not submitted all documents
necessary for the approval of Omniferon (Product License
Application) in a European Union (EU) member state by 1 July
2003;
- a party to the Agreement materially breaches Red Cross Policy,
printed in Annex 6 of this Agreement, and the breach is not
remedied within 30 days despite a written demand to do so;
- circumstances arise for a party to the Agreement (particularly
through sovereign acts) that make impossible, materially
disrupt, prejudice, or make unreasonable the continuation of
the Agreement, or it is no longer technically feasible and
commercially practicable for Viragen to extract source
leukocytes from the supplied raw material;
- a party to the Agreement ceases making payments; files for
bankruptcy, a judicial composition among creditors or a
similar debt settlement procedure or a bankruptcy position is
denied based on insufficient assets; or
- a party to the Agreement fails to discharge a material duty
(particularly duties to deliver and pay) under the Agreement
within thirty (30) days of a written demand to do so.
In the event of a termination without notice, the obligations pursuant to this
Agreement shall be fulfilled until the other party acknowledges the existence of
cause of until a final, non-appealable judgment has been rendered. In any case,
such performance may cease once the quantities ordered pursuant to SS.2(2) and
(3) have been delivered.
(3) In the event of a premature termination pursuant to sub-section 2, the
Contracting Party responsible for giving rise to the cause therefore
shall be liable to the other Contracting Parties for any damages
resulting from the premature termination. Liability based on any claim
for lost profits shall be limited to DEM 1 million.
(4) Notice of termination must be made in writing.
<PAGE> 7
SS.9
SURRENDING DOCUMENTS
Upon the expiration or termination of the contract, each Contracting Party
shall surrender any and all property relating to or owned by the other
Contracting Party including, inter alia, books, writings and records. No
Contracting Party has the right to withhold such property.
SS.10
NON-DISCLOSURE
Each Contracting Party covenants not to disclose any matters, relationships and
business secrets to which they have become privy by virtue of the contract.
This covenant will continue to bind the Parties even after the contract has
ended. A breach of this duty of non-disclosure and any other such duty under
the other agreements between the Contracting Parties shall be deemed cause
within the meaning of SS.8(2).
SS.11
PUBLICATION
DRK-BSD is aware that under US law, Viragen is obligated to publish material
facts concerning its enterprise. Subject to the prior consent of the other
Contracting Parties in accordance with SS.10, all Contracting Parties are
entitled to publish details concerning the cooperation between the Contracting
Parties. Viragen's compliance with its obligation under sentence one of this
sub-section may not be thereby impaired. Consent will be deemed to have been
given if no objection is lodged within one week following receipt of the
publication draft.
SS.12
ADJUSTMENTS TO THE AGREEMENT
(1) If, as a result of medical/technical developments and/or statutory or
regulatory requirements, changes arise which will negatively impact
costs and/or prices, then the Contracting Parties shall, using their
best efforts, conduct negotiations concerning adjustments to the
Agreement.
(2) Sub-section 1 shall also apply in the event of significant changes in
the cost structure connection with the creation of source leukocytes
and/or the production of Omniferons and the availability of source
leukocytes in quantities and forms (buffycoat/filter) and in the event
of a significant drop in donations. This will apply accordingly in the
event that VGer manufactures additional products from the raw materials
supplied.
(3) The Contracting Parties mutually agree, to the extent it is reasonable,
to eliminate or reduce any detrimental changes from the current
conditions and to use any possible improvements.
(4) The following applies with respect to any adjustments to the minimum
and maximum per buffycoat purchase price as provided in SS.4(1). If the
cost of living index for a 4-person household of civil servants and
employees with higher incomes as established by the Federal Office of
Statistics in Wiesbaden increases and decreases from the status per
January 2000, then the minimum or maximum purchase price will be
adjusted accordingly. The adjustment will be conducted annually at the
beginning of any given calendar month commencing with deliveries were
made prior thereto. Regarding the price quote, the date on which
delivery is made to the DRK-Blutspendedienst will be dispositive.
Should the above-referenced cost of living index
<PAGE> 8
disappear (e.g., as a result of the Euro), then the index which
replaces it or the one which is most similar to it will be deemed as
the controlling index for purposes of this provision.
SS.13
FINAL PROVISIONS
(1) Viragen and VGer are prepared to review the prospect of including
additional DRK-BSD.
(2) The DRK-BSD are prepared to review whether or not they would make
available to VGer - against cost reimbursement - a portion of their
land or the bordering land (which would still need to be purchased) for
purposes of constructing manufacturing facilities.
(3) The DRK-BSD grant VGer an option for the delivery of a supply of source
leukocytes which would be required to make full capacity use of a
second facility in German (an additional million buffycoats per year).
The delivery would be in accordance with the terms of the Agreement and
is subject to their actually having the required quantities in stock at
the time the second production facilities are put into operation. In
consideration hereof, VGer agrees, after a second production facility
is put into operation, to purchase one million buffycoats plus or minus
15% annually pursuant to the terms of this Agreement. This option is
valid until 30 June 2003.
SS.14
OPTIONS
(1) Viragen and VGer are prepared to review the prospect of including
additional DRK-BSD.
(2) The DRK-BSD are prepared tor eview whether or not they would make
available to VGer - against cost reimbursement - a portion of their
land or the bordering land (which would still need to be purchased) for
purposes of constructing manufacturing facilities.
(3) The DRK-BSD grant VGer an option for the delivery of a supply of source
leukocytes which would be required to make full capacity use of a
second facility in Germany (an additional million buffycoats per year).
The delivery would be in accordance with the terms of this Agreement
and is subject to their actually having the required quantities in
stock at the time the second production facilities are put into
operation. In consideration hereof, VGer agrees, after a second
production facility is put into operation, to purchase one million
buffycoats plus or minus 15% annually pursuant to the terms of this
Agreement. This option is valid until June 2003.
SS.15
CONTACT PERSONS AT DRK-BSD; BINDING AUTHORITY
(1) Any legally binding statements that must be made to the DRK-BSD shall
be made to the person whom the DRK-BSD designates.
(2) Any legally binding statements of the DRK-BSD must be made by the
person whom it designates to do so.
SS.16
CORPORATE AUTHORIZATION REQUIRED
This Agreement will not enter into force until it has been approved by each
supervisory body of the DRK-BSD. The DRK-BSD agree to promptly obtain such
approval.
<PAGE> 9
March 19, 1998
--------------
Viragen, Inc.
/s/ Charles F. Fistel, Executive Vice President
- ------------------------------------------------
/s/ Gerald Smith, President
- ----------------------------
Viragen Deutschland GmbH
/s/ Gerald Smith, Managing Director
- ------------------------------------
DRK-Bluspendedienste
- --------------------------------------------
DRK-Blutspendedienst Baden-Wurttemberg gGmbH
- --------------------------------------------
Blutspendedienst der DRK-Landesverbande
Nordrhein und Westfalen-Lippe gGmbH
- --------------------------------------------
Blutspendedienst Hessen des Deutschen
Roten Kreuzes gGmbH
- --------------------------------------------
Blutspendedienst des Bayerischen
Roten Kreuzes gGmbH
<PAGE> 1
Exhibit (lix)
Buffycoat Supply Agreement between America's Blood Centers and the Company
dated July 15, 1998
<PAGE> 2
AGREEMENT
This agreement ("Agreement") is made and entered into this 15th day of July,
1998 by and between America's Blood Centers ("ABC"), an Arizona non-profit
corporation with its principal office at 725 15th St., N.W., Suite 700,
Washington, DC 20005, and Viragen, Inc. ("Viragen"), a Delaware corporation,
and Viragen, U.S.A., Inc. ("VUSA"), a Delaware corporation and a wholly-owned
subsidiary of Viragen, both having their principal offices at 865 SW 78th Ave.,
Suite 100, Plantation, FL 33324.
RECITALS
The parties recognize that the U.S. blood supply is a vital resource of which
the non-profit independent blood centers who are members of ABC ("IBCs") are
partially entrusted and that the IBCs have a charitable mission to serve the
communities in which they operate and collect blood.
ABC and the IBCs have indicated that most Buffycoats (defined herein)
harvestable by the IBCs from whole blood or blood component collections
currently are not separated from the IBCs' core component products, and,
therefore, are generally considered an underutilized byproduct.
It is VUSA's intention, directly or indirectly, to conduct manufacturing and
clinical operations and to seek FDA approval to market its products for the
treatment of one or more medical conditions. In addition, it is VUSA's
intention, subject to approval by its Board of Directors, to eventually list
its shares of common stock either on the OTC bulletin board or, upon
qualifying, on NASDAQ.
ABC has agreed to collaborate with Viragen and VUSA to put Buffycoats to
humanitarian use by establishing a program under which IBCs that are members of
ABC may supply Buffycoats to VUSA on a preferential basis for manufacture into
certain products by or on behalf of VUSA (and its Affiliates and sublicensees)
including the manufacture of Omniferon(TM), Viragen's second-generation natural
human alpha interferon product. Omniferon is being developed for use in the
potential treatment of various life threatening and debilitating diseases,
including HIV/AIDS, hepatitis B & C, multiple sclerosis and cancer.
DEFINITIONS
"Affiliate" means any Person in which Viragen or its successor has, directly or
indirectly, an ownership interest of 20 percent or more. A "Non-Affiliate
Person" shall mean a Person which is not an Affiliate.
"Available Supply" shall mean during any forecast period either the greater of
the number of Buffycoats (i) that are actually manufactured by a PIBC in the
prior forecast period, or (ii) that could be reasonably manufactured by a PIBC
during that current forecast period through the exercise of good faith
commercial diligence, taking into account source material supply and good
manufacturing practices. The Available Supply shall be determined before any
reductions of inventory for obligations to any Person other than VUSA;
provided, that human source leukocytes retained under Section 2.4 herein shall
be excluded from Available Supply.
"Buffycoat(s)" shall mean individual shipping units of packaged human source
leukocytes produced by ABC members from whole blood unit collections, or from
other means, including filtration and pheresis.
"Buffycoat Capacity" shall mean the total number of whole blood units that are
or reasonably could be drawn, processed or otherwise obtained by all PIBC
establishments, including the Buffycoat Facilities.
"Buffycoat Facility(ies)" shall mean any PIBCs' blood collection, processing,
fractionation, laboratory and testing facilities, as may be designated or
required to produce and deliver Buffycoats to VUSA's Sites.
1
* The information redacted herefrom is the subject of a Confidentiality Request
submitted to the Securities and Exchange Commission.
<PAGE> 3
"Commercialization" and "Commercially" shall mean with respect to Omniferon or
other product, the distribution, marketing and sale of Omniferon (or other
product) under an unrestricted approved NDA or similar FDA approval (i.e.,
BLA).
"Confidential Information" with respect to VUSA and Viragen and their
Affiliates shall mean all commercially important information maintained by or
on behalf of Viragen or VUSA or their Affiliates as confidential that is (i)
disclosed directly or indirectly to ABC or to the PIBCs or IBCs, whether in
written, oral, electronic, visual or other form, or (ii) developed in
connection with or arises out of the activities performed under this Agreement
or through the use of or access to such confidential information, including but
not limited to manufacturing or other information pertaining to the Buffycoats
provided to ABC or to the PIBCs or IBCs. Confidential Information shall
include, but is not limited to the following: (i) discoveries, inventions,
unpublished works, research results, methods and data; (ii) specifications
(including the Specifications as defined herein), designs, uses, testing or
manufacturing methods, procedures or data, programming, and performance
characteristics for current or future products, materials and equipment used in
connection therewith; (iii) technical, business, regulatory, market and
economic, commercialization, development, and research methods, plans,
strategies and information; (iv) unfiled or pending patent, copyright,
trademark and other intellectual property rights applications or disclosures;
and (v) other trade secrets and know-how.
"Confidential Information" with respect to ABC and the PIBCs shall with mean
all commercially important information maintained by or on behalf ABC or the
PIBCs as confidential that is disclosed directly or indirectly to VUSA, Viragen
or their Affiliates, whether in written, oral, electronic, visual or other
form. Confidential Information shall include, but is not limited to the
following: (i) discoveries, inventions, unpublished works, research results,
methods and data; (ii) specifications, designs, uses, testing or manufacturing
methods, procedures or data, programming, and performance characteristics for
current or future products, materials and equipment used in connection
therewith; (iii) technical, business, regulatory, market and economic,
commercialization, development, and research methods, plans, strategies and
information; (iv) unfiled or pending patent, copyright, trademark and other
intellectual property rights applications or disclosures; and (v) other trade
secrets and know-how. The ABC and PIBCs Confidential Information shall not
include any information, including information pertaining to manufacture of
Buffycoats provided under this Agreement, which is defined above as the VUSA
and/or Viragen Confidential Information.
"Effective Date" shall mean July 31, 1998.
"IBC" shall mean a non-profit independent blood center that is a member of ABC.
"No-Fault Recall" shall mean a recall by any PIBC (or any revocation of
acceptance by VUSA) of Buffycoats that were manufactured in accordance with
this Agreement and the Specifications, that is made because such Buffycoats
after delivery to VUSA were determined to be unsuitable for manufacture into
parenteral use products if such recall or revocation is not initiated because
of events arising from the PIBC's breach of its obligations under this
Agreement.
"Net Revenues" shall mean VUSA's gross revenues less standard allowances and
deductions for credits, returns, bad debts, reserves, and other such holdbacks,
in accordance with GAAP.
"Omniferon" shall mean VUSA's human leukocyte-derived interferon product, or
any modifications or improvements thereto or derivative thereof.
"Person" shall mean any individual, partnership, corporation, trust or other
legal entity.
"PIBC" shall mean a non-profit independent blood center that is a member of ABC
and that has entered into a Subagreement to provide Buffycoats to VUSA.
2
<PAGE> 4
"PIBC Establishment" shall mean any facility owned, operated or controlled by a
PIBC or its Affiliates that draws, processes or otherwise obtains blood and
blood products (including pheresis) that could be used in the manufacture of
Buffycoats.
"Site" shall mean VUSA designated facility or facilities operated for the
manufacture of or Omniferon or Other Products.
"Specifications" shall mean the confidential requirements for Buffycoat
collection, handling, and processing, as set forth in Exhibit 1, or such other
requirements as may be adopted in accordance with 4.10 or 4.11. The
Specifications for any shipment of Buffycoats shall be those Specifications in
effect at the time such shipment is ordered, unless the parties specifically
agreed otherwise in writing.
"Subagreement" shall mean an agreement between a PIBC and VUSA in the form
attached as Exhibit 2.
COVENANTS
1. ABC LOGISTICS OBLIGATIONS.
1.1 Recruiting PIBCs. ABC shall use its best efforts during the term of the
Agreement to recruit and cause the maximum number of IBCs to become PIBCs.
1.2 Acceptance of PIBCs. VUSA shall accept and enter into a Subagreement with
any IBC recruited by ABC, provided that the PIBC (a) meets all FDA and other
federal, state and local government regulatory requirements to be a supplier of
Buffycoats to VUSA, (b) is not under a notice of intent to revoke or has
received notice of intent to revoke its FDA authority to be a supplier of
Buffycoats, and (c) demonstrates its ability, to VUSA's reasonable
satisfaction, to meet the Specifications; and (d) is willing and able to enter
into and perform its obligations under the Subagreement. VUSA shall not be
obligated to enter into a Subagreement with any PIBC that is subject to
threatened with material and unresolved adverse regulatory findings or actions
by FDA or other authority, or that is under or threatened with insolvency or
bankruptcy or other adverse actions of its creditors.
1.3 Coordination of Production and Delivery of Buffycoats. ABC will perform
logistical and other services ("Services") under this Agreement, particularly,
acting as an interface between VUSA and the PIBCs. ABC's Services shall
include, but not be limited to, preparation and coordination of supply
forecasts, purchase orders and shipments, billings and payments,
communications, accounting and financial audits, document retention, and
allocation of VUSA purchase orders among PIBCs. No later than 10 days before
the commencement of a calendar quarter, ABC will advise VUSA of the PIBCs that
are expected to be fulfilling that quarter's purchase order for Buffycoats and
the estimated number of Buffycoats that will be shipped by each PIBC. VUSA,
ABC, and the PIBCs will cooperate to ensure that the Buffycoats purchased and
sold by PIBCs are shipped in an orderly manner so as to allow both VUSA and the
PIBCs to conduct their operations in the most efficient manner. In determining
which PIBCs will fulfill a particular purchase order, ABC intends not to
discriminate among PIBCs; provided, however, that ABC shall use its good faith
best efforts to coordinate shipments to minimize the number of PIBCs shipping
Buffycoats to a particular VUSA facility at or about the same time and the
transportation costs incurred (e.g., freight and insurance). ABC shall (i) give
VUSA timely notice if a PIBC that was to deliver Buffycoats to VUSA is unable
to fulfill such order, and (ii) use its best efforts to promptly fulfill the
undelivered portion of that order from another PIBC.
1.4 Compensation of ABC for Logistical and Other Services. As compensation for
ABC's Services, at the end of each calendar quarter, VUSA shall pay ABC the
following: (a) reimbursement of the actual, incremental costs of these Services
during the prior quarter, including but not limited to personnel costs,
long-distance telephone costs, and facsimile and express mailing costs
(provided they do not exceed the budget by more than 10%); and (b) a
reimbursement of $0.10 for each Buffycoat supplied under the
3
<PAGE> 5
Agreement during the prior quarter (to cover costs previously incurred). The
$0.10 per Buffycoat reimbursement under "1.4(b)" will continue only until the
sum of $25,000 has been paid under 1.4(b). ABC shall provide advance annual
budgets to VUSA (with quarterly reviews) for the Services anticipated, and VUSA
shall have the right in advance to decline Services that it does not wish ABC
to perform. Payments to ABC under this paragraph shall be made within 30 days
of the end of the quarter or within 30 days of receiving ABC's invoice,
whichever is later.
2. BUFFYCOAT SUPPLY.
2.1 First and Preferential Access. During the term of the Agreement, and
subject to the provisions of 2.4, VUSA shall have First And Preferential Access
to all Buffycoats harvestable by each PIBC from its blood or blood component
collections (including from filtration) to meet VUSA's clinical, research and
development, and commercial production needs. "First And Preferential Access"
means the following: (a) ABC and/or each PIBC shall not enter into any contract
or arrangement that conflicts with or negates the PIBCs ability during the term
of the Agreement to fulfill a potential VUSA purchase order for Buffycoats; and
(b) each PIBC shall give priority to fulfillment of VUSA's existing orders for
Buffycoats.
2.2 Use of Buffycoats. VUSA shall not be restricted in the use of Buffycoats
obtained from the PIBCs, provided, however, Buffycoats may not be resold by
VUSA (except to Viragen or a VUSA or Viragen Affiliate for use by Viragen or
such Affiliate and not further re-sale as unprocessed Buffycoats).
2.3 Harvesting of Buffycoats. Each PIBC agrees to harvest and deliver the
Buffycoats in accordance with FDA requirements and guidelines, including
applicable Good Manufacturing Practices ("GMP"), and the Specifications.
2.4 Exceptions to First and Preferential Access. VUSA's First And Preferential
Access shall be subject to the right of each PIBC during the term of the
Agreement (a) to retain human source leukocytes to supply hospitals solely for
the purpose of direct transfusions for patient treatment and (b) to meet the
preexisting contractual obligations set forth as an Exhibit to each PIBC
Subagreement. Each PIBC agrees not to expand any of the obligations set forth
in third party agreements listed in such Exhibit (unless such third party
agreement requires such expansion). Unless otherwise prohibited from doing so,
each PIBC agrees to provide VUSA, for informational purposes, with historical
and current data on Buffycoats supplied for the purpose of direct transfusions
in patient treatment and pursuant to pre-existing contractual obligations.
2.5 Supply of Buffycoats to Other Parties. Each PIBC shall have the right to
supply other parties with Buffycoats provided that such supply does not
interfere with VUSA's First And Preferential Access.
2.6 Buffycoat Production from Pheresis Collections. Each PIBC shall use its
best efforts to undertake to supplement Buffycoat production with Buffycoats
from pheresis collections, if requested by VUSA and subject to the PIBCs
reasonable consent, provided, however, there are no regulatory impediments or
material negative consequences to the production of other blood components or
other aspects of the PIBCs operations.
2.7 Buffycoat Testing. The PIBC shall conduct transmissible disease testing on
all Buffycoats, and source materials, in accordance with FDA and other federal,
state and local requirements, guidelines and recommendations.
2.8 Non-compete. During the term of this Agreement and for one year thereafter
(and in the case of termination by VUSA or Viragen on account of a material
breach by ABC or any PIBC for no less than the expected initial term of this
Agreement, or if the initial term has expired, for three years from the date of
termination), neither ABC nor any PIBC shall engage directly, or indirectly, in
the research, development, production or commercialization of any Buffycoat or
white blood cell-derived product or interferon
4
<PAGE> 6
products or derivatives, or methods of making or using same; provided, however,
that nothing herein shall prohibit ABC or any PIBC from reselling an interferon
product.
2.9 Sublicense. VUSA shall grant a sublicense to each PIBC, at no cost, to use
VUSA's Specifications for the purposes of performing this Agreement and the
Subagreements.
2.10 Obtaining Buffycoats from Other Parties. Subject to the other terms and
conditions of the Agreement, Viragen, VUSA and/or Affiliates may obtain
Buffycoats from other parties, provided, however, that (i) Viragen, VUSA and/or
their Affiliates may not give priority or preference in ordering to any other
U.S. source of Buffycoats, (ii) VUSA may not give priority or preference in
ordering to any other source of Buffycoats, and (iii) during the first 24
months after the Effective Date, Viragen, VUSA and Affiliates agree that at
least *_________ of Buffycoats utilized by them in the United States shall be
ordered from PIBCs pursuant to this Agreement.
2.11 MFN for Purchases from ABC Members. Viragen and/or its Affiliates will not
obtain Buffycoats from any ABC member for greater aggregate compensation per
Buffycoat than is provided in this Agreement (taking into account all forms of
compensation to be received by the PIBCs).
2.12 No MFN for U.S. Source Buffycoats Given to a Non-ABC Member. Viragen and
VUSA represent and covenant that they have not given and will not give a "most
favored nation clause" for U.S. source Buffycoats to any non-ABC member.
2.13 Training and Education. VUSA shall provide reasonable and necessary
training and education on the Specifications at VUSA's expense to each PIBC,
including on-site training at VUSA's expense where reasonably necessary. Such
training and education shall be provided before the PIBC harvests Buffycoats
under this Agreement, and thereafter as reasonably required on an as needed
basis.
3. FORECASTS AND ORDERS.
3.1 Rolling Forecasts. VUSA shall provide ABC with rolling quarterly forecasts
of VUSA's Buffycoat requirements ("Rolling Requirements Forecast") from the
PIBCs for the three calendar quarters that follow the next immediate calendar
quarter. Such Rolling Requirements Forecasts shall be provided 30 days before
the start of the next immediate calendar quarter, for the term of the
Agreement. (Example: on or before February 28, 1999, VUSA shall provide ABC
with forecasts of its Buffycoat requirements for July-September 1999,
October-December 1999, and January-March 2000.)
3.2 Purchase Orders. Along with the Rolling Requirements Forecast, VUSA shall
submit a purchase order for the quantity of Buffycoats to be supplied by the
PIBCs during the next immediate calendar quarter. (Example: on or before
February 28, 1999, VUSA shall provide ABC with a purchase order for Buffycoats
for April-June 1999.). The parties agree that prior to the date an NDA for
Omniferon becomes approved by FDA they will negotiate in good faith to reach an
agreement on minimum Buffycoat purchase commitment by VUSA during the period of
Omniferon Commercialization, which minimum purchase commitment shall be
consistent with Sections 2.10(i) and 2.10(ii).
3.3 ABC/PIBC Forecasts. Upon the Effective Date and thereafter during the Term,
at least thirty (30) days before the start of the each subsequent calendar
quarter, ABC shall provide VUSA with good faith rolling quarterly forecasts of
ABC/PIBCs anticipated Available Supply for each of the subsequent four calendar
quarters (the "Rolling Supply Forecast"). The forecast made in the Rolling
Supply Forecast of anticipated PIBC Available Supply for the calendar quarter
immediately subsequent to the quarter following the date the Rolling Forecast
is provided shall be the "Confirmed Supply Forecast".
3.4 Taking Title to and Payment for Buffycoats. During the term of this
Agreement, VUSA shall be obligated to pay for and take title to and possession
of all acceptable Buffycoats that conform to the
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Specifications, ordered by VUSA and produced and delivered by each PIBC in
accordance with this Agreement; provided that all such Buffycoats shall be free
of all liens, security interests and third party interests upon delivery.
3.5 Variations Between Forecast and Order. VUSA may order an amount that is no
more than 25% greater or lesser than the applicable Rolling Requirements
Forecast; provided that in no event shall any order exceed, in the aggregate,
the ABC/PIBC Confirmed Supply Forecast.
3.6 Variations Between Forecasts. VUSA may not submit a Rolling Requirements
Forecast that is less than 75% of the last quarterly Rolling Supply Forecast
submitted for that quarter. Additionally, subject to Section 3.7, VUSA may not
submit a Rolling Requirements Forecast that is greater than 125% of the last
quarterly Rolling Requirements Forecast submitted for that quarter. (Example:
When VUSA submits its Rolling Requirements Forecasts on or before February 28,
1999, the Rolling Requirements Forecast for July-September 1999 may not, except
as provided in this Agreement, deviate more than 25% (upward or downward) from
the Rolling Requirements Forecast that was submitted on or before November 30,
1998 for that quarter.)
3.7 Additional Variations. ABC and the PIBCs shall use their best efforts to
fulfill VUSA purchase orders or quarterly forecasts for amounts greater than
permitted in 3.5 and 3.6; provided, however, that nothing in this Agreement
shall prohibit any PIBC from honoring any prior documented agreement with a
third party to sell Buffycoats to such third party that was made prior to a
VUSA forecast for such Buffycoats.
4. COMPENSATION FOR BUFFYCOATS.
4.1 Cost Reimbursement. VUSA will reimburse each PIBC, through ABC, on a per
Buffycoat basis for all incremental costs, if any, that each PIBC may incur in
producing Buffycoats for VUSA to VUSA Specifications. Incremental costs shall
be defined as conversion of facilities, protocols, and training of personnel,
if necessary, to produce Buffycoats for VUSA, and direct material, labor, and
overhead costs directly attributable to Buffycoat production and supply under
VUSA Specifications; provided, that the maximum budget for each PIBC for all
such incremental costs for that PIBC shall be specifically agreed upon by the
parties in writing before being incurred, and shall not thereafter be exceeded
except with the parties' mutual agreement. Incremental costs shall include the
net value (profit) of any other blood components (e.g., plasma) lost by a PIBC
due to the its production of Buffycoats to the extent that such other blood
component could have been actually sold by such PIBC.
4.2 Interim Cost Reimbursement. The interim cost reimbursement shall be --- per
Buffycoat, excluding ABC's fee as specified in Section 1.4 herein. This
reimbursement rate shall be used for the first twenty-four (24) months from the
Effective Date of the Agreement.
4.3 Independent Audit and Analysis of Buffycoat Production Costs. The parties
agree that, no later than 18 months after the Effective Date, the parties shall
select a mutually agreeable independent, national certified public accounting
firm to conduct a reasonable analysis and audit of incremental Buffycoat
production costs as defined herein in order to derive a per Buffycoat cost to
be used under the Agreement. The evaluation, analysis and audit criteria shall
be specified by mutual agreement of the parties hereto. In the event that the
parties are not then able to resolve any differences as to the appropriate per
Buffycoat cost to be used, the matter shall be arbitrated in accordance with
the dispute resolution provisions of this Agreement.
4.4 Transportation Costs. Buffycoats shall be shipped freight and insurance
prepaid FOB VUSA designated location. Incremental transportation costs for
Buffycoats from the PIBCs to VUSA's facilities
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shall be the responsibility of VUSA, and are not included in the interim cost
reimbursement stated in 4.2. Insurance on each shipment shall be for the
benefit of the PIBC initiating such shipment.
4.5 Royalties on Buffycoats Not Used Commercially. In addition to cost
reimbursements as specified herein, for any Buffycoats that are not used to
produce Omniferon or other products that are ultimately sold Commercially,
directly or indirectly, to a Non-Affiliate Person, each PIBC, through ABC, shall
receive a cash payment for each conforming Buffycoat delivered to VUSA by that
PIBC in the form of a royalty equal to *_____ of the estimated Net Revenues that
VUSA could reasonably have realized from the sale of the marketable Omniferon
that reasonably could have been produced from such Buffycoat, regardless of
whether or not VUSA actually receives any revenues from the sale or use of such
product, or *_____ per Buffycoat, whichever is higher.
4.6 Royalties on Buffycoats Used Commercially. Where conforming PIBC supplied
Buffycoats are used to produce Omniferon that is ultimately sold Commercially,
directly or indirectly, to a Non-Affiliate Person, each PIBC, through ABC, shall
receive *_____ of the actual Net Revenues realized from the sale of Omniferon to
such Non-Affiliate Person, to the extent that such Net Revenues are allocable to
the Buffycoats delivered by each such PIBC, or *_____ per Buffycoat, whichever
is higher.
4.7 Other Product Royalties. Should VUSA develop and manufacture products
derived from the Buffycoats other than Omniferon ("Other Products"), the
royalty rate applicable to such Buffycoats shall be that amount that would be
due had the Buffycoats been used to manufacture Omniferon instead of the Other
Products, taking into account the typical net marketable quantity of Omniferon
then obtained from a Buffycoat (e.g., considering manufacturing yields, cGMP
testing requirements) and net revenues then realized from such Omniferon.
4.8 Time for Payment. Payments for each PIBC for minimum royalties and cost
reimbursements shall be made to ABC no later than 30 days from the date of
acceptance (as specified in Section 5 herein) by VUSA or the date of invoicing,
whichever is later. VUSA shall make any adjustment of the royalty payment (for
royalties due in excess of the minimum) no later than 90 days after the end of
the quarter. VUSA shall pay interest on any wrongfully unpaid amounts at the
rate of 1% per month for each month beyond the due date applicable to such
amounts. All payments shall be itemized by VUSA with regards to basis of the
amount paid (e.g., royalty or reimbursement and the PIBCs and Buffycoat
shipments to which the payment relates).
4.9 Other VUSA Royalty Obligations. ABC and the PIBCs acknowledge that (a) VUSA
is obligated to pay a royalty to Viragen (Scotland) Ltd. of two percent (2%) of
VUSA's net revenues (as such term is defined in the license agreement between
VUSA and Viragen) derived from the sale of Omniferon and (b) VUSA is obligated
to pay a minimum royalty to Viragen of $2,000,000 annually for the exclusive
license in the U.S. to the Specifications and related know-how and the
exclusive manufacturing, marketing and distribution rights for Omniferon in the
U.S., as set forth in the license agreement between VUSA and Viragen, which
royalty payments commence with the date of the first use of the Specifications
and related know-how by or on behalf of VUSA.
4.10 Changes in Specifications or Method of Harvesting Buffycoats. VUSA may
reasonably request that the Specifications be modified or that one or more
PIBCs change their method of harvesting Buffycoats, for example, by employing a
technology upgrade. Any such modifications or changes shall be in writing and
shall require the consent of ABC and the affected PIBCs, which consent shall
not be unreasonably withheld, provided that: (a) reasonable advance notice is
given; (b) VUSA reimburses the PIBC for its non-recurring costs (including
equipment and training costs) of such modification or change; and (c) if the
modification or change results in change in ongoing costs, VUSA and ABC and the
PIBCs shall agree to make a corresponding change in the interim cost
reimbursement (if applicable) or the actual cost reimbursement.
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4.11 New Tests or Procedures. In the event that FDA or industry standards
requires the PIBCs to perform new tests or procedures that materially increase
the incremental costs of producing Buffycoats (as defined herein), the parties
shall negotiate an appropriate adjustment of the interim or actual cost
reimbursement to cover such change in costs.
5. SHIPMENT AND ACCEPTANCE OF BUFFYCOATS.
5.1 Shipment of Buffycoats. Buffycoats shall be shipped at VUSA's expense from
the PIBC to VUSA's designated sites in such manner as VUSA and ABC shall agree
upon in writing, and in accordance with the Specifications.
5.2 Certificate. VUSA shall not be required to accept Buffycoats shipped by a
PIBC unless and until VUSA receives a certificate of analysis that sets forth
all test results for each such shipment and certifies that the shipment of
Buffycoats conforms with the Specifications, and the date and time when and the
location where such blood unit used to manufacture the Buffycoat was drawn from
a blood donor, and each PIBC shall provide such certificate of analysis with
each shipment of Buffycoats.
5.3 Rejection of Buffycoats. No later than five (5) business days after VUSA
receives the certificate of analysis described in 5.2, VUSA may reject any
Buffycoats that (i) do not conform to the Specifications, or (ii) that were not
manufactured in accordance with this Agreement, or (iii) that are otherwise
reasonably determined not to be suitable for use in the manufacture of
parenteral human therapeutic products, (including, but not limited to, such
Buffycoats failing VUSA acceptance testing). Additionally, VUSA may revoke
acceptances because of any event in categories (i), (ii) or (iii) above that
could not reasonably have been known at the time of acceptance, including, but
not limited its reliance on an inaccurate certificate of analysis, or later
discovery of adverse findings of regulatory compliance and quality assurance
audits or inspections of Buffycoat Facilities by VUSA or government agencies.
VUSA shall promptly notify ABC and the PIBC supplying shipments VUSA intends to
reject or revoke the acceptance of and the reasons for such rejection or
revocation.
5.4 Recalls by PIBC. Each PIBC shall immediately notify VUSA of any information
regarding a shipment of Buffycoats from that PIBC that would reasonably suggest
that it does not conform with Specifications or otherwise should not be used
for the manufacture of parenteral use products, in which case such lots of
Buffycoats shall be deemed rejected and any prior acceptance if any shall be
deemed revoked. Such notification shall be promptly confirmed in writing if
first given by other means.
5.5 Rejected or Recalled Buffycoats. Any Buffycoats not accepted by VUSA, or
whose acceptance has been revoked, shall be destroyed by VUSA in accordance
with all applicable laws and VUSA's standard operating procedures (or, if
timely requested by the PIBC, returned to the PIBC at the PIBC's risk and
expense).
5.6 Reimbursement of Rejection and Recall Costs. In the event that VUSA
rightfully rejects or revokes the acceptance of, or any PIBC recalls any
Buffycoats, the PIBC supplying such Buffycoats shall be responsible for and
reimburse VUSA for all costs, liabilities and losses incurred by VUSA in
connection with destruction or return of such Buffycoats and the manufacture
and distribution of products made from Buffycoats that are subject to such
recall ("Recall Costs"), and for any amount paid ABC or the PIBCs by VUSA for
such Buffycoats or, if such Buffycoats cannot be promptly replaced, the cost of
cover ("Refund Amounts"). The PIBC supplying such Buffycoats shall promptly (a)
refund to VUSA or credit the VUSA account with the amount of the Recall Costs,
and (b) as requested by VUSA, refund to or credit the VUSA account with the
amount of the Refund Amounts, or replace the rejected Buffycoats.
Notwithstanding the foregoing, no PIBC shall be obligated to pay VUSA any
Recall Costs or Refund Amounts incurred as a result of a No-Fault Recall. ABC
shall cooperate with VUSA in fulfilling VUSA's rights to obtain Refund Amounts
and Recall Costs as set forth in this Section 5.6, including, without
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limitation, implementing holdbacks, set-offs or refunds against any payments
owed to a PIBC which itself owes VUSA such Recall Costs or Refund Amounts. In
no event shall VUSA withhold any payments to ABC that relate to one PIBC's
supply of Buffycoats because of amounts claimed due from another PIBC.
6. EQUITY INTEREST; SHAREHOLDER PROVISIONS.
6.1 Shares to Be Received by ABC. Upon the expiration of 24 months from the
Effective Date, or whenever the interim cost reimbursement is replaced by an
actual incremental cost reimbursement, whichever is sooner, ABC shall receive
100,000 shares of VUSA common stock ("Shares") as an advance on the first
Buffycoat delivery milestone, unless ABC has already received 100,000 such
Shares based on 6.2. ABC may, subject to the terms of this Agreement,
ultimately receive an equity participation of one (1) million Shares (including
the 100,000 shares described above) based on an aggregate delivery of 5,000,000
Buffycoats by the PIBCs.
6.2 Issuance of Shares. Fully-paid and non-assessable Shares that are free and
clear of all encumbrances except for those restrictions set forth in this
Agreement, Exhibit 3 and Exhibit 4, shall be issued to ABC within 90 days of
the end of each calendar year in increments of 100,000 Shares based on a
formula of 100,000 Shares per 500,000 conforming Buffycoats delivered by PIBCs.
6.3 Transfer of Shares by ABC. Shares may be transferred upon receipt, or at a
later date, from ABC to PIBCs; however, ABC shall pay the actual out-of-pocket
costs associated with transfers that occur at a later date.
6.4 VUSA's Capital Structure. As of the Effective Date, VUSA's authorized
capital consists of 10,000,000 Shares of common stock, $0.01 par value, of
which 5,333,333 Shares are issued and outstanding.
6.5 Stockholder's Agreement. VUSA and ABC agree, simultaneous with the first
issuance of VUSA Shares to ABC, to enter into a mutually agreeable Stockholders
Agreement (including the execution of an Investment letter satisfactory to
VUSA's legal counsel), a copy of which will be attached as Exhibit 3 upon its
execution.
6.6 Listing of VUSA Shares. In the event that VUSA effects a public
registration and offering of its common stock, it shall include at VUSA's
expense and ABC's request all or part the common stock conveyed to ABC under
this Agreement. In the event that VUSA fails to effect a public registration
and offering of its common stock, including the common stock conveyed to ABC
under this Agreement within three (3) years of the Effective Date, ABC and the
PIBCs shall have the right in accordance with applicable law to exchange their
Shares of VUSA common stock to the common stock of Viragen having the same fair
market value at the time of exchange. The fair market value for the Shares
shall be based on an independent evaluation, performed by qualified persons
approved by the VUSA Board of Directors and ABC. The fair market value of the
Viragen stock shall be based on the average closing price of Viragen stock
during a period beginning ninety-five trading days before the conversion date
and ending five days before the conversion date. Prior to any public
registration and offering or exchange, VUSA agrees to (i) provide ABC or its
designated director or observer (if there is one) reasonable financial
information on VUSA on at least a quarterly basis which ABC agrees to hold in
confidence in accordance with this Agreement and (ii) at all times reserve and
keep available, solely for issuance and delivery upon satisfaction of the
conditions for delivery set forth in this Agreement, the number of Shares
issuable to ABC hereunder.
6.7 ABC Right to Designate One Board Member. During the term of this Agreement,
but prior to the first issuance of VUSA shares to ABC, ABC may designate a
non-voting observer to VUSA's Board of Directors. At such time as ABC and/or
the PIBCs own stock in VUSA, ABC shall, at its election, have the
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right to designate one voting director for VUSA's Board of Directors. The
parties agree to vote their shares in accordance with Exhibit 4 to enable the
election to the VUSA Board of any person so designated by ABC. Nothing herein
shall require ABC to designate such persons, and nothing herein shall prevent
ABC from designating such persons at any time after the Effective Date of the
Agreement, provided, that all designees meet VUSA's Board members good and
reasonable criteria as specified from time to time by VUSA. The ABC designated
observer or Director shall be entitled to the same reimbursement for travel to
board meetings as is provided to other VUSA Directors. The ABC designated
Director shall be entitled to the same Director compensation, indemnification
and director's and officers liability insurance as similarly situated VUSA
Directors receive during the period that the ABC designated Director serves on
the Board.
6.8 Fair Market Issuance. VUSA agrees that it shall not issue or sell
(including as a dividend or other distribution on any class of stock)
additional common stock, or securities convertible into such common stock, for
a price below fair market value, as determined by the VUSA Board of Directors
at the time of such issuance or sale, provided that such determination must be
fair and reasonable.
7. MARKETING AND DISTRIBUTION OF OMNIFERON.
The parties acknowledge that the PIBCs may be interested in distributing
Omniferon to the hospital market in the U.S.. VUSA agrees to provide good faith
consideration to any ABC proposal to distribute Omniferon to hospitals or
clinics to which ABC or the PIBC distribute blood products, but VUSA shall have
the right to negotiate and execute definitive marketing and distribution
agreement (s) with any Person(s) and on any terms that VUSA determines in its
sole discretion are appropriate. Notwithstanding the foregoing, VUSA agrees not
to enter into a distribution only agreement with a blood center that is not a
PIBC without first providing ABC with a good faith opportunity to negotiate
distribution only rights for Omniferon on commercially reasonable terms;
provided, however that VUSA, Viragen and their Affiliates are not obligated in
any manner to enter into any such distribution, marketing or other agreements
with ABC or any other Person.
8 INTELLECTUAL PROPERTY & CONFIDENTIAL INFORMATION.
8.1 Restricted Use of Confidential Information. Each party agrees that all
Confidential Information disclosed to it shall be used by it during the Term
and exclusively for the purpose of performing its obligations hereunder. ABC
and the PIBCs shall use VUSA's Buffycoat Specifications and other Confidential
Information during the Term for the sole purpose of supplying Buffycoats to
VUSA and its designated Affiliates or other VUSA designees. The parties intend
and agree that notwithstanding anything to the contrary in this Agreement, no
course of conduct or future authorizations shall be, or be interpreted as
being, an assignment or grant to ABC or the PIBCs of any right, title or
interest in or license to the Specifications or any Confidential Information or
any patent, trade secret, trade dress, copyright, trade mark, materials, or any
other type of intellectual or personal property now or in the future owned or
licensed by Viragen, VUSA or their Affiliates. It is agreed that ABC and the
PIBCs compensation, access to VUSA Confidential Information and technical
assistance under this Agreement is in part in consideration of the rights
granted and obligations undertaken under this Section 7, and that this Section
is a material and negotiated term of the Agreement.
8.2 Confidential Treatment. Each party shall protect the other party's
Confidential Information from unauthorized use, access or disclosure and shall
maintain such Confidential Information under conditions that would reasonably
prevent such unauthorized use, access or disclosure (including effective
controls over physical and electronic access). No party shall, without the
prior written consent of the other party which it may withhold at its sole
discretion, use, disclose, or permit the use or disclosure of such Confidential
Information in any manner whatsoever in whole or in part, except: (i) only for
performance of the party's obligations hereunder; and (ii) only to such
employees and officers of the receiving party to
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the extent that such employees or officers need to know the Confidential
Information for performing the receiving party's obligations hereunder (and
then only such Confidential Information as such employee or officer needs to
know for performance of their assigned tasks); and (iii) all such employees and
officers have been first informed of confidential nature and ownership of the
Confidential Information and have first executed a written confidentiality and
intellectual property assignment agreement enforceable by and satisfactory to
the disclosing party.
8.3 Information Excluded. The receiving party's obligations shall not apply to
any particular Confidential Information to the extent that the receiving party
clearly and convincingly demonstrates that the particular Confidential
Information: (i) was in its possession prior to disclosure to it or its
development through work performed under this Agreement; (ii) was generally and
publicly known and accessible at the time of disclosure or thereafter through
no fault of the receiving party; or (iii) was rightfully furnished to the
receiving party on a non-confidential basis by a third party who was not
directly or indirectly breaching any obligations or duties to ABC, the PIBCs,
Viragen, VUSA or their Affiliates. The exceptions provided under this Section
8.3 shall not apply to any information that is considered to be Confidential
Information by a party because of its selection, organization, aggregation,
format, manner of presentation, or existence in electronic media.
8.4 Required Disclosure. Each party agrees that if it becomes legally compelled
or obligated to disclose any of the other party's Confidential Information, it
will provide such other party with prompt written notice and all lawful and
reasonable assistance to enable the other party to seek a protective order or
other appropriate remedy. If such protective order or other remedy is not
timely obtained, the party compelled to make such disclosure shall only furnish
that portion of the Confidential Information which, on the advice of counsel,
it reasonably determines it is legally required to furnish and will use
reasonable efforts to limit the scope of disclosure and obtain confidential
treatment or protective orders for such disclosed Confidential Information.
8.5 Return on Termination & Notification of Misappropriation. Upon this
Agreement's termination, each party shall return to the other party all
Confidential Information acquired by it from such other party and all copies
and abstracts thereof (whether in electronic, paper or other format). Each
party agrees that it shall immediately notify the other party in writing of any
suspected unauthorized disclosure or use of that party's Confidential
Information in its possession, and shall take and assist such other party in
taking all lawful means, including bringing and diligently prosecuting civil
and criminal complaints, to abate such unauthorized use or disclosure.
8.6 New Inventions. From time to time, new improvements, modifications,
materials, discoveries, works, marks, names, inventions, trade dress, and other
intellectual property may be jointly or separately conceived, reduced to
practice, invented, developed, discovered or made by the parties in connection
with (i) the use of or access to the VUSA/Viragen Confidential Information,
and/or the (ii) assistance of VUSA and Viragen employees, consultants and
contractors, and/or (iii) work performed under this Agreement by the any of the
parties (all of which are collectively the "New Inventions"). ABC or the PIBCs
shall promptly inform VUSA in writing of all such New Inventions upon their
creation and treat them as VUSA's Confidential Information. New Inventions do
not include ABC's proprietary methods, procedures or technology, or
improvements, or modifications thereof, to the extent not based on or derived
from (i) the use of or access to the VUSA/Viragen Confidential Information,
and/or the (ii) assistance of VUSA and Viragen employees, consultants and
contractors.
(i) OWNERSHIP OF NEW INVENTIONS. The parties agree that any and all New
Inventions (whether or not they are patentable, copyrightable or
otherwise protected under existing or future intellectual property
rights) shall be entirely and exclusively owned by VUSA and are
hereby entirely and irrevocably assigned (including all patents and
copyrights) by ABC and the PIBCs to VUSA without reservation or
further obligation or consideration that in any way relate to or
arise out (i) of
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the use or access to the Confidential Information (specifically
including but not limited to the Specifications and means of
manufacturing human source leukocytes), trade secret or patent
(including any unissued patent applications) or (ii) to any VUSA or
Viragen current or contemplated product. VUSA will have the sole
right to determine the treatment of such New Inventions, including
the right to keep it as trade secrets, to file and execute patent
applications on it, to use and disclose it without prior patent
application, to file registrations for copyright or trade or other
marks in its own name, or to follow any other procedure that VUSA
deems appropriate. VUSA shall have the right to a worldwide,
sublicenseable and exclusive, or at its election non-exclusive,
license on commercially reasonable terms to any or all rights ABC or
the PIBCs may have in all other New Inventions.
(ii) ABC AND PIBC OBLIGATIONS. At VUSA's sole cost and expense, ABC and
the PIBCs shall execute and provide, and shall cause its employees,
officers, directors and contractors to execute and provide) all
documents, testimony affidavits, and other reasonable acts and
cooperation as may be necessary for perfection of VUSA's rights under
this Agreement and for the filing, prosecution and enforcement of any
patent applications or patents issued thereon. ABC and the PIBCs
hereby grants the Secretary of VUSA, and his designee, its
irrevocable power-of-attorney and hereby irrevocably appoints same as
its agent to do all acts necessary and execute and file all such
documents as necessary to perfect VUSA any rights, title and
interests under this Section 8, including applying for and obtaining
or registering patents, copyrights, licenses, trade and other marks,
and to enforce VUSA's rights under this Section 8.
(iii)SEPARATE RESEARCH AGREEMENTS; PIBC CONTRIBUTION. If any New Invention
arises from a specific research program undertaken by the parties
under a separate research agreement, the rights of the parties in and
to such New Invention shall be in accordance with the terms of such
separate research agreement. Without prejudice to VUSA's rights under
Section 8.6, to the extent that any New Invention that is to be owned
by VUSA under Section 8.6, has been conceived and reduced to practice
entirely or substantially by PIBC employees, the parties shall in
good faith discuss the extent, if any, to which the PIBC should be
further compensated beyond the terms of this Agreement for its
contribution to such New Invention.
8.7 Notification of Infringement. During the Term a party or a PIBC may become
aware of (i) threatened or actual infringements or misappropriation by a third
party of a proprietary rights or other property that such party knows to be
owned or exclusively licensed by one of the other parties; or (ii) that may be
brought by other Persons against the one of the other parties because of the
activities performed under or in connection with this Agreement (collectively
"Threatened Infringement or Threatened Action"). In the event that a party does
become aware of any Threatened Infringement or Threatened Action, it shall
inform the party owning such rights or so threatened in writing, and, at the
written request and expense of the party owning such rights, shall cooperate
fully and in good faith with the such party in defending or enforcing its
rights and interests.
9. OMNIFERON CLINICAL DEVELOPMENT AND REGULATORY.
9.1 Development of VUSA's Products. VUSA, Viragen and/or the Affiliates (and
their assignees, contractors, and licensees) shall be responsible for the
clinical development of VUSA's products (including Omniferon) including the
preparation of clinical trial protocols, execution of clinical trials and
obtaining regulatory approval for the commercialization of such products in the
U.S., unless otherwise agreed upon by the parties in writing.
9.2 Support and Reference Rights. At VUSA's cost and expense, ABC and the PIBCs
shall provide VUSA and its Affiliates and their designees with any information,
documents, authorizations and rights of references to license applications,
master files and other regulatory submissions, as may be necessary
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to support any state or federal regulatory or other submissions and approvals
sought by VUSA (and its Affiliates and other designees) for the production
testing and use of products made from the Buffycoats, including without
limitation any applications for investigational use under 21 C.F.R. Part 312 or
product and establishment licenses under 21 C.F.R. Part 601, and shall timely
make all such submissions as may be necessary to carry out this agreement and
the product development, testing, manufacture and commercialization
contemplated under Sections 4.6 and 4.7 and this Agreement.
10. TERM AND TERMINATION.
10.1 Term. The initial term of the Agreement shall expire ten (10) years from
the Effective Date. Not later than 12 months prior to the expiration of this 10
year term, the parties shall negotiate in good faith the continuation of their
business relationship on mutually satisfactory terms. If and only if those
negotiations are unsuccessful, and there is no reasonable basis to believe that
they will be successfully completed before the end of the term (and no interim
extension can be reasonably negotiated), then no earlier than 120 days prior to
the end of the initial 10 year term, ABC may send VUSA a written notice of
deadlock. If negotiations are not essentially completed within 30 days of the
delivery of such deadlock notice, then ABC may at that time initiate discussion
and negotiations with other Persons regarding the first and preferential access
to Buffycoats by such other Persons; provided, that prior to the end of that 30
day period ABC shall in no manner offer or discuss such rights with any Person
other than VUSA.
10.2 Right to Terminate If No IND Accepted. ABC shall have the right to
terminate the Agreement if at the end of 30 months from the Effective Date the
U.S. Food and Drug Administration has not accepted an Investigational New Drug
Application (IND) for Omniferon filed by or at the direction of VUSA or an
Affiliate.
10.3 VUSA's Right to Terminate Based on Buffycoats/Available Supply. In the
event that at any time after the second anniversary of the Effective Date, ABC
and the PIBCs are unable to satisfy 90% of the VUSA Rolling Requirements
Forecasts provided under Section 3.1 for any two calendar quarters in any four
calendar quarter period, VUSA may terminate the Agreement on 90 days written
notice. Upon termination, all outstanding orders, forecasts, and compensation
for orders shall be honored as provided in the Agreement.
10.4 VUSA's Right to Reacquire Shares Issued to ABC and the PIBCs. In the event
of any termination hereunder, except for a termination on account of a material
breach by Viragen or VUSA, Viragen or VUSA may at its election repurchase any
shares previously delivered or to be delivered under this Agreement at fair
market value, such valuation to be determined in accordance with 6.6. Notice of
intent to repurchase such shares must be given within 30 days of the
termination.
10.5 ABC Failure to Perform. In the event ABC and the PIBCs fail to fulfill 90%
VUSA's Buffycoat Purchase Orders in any two calendar quarters within any four
calendar quarter period, VUSA may suspend or limit any unfilled, pending or
future Purchase Orders, Purchase Forecasts and Rolling Forecasts until such
time as ABC and the PIBCs have provided VUSA with satisfactory assurances that
they will be able to fully meet it obligations for the remainder of the Term
and during which period the obligations under Section 2.10 shall not be in
effect.
10.6 Material Breach. ABC may terminate this Agreement, and each PIBC
may terminate its Subagreement, in the event of VUSA's material breach of the
terms of this Agreement or a Subagreement, respectively. VUSA may terminate
this Agreement or any of its Subagreements upon a material breach by ABC or any
PIBC, respectively. All such terminations shall become effective upon 90 days
following delivery of a written notice, if the party so notified in of its
breach does not within that 90 days period (i) cure such breach, or (ii)
commence reasonable efforts to cure such material breach and complete the cure
within a reasonable time thereafter; provided that VUSA may immediately suspend
all
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<PAGE> 15
shipments and reject all deliveries from any PIBC which is in actual or
reasonably likely breach of Sections 5.4 or 11. No termination for any reason
whatsoever, however, shall affect any obligation to pay money or take other
actions, which a party may have incurred prior to the termination date, or any
other remedy the parties may have an account of such breach.
10.7 Bankruptcy or Insolvency. A party may terminate this Agreement immediately
upon the entry of a decree or order by a court having jurisdiction adjudging
another party bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect of
such party, under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in effect for
a period of 60 days; or the commencement by such party of a voluntary case
under any such law, as now or hereafter constituted, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any such law, or the consent by it to the filing of such petition
or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, or similar official of it or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by such other party.
10.8 Effect of Termination. Termination, suspension, or expiration of this
Agreement for any reason shall not relieve the parties of any obligation
accruing prior thereto, nor affect or limit any other remedy otherwise
available to the parties. The obligations and rights, of the parties under
Sections 2.8, 5.3-5.6, 5.4, 8.1-8.6, 9.2, 10.4, 10.8, 14.1-14.4, 15.1-15.14,
and in Exhibits 3 and 4 relating to matters covered therein, shall survive the
termination or expiration of this Agreement for any reason.
11. REGULATORY COMPLIANCE
ABC and each PIBC agree to comply with all laws, rules, regulations, standards
and practices required by the FDA (including cGMPs and the terms of any
undissolved consent decrees) and all other governmental authorities governing
their operations and other actions committed to be taken by them under the
Agreement and the Subagreements, and to maintain all permits, licenses and
approvals necessary to carry out their obligations under this Agreement and the
Subagreements; provided, a failure to comply with such laws or regulations
shall not be considered a material breach of this Agreement if such
non-compliance would not materially affect the regulatory compliance or
regulatory or other liabilities of the other parties, or VUSA's risks or
ability to use the delivered Buffycoats. ABC and each PIBC agree to permit and
cooperate with any audit of inspection by representatives of Viragen, VUSA, FDA
or other governmental authorities conducted to assure the conformance of ABC
and each PIBC with its obligations under this Agreement and the Subagreement
and all applicable laws and regulations.
12. VUSA AND VIRAGEN REPRESENTATIONS AND WARRANTIES.
VUSA and Viragen represent and warrant the following to ABC and the PIBCs:
12.1 Corporate Status. VUSA and Viragen are each corporations duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
12.2 Omniferon. VUSA and Viragen have developed a natural interferon product
called Omniferon, which they believe can be produced more economically than
other natural interferon products, and they believe that no other company holds
patent rights or other intellectual property rights that would prevent the
Commercialization of Omniferon.
12.3 No Conflict. The execution of this Agreement by VUSA and Viragen does not,
and the performance of this Agreement will not, (a) conflict with or violate
its Articles of Incorporation or Bylaws,
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<PAGE> 16
(b) conflict with or violate any laws or any order, award, judgment or decree
of any Governmental Agency applicable to them or by which their properties are
bound or affected, (c) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, insurance policy or other instrument or obligation to which either is a
party, or by which either of them or their properties are bound or affected, or
(d) require any consent, approval, authorization or filing with or notification
to any Governmental Agency or third party.
12.4 Non-Infringement. VUSA and Viragen warrant that neither of them shall
during the Term wrongfully disclose or cause to be disclosed to ABC any third
party trade secrets, and that the use by ABC of the Specifications or other
Confidential Information disclosed by either of them shall not infringe or
misappropriate any third party patent or trade secret, when such Confidential
Information is used in accordance with this Agreement.
12.5 Guaranty. As an inducement to ABC to enter into this Agreement, and to the
PIBCs to enter into Subagreements, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
until such time as VUSA is a publicly traded company, Viragen hereby agrees to
guaranty the obligations of VUSA to ABC, and, where applicable, the PIBCs under
Sections 1.4, 2.10, 2.11, 3.4, 4.1-4.2, 4.4-4.7, 4.10, and 14.1; provided that
it may assert any defense, set-off or right that otherwise would be available
to VUSA. The obligations of Viragen under this paragraph may be enforced
directly against Viragen upon any default by VUSA, and without regard to any
choice of any other remedy that may be selected. The parties agree that
Viragen's obligations under or in relation to the Agreement shall extend only
to those obligations guaranteed by it under this paragraph and such other
obligations that are specifically and expressly stated in this Agreement as
undertakings or warranties by Viragen.
13. ABC AND PIBC REPRESENTATIONS AND WARRANTIES
ABC represents and warrants the following to VUSA and Viragen:
13.1 Corporate Status. ABC is a nonprofit corporation duly organized, validly
existing, and in good standing under the laws of the State of Arizona, and is
authorized by its members Board of Trustees and its charter to take the actions
required of it under the terms of this Agreement.
13.2 No Conflict. The execution of this Agreement by ABC does not, and the
performance of this Agreement will not, (a) conflict with or violate its
Articles of Incorporation or Bylaws, (b) conflict with or violate any laws or
any order, award, judgment or decree of any Governmental Agency applicable to
it or by which its properties are bound or affected, (c) result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, insurance policy or other
instrument or obligation to which ABC is a party, or by which ABC or its
properties are bound or affected, or (d) require any consent, approval,
authorization or filing with or notification to any Governmental Agency or
third party, except in the case of clause (c) above for such conflicts which
would not taken as a whole, have a material adverse effect upon ABC or its
obligations hereunder.
13.3 ABC/PIBC Capacity and Available Supply. ABC represents and warrants that
the annual aggregate Available Supply of the PIBCs is at least 500,000
Buffycoats upon the Effective Date and throughout the term of this Agreement,
the maintaining of such minimum Available Supply level is an essential and
material basis of the Agreement; provided that ABC shall not be in breach of
this warranty if this level is not maintained because of VUSA's termination of
a Subagreement because of a PIBC's breach of its warranty under Section 3.3 of
that PIBC's Subagreement. ABC and each PIBCs represents and warrants that upon
the Effective Date and thereafter during the Term, it shall use its best
efforts to obtain, and thereafter maintain, all necessary approvals, license
amendments and take other actions for
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<PAGE> 17
the PIBC Establishments, so that such PIBC Establishments may be designated as
Buffycoat Facilities. ABC represents and warrants that it will use its best
efforts to reasonably maximize its PIBC Available Supply in a timely manner.
13.4 Non-Infringement, Ability to Provide. ABC and each PIBC warrants that it
shall not during the Term disclose or cause to be disclosed to Viragen or VUSA
any third party trade secrets or any third party patent or proprietary rights,
or use same in the manufacture of the Buffycoats under this Agreement, and
shall not provide to VUSA any Buffycoats which have been manufactured using any
process that infringes or misappropriates any third party patent or trade
secret. ABC's and each PIBCs warranties under this Section 13.4 shall not
extend to any procedure, Specification, method, Confidential Information or
materials provided by VUSA, Viragen or their respective Affiliates.
14. INDEMNIFICATION AND INSURANCE.
14.1 Indemnification by VUSA. VUSA agrees to indemnify, defend, and hold
harmless ABC, the PIBCs, and their trustees, directors, officers, and employees
from and against all liabilities, expenses (including court costs and
reasonable attorneys' fees), and claims for bodily injury, death, or property
damage, which they may incur, suffer, become liable for, or which may be
asserted or claimed against them (all collectively "Claims") to the extent such
Claims result from or arise out of: (a) any negligent or wrongful act or
omission of VUSA, Viragen or their directors, officers, employees, contractors,
or agents as a result of or while performing obligations hereunder, including
any breach by VUSA, Viragen or Affiliates of their respective obligations,
representations or warranties; (b) the development, manufacture, sale,
distribution, or use of any product by VUSA, Viragen and/or Affiliates; or (c)
any claim that any product or process used or provided by VUSA, Viragen or any
Affiliate infringes the patent or trade secret rights of any other Person that
is not a party to this Agreement or its Subagreements solely to the extent that
such claim is brought against such indemnified person because of the supply of
Buffycoats to VUSA under this Agreement or the use by them under this Agreement
of such VUSA, Viragen or Affiliate product or process. Provided, however, that
VUSA shall not be responsible to ABC, the PIBCs or any other indemnitee for
Claims to the extent that such Claims arise from or are caused by any wrongful
or negligent act or omission of ABC, the PIBCs, their trustees, directors,
officers, employees or contractors, or other Persons under their control,
including without limitation the failure of the Buffycoats provided under this
Agreement to conform with the Specifications. The indemnity obligations in this
paragraph shall not apply to amounts paid in settlement of such Claim if such
settlement is effected without the written consent of VUSA (which consent shall
not be unreasonably withheld).
14.2 Indemnification by the PIBCs. Each PIBC shall agree to indemnify, defend,
and hold harmless Viragen, VUSA, and their directors, officers, and employees
from and against all liabilities, expenses (including court costs and
reasonable attorneys' fees), and claims for bodily injury, death, or property
damage, which they may incur, suffer, become liable for, or which may be
asserted or claimed against them (all collectively "Claims") to the extent such
Claims result from or arise out of: (a) any negligent or wrongful act or
omission of the PIBC or its trustees, directors, officers, employees,
contractors or agents as a result of or while performing obligations hereunder;
(b) any failure of the Buffycoats provided under this Agreement and the
Subagreement to conform with the Specifications or any breach by such PIBC of
its obligations, representations or warranties; or (c) any claims of patent
infringement or trade secret misappropriation solely to extent that such claim
arises from the process or methods used by the PIBC other than such processes
or methods provided by VUSA, Viragen or the Affiliates.. Provided, however,
that the PIBC shall not be responsible to VUSA or any other Indemnitee for
Claims to the extent that such Claims arise from or are caused by any wrongful
or negligent act or omission of VUSA, Viragen, their trustees, directors,
officers, employees or contractors, or other persons under their control
(excluding any negligence in relying on a PIBC to perform its obligations, or
in relying on any PIBC's certificate of analysis or in the conduct of any
quality assurance audits of a PIBC, or similar event). The indemnity
obligations in this paragraph shall not apply to amounts paid in settlement of
such Claim if such
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settlement is effected without the written consent of the PIBC (which consent
shall not be unreasonably withheld).
14.3 Indemnification by ABC. ABC shall indemnify, defend, and hold harmless
Viragen, VUSA, and their directors, officers, and employees from and against
all liabilities, expenses (including court costs and reasonable attorneys'
fees), and claims, which they may incur, suffer, become liable for, or which
may be asserted or claimed against them (all collectively "Claims") to the
extent such Claims result from or arise out of: (a) any negligent or wrongful
act or omission of the ABC or its trustees, directors, officers, employees,
contractors or agents as a result of or while performing obligations hereunder,
or (b) for any breach of its warranties; provided, however, that ABC shall not
be responsible to VUSA or any other indemnitee for Claims to the extent that
such Claims arise from or are caused by any wrongful or negligent act or
omission of VUSA, Viragen, their trustees, directors, officers, employees or
contractors, or other persons under their control. The indemnity obligations in
this paragraph shall not apply to amounts paid in settlement of such Claim if
such settlement is effected without the written consent of the ABC (which
consent shall not be unreasonably withheld).
14.4 Indemnification Procedures. As am obligation of the indemnification due
under this Agreement or otherwise, an Indemnified party must: (i) notify the
indemnifying party in writing promptly, and in such period that does not
materially affect the ability of indemnitor to effectively respond, of any
complaint, claim or injury relating to any loss subject or that may be subject
to this indemnification; (ii) provide the indemnifying party with sole control
over the investigation, defense and settlement of any such complaint or
claim(s), including the sole right to select defense counsel and to direct the
defense or settlement of any such claim or suit, and full right of subrogation
of any Claims; and (iii) fully cooperate with the indemnifying party and its
legal representatives in the investigation, defense and settlement of any
Claim. The indemnification obligations may be undertaken by a party with a
reservation of rights.
14.5 Insurance. No later than thirty (30) days before the delivery of
Buffycoats under this Agreement, VUSA and each of the PIBCs shall maintain
commercial general liability insurance, including property and casualty
coverage and products liability coverage (or for VUSA clinical trials liability
during periods prior to commercial sale of PIBC-derived products) in amounts no
less than $1,000,000 per annual aggregate for property and general liability
insurance with limits of not less than $1,000,000 per occurrence, and for
$1,000,000 per annual aggregate for products liability, with limits of not less
than $1,000,000 per occurrence and $1,000,000 per incident. Such insurance
policies shall (a) be issued by an insurer having an A.M. Best rating of at
least A-VIII or that is otherwise acceptable to the other party; (b) name the
other party (and additionally either ABC or Viragen, whichever is appropriate)
as an additional insured; (c) provide such party with thirty (30) days prior
written notice of any cancellation, reduction or modification in its coverage,
and (d) clearly covers or is endorsed to cover the use by VUSA of the
Buffycoats and products made therefrom,. Each party will promptly provide the
other with a certificate of coverage, policy specimen, endorsements, and
statement of policy limitations and exclusions and any other reasonable
evidence demonstrating the performance of its obligations under this paragraph
upon reasonable request.
15. MISCELLANEOUS TERMS.
15.1 Audits by ABC. ABC shall have the right to perform on a periodic basis
reasonable audits, at its expense and on reasonable notice during regular
business hours, of VUSA and Viragen to confirm their compliance with the terms
and conditions of the Agreement including but not limited to 2.2, 2.10-2.12,
4.6-4.8, 5.3, 5.5-5.6, 6.6, and 7. At VUSA or Viragen's request and expense,
such audits shall be carried out on a confidential basis by an independent
auditor that is acceptable to the parties, and that may only provide a report
of conclusions pertinent to the purpose of the applicable section(s) under
which such audit was conducted, but shall not otherwise disclose any VUSA or
Viragen Confidential Information.
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15.2 Audits by VUSA. VUSA shall have the right to perform on a periodic basis
reasonable audits, at its expense and on reasonable notice during regular
business hours, of ABC and any PIBC to confirm their compliance with the terms
and conditions of the Agreement and the Subagreement, including but not limited
to the Specifications, 1.2, 1.4, 2.1, 2.3-2.5, 2.7-2.8, 3.3, 3.7, 4.4, 4.10,
4.11, 5.2-5.4, 5.6, 11, and 13.3, and in the determination of Buffycoat
Capacity, Available Supply and Incremental Buffycoat Production Costs. At ABC's
or any PIBC's request and expense, such audits shall be carried out on a
confidential basis by an independent auditor that is acceptable to the parties,
and that may only provide a report of conclusions pertinent to the purpose of
the applicable section(s) under which such audit was conducted, but shall not
otherwise disclose any ABC or PIBC Confidential Information.
15.3 Disclosures. The parties acknowledge and agree that Viragen and VUSA are,
or may become, required under U.S. federal securities law to make public
disclosure of events or activities material to their operations. This may take
the form of press releases, securities filings and other oral or written
communications. Unless otherwise required by law, the existence and terms and
conditions of the Agreement shall remain confidential. Except as required by
law, Viragen and VUSA shall not cause the name of ABC and/or any PIBC to be
used in written publications or promotional information without the permission
of ABC and/or the PIBC. Similarly, ABC and/or any PIBC shall not cause the name
of Viragen and/or VUSA to be used in written publications or promotional
information without the permission of Viragen and/or VUSA. Permission to use
the other party's name shall not be unreasonably withheld.
15.4 Notices. Any and all notices, designations, consents, offers, acceptances
or other communication provided herein or in the Subagreements shall be given
in writing and delivered by hand or by recorded, registered or certified mail,
return receipt requested, directed to the address shown below, unless notice of
a change of address is furnished:
<TABLE>
<S> <C>
IF TO ABC: IF TO VUSA:
America's Blood Centers Viragen U.S.A., Inc.
725 15th St. N.W. Suite 700 865 SW 78th Avenue, Suite 100
Washington, DC 20005 Plantation, FL 33324
ATTN: Jim MacPherson, ATTN: Charles Fistel,
Executive Director Executive Vice President
Phone: 202-393-5725 Phone: 954-233-8746
Fax: 202-393-1282 Fax: 954-233-1414
IF TO VIRAGEN:
Viragen, Inc.
865 SW 78th Avenue
Suite 100
Plantation, FL 33324
ATTN: Gerald Smith, President
Phone: 954-233-8746
Fax: 954-233-1414
</TABLE>
Communications may be faxed, provided that the fax is followed by a
confirmation copy.
15.5 Entire Agreement. Except as expressly set forth herein, this Agreement
together with its Exhibits constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all other agreements
and undertakings, both written and oral, between the parties with respect to
the subject matters covered in this Agreement and its Exhibits.
15.6 Headings and Statements of Materiality. Headings are for descriptive
purposes only and do not constitute part of the Agreement. The identification
of a term or warranty of this Agreement as being
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"essential" or "material" is not intended to mean that other terms for which
such statement is not made are not essential or material.
15.7 Non-Assignment. Neither this Agreement nor any of the rights, interest or
obligations hereunder or under any Subagreement, shall be assigned by any party
hereto without the prior written consent of the other party; provided, that (a)
the rights, but not the obligations, of a party herein may be assigned to one
or more of such party's affiliates, (b) any party may cause any affiliate to
perform on its behalf any of such party's obligations, and (c) any party may
assign all of its rights and obligations to any purchaser of all or
substantially all of the assets of that party. No assignment shall relieve any
party of responsibility for any obligation hereunder.
15.8 Third-Party Beneficiaries. This Agreement and all of the provisions hereof
and of its Subagreement shall be binding upon and inure solely to the benefit
of each party hereto (including the PIBCs of each Subagreement), and any
successors in interest. Nothing in this Agreement and the Subagreements,
express or implied, is intended to or shall confer upon any other person (i.e.,
other than the parties and the PIBCs) any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
15.9 Independent Contractor. Each of the parties, and each PIBC, is performing
its duties hereunder and under the Subagreements as an independent contractor,
and nothing herein or in the Subagreements is intended to or shall create any
association, affiliation, partnership, joint venture, agency or other
relationship between the parties, except that ABC shall act as an agent of the
PIBCs to the extent the Agreement so provides.
15.10 VUSA and Viragen Business. VUSA, Viragen and their Affiliates shall have
the right to manage, merge, acquire or engage in any legal enterprise or invest
in any entity in the healthcare, blood-related or other industries. Subject to
the provisions of this Agreement, VUSA, Viragen and their Affiliates shall at
all times have the right in their sole and absolute discretion and without
notice, to enter into Buffycoat supply agreements or arrangements with any
Person.
15.11 Choice of Law; Alternative Dispute Resolution. This Agreement and all
Subagreements shall be governed by, and construed in accordance with, the laws
of the District of Columbia, except that matters related to corporate
governance, stockholders' rights, offering or transfer of stock or other
interests shall be construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
conflict of laws principles. The parties agree to use good faith best efforts
to resolve disputes prior to the filing of any action or claim. Any action or
claim shall be subject to binding arbitration conducted in the Washington, DC,
before the American Arbitration Association in accordance with its arbitration
rules or as modified by written agreement of the parties. Each party
acknowledges and agrees that any breach or threatened breach by any party of
the provisions of this Agreement, or the Subagreements, would cause immediate
and irreparable harm to the other party(ies), and that the resulting damages
and injuries to such other party would be irremediable in terms of monetary
damages and are incapable of being precisely measured. Accordingly, the parties
agree that in the event of a breach or threatened breach, the other party(ies)
shall be entitled to resort to judicial proceedings in aid of arbitration if
interim injunctive relief from a court is necessary to prevent such irreparable
harm. In the event that any action or claim is brought, the substantially
prevailing party shall be entitled to recover its reasonable attorneys' fees.
15.12 Severability. If any term or provision of this Agreement or any
Subagreement shall be deemed invalid or unenforceable, the remaining terms
hereof shall not be affected but shall be valid and enforceable to the fullest
extent permitted by law. In such event, the parties shall use their best
efforts to substitute a valid, legal and enforceable provision, which insofar
as practical implements the purposes hereof.
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15.13 Force Majeure. If any party's performance (including the performance of
any PIBC) hereunder or under any Subagreement is prevented, restricted or
interfered with by reason of fire, explosion, strike, labor dispute, casualty
or accident, freight embargo, flood, war, civil commotion or acts of God, the
party affected shall be reasonably excused from performance hereunder to the
extent and for the duration of such prevention, restriction or interference;
provided, however, nothing herein shall excuse any party from payment for sums
due and owing at the time of such occurrence nor shall any party be excused
because of any events to the extent that they could or might have been
prevented through the exercise of reasonable commercial judgment, care and
diligence.
15.14 Modifications in Writing. This Agreement, and its Subagreements, may not
be supplemented, modified or amended, except by an instrument in writing signed
by the parties hereto, and for the Subagreement by the affected PIBC. Any
waiver in one instance or for one purpose shall not create an implied
obligation to give a waiver in another instance or for another purpose, with
respect to the same or a different event.
15.15 Enforcement of PIBC Obligations. ABC shall have the primary
responsibility for ensuring, and shall use it best efforts to secure each
PIBC's compliance with that PIBC's obligations under this Agreement and the
PIBC's Subagreement; provided, however, that ABC shall not be responsible for
damages to the extent such damages are caused by that PIBC's breach of its
obligations under this Agreement or the PIBC's Subagreement and not ABC's
breach of its obligations and that any termination of a Subagreement shall be
made by VUSA.
16. CONDITIONS PRECEDENT TO THE AGREEMENT.
This Agreement is subject to the following contingencies, and shall not become
effective until they are met:
16.1 Due Diligence by ABC. ABC has had the opportunity to conduct corporate,
financial, operational, medical/scientific, legal (including patent) and other
due diligence on Viragen, and determines, in its sole discretion, that the
results of the due diligence are satisfactory. ABC's due diligence
determination shall be completed no later than July 31, 1998.
16.2 Due Diligence by VUSA and Viragen. VUSA and Viragen have had the
opportunity to due diligence on ABC and the IBCs and have determined, in their
sole discretion, that the results of the due diligence are satisfactory. VUSA
and Viragen's due diligence determination shall be completed no later than July
31, 1998.
16.3 Commitments from PIBCs. ABC has received commitments and simultaneous
execution of Subagreements from a sufficient number of PIBCs to comply with the
terms of this Agreement and the Subagreement, as determined by ABC in its sole
discretion. This determination shall be made no later than July 31, 1998.
16.4 Executive Committee Approval. The Executive Committee of ABC has approved
this Agreement.
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16.5 Board Approval. The Boards of Directors of VUSA and Viragen have approved
this Agreement.
<TABLE>
<S> <C>
VIRAGEN, INC. VIRAGEN USA., INC.
By /s/ Gerald Smith By /s/ Charles F. Fistel
--------------------------- ------------------------------
Gerald Smith Charles F. Fistel
President Executive Vice President
AMERICA'S BLOOD CENTERS
By: /s/ Byron B. Buhner By: /s/ Jim MacPherson
--------------------------- ------------------------------
Byron B. Buhner Jim MacPherson
President Executive Director
</TABLE>
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<PAGE> 1
Exhibit(10)(LX).01
VIRAGEN--ARC BUFFYCOAT SUPPLY AGREEMENT
This Agreement ("Agreement"), made and entered into as August 12, 1998,
(the "Effective Date") by and between the American National Red Cross, a
charitable and not-for-profit corporation with principal offices in Falls
Church, Virginia 22042 ("ARC"), Viragen, Inc., a Delaware corporation with
principal place of business in Plantation, Florida ("Company"), Viragen U.S.A.,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, also
located in Plantation, Florida ("VUSA").
WHEREAS, ARC's mission is to provide a safe, reliable, and cost effective
supply of blood and blood services;
WHEREAS, ARC is the pre-eminent provider of blood and blood services in the
United States, serving more than 3,000 hospitals through the generous donations
of some 22,000 people daily;
WHEREAS, ARC, as a by-product of its blood collection activities, collects
Buffycoats;
WHEREAS, ARC desires to become a supplier to VUSA of Buffycoats (as that
term is hereinafter defined).
WHEREAS, VUSA desires to become a buyer of Buffycoats from ARC.
WHEREAS, VUSA wishes to purchase from ARC, and ARC wishes to sell to VUSA,
Buffycoats to be used by VUSA in the manufacture, testing, distribution and sale
of VUSA Buffycoat derived products, including human leukocyte-derived alpha
interferon ("Natural Alpha Interferon");
WHEREAS, ARC and VUSA have previously entered into a Confidentiality
Agreement executed and dated January 24, 1996, a Letter of Intent executed and
dated June 5, 1996, and a Heads of Agreement dated July 2, 1997, all of which
are superseded by, and merged into, this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, VUSA and ARC agree as follows:
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" of any person shall mean any other person which controls, is
controlled by, or is under common control with such specified person, where
"control," including the terms "controlling" and "controlled," means the power
to direct the management and policies of a person, directly or indirectly,
whether through the ownership of securities or partnership or other ownership
interests, by contract, or otherwise.
________________________________________________________________________________
Confidential 1 of 20 8/18/98
<PAGE> 2
"AVAILABLE SUPPLY" shall mean for each calendar quarter the number of Buffycoats
produced by ARC and available for sale to VUSA.
"BUFFYCOATS" "BUFFYCOAT" shall mean individual shipping units of packaged source
human leukocytes produced by ARC from whole blood unit collections.
"BUFFYCOAT PURCHASE ORDER" shall mean VUSA's firm order for the purchase and
delivery of a specific quantity of Buffycoats meeting the Specifications to be
delivered by ARC during a calendar quarter of the Term in accordance with the
delivery schedule accompanying such purchase order and this Agreement.
"CONFIDENTIAL INFORMATION" shall--
(A) With respect to the Company and VUSA include the Specifications,
trade secrets, private or secret processes, methods, information,
scientific and technical formulas and ideas, as they exist from time to
time, lists concerning VUSA's and the Company (or any of the Company's
or VUSA's Affiliates) products, services, business records and plans,
inventions, product design, product specifications, information,
proprietary equipment, price structure, discounts, costs, computer
programs and listings, source codes and/or object codes, copyrights,
patent rights, moral rights, design rights, trademarks, proprietary
information, formulae, protocols, standard operating procedures, forms,
written, graphic or printed documents, materials and documentation, in
original or duplicate form, procedures, training methods, technical
information, databases, clinical data, algorithms, marketing activities
and procedures, method for operating of VUSA's and the Company's
business, credit and financial data concerning VUSA and the Company (or
any of the Company's or VUSA's Affiliates), and it shall also include
information which is mental, not physical.
(B) With respect to ARC include, trade secrets, private or secret
processes, methods, information, scientific and technical formulas and
ideas, as they exist from time to time, business records and plans,
inventions, product design, product specifications, information,
proprietary equipment, price structure, discounts, costs, computer
programs and listings, source codes and/or object codes, copyrights,
patent rights, moral rights, design rights, trademarks, proprietary
information, formulae, protocols, standard operating procedures, forms,
written, graphic or printed documents, materials and documentation, in
original or duplicate form, procedures, training methods, technical
information, databases, clinical data, algorithms, marketing activities
and procedures, method for operating of ARC's business, credit and
financial data concerning ARC, the terms and conditions of this
Agreement, and it shall also include information which is mental, not
physical.
(C) "Confidential Information" under (a) and (b) above shall include
all information which is provided by (or on behalf of) a party to the
other parties hereunder (through written, electronic, visual, oral or
other means) and (i) is of a type of information indicated or marked as
confidential (or similar legend), or (ii) which the disclosing party
otherwise informs the receiving party is confidential (or similar
status), or (iii) is
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Confidential 2 of 20 8/18/98
<PAGE> 3
disclosed under circumstance that the receiving party should reasonably
know to be a confidential disclosure, or (iv) is developed through use
of or access to a party's Confidential Information. Confidential
Information shall not include any information which the recipient can
clearly and convincingly demonstrate: (a) was known to the recipient
before receipt under this (and any prior) Agreements, as evidenced by
recipient's written records, (b) is or becomes available to the
receiving party on a non-confidential basis from a source which, to the
receiving party's knowledge and reasonable belief, is not prohibited
from disclosing such information to the receiving party by a legal,
contractual, or fiduciary obligation to the other party, or (c) is or
becomes readily, generally and publicly available other than as a
result of a disclosure by the receiving party or its representatives or
employees.
"REGISTRATION RIGHTS AGREEMENT" shall mean the agreement between ARC and the
Company attached to and incorporated into this Agreement as Exhibit 4b.
"SECTIONS," "SCHEDULES" & "EXHIBITS" All references herein to Sections,
Schedules or Exhibits shall mean Sections of and Schedules and Exhibits to this
Agreement unless otherwise specified.
"SPECIFICATIONS" shall mean the specifications for the Buffycoats developed and
owned by VUSA provided under this Agreement and set forth in Exhibit 1, as
amended by the parties from time to time upon approval by ARC and VUSA. The
Specifications for any shipment of Buffycoats shall be those Specifications in
effect at the time such shipment is ordered, unless ARC and VUSA specifically
agree otherwise in writing.
"SUPPLY PERIOD" shall mean each of the successive two (2) year periods,
beginning with the Effective Date, during which the volume discount price
schedule and rebate program for the two year period is established as set forth
in Exhibit 2 and this Agreement.
"TERM" shall mean the period from the Effective Date hereof to the fifteenth
anniversary of such date, or such earlier date on which this Agreement may be
terminated pursuant to Section 6, or such later date covered by any extensions
or renewals to this Agreement.
"WARRANT AGREEMENT" shall mean the agreement between ARC and the Company, titled
"Warrant for Purchase of Shares of Common Stock" attached to and incorporated
into this Agreement as Exhibit 4a.
TERMS
1. PURCHASE AND SALE OF BUFFYCOATS
1.1 ARC USAGE OF VUSA'S BUFFYCOAT SPECIFICATIONS. ARC agrees to supply
Buffycoats to VUSA in accordance with the Buffycoat Specifications as set forth
in Exhibit 1.
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<PAGE> 4
ARC shall use VUSA's Buffycoat Specifications during the Term of this
Agreement for the sole purpose of supplying Buffycoats to VUSA and/or its
designated Affiliates or designees.
(a) VUSA'S PURCHASE OF ARC BUFFYCOATS. The price per Buffycoat
for such purchases shall be based on the volume discount price schedule
and rebate program for the Supply Period, as provided in Exhibit 2. The
re-negotiation of the volume discount price schedule and rebate program
shall commence six (6) months prior to the expiration of each Supply
Period.
(b) FORECASTS. Thirty (30) days prior the beginning of each
calendar quarter of the Term, VUSA shall provide ARC with a forecast of
its requirements for Buffycoats needed from ARC for manufacture into
Buffycoat derived products for the immediately following and next
subsequent calendar quarters. Thirty (30) days prior the beginning of
each calendar quarter of the Term, ARC shall provide VUSA with a
forecast of its Available Supply for the immediately following and next
subsequent calendar quarters. Such forecasting by ARC and VUSA shall
commence with the Effective Date and continue through the Term. Thirty
(30) days prior to the beginning of each calendar quarter (beginning
with the second calendar quarter of the Term), VUSA at its sole option
and discretion may submit a Buffycoat Purchase Order to ARC for such
calendar quarter. ARC, in its sole discretion, may accept such
Buffycoat Purchase Order. VUSA shall be obligated to assume title to
and take possession of all Buffycoats ordered by VUSA under a Buffycoat
Purchase Order accepted by ARC and produced and delivered by ARC that
conform with the Specifications and delivered and accepted in
accordance with Section 2.
1.2 PAYMENTS. VUSA shall be obligated to pay ARC for Buffycoats ordered and
accepted by VUSA that conform with the Specifications in accordance with payment
requirements and volume discount price schedule and rebate program set forth
herein and in Exhibit 2.
(a) FORM OF PAYMENTS. ARC may, at its option, request in
writing 15 days prior to any invoice due date, payment for Buffycoats
supplied to VUSA in shares of the Company's common stock instead of
cash. If ARC elects to receive payment in shares of Company's common
stock, the formula for the determination of the number of shares of the
Company's common stock to be issued shall be calculated by dividing the
amount of monies due ARC by the product of (i) 100% minus the discount
percentage set forth in Exhibit 3 hereto, and (ii) the average closing
price of the Company's shares for the five (5) trading days prior to
the payment due date. ARC shall have registration rights with respect
to shares received in lieu of cash payments hereunder, as defined in
the Registration Rights Agreement attached hereto as Exhibit 4b and
made a part hereof.
(b) RIGHT TO PURCHASE. The Company or any of its Affiliates or
designees shall have the first right to purchase any or all shares of
common stock of the Company then owned by ARC, or ARC's Affiliates, at
fair market value, in the event
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Confidential 4 of 20 8/18/98
<PAGE> 5
of any early termination or non-renewal of this Agreement.
Notwithstanding the foregoing, no certificates for shares of common
stock issued to ARC shall contain a legend or other reference to this
Right of Purchase, and nothing shall prohibit ARC from selling or
otherwise disposing of shares of common stock pursuant to the Warrants
Agreement and Registration Rights Agreement prior to the receipt of any
notice of the Right of Purchase hereunder.
(c) REBATES. ARC shall promptly pay VUSA a Rebate in the
amount and on the terms specified in Exhibit 2.
1.3 WARRANTS & REGISTRATION RIGHTS. Upon execution hereof, ARC shall
receive from the Company a warrant (the "Warrant") to purchase shares of its
Common Stock as specified in the Warrant Agreement attached as Exhibit 4a and
made a part hereof. ARC shall be entitled to certain registration rights from
the Company with respect to the shares underlying the Warrant and shares that
may be received by ARC in lieu of cash from Buffycoat purchases made by VUSA.
Such registration rights are specified in the Registration Rights Agreement
attached as Exhibit 4b and made a part hereof.
1.4 RECALL OF BUFFYCOATS. In the event of a recall of Buffycoats initiated
by ARC, VUSA agrees to cooperate fully with ARC in retrieving any affected
Buffycoats. In the event of a recall arising from any breach by ARC of this
Agreement, ARC shall refund to VUSA all amounts paid by or on behalf of VUSA
(including any amount paid in the form of Company Stock), and reimburse VUSA for
all reasonable costs directly incurred in connection with the recall of the
Buffycoats and products made from Buffycoats that are subject to such recall.
2. DELIVERY OF BUFFYCOATS
2.1 SHIPMENT AND ACCEPTANCE OF BUFFYCOATS. Buffycoats shall be shipped at
VUSA's expense from an ARC Blood Services Region (a "Region") to the facility
designated by VUSA (a "VUSA Facility") in such manner as VUSA and ARC shall
agree upon, and in accordance with the Specifications, Exhibit 2, and the
delivery schedule provided with the ARC accepted Buffycoat Purchase Order for
such Buffycoats. Title to Buffycoats shall be transferred to and vest in VUSA at
the time VUSA accepts the Buffycoats.
(a) VUSA shall not be required to accept Buffycoats shipped by
ARC unless each shipment is accompanied, preceded or promptly followed
by a certificate of all test results for such shipment and
certification that the shipment of Buffycoats conforms with its
Specifications, including the date, time and location where such
Buffycoat material was drawn from a blood donor. Any Buffycoats not
accepted or that are rejected, or for which the acceptance is revoked,
by VUSA shall be destroyed by VUSA in accordance with all applicable
laws and ARC requirements and Standard Operating Procedures or, if so
requested by ARC, returned to ARC at ARC's expense and instruction. ARC
shall ensure that VUSA is immediately notified of any information
regarding a shipment of Buffycoats that would reasonably suggest that
it does not conform with Specifications or otherwise should not be used
for the manufacture of parenteral use drug products (including any
adverse observations by
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Confidential 5 of 20 8/18/98
<PAGE> 6
FDA or other health inspectors of establishments or locations involved
in the manufacture of Buffycoats), in which case (and in the case of
any lots not accepted, or that are rejected or for which the acceptance
is revoked) such lots shall be deemed rejected and amounts paid
(including any amounts paid in the form of Company common stock) shall
be promptly refunded to VUSA or credited to VUSA's account as
designated by VUSA. VUSA, at ARC's instruction, and sole expense and
risk, will return the Buffycoat packing boxes to ARC by ARC's
designated carrier.
(b) VUSA may from time to time test or have tested, for its
own benefit, of the Buffycoat shipments and materials made therefrom.
Any shipment determined to not conform with Specifications, because of
latent defect or otherwise, shall be deemed rejected and amounts paid
(including any amounts paid in the form of Company stock) shall be
promptly refunded or credited to VUSA's account as designated by VUSA.
(c) ARC shall permit and cooperate with representatives of
VUSA, the FDA and other foreign and domestic regulatory authorities, to
audit or inspect its facilities, equipment and documents, and interview
its personnel as may be needed to assure ARC's compliance with this
Agreement and all applicable laws and regulations pertaining to its
operations.
2.2 TIMING OF SHIPMENTS OF BUFFYCOATS. Subject to the delivery schedule
provided with Buffycoat Purchase Order, VUSA and ARC shall cooperate to ensure
that the Buffycoats to be purchased by VUSA from ARC are shipped in an orderly
manner so as to allow VUSA to utilize them efficiently in the manufacture of its
products. Without limiting the generality of the foregoing ARC shall not ship
Buffycoats to be received by VUSA on any day if VUSA gives ARC written notice (a
"No Ship Notice") that the VUSA Facility will not be operating on any day or
days, ARC shall not ship any Buffycoats to be received by VUSA on such day or
days provided that the No Ship Notice is faxed by VUSA to each Region then
shipping Buffycoats to VUSA not later than noon of the day preceding the day
such Buffycoats are collected. ARC shall furnish to VUSA from time to time the
fax numbers of the Regions then shipping Buffycoats to VUSA. ARC shall notify
VUSA as soon as feasible of any event that has a material affect on ARC's
ability to deliver Buffycoats in full accordance with the Buffycoat Purchase
Order.
3. CONFIDENTIAL INFORMATION
3.1 USE. All Confidential Information of a party hereto shall be used by
the other party only during the Term and solely for the purpose of performing
its obligations hereunder. ARC shall use VUSA's Buffycoat Specifications during
the Term as defined herein for the sole purpose of supplying Buffycoats to VUSA
and/or its designated Affiliates or designees. VUSA acknowledges that ARC may
from time to time manufacture Buffycoats in accordance with specifications, that
which may be similar, or substantially the same as the Specifications herein,
and agrees that such manufacture shall not be a breach of confidentiality
provisions hereunder.
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Confidential 6 of 20 8/18/98
<PAGE> 7
3.2 CONFIDENTIAL TREATMENT. Each party agrees that it will keep
confidential the other party's Confidential Information and shall not, without
the prior written consent of the other party, disclose or permit the disclosure
by it or by its representatives or employees of such Confidential Information,
in any manner whatsoever, in whole or in part, except as specifically
contemplated by this Agreement, and that such party will only reveal the other
party's Confidential Information to such representatives and employees of the
receiving party who need to know the Confidential Information for the purpose of
performing the obligations of the receiving party hereunder and that such
representatives and employees will be informed by the receiving party of and
agree with the receiving party to maintain the confidential nature of the
Confidential Information.
3.3 REQUIRED DISCLOSURE. Each party agrees that, if such party becomes
legally compelled to disclose any of the other party's Confidential Information,
it will provide such other party with prompt notice so that such other party may
seek a protective order or other appropriate remedy. If such protective order or
other remedy is not timely obtained, or such other party waives compliance with
the provisions of this Section 3, the party compelled to make such disclosure
shall only furnish that portion of the Confidential Information which, on the
advice of counsel, it reasonably determines it is legally required to furnish
and will use its commercially reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded such Confidential Information.
3.4 RETURN ON TERMINATION & NOTIFICATION OF MISAPPROPRIATION. Upon
termination of this Agreement, each party shall use its commercially reasonable
efforts to return to the other party all Confidential Information acquired by it
from such other party and all copies thereof. Each party agrees that it shall
immediately notify the other party of any unauthorized disclosure or use of the
other parties' Confidential Information in its possession, and shall take and
assist such other party in taking all lawful means, including bringing and
diligently prosecuting civil and criminal complaints, to abate such unauthorized
use or disclosure.
3.5 INJUNCTIVE RELIEF. Each party hereto acknowledges and agrees that any
breach by such party of the provisions of this Section 3 would cause immediate
and irreparable harm to the other party, and that the resulting damages and
injuries to such other party would be incalculable and irremediable in terms of
monetary damages. Accordingly, the parties agree that, in the event of such
breach, the other party shall be entitled to injunctive relief and specific
performance of the covenants contained herein, without the obligation of posting
bond, in addition to any other remedy to which it may be entitled in law or
equity. The parties obtaining such injunction or equitable relief shall be
entitled to award of the cost of reasonable fees and expense of attorneys and
other experts necessary in enforcing this Agreement.
4. FORCE MAJEURE
Neither party shall be liable for any loss, damage, delay, or failure to
perform hereunder resulting from causes beyond its control, including, but not
limited to, fire, flood,
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Confidential 7 of 20 8/18/98
<PAGE> 8
earthquake, war, embargo, strikes, lockouts, labor troubles, accident,
explosion, riot, insurrection, governmental laws or regulations, taking of its
property by governmental authority, quarantine by governmental authority,
breakdown of equipment, or shortages of materials or labor or supplies of any
kind (other than shortages resulting from a party's failure to order or take
reasonable steps to procure such materials, labor, or supplies); provided, that
no Force Majeure shall apply to any event that arose from the negligent or
wrongful acts of a party, including breach of this Agreement. If either party
becomes aware of any event described in this Section 4 that could reasonably be
expected to affect such party's performance of its obligations hereunder, it
shall promptly give notice thereof to the other parties.
5. REPRESENTATIONS AND COVENANTS
5.1 REPRESENTATIONS BY ARC. ARC represents and warrants as follows:
(a) ARC is a charitable and not-for-profit corporation
chartered by Congress, duly organized and validly existing, with all
requisite corporate power and authority to carry on the business in
which it is engaged and to enter into and perform its obligations under
this Agreement.
(b) All necessary corporate proceedings of ARC have been duly
taken to authorize the execution, delivery, and performance of this
Agreement by ARC. This Agreement has been duly authorized, executed,
and delivered by ARC, constitutes the legal, valid, and binding
obligation of ARC, and is enforceable as to it in accordance with its
terms.
(c) No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority is required by
ARC for its execution, delivery, and performance of this Agreement. No
consent of any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which ARC is a party, or to
which it or any of its businesses, properties, or assets are subject,
is required for the execution, delivery, or performance of this
Agreement; and the execution, delivery, and performance of this
Agreement will not violate, result in a breach of, or conflict with any
such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree binding on ARC or to
which it or any of its businesses, properties, or assets are subject or
any authorizing statute or corporate bylaws of ARC. No acts taken by or
on behalf of ARC in connection with its manufacture and supply of
Buffycoats or this Agreement shall infringe or misappropriate any
license or any patent, trade secret, copyright or other intellectual
property rights.
(d) ARC will ensure the compliance with all applicable laws,
rules, regulations, and recommendations of the United States Food and
Drug Administration (including any debarment or other restrictions
under the Generic Drug Enforcement Act or other provision of law,
regulation or lawful judicial or administrative order), Environmental
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Confidential 8 of 20 8/18/98
<PAGE> 9
Protection Agency, Occupational Safety and Health Administration, and
any other federal, state, or local regulatory agency ("Agencies")
having jurisdiction over biomedical operations or the manufacturing of
the Buffycoats, and that the Buffycoats shall conform with the
Specifications and any certification of test results provided under
2.1(a), and shall maintain in good and valid effect all permits,
licenses and other approvals necessary for it to lawfully perform its
obligations hereunder, and shall ensure the use of professional and
prudent care in the manufacture and supply of the Buffycoats; provided,
that violations of such laws, rules, regulations, and recommendations
shall not be deemed a breach of this warranty or cause for termination
by VUSA or the Company unless (i) such violations might materially
effect either the supply of Buffycoats under this Agreement or VUSA's
liability for acceptance and use of such Buffycoats, and (ii) such
violations are not promptly remedied by ARC in a time and manner
reasonably satisfactory to VUSA.
(e) ARC further warrants that it is (i) is acquiring the
Common Stock and the Warrant contemplated hereby for the purpose of
investment and not with a view toward any distribution thereof in
violation of the Securities Act, (ii) has had the opportunity to ask
questions of the officers and directors of, and has had access to
information concerning, the issuer and the terms of such Common Stock
and the Warrant, (iii) is an "accredited investor" as defined in Rule
501(a) under the Securities Act, (iv) has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the investment in
such Common Stock and the Warrant, (v) has so evaluated the merits and
risks of such investment, (vi) is able to bear the economic risk of
such investment and (vii) is able to afford complete loss of such
investment. ARC will not, directly or indirectly, offer, transfer,
sell, assign, pledge, hypothecate or otherwise dispose of all or any
part of such Common Stock or the Warrant (or solicit any offers to buy,
purchase, or otherwise acquire any of the foregoing), absent
registration or an exemption from registration under the Securities
Act.
5.2 REPRESENTATIONS AND COVENANTS BY VUSA AND THE COMPANY.
The following representations and warranties shall be deemed to be given to
ARC by VUSA and, where specifically indicated, by the Company, on the date first
above written and on the date ARC elects payment in the form of Company common
stock pursuant to Section 1.2(a):
(a) The Company and VUSA are each a corporation duly
organized, validly existing, and in good standing under the laws of
Delaware, with all requisite corporate power and authority to carry on
the business in which it is engaged and to enter into and perform its
obligations under this Agreement. The Company and VUSA are each duly
qualified and in good standing as a foreign corporation in each
jurisdiction in which failure to so qualify would have a material
adverse effect on its business, properties, or assets.
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Confidential 9 of 20 8/18/98
<PAGE> 10
(b) All necessary corporate proceedings of the Company and
VUSA have been duly taken to authorize the execution, delivery, and
performance of this Agreement by the Company and VUSA. This Agreement
has been duly authorized, executed, and delivered by the Company and
VUSA, constitutes the legal, valid, and binding obligation of the
Company and VUSA, and is enforceable as to it in accordance with its
terms. The shares covered by the Warrant and Section 1.2(a) (except as
provided in this Agreement, the Warrant Agreement, and applicable laws
and regulations) have been reserved for issuance and are, and when
issued shall be, duly authorized and, when issued pursuant to the terms
of this Agreement and the Warrant Agreement, shall be duly and validly
issued, fully paid and nonassessable, without any personal liability
attaching to the ownership thereof, and the issuance of such shares
will not violate any preemptive rights of stockholders. ARC (except as
provided in this Agreement, the Warrant Agreement, and applicable laws
and regulations) will receive good title to the shares, when issued,
free and clear of all liens, charges, security interests, encumbrances,
and voting trusts of every kind and nature whatsoever, other than those
arising from the actions or failure to act of ARC. No stockholder
approval is required for the Company to issue and deliver the Shares to
be issued pursuant to this Agreement (except as provided in this
Agreement, the Warrant Agreement, and applicable laws and regulations).
(c) No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority is required by
the Company or VUSA for its execution, delivery, and performance of
this Agreement. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the
Company or VUSA is a party, or to which it or any of its businesses,
properties, or assets are subject, is required for the execution,
delivery, or performance of this Agreement; and the execution,
delivery, and performance of this Agreement will not violate, result in
a breach of, or conflict with any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment,
or decree binding on the Company or VUSA or to which it or any of its
businesses, properties, or assets are subject or any provision of
Company or VUSA's certificate of incorporation or bylaws.
(d) As of March 31, 1998, the authorized capital of Company
consists of (i) 75,000,000 shares of Common Stock, of which
approximately 52,710,635 shares are issued and outstanding (and 606,277
held as treasury stock), and (ii) 1,000,000 shares of preferred stock,
3,350of which are issued and outstanding. All outstanding shares of
capital stock are duly and validly issued, fully paid, and
nonassessable.
(e) The Company has delivered to ARC a true and correct copy
of the Company Annual Report on Form 10-K for the fiscal year ended
June 30, 1997 as filed with the Securities and Exchange Commission (the
"Commission"). The Company shall deliver to ARC, promptly as filed, a
true and correct copy of each report filed by the Company with the
Commission on Form 10-K, 10-Q, or 8-K (collectively, "SEC
________________________________________________________________________________
Confidential 10 of 20 8/18/98
<PAGE> 11
Reports"), and shall deliver to ARC promptly as mailed a copy of all
communications distributed to the holders of its Common Stock
(collectively, "Stockholder Communications"). The foregoing obligations
shall remain in effect so long as any shares remain to be issued
pursuant to this Agreement.
(f) The Company has timely filed with the Securities and
Exchange Commission ("SEC") all reports required to be filed under
Section 13, 14, or 15(d) of the Securities Exchange Act of 1934, as
amended ("1934 Act"). As of their respective dates, such reports
complied in all material respects with applicable SEC requirements and
did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the Company
shall have no liability for any breach of the representation and
warranty set forth in this sentence unless the Company commits a breach
thereof by making with scienter any such untrue statement of a material
fact or omitting with scienter to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(g) VUSA will ensure the compliance with all applicable laws,
rules, regulations, and recommendations of the U.S. States Food and
Drug Administration, Environmental Protection Agency, Occupational
Safety and Health Administration, and any other federal, state, or
local regulatory agency (collectively "Agencies") having jurisdiction
over the manufacturing of Natural Alpha Interferon; provided, that
violations of laws, rules, regulations, and recommendations shall not
be deemed a breach of this warranty or cause for termination by ARC
unless such violations (i) are cited by such Agencies as posing a
material and continuing threat to the public health, and (ii) are not
promptly remedied by VUSA in a time and manner satisfactory to such
Agencies.
6. TERMINATION
6.1 TERM OF AGREEMENT. The initial term of this Agreement shall be for
fifteen (15) years from the Effective Date.
(a) During the seventh year of this Agreement, any party may
terminate it with or without cause upon delivery to the other parties
of written notice at least ninety (90) days before the seventh
anniversary date, in which case it shall be terminated on, but no
earlier than, the seventh anniversary of the Effective Date.
(b) If the Agreement is not terminated on its seventh
anniversary, then the Agreement shall automatically be extended through
its eleventh anniversary.
(c) Upon the eleventh anniversary of the Effective Date, and
for each year thereafter, this Agreement shall automatically renew,
without limitation, for successive one (1) year periods unless a party
delivers to the other parties written notice at least
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Confidential 11 of 20 8/18/98
<PAGE> 12
ninety (90) days before the subsequent anniversary date that it will
not renew the Agreement.
(d) Six months prior to the end of the initial Supply Period,
the parties agree to negotiate in good faith prices, discounts, rebates
and quantities for the subsequent Supply Period. Notwithstanding
anything to the contrary herein, no party shall be obligated in any
manner whatsoever to agree on any particular terms for prices
discounts, rebates or quantities for the subsequent Supply Period,
other than the terms that such party in its sole commercial discretion
deems acceptable, which may take into account, among other
considerations, the performance of the other parties under this
Agreement, the availability of and terms obtainable from alternative
vendors and suppliers, and future requirements and available supply. A
failure by the parties to agree upon price, discounts, rebates or
quantities for prior to the first two calendar quarters of the Supply
Period for which such negotiations apply shall not serve to negate,
modify or terminate this Agreement. If the parties fail to agree upon
the prices, discounts, rebates and quantities for the subsequent Supply
Period prior to the beginning of Supply Period, then all rights and
obligations of the parties under this Agreement (except for the
confidentiality and quality assurance provisions and the payment of any
amounts or rebates due under this Agreement), shall be temporarily
suspended on a quarterly basis until such time as the parties agree to
such terms; provided, that if the parties do not reach a definitive and
complete agreement on the supply terms for the subsequent Supply Period
prior to the end of the second calendar quarter of such Supply Period
then this Agreement shall at the election of and notice by either party
become immediately terminated.
6.2 RIGHTS TO TERMINATE. This Agreement may be terminated prior to the
scheduled end of the Term by a party (the "terminating party") as follows, by
notice as provided in Section 6.1:
(a) by any party, if another party breaches in any material
respect any of its material obligations or warranties under this
Agreement and such breach, if capable of being cured, shall not have
been cured within 90 days after notice of such breach to the breaching
party from the terminating party or, if such breach is capable of being
cured but not within such 90-day period, then within such period as is
reasonably necessary to effect a cure so long as the breaching party
diligently pursues such cure during such extended period; or
(b) by any party upon the entry of a decree or order by a
court having jurisdiction adjudging the other party a bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of such other party, under
federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in
effect for a period of 60 days; or the commencement by such other party
of a voluntary case under any such law, as now or hereafter
constituted, or the consent by it to the institution of
________________________________________________________________________________
Confidential 12 of 20 8/18/98
<PAGE> 13
bankruptcy or insolvency proceedings against it, or the filing by it of
a petition or answer or consent seeking reorganization or relief under
any such law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, or similar official of it or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by such other party in furtherance of any such action; or
(c) termination of the Agreement is required for ARC to (i)
comply with its Congressional Charter, or (ii) maintain its status as a
tax exempt entity; or (iii) comply with the regulations or lawful
orders of the U.S. FDA.
6.3 NOTICE OF TERMINATION. Notice of termination in accordance with Section
6.2 may be given by the terminating party, in the case of termination in
accordance with (i) Section 6.2(a), at any time after the end of the period
during which the other party has the right to cure the breach giving rise to
such right of termination and provided such breach has not been cured at the
date of the giving of such notice or (ii) Section 6.2(b), at any time after
occurrence of the event giving rise to such right of termination.
6.4 CONTESTED TERMINATION. If a party shall give notice of termination of
this Agreement pursuant to Section 6.3 and the other party shall, within five
days of receipt of such notice, commence legal proceedings contesting the
terminating party's right to so terminate this Agreement, the parties shall
continue to perform under this Agreement until the resolution of such
controversy.
6.5 EFFECT OF TERMINATION. Termination, expiration, cancellation, or
abandonment of this Agreement through any means or for any reason shall not
relieve the parties of any obligation accruing prior thereto and shall be
without prejudice to the rights and remedies of either party with respect to any
antecedent breach of any of the provisions of this Agreement. The obligations of
the parties in Sections 1.2(b), 1.2(c), 1.5, 2 (with respect to product which
has been delivered to or ordered by VUSA under this Agreement), 3, 4 (with
respect to continuing obligations), 5.1(c), 5.1(d), 5.2(e), 6.4, 7, 8, and 9
shall survive any termination or expiration of this Agreement. The rights and
obligations of the parties under the Warrant Agreement and under the
Registration Rights Agreement in the event of any suspension, termination,
expiration or non-renewal of this Agreement, loss of preferential rights
hereunder, shall be as set forth in those agreement respectively.
7. INDEMNIFICATION
7.1 INDEMNIFICATION BY VUSA AND COMPANY. Irrespective of any due diligence
investigation conducted by ARC or any of its representatives with regard to the
transactions contemplated hereby, VUSA, and the Company so long as VUSA is an
Affiliate of the Company (provided that the Company's indemnification, defense
and hold harmless
________________________________________________________________________________
Confidential 13 of 20 8/18/98
<PAGE> 14
obligations shall continue with respect to any Loss to the extent that it arises
out of events, acts or omissions occurring prior to the date VUSA ceases to be
an Affiliate of the Company), agrees to indemnify, defend, and hold ARC and its
directors, officer, employees, volunteers, agents and Affiliates (collectively
"ARC Indemnitees") harmless from and against any and all liabilities,
obligations, damages, losses, demands, claims, actions, causes of action,
deficiencies, costs, penalties, interest and expenses (including, without
limitation, reasonable expenses of investigation and fees and disbursements of
counsel and other professionals) (all collectively, "Losses"), which such ARC
Indemnitees may incur, suffer, become liable for, or which may be asserted or
claimed against them, to the extent that such Losses are a result of--
(a) any misrepresentation or breach of warranty made in this
Agreement by VUSA or the Company; or
(b) the failure of VUSA or the Company to comply with any of
the covenants or other agreements of VUSA or the Company contained in
this Agreement; or
(c) any claims of misappropriation or infringement of any
patent, copyright, trademark, service mark, trade name, trade secret or
similar proprietary rights in any way relating to the Specifications,
Omniferon, or other product manufactured from the Buffycoats, and which
is brought against the ARC Indemnitee because of this Agreement and not
because of such ARC Indemnitee separate acts; or
(d) the use, manufacture, production, advertising, sale, offer
for sale, transfer or other disposition of relating to Omniferon, or
any other product manufactured from the Buffycoats pursuant to this
Agreement, and which is brought against the ARC Indemnitee because of
ARC's supply of Buffycoats under this Agreement and not because of such
ARC Indemnitee separate acts; or
VUSA and the Company shall not be obligated to indemnify, defend or hold the ARC
Indemnitees harmless for any Claims to the extent that such Claims are caused by
or arises out of any wrongful or negligent act or omission of ARC or its
directors, officers, agents, volunteers or employees, including without
limitation the failure of the Buffycoats provided under this Agreement to
conform with the Specifications or their breach of this Agreement or the ARC
warranties.
7.2 INDEMNIFICATION BY ARC. Irrespective of any due diligence investigation
conducted by VUSA and the Company or any of their representatives with regard to
the transactions contemplated hereby, ARC agrees to indemnify, defend, and hold
VUSA, and the Company so long as VUSA is an Affiliate of the Company (provided
that the ARC's indemnification, defense and hold harmless obligations to the
Company shall continue with respect to any Loss to the extent that it arises out
of events, acts or omissions occurring prior to the date VUSA ceases to be an
Affiliate of the Company), and their respective directors, officer, employees,
agents and Affiliates (collectively "VUSA/Company Indemnitees") harmless from
and against any and all Losses (as such term is defined in Section 7.1), which
such VUSA/Company Indemnitees may incur, suffer, become liable for, or which may
be asserted or claimed against them, to the extent that such Losses are a result
of a result of--
________________________________________________________________________________
Confidential 14 of 20 8/18/98
<PAGE> 15
(a) any misrepresentation or breach of warranty made in this
Agreement by ARC; or
(b) the failure of ARC to comply with any of the covenants or
other agreements of ARC contained in this Agreement or any certificate
of analysis provided under 2.1(a).
ARC shall not be obligated to indemnify, defend or hold the VUSA or Company
Indemnitees harmless for Claims to the extent that such Claims are caused by or
arise out of a wrongful or negligent act or omission of VUSA or the Company or
their directors, officers, agents, or employees, including without limitation,
their failure to take action upon receipt of a notice by ARC of positive test
results, or their breach of this Agreement or the VUSA or Company warranties,
but excluding any negligence or fault by VUSA/Company Indemnitees in failing to
detect or determine that a shipment of Buffycoats fails to conform with
Specifications.
7.3 RELATIONSHIP WITH THE REGISTRATION RIGHTS AGREEMENT. Each party agrees
that with respect to any litigation or claim covered by the indemnifications in
the Registration Rights Agreement, attached to and incorporated into this
Agreement as Exhibit 4b, the Registration Rights Agreement shall govern and not
this Section 7. Each party agrees that with respect to any litigation or claim
not covered by the indemnifications in the Registration Rights Agreement, this
Section 7 shall govern and not the Registration Rights Agreement.
7.4 INSURANCE. ARC and, collectively, the Company and VUSA shall maintain
during the Term of this Agreement the following policies of insurance (the
"Policies") in the amounts specified:
(a) (1) Commercial general liability insurance in an amount of
at least $5,000,000. (2) Professional Liability Insurance in an amount
not less $5,000,000 specifically insuring claims arising from
performance of services as defined in this Agreement and related
material, including but not limited to, coverage for all expenses
including attorney's fees, incurred in the investigation, negotiation,
arbitration, and defense of any suit or claim for damages including
lost earnings of the other party. The parties agree that in the case of
the Company and VUSA the obligation to obtain such Professional
Liability Insurance shall be satisfied by their obtaining and
maintaining the Clinical Trials Liability and Products Liability
policies as set forth under 7.4(b); provided that such policies cover
claims arising from errors and omissions of the Company and VUSA in the
design, manufacture and testing of their products. (3) Auto Liability
policy in an amount not less than $300,000. (4) Worker's Compensation
coverage covering each party's own employees with statutory limits for
each jurisdiction where the work required under this Agreement is
performed (including monopolistic states if any work is to be performed
in one or more of them) and an employer's liability policy with at
least the following limits: $250,000 per accident; $500,000 per
disease, and $250,000 disease (each employee).
(b) VUSA also shall maintain during the Term of this Agreement
the following policies: (i) Upon initiation and during the conduct of
human clinical studies using
________________________________________________________________________________
Confidential 15 of 20 8/18/98
<PAGE> 16
products manufactured from Buffycoats, either a Products Liability or
Clinical Trials Liability Policy specifically insuring claims for
bodily injury, death, or property damage arising from development and
clinical testing of any products manufactured from the Buffycoats in an
amount not less than $5,000,000 per occurrence and in the aggregate.
(ii) Upon initiation of commercial manufacture, distribution or sale
(whichever first occurs) of products manufactured from Buffycoats and
thereafter, VUSA shall maintain a Products Liability Policy in an
amount not less than $10,000,000. The policies required to be
maintained under this Section 7.4(b) shall name ARC as an Additional
Insured and specifically insure claims for bodily injury, death or
property damage arising from the development, creation, manufacture,
distribution or use of any product made, in whole or in part, with
Buffycoats, including, but not limited to, Omniferon.
(c) Each party shall, at its sole expense, keep in force
policies of insurance in the amounts as specified and as required by
statute with carriers reasonably satisfactory to the other, and will be
written as primary policy coverage and not contributing with, or in
excess of any coverage which the other party shall carry with respect
to the work of each party under this Agreement. Certificates of
insurance evidencing all of the above coverages and conditions (types
and amounts) shall be produced upon written request and shall remain in
full force and effect during the Term of this Agreement. Each party's
certificate(s) of insurance shall provide for not less than Thirty-
(30) days written notice, of cancellation, non-renewal or reduction in
terms and conditions that are required herein, to the other party. ARC
acknowledges and agrees that the Policies held by VUSA and/or the
Company satisfy their obligations under this Section 7.4 to the extent
they provide ARC with Certificates of insurance for such Policies and
ARC does not object within a reasonable period of time from the date of
delivery.
8. COMPANY GUARANTEE OF VUSA OBLIGATIONS.
As an inducement to ARC to enter into this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, until such time as VUSA is not an Affiliate of the Company, the
Company hereby agrees to unconditionally guaranty the obligations of VUSA under
Sections 1.2 and 7. The obligations of the Company under this Section 8 may be
enforced directly against the Company upon any default by VUSA, and without
regard to any choice of other remedy which may be selected. Notwithstanding
anything to the contrary in the Agreement or otherwise, the parties hereby agree
that the Company's obligations under or in relation to the Agreement shall only
extend to those obligations guaranteed by the Company under this Section 8 and
such other obligations that are specifically and expressly stated in this
Agreement as undertakings or warranties by the Company on its own behalf.
9. MISCELLANEOUS
9.1 PAYMENTS. All cash payments to be made hereunder shall be made by check
or wire transfer. In the event a party shall reasonably dispute any amounts
claimed to be owed
________________________________________________________________________________
Confidential 16 of 20 8/18/98
<PAGE> 17
hereunder, such amounts shall not be deemed due until such dispute is resolved,
but any amounts not in dispute shall be deemed due.
9.2 FURTHER ACTIONS. At any time and from time to time, each party agrees,
at its expense, to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
9.3 NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given at the address of such party set forth in the preamble to
this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 9.3). Any notice or
other communication given by certified mail shall be deemed given five days
after the time of mailing thereof, except for a notice changing a party's
address which will be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section 9.3 shall be deemed given at the
time of receipt thereof. Notices shall be provided to the following persons and
addresses, subject to changes properly notified by the party making such change
to the other parties:
THE AMERICAN NATIONAL RED
CROSS BIOMEDICAL SERVICES
1616 N. Fort Myer Dr.
Rosslyn, VA 22209
ATTN: Mr. Brian McDonough,
Chief Operating Officer
Telephone No: 703-312-5642
Fax No.: 703-312-5848
VIRAGEN, INC. VIRAGEN U.S.A., INC.
865 SW 78th Avenue, Suite 100 865 SW 78th Avenue, Suite 100
Plantation, FL 33324 Plantation, FL 33324
ATTN: Gerald Smith, ATTN: Charles F. Fistel,
President Executive Vice President
Telephone No: 954-233-8746 Telephone No: 954-233-8746
Fax No.: 954-233-1412 Fax No.: 954-233-1412
9.4 PARTIES IN INTEREST. Subject to the limitations on assignment in
Section 9.8, this Agreement and all of the provisions hereof shall be binding
upon and inure solely to the benefit of each party hereto, their subsidiaries,
and any successors in interest by reason of any business combination,
reorganization or otherwise. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person (including any Affiliate of a
________________________________________________________________________________
Confidential 17 of 20 8/18/98
<PAGE> 18
party, except to the extent specifically provided otherwise herein) any rights,
benefits, obligations or remedies of any nature whatsoever under or by reason of
this Agreement.
9.5 LIMITATIONS ON LIABILITY. In no event shall any party hereto have any
liability, whether based on contract, tort (including, without limitation,
negligence), or any other legal or equitable grounds, for any loss of interest,
profit or revenue by any other party hereto or of any consequential, indirect,
special, punitive or exemplary damages suffered by any other party hereto.
9.6 HEADINGS. The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
9.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by either party hereto without the prior
written consent of the other party; provided, that (a) the rights but not
obligations of any party herein may be assigned to one or more of such party's
Affiliates, (b) either party may cause any Affiliate to perform on its behalf
any of such party's obligations, and (c) either party may assign all of its
rights and obligations to any purchaser of all or substantially all of the
assets of the part of such party's or its Affiliates' business which relates to
the subject of this Agreement. No assignment shall relieve either party of
responsibility for the performance of any accrued obligation which such party
then has hereunder.
9.9 MODIFICATION. This Agreement and the Schedules hereto set forth the
entire understanding of the parties with respect to the subject matter hereof,
supersede all existing agreements among them concerning such subject matter, and
may be modified only by a written instrument duly executed by each party.
9.10 SEVERABILITY & INTEGRATION. If any term or provision of this Agreement
shall for any reason be held invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other term
or provision hereof, and this Agreement shall be interpreted and construed as if
such term or provision, to the extent the same shall have been held to be valid,
illegal, or unenforceable, had never been contained herein. This Agreement,
together with its Exhibits, are intended to be the final and full agreement
between the parties, and supersedes all prior discussions, negotiations,
agreements, letters of intent, term sheets, heads of agreements and other
written, oral and other communications; provided that all obligations under the
"Confidentiality Agreement," dated January 24, 1996 between VUSA and ARC, shall
be deemed to be continued and merged into the obligations under this Agreement.
9.11 WAIVER. Any waiver by either party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement,
whether of the same or different nature or
________________________________________________________________________________
Confidential 18 of 20 8/18/98
<PAGE> 19
circumstance. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions will not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. The provision hereunder of one or
remedies, shall be additive to all other remedies available to the parties under
this agreement or applicable law, and the exercise of such remedy shall not
limit a party in seeking or obtaining such other a remedies. Any waiver must be
in writing signed by a person who is authorized by the party making such waiver
to execute such document.
9.12 JURISDICTION. Each of the parties hereby irrevocably consents to the
jurisdiction of the courts of the State of Florida or the Commonwealth of
Virginia and of any federal court located in such State or Commonwealth in
connection with any action or proceeding arising out of or relating to this
Agreement or a breach of this Agreement. All disputes under this Agreement shall
be determined in accordance with Virginia law; provided, that disputes
pertaining securities, corporate governance and any rights or obligations
relating to the stock or warrants of VUSA or the Company shall be determined
under Delaware, and, where applicable, Federal law. The party materially and
substantively prevailing in any litigated or arbitrated dispute is entitled to
award of its costs, including the fees and expense of attorneys and other
professionals, in connection with litigating such dispute. No provision of this
Agreement shall be construed against any party by reason of that party having
drafted the same.
9.13 PUBLIC ANNOUNCEMENTS. Neither party shall issue any press release or
otherwise make any public statement with respect to this Agreement or any of the
transactions contemplated hereby without first consulting with and (unless such
press release or statement is required by applicable law or the requirements of
any listing agreement with any applicable stock exchange or inter-dealer
quotation system, or other requirement to identify its suppliers of human
leukocytes) obtaining the consent of the other party, which consent shall not be
unreasonably withheld.
9.14 NO USE OF RED CROSS NAME/EMBLEM OR OTHER MARKS. The Company and VUSA
recognizes that the "American Red Cross" name and emblem represents ARC's most
valuable assets and that substantial recognition and goodwill is associated with
this name, emblem and other various trademarks and service marks of ARC. The
Company, and VUSA shall not use the "American Red Cross" name, emblem or any
other trademarks or service marks of ARC without the prior written authorization
from ARC. Nothing in this Agreement, exclusive of Section 9.13 with respect to
the name "American Red Cross" or "ARC", constitutes such authorization.
9.15 INDEPENDENT CONTRACTORS. Each Party is performing its duties hereunder
an independent contractor and vendor-customer, and nothing herein shall create
any association, affiliation, partnership or joint venture or other relationship
between the parties hereto or any employer-employee relationship.
________________________________________________________________________________
Confidential 19 of 20 8/18/98
<PAGE> 20
9.16 LIMITATIONS. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THERE ARE
NO OTHER WARRANTIES, EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
THE AMERICAN NATIONAL RED VIRAGEN U.S.A., INC.
CROSS BIOMEDICAL SERVICES
By: /s/ Niall Conway By: /s/ Charles Fistel
Niall Conway Charles Fistel
Vice President, Manufacturing Executive Vice President
Date: August 19, 1998 Date: August 18, 1998
--------------- ---------------------
VIRAGEN, INC.
ONLY AS TO BE BOUND BY THE OBLIGATIONS
SPECIFICALLY APPLICABLE TO VIRAGEN, INC.
UNDER SECTIONS 1.3, 5.2,7.1, 7.4 & 8
By: /s/ Gerald Smith
Gerald Smith
President
Date: August 18, 1998
________________________________________________________________________________
Confidential 20 of 20 8/18/98
<PAGE> 1
STRATEGIC ALLIANCE AGREEMENT Exhibit (10)(LXi).01
THIS STRATEGIC ALLIANCE AGREEMENT (the "Agreement") is entered into and
made effective as of the 31st day of July, 1998 (the "Effective Date ") by and
between Inflammatics, Inc., a Delaware corporation with its offices at 401
Chrislena Lane, West Chester, Pennsylvania 19380 ("IFM") and Viragen, Inc., a
Delaware corporation with its offices at 865 S.W. 78th Avenue, Suite 100,
Plantation, Florida 33324 ("VRGN"). IFM and VRGN are sometimes referenced in
this Agreement individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, IFM is engaged in the research and development of
LeukoVAX(TM), a human white blood cell derived drug for the treatment of various
medical conditions (including but not necessarily limited to rheumatoid
arthritis);
WHEREAS, VRGN has established itself globally as a potential source for
leukocytes and other blood or blood-related components for the production of
biopharmaceutical products;
WHEREAS, VRGN has experience in the research, development and
manufacture of therapeutic pharmaceutical products;
WHEREAS, IFM and VRGN desire to have IFM conduct further clinical
research with respect to a certain human white blood cell derived drug or
biological (as the case may be) for the treatment of various medical conditions
(including but not necessarily limited to rheumatoid arthritis);
WHEREAS, based on the results of such further clinical research by IFM,
VRGN may: (i) conduct product and process development with respect to such human
white blood cell derived drug or biological, (ii) seek, on behalf of IFM, to
obtain marketing approval in the Territory (as that term is defined herein) for
such drug or biological from the United States Food and Drug Administration and
other ministries of health in the Territory, and (iii) manufacture such drug or
biological for distribution, use and sale in the Territory;
WHEREAS, concurrently with entering into this Agreement, VRGN and Dr.
Nigel J. Smart ("Dr. Smart") are entering into a Consultancy, Confidential
Information and Inventions Agreement (the "Consultancy Agreement"); and
WHEREAS, concurrently with entering into this Agreement, IFM and VRGN
are entering into a Preferred Stock Purchase Agreement (the "Stock Purchase
Agreement") of
<PAGE> 2
even date herewith pursuant to which IFM is issuing and transferring to VRGN
Series A Convertible Preferred Shares of IFM stock.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
premises contained in this Agreement and intending to be legally bound thereby,
the Parties agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "AFFILIATE" shall mean any company or entity controlled by,
controlling, or under common control with a Party hereto and shall include
without limitation any company 50% or more of whose voting stock or
participating profit interest is owned or controlled, directly or indirectly, by
a Party, and any company which owns or controls, directly or indirectly, 50% or
more of the voting stock of a Party.
1.2 "CLINICAL CANDIDATE" shall mean the human white blood cell derived drug
or biological for the treatment of various medical conditions (including but not
necessarily limited to rheumatoid arthritis) which is, as of the Effective Date,
being developed by IFM and called LeukoVAX(TM), and which is the subject of any
study, test, trial or other research or development work (whether performed by
IFM or VRGN alone or jointly, or in conjunction with Third Parties or
Affiliates) pursuant to this Agreement. The Clinical Candidate shall include
without limitation any and all improvements upon, modifications to or
derivatives from the LeukoVAX(TM) drug or biological, including without
limitation as a result of any product or process development work carried out by
VRGN under Article 4. Notwithstanding the foregoing, the Clinical Candidate
shall not include any drug or biological or other product that is unrelated to
the Clinical Candidate, including without limitation OMNIFERON(TM) or any drug,
biological or other product that is owned, in-licensed, acquired or otherwise
controlled by VRGN or its Affiliates as of the Effective Date or thereafter.
1.3 "CONFIDENTIAL INFORMATION" shall mean all information, trade secrets,
ideas, inventions, technology, know-how or data of either Party (which, in the
case of IFM, shall include IFM Technology as defined herein) whether of a
business or technical nature, including without limitation, information relating
to a Party's products, processes, designs, methods, formulae, assays, cell
lines, software, databases, algorithms, research, developmental or experimental
work, techniques, improvements and information regarding a Party's licensing and
other Third Party arrangements, disclosed pursuant to, or in anticipation of,
this Agreement in whatever form (including without
2
<PAGE> 3
limitation written, graphic or electronic form) if marked as confidential or in
oral form if designated as confidential and confirmed in writing promptly (but
in no event more than 30 days) after oral disclosure. Without limiting the
generality of the foregoing, Confidential Information of a Party shall also
include, without limitation, (i) information regarding the Clinical Research
Plan, the Clinical Candidate, Product, product and process development for
Product, and other matters related to this Agreement or the business of the
disclosing Party, including manufacturing, marketing, financial, personnel,
scientific and other business information and plans, such as forecasts,
suppliers and customer lists, and (ii) the material terms of this Agreement.
1.4 "CLINICAL RESEARCH PLAN" shall have the meaning set forth in Article 2.
1.5 "CLINICAL RESEARCH PLAN INFORMATION" shall have the meaning set forth
in Section 7.1.1.
1.6 "CRMC" shall mean the Clinical Research Management Committee
established by the Parties pursuant to Section 2.2.
1.7 "CONTROL" shall mean possession of the right to grant the licenses as
provided for herein without violating the terms of any agreement or arrangement
with a Third Party existing on the Effective Date.
1.8 "FDA" shall mean the United States Food and Drug Administration.
1.9 "IND" shall mean an Investigational New Drug Application as defined in
the FDA regulations, as amended or supplemented from time to time.
1.10 "IFM TECHNOLOGY" shall mean all technology, ideas, inventions (whether
or not patentable), information, data, clinical and pre-clinical trial results,
trade secrets, know-how, patents and patent applications (including any
divisions, continuations, continuations-in-part, reissues, extensions, renewals,
supplementary protection certificates and foreign counterparts thereof) that IFM
owns, Controls or has developed as of the Effective Date.
1.11 "NDA" shall mean a New Drug Application as defined in the United
States Federal Food, Drug and Cosmetic Act and applicable regulations and
guidances thereunder, as amended or supplemented from time to time.
3
<PAGE> 4
1.12 "PHASE 1/PHASE 2" or "PHASE 1/2" shall mean the human clinical trials
phase of clinical development of pharmaceutical products defined as "Phase 1"
and "Phase 2" in the FDA regulations as amended or supplemented from time to
time.
1.13 "PHASE 3" or "PHASE 3" shall mean the human clinical trial that is
intended to be the pivotal clinical trial to support approval of Product by the
FDA, including without limitation the filing of a NDA for Product following
completion of such Phase 3 clinical trial.
1.14 "PRODUCT" shall mean any human white blood cell derived drug or
biological that is the subject of an NDA or equivalent application for marketing
approval, which has been identified or developed, in whole or in part, pursuant
to or in connection with the Clinical Research Plan (including any human white
blood cell derived drug or biological described in Section 1.2), including
without limitation any and all improvements upon, modifications to or
derivatives from any and all such human white blood cell derived drug or
biological, and any and all product formulations, dosage forms, strengths and
indications for any and all such human white blood cell derived drug or
biological. Notwithstanding the foregoing, Product shall not include any drug or
biological or other product that is unrelated to the Clinical Candidate,
including without limitation OMNIFERON(TM) or any drug, biological or other
product that is owned, in-licensed, acquired or otherwise controlled by VRGN or
its Affiliates as of the Effective Date or thereafter.
1.15 "REGULATORY APPROVAL" shall mean any approvals, licenses,
registrations or authorizations of any federal, state or local regulatory body,
agency or other government entity necessary for the development, use,
manufacture, marketing, sale or distribution of Product in a particular country
or territory in the world.
1.16 "TERRITORY" shall mean the entire world excluding Japan; provided ,
however, if VRGN obtains exclusive rights in Japan with respect to the
manufacture and supply of Product pursuant to Section 3.2.2, the Territory shall
include Japan.
1.17 "THIRD PARTY" shall mean any person, company or other legal entity
that is not an Affiliate of either Party.
ARTICLE 2
CLINICAL RESEARCH PLAN
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2.1 CLINICAL RESEARCH PLAN. Under this Agreement, IFM will: (a) continue
the clinical research of the Clinical Candidate being conducted by IFM as of the
Effective Date (completion of a Phase 1/2 clinical trial already in progress);
(b) subject to Section 3.1.1, carry out further clinical research of the
Clinical Candidate (conducting and completing one (1) Phase 3 clinical trial);
and (c) conduct and complete other studies (including without limitation the
dose-ranging study pursuant to Section 3.1.1(f)), and/or clinical trials as may
be determined by the CRMC in accordance with Section 2.2 and expressly provided
for in the Clinical Research Plan (collectively, the "Clinical Research Plan").
2.1.1 Attached hereto as Exhibit A is a detailed description of the initial
clinical research plan for the completion of the Phase 1/2 clinical trial by
IFM. Such Exhibit A shall be amended in writing from time to time by the CRMC in
accordance with Section 2.2, to include a detailed clinical research plan for:
(a) the conduct and completion of one (1) Phase 3 clinical trial by IFM, and (b)
the conduct and completion of other studies and/or clinical trials as may be
required under Section 2.1(c).
2.1.2 As of the Effective Date, and at all times during the term of this
Agreement, Exhibit A shall include: (i) a budget (the "Budget") which Budget
must be submitted to VRGN in writing for prior written approval by VRGN, and
(ii) a time and events schedule (the "Schedule") which Schedule must be
submitted to VRGN in writing for prior written approval by VRGN. After VRGN has
exercised the Phase III Election pursuant to Section 3.1.2, the Budget may
include the repayment of interest or principal on the outstanding debt of IFM to
the Ben Franklin Technology Center of Southeastern Pennsylvania as of the
Effective Date.
2.1.3 Proceeds from the purchase by VRGN of shares of Convertible Preferred
Stock of IFM pursuant to the Stock Purchase Agreement shall be used as set forth
in Section 1.3 of the Stock Purchase Agreement.
2.2 RESEARCH MANAGEMENT COMMITTEE FORMATION AND PROCEDURE. Within thirty
(30) days after the Effective Date, the Parties will form a Clinical Research
Management Committee (the "CRMC") having the functions and powers described in
Section 2.3. The CRMC will be comprised of four (4) members. From the Effective
Date until the exercise by VRGN of the Phase II Election pursuant to Section
3.1.1(b), the CRMC will be comprised of three (3) members from IFM and one (1)
member from VRGN. From the exercise by VRGN of the Phase II Election pursuant to
Section 3.1.1(b) until the exercise by VRGN of the Phase III Election pursuant
to Section 3.1.2(b), the CRMC will be comprised of two (2) members from IFM and
two (2) members from VRGN. After the exercise by VRGN of the Phase III Election
pursuant to
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Section 3.1.2(b), the CRMC will be comprised of one (1) member from
IFM and three (3) members from VRGN. All decisions of the CRMC must be approved
in writing by a super-majority vote of the members of the CRMC. For the purposes
hereof, a "super-majority vote" of the members of the CRMC shall mean that at
least three (3) members of the four (4) member CRMC shall have affirmatively
approved any such decision. IFM shall appoint the chairperson of the CRMC. The
parties shall agree, in good faith, upon the time and place of meetings of the
CRMC (which shall not be less than quarterly), substitutions for CRMC members,
qualifications of CRMC members, and other similar matters. Within thirty (30)
days after each meeting, the Chairman of the CRMC (who at the outset shall be
Dr. Smart) will provide the Parties with a written report describing the status
of the Clinical Research Plan, issues requiring resolution and resolutions of
previously reported issues, all in reasonable detail. In the event the CRMC is
unable to reach a decision on a matter within its purview, such matter will be
resolved as follows. The matter will first be submitted to the Board of
Directors of IFM which must approve unanimously any resolution of the matter if
VRGN does not hold a majority of the seats on the Board of Directors of IFM at
the time such matter is submitted to the Board of Directors of IFM. In any
event, the Board of Directors of IFM shall have 30 days to resolve such matter;
if the Board of Directors of IFM does not resolve the matter within such 30 day
period, the matter will be submitted to the respective Presidents of IFM and
VRGN, who shall meet (in person or by telephone) and attempt in good faith to
resolve the matter within 30 days after the matter has been submitted to each of
them. The determination of the Board of Directors of IFM or the Presidents of
IFM and VRGN, as the case may be, shall be final and binding on the CRMC for the
purposes hereof.
2.3 CLINICAL RESEARCH MANAGEMENT COMMITTEE FUNCTIONS AND POWERS. The
purpose of the CRMC shall be to oversee and to implement the clinical research
and development of the Clinical Candidate, and registration of the Product, in
accordance with the Clinical Research Plan. Accordingly, the CRMC shall: (a)
encourage and facilitate ongoing cooperation between the Parties in the clinical
research and development of the Clinical Candidate, and registration of the
Product, (b) periodically review the progress of the Clinical Research Plan,
including all information, data and results (including analyses thereof) from
the studies, clinical trials and other work done under the Clinical Research
Plan, and new developments in the area, and propose changes to the Clinical
Research Plan based upon such review, (c) allocate tasks and coordinate
activities required to perform the Clinical Research Plan, (d) monitor progress
of the Clinical Research Plan and IFM's diligence in carrying out its
responsibilities thereunder, (e) oversee the clinical trials conducted under the
Clinical Research Plan, including the work of any advisors, investigators,
contract research organizations and sites involved in the conduct of such
clinical trials, and (f) carry out any other duties and responsibilities as are
reasonable and necessary for the timely and cost
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effective clinical research and development of the Clinical Candidate and
registration of Product.
2.3.1 The costs and expenses of operating the CRMC shall be set forth in
the Budget. Notwithstanding the foregoing, any out-of-pocket expenses incurred
by the VRGN members of the CRMC in connection with their attending meetings of
the CRMC (e.g., transportation, food and lodging) shall be paid for by VRGN
alone, and such expenses shall not be part of the Budget for the CRMC, unless
otherwise expressly provided for in the Budget.
2.3.2 It is understood and agreed that the CRMC shall have no authority
with respect to the research, development or registration of any drug or
biological other than the Clinical Candidate or Product.
2.4 CLINICAL RESEARCH RESPONSIBILITIES OF IFM
2.4.1 IFM shall, in accordance with the Clinical Research Plan (including
without limitation the Budget and Schedule set forth therein): (a) complete the
Phase 1/2 clinical trial, (b) conduct or have conducted and complete other
studies and/or clinical trials as may be required under Section 2.1(c), (c)
subject to Section 3.1.1, conduct or have conducted and complete the Phase 3
clinical trial, (d) subject to Section 2.4.3(g), interact with and respond
promptly to any and all inquiries from the FDA, and (e) subject to Section
3.1.2, cooperate and provide assistance, as requested by VRGN, in connection
with the preparation and submission of an NDA for the Product with the FDA, and
obtaining Regulatory Approval in the United States for the Product, all in
accordance with and subject to this Agreement. IFM shall ensure that carrying
out the Clinical Research Plan in accordance with this Agreement is the first
priority of its employees and that its employees devote a sufficient number of
their working hours as necessary to carry out the Clinical Research Plan in
accordance with this Agreement. The obligations of IFM under the preceding
sentence shall apply with respect to all of IFM's employees, including without
limitation Dr. Smart.
2.4.2 All research and development work to be performed by or on behalf of
IFM pursuant to this Agreement (including without limitation the conduct of
studies, clinical trials and other Product registration activities) shall be
performed in accordance with the Clinical Research Plan (including without
limitation the Budget and Schedule set forth therein). Subject to the foregoing,
IFM covenants and warrants that all research and development work conducted
under this Agreement shall be performed in a diligent, timely and cost effective
manner, and all clinical trials conducted under the Clinical Research Plan shall
be performed in accordance with the requirements of the United States Federal
Food, Drug and Cosmetic Act and implementing regulations and
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guidances, as may be amended and supplemented from time to time, including but
not limited to current Good Clinical Practice (hereinafter collectively referred
to as the "FD&C Act") and, if applicable, those international laws, regulations
and standards equivalent to the foregoing, as they may be amended and
supplemented from time to time. In performing such work and conducting such
clinical trials, without limiting the obligations set forth in this Section 2.4,
IFM shall provide (at its sole expense as provided for in the Budget, unless
otherwise provided for herein) a sufficient number of full-time specialists
competent and qualified to perform the work and conduct the studies and/or
clinical trials to be conducted pursuant to this Agreement as specified in the
Clinical Research Plan and in accordance with the Budget and Schedule therein.
All plans to develop, study or test the Clinical Candidate or the Product (as
the case may be) shall be subject to the prior review and written approval of
the CRMC in accordance with Section 2.2 (which approval shall be obtained before
the commencement of any study, test or trial using the Clinical Candidate or
Product).
2.4.3 At all times during the term hereof, for regulatory purposes, IFM
shall be Sponsor of the Clinical Candidate and Product, and all documents
relating to the Clinical Candidate and any Product shall refer to IFM as the
Sponsor thereof and owner of the NDA for such Product. Accordingly, in carrying
out all of its clinical research responsibilities under the Clinical Research
Plan (which clinical research responsibilities include but are not necessarily
limited to completion of the Phase 1/2 clinical trial for the Clinical Candidate
and, subject to Section 3.1.1, conduct and completion of one (1) Phase 3
clinical trial for the Clinical Candidate, as well as such other studies and/or
clinical trials as may be required under Section 2.1(c)), IFM hereby agrees that
it shall have all of the obligations of a Sponsor with respect thereto. The
Parties further agree that:
(a) IFM shall have the right to utilize the services of one or more Third
Parties, which Third Parties may be contract research organizations, subject to
and in accordance with Section 2.6, to conduct and complete one (1) Phase 3
clinical trial and other studies and/or clinical trials as may be required under
Section 2.1(c).
(b) The CRMC shall review in advance and approve in accordance with Section
2.2, any and all research activities by IFM, including but not limited to,
approving the protocols for all clinical trials involving the Clinical Candidate
or any Product.
(c) The IND for any clinical trials involving the Clinical Candidate or any
Product shall be in effect and supplemented in a timely manner by IFM.
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(d) IFM shall ensure that no clinical trials involving the Clinical
Candidate or any Product shall commence without prior Institutional Review Board
(IRB) approval, nor shall any clinical trial continue without appropriate
periodic review and re-approval of the clinical trial by an IRB.
(e) IFM shall ensure that those IRBs approving clinical trials involving
the Clinical Candidate or any Product shall be consulted regularly, and any
changes to the protocols and informed consents for clinical trials mandated by
the IRBs shall be reviewed and approved periodically by the CRMC.
(f) IFM shall ensure that all adverse reaction reports for the Clinical
Candidate or any Product shall be reported to the CRMC, the IRBs and the FDA on
a timely basis.
(g) The CRMC shall review and approve in advance in accordance with Section
2.2: (i) all submissions (including without limitation IND supplements) to the
FDA relating to the Clinical Candidate or any Product, and (ii) within five (5)
business days after their receipt by the CRMC (or sooner if requested by the
FDA), all correspondence and other communications to the FDA shall be reviewed
and approved in advance by the CRMC in accordance with Section 2.2. The CRMC (or
the IRBs, if appropriate) shall be notified promptly upon receipt of any
correspondence and other communications from the FDA, and copies thereof shall
be promptly given to the CRMC (or the IRBs, if appropriate); and VRGN shall have
the right (but not the obligation) to participate in any and all communications
(including meetings, negotiations and telephone calls) with the FDA.
(h) All data, results and information generated by any research studies
relating to, and clinical trials involving, the Clinical Candidate or any
Product, and analyses thereof (individually, a "Data Package" and collectively,
the "Data Packages"), shall be compiled upon the completion of each such study
or trial and submitted in a form that meets FDA's requirements relating to the
preparation and submission of INDs and NDAs in a timely manner to the CRMC and
VRGN in accordance with Sections 3.1.1 and 3.1.2.
2.5 Time is expressly made of the essence with respect to each Party's
performance under the Clinical Research Plan.
2.6 USE OF THIRD PARTIES BY IFM. During the term of this Agreement, IFM
may, in accordance with the Budget and Schedule, utilize the services of outside
consultants or other Third Parties in connection with performing its work and
conducting studies and clinical trials under this Agreement (which shall be at
IFM's sole expense as provided for in the Budget, unless otherwise provided for
herein); provided,
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however, that IFM assumes full responsibility and liability for such Third
Parties. Accordingly, IFM shall defend, indemnify and hold harmless VRGN and its
Affiliates and their respective directors, officers, agents and employees,
successors and assigns from and against any and all liabilities, claims,
actions, suits, damages, losses, costs and expenses, fines and penalties
(including without limitation attorney's fees and other costs of litigation,
regardless of outcome) arising out of or related to the services of Third
Parties in connection with performing any work or conducting any studies or
clinical trials under this Agreement. VRGN shall have the right to approve in
advance in writing any Third Party utilized by IFM to perform work or conduct
studies or clinical trials on behalf of IFM under this Agreement, which approval
shall not be unreasonably withheld or delayed, but no such approval by VRGN will
affect IFM's responsibility and liability for such Third Party, nor shall it
limit IFM's indemnification obligations under this Section 2.6.
2.7 REPORTS; SHARING OF DATA.
2.7.1 IFM shall make available and disclose to VRGN, as soon as such
information, data, results and analyses become available to IFM, all data
(including raw data), information and results generated pursuant to studies
and/or clinical trials conducted under the Clinical Research Plan (including all
analyses thereof). IFM shall make available and disclose to the CRMC, on no less
than a quarterly basis, summaries of the progress of such studies and/or
clinical trials and other activities for which IFM is responsible under the
Clinical Research Plan.
2.7.2 All data (including raw data), information, results and analyses
generated by or on behalf of IFM pursuant to the Clinical Research Plan,
including all Data Packages, shall be deemed "Clinical Research Plan
Information" (as that term is defined in Section 7.1.1) and shall be owned
exclusively by IFM, and the provisions of Section 7.1.1 shall apply with respect
thereto. Notwithstanding the foregoing, to the extent any such data (including
raw data), information, results or analyses constitute or otherwise relate to
process development for the Clinical Candidate or Product, such data (including
raw data), information, results and analyses shall be deemed "Process
Development Technology" (as that term is defined in Section 7.1.2) and shall be
owned exclusively by VRGN, and the provisions of Section 7.1.2 shall apply with
respect thereto.
2.8 TERM AND TERMINATION OF THE CLINICAL RESEARCH PLAN. The Clinical
Research Plan shall commence on the Effective Date and, unless earlier
terminated as provided in this Agreement, continue until Regulatory Approval for
the Product in the United States has been granted by the FDA; provided, however,
that VRGN may, at its sole option, elect to terminate the Clinical Research Plan
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with or without cause at any time upon written notice to IFM. If VRGN elects to
terminate the Clinical Research Plan under this Section 2.8, this Agreement
shall be terminated in accordance with and subject to Article 10.
2.9 COMPLIANCE WITH LAWS. IFM shall at all times comply fully with, and
shall ensure that its employees, agents and contractors comply fully with, the
FD&C Act and all other laws, regulations, rules, guidances, orders and
regulatory requirements applicable to the performance of IFM's obligations under
the Clinical Research Plan and this Agreement, including without limitation all
laws, regulations, rules, guidances, orders and regulatory requirements relating
to environmental, health and safety matters.
ARTICLE 3
ELECTION TO PURSUE FURTHER CLINICAL RESEARCH AND NDA APPROVAL; MANUFACTURE BY
VRGN
3.1 PHASE II AND PHASE III ELECTIONS BY VRGN.
3.1.1 Following execution of this Agreement, IFM shall at its sole risk and
expense as provided for in the Budget, complete the Phase 1/2 clinical trial for
the Clinical Candidate as set forth in the Clinical Research Plan (including the
Budget and Schedule therefor), in accordance with and subject to the terms and
conditions of this Agreement.
(a) If such Phase 1/2 clinical trial cannot be completed within the
Schedule and/or Budget therefor (as set forth in the Clinical Research Plan),
IFM shall immediately notify the CRMC and provide to the CRMC a proposed revised
Budget and Schedule to the Clinical Research Plan setting forth the additional
monies and time required to complete the Phase 1/2 clinical trial in accordance
with the Clinical Research Plan. Within thirty (30) days after the CRMC has
accepted the revised Budget and Schedule to the Clinical Research Plan for the
completion of the Phase 1/2 clinical trial, VRGN shall have the right, but not
the obligation, to provide (or cause to be provided) the additional monies
required to complete the Phase 1/2 clinical trial based upon such revised Budget
and Schedule, subject to the valuation of IFM at such time as determined under
Section 3.1.5(b)(i).
(b) If such Phase 1/2 clinical trial is completed according to the Clinical
Research Plan, then within one hundred twenty (120) days after its completion,
IFM shall forward to VRGN a final Data Package containing all data, information
and results (and analyses thereof) relating to or arising out of such Phase 1/2
clinical trial, in a
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form that meets FDA's requirements relating to the preparation and submission of
INDs and NDAs. After receipt of such Data Package, VRGN shall have seven (7)
months within which to notify IFM in writing of VRGN's election in its sole
discretion to have IFM conduct one (1) Phase 3 clinical trial for the Clinical
Candidate in accordance with the Clinical Research Plan and this Agreement (the
"Phase II Election"). During such seven (7) month period, without further notice
from VRGN, IFM shall at its own expense as provided for in the Budget: (i)
prepare a protocol for such Phase 3 clinical trial, (ii) set up, hold meetings
and negotiate with the FDA regarding such Phase 3 clinical trial, and (iii)
prepare a supplement to the IND for the Clinical Candidate to submit to the FDA
for such Phase 3 clinical trial.
(c) If VRGN does not exercise the Phase II Election by the end of such
seven (7) month period, and IFM obtains a bona fide firm written commitment from
a Third Party principal investor (a "Third Party Commitment") to fund a Phase 3
clinical trial for the Clinical Candidate (which Third Party Commitment shall be
submitted by IFM to the CRMC for its review), this Agreement shall terminate in
accordance with and subject to Article 10. Until IFM obtains a Third Party
Commitment to fund a Phase 3 clinical trial for the Clinical Candidate, VRGN
shall have the right to exercise the Phase II Election and this Agreement shall
remain in full force and effect. Notwithstanding the foregoing, if: (i) VRGN
does not exercise the Phase II Election by the end of such seven (7) month
period, (ii) IFM obtains a Third Party Commitment to fund a Phase 3 clinical
trial for the Clinical Candidate, and (iii) the terms of the definitive
agreement between IFM and such Third Party are materially more favorable to such
third party than those terms which were originally set forth in the Third Party
Commitment from such Third Party (which definitive agreement shall be provided
by IFM to VRGN for verification purposes under conditions of confidentiality),
then VRGN shall have the right (but not the obligation) to exercise the Phase II
Election within 30 days of the date IFM provides such definitive agreement to
VRGN, in which case this Agreement shall continue in full force and effect but
under the terms offered to such Third Party (if more favorable than those
provided for in this Agreement).
(d) If VRGN does not exercise the Phase II Election by the end of such
seven (7) month period because VRGN believes one or more additional Phase 1 or 2
or Phase 1/2 clinical trials should be conducted before a Phase 3 clinical trial
for the Clinical Candidate is conducted (including but not limited to repeating
the Phase 1/2 clinical trial), then IFM shall provide to the CRMC a proposed
revised Budget and Schedule to the Clinical Research Plan setting forth the
additional monies and time required to complete such additional or repeated
clinical trial(s) in accordance with the Clinical Research Plan. Within ninety
(90) days after the CRMC has accepted the revised Budget and Schedule to the
Clinical Research Plan for the conduct of such additional or repeated clinical
trial(s), VRGN shall have the right, but not the obligation, to provide (or
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cause to be provided) the additional monies required to conduct such additional
or repeated clinical trial(s) based upon such revised Budget and Schedule,
subject to the valuation of IFM at such time as determined under Section
3.1.5(b)(i). If VRGN provides (or causes to be provided) the additional monies
required to conduct any such additional or repeated clinical trial(s), then the
Clinical Research Plan shall be amended by the CRMC accordingly, IFM shall
supplement and obtain FDA approval for the supplemented IND for the Clinical
Candidate, and IFM shall perform such additional or repeated clinical trial(s)
in accordance with the Clinical Research Plan and in accordance with and subject
to this Agreement. If VRGN does not provide (or cause to be provided) the
additional monies required to conduct any such additional or repeated clinical
trial(s), and IFM obtains a Third Party Commitment to fund such additional or
repeated clinical trial(s) (which Third Party Commitment shall be submitted by
IFM to the CRMC for its review), this Agreement shall terminate in accordance
with and subject to Article 10. Until IFM obtains a Third Party Commitment to
fund such additional or repeated clinical trial(s), VRGN shall have the right to
exercise the Phase II Election and this Agreement shall remain in full force and
effect. Notwithstanding the foregoing, if: (i) VRGN does not provide (or cause
to be provided) the additional monies required to conduct any such additional or
repeated clinical trial(s), (ii) IFM obtains a Third Party Commitment to fund
such additional or repeated clinical trial(s), and (iii) the terms of the
definitive agreement between IFM and such Third Party are materially more
favorable to such Third Party than those terms which were originally set forth
in the Third Party Commitment from such Third Party (which definitive agreement
shall be provided by IFM to VRGN for verification purposes under conditions of
confidentiality), then VRGN shall have the right (but not the obligation) to
provide (or cause to be provided) within 30 days of the date IFM provides such
definitive agreement to VRGN, the additional monies required to conduct any such
additional or repeated clinical trial(s), in which case this Agreement shall
continue in full force and effect but under the terms offered to such Third
Party (if more favorable than those provided for in this Agreement).
(e) If VRGN funds additional or repeated clinical trial(s) under Section
3.1.1(d), then within one hundred twenty (120) days after the completion of any
such additional or repeated clinical trial(s), a Data Package containing all
data, information and results (and analyses thereof) relating to or arising out
of such additional or repeated clinical trial(s) shall be submitted by IFM to
the CRMC for its review in a form that meets FDA's requirements relating to the
preparation and submission of INDs and NDAs. VRGN shall, within seven (7) months
after the submission of such Data Package to the CRMC, have the right (but not
the obligation) to exercise the Phase II Election, in which case IFM shall
conduct a Phase 3 clinical trial for the Clinical Candidate in accordance with
the Clinical Research Plan and this Agreement. VRGN's obligation to exercise
such Phase II Election under this Section 3.1.1(e) shall, however,
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be suspended if a dose-ranging study for the Clinical Candidate is conducted
pursuant to Section 3.1.1(f).
(f) If within sixty (60) days after the submission of the Data Package
under Section 3.1.1(b) or Section 3.1.1(e) to the CRMC, the CRMC determines that
a dose-ranging study for the Clinical Candidate is to be conducted before
commencement of a Phase 3 clinical trial, then IFM shall provide to the CRMC a
Budget and Schedule for such dose-ranging study. VRGN shall have the right, but
not the obligation, to elect to fund (or cause to be funded) such dose-ranging
study in accordance with Section 3.1.5(c) within one hundred twenty (120) days
after the acceptance by the CRMC of such Budget and Schedule for the
dose-ranging study. If VRGN elects to fund (or cause to be funded) such
dose-ranging study in accordance with Section 3.1.5(c): (i) the Clinical
Research Plan shall be amended by the CRMC to include the conduct and completion
of one (1) dose-ranging study for the Clinical Candidate, (ii) IFM shall prepare
the protocol for such dose-ranging study, (iii) IFM shall set up, hold meetings
and negotiate with the FDA regarding such dose-ranging study, (iv) IFM shall
prepare a supplement to the IND for the Clinical Candidate to submit to the FDA
for such dose-ranging study, in a manner that meets FDA's requirements relating
to the preparation and submission of INDs and NDAs, and shall obtain FDA
approval for the supplemented IND, and (v) IFM shall conduct such dose-ranging
study in accordance with the Clinical Research Plan (including the Schedule and
Budget therefor) and in accordance with and subject to this Agreement. Within
one hundred twenty (120) days after the completion of such dose-ranging study, a
Data Package containing all data, information and results (and analyses thereof)
relating to or arising out of such dose-ranging study shall be submitted by IFM
to the CRMC for its review in a form that meets FDA's requirements relating to
the preparation and submission of INDs and NDAs. VRGN shall, within seven (7)
months after the submission of such Data Package to the CRMC, have the right
(but not the obligation) to exercise the Phase II Election. If VRGN does not
elect to fund (or cause to be funded) such dose-ranging study, subject to
Section 3.1.5(c), this Agreement shall terminate in accordance with and subject
to Article 10.
(g) If VRGN does not agree that a protocol prepared by IFM for any clinical
trial or study to be conducted pursuant to this Article 3 is necessary and
appropriate with respect to its scope or size (such as, for example, VRGN
believes the trial or study for which the protocol is designed is unnecessarily
large or expensive), VRGN shall have the right to require the Parties to submit
the issue to a single independent Third Party mutually acceptable to the Parties
(the "Arbitrator") for resolution. The Arbitrator shall have considerable
experience in the business, clinical and regulatory development of
biopharmaceutical products, including without limitation the design of protocols
for human clinical trials for such products. The decision of the Arbitrator
shall be binding on the Parties for the purposes hereof, such that if the
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Arbitrator decides that a protocol prepared by IFM for any clinical trial or
study to be conducted pursuant to this Article 3 is necessary and appropriate in
scope and size, such protocol may be used by IFM for such clinical trial or
study. If, however, the Arbitrator decides there are aspects of a protocol
prepared by IFM for any clinical trial or study to be conducted pursuant to this
Article 3, which are not necessary or appropriate, such protocol shall be
subject to VRGN's approval. The arbitration shall be held in a place to be
mutually agreed by VRGN and IFM, according to the commercial rules of the
American Arbitration Association (the "AAA"), and the Parties shall share
equally the costs of such arbitration under this Section 3.1.1(g).
3.1.2 If VRGN exercises the Phase II Election under Section 3.1.1: (i) the
Clinical Research Plan shall be amended by the CRMC to include the conduct and
completion of one (1) Phase 3 clinical trial for the Clinical Candidate, (ii)
VRGN shall provide the funding required (or cause such funding to be provided),
for IFM to conduct one (1) Phase 3 clinical trial for the Clinical Candidate in
accordance with the Clinical Research Plan; provided, however, that if a
dose-ranging study is included in such Phase 3 clinical trial, Section 3.1.5(a)
or Section 3.1.5(b)(i) shall apply with respect to the incremental additional
costs to conduct the dose-ranging study as part of such Phase 3 clinical trial,
which incremental additional costs are paid by VRGN in funding such Phase 3
clinical trial pursuant to the Phase II Election, (iii) IFM shall supplement, in
a manner that meets FDA's requirements relating to the preparation and
submission of INDs and NDAs, and obtain FDA approval for the supplemented IND
for the Clinical Candidate, and (iv) IFM shall conduct such Phase 3 clinical
trial in accordance with the Clinical Research Plan (including the Schedule and
Budget therefor) and in accordance with and subject to this Agreement.
(a) If such Phase 3 clinical trial cannot be completed within the Schedule
and/or Budget therefor (as set forth in the Clinical Research Plan), IFM shall
immediately notify the CRMC and provide to the CRMC a proposed revised Budget
and Schedule to the Clinical Research Plan setting forth the additional monies
and time required to complete the Phase 3 clinical trial in accordance with the
Clinical Research Plan. Within one hundred eighty (180) days after the CRMC has
accepted the revised Budget and Schedule to the Clinical Research Plan for the
completion of the Phase 3 clinical trial, VRGN shall have the right, but not the
obligation, to provide (or cause to be provided) the additional monies required
to complete the Phase 3 clinical trial based upon such revised Budget and
Schedule, subject to the valuation of IFM at such time as determined under
Section 3.1.5(b)(i).
(b) If such Phase 3 clinical trial is completed according to the Clinical
Research Plan, then within one hundred twenty (120) days after its completion,
IFM shall forward to VRGN a final Data Package containing all data, information
and
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results (and analyses thereof) relating to or arising out of such Phase 3
clinical trial in a form that meets FDA's requirements relating to the
preparation and submission of INDs and NDAs. After receipt of such Data Package,
VRGN shall have nine (9) months within which to notify IFM in writing of VRGN's
election, in its sole discretion, to prepare and submit to the FDA an NDA for
the Clinical Candidate (the "Phase III Election"). Upon the exercise by VRGN of
the Phase III Election, the Clinical Candidate shall be deemed to be a Product.
During such nine (9) month period, upon VRGN's request and at VRGN's direction,
IFM shall, at its own expense as provided for in the Budget: (i) fully cooperate
and assist VRGN with the preparation and submission of such NDA to the FDA; and
(ii) participate in meetings and negotiations with the FDA regarding the
preparation and submission of such NDA.
(c) If VRGN does not exercise the Phase III Election by the end of such
nine (9) month period because VRGN believes one or more additional clinical
trials should be conducted before an NDA for the Product is submitted with the
FDA (including but not limited to repeating the Phase 3 clinical trial), then
IFM shall provide to the CRMC a proposed revised Budget and Schedule to the
Clinical Research Plan setting forth the additional monies and time required to
complete such additional or repeated clinical trial(s) in accordance with the
Clinical Research Plan. Within one hundred eighty (180) days after the CRMC has
accepted the revised Budget and Schedule to the Clinical Research Plan for the
conduct of such additional or repeated clinical trials, VRGN shall have the
right, but not the obligation, to provide (or cause to be provided) the
additional monies required to conduct such additional or repeated clinical
trials based upon such revised Budget and Schedule, subject to the valuation of
IFM at such time as determined under Section 3.1.5(b)(i). If VRGN provides (or
causes to be provided) the additional monies required to conduct any such
additional or repeated clinical trial(s), then the Clinical Research Plan shall
be amended by the CRMC accordingly, IFM shall supplement, and obtain approval
from the FDA for the supplemented IND for the Clinical Candidate, and IFM shall
perform such additional or repeated clinical trial(s) in accordance with the
Clinical Research Plan and in accordance with and subject to this Agreement. If
VRGN does not provide (or cause to be provided) the additional monies required
to conduct such additional or repeated clinical trial(s), and IFM obtains a
Third Party Commitment to fund such additional or repeated clinical trial(s)
(which Third Party Commitment shall be submitted by IFM to the CRMC for its
review), this Agreement shall terminate in accordance with and subject to
Article 10. Until IFM obtains a Third Party Commitment to fund such additional
or repeated clinical trial(s), VRGN shall have the right to exercise the Phase
III Election and this Agreement shall remain in full force and effect.
Notwithstanding the foregoing, if: (i) VRGN does not provide (or cause to be
provided) the additional monies required to conduct any such additional or
repeated clinical trial(s), (ii) IFM obtains a Third Party Commitment to fund
such additional or
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repeated clinical trial(s), and (iii) the terms of the definitive agreement
between IFM and such Third Party are materially more favorable to such Third
Party than those terms which were originally set forth in the Third Party
Commitment from such Third Party (which definitive agreement shall be provided
by IFM to VRGN for verification purposes under conditions of confidentiality),
then VRGN shall have the right (but not the obligation) to provide (or cause to
be provided) the additional monies required to conduct such additional or
repeated clinical trial(s) within 30 days of the date IFM provides such
definitive agreement to VRGN, in which case this Agreement shall continue in
full force and effect but under the terms offered to such Third Party (if more
favorable than those provided for in this Agreement).
(d) If VRGN provides (or causes to be provided) the additional monies
required to conduct any additional or repeated clinical trial(s) under Section
3.1.2(c), then within one hundred twenty (120) days after the completion of any
such additional or repeated clinical trial(s), a Data Package containing all
data, information and results (and analyses thereof) relating to or arising out
of such additional or repeated clinical trial(s) shall be submitted by IFM to
the CRMC for its review in a form that meets FDA's requirements relating to the
preparation and submission of INDs and NDAs. VRGN shall thereupon (but not later
than nine (9) months after the submission of such Data Package to the CRMC) have
the right (but not the obligation) to exercise the Phase III Election and, upon
VRGN's request and at VRGN's direction, IFM shall, at its own expense as
provided for in the Budget: (i) fully cooperate and assist VRGN with the
preparation and submission of such NDA to the FDA; and (ii) participate in
meetings and negotiations with the FDA regarding the preparation and submission
of such NDA.
3.1.3 If VRGN exercises the Phase III Election under Section 3.1.2: (i) IFM
shall compile at its own expense as provided for in the Budget, a final report
of all Data Packages, in a form that meets FDA's requirements relating to the
preparation and submission of INDs and NDAs, within one hundred twenty (120)
days after the Phase III Election by VRGN under Section 3.1.2, and (ii) VRGN
shall at its own expense prepare and submit an NDA for the Product with the FDA
and seek to obtain FDA approval for such NDA for IFM. The obligations of IFM
under Section 3.1.3(i) shall be undertaken by IFM in accordance with the
Clinical Research Plan (including within the Budget therefor) and in accordance
with and subject to this Agreement. If compiling a final report of all Data
Packages, in a form that meets FDA's requirements relating to the preparation
and submission of INDs and NDAs, exceeds the Budget therefor or takes longer
than one hundred twenty (120) days, IFM shall immediately notify the CRMC and
provide to the CRMC a proposed revised Budget and Schedule to the Clinical
Research Plan setting forth the additional monies and time required to complete
the compilation of a final report of all Data Packages, in a form that meets
FDA's requirements relating to the preparation and submission of INDs and NDAs,
in accordance with the Clinical
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Research Plan. Within one hundred twenty (120) days after the CRMC has
accepted the revised Budget and Schedule to the Clinical Research Plan for such
compilation of a final report of all Data Packages, VRGN shall have the right,
but not the obligation, to provide (or cause to be provided) the additional
monies required to complete such compilation of a final report of all Data
Packages, subject to the valuation of IFM at such time as determined under
Section 3.1.5(b)(i).
3.1.4 In connection with preparing and submitting the NDA for the Product
with the FDA, and seeking to obtain and obtaining FDA approval for such NDA,
VRGN shall at all times be deemed to be acting on behalf of IFM (which shall be
the Sponsor of the Product and owner of the NDA for the Product), and all
documents relating to the Product shall refer to IFM as the Sponsor thereof and
owner of the NDA for the Product. The CRMC shall be informed on a regular basis
of the status of the NDA approval process. With respect to the NDA for the
Product, VRGN shall be responsible for all submissions to the FDA relating to
the Product (including without limitation the NDA), all correspondence and other
communications to the FDA, and any and all communications (including meetings,
negotiations and telephone calls) with the FDA, provided that IFM shall have the
right to review and comment upon all such submissions, correspondence and other
communications, and shall have the right to participate in any meetings,
negotiations and telephone calls with the FDA.
3.1.5 Notwithstanding any other provision of this Article 3, if VRGN
elects, under Sections 3.1.1(a), 3.1.1(d), 3.1.1(f), 3.1.2(a), 3.1.2(c) or
3.1.3, to provide (or cause to be provided) to IFM additional monies (as
provided for in a revised Budget and Schedule to the Clinical Research Plan) for
IFM to: (i) complete a clinical trial(s), (ii) perform an additional or repeated
study and/or clinical trial(s), including without limitation a dose-ranging
study if required pursuant to Section 3.1.1(f), and/or (iii) compile a final
report of all Data Packages in accordance with Section 3.1.3, then in each such
case, at the sole option of VRGN after consultations with IFM, either:
(a) VRGN shall provide such additional monies to IFM as a secured lender;
and/or
(b) IFM shall issue to VRGN additional shares of IFM Series A Convertible
Preferred Stock in consideration therefor. The purchase price at which such
additional shares shall be issued shall be determined, on a case-by-case basis,
as follows:
(i) Except in the event where additional monies to fund a dose-ranging
study may be required pursuant to Section 3.1.1(f), which event is addressed in
Section 3.1.5(c) below, the Parties shall negotiate in good faith at such time
the per share purchase price of such IFM Series A Convertible Preferred Stock.
If the Parties are
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unable to agree upon such per share purchase price within thirty (30) days after
the CRMC has accepted a revised Budget and Schedule to the Clinical Research
Plan for the: (A) completion of clinical trial(s), (B) performance of an
additional or repeated study and/or clinical trial(s), and/or (C) compilation of
a final report of all Data Packages in accordance with Section 3.1.3 (as the
case may be), the Parties shall select a mutually acceptable independent Third
Party (the "Appraiser") to make a then-current valuation of IFM for such purpose
(the "IFM Valuation"). VRGN shall have the right, but not the obligation, within
one hundred twenty (120) days after the determination of the IFM Valuation by
the Appraiser, to purchase additional shares of IFM Series A Convertible
Preferred Stock based on the determination of the IFM Valuation by such
Appraiser. If VRGN decides to purchase additional shares of IFM Series A
Convertible Preferred Stock based on the determination of such Appraiser, the
per share purchase price of such Stock shall be the IFM Valuation, divided by
the total number of issued and convertible, exchangeable or exercisable for
shares of IFM common stock (on a fully-diluted basis) outstanding immediately
prior to payment of additional monies by VRGN under this Section 3.1.5(b). Upon
such payment , IFM shall issue to VRGN such number of shares equal to the amount
of additional monies provided by VRGN in such case, divided by the per share
purchase price.
(ii) If VRGN decides not to provide (or cause to be provided) additional
monies to IFM as a secured lender under Section 3.1.5(a), or does not purchase
additional shares of IFM Series A Convertible Preferred Stock pursuant to
Section 3.1.5(b)(i), then IFM shall have the right to obtain Third Party
financing as the funding source to: (A) complete clinical trial(s), (B) perform
additional or repeated study(ies) and/or clinical trial(s), and/or (C) compile a
final report of all Data Packages in accordance with Section 3.1.3, as the case
may be. Notwithstanding the foregoing, IFM shall not obtain Third Party
financing as the funding source for such additional monies under this Section
3.1.5(b)(ii) where the aggregate consideration, in whatever form, proposed to be
paid by such Third Party to IFM for such Third Party financing is more favorable
than the IFM Valuation as determined by the Appraiser, without first providing
VRGN a right to first refusal to provide such additional monies to IFM on the
same terms as in the proposed Third Party financing. In such event, IFM shall
provide VRGN with the terms of the proposed Third Party financing and within 30
days VRGN shall determine whether to exercise its right of first refusal
hereunder. If VRGN refuses to provide (or cause to be provided) the additional
monies at the terms of such proposed Third Party financing, then IFM shall have
the right to obtain such Third Party financing as the funding source for the
activities described herein.
(iii) If as a result of circumstances within the reasonable control of IFM
(and not due to the material breach, material default, negligence or willful
misconduct of VRGN or other action of VRGN that prevents IFM from exercising
such
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reasonable control), including a material breach or material default in the
conduct of the original Phase 1/2 clinical trial or in IFM's performance of this
Agreement, or the negligence or willful misconduct of IFM, additional monies are
required under Section 3.1.1(a) or 3.1.1(d) for IFM to complete a clinical trial
or perform an additional or repeated study and/or clinical trial(s), then the
per share purchase price of such additional shares of IFM Series A Convertible
Preferred Stock shall be eighty percent (80%) of the valuation of IFM
immediately prior to the date on which the Phase II Election must be exercised
(the "Pre-Phase II Election IFM Valuation"), divided by the total number of
issued and convertible, exchangeable or exercisable for shares of IFM common
stock (on a fully-diluted basis) outstanding immediately prior to payment of
additional monies by VRGN under this Section 3.1.5(b). Such valuation shall be
made by mutual agreement of the Parties or by an Appraiser in accordance with
Section 3.1.5(b)(i). Upon such payment, IFM shall issue to VRGN such number of
shares equal to the amount of additional monies provided by VRGN in such case,
divided by the per share purchase price.
(iv) If as a result of circumstances within the reasonable control of IFM
(and not due to the material breach, material default, negligence or willful
misconduct of VRGN or other action of VRGN that prevents IFM from exercising
such reasonable control), including a material breach or material default in the
conduct of the original Phase 3 clinical trial or in IFM's performance of this
Agreement, or the negligence or willful misconduct of IFM, additional monies are
required under Section 3.1.2(a) or 3.1.2(c) for IFM to perform an additional or
repeated study and/or clinical trial(s), then the per share purchase price of
such additional shares of IFM Series A Convertible Preferred Stock shall be
eighty percent (80%) of the valuation of IFM immediately prior to the date on
which the Phase III Election must be exercised (the "Pre-Phase III Election IFM
Valuation"), divided by the total number of issued and convertible, exchangeable
or exercisable for shares of IFM common stock (on a fully-diluted basis)
outstanding immediately prior to payment of additional monies by VRGN under this
Section 3.1.5(b). Such valuation shall be made by mutual agreement of the
Parties or by an Appraiser in accordance with Section 3.1.5(b)(i). Upon such
payment, IFM shall issue to VRGN such number of shares equal to the amount of
additional monies provided by VRGN in such case, divided by the per share
purchase price.
(v) If as a result of circumstances within the reasonable control of IFM
(and not due to the material breach, material default, negligence or willful
misconduct of VRGN or other action of VRGN that prevents IFM from exercising
such reasonable control), including a material breach or material default in
IFM's performance of its obligations under Section 3.1.3 or this Agreement, or
the negligence or misconduct of IFM, additional monies are required under
Section 3.1.3 for IFM to compile a final report of all Data Packages, in a form
that meets FDA's requirements relating to the
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preparation and submission of INDs and NDAs, within one hundred twenty (120)
days after the Phase III Election by VRGN under Section 3.1.2, then the per
share purchase price of such additional shares of IFM Series A Convertible
Preferred Stock shall be eighty percent (80%) of the valuation of IFM
immediately following the date on which the Phase III Election was exercised
(the "Post-Phase III Election IFM Valuation"), divided by the total number of
issued and convertible, exchangeable or exercisable for shares of IFM common
stock (on a fully-diluted basis) outstanding immediately prior to payment of
additional monies by VRGN under this Section 3.1.5(b). Such valuation shall be
made by mutual agreement of the Parties or by an Appraiser in accordance with
Section 3.1.5(b)(i). Upon such payment, IFM shall issue to VRGN such number of
shares equal to the amount of additional monies provided by VRGN in such case,
divided by the per share purchase price.
(vi) In consideration of the substantial investment by VRGN in IFM through
the exercise of the Phase II Election by VRGN, it is agreed that if at any time
after the Phase II Election by VRGN (provided that VRGN has provided, or has
caused to be provided, the additional monies to fund the Phase 3 clinical trial
through the purchase of capital stock of IFM (i.e., for securities that are
either IFM capital stock or are convertible into IFM capital stock)), IFM
commits a material breach or defaults in the performance of its obligations
under this Agreement, or is otherwise negligent or engages in willful misconduct
and, at such time, a majority of the directors of the Board of Directors of IFM
has not been appointed by VRGN, then IFM shall take all necessary steps to
reconstitute the Board of Directors of IFM, such that a majority of its members
shall be appointed by VRGN.
(vii) For the purposes of this Section 3.1.5, a material breach or material
default shall include without limitation IFM's or its employees', agents' or
contractors' inability to complete a clinical trial or study (as the case may
be) within the Budget and/or Schedule therefor; provided such inability was
within IFM's or its employees', agents' or contractors' reasonable control, and
not due to the material breach, material default, negligence or willful
misconduct of VRGN or other action of VRGN that prevents IFM from exercising
such reasonable control.
(c) The Parties acknowledge and agree that as of the Effective Date, the
valuation of IFM is eleven million, five hundred thousand dollars ($11,500,000),
which amount shall be referred to herein as the "Original IFM Valuation". If,
pursuant to Section 3.1.1(f), the CRMC determines that a dose-ranging study for
the Clinical Candidate is to be conducted before commencement of a Phase 3
clinical trial, and VRGN elects, under Section 3.1.1(f), to provide (or cause to
be provided) to IFM the additional monies (as provided for in a Budget and
Schedule to the Clinical Research Plan) required for IFM to conduct such
dose-ranging study, then VRGN shall either
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provide (or cause to be provided) such monies to IFM as a secured lender under
Section 3.1.5(a), or purchase additional shares of IFM Series A Convertible
Preferred Stock based on the Original IFM Valuation, such that the per share
purchase price of such Stock shall be the Original IFM Valuation, divided by the
total number of issued and convertible, exchangeable or exercisable for IFM
common stock (on a fully-diluted basis) outstanding immediately prior to payment
of additional monies by VRGN under this Section 3.1.5(c). Upon such payment, IFM
shall issue to VRGN such number of shares equal to the amount of additional
monies provided (or caused to be provided) by VRGN in such case, divided by the
per share purchase price. If VRGN decides not to fund (or cause to be funded)
the dose-ranging study pursuant to Section 3.1.1(f), then IFM shall have the
right to obtain Third Party financing to fund such dose-ranging study.
Notwithstanding the foregoing, IFM shall not obtain Third Party financing as the
funding source for such additional monies under this Section 3.1.5(c) where the
aggregate consideration, in whatever form, proposed to be paid by such Third
Party to IFM for such Third Party financing is more favorable than the Original
IFM Valuation, without first providing VRGN a right to first refusal to provide
such additional monies to IFM on the same terms as in the proposed Third Party
financing. In such event, IFM shall provide VRGN with the terms of the proposed
Third Party financing and within 30 days VRGN shall determine whether to
exercise it s right of first refusal hereunder. If VRGN refuses to provide (or
cause to be provided) the additional monies at the terms of such proposed Third
Party financing, then IFM shall have the right to obtain such Third Party
financing as the funding source for such dose-ranging study.
3.1.6 IFM shall promptly notify VRGN in writing if, at any time, IFM
obtains financing from a Third Party to fund: (a) a Phase 3 clinical trial for
the Clinical Candidate, (b) the preparation or submission of an NDA to the FDA
for the Product, (c) obtaining FDA approval for such NDA, (d) completion of
clinical trial(s), (e) performance of additional or repeated study(ies) and/or
clinical trial(s), including without limitation a dose-ranging study if required
pursuant to Section 3.1.1(f), and/or (f) compilation of a final report of all
Data Packages in accordance with Section 3.1.3.
3.1.7 IFM shall, on a monthly basis, submit to VRGN financial information,
in form and content mutually acceptable to the Parties, evidencing all fees,
costs and expenses incurred by IFM in connection with carrying out its
obligations under the Clinical Research Plan in accordance with the Budget
(including without limitation the conduct of studies and/or clinical trials).
VRGN or its representatives shall have the right, on an annual basis during
regular business hours and upon reasonable advance notice, during the term
hereof and for a period of two (2) years thereafter, to examine IFM's books and
records for the purpose of verifying all such fees, costs and expenses.
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3.1.8 IFM will own: (i) any and all NDA(s) for Product and any equivalent
marketing approval applications, and all Regulatory Approvals for Product in
every country and territory in the world (excluding Regulatory Approvals for the
manufacture of Product, which shall be owned by VRGN), and (ii) except for that
data (including raw data), information and results (including analyses thereof)
constituting or otherwise relating to Process Development Technology (as that
term is defined herein), all data (including raw data), information and results
(including analyses thereof) contained in such NDA(s) and other Regulatory
Approvals and the provisions of Section 7.1.2 shall apply with respect thereto.
3.2 MANUFACTURE BY VIRAGEN.
3.2.1 Pursuant to the grant of licenses and other rights under Article 5,
VRGN shall at all times, subject to granting license(s) to Product Marketers (as
that term is defined in Section 3.2.5) or other Third Parties pursuant to
Sections 3.2.6, 3.2.7 or 3.2.8, have exclusive rights in the Territory with
respect to the manufacture and supply of Product and exclusive control over the
manufacture and supply of Product for use, distribution or sale anywhere in the
Territory. Accordingly, subject to granting license(s) to Product Marketers or
other Third Parties pursuant to Sections 3.2.6, 3.2.7 or 3.2.8, VRGN shall be
the exclusive manufacturer and supplier of all Product for use, distribution or
sale anywhere in the Territory, including without limitation all Product
required for: (i) research and development purposes, (ii) Regulatory Approval
purposes with regulatory authorities anywhere in the Territory, (iii)
pre-clinical and clinical trials (both before and after Product Regulatory
Approval), (iv) samples for distribution to physicians and other health care
professionals, and (v) commercial distribution and sale.
3.2.2 The Parties acknowledge that as of the Effective Date, IFM is engaged
in discussions with Japanese pharmaceuticals companies regarding the possible
licensing by IFM to a Japanese pharmaceuticals company of rights to develop,
register, manufacture, market, sell, distribute and commercialize in Japan the
Clinical Candidate that exists as of the Effective Date. IFM hereby agrees to
grant to VRGN, without additional consideration of any kind, exclusive rights in
Japan with respect to the manufacture and supply of Product, and exclusive
control over the manufacture and supply of Product for use, distribution or sale
in Japan if, within two (2) years after the Effective Date, IFM does not enter
into a definitive written agreement with a Japanese pharmaceuticals company
pursuant to which IFM grants to such Japanese pharmaceuticals company exclusive
rights with respect to the development, registration, manufacture and
commercialization in Japan of the Clinical Candidate that exists as of the
Effective Date. IFM agrees that it shall not, in any discussions with Third
Parties
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including Japanese pharmaceuticals companies, discuss or disclose any
Confidential Information of VRGN, including without limitation, Process
Development Technology.
3.2.3 Upon the grant by IFM to VRGN of the exclusive rights in Japan with
respect to the manufacture and supply of the Product pursuant to Section 3.2.2,
VRGN shall be the exclusive manufacturer and supplier of all Product for use,
distribution or sale in Japan, including without limitation all Product required
for: (i) research and development purposes, (ii) Regulatory Approval purposes
with regulatory authorities anywhere in Japan, (iii) pre-clinical and clinical
trials in Japan (both before and after Product Regulatory Approval), (iv)
samples for distribution to physicians and other health care professionals in
Japan, and (v) commercial distribution and sale in Japan.
3.2.4 VRGN will be responsible for all direct and indirect costs and
expenses related to: (i) pilot plant or small-scale manufacturing of the
Product, (ii) scale-up and qualification for commercial manufacturing of the
Product, and (iii) obtaining all licenses, permits and authorizations for those
facilities where the Product is manufactured. VRGN shall have the right, in its
sole discretion, to subcontract to Affiliates and Third Parties certain
activities in the manufacture of Product including without limitation
formulation and fill and packaging and labeling of Product. In the case of such
subcontracting by VRGN, VRGN assumes full responsibility and liability for the
performance of its subcontractors in carrying out such activities. VRGN shall
defend, indemnify and hold harmless IFM and its Affiliates (excluding VRGN) and
their respective directors (excluding VRGN representatives), officers, agents
and employees, successors and assigns from and against any and all liabilities,
claims, actions, suits, damages, losses, costs and expenses, fines and penalties
(including without limitation attorney's fees and other costs of litigation,
regardless of outcome) arising out of or related to the manufacture of Product
(including without limitation the formulation and fill and packaging and
labeling of Product) by Third Parties or Affiliates of VRGN (excluding IFM)
pursuant to subcontracts with VRGN. VRGN shall cause the manufacture of Product
and, to the extent any external financing is obtained in connection therewith,
such financing shall be obtained without diluting the then-current stockholders
of IFM.
3.2.5 VRGN shall supply Product to IFM and its Affiliates, partners,
distributors, licensees and other Third Parties having rights with respect to
the distribution, marketing or sale of Product in the Territory (and Japan if
VRGN obtains exclusive rights with respect to the exclusive manufacture and
supply of Product in Japan under Section 3.2.2) (collectively, "Product
Marketers"). VRGN's supply of Product to Product Marketers shall be subject to
the terms and conditions of arm's length Supply Agreements negotiated in good
faith between VRGN and such Product Marketers.
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VRGN shall be the exclusive supplier of Product under any and all such Supply
Agreements (such that all Product Marketers shall purchase their entire
requirements of Product from VRGN), and the price of any Product supplied by
VRGN under such Supply Agreements shall be commercially reasonable.
3.2.6 If it is determined pursuant to arbitration under Section 3.2.8, that
the price of any Product proposed to be supplied by VRGN to a Product Marketer
under a Supply Agreement, is not commercially reasonable, then at its option,
VRGN shall either supply Product to such Product Marketer at a price that is
determined to be commercially reasonable pursuant to such arbitration proceeding
or, within a reasonable time thereafter, VRGN and such Product Marketer shall
negotiate in good faith the grant of a license to such Product Marketer under
the Process Development Technology, for the sole purpose of using Process
Development Technology in the manufacture of Product. Notwithstanding the
foregoing, VRGN reserves the right to not grant a license to a Product Marketer
if VRGN reasonably believes such Product Marketer would not be able to meet its
obligations under the license, but in such event, VRGN shall supply Product to
such Product Marketer at the price determined to be commercially reasonable
pursuant to the arbitration proceeding under Section 3.2.8.
3.2.7 If this Agreement terminates pursuant to Sections 2.8, 3.1.1(c),
3.1.1(d) or 3.1.2(c), then at the request of IFM, VRGN and a Product Marketer
desiring to obtain a license from VRGN, will negotiate in good faith the grant
of a license under the Process Development Technology to such Product Marketer
for the sole purpose of using Process Development Technology in the manufacture
of Product. Notwithstanding the foregoing, VRGN reserves the right to not grant
a license to a Product Marketer if VRGN reasonably believes such Product
Marketer would not be able to meet its obligations under the license. In the
event VRGN does not grant a license to such Product Marketer for such reason,
IFM shall have the same rights to Process Development Technology that IFM would
have in a Chapter 7 bankruptcy case with respect to VRGN, where the license was
rejected by VRGN's trustee in bankruptcy pursuant to clauses (1)(B), (2) and (3)
of 11 U.S.C. Section 365(n) of the United States Bankruptcy Code.
3.2.8 Any license granted by VRGN pursuant to Sections 3.2.6 or 3.2.7,
shall be royalty-bearing and shall include other customary consideration given
to licensors under such license agreements, and shall contain other reasonable
commercial terms as agreed between VRGN and such Product Marketer, including
without limitation full indemnification in favor of VRGN. If VRGN and such
Product Marketer do not enter into a definitive license agreement after
negotiating in good faith for a period of one hundred twenty (120) days, because
VRGN and such Product Marketer have been unable to agree on the terms of such
license agreement, then the Product Marketer may request
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that the determination of such terms be submitted to and made by a single
independent Third Party mutually acceptable to the Parties (the "Arbitrator").
The Arbitrator under this Section 3.2.8 shall have considerable business
experience in the licensing of biopharmaceutical products, including without
limitation licensing of manufacturing rights for such products. The decision of
the Arbitrator shall be binding on the Parties for the purposes hereof, such
that VRGN shall grant a license under its Process Development Technology to such
Product Marketer or other Third Party, for the sole purpose of using Process
Development Technology in the manufacture of Product, containing terms
determined by the Arbitrator. The arbitration shall be held in a place to be
mutually agreed by VRGN and the Product Marketer or other Third Party, according
to the commercial rules of the AAA. VRGN and the Product Marketer or other Third
Party shall share equally the costs of arbitration under this Section 3.2.8.
ARTICLE 4
PRODUCT AND PROCESS DEVELOPMENT BY VIRAGEN
4.1 VRGN shall exercise commercially reasonable efforts, at its own
expense, to carry out process development for the Clinical Candidate and Product
during the term hereof. VRGN shall have exclusive control over and
responsibility for conducting any and all process development for the Clinical
Candidate and Product (including but not limited to process improvements). IFM
shall participate at VRGN's request with VRGN in carrying out any process
development for the Clinical Candidate and Product, and VRGN shall provide the
CRMC with quarterly summaries of VRGN's activities in carrying out process
development for the Clinical Candidate and Product. VRGN's activities in
carrying out process development for the Clinical Candidate and Product shall be
at the direction of the PDSC (defined below) and shall include the conduct of
comparability (equivalency) studies, stability studies and other such process
development required to support clinical trials and commercial manufacture of
Product as determined by the PDSC.
4.2 In furtherance of VRGN's obligation to conduct process development for
the Clinical Candidate and Product under Section 4.1, VRGN shall establish a
Process Development Steering Committee (the "PDSC") which shall oversee the
conduct of process development for the Clinical Candidate and Product by VRGN.
Dr. Smart shall be a member of the PDSC. All of the other members of the PDSC
shall be appointed by VRGN in its sole discretion. Following the establishment
of the PDSC, the PDSC shall determine its functions, powers and governance,
frequency of its meetings, and other similar matters.
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4.3 Notwithstanding Section 4.1, VRGN makes no representations or
warranties, express or implied, with respect to any process development for the
Clinical Candidate or Product that it undertakes hereunder. Accordingly, VRGN
neither represents nor warrants that its process development activities will
result in the successful development, registration or commercialization of the
Clinical Candidate or Product anywhere in the world, or the successful or
cost-effective manufacture of the Clinical Candidate or Product. If VRGN's
process development activities do not result in the successful or cost-effective
manufacture of the Clinical Candidate or Product, and IFM must use its own or a
Third Party's process technology for the manufacture of the Clinical Candidate
or Product, VRGN shall not own the process technology developed by IFM or such
Third Party; provided that any process technology developed by IFM or such Third
Party does not: (a) infringe or misappropriate Process Development Technology,
or (b) utilize IFM Technology. If this Agreement terminates and IFM desires to
acquire a license from VRGN to use the IFM Technology in developing IFM's own
process technology for the manufacture of the Clinical Candidate or Product, the
Parties shall negotiate in good faith the terms of a license agreement under
which VRGN would grant to IFM such license. If the Parties do not enter into a
definitive license agreement after negotiating in good faith for a period of one
hundred twenty (120) days, because VRGN and IFM have been unable to agree on the
value of the IFM Technology to be licensed thereunder, then IFM may request that
the determination of such value be submitted to and made by a single independent
Third Party mutually acceptable to the Parties (the "Arbitrator"). The
Arbitrator under this Section 4.3 shall have considerable business experience in
the licensing of biopharmaceutical products, including without limitation
licensing of manufacturing rights for such products. The decision of the
Arbitrator shall be binding on the Parties for the purposes hereof, such that
VRGN shall grant a license under the IFM Technology to IFM, for the sole purpose
of using IFM Technology in the manufacture of Product, based on a valuation of
the IFM Technology determined by the Arbitrator. The arbitration shall be held
in a place to be mutually agreed by the Parties, according to the commercial
rules of the AAA, and the Parties shall share equally the costs of arbitration
under this Section 4.3.
ARTICLE 5
LICENSE GRANT
5.1 GRANT BY IFM. IFM hereby grants to VRGN an irrevocable, perpetual,
exclusive (even as to IFM), royalty-free right and license in the Territory,
under the IFM Technology and the Clinical Research Plan Information, to register
Product in the Territory, to carry out product and process development for the
Clinical Candidate and Product, and to make and have made the Clinical Candidate
and Product. The grant of
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such rights and licenses under this Section 5.1 includes the right to grant
sublicenses to Third Parties to manufacture the Clinical Candidate and/or
Product.
5.2 ACCESS TO DATA AND MATERIALS. In addition to the licenses granted in
Section 5.1, IFM hereby further grants to VRGN:
5.2.1 A right of access to and, upon VRGN's request, IFM shall provide to
VRGN copies of, data (including raw data) and information included in the IFM
Technology and the Clinical Research Plan Information, including without
limitation the results of studies, tests and trials involving the Clinical
Candidate and Product, and analyses thereof, for the purposes of exercising its
rights under the licenses granted in Section 5.1 and carrying out its
obligations under this Agreement, including without limitation the registration
of Product in all countries of the Territory, and obtaining all licenses,
permits and authorizations for those facilities where Product is manufactured;
and
5.2.2 A right of cross-reference to all Regulatory Approvals and regulatory
submissions for the Clinical Candidate and Product in the Territory, and access
to all underlying data for such Regulatory Approvals and regulatory submissions,
for the purposes of exercising its rights under the licenses granted in Section
5.1 and carrying out its obligations under this Agreement, including without
limitation the registration of Product in all countries of the Territory, and
obtaining all licenses, permits and authorizations for those facilities where
Product is manufactured.
5.2.3 Upon VRGN's request, IFM shall also provide to VRGN materials
(including without limitation any biological materials, chemical compounds or
substances, biological cells, cell lines and products generated thereby or
components thereof, whether derived from biological material or synthesized)
which may be used by VRGN for the purposes of exercising its rights under the
licenses granted in Section 5.1 and carrying out its obligations under this
Agreement. Immediately following the Effective Date, IFM shall commence
technology transfer of IFM Technology to VRGN on a timely basis, to effect the
purposes hereof.
5.3 EXCLUSIVE COLLABORATION. IFM covenants and agrees that during the term
of this Agreement it will not use, nor license, assign or transfer to any
Affiliate or Third Party, any IFM Technology or Clinical Research Plan
Information, or encumber such IFM Technology or Clinical Research Plan
Information, in any way that is inconsistent with the provisions in this
Agreement, without the prior written consent of VRGN, which may be withheld in
its sole discretion.
5.4 NO IMPLIED LICENSES. By virtue of entering into this Agreement, no
licenses, express or implied, are being granted by VRGN to IFM or by
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IFM to VRGN and, other than as expressly provided for in Sections 3.2 and 5.1,
no license rights of any kind shall be created in either Party by implication or
estoppel.
ARTICLE 6
CONSIDERATION
6.1 STOCK PURCHASE AGREEMENT. Simultaneously with and in partial
consideration for the execution and delivery of this Agreement, the Parties are
entering into a stock purchase agreement pursuant to which IFM will, upon
satisfaction of certain conditions, issue VRGN shares of its Series A
Convertible Preferred Stock.
6.2 ISSUANCE OF FIRST WARRANT BY VRGN TO IFM. In partial consideration for
IFM entering into and performing its obligations under this Agreement, VRGN will
issue and deliver to IFM upon the First Closing (as that term is defined in the
Stock Purchase Agreement) a non-transferable warrant (the "First Warrant") to
purchase up to 200,000 shares of VRGN Common Stock (the "First Warrant Shares")
at an exercise price of $1.00 per share, in the form attached hereto as Exhibit
C.
6.3 ISSUANCE OF VIRAGEN COMMON STOCK. In the event that VRGN exercises its
Phase II Election, VRGN shall as soon as practicable and upon execution and
delivery by IFM of all documents deemed appropriate or necessary by VRGN and its
counsel (including, without limitation, investor suitability and representation
letters) issue to IFM 1,000,000 shares of its Common Stock in consideration for
shares of Series A Convertible Preferred Stock to be issued to VRGN pursuant to
the Section 1.1(I) of the Stock Purchase Agreement. IFM hereby acknowledges that
(a) it is aware that any such shares may not be registered under the Act at the
time of issuance, and (b) such shares will bear the appropriate restrictive
legends as required by federal or state securities laws and will be deemed to be
"restricted securities" within the meaning of the Act.
6.4 ISSUANCE OF SECOND WARRANT BY VRGN TO IFM. In partial consideration for
IFM's entering into and performing its obligations under this Agreement, VRGN
hereby agrees that upon exercise of its Phase II Election, VRGN will issue and
deliver to IFM at the Phase II Election Closing (as that term is defined in the
Stock Purchase Agreement) a non-transferable warrant (the "Second Warrant") to
purchase up to 300,000 shares of VRGN Common Stock in the form attached hereto
as Exhibit D.
6.5 ISSUANCE OF VRGN COMMON STOCK. In the event VRGN exercises its Phase
III Election, VRGN shall as soon as practicable and upon execution
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and delivery by IFM of all documents deemed appropriate or necessary by VRGN and
its counsel (including, without imitation, investor suitability and
representation letters) issue to IFM 2,000,000 shares of its Common Stock in
consideration for shares of Series A Convertible Preferred Stock to be issued to
VRGN pursuant to Section 1.1(c) of the Stock Purchase Agreement. IFM hereby
acknowledges that (a) it is aware that any such shares may not be registered
under the Act at the time of issuance, and (b) such shares will bear the
appropriate restrictive legends as required by federal or state securities laws
and will be deemed to be "restricted securities" within the meaning of the Act.
ARTICLE 7
INTELLECTUAL PROPERTY
7.1 OWNERSHIP OF CLINICAL RESEARCH PLAN INFORMATION, PROCESS DEVELOPMENT
TECHNOLOGY AND MANUFACTURING TECHNOLOGY.
7.1.1 In all cases, inventorship under the Clinical Research Plan shall be
determined in accordance with the United States patent laws. Any and all: (i)
technology, discoveries, improvements, inventions, developments and ideas
conceived, made or reduced to practice pursuant to the Clinical Research Plan,
(ii) data (including raw data), information and results (including analyses
thereof) arising out of or related to the Phase 1/2, Phase 3 and any other
studies or clinical trials conducted under or work performed pursuant to the
Clinical Research Plan, (iii) NDA(s) for the Product and any equivalent
marketing approval applications, and all Regulatory Approvals for the Product in
all countries and territories of the world (including all data, information,
results and analyses contained in such NDA(s), NDA equivalents and Regulatory
Approvals), and all submissions to regulatory agencies in connection therewith,
and (iv) patent applications and patents on any or all of the foregoing
(including without limitation any divisions, continuations,
continuations-in-part, reissues, extensions, renewals, supplementary protection
certificates and foreign counterparts thereof) (collectively, the "Clinical
Research Plan Information") shall be owned exclusively by IFM. In addition,
notwithstanding anything to the contrary herein, the IFM Technology is and shall
be owned exclusively by IFM.
(a) Accordingly, VRGN hereby agrees to assign to IFM its entire right,
title and interest in and to any Clinical Research Plan Information and, in
furtherance thereof, VRGN shall cause its employees, agents and contractors to
assign to it their respective right, title and interest in and to Clinical
Research Plan Information. All such assignments shall be irrevocable, perpetual,
and without the payment of any
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royalties or other consideration by IFM now or in the future, but the
out-of-pocket costs of such assignments shall be at IFM's expense. VRGN will
disclose promptly to IFM all discoveries, developments, ideas or inventions
(whether patentable or not) constituting Clinical Research Plan Information.
(b) Notwithstanding anything to the contrary herein, any and all: (i)
technology, discoveries, improvements, inventions, developments and ideas
conceived, made or reduced to practice pursuant to the Clinical Research Plan,
(ii) data (including raw data), information and results (including analyses
thereof) arising out of or related to the Phase 1/2, Phase 3 and any other
studies or clinical trials conducted under or work performed pursuant to the
Clinical Research Plan, (iii) data, information, results and analyses contained
in NDA(s), NDA equivalents and Regulatory Approvals for Product, and (iv) patent
applications and patents on any or all of the foregoing (including without
limitation any divisions, continuations, continuations-in-part, reissues,
extensions, renewals, supplementary protection certificates and foreign
counterparts thereof), which constitute or otherwise relate to process
development for the Clinical Candidate or Product, including without limitation
any and all process improvements, formulae, techniques, designs, methods,
know-how and trade secrets relating to the manufacture of the Clinical Candidate
or Product, but excluding any IFM Technology, shall be deemed Process
Development Technology and subject to Section 7.1.2 below.
7.1.2 Any and all: (i) process developments relating to the Clinical
Candidate or Product, including without limitation any and all process
improvements, formulae, techniques, designs, methods, know-how and trade secrets
relating to the manufacture of the Clinical Candidate or Product, and (ii)
patent applications and patents on any or all of the foregoing (including
without limitation any divisions, continuations, continuations-in-part,
reissues, extensions, renewals, supplementary protection certificates and
foreign counterparts thereof) (collectively, the "Process Development
Technology") but excluding any IFM Technology, shall be owned exclusively by
VRGN, whether the Process Development Technology is conceived, made and reduced
to practice by VRGN alone, by IFM alone, or by IFM and VRGN jointly following
the Effective Date (including, without limitation, as a result of Dr. Smart's
membership on the PDSC or any other activities of Dr. Smart in performing IFM's
obligations under this Agreement including carrying out the Clinical Research
Plan, and pursuant to Dr. Smart's services under the Consultancy Agreement).
Accordingly, IFM hereby agrees to assign to VRGN its entire right, title and
interest in and to any Process Development Technology and, in furtherance
thereof, IFM shall cause its employees, agents and contractors to assign to it
their respective right, title and interest in and to Process Development
Technology. All such assignments shall be irrevocable, perpetual, and without
the payment of any royalties or other consideration by VRGN now or in the
future, but the out-of-pocket costs of such assignments shall be at VRGN's
expense. IFM will disclose promptly to
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VRGN all discoveries, developments, ideas or inventions (whether patentable or
not) constituting Process Development Technology.
7.2 PATENT PROSECUTION, ENFORCEMENT AND DEFENSE.
7.2.1 UNDER THE CLINICAL RESEARCH PLAN. The CRMC shall consider and
recommend to the Parties from time to time which inventions arising from the
Clinical Research Plan shall be the basis of patent applications and which shall
be maintained as trade secrets. If the Parties are unable to agree as to whether
patent protection shall be sought with respect to any invention arising under
the Clinical Research Plan, the CRMC shall make the final determination with
respect thereto. Patent applications and patents for inventions arising under
the Clinical Research Plan and which are deemed Clinical Research Plan
Information under Section 7.1.1, shall be owned by IFM pursuant to Section 7.1.1
and shall be prosecuted, maintained and enforced by IFM at its own expense and
defended against Third Party oppositions by IFM at its option and expense.
7.2.2 NOTIFICATION REQUIREMENTS; ELECTION TO DEFEND. During the term of
this Agreement, IFM shall keep VRGN informed on a timely basis of the status of
all patent applications and patents in the Territory relating to IFM Technology
and Clinical Research Plan Information, including without limitation notifying
VRGN in writing of any and all filings of patent applications, issuances of
patents and divisions, continuations, continuations-in-part, reissues,
extensions, renewals, supplementary protection certificates and foreign
counterparts thereof (collectively, the "Patent Rights"). Attached hereto as
Exhibit B and made a part hereof is a list of the Patent Rights as of the
Effective Date. IFM shall also keep VRGN informed on a timely basis of any Third
Party oppositions, interferences or claims of patent invalidity or
unenforceability in the Territory. VRGN shall have the right, but not the
obligation, to defend at its own expense the validity or enforceability of any
patent relating to IFM Technology or Clinical Research Plan Information in the
Territory, if IFM elects not to defend the validity or enforceability of such
patent after being called upon to do so in writing by VRGN.
7.2.3 INFRINGEMENT. Subject to Section 7.2.4, IFM will be solely
responsible for the enforcement of patents included in the IFM Technology and
Clinical Research Plan Information, and each Party shall promptly notify the
other Party of any alleged infringement by a Third Party of patents included in
the IFM Technology or Clinical Research Plan Information in the Territory. IFM
shall have the right but not the obligation to prosecute and/or defend, at its
own expense and using counsel of its own choice, any infringement of and/or
challenge to the patents included in the IFM Technology and Clinical Research
Plan Information. In furtherance of such right, VRGN agrees that IFM may join
VRGN as a party in any such suit brought by IFM, without
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expense to VRGN. Any recovery of damages or settlement or award in any such suit
shall be retained in its entirety by IFM.
7.2.4 VRGN'S OPTION TO ENFORCE PATENTS. Unless IFM, after receipt of notice
of infringement by a Third Party of IFM Technology or Clinical Research Plan
Information, either (i) causes such infringement to terminate or (ii) initiates
legal proceedings against the infringer, VRGN, upon reasonable prior notice to
IFM, may at its option initiate legal proceedings against the infringer at
VRGN's expense. Any recovery of damages or settlement or award in any such suit
at VRGN's initiation and expense shall be retained in its entirety by VRGN. In
furtherance thereof, IFM agrees that VRGN may join IFM as a party in any such
suit brought by VRGN, without expense to IFM. Any recovery of damages or
settlement or award in any such suit shall be retained in its entirety by VRGN.
7.2.5 COOPERATION. In any suit to enforce and/or defend patents included in
the IFM Technology, Clinical Research Plan Information or Process Development
Technology, each Party shall at the request of the other Party, cooperate in all
respects and to the extent possible, have its employees testify when requested
and make available relevant records, papers, information, samples, specimens and
the like.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1.1 BOTH PARTIES. Each Party represents and warrants to the other that:
(a) CORPORATE POWER. It is duly organized and validly existing under the
laws of its state of incorporation, and has full corporate power and authority
to enter into this Agreement and to carry out the provisions hereof.
(b) DUE AUTHORIZATION. It is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder, and the person executing
this Agreement on its behalf has been duly authorized to do so by all requisite
corporate action.
(c) BINDING AGREEMENT. This Agreement is legally binding upon it and
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by it does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a party or by which
it may be bound, nor
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violate any material law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it.
(d) GRANT OF RIGHTS; MAINTENANCE OF AGREEMENTS. It has not, and will not
during the term of this Agreement, grant any right to any Affiliate or Third
Party which would conflict with the rights granted to the other Party hereunder.
It has (or will have at the time performance is due) maintained and will
maintain and keep in full force and effect all agreements necessary to perform
its obligations hereunder.
(e) VALIDITY. It is aware of no action, suit or inquiry or investigation
instituted by any governmental agency which questions or threatens the validity
of this Agreement.
(f) THIRD PARTY RIGHTS. To the best of its knowledge, it has all right,
power and authority to perform its obligations under, and no Third Party claims
or patent rights exist which would be infringed by the conduct of the Clinical
Research Plan or the utilization of the technology, methodology or materials as
contemplated thereby. To the best of its knowledge, there are no Third Party
licenses not already obtained that are required by any existing technology of
such Party which is to be utilized in the Clinical Research Plan.
(g) ACCURACY OF INFORMATION. All documentation and other information
conveyed by IFM to VRGN hereunder or in connection herewith, was, at the time it
was conveyed or provided, accurate and complete in light of the purposes for
which it was intended.
8.2 IFM REPRESENTATION AND WARRANTY. IFM represents and warrants it has
not, and will not during the term of this Agreement, grant any right to any
Affiliate or Third Party which would conflict with the rights granted to VRGN
hereunder. For the avoidance of doubt, IFM shall not grant any license or right
to any Affiliate or Third Party in the Territory for the Clinical Candidate or
Product, whether under the IFM Technology, the Clinical Research Plan
Information or otherwise, to make or have made the Clinical Candidate or Product
except as permitted under this Agreement with respect to Japan. Furthermore, any
grant of a license by IFM to an Affiliate or Third Party in Japan for the
Clinical Candidate that exists as of the Effective Date: (a) shall not include
the right to sublicense the right to make or have made such Clinical Candidate
without the prior unanimous approval of the Board of Directors of IFM, (b) shall
not authorize or otherwise enable such Affiliate or Third Party to make or have
made such Clinical Candidate which may be used or sold anywhere in the
Territory, and (c) shall expressly prohibit such Affiliate or Third Party from
directly or indirectly exporting, transferring or selling such Clinical
Candidate in or into the Territory.
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8.3 DISCLAIMER CONCERNING TECHNOLOGY. EXCEPT AS SET FORTH IN SECTION 8.1
ABOVE, THE TECHNOLOGY PROVIDED OR DEVELOPED BY EACH PARTY HEREUNDER IS PROVIDED
"AS IS" AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without
limiting the generality of the foregoing, each Party expressly does not warrant
(i) the success of any study, trial or test conducted under the Clinical
Research Plan or of the development of any Product from a Clinical Candidate; or
(ii) the safety or usefulness for any purpose of the technology it provides or
develops or of any Product developed hereunder.
8.4 VRGN REPRESENTATION AND WARRANTY. VRGN represents and warrants that it
has not and will not during the term of this Agreement, grant any right to any
Affiliate or Third Party which would conflict with the rights granted to IFM
hereunder. VRGN will not hold any substantive licensing discussions with Third
Parties regarding Product without IFM's prior written consent not to be
unreasonably withheld or delayed.
ARTICLE 9
CONFIDENTIALITY; PUBLICATION
9.1 CONFIDENTIALITY. Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing by the Parties, the Parties agree that,
for the longer of: (i) the term of this Agreement and for five (5) years after
its expiration or termination, or (ii) ten (10) years after the date of initial
disclosure, the receiving Party shall keep confidential and shall not publish or
otherwise disclose and shall not use for any purpose other than as provided for
in this Agreement, any Confidential Information furnished to it by the other
Party both prior to and pursuant to this Agreement, unless the receiving Party
can demonstrate by competent written proof that such Confidential Information:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;
(b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to the receiving Party;
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(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving Party in breach of this Agreement;
(d) was disclosed to the receiving Party, other than under an obligation of
confidentiality to a Third Party, by a Third Party who had no obligation to the
disclosing Party or any other party not to disclose such information to others;
or
(e) was independently discovered or developed by the receiving Party
without the use of Confidential Information belonging to the disclosing Party.
It is agreed that with respect to the Confidential Information of either Party
that was disclosed to the other Party pursuant to the Confidentiality and
Non-Use Agreement between the Parties dated October 27, 1997, the disclosure of
such Confidential Information shall be subject to and governed by this Article
9.
9.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential Information
belonging to the other Party to the extent such disclosure is reasonably
necessary in the following instances:
(a) filing or prosecuting patents relating to the Clinical Candidate or
Product;
(b) regulatory filings;
(c) prosecuting or defending litigation;
(d) complying with applicable governmental laws or regulations;
(e) conducting pre-clinical or human clinical trials of the Clinical
Candidate or Product;
(f) disclosure to Affiliates, sublicensees, employees, consultants, or
agents, each of whom prior to disclosure must be bound by similar obligations of
confidentiality and non-use at least equivalent in scope to those set forth in
this Article 9; and,
(g) disclosure to investment bankers;
provided, however, that no disclosure of either Party's Confidential Information
under Sections 9.2(a) through (g) shall be made without such Party's prior
written consent (not to be unreasonably withheld or delayed) and, in the event
of such permitted disclosure of a Party's Confidential Information, the other
Party shall seek and obtain confidential
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treatment thereof to the extent available or attempt to obtain protective orders
with respect to such Confidential Information where possible, and shall take
whatever lawful actions are necessary to avoid or minimize the extent of such
disclosure.
9.3 PUBLICATIONS. Subject to the other provisions of this Article 9, on all
matters pertaining to this Agreement, IFM shall provide VRGN with the
opportunity to review and comment upon any proposed public announcements,
including any press releases, relating to this Agreement, and IFM shall
incorporate any changes thereto requested by VRGN. VRGN shall provide IFM with
the opportunity to review and comment upon any proposed public announcements,
including any press releases, relating to this Agreement. IFM shall also provide
VRGN with the opportunity to review and comment upon any proposed research
presentations, abstracts or manuscripts that relate to the Clinical Candidate or
Product at least sixty (60) days prior to their intended submission for
presentation or publication, and IFM shall make any changes requested by VRGN
with respect thereto. Nothing in this Article 9 shall prohibit VRGN from making
such disclosures as VRGN deems necessary under applicable federal or state
securities laws or any rule or regulation of any nationally recognized
securities exchange; in such event, however, VRGN shall request confidential
treatment thereof to the extent available, and shall provide IFM with a copy of
any such disclosure.
9.4 INJUNCTIVE RELIEF. Each Party agrees that damages will not be an
adequate remedy to the other Party in the event of a Party's breach of its
obligations under this Article 9. Accordingly, notwithstanding Section 12.2,
each Party agrees that the other Party (without limiting such other Party's
rights or remedies otherwise available to it) shall be entitled to obtain,
without posting a bond, specific performance and preliminary and permanent
injunction from any court of competent jurisdiction, prohibiting the continuance
or recurrence of any breach of this Article 9.
ARTICLE 10
TERM AND TERMINATION
10.1 TERM OF THE AGREEMENT. This Agreement shall become effective upon the
Effective Date and, subject to applicable laws and regulations, shall continue
in effect unless earlier terminated pursuant to Sections 2.8, 3.1.1(c),
3.1.1(d), 3.1.1(f), 3.1.2(c), 10.2 or 10.3. This Agreement may be terminated by
mutual written agreement of the Parties.
10.2 TERMINATION FOR MATERIAL BREACH. Each Party shall have the right to
terminate this Agreement after ninety (90) days prior written notice to the
other that the other Party has committed a material breach of this Agreement,
unless
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the other Party cures (to the extent curable) the material breach within
such period of time.
10.2.1 In addition to any other rights and remedies available to it, in the
event VRGN terminates this Agreement under this Section 10.2: (a) Section 3.2
and the licenses and other rights granted by IFM to VRGN under Article 5 shall
survive such termination and remain in full force and effect, and (b) IFM hereby
agrees to grant to VRGN a co-exclusive marketing and distribution rights for
Product in the Territory (for the purposes hereof, "co-exclusive" shall mean
that only IFM and VRGN, and no other Third Party, shall have the right to market
or distribute Product in the Territory).
10.2.2 In addition to any other rights and remedies available to it, in the
event IFM terminates this Agreement pursuant to this Section 10.2: (a) the
licenses and other rights granted by IFM to VRGN under Article 5 shall
automatically terminate and revert to IFM, and VRGN shall have no residual
rights with respect thereto, except to the extent such licenses and other rights
are necessary for VRGN to continue to exercise its rights under Section 3.2, and
(b) VRGN hereby agrees to grant to IFM co-exclusive manufacturing rights for
Product in the Territory (for the purposes hereof, "co-exclusive" shall mean
that only VRGN, IFM and IFM's contract manufacturers, and no other Third Party,
shall have the right to manufacture and have manufactured Product for use and
sale in the Territory).
10.3 TERMINATION UPON BANKRUPTCY.
10.3.1 Either Party shall have the right to terminate this Agreement if the
other Party becomes insolvent or a petition in bankruptcy or for corporate
reorganization or for any similar relief is filed by, on behalf of, or against
such other Party or a receiver is appointed with respect to any of the assets of
such other Party or a liquidation proceeding is commenced by or against such
other Party.
10.3.2 Without limiting any of VRGN's rights under any other provision of
this Agreement, VRGN's rights under this Agreement shall include those rights
afforded by 11 U.S.C. ss.365(n) of the United States Bankruptcy Code and any
successor thereto (the "Code"). If the bankruptcy trustee of IFM as a debtor or
IFM as a debtor in possession rejects this Agreement under 11 U.S.C. ss.365(n)
of the Code, VRGN may elect to retain its rights licensed from IFM hereunder for
the duration of this Agreement and avail itself of all rights and remedies to
the full extent contemplated under this Agreement, 11 U.S.C. ss.365(n) of the
Code, and any other relevant sections of the Code or other relevant
non-bankruptcy law.
10.4 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. Termination of this Agreement
shall not affect any accrued rights of either Party. The
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terms of Sections 2.6, 2.7.2, 3.1.6, 3.1.7, 3.1.8, 3.2, 4.3, 5.1, 5.2, 5.3, 5.4,
5.5, 7.1, 8.3, 10.2, 10.3.2 and 10.4, and Articles 9, 11 and 12 of this
Agreement shall survive expiration or termination of this Agreement for any
reason and remain in full force and effect; provided, however, that in the event
of any termination of this Agreement other than VRGN's termination of this
Agreement pursuant to Section 10.2.1, VRGN's license and right to register
Product under Section 5.1 shall not survive. Promptly after termination or
expiration of this Agreement, each Party shall return or dispose of any
materials or Confidential Information of the other Party in accordance with the
instructions of the other Party, including without limitation any compounds,
assays or other biological or chemical materials, and shall retain no copies
thereof and make no further use thereof except as otherwise expressly provided
for herein.
ARTICLE 11
INDEMNITY AND INSURANCE
11.1 INDEMNIFICATION.
11.1.1 IFM shall, at its sole expense, indemnify, defend, and hold harmless
VRGN and its Affiliates and their respective directors, officers, employees,
agents, successors and assigns from and against any and all liabilities, claims
(including product liability claims), suits, losses, damages, costs, fees, and
expenses (including without limitation attorney's fees and court costs,
regardless of outcome, (collectively, "Liabilities") relating to any Clinical
Candidate or Product, including resulting directly or indirectly from the (i)
Clinical Research Plan, including without limitation, in connection with the
conduct of clinical trials or the research, development, testing, registration,
study or use of the Clinical Candidate or Product pursuant to the Clinical
Research Plan, (ii) development (other than product and process development work
carried out by VRGN hereunder) or registration of the Clinical Candidate or
Product, (iii) manufacture of the Clinical Candidate or Product by anyone other
than VRGN or its subcontractors, (iv) commercialization of Product (including
without limitation as a result of the import, export, storage, handling,
transportation, distribution, promotion, marketing, sale or use of Product, or
any stock or market recovery or recall of Product), (v) breach of this Agreement
by IFM or any of its employees, agents or contractors, or (vi) the negligence,
willful misconduct, or violation of any law, rule or regulation by or on behalf
of IFM or any of its Affiliates, licensees, partners or their respective
employees, agents or contractors. The foregoing obligation to defend, indemnify
and hold harmless shall not apply to the extent any such Liabilities results
from any of the activities or circumstances described in Sections 11.1.2(i)
through (iv) below.
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11.1.2 VRGN shall, at its sole expense, indemnify, defend, and hold
harmless IFM and its Affiliates and their respective directors, officers,
employees, agents, successors and assigns from and against any and all
Liabilities resulting directly or indirectly from: (i) the manufacture of
Product by VRGN or its subcontractors, (ii) infringement of third party patents
by use of Process Development Technology in the manufacture of Product, (iii)
breach of this Agreement by VRGN or any of its employees, agents or contractors,
or (iv) the negligence, willful misconduct, or violation of any law, rule or
regulation by or on behalf of VRGN or any of its Affiliates, licensees, partners
or their respective employees, agents or contractors. The foregoing obligation
to defend, indemnify and hold harmless shall not apply to the extent any such
Liabilities results from any of the activities or circumstances described in
Sections 11.1.1(i) through (vi) above.
11.2 INDEMNIFICATION PROCEDURES. Each Party's indemnification obligations
under Section 2.6, Section 3.2.4 and Section 11.1 are conditioned upon the other
Party:
(a) promptly notifying the Party from whom indemnification is sought (the
"Indemnitor") in writing of the claim or action against which
indemnification is sought under Section 2.6, Section 3.2.4 or Section
11.1;
(b) providing the Indemnitor the opportunity to assume the entire defense
and settlement of such claim or action at the Indemnitor's own cost and
expense (provided the Party seeking indemnification shall have the
right to be represented separately by counsel of its own choosing at
its own expense);
(c) cooperating with the Indemnitor (at the Indemnitor's reasonable
expense) in the investigation and defense of such claim or action; and
(d) not settling or compromising such action or claim without the prior
written consent of the Indemnitor.
11.3 INSURANCE. IFM will obtain, and maintain during the term of this
Agreement and for ten (10) years thereafter, professional liability, product
liability and general liability insurance (including without limitation coverage
for clinical trials) in the following minimum amounts: five million dollars
($5,000,000) per occurrence for general liability insurance (including
professional liability coverage), five million dollars ($5,000,000) per
occurrence for clinical trials coverage, and ten million dollars ($10,000,000)
per occurrence for product liability coverage. The policies for product
liability, professional liability and general liability insurance (including
coverage for clinical trials) shall include VRGN and its Affiliates and their
respective directors, officers and employees as additional named insureds with
respect to this Agreement, and shall name this Agreement. With respect to the
required insurance coverage, there shall
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be a thirty (30) day notice of cancellation, with the provision that VRGN be
notified in the event of any cancellation, intention of insurer not to renew, or
any material change in the insurance contract or coverages afforded, and such
insurance shall be placed with insurers having a Best's, Standard and Poors, or
similar rating of "A" or better. Within thirty (30) days of the Effective Date,
IFM shall furnish to VRGN certificates evidencing the insurance required under
this Section 11.3.
ARTICLE 12
GOVERNING LAW; DISPUTE RESOLUTION
12.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
12.2 ARBITRATION. Other than the resolution of matters relating to clinical
research of the Product within the purview of the CRMC (which matters shall be
resolved in accordance with Section 2.2) and the resolution of matters arising
under Section 10 relating to material breach and termination of this Agreement,
in the event a dispute arises between the Parties relating to this Agreement (a
"Dispute"), the aggrieved Party shall notify the other Party in writing of such
Dispute, and the Parties shall attempt to resolve such Dispute in good faith.
If, within thirty (30) days of such written notice, the Parties have not
succeeded in resolving the Dispute, the matter shall be referred by the
aggrieved Party for review and resolution by the respective Presidents of VRGN
and IFM. If no successful resolution of the Dispute has been mutually agreed to
within fifteen (15) days of referral to the Presidents of VRGN and IFM, the
Dispute shall be finally resolved by binding arbitration. The arbitration shall
be held in a place to be mutually agreed by the Parties, according to the
commercial rules of the AAA. The arbitration will be conducted by a panel of
three (3) arbitrators appointed in accordance with applicable AAA rules. The
arbitrators shall apply the laws of the State of Delaware. Judgment on the award
so rendered may be entered in any court having jurisdiction thereof. The
non-prevailing Party shall bear the costs of arbitration.
ARTICLE 13
GENERAL PROVISIONS
13.1 NOTICES. All notices required or permitted to be given under this
Agreement shall be in writing and shall be mailed by registered or certified
mail, postage
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prepaid, addressed to the signatory to whom such notice is required or permitted
to be given and transmitted by facsimile to the number indicated below. All
notices shall be deemed to have been given when mailed, as evidenced by the
postmark at the point of mailing, or transmitted by facsimile.
All notices to VRGN shall be addressed as follows:
Viragen, Inc.
865 S.W. 78th Avenue, Suite 100
Plantation, Florida 33324
Attention: Gerald Smith, President
Facsimile: (954) 233-1412
All notices to IFM shall be addressed as follows:
Inflammatics, Inc.
401 Chrislena Lane
West Chester, Pennsylvania 19380
Attention: Nigel J. Smart, Ph.D., President
Facsimile: (610) 918-2955
Any Party may, by written notice to the other, designate a new addressee,
address or facsimile number to which notices to the Party giving the notice
shall thereafter be mailed or faxed.
13.2 FORCE MAJEURE. Neither Party shall be responsible to the other Party
for any failure or delay in performing any of its obligations under this
Agreement if such failure or delay is caused by any act of God, earthquake,
fire, casualty, flood, war, epidemic, riot, insurrection, strike, slow-down,
walk-out or other labor disturbance, failure of public utilities, common
carriers or suppliers, or other cause beyond the reasonable control of the Party
affected if the Party affected shall have used its reasonable good faith efforts
to avoid such occurrence. If either Party believes that the performance of any
of its obligations under this Agreement will be delayed as a result of any of
the
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reasons stated in this Section 13.2, such Party shall promptly notify the other
Party in writing of such delay and the cause therefor, and shall provide such
other Party with its good faith estimate of when the performance of its
obligations will recommence.
13.3 ENTIRETY OF AGREEMENT. This Agreement and the Stock Purchase Agreement
embody the entire, final and complete agreement and understanding between the
Parties with respect to the subject matter hereof and thereof, and replace and
supersede all prior discussions and agreements between them with respect to
their subject matter, including without limitation the Confidentiality and
Non-Use Agreement between the Parties dated October 27, 1997 and the letter of
intent and term sheet between the Parties dated January 12, 1998. No
modification or waiver of any terms or conditions hereof shall be effective
unless made in writing and signed by a duly authorized officer of each Party.
13.4 NON-WAIVER. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not constitute a waiver or relinquishment, to any extent, of the
right to assert or rely upon any such terms or conditions on any future
occasion.
13.5 DISCLAIMER OF AGENCY. Neither Party is, or will be deemed to be, the
legal representative or agent of the other Party, nor shall either Party have
the right or authority to assume, create, or incur any Third Party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of the other Party except as expressly set forth in this Agreement.
13.6 SEVERABILITY. If a court of competent jurisdiction declares any
provision of this Agreement invalid or unenforceable, or if any government or
other agency having jurisdiction over either IFM or VRGN deems any provision to
be contrary to any laws, then that provision shall be severed and the remainder
of the Agreement shall continue in full force and effect. To the extent
possible, the Parties shall revise such invalidated provision in a manner that
will render such provision valid without impairing the Parties' original intent.
13.7 ASSIGNMENT. Except as otherwise provided in this Agreement, neither
Party may transfer or assign its rights or obligations under this Agreement, or
subcontract or delegate performance of its obligations hereunder, without the
prior written consent of the other Party (not to be unreasonably withheld or
delayed), except that VRGN shall have the right to transfer or assign its rights
or obligations hereunder, in whole or in part, to an Affiliate or other Third
Party that acquires or is a successor to all or substantially all of VRGN's
business to which this Agreement relates, whether by merger, acquisition,
consolidation, reorganization or otherwise, or by sale of all or
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substantially all of VRGN's assets to which this Agreement relates, without the
consent of IFM.. This Agreement shall inure to and be binding upon the
respective successors and assigns of the Parties. Any attempted delegation or
assignment not in accordance with this Section 13.7 shall be of no force or
effect.
13.8 HEADINGS. The Article and Section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said Articles or Sections.
13.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the date first written above.
INFLAMMATICS, INC. VIRAGEN, INC.
By: /s/ Nigel J. Smart By: /s/ Gerald Smith
____________________ ___________________
Name: Nigel J. Smart, Ph.D. Name: Gerald Smith
Title: President and Chief Title: President
Executive Officer
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Exhibit (10)(Lxi).02
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED
OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
August 14, 1998
VIRAGEN, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
NO. SU-02
FOR VALUE RECEIVED, VIRAGEN, INC., a Delaware corporation (the
"Company"), hereby certifies that Sumitomo Bank, Limited (the "Holder"), is
entitled, subject to the provisions of this Warrant, to purchase from the
Company up to 50,000 fully paid and non-assessable shares of Common Stock at a
price of US$1.78 per share (the "Exercise Price").
The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company as constituted on August 14, 1998 (the "Base Date"). The
number of shares of Common Stock to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such exercise, and as adjusted from time to
time, are hereinafter referred to as "Warrant Stock." The term "Other
Securities" means any other equity or debt securities that may be issued by the
Company in addition thereto or in substitution for the Warrant Stock. The term
"Company" means and includes Viragen, Inc., a Delaware corporation, as well as
(i) any immediate or more remote successor corporation resulting from the merger
or consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, or (ii) any
corporation to which such corporation (or any immediate or more remote successor
corporation of such corporation) has transferred its property or assets as an
entirety or substantially as an entirety.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of
<PAGE> 46
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at
any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Warrant. Subject to the provisions herein, this Warrant and
the right to purchase the Warrant Stock hereunder shall vest and become
exercisable on the earlier of (a) the first anniversary of the Base Date and (b)
immediately prior to the consummation of the sale of all or substantially all of
the assets of the Company, or the acquisition of the Company by another entity
or group by means of a merger, sale or exchange of shares, or other transaction
as a result of which the stockholders of the Company immediately prior to such
transaction would possess a minority of the voting power of the acquiring entity
or of the Company (if it is the surviving corporation) after the closing of such
transaction. This Warrant and all rights to purchase Warrant Stock hereunder
shall expire and be of no further force and effect on the first to occur of (i)
the termination of the Strategic Alliance Agreement between the Company and
Inflammatics, Inc., a Delaware corporation, dated August 14, 1998 (the
"Strategic Alliance Agreement") pursuant to Section 10.2.1 or 10.3.1 (where the
Company is the terminating party) thereof, (ii) the termination of the
Consultancy, Confidential Information and Inventions Agreement dated as of
August 14, 1998 by and between Dr. Nigel J. Smart and the Company (the
"Consultancy Agreement") pursuant to Sections 12(i) through 12(v) and Section
12(a) thereof, and (iii) the close of business on August 14, 2003 (the
"Expiration Date") or, if such day is a day on which banking institutions in New
York are authorized by law to close, then on the next succeeding day that shall
not be such a day. This Warrant may be exercised only in increments of not less
than 25,000 shares of Warrant Stock by presentation and surrender of this
Warrant to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Warrant Exercise Form attached hereto duly
executed and accompanied by payment (either in cash or by certified or official
bank check, payable to the order of the Company) of the Exercise Price for the
number of shares specified in such form and instruments of transfer, if
appropriate, duly executed by the Holder or his or her duly authorized attorney.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder. The Company shall pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on exercise of this Warrant.
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<PAGE> 47
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares of Common
Stock (and Other Securities) shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable and free of all
preemptive rights.
3. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant, but the Company shall
pay the holder an amount equal to the fair market value of such fractional share
of Common Stock in lieu of each fraction of a share otherwise called for upon
any exercise of this Warrant. For purposes of this Warrant, the fair market
value of a share of Common Stock shall be determined as follows:
(a) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the Nasdaq system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or, if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange or system; or
(b) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
5. Anti-Dilution Provisions.
5.1 Adjustment for Recapitalization. If the Company shall at any time
subdivide its outstanding shares of Common Stock (or Other Securities at the
time receivable upon the exercise of the Warrant) by recapitalization,
reclassification, subdivision or split-up thereof, or if the Company shall
declare a stock dividend or distribute shares of Common Stock to its
stockholders, the number of shares of Common Stock subject to this Warrant
immediately prior to such subdivision shall be
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<PAGE> 48
proportionately increased, and the Exercise Price shall be proportionately
decreased, and if the Company shall at any time combine the outstanding shares
of Common Stock by recapitalization, reclassification or combination thereof,
the number of shares of Common Stock subject to this Warrant immediately prior
to such combination shall be proportionately decreased, and the Exercise Price
shall be proportionately increased. Any such adjustments pursuant to this
Section 5.1 shall be effective at the close of business on the effective date of
such subdivision or combination, or if any adjustment is the result of a stock
dividend or distribution, then the effective date for such adjustment based
thereof shall be the record date therefor.
5.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of
any reorganization of the Company (or any other corporation, the securities of
which are at the time receivable on the exercise of this Warrant) after the Base
Date or in case after such date the Company (or any such other corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder of this Warrant upon the exercise thereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance shall be entitled to receive, in lieu of the
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the securities or property to which such Holder would have
been entitled upon such consummation if such Holder had exercised this Warrant
immediately prior thereto; in each such case, the terms of this Warrant shall be
applicable to the securities or property receivable upon the exercise of this
Warrant after such consummation.
5.3 Notification as to Adjustments. In each case of an adjustment in the
number of shares of Common Stock receivable on the exercise of the Warrant, the
Company at its expense will promptly compute such adjustment in accordance with
the terms of the Warrant and will notify the Holder in writing of such
adjustment within 30 days of the effective date of such adjustment. When
appropriate, notice may be given in advance as part of notices required to be
mailed to the Holder pursuant to Section 5.4 hereof.
5.4 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
Other Securities at the time receivable upon the exercise of the Warrant) for
the purpose of entitling them to receive any dividend (other than a cash
dividend at the same rate as the rate of the last cash dividend theretofore
paid) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities, or
to receive any other right; or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or
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<PAGE> 49
into another corporation, or any conveyance of all or substantially all of
the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding up
of the Company, then, and in each such case, the Company shall mail or cause to
be mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
is to be fixed, as to which the holders of record of Common Stock (or such Other
Securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or such Other Securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at least 20 days prior to the date
therein specified, and the Warrant may be exercised prior to said date during
the term of the Warrant.
6. Transfer to Comply with the Securities Act. This Warrant and any Warrant
Stock or Other Securities may not be sold, assigned, transferred, pledge,
hypothecated or otherwise disposed of except as follows: (a) to a person who, in
the opinion of counsel to the Company, is a person to whom this Warrant or the
Warrant Stock or Other Securities may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 6 with
respect to any resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
7. Registration Rights.
7.1 Notice of Registration. Subject to the terms of this Warrant, in the
event the Company decides to register with the Securities Exchange Commission
any of its Common Stock (either for its own account or the account of its
security holders), the Company will: (i) promptly give the Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable Blue Sky or
other state securities laws), and (ii) include in such registration (and any
related qualification under Blue Sky laws or other state securities laws), and
in any underwriting involved therein, all the Warrant Stock specified in a
written request delivered to the Company by the Holder within 15 days after
delivery of such written notice from the Company.
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<PAGE> 50
7.2 Notice of Underwriting. If the registration of which the Company gives
notice is for a public offering involving an underwriting, the Company shall so
advise the Holder as part of the written notice given pursuant to Section 7.1.
In such event the right of the Holder to registration and the inclusion of such
Holder's Warrant Stock in such underwriting shall be conditioned upon such
underwriting to the extent provided in this Section 7.2. If the Holder proposes
to distribute Warrant Stock through such underwriting it shall (together with
the Company and the other stockholders distributing their Shares through such
underwriting) enter into an underwriting agreement with the underwriter's
representative for such offering. Holder shall have no right to participate in
the selection of the underwriters.
7.3 Marketing Limitations. In the event the underwriter's representative
advises the Holder seeking registration of Warrant Stock pursuant to this
Section 7.3 in writing that market factors require a limitation of the number of
shares of the Company to be underwritten, the underwriter's representative may
limit the number of shares of Warrant Stock included in such registration;
provided, however, that the Warrant Stock, together with any shares of Common
Stock deliverable upon the exercise of any warrant issued to the Holder pursuant
to the Strategic Alliance Agreement shall not constitute less than 10% of the
shares of Common Stock included in such registration.
7.4 Withdrawal. If the Holder disapproves of the terms of any such
underwriting, the Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter delivered at least seven days prior to the
effective date of the registration statement. Any Warrant Stock excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7.5 Expenses. The Company shall bear the expenses incurred in complying
with this Section 7, including, without limitation, all federal and state
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for the Holder
and stockholders (if different from the Company), blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration. The Holder shall bear all underwriting discounts and selling
commissions applicable to the sale of the Warrant Stock pursuant to this
Warrant.
7.6 Registration Procedures. The Company will keep the Holder advised as to
the initiation and completion of such registration. At its expense the Company
will furnish such number of prospectuses (including preliminary prospectuses)
and other documents as the Holder from time to time may reasonably request.
7.7 Information Furnished by Holder. It shall be a condition precedent of
the Company's obligations under this Section 7 that the Holder furnish to the
Company such information regarding the Holder as the Company may reasonably
request.
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7.8 Indemnification.
7.8.1 Company's Indemnification of Holder. To the extent permitted by law,
the Company will indemnify the Holder, each of its officers, directors and
constituent partners, legal counsel for the Holder and stockholders, and each
person controlling the Holder, with respect to which registration, qualification
or compliance of Warrant Stock has been effected pursuant to this Warrant,
against all claims, losses, damages or liabilities (or actions in respect
thereof) to the extent claims, losses, damages or liabilities arise out of or
are based upon any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus or other document (including any related
registration statement) incident to any such registration, qualification or
compliance, or are based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance; and the Company will reimburse the
Holder, each such underwriter and each person who controls the Holder or
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigation or defending any such claim, loss, damage,
liability or action if settlement is effected with the consent of the Company
(which consent shall not unreasonably be withheld); and provided, further, that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based upon any
untrue statement or omission based upon written information furnished to the
Company by the Holder or controlling person.
7.8.2 Holder's Indemnification of Company. To the extent permitted by law,
the Holder will, if Warrant Stock is included in the securities as to which such
registration, qualification or compliance is being effected pursuant to this
Warrant, indemnify the Company, each of its directors and officers, each legal
counsel and independent accountant of the Company, each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of the Act, and
each other stockholder of the Company whose shares are registered, each of its
officers, directors and constituent partners and each person controlling such
other stockholder; against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based upon any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Holder of any rule or regulation promulgated under the Act
applicable to the Holder and relating to action or inaction required of the
Holder in connection with any such registration, qualifications or compliance;
and will reimburse the Company, such stockholders, such directors, officers,
partners, persons, law and accounting firms, underwriters or control
7
<PAGE> 52
persons for any legal and any other expenses reasonably incurred in connection
with investigation or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by the Holder and stated to be specifically for use in connection
with the offering of securities of the Company provided, however, that the
Holder's liability under this Section 7.8.2 shall not exceed the Holder's
proceeds from the offering of securities made in connection with such
registration.
7.8.3 Indemnification Procedure. Promptly after receipt by an indemnified
party under this Section 7.8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 7.8, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense of such claim; provided, however, that the indemnifying party shall be
entitled to select counsel for the defense of such claim with the approval of
any parties entitled to indemnification, which approval shall not be
unreasonably withheld, unless the Holder determines that there may be a conflict
between the position of the Company and the Holder in conducting the defense of
such action, suit or proceeding by reason of recognized claims for indemnity
under this Section 7.8, then counsel for such party shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interest of such party at the expense of the indemnifying party.
The Company shall not be required to pay the costs of more than one counsel for
Holder and other stockholders pursuant to this paragraph. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 7.8, but the omission so
to notify the indemnifying party will not relieve such party of any liability
that such party may have to any indemnified party otherwise other than under
this Section 7.8.
7.9 Limitation on Registration Rights. Shares included in a request for
registration under this Section 7 shall not be eligible for registration under
this Section 7 if either (i) the Warrant Stock have previously been sold to the
public, or (ii) no registration under the Act is required in connection with the
disposition of such Warrant Stock pursuant to Rule 144 under the Act.
8. Legend. Unless the shares of Warrant Stock or Other Securities have been
registered under the Securities Act, upon exercise of any of the Warrants and
the issuance of any of the shares of Warrant Stock, all certificates
representing shares will bear on the face thereof substantially the following
legend:
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<PAGE> 53
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS AN OPINION
OF COUNSEL TO THE CORPORATION IS OBTAINED STATING THAT SUCH DISPOSITION
IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
9. Notices. All notices required hereunder shall be in writing and shall be
deemed given when telegraphed, delivered personally or within two days after
mailing when mailed by certified or registered mail, return receipt requested,
to the Company or the Holder, as the case may be, for whom such notice is
intended at the address of such party as set forth on the first page, or at such
other address of which the Company or the Holder has been advised by notice
hereunder.
10. Applicable Law. The Warrant is issued under and shall for all purposes
be governed by and construed in accordance with the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
VIRAGEN, INC.,
a Delaware corporation
By:
--------------------------------
Dennis W. Healey
Executive Vice President
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<PAGE> 54
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _________ shares of Common Stock of Viragen, Inc.,
a Delaware corporation, and hereby makes payment of $__________ in payment
therefore.
-----------------------------------
Signature
-----------------------------------
Signature, if jointly held
-----------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(If other than to the registered holder of the within Warrant)
Name
-------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
---------------------------------------
---------------------------------------
---------------------------------------
Social Security or Taxpayer Identification Number:
---------------------------
Phone and Fax #'s:
-----------------------------------------------------------
<PAGE> 55
ASSIGNMENT FORM
FOR VALUE RECEIVED
----------------------------------------------------
hereby sells, assigns and transfers unto
----------------------------------------
(Please typewrite or print in block letters) the right to purchase Common Stock
of Viragen, Inc., a Delaware corporation, represented by this Warrant to the
extend of shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint
---------------------------------------------
Attorney to transfer the same on the books of the Company with full power of
substitution in the premises.
Dated: ,
------------------------------
Signature
---------------------------
Signature, if jointly held
<PAGE> 1
Exhibit(10)(LXII).01
VIRAGEN, INC.
REGULATION D
COMMON STOCK PRIVATE EQUITY LINE
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SUBSCRIBER MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH
IN THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7 and 10.
THIS REGULATION D COMMON STOCK PRIVATE EQUITY LINE SUBSCRIPTION AGREEMENT
(this "Agreement") is made as of the 22nd day of September, 1998, by and between
VIRAGEN, INC., a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and the undersigned subscriber executing this
Agreement ("Subscriber").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Subscriber, and the
Subscriber shall purchase from the Company, from time to time as provided
herein, shares of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"), as part of an offering of Common Stock by the Company to
Subscriber, for a maximum aggregate offering amount of $20,000,000 (the "Maximum
Offering Amount"); and
WHEREAS, the solicitation of this subscription and, if accepted by the
Company, the offer and sale of the Common Stock are being made in reliance upon
the provisions of Section 4(2) and upon the provisions of Regulation D
("Regulation D"), each promulgated under the Securities Act of 1933, as amended
and the rules and regulations promulgated thereunder (the "Act"), and/or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the purchases of Common Stock to
be made hereunder.
<PAGE> 2
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Additional Shares" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Subscriber pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares,
Additional Shares and Warrant Shares.
"Agreement" shall mean this Regulation D Common Stock Private Equity Line
Agreement.
"Automatic Equity Line Termination" shall have the meaning set forth in
Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean a time period beginning at the time of day in
question and ending at the same time of day on the next day normally considered
a business day.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month (the "Numeric Day") and for Calendar Months
thereafter, beginning on the earlier of (i) the same Numeric Day of the next
calendar month or (ii) the last day of the next calendar month. Each Calendar
Month shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Cap Limit Shares" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.6.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
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<PAGE> 3
"Closing" shall mean one of the Private Equity Line Commitment Closing and
closings of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on The Nasdaq National Market System ("NMS")
as reported by Nasdaq, or, if the NMS is not the principal securities exchange
or trading market for such security, the last closing bid price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by such principal securities exchange or trading
market, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security, or, if no closing bid price is reported for such security, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the Subscriber
in this Offering. If the Company and the Subscriber in this Offering are unable
to agree upon the fair market value of the Common Stock, then such dispute shall
be resolved by an investment banking firm mutually acceptable to the Company and
the Subscriber in this offering and any fees and costs associated therewith
shall be paid by the Company.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company, par value $0.01
per share.
"Company" shall mean Viragen, Inc., a corporation duly organized and
existing under the laws of the State of Delaware.
"Company Equity Line Termination" shall have the meaning set forth in
Section 2.3.14.
"Conditions to Subscriber's Obligations" shall have the meaning as set
forth in Section 2.2.4.
"Delisting Event" shall have the meaning set forth in Section 2.12 of the
Registration Rights Agreement.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Extended Put Period" shall mean the period of time between the Advanced
Put Notice Date until the Put Closing Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(d).
"Individual Put Limit" shall have the meaning set forth in Section
2.3.3(a).
"Ineffective Period" shall have the meaning set forth in Section 2.10(i) of
the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
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<PAGE> 4
"Key Employee" shall have the meaning set forth in Section 5.18, as set
forth in Exhibit N.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar trading
volume of the common stock of such entity is equal to or in excess of $400,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price during the
applicable Pricing Period.
"Maximum Offering Amount" shall mean Twenty Million Dollars ($20,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Numeric Day" shall mean the numerical day of the month of the Subscription
Date.
"Offering" shall mean the Company's offering of the Private Equity Line
hereunder.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Private Equity Line
Commitment Opinion of Counsel, the Put Opinion of Counsel and the Purchase
Warrant Opinion of Counsel.
"Placement Agent" shall mean Swartz Investments LLC, d/b/a Swartz
Institutional Finance.
"Pricing Confirmation Notice" shall mean a notice in the form attached as
Exhibit P.
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<PAGE> 5
"Pricing Period" shall have the meaning set forth in Section 2.3.1(b).
"Pricing Period End Date" shall mean the last Trading Day of any Pricing
Period, as extended, if applicable.
"Principal Market" shall mean the Nasdaq National Market, the Nasdaq Small
Cap Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
"Private Equity Line" shall mean this Agreement.
"Private Equity Line Commitment Closing" shall have the meaning set forth
in Section 2.2.3.
"Private Equity Line Commitment Opinion of Counsel" shall mean an opinion
from Company's independent counsel, in the form attached as Exhibit B, or such
other form as agreed upon by the parties, as to the Private Equity Line
Commitment Closing.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as Exhibit O, or such other form as
agreed upon by the parties, as to the issuance of Purchase Warrants to the
Subscriber.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2, in
the form attached hereto as Exhibit D, or such other form as agreed upon by the
parties.
"Put" shall have the meaning set forth in Section 2.3.1(b).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13.
"Put Cancellation Confirmation Notice" shall have the meaning set forth in
Section 2.3.13.
"Put Cancellation Date" shall have the meaning set forth in Section 2.3.13.
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13.
"Put Closing" shall have the meaning set forth in Section 2.3.7.
"Put Closing Date" shall have the meaning set forth in Section 2.3.7.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1(b).
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
specified in the Put Notice by the Put Share Price with respect to such Put
Date, subject to the Put Limitations pursuant to Section 2.3.2 below.
"Put Notice" shall have the meaning set forth in Section 2.3.1(b), the form
of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(b), the form of which is attached hereto as Exhibit H.
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<PAGE> 6
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
the parties, as to any Put Closing.
"Put Reset Price" shall mean the Post-Delisting Event Price, in the case of
a Delisting Event, and the Post-Ineffective Price, in the case of an Ineffective
Period, where Post-Delisting Event Price, Delisting Event, Post-Ineffective
Price, and Ineffective Period shall have the meanings set forth in the
Registration Rights Agreement.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Subscriber pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Subscriber on even date herewith, in
the form attached hereto as Exhibit A, or such other form as agreed upon by the
parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the Recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Reset Cap Refund Amount" shall have the meaning set forth in Section
2.3.12.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Private Equity Line, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Private Equity Line.
"Six Month Anniversary" shall mean the date that is the same Numeric Day of
the sixth (6th) calendar month after the Subscription Date, and the date that is
the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"Subscriber" shall have the meaning set forth in the preamble hereto.
6
<PAGE> 7
"Subscriber Due Date" shall have the meaning set forth in Section 2.3.7.
"Subscription Date" shall mean the date of the Private Equity Line
Commitment Closing.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three
years after the date of this Agreement, or (ii) the date that is thirty (30)
Trading Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Subscriber, and (c) the date that all of the Warrants have been exercised.
"Termination Notice" shall have the meaning set forth in Section 2.3.14.
"Trading Cushion" shall have the meaning set forth in Section 2.3.1(b).
"Trading Day" shall mean any day during which the Principal Market is open
for business.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Unlegended Share Certificates" shall mean a certificate or certificates
(in denominations as instructed by Subscriber) representing the shares of Common
Stock to which the Subscriber is then entitled to receive, registered in the
name of Subscriber or its nominee (as instructed by Subscriber) and not
containing a restrictive legend, including but not limited to the Put Shares for
the applicable Put, Warrant Shares and Additional Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Volume Evaluation Period" shall have the meaning as set forth in Section
2.3.1(b).
"VUSA Transaction" shall mean the offering of securities of the Company's
94% owned subsidiary, Viragen, USA, not involving securities of the Company for
at least the two (2) year period following the closing of such offering, to
raise up to $10,000,000 of capital for the initial capitalization of Viragen,
USA.
"Warrant Shares" shall mean the Common Stock issuable upon exercise of the
Warrants.
"Warrants" shall mean Purchase Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Subscriber hereby
offers to subscribe for and purchase such amounts of Common Stock and
accompanying Warrants as the Company may, in
7
<PAGE> 8
its sole and absolute discretion from time to time elect to issue and sell to
Subscriber according to one or more Puts pursuant to Section 2.3 below.
The parties hereto acknowledge that Swartz Investments, LLC, d/b/a Swartz
Institutional Finance is acting as placement agent (the "Placement Agent") for
this Offering and will be compensated by the Company in cash, Common Stock and
warrants to purchase Common Stock. The Placement Agent has acted solely as
placement agent in connection with the Offering by the Company of the Common
Stock pursuant to this Agreement. The information and data contained in the
Disclosure Documents (as defined in Section 3.2.4) have not been subjected to
independent verification by the Placement Agent, and no representation or
warranty is made by the Placement Agent as to the accuracy or completeness of
the information contained in the Disclosure Documents.
2.2 Private Equity Line Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Private Equity Line Commitment Closing. The closing of this Agreement
(the "Private Equity Line Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed, by both
Subscriber and the Company, and the other Conditions to Subscriber's Obligations
set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Subscriber's Obligations. As a prerequisite to the
Private Equity Line Commitment Closing and the Subscriber's obligations
hereunder, all of the following (the "Conditions to Subscriber's Obligations")
shall have been satisfied prior to or concurrently with the Company's execution
and delivery of this Agreement:
(a) the following documents shall have been delivered to the
Subscriber: (i) the Registration Rights Agreement, in the form
attached hereto as Exhibit A, or such other form as agreed upon
by the parties, (the "Registration Rights Agreement") (executed
by the Company and Subscriber), (ii) the Private Equity Line
Commitment Opinion of Counsel (signed by the Company's counsel),
and (iii) a secretary's certificate, as to (A) the resolutions
of the Company's board of directors authorizing this
transaction, (B) the Company's Certificate of Incorporation, and
(C) the Company's Bylaws;
(b) this Subscription Agreement, accepted by the Company, shall have
been received by the Subscriber;
(c) [Intentionally Left Blank].
(d) the Company's Common Stock shall be listed for and trading on
the Nasdaq National Market;
(e) other than continuing losses described in the Risk Factors below
as described in the Disclosure Documents (as described in
Section 3.2.4), as of the Closing there have been no material
adverse changes in the Company's business prospects or financial
condition since the date of the last balance sheet included in
the Disclosure Documents, including but not limited to incurring
material liabilities; and
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<PAGE> 9
(f) the representations and warranties of the Company in this
Agreement are true and correct in all material respects and the
conditions to Subscriber's obligations set forth in this Section
2.2.4 are satisfied as of such Closing; and the Company shall
deliver an Officer's Certificate, signed by an officer of the
Company, to such effect to the Subscriber.
9
<PAGE> 10
2.3 Puts of Common Shares to the Subscriber.
2.3.1 Procedure to Exercise a Put. Subject to the Individual Put Limit, the
Maximum Offering Amount and the Cap Amount (if applicable), and the other
conditions and limitations set forth in this Agreement, at any time beginning on
the date on which the Registration Statement is declared effective by the SEC
(the "Effective Date"), the Company may, in its sole and absolute discretion,
elect to exercise one or more Puts according to the following procedure:
(a) at least ten (10) Trading Days prior to any intended Put Date (unless
otherwise agreed in writing by the Subscriber), the Company shall deliver
advance written notice (the "Advance Put Notice," the form of which is attached
hereto as Exhibit E, the date of such Advance Put Notice being the "Advance Put
Notice Date") to Subscriber stating the Put Date for which the Company shall,
subject to the limitations and restrictions contained herein, exercise a Put and
stating the number of shares of Common Stock for which the Company shall
exercise a Put (the "Intended Put Share Amount"). Notwithstanding the above, if
more than two (2) Calendar Months have passed since the date of the previous Put
Closing, the Company shall deliver the Advance Put Notice at least twenty (20)
Trading Days prior to any intended Put Date. In order to effect delivery of the
Advance Put Notice, the Company shall (i) send the Advance Put Notice by
facsimile on such date so that such notice is received by the Subscriber by 6:00
p.m., New York, NY time, and (ii) surrender such notice on such date to a common
courier for overnight delivery to the Subscriber (or two (2) day delivery in the
case of a Subscriber residing outside of the U.S.). Upon receipt by the
Subscriber of a facsimile copy of the Advance Put Notice, the Subscriber shall,
within two (2) Business Days, send, via facsimile, a confirmation of receipt
(the "Advance Put Notice Confirmation," the form of which is attached hereto as
Exhibit F) of the Advance Put Notice to Company specifying that the Advance Put
Notice has been received and affirming the intended Put Date and the Intended
Put Share Amount;
(b) on the Put Date specified in the Advance Put Notice, the Company
shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G, the date of such Put Notice being the "Put Date")
to Subscriber stating (i) the Put Date, (ii) the "Put Share Amount" as specified
in the Put Notice (such exercise a "Put"); provided, however, that the Put Share
Amount specified by the Company in the Put Notice shall be equal to the Intended
Put Share Amount (as defined in Section 2.3.3 (a)), unless the Put Share Amount
must be restricted to the Individual Put Limit pursuant to Section 2.3.3 (a)
below, and (iii) the length of the Volume Evaluation Period and the Pricing
Period, each as defined below; provided, further, that the Company shall not
send a Put Notice unless at least twenty (20) Trading Days, not including any
Trading Day for which the Registration Statement is ineffective or subject to an
Ineffective Period, have elapsed (the "Trading Cushion") since the last Put Date
for which a Put was closed. In order to effect delivery of the Put Notice, the
Company shall (i) send the Put Notice by facsimile on the Put Date so that such
notice is received by the Subscriber by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on the Put Date to a common courier for overnight delivery
to the Subscriber (or two (2) day delivery in the case of a Subscriber residing
outside of the U.S.). Upon receipt by the Subscriber of a facsimile copy of the
Put Notice, the Subscriber shall, within two (2) Business Days, send, via
facsimile, a confirmation of receipt (the "Put Notice Confirmation," the form of
which is attached hereto as Exhibit H) of the Put Notice to Company specifying
that the Put Notice has been received and affirming the Put Date and the Put
Share Amount;
For purposes hereof, the "Volume Evaluation Period" shall equal the
minimum period of consecutive Trading Days, ending on the Trading Day
immediately preceding the Put Date, for which the aggregate daily reported
trading volume in the outstanding Common Stock on the Company's Principal Market
equals or exceeds two (2) times the Put Share Amount, provided
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that the Volume Evaluation Period shall not exceed ten (10) Trading Days. The
"Pricing Period," unless otherwise shortened or extended under the terms of this
Agreement, shall equal a period of "X" Trading Days immediately following the
applicable Put Date, where "X" equals two (2) multiplied by the number of
Trading Days in the Volume Evaluation Period; provided that if a Put
Cancellation Notice has been delivered to the Subscriber after the Put Date, the
Pricing Period for such Put shall end at 6:00 p.m., New York City time, on the
Put Cancellation Date.
(c) the "Put Share Price" shall equal the lesser of (A) 87.5% of the
Market Price for such Put or (B) difference of (i) the Market Price for
such Put minus (ii) $0.225; and
(d) on or before the Put Date for such Put, the Company shall deliver the
Required Put Documents (as defined in Section 2.3.5 below) to the
Subscriber (or to an agent of Subscriber, if Subscriber so directs). Unless
otherwise specified by the Subscriber, the Put Shares of Common Stock shall be
transmitted electronically pursuant to such electronic delivery system as the
Subscriber shall request; otherwise delivery shall be by physical certificates.
If the Company has not delivered all of the Required Put Documents to the
Subscriber on or before the Put Date, the Subscriber, at its option, may cancel
the Put or may agree to extend the date that the Required Put Documents are
required to be delivered by five (5) Business Days (the "Extended Delivery
Date"), in which case the Pricing Period is extended by five (5) Trading Days.
If the Company has not delivered all of the Required Put Documents to the
Subscriber on or before the Extended Delivery Date (if applicable), the Put is
automatically canceled (an "Impermissible Put Cancellation") and, unless the Put
was otherwise canceled in accordance with the terms of Section 2.3.13, the
Company shall pay the Subscriber $15,000 for its reasonable due diligence
expenses incurred in preparation for the canceled put and the Company may
deliver an Advance Put Notice for the subsequent Put no sooner than ten (10)
Business Days after the date that such Put was canceled.
2.3.2 Termination of Right to Put. The Company's right to require the
Subscriber to purchase any subsequent Put Shares shall terminate permanently (an
"Automatic Equity Line Termination"), unless waived in writing by the
Subscriber, upon the occurrence of any of the following:
(a) the Company shall not exercise a Put or any Put thereafter if, at
any time, either the Company or any director or executive officer of the
Company has engaged in a transaction or conduct that gives rise to (i) a
Securities Exchange Commission enforcement action, or (ii) a civil judgment or
criminal conviction for fraud or misrepresentation, or for any other offense
that, if prosecuted criminally, would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put thereafter, on any
date after (i) any Ineffective Period or Delisting Event, both as defined in the
Registration Rights Agreement, that lasts for four (4) consecutive months, or
(ii) after a cumulative time period including both Ineffective Periods and
Delisting Events that last for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put thereafter if at any
time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against
the Company or any subsidiary of the Company; and
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<PAGE> 12
(d) the Company shall not exercise a Put after the sooner of (i) the
date that is three (3) years after the date of this Agreement, or (ii) the Put
Closing Date on which the aggregate of the Put Dollar Amount for all Puts equal
the Maximum Offering Amount.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows, unless waived in writing by the Subscriber:
(a) the Company shall not exercise any Put where the aggregate Put Share
Amount with respect to all Subscribers would exceed the Individual Put Limit in
effect on the Put Date. The "Individual Put Limit" shall equal one half of the
aggregate daily reported trading volume in the outstanding Common Stock reported
on the Company's Principal Market in a maximum Volume Evaluation Period of ten
(10) Trading Days, ending on the Trading Day immediately preceding the Put Date;
(b) notwithstanding the amount of any Put, the Subscriber shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Subscriber equals the Maximum Offering Amount;
(c) the Subscriber shall not be obligated to acquire and pay for the
Put Shares with respect to any Put for which the Company has announced a
subdivision or combination, including a reverse split, of its Common Stock or
has subdivided or combined its Common Stock during the Extended Put Period;
(d) the Subscriber shall not be obligated to acquire and pay for the
Put Shares with respect to any Put for which the Company has paid a dividend of
its Common Stock or has made any other distribution of its Common Stock during
the Extended Put Period;
(e) the Subscriber shall not be obligated to acquire and pay for the
Put Shares with respect to any Put for which the Company has made, during the
Extended Put Period, a distribution of all or any portion of its assets or
evidences of indebtedness to the holders of its Common Stock;
(f) the Subscriber shall not be obligated to acquire and pay for the
Put Shares with respect to any Put for which a Major Transaction has occurred
during the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Subscriber to
Purchase Put Shares. The right of the Company to deliver an Advance Put Notice
or a Put Notice and the obligation of the Subscriber hereunder to acquire and
pay for the Put Shares incident to a Closing is subject to the satisfaction, on
(i) the date of delivery of such Advance Put Notice or Put Notice and (ii) the
applicable Put Closing Date, of each of the following conditions, unless waived
in writing by the Subscriber:
(a) the Company's Common Stock shall be listed for and
actively trading on the Nasdaq National Market or New
York Stock Exchange and the Put Shares shall be so
listed, and to the Company's knowledge there is no
notice of any suspension or delisting with respect to
the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing
of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities
and the requirement that the Registration Statement
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<PAGE> 13
shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company shall
have satisfied and shall be in compliance with any and all
obligations pursuant to the Subscription Agreement and the
Warrants;
(c) there have been no material adverse changes in the
Company's business prospects or financial condition
(defined below in Section 5.2), including but not
limited to incurring material liabilities, except as
disclosed in the SEC documents filed by the Company
since the date of this Agreement;
(d) the representations and warranties of the Company are
true and correct in all material respects as if made
on such date and the conditions to Subscriber's
obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the
Company, to such effect to the Subscriber;
(e) the Company shall have reserved for issuance a
sufficient number of Common Shares for the purpose of
enabling the Company to satisfy any obligation to
issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(f) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration
Rights Agreement, the prospectus included therein is
current and deliverable, and to the Company's
knowledge there is no notice of any investigation or
inquiry concerning any stop order with respect to the
Registration Statement;
(g) if the Aggregate Issued Shares after the Closing of
the Put would exceed the Cap Amount, the Company
shall have obtained the Stockholder 20% Approval as
specified in Section 6.12; and
(h) there are no disputes between the Company and the
Subscriber regarding any due diligence review
(including but not limited to the Due Diligence
Review defined below) by the Subscriber or regarding
the completeness or accuracy of the prospectus for
resale of the Put Shares.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions to
Closing of any Put. The Closing of any Put and Subscriber's obligations
hereunder shall additionally be conditioned upon the delivery to the Subscriber
of each of the following (the "Required Put Documents") on or before the
applicable Put Date, unless waived or extended in writing by the Subscriber:
(a) Unlegended Share Certificates representing the Common Stock for which
the Subscriber has subscribed;
(b) the following documents: Put Opinion of Counsel, Officer's Certificate,
Put Notice, any required Registration Opinion, and any report required under
Section 2.3.6 or Section 2.6;
(c) current Risk Factors; and
(d) all documents, instruments and other writings required to be delivered
on or before the Put Date pursuant to any provision of this Agreement in order
to implement and effect the transactions contemplated herein.
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<PAGE> 14
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the Subscriber, (i) to
the extent provided by Section 2.6, and (ii) on the date that is three (3)
Trading Days prior to each Put Date (the "Registration Opinion Deadline"), an
opinion of the Company's independent counsel, in substantially the form of
Exhibit R (the "Registration Opinion"), addressed to the Subscriber stating,
inter alia, that no facts ("Material Facts") have come to such counsel's
attention that would cause it to believe that any of the following: the
Registration Statement, any Supplemental Registration Statement, as applicable
(as each may be amended, if applicable), and any related prospectuses, contains
an untrue statement of material fact or omits a material fact required to make
the statements contained therein, not misleading or that the underlying
Prospectus (if applicable, as so amended or supplemented) contains an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Subscriber on the Registration Opinion
Deadline due to the existence of Material Facts, the Company shall promptly
notify the Subscriber and promptly revise each of the Registration Statement and
any Supplemental Registration Statement, as applicable, and deliver such
Registration Opinion and updated prospectus as soon as possible thereafter. If
at any time after a Put Notice shall have been delivered to Subscriber but
before the Put Closing, the Company acquires knowledge of such Material Facts or
any Ineffective Period occurs, the Company shall promptly notify the Subscriber
and shall deliver a Put Cancellation Notice to the Subscriber pursuant to
Section 2.3.13 by facsimile and overnight courier by the end of that Trading
Day. The Company's independent counsel shall also deliver to the Subscriber on
the Effective Date opinions in form and substance satisfactory to the Subscriber
addressing, among other things, corporate matters and the exemption from
registration under the Securities Act of the issuance of the Common Stock by the
Company to the Subscriber under this Agreement.
(b) (i) the Company shall engage its independent auditors to perform the
procedures in accordance with the provisions of Statement on Auditing Standards
No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the
"Bring Down Cold Comfort Letters") as shall have been reasonably requested by
the Subscriber with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Subscriber a report
addressed to the Subscriber, on the date that is three (3) Trading Days prior to
each Put Date.
(ii) in the event that the Subscriber shall have requested delivery of an
"agreed upon procedures" report pursuant to Section 2.6, the Company shall
engage its independent auditors to perform certain agreed upon procedures and
report thereon as shall have been reasonably requested by the Subscriber with
respect to certain financial information of the Company and the Company shall
deliver to the Subscriber a copy of such report addressed to the Subscriber. In
the event that the report required by this Section 2.3.6(b) cannot be delivered
by the Company's independent auditors, the Company shall, if necessary, promptly
revise the Registration Statement and the Company shall not deliver a Put Notice
until such report is delivered.
(c) in addition to the above, anytime that a Registration Opinion has not
been given to the Subscriber during the prior three (3) Calendar Months, and the
Subscriber then holds Common Stock issued pursuant to this Agreement valued at
$250,000 or more, based upon the Closing Bid Price on the day in question, the
Subscriber may require the Company to cause a Registration Opinion and a Bring
Down Cold Comfort Letter to be delivered to the Subscriber. The Company shall
provide such documents to the Subscriber within five (5) Trading Days of the
Subscriber's written request.
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<PAGE> 15
2.3.7 Put Closing Mechanics. On or before the end of the Trading Day
immediately following the Pricing Period End Date for each Put, the Company
shall deliver to the Subscriber a Pricing Confirmation Notice in the form of
Exhibit P attached hereto, setting forth the Put Share Price and the Put Dollar
Amount for such Put.
On or before the fifth (5th) Trading Day after a Pricing Period End Date
(the "Subscriber Due Date"), the Subscriber shall deliver to the Company the Put
Dollar Amount in the manner specified in Section 8 below for such Put Shares as
specified in the Put Notice; provided, however, if the Subscriber does not
deliver to the Company the Put Dollar Amount for such Put on or before the
Subscriber Due Date, then the Subscriber shall pay to the Company, in addition
to the Put Dollar Amount, an amount (the "Late Payment Amount") at a rate of X%
per month, accruing daily, multiplied by such Put Dollar Amount, where "X"
equals one percent (1%) for the first month following the date in question, and
increases by an additional one percent (1%) for each month that passes after the
date in question, up to a maximum of five percent (5%). The closing (each a "Put
Closing") for each Put shall occur on the date that both (i) the Company has
delivered to the Subscriber all Required Put Documents, including any Additional
Shares required to be issued to the Subscriber, if applicable, and (ii) the
Subscriber has delivered to the Company such Put Dollar Amount and any Late
Payment Amount, if applicable (each a "Put Closing Date").
2.3.8 Extension of Pricing Period Due to Press Release. In the event that
the Company makes a public announcement or press release anytime during the five
(5) Trading Days immediately preceding the Pricing Period End Date for any Put,
the Pricing Period will be extended through the fifth (5th) Trading Day after
such public announcement or Press Release.
2.3.9 [Intentionally Left Blank].
2.3.10 Limitation on Short Sales. The Subscriber and its Affiliates shall
not engage in short sales of the Company's Common Stock; provided, however, that
the Subscriber may enter into any short sale or other hedging or similar
arrangement it deems appropriate with respect to Put Shares after it receives an
Advance Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares specified in
the Advance Put Notice (or, a good faith estimate of the number of Put Shares,
if an exact number of shares is not specified in the Advance Put Notice).
2.3.11 Cap Amount. Unless the Company has obtained Stockholder 20% Approval
as set forth in Section 6.12 or unless otherwise permitted by Nasdaq, in no
event shall the Aggregate Issued Shares exceed the maximum number of shares of
Common Stock (the "Cap Amount") that the Company can, without stockholder
approval, so issue pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other
applicable Nasdaq Rules or any successor rule) (the "Nasdaq 20% Rule"). In the
event the Company is prohibited from issuing the full amount of any Additional
Shares as a result of the operation of this Section 2.3.11, the Company shall
issue such number of shares of Common Stock as are available without exceeding
the Cap Amount (the "Cap Limit Shares") to the Subscriber as partial
consideration for its obligation to issue the Additional Shares and shall pay
the Subscriber the refund amount as specified in Section 2.3.12 below.
2.3.12 Refund due to Cap Amount. In the event the Company is prohibited
from issuing the full amount of the Additional Shares as a result of the
operation of Section 2.3.11, the Company shall refund to the Subscriber a dollar
amount (the "Reset Cap Refund Amount") equal to the product of (a) the
difference of (i) the number of Additional Shares required to be issued by the
Company, minus (ii) the number of the Cap Limit Shares, times (b) the applicable
Put Reset Price. On or before the third (3rd) Business Day following the
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<PAGE> 16
date that such Additional Shares were required to be issued, the Company shall
deliver to the Subscriber Unlegended Share Certificates representing the Cap
Limit Shares registered in the name of Subscriber or its nominee (as instructed
by Subscriber) and free of restrictive legends and the Reset Cap Refund Amount.
2.3.13 Put Cancellation at Company's Option.
(a) Mechanics of Put Cancellation. Subject to the limitations below, at any
time from the Advance Put Notice Date through the last day of the Pricing
Period, the Company may cancel a Put (a "Put Cancellation"), in whole or in
part, by delivering written notice to the Subscriber (the "Put Cancellation
Notice"), attached as Exhibit Q, by facsimile and overnight courier. The "Put
Cancellation Date" shall be the date that the Put Cancellation Notice is first
received by the Subscriber, if such notice is received by the Subscriber by 6:00
p.m., New York, NY time, and shall be the following date, if such notice is
received by the Subscriber after 6:00 p.m., New York, NY time.
(b) Limitations on Put Cancellation. The Company may not deliver a Put
Cancellation Notice unless (i) the Company discovers the existence of Material
Facts or any Ineffective Period occurs after a Put Date but before the Put
Closing (in which case Put Cancellation is mandatory), or (ii) the Closing Bid
Price on the Put Cancellation Date is less than eighty percent (80%) of the
Closing Bid Price on the applicable Advance Put Notice Date. Notwithstanding any
Put Cancellation Notice, the Put shall remain effective with respect to the
number of shares of Common Stock sold by the Subscriber from the Advance Put
Notice Date through the close of trading on the Put Cancellation Date and the
Pricing Period shall end on the Put Cancellation Date. The Company shall be
obligated, upon canceling any Put, to issue to the Subscriber Unlegended Share
Certificates representing a number of shares of Common Stock equal to the number
of shares of Common Stock sold, if any, by the Subscriber from the Advance Put
Notice Date through the close of trading on the Put Cancellation Date.
(c) Put Cancellation Notice Confirmation. Upon receipt by the Subscriber of
a facsimile copy of the Put Cancellation Notice, the Subscriber shall promptly
send, via facsimile, a confirmation of receipt (the "Put Cancellation Notice
Confirmation") of the Put Cancellation Notice to Company specifying that the Put
Cancellation Notice has been received and affirming the Put Cancellation Date
and the number of shares of Common Stock that have been sold by the Subscriber
from the Advance Put Notice Date through the close of trading on the Put
Cancellation Date.
2.3.14 Private Equity Line Cancellation. The Company may terminate (a
"Company Equity Line Termination") its right to initiate future Puts by
providing written notice ("Equity Line Termination Notice") to the Subscriber,
by facsimile and overnight courier, at any time, provided that such termination
shall have no effect on the parties' other rights and obligations under this
Agreement, the Registration Rights Agreement or the Warrants. Notwithstanding
the above, any cancellation occurring during an Extended Put Period is governed
by Section 2.3.13.
2.4 Warrants.
2.4.1 [Intentionally Omitted].
2.4.2 Purchase Warrants. On each Six Month Anniversary of the Subscription
Date, the Company shall issue to the Subscriber a warrant ("Purchase Warrant")
to purchase a number of shares of Common Stock equal to 10% of the number of Put
Shares issued to Subscriber during the preceding six (6) Calendar Months. Each
Purchase Warrant shall be exerciseable at a price (the "Purchase Warrant
Exercise Price") which shall equal 108% of the
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lowest Closing Bid Price for the ten (10) trading days immediately preceding the
applicable Six Month Anniversary. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on date that is five (5) years
thereafter. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement. Concurrently with the issuance and delivery of
the Purchase Warrant to the Subscriber, the Company shall deliver to the
Subscriber a Purchase Warrant Opinion of Counsel (signed by the Company's
independent counsel).
2.5 Subscriber's Right to Defer Receipt. If at any time the Subscriber
would have the right to receive shares of Common Stock from the Company,
including, without limitation, by reason of Section 2.3 (Put) and/or the right
to receive a shares of Common Stock upon exercise of a Warrant or Warrants by
reason of Section 2.4 hereof, and as a result of receiving such additional
shares of Common Stock or such Warrants the Subscriber would be deemed to be,
after taking into account Common Shares previously acquired from the Company,
Warrant Shares deemed to be beneficially owned pursuant to ownership of the
Warrants, and any other shares of Common Stock of the Company deemed to be
beneficially owned by the Subscriber, the beneficial owner (within the meaning
of Section 13(d) of the Exchange Act) of 9.9% of the Common Stock of the
Company, the Subscriber may elect to defer receipt of all or any portion of such
Common Shares from the Company and/or defer receipt of all or any portion of
such Warrant or Warrants, by sending a notice to the Company of such election.
Such election shall not affect the Subscriber's obligation to pay for Put
Shares, as if such election had not been made, nor shall it affect (other than
by way of deferral, as set forth herein) the Subscriber's absolute and
unconditional right to receive the shares of Common Stock and/or Warrants to
which it was otherwise entitled. In the event the Subscriber makes such
election, (i) it may waive such election, in whole or in part, at any time
effective on sixty one (61) days' prior notice to the Company and (ii) may waive
it effective immediately upon notice to the Company in the event of the
announcement by the Company or any third party of a Major Transaction. The
Company shall deliver the shares and/or Warrants to which the Subscriber is
entitled on the effective date of the waiver in the case of clause (i) above,
and within three (3) Trading Days of the date of the waiver notice in the case
of a waiver pursuant to clause (ii) above.
2.6 Due Diligence Review. The Company shall make available for inspection
and review by the Subscriber (the "Due Diligence Review"), advisors to and
representatives of the Subscriber (who may or may not be affiliated with the
Subscriber and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Subscriber
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Subscriber or any such representative, advisor or underwriter
in connection with such Registration Statement (including, without limitation,
in response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Subscriber
and such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
2.6.1 Treatment of Nonpublic Information. The Company shall not disclose
nonpublic information to the Subscriber, advisors to or representatives of the
Subscriber unless prior to disclosure of such information the Company identifies
such information as being nonpublic information and provides the Subscriber,
such advisors and representatives with the opportunity to accept or refuse to
accept such nonpublic information for review. The Company may, as a condition to
disclosing any nonpublic information hereunder, require the Subscriber's
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<PAGE> 18
advisors and representatives to enter into a confidentiality agreement
(including an agreement with such advisors and representatives prohibiting them
from trading in Common Stock during such period of time as they are in
possession of nonpublic information) in form reasonably satisfactory to the
Company and the Subscriber.
Nothing herein shall require the Company to disclose nonpublic
information to the Subscriber or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Subscriber and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due diligence by and
such persons or entities), which, if not disclosed in the Prospectus included in
the Registration Statement, would cause such Prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 2.6 shall be construed
to mean that such persons or entities other than the Subscriber (without the
written consent of the Subscriber prior to disclosure of such information) may
not obtain nonpublic information in the course of conducting due diligence in
accordance with the terms of this Agreement; provided, however, that in no event
shall the Subscriber's advisors or representatives disclose to the Subscriber
the nature of the specific event or circumstances constituting any nonpublic
information discovered by such advisors or representatives in the course of
their due diligence without the written consent of the Subscriber prior to
disclosure of such information.
2.6.2 Disclosure of Misstatements and Omissions. The Subscriber's advisors
or representatives shall make complete disclosure to the Subscriber's counsel of
all events or circumstances constituting nonpublic information discovered by
such advisors or representatives in the course of their due diligence upon which
such advisors or representatives form the opinion that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in the light of the circumstances in which
they were made, not misleading. Upon receipt of such disclosure, the
Subscriber's counsel shall consult with the Company's independent counsel in
order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Subscriber as to the accuracy
of the Registration Statement and related Prospectus.
2.6.3 Procedure if Material Facts are Reasonably Believed to be Untrue or
are Omitted. In the event after such consultation the Subscriber's counsel
reasonably believes that the Registration Statement contains an untrue statement
or a material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Subscriber, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended,
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<PAGE> 19
(b) if the Company disputes the existence of any such material misstatement
or omission, (i) the Company's independent counsel shall provide the
Subscriber's counsel with a Registration Opinion and (ii) in the event the
dispute relates to the adequacy of financial disclosure and the Subscriber shall
reasonably request, the Company's independent auditors shall provide to the
Company a letter outlining the performance of such "agreed upon procedures" as
shall be reasonably requested by the Subscriber and the Company shall provide
the Subscriber with a copy of such letter, or
(c) if the Company disputes the existence of any such material misstatement
or omission, and the dispute relates to the timing of disclosure of a material
event and the Company's independent counsel is unable to provide the opinion
referenced in clause (b)(i) above to the Subscriber, then this Agreement shall
be suspended for a period of up to thirty (30) days, at the end of which, if the
dispute still exists between the Company's independent counsel and the
Subscriber's counsel, the Company shall either (i) amend the Registration
Statement as provided above, (ii) provide to the Subscriber the Company's
independent counsel opinion and a copy of the letter of the Company's
independent auditors referenced above, or (iii) the obligation of the Subscriber
to purchase shares of Common Stock pursuant to this Agreement shall terminate.
3. Representations, Warranties and Covenants of Subscriber. Subscriber
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Subscriber is an accredited investor, as defined
in Rule 501 of Regulation D, and has checked the applicable box set forth in
Section 12 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Subscriber or Subscriber's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which
Subscriber or Subscriber's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Subscriber has relied completely on the
advice of, or has consulted with, Subscriber's own personal tax, investment,
legal or other advisors and has not relied on the Company or any of its
affiliates, officers, directors, attorneys, accountants or any affiliates of any
thereof and each other person, if any, who controls any of the foregoing, within
the meaning of Section 15 of the Act for any tax or legal advice (other than
reliance on information in the Disclosure Documents as defined in Section 3.2.4
below and on the Opinion of Counsel). The foregoing, however, does not limit or
modify Subscriber's right to rely upon covenants, representations and warranties
of the Company in this Agreement.
3.2.3 Capability to Evaluate. Subscriber has such knowledge and experience
in financial and business matters so as to enable such Subscriber to utilize the
information made available to it in connection with the Offering in order to
evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Subscriber, in making Subscriber's investment
decision to subscribe for the Private Equity Line hereunder, represents that (a)
Subscriber has received and had an opportunity to review (i) the Company's
Annual Report on Form 10-K for the year ended April 30, 1997 (ii) the Company's
quarterly report on Form 10-Q for the quarter ended January 31, 1998, (iii) the
Risk Factors, attached as Exhibit J, (the "Risk
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<PAGE> 20
Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the
"Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as
Exhibit L, (the "Use of Proceeds Schedule"); (b) Subscriber has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company regarding the Business
Product Overview which has been specifically provided to Subscriber in
connection with this Offering (the documents described in this Section 3.2.4 (a)
and (b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Subscriber and Subscriber's representatives,
if any; (c) Subscriber has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which have
been filed as exhibits to the Company's filings under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor any written representation or assurance from the Company
other than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Subscriber's right to
rely upon covenants, representations and warranties of the Company in Sections 5
and 6 of this Agreement. Subscriber acknowledges and agrees that the Company has
no responsibility for, does not ratify, and is under no responsibility
whatsoever to comment upon or correct any reports, analyses or other comments
made about the Company by any third parties, including, but not limited to,
analysts' research reports or comments (collectively, "Third Party Reports"),
and Subscriber has not relied upon any Third Party Reports, including any
provided by the Placement Agent, in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Subscriber has substantial
experience in investing in securities and he, she or it has made investments in
securities other than those of the Company. Subscriber acknowledges that
Subscriber is able to fend for Subscriber's self in the transaction contemplated
by this Agreement, that Subscriber has the ability to bear the economic risk of
Subscriber's investment pursuant to this Agreement and that Subscriber is an
"Accredited Investor" by virtue of the fact that Subscriber meets the investor
qualification standards set forth in Section 3.1 above. Subscriber has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Subscriber's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 [Intentionally Left Blank].
3.3.2 No General Solicitation. The Private Equity Line was not offered to
Subscriber through, and Subscriber is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.3 Restricted Securities. Subscriber understands that the Private Equity
Line is, the Common Stock issued at each Put Closing will be, and the Warrant
Shares will be, characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction exempt from the registration requirements of the federal securities
laws and that under such laws and applicable regulations such securities may not
be transferred or resold without registration under the Act or pursuant to an
exemption therefrom. In this connection, Subscriber represents that Subscriber
is familiar with Rule 144 under the Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
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<PAGE> 21
3.3.4 Disposition. Without in any way limiting the representations set
forth above, Subscriber further agrees not to sell, transfer, assign, or pledge
the Securities (except for any bona fide pledge arrangement to the extent that
such pledge does not require registration under the Act or unless an exemption
from such registration is available) and provided further that if such pledge is
realized upon, any transfer to the pledgee shall comply with the requirements
set forth herein), or to otherwise dispose of all or any portion of the
Securities unless and until:
(a) There is then in effect a registration statement under the Act and any
applicable state securities laws covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition to the extent relevant for
determination of the availability of an exemption from registration, and (ii) if
reasonably requested by the Company, Subscriber shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of the Securities under the Act or
state securities laws. It is agreed that the Company will not require the
Subscriber to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Subscriber and Subscriber's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Subscription Agreement, if
executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Subscriber is executing this Agreement.
Subscriber has reached the age of majority (if an individual) according to the
laws of the state in which he or she resides.
3.4.2 Due Authorization. If Subscriber is a corporation, Subscriber is duly
and validly organized, validly existing and in good tax and corporate standing
as a corporation under the laws of the jurisdiction of its incorporation with
full power and authority to purchase the Securities to be purchased by
Subscriber and to execute and deliver this Agreement.
3.4.3 Partnerships. If Subscriber is a partnership, the representations,
warranties, agreements and understandings set forth above are true with respect
to all partners of Subscriber (and if any such partner is itself a partnership,
all persons holding an interest in such partnership, directly or indirectly,
including through one or more partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 Representatives. If Subscriber is purchasing in a representative or
fiduciary capacity, the representations and warranties shall be deemed to have
been made on behalf of the person or persons for whom Subscriber is so
purchasing.
4. Acknowledgments Subscriber is aware that:
4.1 Risks of Investment. Subscriber recognizes that an investment in the
Company involves substantial risks, including the potential loss of Subscriber's
entire investment herein. Subscriber recognizes that the Disclosure Documents,
this Agreement and the exhibits
21
<PAGE> 22
hereto do not purport to contain all the information, which would be contained
in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon the
Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of this
Agreement, the Securities and any component thereof have not been registered
under the Act or any applicable state securities laws by reason of exemptions
from the registration requirements of the Act and such laws, and may not be
sold, pledged (except for any limited pledge in connection with a margin account
of Subscriber to the extent that such pledge does not require registration under
the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall
comply with the requirements set forth herein), assigned or otherwise disposed
of in the absence of an effective registration of the Securities and any
component thereof under the Act or unless an exemption from such registration is
available;
4.4 Restrictions on Transfer. Subscriber may not attempt to sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities or
any component thereof in the absence of either an effective registration
statement or an exemption from the registration requirements of the Act and
applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time, or ever,
Subscriber acknowledges that it may be required to bear the economic risk of
Subscriber's investment for an indefinite period of time;
4.6 Exempt Transaction. Subscriber understands that the Securities are
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Subscriber to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares shall not bear a
Restrictive Legend. The certificates representing the Warrant Shares shall not
bear a Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.9 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. Representations and Warranties of the Company . The Company hereby makes
the following representations and warranties to Subscriber (which shall be true
at the signing of this Agreement, and as of any such later date as contemplated
hereunder) and agrees with Subscriber that:
5.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of
22
<PAGE> 23
Delaware USA and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a whole. The
Company is not the subject of any pending, threatened or, to its knowledge,
contemplated investigation or administrative or legal proceeding (a
"Proceeding") by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission ("SEC"),
The National Association of Securities Dealer, Inc., The Nasdaq Stock Market,
Inc. or any state securities commission, or any other governmental entity, which
have not been disclosed in the Disclosure Documents. None of the disclosed
Proceedings, if any, will have a material adverse effect upon the Company or the
market for the Common Stock. The Company has the following subsidiaries:
Vira-Tech, Inc.; Viragen Technology, Inc.; Viragen Reagents, Inc.; Viragen
U.S.A., Inc.; Viragen (Europe) Ltd.; Viragen (Scotland) Ltd.; and Viragen
(Germany) GmbH.
5.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition, or prospects since the date of such Disclosure Documents. The
financial statements as contained in the 10-K and 10-Q have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act), and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes, which are due, except for taxes, which it reasonably disputes. There is
no material claim, litigation, or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened against the Company, except as
disclosed in the Disclosure Documents. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not omit
to state any material fact required to be stated therein or herein necessary to
make the statements contained therein or herein not misleading in the light of
the circumstances under which they were made. No event or circumstance exists
relating to the Company which under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company by its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement, and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies. The
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants, when
issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Subscriber in this
Agreement, will be issued in compliance with all applicable
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<PAGE> 24
U.S. federal and state securities laws. The Warrant Shares, when issued in
accordance with the terms of the Warrants, shall be duly and validly issued and
outstanding, fully paid and nonassessable, and based in part on the
representations and warranties of Subscriber, will be issued in compliance with
all applicable U.S. federal and state securities laws. The Put Shares, the
Warrants and the Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in violation or
default of any provisions of its Certificate of Incorporation or Bylaws each as
amended, and in effect on and as of the date of the Agreement or of any material
provision of any material instrument or material contract to which it is a party
or by which it is bound or of any provision of any federal or state judgment,
writ, decree, order, statute, rule or governmental regulation applicable to the
Company, which would have a material adverse effect on the Company's business or
prospects, or on the performance of its obligations under this Agreement or the
Registration Rights Agreement. The execution, delivery and performance of this
Agreement and the other agreements entered into in conjunction with the Offering
and the consummation of the transactions contemplated hereby and thereby will
not (a) result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company, which would
have a material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, (b) violate the Company's Certificate of Incorporation or By-Laws or
(c) violate any statute, rule or governmental regulation applicable to the
Company which violation would have a material adverse effect on the Company's
business or prospects.
5.6 Reporting Company. The Company is subject to the reporting requirements
of the Exchange Act, has a class of securities registered under Section 12 of
the Exchange Act, and has filed all reports required by the Exchange Act since
the date the Company first became subject to such reporting obligations. The
Company undertakes to furnish Subscriber with copies of such reports as may be
reasonably requested by Subscriber prior to consummation of this Offering and
thereafter, to make such reports available, for the full term of this Agreement,
including any extensions thereof, and for as long as Subscriber holds the
Securities. The Common Stock is duly listed on the Nasdaq National Market. The
Company is not in violation of the listing requirements of the Nasdaq National
Market and does not reasonably anticipate that the Common Stock will be delisted
by the Nasdaq National Market for the foreseeable future. The Company has filed
all reports required under the Exchange Act. The Company has not furnished to
the Subscriber any material nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of June 30, 1998,
is, and the capitalization as of the Closing, subject to conversion of any
outstanding Series I Preferred Stock, exercise of any outstanding warrants
and/or exercise of any outstanding stock options, after taking into account the
offering of the Securities contemplated by this Agreement and all other share
issuances occurring prior to this Offering, will be, as set forth in the
Capitalization Schedule as set forth in Exhibit K. There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. Except as disclosed in the
Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of its or their securities under the Act
(except the Registration Rights
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Agreement, and registration rights relating to the Series H Preferred Stock, the
Series I Preferred Stock and the warrants issued in conjunction with each.
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to use the
proceeds from this Offering (less fees and expenses) for the purposes and in the
approximate amounts set forth on the Use of Proceeds Schedule set forth as
Exhibit L hereto. These purposes and amounts are estimates and are subject to
change without notice to any Subscriber.
5.10 No Rights of Participation. Other than Swartz Investments, LLC and the
Holders of Series H and Series I Preferred Stock, no person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Subscriber may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Subscriber and
the Placement Agent have made no representations or warranties, either written
or oral, as to how long the Securities will be held by Subscriber or regarding
Subscriber's trading history or investment strategies.
5.12 [Intentionally Left Blank].
5.13 Underwriter's Fees and Rights of First Refusal. The Company is not
obligated to pay any compensation or other fees, costs or related expenditures
in cash or securities to any underwriter, broker, agent or other representative
other than the Placement Agent in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company is
currently eligible and agrees to maintain its eligibility to register the resale
of its Common Stock on a registration statement on a suitable form under the
Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of Nasdaq.
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The Company has not engaged in any form of general solicitation or advertising
in connection with the offering of the Common Stock or the Warrants.
5.16 [Intentionally Left Blank].
5.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
5.18 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Exhibit N. No Key Employee, to
the best knowledge of the Company and its subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries. "Key Employee" means each of the
following: Gerald Smith, Chairman and President; Robert H. Zeiger, Vice
Chairman; Jay Sawardeker, Chief Operating Officer; Dennis W. Healey, Executive
Vice President and CFO; and Joseph P. Morris, Ph.D., Vice President, Research
and Development.
5.19 Representations Correct. The foregoing representations, warranties and
agreements are true, correct and complete in all material respects, and shall
survive any Put Closing and the issuance of the shares of Common Stock thereby.
5.20 Tax Status. The Company has made or filed all federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and as set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
5.21 Transactions With Affiliates. Except as set forth in the Disclosure
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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5.22 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Delaware law which is or could become
applicable to the Subscriber as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Common Stock,
any exercise of the Warrants and ownership of the Common Shares and Warrant
Shares. The Company has not adopted and will not adopt any "poison pill"
provision that will be applicable to Subscriber as a result of transactions
contemplated by this Agreement.
5.23 Other Agreements. The Company has not, directly or indirectly, made
any agreements with the Subscriber under a subscription in the form of this
Agreement for the purchase of Common Stock, relating to the terms or conditions
of the transactions contemplated hereby or thereby except as expressly set forth
herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions currently
pending or contemplated by the Company, except the transaction with
Inflammatics, Inc.
5.25 Financings. There are no other financings currently pending or
contemplated by the Company, except the VUSA Transaction.
5.26 Shareholder Authorization. The Company shall, at its next annual
shareholder meeting, or at a special meeting to be held as soon as practicable
thereafter, use its best efforts to obtain approval of its shareholders to (i)
authorize the issuance of the full number of shares of Common Stock which would
be issuable under this Agreement and eliminate any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or any of its securities with respect to the Company's ability to issue shares
of Common Stock in excess of the Cap Amount (such approvals being the "20%
Approval") and (ii) the increase in the number of authorized shares of Common
Stock of the Company (the "Share Authorization Increase Approval") such that at
least 20,000,000 shares can be reserved for this Offering. In connection with
such shareholder vote, the Company shall use its best efforts to cause all
officers and directors of the Company to promptly enter into irrevocable
agreements to vote all of their shares in favor of eliminating such
prohibitions. As soon as practicable after the 20% Approval and the Share
Authorization Increase Approval, the Company agrees to use its best efforts to
reserve 20,000,000 shares of Common Stock for issuance under this Agreement.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the Termination
Date, maintain as its independent auditors an accounting firm authorized to
practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least the
Termination Date, maintain its corporate existence in good standing and remain a
"Reporting Issuer" (defined as a Company which files periodic reports under the
Exchange Act) (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization as long as
the surviving entity in such transaction, if not the Company, assumes the
Company's obligations with respect to the Common Stock and has Common Stock
listed for trading on a stock exchange or on Nasdaq and is a Reporting Issuer)
and shall pay all its taxes when due except for taxes which the Company
disputes.
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6.3 Registration Rights. The Company will enter into a registration rights
agreement covering the resale of the Common Shares and the Warrant Shares
substantially in the form of the Registration Rights Agreement attached as
Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (i) transfer, sell, convey or
otherwise dispose of any of its material assets to any Subsidiary except for a
cash or cash equivalent consideration and for a proper business purpose or (ii)
transfer, sell, convey or otherwise dispose of any of its material assets to any
Affiliate, as defined below, during the Term of this Agreement. For purposes
hereof, "Affiliate" shall mean any officer of the Company, director of the
Company or owner of twenty percent (20%) or more of the Common Stock or other
securities of the Company.
6.6 Capital Raising Limitations; Rights of First Refusal.
6.6.1 Capital Raising Limitations. During the period from the date of this
Agreement until the earlier of (i) the date that is one year after the
Termination Date, or (ii) (a) in the case of a Company Equity Line Termination,
the date that is one (1) year after the date of such Company Equity Line
Termination, or (b) in the case of an Automatic Equity Line Termination that is
not waived by the Subscriber, the date that is six (6) months after the date of
such Automatic Equity Line Termination, the Company shall not issue or sell, or
agree to issue or sell, for cash in private capital raising transactions (the
following to be collectively referred to herein as, the "Variable Priced
Securities"), (a) any debt or equity securities which are convertible into,
exercisable or exchangeable for, or carry the right to receive additional shares
of Common Stock either (i) at any conversion, exercise or exchange rate or other
price that is based upon and/or varies with the trading prices of or quotations
for Common Stock at any time after the initial issuance of such debt or equity
security, or (ii) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date at any time after the initial
issuance of such debt or equity security or upon the occurrence of specified
contingent events directly or indirectly related to the business of the Company
of the market for the Common Stock, or (b) any securities of the Company
pursuant to an equity line structure or format similar in nature to this
Offering without obtaining the prior written approval of the Subscriber of the
Offering (the limitations referred to in this sentence are collectively referred
to as the "Capital Raising Limitations").
6.6.2 Subscriber's Right of First Refusal. For any private capital raising
transactions of Variable Priced Securities which close on or prior to the date
that is six (6) months after the Termination Date of this Agreement, not
including any warrants issued in conjunction with this Private Equity Line, the
Company agrees to deliver to Subscriber, at least ten (10) days prior to the
closing of such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Subscriber and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the same
terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights of First
Refusal. Notwithstanding the above, the Capital Raising Limitations and the
Rights of First Refusal shall not apply to the VUSA Transaction or any
transaction involving issuances of securities in connection with a merger,
consolidation, acquisition or sale of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company or exercise of options by employees,
consultants or directors. The Capital Raising Limitations also shall not apply
to (a) the issuance of securities upon exercise or
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<PAGE> 29
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (b) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants, or (c) the issuance of debt securities, with no equity
feature, incurred solely for working capital purposes.
6.7 Financial 10-K Statements, Etc. and Current Reports on Form 8-K. The
Company shall deliver to the Subscriber copies of its annual reports on Form
10-K, and quarterly reports on Form 10-Q and shall deliver to the Subscriber
current reports on form 8-K within two (2) days of filing for the Term of this
Agreement.
6.8 Opinion of Counsel. Subscriber shall, concurrent with the purchase of
the Common Stock and accompanying Warrants pursuant to this Agreement, receive
an opinion letter from Atlas, Pearlman, Trop & Borkson, PA; New River Center,
Suite 1900, 200 East Las Olas Blvd., Ft. Lauderdale, FL 33301 Telephone: (954)
763-1200, Facsimile: (954) 523-1952, ("Counsel"), counsel to the Company, in the
form attached as Exhibit B or in such form as agreed upon by the parties, as to
the Private Equity Line Commitment Closing and in the form attached as Exhibit I
or in such form as agreed upon by the parties, as to any Put Closing.
6.9 Removal of Legend. If the certificates representing any Securities are
issued with a restrictive Legend in accordance with the terms of this Agreement,
the Legend shall be removed and the Company shall issue a certificate without
such Legend to the holder of any Security upon which it is stamped, and a
certificate for a security shall be originally issued without the Legend, if (a)
the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Company), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Subscriber agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.10 Listing. Subject to the remainder of this Section 6.10, the Company
shall ensure that its shares of Common Stock (including all Warrant Shares) are
listed and available for trading on the Nasdaq National Market ("NMS").
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the NMS, or on the New York Stock Exchange
("NYSE") or any other national exchange or over-the-counter market system; and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.11 The Company's Instructions to Transfer Agent. The Company will
instruct the Transfer Agent of the Common Stock to issue certificates,
registered in the name of each Subscriber or its nominee, for the Put Shares,
Additional Shares and Warrant Shares in such amounts as specified from time to
time by the Company upon any exercise by the Company of a Put and/or exercise of
the Warrants by the holder thereof. Such certificates shall not bear a Legend
unless issuance with a Legend is permitted by the terms of this Agreement and
Legend removal is not permitted by Section 6.9 hereof and the Company shall
cause the Transfer Agent to issue such certificates without a Legend. Nothing in
this Section shall affect in any way each Subscriber's obligations and agreement
set forth in Sections 3.3.3 or 3.3.4 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements
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<PAGE> 30
of applicable securities laws. If (a) a Subscriber provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) a Subscriber transfers
Securities to an affiliate which is an accredited investor pursuant to Rule 144,
the Company shall permit the transfer, and, in the case of Put Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Subscriber. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Subscriber by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.11, that a
Subscriber shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put that would
cause the Aggregate Issued Shares to exceed the Cap amount, the Company shall
obtain approval of its stockholders to authorize (i) the issuance of the full
number of shares of Common Stock which would be issuable pursuant to this
Agreement but for the Cap Amount and eliminate any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or any of its securities with respect to the Company's ability to issue shares
of Common Stock in excess of the Cap Amount (such approvals being the
"Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Subscriber shall have the
right to review and comment upon any press release issued by the Company in
connection with the Offering which approval shall not be unreasonably withheld
by Subscriber.
7. Subscriber Covenant/Miscellaneous
7.1 Representations and Warranties Survive the Closing; Severability.
Subscriber's and the Company's representations and warranties shall survive the
Subscription Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Subscriber, the Subscriber, at its option, may terminate this
Agreement or require that other terms of the Agreement be amended to compensate
for such material economic changes.
7.2 Successors and Assigns. This Agreement shall not be assignable without
the Company's written consent, If assigned, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber's rights hereunder, in
connection with any private sale of the Common Stock of such Subscriber, so long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
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<PAGE> 31
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be executed in
any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Subscriber such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Subscriber set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Subscriber
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights Agreement,
each of the Company and Subscriber shall pay all costs and expenses that it
respectively incurs, with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
7.8 Arbitration. Except as otherwise provided in Section 6.11 of this
Agreement, any controversy or claim arising out of or related to the Transaction
Documents or the breach thereof, shall be settled by binding arbitration in
Wilmington, Delaware in accordance with the Expedited Procedures (Rules 53-57)
of the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). A proceeding shall be commenced upon written demand by Company or any
Subscriber to the other. The arbitrator(s) shall enter a judgment by default
against any party, which fails or refuses to appear in any properly noticed
arbitration proceeding. The proceeding shall be conducted by one (1) arbitrator,
unless the amount alleged to be in dispute exceeds two hundred fifty thousand
dollars ($250,000), in which case three (3) arbitrators shall preside. The
arbitrator(s) will be chosen by the parties from a list provided by the AAA, and
if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in Wilmington, Delaware or to the United
States District Court sitting in Delaware for purposes of enforcement of any
discovery order, judgment or award in connection with such arbitration. The
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<PAGE> 32
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
Although the parties, as expressed above, agree that all claims, including
claims that are equitable in nature, for example specific performance, shall
initially be prosecuted in the binding arbitration procedure outlined above, if
the arbitration panel dismisses or otherwise fails to entertain any or all of
the equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in
Wilmington, Delaware. Each party waives any right to a trial by jury, assuming
such right exists in an equitable proceeding, and irrevocably submits to the
jurisdiction of said Delaware court. Delaware law shall govern both the
proceeding as well as the interpretation and construction of the Transaction
Documents and the transaction as a whole.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall deliver
Put Dollar Amounts (as payment towards any Put Share Price) by
wire transfer, to the Company pursuant to a wire instruction
letter to be provided by the Company, and signed by the Company
and the Placement Agent.
(b) Irrevocable Subscription. Subscriber hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing
for the refund of subscription amounts submitted by Subscriber,
that this Agreement is irrevocable and that Subscriber is not
entitled to cancel, terminate or revoke this Agreement or any
other agreements executed by such Subscriber and delivered
pursuant hereto, and that this Agreement and such other agreements
shall survive the death or disability of such Subscriber and shall
be binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal
representatives and assigns. If the Securities subscribed for are
to be owned by more than one person, the obligations of all such
owners under this Agreement shall be joint and several, and the
agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon
each such person and his heirs, executors, administrators,
successors, legal representatives and assigns. Notwithstanding the
foregoing, (i) if the conditions to Closing are not satisfied or
(ii) if the Disclosure Documents are discovered prior to Closing
to contain statements which are materially inaccurate, or omit
statements of material fact, Subscriber may revoke or cancel this
Agreement.
8.2 Acceptance of Subscription. Ownership of the number of securities
purchased hereby will pass to Subscriber upon the Warrant Closing or any Put
Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
In consideration of the Subscriber's execution and delivery of the
Subscription Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents")
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<PAGE> 33
and acquiring the Securities thereunder and in addition to all of the Company's
other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless Subscriber and the Placement Agent and all
of their stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
10. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES
ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING
THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW
AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT
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<PAGE> 34
PRIVILEGE IS COMMUNICATED TO SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION
WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION 10502(2)(R) OF
TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE DEEMED
RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL THE
SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING OFFERED
HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS AFTER
THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE. UNDER
PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE "1972 ACT"), EACH
PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT
INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY) OR ANY PERSON,
WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS
WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN WHICH
THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER
HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED. TO ACCOMPLISH
THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO THE SELLING
AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE MEMORANDUM, INDICATING HIS OR
HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED
PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS DAY. IT IS PRUDENT TO
SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT
IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS
MADE ORALLY (IN PERSON OR BY TELEPHONE, TO THE SELLING AGENT AT THE NUMBER
LISTED IN THE TEXT OF THE MEMORANDUM) A WRITTEN CONFIRMATION THAT THE REQUEST
HAS BEEN RECEIVED SHOULD BE REQUESTED.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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[INTENTIONALLY LEFT BLANK]
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<PAGE> 36
11. [Intentionally Left Blank].
12. Accredited Investor. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3)
of the Internal Revenue Code, or a corporation, limited
duration company, limited liability company, business
trust, or partnership not formed for the specific
purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and
experience in financial and business matters that he is
capable of evaluating the merits and risks of the
prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a
director, executive officer or general partner of a
general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching
the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could
check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] _______________________________________
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<PAGE> 37
The undersigned hereby subscribes for ___________% of The Equity Line
Maximum Offering Amount and acknowledges that this Agreement and the
subscription represented hereby shall not be effective unless accepted by the
Company as indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Subscriber by the following signature(s) executed this Agreement.
Dated this _____ day of September, 1998.
- ----------------------- -----------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where
your security is to be delivered
____________________________________ ATTN: ______________________________
Title/Representative Capacity
(if applicable)
_____________________________________ ____________________________________
Name of Company You Represent Street Address
(if applicable)
_____________________________________ ____________________________________
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: __________________________ ATTN: ______________________________
_____________________________________ ____________________________________
Street Address Street Address
_____________________________________ ____________________________________
City, State or Province, Country, City, State or Country,
Offshore Postal Code Offshore Postal Code
Telephone: __________________________ Telephone: _________________________
Facsimile: __________________________ Facsimile: _________________________
Facsimile: __________________________ Facsimile: _________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF _____________% OF THE
EQUITY LINE MAXIMUM OFFERING AMOUNT ON THE ____ DAY OF SEPTEMBER, 1998.
VIRAGEN, INC.
By:
Dennis W. Healey, Exec. Vice President/CFO
Address: Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
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<PAGE> 38
ADVANCE PUT NOTICE
VIRAGEN, INC. (the "Company") hereby intends, subject to the Individual Put
Limit (as defined in the Subscription Agreement), to elect to exercise a Put to
sell the number of shares of Common Stock of the Company specified below, to
_____________________________, the Subscriber, as of the Intended Put Date
written below, all pursuant to that certain Regulation D Private Equity Line
Subscription Agreement (the "Subscription Agreement").
Date of Advance Put Notice: _______________
Intended Put Date :________________________
Intended Put Share Amount: ________________
VIRAGEN, INC.
By:
Dennis W. Healey, Exec. Vice President/CFO
Address:Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
EXHIBIT E
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<PAGE> 39
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Subscriber, hereby confirms receipt of
VIRAGEN, INC.'s (the "Company") Advance Put Notice on the Advance Put Date
written below, and its intention to elect to exercise a Put to sell shares of
common stock ("Intended Put Share Amount") of the Company to the Subscriber, as
of the intended Put Date written below, all pursuant to that certain Regulation
D Private Equity Line Subscription Agreement (the "Subscription Agreement").
Date of Confirmation: __________________
Date of Advance Put Notice: ____________
Intended Put Date: _____________________
Intended Put Share Amount: _____________
SUBSCRIBER(S)
________________________________________
Subscriber's Name
By: ___________________________________
(Signature)
Address: _________________________________________
_________________________________________
_________________________________________
Telephone No.: _________________________________________
Facsimile No.: _________________________________________
EXHIBIT F
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<PAGE> 40
PUT NOTICE
VIRAGEN, INC. (the "Company") hereby elects to exercise a Put to sell shares of
common stock ("Common Stock") of the Company to _____________________________,
the Subscriber, as of the Put Date, at the Put Share Price and for the number of
Put Shares written below, all pursuant to that certain Regulation D Private
Equity Line Subscription Agreement (the "Subscription Agreement").
PUT DATE :_________________
INTENDED PUT SHARE AMOUNT (from Advance
Put Notice):______________ Common Shares
VOLUME EVALUATION PERIOD (calculated as
set forth below, but not to exceed 10
Trading Days):
______ Trading Days
PRICING PERIOD (calculated as set forth below):
______ Trading Days
PUT SHARE AMOUNT (i.e., the number of Put
Shares of Common Stock to be issued, which
shall equal the Intended Put Share Amount, but
shall not exceed the "Individual Put Limit"):
____________________ Common Shares
Note: For purposes hereof, the "Volume Evaluation Period" shall equal the
minimum period of consecutive Trading Days, ending on the Trading Day
immediately preceding the Put Date, for which the aggregate daily reported
trading volume in the outstanding Common Stock on the Company's Principal Market
equals or exceeds two (2) times the Put Share Amount.
The "Pricing Period," unless otherwise shortened or extended under the terms of
the Equity Line Agreement, shall equal a period of "X" Trading Days immediately
following the applicable Put Date, where "X" equals two (2) multiplied by the
number of Trading Days in the Volume Evaluation Period.
The "Individual Put Limit" shall equal one half of the aggregate daily reported
trading volume in the outstanding Common Stock reported on the Company's
Principal Market in a maximum Volume Evaluation Period of ten (10) Trading Days,
ending on the Trading Day immediately preceding the Put Date.
VIRAGEN, INC.
By:
Dennis W. Healey, Exec. Vice President/CFO
Address:Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
EXHIBIT G
40
<PAGE> 41
CONFIRMATION OF PUT NOTICE
_________________________________, the Subscriber, hereby confirms receipt of
Viragen Inc.'s (the "Company") Put Notice and election to exercise a Put to sell
___________________________ shares of common stock ("Common Stock") of the
Company to Subscriber, as of the Put Date, all pursuant to that certain
Regulation D Private Equity Line Subscription Agreement (the "Subscription
Agreement").
Date of Confirmation: __________________
Put Date :______________________________
Volume Evaluation Period: ______________ Trading Days
Number of Put Shares of
Common Stock to be Issued: _____________
Pricing Period: __________ Trading Days
SUBSCRIBER(S)
________________________________________
Subscriber's Name
By: ____________________________________
(Signature)
Address:________________________________________
________________________________________
________________________________________
Telephone No.: ________________________________________
Facsimile No.: ________________________________________
EXHIBIT H
41
<PAGE> 42
PRICING CONFIRMATION NOTICE
VIRAGEN, INC. (the "Company") hereby states that the Market Price, Put Share
Price and Put Dollar Amount for the Put Shares of Common Stock put to the
Subscriber in the Put Notice referred to below are as follows, pursuant to that
certain Regulation D Private Equity Line Subscription Agreement (the
"Subscription Agreement").
Put Date: _________________________________
Number of Shares Put on Put Date: _________
Pricing Period: ________ Trading Days
Market Price for Put: _____________________
Applicable Put Share Price: _______________
Put Dollar Amount: ________________________
VIRAGEN, INC.
By:
Dennis W. Healey, Exec. Vice President/CFO
Address:Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
EXHIBIT P
42
<PAGE> 43
PUT CANCELLATION NOTICE
VIRAGEN, INC. (the "Company") hereby cancels the Put specified below, pursuant
to that certain Regulation D Private Equity Line Subscription Agreement (the
"Subscription Agreement"), as of the close of trading on the date specified
below (the "Cancellation Date," which date must be on or after the date that
this notice is delivered to the Subscriber), provided that such cancellation
shall not apply to the number of shares of Common Stock that the Subscriber has
sold on or after the date of the applicable Advance Put Notice up through the
close of trading on the Cancellation Date:
Cancellation Date: ________________________
Put Date of Put Being Canceled: ___________
Number of Shares Put on Put Date: _________
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Subscriber before effecting the next
Put.
VIRAGEN, INC.
By:
Dennis W. Healey, Exec. Vice President/CFO
Address:Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
EXHIBIT Q
43
<PAGE> 44
Exhibit (10)(LXII).02
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
September 22nd, 1998, by and among Viragen, Inc., a corporation duly
incorporated and existing under the laws of the State of Delaware (the
"Company"), Swartz Investments, LLC, a Georgia limited liability company, d/b/a
Swartz Institutional Finance ("Placement Agent"), and the subscriber as named on
the signature page hereto (hereinafter referred to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Twenty
Million Dollars ($20,000,000), excluding any funds paid upon exercise of the
Warrants, of Common Stock of the Company pursuant to that certain Regulation D
Common Stock Equity Line Subscription Agreement, of even date herewith (the
"Subscription Agreement") between the Company and the Subscriber, the Company
has agreed to sell and the Subscriber has agreed to purchase, from time to time
as provided in the Subscription Agreement, shares of the Company's Common Stock
for a maximum aggregate offering amount of Twenty Million Dollars ($20,000,000);
WHEREAS, pursuant to the terms of the Subscription Agreement, the Company
has agreed to issue to the Subscriber, from time to time, Purchase Warrants, as
defined in the Subscription Agreement, to purchase a number of shares of Common
Stock, exercisable for five years from the date of issuance (collectively, the
"Subscriber Warrants");
WHEREAS, pursuant to the terms of the Subscription Agreement, the Company
has agreed to provide the Subscriber with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Subscriber Warrants as set forth in this
Registration Rights Agreement;
WHEREAS, pursuant to the terms of that certain placement agent agreement
(the "Placement Agent Agreement"), of even date herewith, by and between the
Company and Placement Agent, the Company has agreed to issue to Placement Agent,
from time to time, warrants to purchase a number of shares of Common Stock,
exercisable for five years from the date of issuance(the "Placement Agent
Warrants"); and
WHEREAS, pursuant to the terms of the Placement Agent Agreement, the
Company has agreed to provide Placement Agent with certain registration rights
with respect to the Common Stock and the Common Stock issuable upon exercise of
the Placement Agent Warrants as set forth in this Registration Rights Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in Agreement and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the Recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both singular and plural forms of the terms defined):
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<PAGE> 45
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Accrual Rate" shall mean X% per month, accruing daily from the date that
the applicable payment, as specified herein, begins to accrue, multiplied by the
applicable principal amount, where "X" equals one percent (1%) for the first
month following the date in question, and increases by an additional one percent
(1%) for each month that passes after the date in question, up to a maximum of
five percent (5%) per month; provided, however, that if the payments resulting
from such accrual are not paid to the Holder within five (5) business days of
the date they are required to be paid, "X" shall be deemed to have equaled five
percent (5%) from the beginning of such unpaid accrual until such payments are
made.
"Additional Shares" shall mean Additional Ineffective Period Shares and
Additional Delisting Event Shares.
"Additional Delisting Event Shares" shall have the meaning set forth in
Section 2.12.
"Additional Ineffective Period Shares" shall have the meaning set forth in
Section 2.10(ii).
"Additional Registration Statement" shall have the meaning set forth in
Section 3(b).
"Amended Registration Statement" shall have the meaning set forth in
Section 3(b).
"Closing Bid Price" shall have the meaning set forth in the Subscription
Agreement.
"Common Stock" shall mean the common stock, par value $0.01, of the
Company.
"Delisting Event" shall have the meaning as set forth in Section 2.12.
"Due Date" shall mean the date that is ninety (90) days after the date of
this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Filing Date" shall mean the date that is forty five (45) days after the
date of this Agreement.
"Holder" shall mean Subscriber, Placement Agent, and any other person or
entity owning or having the right to acquire Registrable Securities or any
permitted assignee thereof;
"Ineffective Period" shall have the meaning set forth in Section 2.10(i).
"Ineffective Registration Payment" shall have the meaning set forth in
Section 2.10(i).
"Payment" shall have the meaning set forth in Section 2.11.
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<PAGE> 46
"Placement Agent Agreement" shall have the meaning set forth in the
Recitals hereto.
"Placement Agent Warrants" shall have the meaning set forth in the Recitals
hereto.
"Post-Delisting Event Price" shall have the meaning as set forth in Section
2.12.
"Post-Ineffective Price" shall have the meaning set forth in Section
2.10(ii).
"Pre-Delisting Event Price" shall have the meaning as set forth in Section
2.12.
"Pre-Ineffective Price" shall have the meaning set forth in Section
2.10(ii).
"Put" shall have the meaning as set forth in the Subscription Agreement.
"Register," "Registered," and "Registration" shall mean and refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document;
"Registrable Securities" shall have the meaning set forth in Section 2.1.
"Registration Statement" shall have the meaning set forth in Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under the Act.
"Subscriber" shall have the meaning set forth in the preamble to this
Agreement.
"Subscriber Warrants" shall have the meaning set forth in the Recitals.
"Subscription Agreement" shall have the meaning set forth in the Recitals
hereto.
"Supplemental Registration Statement" shall have the meaning set forth in
Section 3(b).
"Trading Day" shall have the meaning set forth in the Subscription
Agreement.
"Warrants" shall mean the Subscriber Warrants and the Placement Agent
Warrants collectively.
"Warrant Shares" shall mean shares of Common Stock issuable upon exercise
of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean those
shares of the Common Stock of the Company together with any capital stock issued
in replacement of, in exchange for or otherwise in respect of such Common Stock,
that are: (i) issuable or issued to the Subscriber pursuant to the Subscription
Agreement or in this Agreement, (ii) issuable or issued upon exercise of the
Subscriber Warrants, and (iii) issuable or issued upon exercise of the Placement
Agent Warrants; provided, however, that notwithstanding the above, the following
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<PAGE> 47
shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to be Registrable
Securities, if and to the extent that those shares of Common Stock may be resold
in a public transaction without volume limitations or other material
restrictions without registration under the Act, including without limitation,
pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
2.2 Filing of Initial Registration Statement. The Company shall, by the
Filing Date, file a registration statement ("Registration Statement") on Form
S-3 (or other suitable form, at the Company's discretion, but subject to the
reasonable approval of Subscriber), covering the resale of a number of shares of
Common Stock as Registrable Securities equal to at least Fifteen Million
(15,000,000) shares of Common Stock and shall cover, to the extent allowed by
applicable law, such indeterminate number of additional shares of Common Stock
that may be issued or become issuable as Registrable Securities by the Company
pursuant to Rule 416 of the Act.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its best efforts to
have the Registration Statement declared effective by the SEC (the date of such
effectiveness is referred to herein as the "Effective Date") by the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement shall be prepared as a
"shelf" registration statement under Rule 415, and shall be maintained effective
until all Registrable Securities are resold pursuant to such Registration
Statement.
2.8 Eligibility for Form S-3. The Company understands that in order to file
the resale Registration Statement described herein on Form S-3, it must be
eligible to file Form S-3 for primary offerings. The Company represents that it
is presently eligible to effect the registration contemplated hereby on Form S-3
and will use its best efforts to continue to take such actions as are necessary
to maintain such eligibility. The Company covenants to use its best efforts to
use Form S-3 (or other suitable form, at the Company's discretion, but subject
to the reasonable approval of the Holders) for the registration required by this
Section during all applicable times contemplated by this Agreement.
2.9 Supplemental Registration Statement for Additional Shares. Anytime the
Registration Statement does not cover a sufficient number of shares of Common
Stock to cover (i) all outstanding Registrable Securities plus (ii) all
Registrable Securities to be issued as Additional Shares, the Company shall
promptly prepare and file with the SEC such Supplemental Registration Statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all such Registrable Securities and shall use its best efforts to
cause such Supplemental Registration Statement to be declared effective as soon
as possible.
2.10 Failure to Maintain Effectiveness of Registration Statement.
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<PAGE> 48
(i) Payments During Registration Statement Ineffective Period. In the event
that the Registration Statement or any Supplemental Registration Statement
becomes ineffective or unavailable for use for the sale or resale, as
applicable, of any or all of the Registrable Securities for any reason (or in
the event the prospectus under either of the above is not current and
deliverable) during any time period required hereunder (the "Ineffective
Period"), the Company shall pay the Holder at a rate equal to the Accrual Rate
multiplied by a principal amount equal to the number of shares of Registrable
Securities held by Holder on the first day of the Ineffective Period, multiplied
by the Pre-Ineffective Price, accruing daily until a Registration Statement
covering the resale of all such Registrable Securities becomes effective and a
prospectus thereunder becomes current and deliverable, payable in cash or Common
Stock, at the Holder's option, as set forth in Section 2.11 below (the
"Ineffective Registration Payment"). For the purposes hereof, if a Registration
Statement is effective but does not cover a sufficient number of shares of
Common Stock to effect resales of all Registrable Securities, then a Holder
shall be entitled to an Ineffective Registration Payment for the Ineffective
Period only as to the number of shares of Registrable Securities held by such
Holder that are not covered under the Registration Statement.
(ii) Issuance of Additional Shares due to Price Drop During Registration
Statement Ineffective Period. In the event that an Ineffective Period occurs and
the lowest Closing Bid Price of the Common Stock for the ten (10) Trading Day
period beginning on the first Trading Day that the Registration Statement
becomes effective after the Ineffective Period (the "Post-Ineffective Price") is
less than the Closing Bid Price on the last Trading Day preceding such
Ineffective Period (the "Pre-Ineffective Price"), the Company shall issue to
Holder, no later than the fifteenth (15th) business day following the first
Trading Day after the end of the Ineffective Period, an additional number of
shares of Common Stock ("Additional Ineffective Period Shares") equal to (i) the
number of shares of Registrable Securities held by Holder on the first day of
the Ineffective Period multiplied by (ii) the difference of (x) the quotient
obtained when the Pre-Ineffective Price is divided by the Post-Ineffective
Price, minus (y) one (1). Any such shares of Common Stock issued to the Holder
as a result of any Ineffective Period shall also be deemed "Registrable
Securities" as defined herein.
2.11 Payment of Ineffective Registration Payment or Delisting Payment. Any
Ineffective Registration Payment or Delisting Payment (a "Payment") shall be
payable in cash or Common Stock, at the Holder's option, as follows: If Holder
elects to be paid in cash, such Payment shall be paid to such Holder within five
(5) business days following the end of the month in which such Payment was
accrued. If Holder elects to be paid in Common Stock, the Company shall issue to
Holder, within five (5) business days following the end of the month in which
such Payment was accrued, a number of shares of Common Stock equal to the
quotient of (i) the dollar amount of such Payment, divided by (ii) the lowest
Closing Bid Price of the Common Stock for the ten (10) Trading Days immediately
preceding the last Trading Day of the month in which such payment was accrued.
Any such shares of Common Stock issued to the Holder as a result of any Payment
shall also be deemed "Registrable Securities" as defined herein.
2.12 Failure to Maintain Listing of Common Stock. In the event that, at any
time during the term of the Subscription Agreement, the Company's Common Stock
is not listed for and actively trading on either the Nasdaq National Market,
Nasdaq Small Cap Market, or New York Stock Exchange or is suspended or delisted
with respect to the trading of the shares of Common Stock on such market or
exchange (a "Delisting Event"), the Company shall pay the Holder at a rate equal
to the Accrual Rate multiplied by a principal amount equal to the number of
shares of Registrable Securities held by Holder on the first day of the
Delisting Event, multiplied by the Pre-Delisting Event Price, accruing daily
until the Holder's shares of Common Stock become listed for and actively trading
on either the Nasdaq National Market, Nasdaq
5
<PAGE> 49
Small Cap Market, or the New York Stock Exchange, payable in cash or Common
Stock, at the Holder's option, as set forth in Section 2.11 above (the
"Delisting Payment").
In the event that a Delisting Event occurs and the lowest Closing Bid Price
of the Common Stock for the ten (10) Trading Day period beginning on the first
Trading Day that the Company's Common Stock is actively listed and trading on
either the Nasdaq National Market, the Nasdaq Small Cap Market or New York Stock
Exchange (the "Post-Delisting Event Price") is less than the Closing Bid Price
on the last Trading Day preceding such Delisting Event (the "Pre-Delisting Event
Price"), the Company shall issue to Holder, no later than the fifteenth (15th)
business day following the first Trading Day after the end of the Delisting
Event, an additional number of shares of Common Stock ("Additional Delisting
Event Shares") equal to (i) the number of shares of Registrable Securities then
held by Holder multiplied by (ii) the difference of (x) the quotient obtained
when the Pre-Delisting Event Price is divided by the Post-Delisting Event Price,
minus (y) one (1). Any such shares of Common Stock issued to the Holder as a
result of any Delisting Event shall also be deemed "Registrable Securities" as
defined herein.
3. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a
Registration Statement with respect to such Registrable Securities and use its
best efforts to cause such Registration Statement to become effective and to
remain effective until all Registrable Securities are resold pursuant to such
Registration Statement.
(b) Prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement or such prior registration statement and to cover the resale of all
Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such Registration Statement under such other securities or Blue Sky laws of the
jurisdictions in which the Holders are located and of such other jurisdictions
as shall be reasonably requested by the Holders of the Registrable Securities
covered by such Registration Statement, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such event, notify
each Holder of Registrable Securities of the happening of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
6
<PAGE> 50
which they were made, not misleading, use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Holder as such Holder may reasonably request.
(g) Provide Holders with notice of the date that a Registration Statement
or any Supplemental Registration Statement registering the resale of the
Registrable Securities is declared effective by the SEC, and the date or dates
when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and a
reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to review the
Registration Statement and all amendments or supplements thereto prior to their
filing with the SEC by giving the Holder at least ten (10) business days advance
written prior to such filing; provided that if the Holders or their
representatives take more than ten (10) business days for such review and as a
direct result the Company cannot file the Registration Statement by the date it
is required to be filed hereunder.
(j) Provide each Holder with prompt notice of the issuance by the SEC or
any state securities commission or agency of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceeding
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order, and, if any is issued to obtain the removal thereof at the
earliest possible date.
(k) Use its best efforts to list the Registrable Securities covered by the
Registration Statement with all securities exchanges or markets on which the
Common Stock is then listed and prepare and file any required filing with the
NASD and any other exchange or market on which the Common Stock is listed.
4. [Intentionally Omitted].
5. [Intentionally Omitted].
6. Dispute as to Registrable Securities. In the event the Company believes
that shares sought to be registered under Section 2 by Holders do not constitute
"Registrable Securities" by virtue of Section 2.1 of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without volume limitation or other material restrictions, without
registration under the Act, by virtue of Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall furnish
to the Company such information regarding Holder, the Registrable Securities
held by it, and the intended method of disposition of such securities to the
extent required to effect the registration of its Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied,
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<PAGE> 51
except to the extent such information is not permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses of
counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
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<PAGE> 52
9. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners, legal counsel, and
accountants of each Holder, any underwriter (as defined in the Act, or as deemed
by the Securities Exchange Commission, or as indicated in a registration
statement) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements or omissions: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, and
the Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person; provided however, that the above shall not relieve the Company from any
other liabilities which it might otherwise have.
(b) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
(c) In the event that the indemnity provided in paragraph (a) of this
Section 9 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Holder may
be subject in such proportion as is appropriate to reflect the relative fault of
the
9
<PAGE> 53
Company and the Holders in connection with the statements or omissions which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director and officer of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (c).
(d) The obligations of the Company and Holders under this Section 9 shall
survive the resale, if any, of the Common Stock, the completion of any offering
of Registrable Securities in a Registration Statement under this Agreement, and
otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act.
11. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Viragen, Inc., 865 SW 78th Avenue, Suite
100, Plantation, FL 33324, Telephone No. (954) 233-8746, Facsimile No. (954)
233-1416 and (ii) the Holders at their respective last address as the party as
shown on the records of the Company. Any notice, except as otherwise provided in
this Agreement, shall be made by fax and shall be deemed given at the time of
transmission of the fax.
13. Termination. This Agreement shall terminate on the date all Registrable
Securities cease to exist (as that term is defined in Section 2.1 hereof); but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by operation
of law or otherwise, of any rights or obligations under this Agreement by the
Company or any Holder,
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respectively, shall be made without the prior written consent of the majority in
interest of the Holders or the Company, respectively; provided that the rights
of a Holder may be transferred to a subsequent holder of the Holder's
Registrable Securities (provided such transferee shall provide to the Company,
together with or prior to such transferee's request to have such Registrable
Securities included in a Registration, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement), and the
Company hereby agrees to file an amended registration statement including such
transferee or a selling security holder thereunder; and provided further that
the Company may transfer its rights and obligations under this Agreement to a
purchaser of all or a substantial portion of its business if the obligations of
the Company under this Agreement are assumed in connection with such transfer,
either by merger or other operation of law (which may include without limitation
a transaction whereby the Registrable Securities are converted into securities
of the successor in interest) or by specific assumption executed by the
transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be executed in
any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any and
all claims, damages (including reasonable attorney's fees), and expenses arising
out of the first party's breach of any of the terms of this Agreement.
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Subscription Agreements, the Common
Stock certificates, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this
22nd day of September, 1998.
VIRAGEN, INC.
By: ________________________________
Dennis W. Healey, Executive Vice
President/CFO
Address: Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No. (954) 233-8746
Facsimile No. (954) 233-1416
SWARTZ INVESTMENTS, LLC. d/b/a
SWARTZ INSTITUTIONAL FINANCE
By: ________________________________
Eric S. Swartz, President
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
SUBSCRIBER(S)
-----------------------------------
Subscriber's Name
By:_________________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
<PAGE> 56
Exhibit (10)(LXII).03
PLACEMENT AGENT AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 22nd day of September, 1998,
by and between Viragen, Inc., a corporation organized under the laws of the
state of Delaware ("Company"), and Swartz Investments LLC, a Georgia limited
liability company, d/b/a Swartz Institutional Finance (the "Placement Agent").
RECITALS:
WHEREAS, the Company proposes to issue and sell that certain Regulation D
Private Equity Line Subscription Agreement (the "Private Equity Line Agreement")
and shares of its Common Stock issued in connection therewith, which are
accompanied by a warrant or warrants to purchase a number of shares of Common
Stock of the Company (together the "Securities") resulting in gross proceeds to
the Company of a maximum of Twenty Million Dollars ($20,000,000), excluding
Warrants, in an offering (the "Offering") not involving a public offering under
the Securities Act of 1933, as amended (the "Act"), pursuant to an exemption
from the registration requirements of the Act under Regulation D promulgated
under the Act ("Regulation D"), as described below; and
WHEREAS, the Placement Agent has offered to assist the Company in placing
the Private Equity Line Agreement on a "best efforts" basis with respect to
sales of Securities thereafter up to the Maximum Proceeds (as defined below),
and the Company desires to secure the services of the Placement Agent on the
terms and conditions hereinafter set forth.
TERMS:
NOW, THEREFORE, in consideration of the premises and the mutual promises,
conditions and covenants herein contained, the parties hereto do hereby agree as
follows:
1. ENGAGEMENT OF PLACEMENT AGENT. The Company on the basis of the
representations and warranties contained herein, but subject to the terms and
conditions herein set forth, hereby appoints the Placement Agent as its
exclusive placement agent for this Offering, to sell, on a "best efforts basis,"
a maximum dollar amount of Securities, excluding Warrants, resulting in gross
proceeds to the Company of Twenty Million Dollars ($20,000,000) (the "Maximum
Proceeds"). The Placement Agent, on the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, accepts such appointment and agrees to use its best efforts to find
purchasers for the Private Equity Line Agreement. This appointment shall be
irrevocable for the period commencing on the date of the executed Letter of
Agreement, and ending on the earlier of (i) the Put Closing Date on which the
aggregate of the Put Dollar Amounts for all Put Closings equal the Maximum
Offering Amount pursuant to the Private Equity Line Agreement, or (ii) September
30, 2001.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the
Placement Agent to enter into this Agreement, the Company hereby represents and
warrants to and agrees with the Placement Agent as follows:
2.1 Offering Documents. The Company (with the assistance of the Placement
Agent) has prepared the Private Equity Line Agreement, certain exhibits thereto,
investor Warrants and a Registration Rights Agreement, which documents have been
or will be sent to proposed investors. In addition, proposed investors have
received or will receive prior to the Private Equity Line Commitment Closing (as
defined in the Private Equity Line Agreement), copies of the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 and the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1998 ("SEC Documents"). The
SEC Documents were prepared in conformity with the requirements (to the extent
applicable) of the Securities Exchange Act of 1934, as amended, (the "`34 Act")
and the rules and regulations ("Rules and Regulations") of the Commission
promulgated thereunder. As used in this Agreement, the term "Offering Documents"
refer to and mean the SEC Documents, the Private Equity Line Agreement and all
amendments, exhibits and supplements thereto, together with any other documents
which are provided to the Placement Agent by, or approved for Placement Agent's
use by, the Company for the purpose of this Offering (including, but not limited
to, the Registration Rights Agreement).
2.2 Provision of Offering Documents. The Company shall deliver to the
Placement Agent, without charge, as many copies of the Offering Documents as the
Placement Agent may reasonably require for the purposes contemplated by this
Agreement. The Company authorizes the Placement Agent, in connection with the
Offering of the Private Equity Line Agreement, to use the Offering Documents as
from time to time amended or supplemented in connection with the offering and
sale of the Private Equity Line Agreement and in accordance with the applicable
provisions of the Act and Regulation D.
2.3 Accuracy of Offering Documents. The Offering Documents, at the time of
delivery to Subscribers for the Securities, conformed in all material respects
with the requirements, to the extent applicable, of the `34 Act and the
applicable Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. On any Closing Date (as hereinafter
defined), the Offering Documents will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
for the purposes of the proposed Offering, and all statements of material fact
contained in the Offering Documents will be true and correct, and the Offering
Documents will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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2.4 Duty to Amend. If during such period of time as in the reasonable
opinion of the Placement Agent or its counsel an Offering Document relating to
this financing is required to be delivered under the Act, any event occurs or
any event known to the Company relating to or affecting the Company shall occur
as a result of which the Offering Documents as then amended or supplemented
would include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time after the date hereof to amend or supplement the Offering Documents
to comply with the Act or the applicable Rules and Regulations, the Company
shall forthwith notify the Placement Agent thereof and shall prepare such
further amendment or supplement to the Offering Documents as may be required and
shall furnish and deliver to the Placement Agent and to others, whose names and
addresses are designated by the Placement Agent, all at the cost of the Company,
a reasonable number of copies of the amendment or supplement (or of the amended
or supplemented Offering Documents) which, as so amended or supplemented, will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the Offering Documents not misleading in the
light of the circumstances when delivered to a purchaser or prospective
purchaser, and which will comply in all respects with the requirements (to the
extent applicable) of the `34 Act and the applicable Rules and Regulations.
2.5 Corporation Condition. The Company's condition is as described in its
Offering Documents, except for continuing losses and changes in the ordinary
course of business and normal year-end adjustments that are not in the aggregate
materially adverse to the Company. The Offering Documents, taken as a whole,
present fairly the business and financial position of the Company as of any
Closing Date.
2.6 No Material Adverse Change. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to any Closing Date,
taken as a whole, there has not been any material adverse change in the
condition, financial or otherwise, or in the results of operations of the
Company or in its business.
2.7 No Defaults. Except as disclosed in the Offering Documents or in
writing to the Placement Agent, the Company is not in default in any material
respect in the performance of any obligation, agreement or condition contained
in any material debenture, note or other evidence of indebtedness or any
material indenture or loan agreement of the Company. The execution and delivery
of this Agreement, and the consummation of the transactions herein contemplated,
and compliance with the terms of this Agreement will not conflict with or result
in a breach of any of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Company (in
any respect that is material to the Company), any material note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company
is a party or by which the Company or any property of the Company is bound, or
to the Company's knowledge, any existing law, order, rule, regulation, writ,
injunction
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or decree of any government, governmental instrumentality, agency or body,
arbitration tribunal or court, domestic or foreign, having jurisdiction over the
Company or any property of the Company. The consent, approval, authorization or
order of any court or governmental instrumentality, agency or body is not
required for the consummation of the transactions herein contemplated except
such as may be required under the Act or under the Blue Sky or securities laws
of any state or jurisdiction.
2.8 Incorporation and Standing. The Company is, and at any Closing Date
will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of Delaware and with full power and authority
(corporate and other) to own its properties and conduct its business, present
and proposed, as described in the Offering Documents; the Company, has full
power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
2.9 Legality of Outstanding Securities.Prior to any Closing Date, the
outstanding securities of the Company have been duly and validly authorized and
issued, and are fully paid and non-assessable, and conform in all material
respects to the statements with regard thereto contained in the Offering
Documents.
2.10 Legality of Securities. The Securities when sold and delivered in
accordance with the Offering Documents, and the Placement Agent Warrants (as
defined in Section 3.4 below) when issued and delivered, will constitute legal,
valid and binding obligations of the Company, enforceable in accordance with the
terms thereof, and the Securities shall be duly and validly issued and
outstanding, fully paid and nonassessable. The Common Stock into which any
Securities are exercisable and the Common Stock into which any of Placement
Agent's Warrants are exercisable, when issued upon exercise of any Securities or
upon exercise of any of Placement Agent's Warrants, as applicable, shall be duly
and validly issued and outstanding, fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents, there is
now, and at any Closing Date there will be, no action, suit or proceeding before
any court or governmental agency, authority or body pending or, to the knowledge
of the Company, threatened, which might result in judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise) or business of
the Company or which would materially adversely affect the properties or assets
of the Company.
2.12 Finders. The Company does not know of any outstanding claims for
services in the nature of a finder's fee or origination fees with respect to the
sale of the Private Equity Line Agreement hereunder for which the Placement
Agent may be responsible, and the Company will indemnify the Placement Agent
from any liability for such fees (including the payment of attorney's fees
incurred by Placement Agent due
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to any claim by any such finder or originator) by any party who, in the
reasonable opinion of Placement Agent's counsel, has a legitimate claim for such
compensation from the Company and for which person the Placement Agent is not
legally responsible. In the event of such claim, Placement Agent shall properly
notify Company thereof and the Company may, at its option and at its sole cost
and expense, take over the defense of such a claim with counsel of its choice,
reasonably satisfactory to Placement Agent. Placement Agent shall not settle any
such claims or litigation arising hereunder without the prior written consent of
the Company, which shall not be unreasonably withheld.
2.13 Tax Returns. The Company has filed all federal and state and local tax
returns which are required to be filed, and has paid all material taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due (except for taxes the amount of which the Company is contesting in
good faith). All taxes with respect to which the Company is obligated have been
paid, or adequate accruals have been set up to cover any such unpaid taxes.
2.14 Authority. The execution and delivery by the Company of this Agreement
have been duly authorized by all necessary action, and this Agreement is the
valid, binding and legally enforceable obligation of the Company except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws, by principles governing enforcement of
equitable remedies and, with respect to indemnification against liabilities
under the Act, matters of public policy.
2.15 Actions by the Company. The Company will not take any action which
will impair the effectiveness of the transactions contemplated by this
Agreement.
3. ISSUE, SALE AND DELIVERY OF THE SECURITIES.
3.1 Deliveries of Securities. Certificates in such form that, subject to
applicable transfer restrictions as described in the Private Equity Line
Agreement, they can be negotiated by the purchasers thereof (issued in such
denominations and in such names as the Subscriber may direct the Company to
issue) for the Securities, shall be delivered by the Company to the Subscriber
or the Subscriber's agent as specified in the Private Equity Line Agreement,
with copies made available to the Subscriber for checking at least one (1) full
business day prior to any Closing Date, it being understood that any directions
from the Subscriber to the Company regarding denominations or names shall be
given at least two (2) full business days prior to any Closing Date. The
certificates for the Securities shall be delivered at each Put Closing (as
defined hereinafter).
3.2 Payment of Funds.Pursuant to the Private Equity Line Agreement, the
Subscriber shall deliver all funds, as specified in Section 2.3.7 of the Private
Equity Line Agreement, for purchase of Securities with respect to any Put (as
defined in the Private Equity Line Agreement) exercised by the Company.
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3.3 Closing Date. The Private Equity Line Commitment Closing shall take
place at the offices of the Placement Agent. Any subsequent Put Closing shall
take place at the offices of the Subscriber or Subscriber's agent on each Put
Closing Date as specified in the Private Equity Line Agreement. For purposes
hereof, "Put Closing" and "Put Closing Date" shall have the meanings as set
forth in Private Equity Line Agreement. The date of the Private Equity Line
Commitment Closing and any Put Closing Date shall be referred to herein as the
"Closing Date."
3.4 Placement Agent's Compensation. Subject to cancellation under Sections
12.2 and 12.3, the Company shall pay the Placement Agent the following, which
shall be the full amount payable to the Placement Agent for its services, as
fees and expenses, in connection with this Offering:
A cash placement fee ("Cash Placement Fee") equal to "X" percent (X%) of the
gross proceeds resulting from the sale of the securities in any Put, wherein "X"
is based on the aggregate amount of securities placed to date as follows:
Aggregate Amount Placed "X"
----------------------- ---
First $5M 7%
$5M-$10M 6%
$10M plus 3.5%
On each Six Month Anniversary of the Subscription Date, if the Placement Agent
has not received at least $100,000 in Cash Placement Fees for the preceding six
(6) Calendar Months, the Company shall pay to the Placement Agent an amount
equal to (the "Semi-Annual Cash Fee Shortfall") the difference of (i) $100,000,
minus (ii) the amount of the Cash Placement Fee paid to the Placement Agent
during the preceding six (6) Calendar Months (as defined in the Private Equity
Line Agreement). In the event that the Company delivers a Termination Notice to
the Subscriber, the Company shall pay to the Placement Agent the greater of (i)
$100,000, less the fee on amounts put to the Subscriber in that six (6) month
period, or (ii) the difference of (x) $200,000, minus (y) the aggregate of the
Cash Placement Fees for all Puts to date, and the Company shall not be required
to pay the Semi-Annual Cash Fee Shortfall thereafter.
3.5 Placement Agent's Warrants. In addition to the fees and reimbursement
of costs set forth above, within five (5) business days after each Six Month
Anniversary of the Subscription Date as specified in the Private Equity Line
Agreement, the Company shall also issue to Placement Agent or its designees the
following warrants ("Placement Agent Warrants"): (i) a warrant to purchase a
number of shares of the Company's Common Stock equal to "X" percent (X%) of the
number of shares of Put Shares of Common Stock issued to the Subscriber pursuant
to any Put as specified in the Private Equity Line Agreement during the
preceding six (6) month period, exercisable at one hundred twenty five percent
(125%) of the average Put Share Price of all such Put Shares issued during the
preceding six (6) calendar months; and (ii) a
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warrant to purchase a number of shares of the Company's Common Stock equal to
"X" percent (X%), as specified above, of the number of shares of Common Stock
for which the Subscriber is entitled to purchase pursuant to each Purchase
Warrant issued to the Subscriber on that Six Month Anniversary Date,
exerciseable at a price which shall equal 108% of the lowest Closing Bid Price
for the ten (10) trading days immediately preceding the applicable Six Month
Anniversary.
The term of the Placement Agent Warrants shall be five (5) years commencing
on the date of issuance thereof. The Placement Agent Warrants shall be
exercisable immediately upon issuance and shall have cashless exercise
provisions. The shares of Common Stock issuable upon exercise of the Placement
Agent Warrants shall be included in the next registration statement filed by the
Company, and shall have the rights set forth in the Registration Rights
Agreement, dated on or about September 18, 1998, by and among the Company, the
Placement Agent, and the Subscriber. The Placement Agent Warrants shall be
delivered by the Company to the Placement Agent within five (5) Trading Days of
each Six Month Anniversary Date. Concurrently with the issuance and delivery of
the Purchase Warrant to the Subscriber, the Company shall deliver to the
Subscriber a Purchase Warrant Opinion of Counsel (signed by the Company's
independent counsel).
3.6 Payment of Fees. The Company shall pay all Cash Placement Fees directly
to the Placement Agent pursuant to wire instructions to be provided to the
Company by the Placement Agent, and from the proceeds of all Put Closings,
simultaneous with the transfer of proceeds to the Company resulting from such
Put Closing. The Company shall pay any Semi-Annual Cash Fee Shortfall to the
Subscriber within five (5) business days of the applicable Six Month Anniversary
pursuant to wire instructions to be provided to the Company by the Placement
Agent.
3.7 Press Release. The Placement Agent shall have the right to review and
comment upon any press release issued by the Company in connection with the
Offering.
4. OFFERING OF THE SECURITIES ON BEHALF OF THE COMPANY.
4.1 In offering the Private Equity Line Agreement for sale, the Placement
Agent shall offer them solely as an agent for the Company, and such offer shall
be made upon the terms and subject to the conditions set forth in the Offering
Documents. The Placement Agent shall commence making such offer as an agent for
the Company as soon as possible following delivery of the final Company approved
Offering Documents to Placement Agent (or notification by Company or its Counsel
that the latest version of any Offering Documents on Placement Agent's computer
system is acceptable for faxing to Subscribers).
4.2 The Placement Agent will only make offers to sell the Private Equity
Line Agreement to, or solicit offers to subscribe for any Private Equity Line
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Agreement from, persons or entities that Placement Agent reasonably believes are
"accredited investors" as defined in Regulation D.
5. RIGHT OF FIRST REFUSAL. The Company hereby grants Placement Agent rights
of first refusal as follows:
5.1 The Placement Agent has the right of first refusal to act as placement
agent for any future financings of the Company, including any financings that
involve the participation of an underwriter, under which the Company issues or
sells, or agrees to issue or sell, for cash (a) any debt or equity securities
which are convertible into, exercisable or exchangeable for, or carry the right
to receive additional shares of Common Stock either (i) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, (ii) with a fixed conversion,
exercise or exchange price, or (iii) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security or upon the
occurrence of specified contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock, (b) any securities
of the Company pursuant to an equity line structure or format similar in nature
to this Offering or otherwise, or (c) any Common Stock or units (i.e. Common
Stock accompanied by warrants) of the Company, excluding joint ventures,
mergers, acquisitions, or similar transactions. Notwithstanding the above, the
Placement Agent shall not be entitled to a right of first refusal under this
sub-section with respect to a VUSA Transaction (as defined in the Private Equity
Line Agreement). The duration of the Placement Agent's right of first refusal
under this Section 5.1 shall be for a period from the date of this Agreement
until the earlier of (i) the date that is three (3) years following the date of
the Private Equity Line Commitment Closing (as defined in the Private Equity
Line Agreement), or (ii) (a) in the case of a Company Equity Line Termination
(as defined in the Private Equity Line Agreement), the date that is one (1) year
after the date of such Company Equity Line Termination, or (b) in the case of an
Automatic Equity Line Termination Closing (as defined in the Subscription
Agreement) that is not waived by the Subscriber, the date that is six (6) months
after the date of such Automatic Equity Line Termination.
5.2 In the event that the Company wishes to undertake a transaction
described in this Section 5, the Company must send Placement Agent a written
notice of the proposed transaction (whether the transaction is initiated by the
Company or is offered to the Company by a third party), in sufficient
specificity to allow the Placement Agent to understand the proposed transaction
clearly. This notice must be delivered to Placement Agent at least twenty (20)
days prior to the proposed closing of the transaction. The Placement Agent shall
have fifteen (15) days from receipt of that notice to determine whether or not
it wishes to exercise its right of first refusal with respect to that
transaction. The Placement Agent shall notify the Company in writing of its
decision to exercise or waive its right of first refusal with respect to the
transaction described in the notice. If the Placement Agent waives its right of
first refusal with respect to a
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particular transaction, the Company may proceed with that transaction; provided,
however, that if prior to any Closing in the proposed transaction the terms of
the transaction are changed in any material way from the terms set forth in the
notice to the Placement Agent, the Placement Agent's right of first refusal
shall commence again. Placement Agent's waiver of its rights of first refusal
with respect to any specific transaction shall not act as a waiver of its rights
with respect to future transactions within the applicable time period.
5.3 In the event that Company breaches Section 5.1 of this Agreement,
Placement Agent shall be entitled to receive compensation based upon the
aggregate purchase price of securities placed in such transaction in an amount
calculated pursuant to Section 3.4 hereof.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Placement Agent that:
6.1 After the date hereof, the Company will not at any time, prepare and
distribute any amendment or supplement to the Offering Documents (other than the
Company's 10-Q's, 10-K's and period reports filed with the SEC), of which
amendment or supplement the Placement Agent shall not previously have been
advised and the Placement Agent and its counsel furnished with a copy within a
reasonable time period prior to the proposed adoption thereof, or to which the
Placement Agent shall have reasonably objected in writing on the ground that it
is not in compliance with the Act or the Rules and Regulations (if applicable).
6.2 The Company will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization of the Securities and their issue and delivery to the Placement
Agent, any original issue taxes in connection therewith, all transfer taxes, if
any, incident to the initial sale of the Securities, the fees and expenses of
the Company's counsel and accountants, the cost of reproduction and furnishing
to the Placement Agent copies of the Offering Documents as herein provided;
provided, however, that the Company shall not be responsible for the direct
payment of fees and costs incurred by Placement Agent, including attorney's fees
of or any costs incurred by the Placement Agent's counsel.
6.3 As a condition precedent to any Closing, the Company will deliver to
the Placement Agent a true and correct copy of all documents requested by
Placement Agent included in Placement Agent's due diligence request, including
but not limited to the Certificate of Incorporation of the Company, and all
amendments and certificates of designation of preferences of preferred stock,
certified by the Secretary of State of the State of Delaware.
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6.4 Prior to any Closing Date, the Company will cooperate with the
Placement Agent in such investigation as it may make or cause to be made of all
of the properties, business and operations of the Company in connection with the
Offering of the Securities. The Company will make available to it in connection
therewith such information in its possession as the Placement Agent may
reasonably request and will make available to the Placement Agent such persons
as the Placement Agent shall deem reasonably necessary and appropriate in order
to verify or substantiate any such information so supplied.
6.5 The Company shall be responsible for making any and all filings
required by the Blue Sky authorities of the State of Delaware and filings
required by the laws of the jurisdictions in which the Subscribers who are
accepted for purchase of Private Equity Line Agreement are located, if any.
7. NON-CIRCUMVENTION & CONFIDENTIALITY OF PROPRIETARY PLACEMENT AGENT
INFORMATION.
7.1. Non-Circumvention. The investors who participate in the Offering and
the other investors who are listed on the schedule attached hereto as Exhibit B
shall be considered, for purposes of this Agreement, the Placement Agent's
proprietary clients. The Company on behalf of itself, its parent or its
subsidiaries (collectively hereinafter referred to as "Company") agree not to
circumvent, directly or indirectly, Placement Agent's relationship with these
investors, their parents or any of the investors' subsidiaries or affiliates
(collectively hereinafter referred to as "Investors") and Company will not
directly or indirectly contact or negotiate with any of these Investors
regarding an investment in the Company, or any other company, and will not enter
into any agreement or transaction with Investors, or disclose the names of
Investors, except as such disclosure may be required by any law, rule,
regulation, regulatory body, court or administrative agency, for a period of
time beginning on the date hereof and ending on the date that is three (3) years
after the date of the Private Equity Line Commitment Closing without the prior
written approval of Placement Agent; provided, however, that notwithstanding the
above, nothing contained in this Agreement shall prevent Company from, directly
or indirectly, contacting or negotiating with the Investors in satisfaction of
Company's obligations under the Private Equity Line Agreements entered into in
connection herewith. In the event that the Company, with Swartz's advance
written permission, accepts an investment (a "Subsequent Investment") from an
Investor or Investors (other than in a public offering) in a placement being
arranged without an agent or through an agent other than the Placement Agent,
during the period beginning on the date hereof and terminating on the third
(3rd) anniversary of the date of the Private Equity Line Commitment Closing, the
Company agrees to pay to the Placement Agent a cash fee equal to five percent
(5%) of all amounts invested by any such Investor or Investors. In the event
that the Company accepts a Subsequent Investment without Swartz's advance
written permission, the Company agrees to pay to the Placement Agent a cash fee
equal to ten percent (10%) of all amounts invested by any such Investor or
Investors.
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7.2 Specific Performance and Attorneys Fees. The Company acknowledges and
agrees that, if it breaches its obligations under Section 7.1, damages at law
will be an insufficient remedy to Placement Agent and that Placement Agent would
suffer irreparable damage as a result of such violation. Accordingly, it is
agreed that Placement Agent shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief against the breaching party
to enforce the provisions of such sections, which injunctive relief shall be in
addition to any other rights or remedies available to Placement Agent. The
Company agrees to pay to Placement Agent (severally and not jointly) all costs
and expenses incurred by Placement Agent relating to the enforcement of the
terms of Section 7.1 hereof due to its own actions, whether by injunction, a
suit for damages or both, including reasonable fees and disbursements of counsel
(both at trial and in appellate proceedings).
8. INDEMNIFICATION.
8.1 The Company agrees to indemnify and hold harmless the Placement Agent,
each person who controls the Placement Agent within the meaning of Section 15 of
the Act and the Placement Agent's employees, accountants, attorneys and agents
(the "Placement Agent's Indemnitees") against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act or the `34 Act or any other statute or at common
law and for any reasonable legal or other expenses (including the costs of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon (i) the Company's breach of its obligations under the Private Equity Line
Agreement to deliver shares of Common Stock to a Subscriber upon submission by
Subscriber of the required documentation, or (ii) any untrue statement of
material fact contained in the Offering Documents or any amendment or supplement
thereto or any application or other document filed in any state or jurisdiction
in order to qualify the Securities under the Blue Sky or securities laws
thereof, or the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, under the circumstances
under which they were made, not misleading, all as of the date of the Offering
Documents or of such amendment as the case may be, or (iii) any breach of any
representation, warranty or covenant made by the Company in this Agreement;
provided, however, that the indemnity agreement contained in this Section 8.1
shall not apply to amounts paid in settlement of any such litigation, if such
settlements are made without the consent of the Company (but no such settlement
may be made without the Company's prior written consent, which consent shall not
be unreasonably withheld), nor shall it apply to the Placement Agent's
Indemnitees in respect to any such losses, claims, damages or liabilities
arising out of or based upon any such untrue statement or alleged untrue
statement or any such omission or alleged omission, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Placement Agent specifically for use in connection with the
preparation of the Offering Documents or any such amendment or supplement
thereto or any application or other
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document filed in any state or jurisdiction in order to qualify the Securities
under the Blue Sky or securities law thereof. This indemnity agreement is in
addition to any other liability which the Company may otherwise have to the
Placement Agent's Indemnitees. The Placement Agent's Indemnitees agree, within
ten (10) days after the receipt by them of written notice of the commencement of
any action against them in respect to which indemnity may be sought from the
Company under this Section 8.1, to notify the Company in writing of the
commencement of such action; provided, however, that the failure of the
Placement Agent's Indemnitees to notify the Company of any such action shall not
relieve the Company from any liability which it may have to the Placement
Agent's Indemnitees on account of the indemnity agreement contained in this
Section 8.1, except with respect to any failure which irreparably prejudices the
Company or causes an event of adjudication materially adverse to the Company.
The Company shall not be relieved from any other liability which it may have to
the Placement Agent's Indemnitees, and if the Placement Agent's Indemnitees
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in (and, to the extent that the Company shall wish, to
direct) the defense thereof at its own expense, but such defense shall be
conducted by counsel of recognized standing and reasonably satisfactory to the
Placement Agent's Indemnitees, defendant or defendants, in such litigation. The
Company agrees to notify the Placement Agent's Indemnitees promptly of the
commencement of any litigation or proceedings against the Company or any of the
Company's officers or directors of which the Company may be advised in
connection with the issue and sale of any of the Securities and to furnish to
the Placement Agent's Indemnitees, at their request, copies of all pleadings
therein and to permit the Placement Agent's Indemnitees to be observers therein
and apprise the Placement Agent's Indemnitees of all developments therein, all
at the Company's expense.
9. LIQUIDATED DAMAGES. Company and Placement Agent both acknowledge that it
would be extremely impractical and difficult to ascertain the actual damages to
be suffered by Company if Placement Agent is found by an arbitrator or a court
of competent jurisdiction to have breached any of the representations,
warranties and covenants contained in Section 13 of this instrument.
Accordingly, should a breach of the representations of Section 13 be proven and
Placement Agent found liable for said breach, Company and Placement Agent hereby
agree that the damages shall be fixed at no more than $100,000, inclusive of all
attorney's fees and cost of court. This provision is not to be construed as a
penalty, but as full liquidated damages under Georgia law.
10. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective (i)
at 9:00 A.M., Atlanta, Georgia time, on the date hereof or (ii) upon release by
the Placement Agent of the Private Equity Line Agreement for offering after the
date hereof, whichever occurs first. The Placement Agent agrees to notify the
Company immediately after the Placement Agent shall have taken any action by
such release or otherwise wherein this Agreement shall have become effective.
11. CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS. The Placement Agent's
obligations to act as agent of the Company hereunder and to find purchasers for
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the Private Equity Line Agreement shall be subject to the accuracy, as of any
Closing Date, of the representations and warranties on the part of the Company
herein contained, to the fulfillment of or compliance by the Company with all
covenants and conditions hereof, and to the following additional conditions:
11.1 Counsel to the Placement Agent shall not have objected in writing or
shall not have failed to give his consent to the Offering Documents (which
objection or failure to give consent shall not have been done unreasonably).
11.2 The Placement Agent shall not have disclosed to the Company that the
Offering Documents, or any amendment thereof or supplement thereto, contains an
untrue statement of fact, which, in the opinion of counsel to the Placement
Agent, is material, or omits to state a fact, which, in the opinion of such
counsel, is material and is required to be stated therein, or is necessary to
make the statements therein, under the circumstances in which they were made,
not misleading.
11.3 Between the date hereof and any Closing Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or any other cause of such character as would materially adversely affect its
business or property considered as an entire entity, whether or not such loss is
covered by insurance.
11.4 Except as set forth in the Disclosure Documents to the Private Equity
Line Agreement, during the time period between the date hereof and any Closing
Date, there shall be no litigation instituted or threatened against the Company,
and there shall be no proceeding instituted or threatened against the Company
before or by any federal or state commission, regulatory body or administrative
agency or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
franchises, license, permits, operations or financial condition or income of the
Company considered as an entity.
11.5 Except as contemplated herein or as set forth in the Offering
Documents, during the period subsequent to the most recent financial statements
contained in the Offering Documents, if any, and prior to any Closing Date, the
Company (i) shall have conducted its business in all material respects in the
usual and ordinary manner as the same is being conducted as of the date hereof
and (ii) except in the ordinary course of business, the Company shall not have
incurred any liabilities or obligations (direct or contingent) or disposed of
any assets, or entered into any material transaction or suffered or experienced
any substantially adverse change in its condition, financial or otherwise. At
any Closing Date, the equity account of the Company shall be substantially the
same as reflected in the most recent balance sheet contained in the Offering
Documents except for reductions for matters discussed in the Private Equity Line
Agreement and without considering the proceeds from the sale of the Securities
other than as may be set forth in the Offering Documents.
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11.6 The authorization of the Securities by the Company and all proceedings
and other legal matters incident thereto and to this Agreement shall be
reasonably satisfactory in all material respects to counsel to the Placement
Agent, who shall have furnished the Placement Agent on any Closing Date with
such favorable opinion with respect to the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement as the Placement
Agent may reasonably require, and the Company shall have furnished such counsel
such documents as he may have requested to enable him to pass upon the matters
referred to in this subparagraph.
11.7 The Company shall have furnished to the Placement Agent the opinion,
dated on any Closing Date, addressed to the Placement Agent, from counsel to the
Company, as required by the Private Equity Line Agreement in substantially the
form attached to the Private Equity Line Agreement as Exhibit D.
11.8 The Company shall have furnished to the Placement Agent a due
diligence back up certificate signed by the Chief Executive Officer and the
Chief Financial Officer of the Company (a copy of which is attached hereto as
Exhibit C), dated as of any Closing Date, to the effect that:
(i) the representations and warranties of the Company in this Agreement are
true and correct in all material respects at and as of any Closing Date (other
than representations and warranties which by their terms are specifically
limited to a date other than any such Closing Date), and the Company has
complied with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to any Closing Date;
(ii) the Company has carefully examined the Offering Documents, and any
amendments and supplements thereto, and, to the best of its knowledge, all
statements contained in the Offering Documents, and any amendments and
supplements thereto, are true and correct, and neither the Offering Documents,
nor any amendment or supplement thereto, includes any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein under the circumstances in which they
were made not misleading, and since the date hereof, there has occurred no event
required to be set forth in an amended or supplemented Offering Documents, which
has not been set forth; except as set forth in the Offering Documents, since the
respective dates as of which the periods for which the information is given in
the Offering Documents and prior to the date of such certificate, (a) there has
not been any material adverse change, financial and otherwise, in the affairs of
condition of the Company, and (b) except as disclosed in the Offering Documents,
the Company has not incurred any material liabilities, direct or contingent, or
entered into any material transactions, otherwise than in the ordinary course of
business; and
(iii) the Company has provided true and correct copies of all documents in
its possession or which it could obtain that were requested by Placement Agent
pursuant to any due diligence inquiry.
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12 TERMINATION.
12.1 This Agreement may be terminated by the Placement Agent by notice to
the Company in the event that the Company shall have failed or been unable to
comply with any of the material terms, conditions or provisions of this
Agreement on the part of the Company to be performed, complied or with fulfilled
within the respective times, if any, herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Placement Agent in writing. However, if any material breach by
Company can be cured within ten (10) business days, Placement Agent shall
provide Company such reasonable period to cure.
12.2 This Agreement may be terminated by the Company by notice to the
Placement Agent in the event that the Placement Agent shall have failed or been
unable to comply with any of the terms, conditions or provisions of this
Agreement on the part of the Placement Agent to be performed, complied with or
fulfilled within the respective times, if any, herein provided for, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Company in writing. However, if any material breach by
Placement Agent can be cured within ten (10) business days, Company shall
provide Placement Agent such ten (10) business days to cure.
12.3 This Agreement may be terminated by the Placement Agent by notice to
the Company at any time, if, in the reasonable, good faith judgment of the
Placement Agent, payment for and delivery of the Securities is rendered
impracticable or inadvisable because: (i) additional material governmental
restrictions not in force and effect on the date hereof shall have been imposed
upon trading in securities generally; (ii) a war or other national calamity
shall have occurred; or (iii) the condition of the market (either generally or
with reference to the sale of the Securities to be offered hereby) or the
condition of any matter affecting the Company or any other circumstance is such
that it would be undesirable, impracticable or inadvisable, in the judgment of
the Placement Agent, to proceed with this Agreement or with the Offering.
12.4 Any termination of this Agreement pursuant to this Section 12 shall be
without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that the Company shall remain obligated to pay the costs and expenses
provided to be paid by it specified in Sections 3 and 5; and the Company and the
Placement Agent shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Section 8.1 in the case of the
Company and Section 8.2 in the case of the Placement Agent.
13. PLACEMENT AGENT'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Placement Agent represents and warrants to and agrees with
the Company that:
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13.1 The Placement Agent is a limited liability company duly organized and
existing under the laws of the state of Georgia. The Placement Agent is an OSJ
branch office of Dunwoody Brokerage Services, Inc., a licensed NASD
broker-dealer, and a member of SIPC.
13.2 There is not now pending or threatened or to the Placement Agent's
knowledge, contemplated against the Placement Agent any action or proceeding of
which the Placement Agent has been advised, either in any court of competent
jurisdiction, before the Commission or before any state securities commission or
the NASD, concerning the Placement Agent's activities which would impair the
ability of the Placement Agent to conduct the Offering as contemplated by this
Agreement.
13.3 In the event any action or proceeding of the type referred to in
Section 13.2 above shall be instituted or threatened against the Placement Agent
at any time prior to any Closing Date or, in the event there shall be filed by
or against the Placement Agent in any court, pursuant to any federal, state,
local or municipal statute, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of its assets or
if the Placement Agent makes an assignment for the benefit of creditors, the
Company shall have the right, on three (3) days' written notice to the Placement
Agent, to terminate this Agreement without any liability to the Placement Agent
of any kind, except for the payment of all expenses provided herein.
13.4 Placement Agent understands and acknowledges that prior to issuance,
the Private Equity Line Agreement is not being registered under the Act, and
that the Offering is to be conducted pursuant to Regulation D under the
Securities Act of 1933, as amended, (the "Act"). Accordingly, in conducting its
activities under this Agreement:
(a) Placement Agent has not offered or sold and will not offer or sell the
Private Equity Line Agreement to any investor which Placement Agent does not
have reasonable grounds to believe, or does not believe, is an "Accredited
Investor," within the meaning of Regulation D under the Act.
(b) Placement Agent has not, nor has any person or entity acting on its
behalf, conducted or will conduct any general solicitation (as that term is used
in Rule 502(c) of Regulation D) or general advertising with respect to the
Private Equity Line Agreement.
(c) Placement Agent will not solicit or accept the subscription of any
person unless immediately before accepting such subscription Placement Agent has
reasonable grounds to believe and does believe that (i) such person is an
Accredited Investor and (ii) all representations made and information furnished
by such person in the Private Equity Line Agreement and related documents are
true and correct in all material respects.
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(d) Placement Agent will not solicit any purchasers of the Private Equity
Line Agreement unless the Offering Documents are furnished to such prospective
purchaser.
(e) Upon notice from the Company that the Offering Documents are required
to be amended or supplemented, Placement Agent will immediately cease use of the
Offering Documents until Placement Agent has received such amendment or
supplement and thereafter will make use of the Offering Documents only as so
amended or supplemented, and Placement Agent will deliver a copy of such
amendment or supplement to each prospective investor to whom a copy of the
Offering Documents had previously been delivered (and who has not returned such
copy).
(f) Placement Agent will use its best efforts to conduct the offering of
the Private Equity Line Agreement in a manner that will allow the availability
of the private offering exemption from federal securities regulation provided by
Regulation D promulgated under the Securities Act of 1933, as amended.
(g) Placement Agent will notify the Company in writing promptly when any
event shall have occurred during the Offering Period as a result of which any
representation or warranty of the Placement Agent herein would not be true.
13.5 Neither the Placement Agent nor any of its Affiliates will take any
action which will impair the effectiveness of the transactions contemplated by
this Agreement.
13.6 All corporate actions by Placement Agent required for the execution,
delivery and performance of this Agreement have been taken. The execution and
delivery of this Agreement by the Placement Agent, the observance and
performance thereof, and the consummation of the transactions contemplated
herein or in the Offering Documents do not and will not constitute a material
breach of, or a material default under, any instrument or agreement by which the
Placement Agent is bound, and does not and will not, to the best of the
Placement Agent's knowledge, contravene any existing law, decree or order
applicable to it. This Agreement constitutes a valid and binding agreement of
Placement Agent, enforceable in accordance with its terms.
13.7 Placement Agent understands that the Company is relying upon Placement
Agent's representations and warranties in connection with the Offering and the
sale of the Private Equity Line Agreement contemplated by this Agreement.
13.8 Placement Agent's representations and warranties under this Section 13
shall be true and correct as of any Closing, and shall survive such Closing.
13.9 Upon closing of the Offering and with the Company's prior written
approval for each such service to be provided, Placement Agent agrees to provide
the
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following services (the "PLUS Package Aftermarket Services") for a period of one
(1) year following the date hereof (service may be provided for periods
following one (1) year subject to subsequent agreement between Company and
Placement Agent); provided, however, that Placement Agent, in its discretion,
may discontinue providing the PLUS Package Aftermarket Services if there is a
material adverse change to the Company's fundamentals or business prospects
after the date hereof.
1) Analyst Coverage and Reporting.
Placement Agent's analyst will prepare a full-scale research report
("Analyst Report") on the Company which is expected to include the
following:
- Company's Technology
- Company's Target Market
- Industry overview
- Business plan & strategy
- Competitors
- Current contracts
- 3rd Party Partners
- Company Management and Board
The Analyst Report will be prepared following the Offering and will be
updated at least quarterly thereafter.
2) Identification of Target Institutions to Distribute Analyst Coverage.
Placement Agent will identify a minimum of twenty five (25)
institutional buy-side equity investors (together with the private
equity investors in the Offering, referred to as the "Target Affinity
Group") which have orientation toward the Company's specific industry
and/or small capitalization equity securities. Placement Agent will
contact the institutional investment manager of each member of the
Target Affinity Group and use its best efforts to get each to agree to
participate in the "PLUS" program. Placement Agent will thereafter
distribute its Analyst Report to the participating Target Affinity
Group, including all Analyst Report updates.
3) Quarterly Institutional Conference Calls.
Placement Agent will arrange and conduct Quarterly (post earnings)
conference calls between the Target Affinity Group and the Company
regarding the Company's progress and future prospects. Placement Agent
will bear the telephone expense of such conference calls.
4) Annual Investor Conference.
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Placement Agent will arrange and conduct a New York based investor
conference to highlight the Company to the Target Affinity Group and
other institutional equity investors who have interest in attending the
Company presentation. The investor conference will be arranged by
Placement Agent approximately twelve (12) months after the Offering.
Placement Agent will make all arrangements, organize the event, contact
and make invitations to targeted participants and provide support
personnel at the event. The Company will be responsible for the
expenses of all accommodations and conference facilities as well as
travel and lodging expenses for Company during conference.
5) Competitive/Industry Tracking and Alert Service.
Placement Agent will identify Company's top three publicly traded
competitors and will use reasonable efforts to provide timely "Fax
Alerts" to a person designated by Company highlighting significant
announcements by competition and of significant industry related news.
6) "PLUS - ONLINE" Services.
(i) Internet Site. Placement Agent will provide an internet based
on-line system which will provide access to the Target Affinity Group
and others designated by the Company (as agreed between Placement Agent
and Company) of the following Company related information:
- Company overview/slideshow presentation
- A full motion video of the Company's overview
- Placement Agent Analyst Report coverage including quarterly updates
- A chronological archive of the Company's press releases
- Video/voice Archive of Company's quarterly earnings conference call
presentations
- A full motion video "Virtual Roadshow" or "Factory Tour" - 10Q and
10K documents
Placement Agent will bear expense of the on-line internet system and
uploading/maintenance of all textual and static graphics materials.
Company will bear the expense and determine the extent of the
full-motion video based presentation material to be included in the
on-line presentations.
(ii) E-mail Connectivity. The on-line internet system will include
electronic mail functions between Company management, Placement Agent
personnel and the participating "PLUS" Program members.
14. COMPANY ACKNOWLEDGMENTS.
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14.1 Company understands and acknowledges that each of the Investors, in
their sole discretion, may elect to hold the Securities for various periods of
time, as provided in the Offering Documents, and the Company further
acknowledges that Placement Agent makes no representations or warranties as to
how long the Securities will be held by each Investor or the Investors' trading
history or investment strategies.
14.2 The number of Additional Shares, as defined in the Registration Rights
Agreement, that the Company may be obligated to issue may increase substantially
in certain circumstances, including the circumstance in which the trading price
of the Common Stock declines. The Company's executive officers and directors
have studied and fully understand the nature of this Agreement and the
Securities being sold hereunder and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded in its good
faith business judgment that such issuance is in the best interests of the
Company.
14.3 Company understands that there is no assurance as to how the market
and/or market makers will respond to the private placement structure.
14.4 Company acknowledges that Placement Agent has not made (either
directly or through any agent or representative) any representations, warranties
or covenants contrary to sections 14.1 through 14.3 and that Placement Agent has
disclosed the risks inherent in the structure of the Offering including, without
limitation, risks associated with the activities contemplated in sections 14.1
through 14.3.
14.5 Company acknowledges that due to the possible issuance of Additional
Shares pursuant to the Registration Rights Agreement, an issuance of more than
twenty percent (20%) of the outstanding Common Stock of Company could occur.
14.6 Company acknowledges that this Offering will not be deemed to be
integrated with any prior placement of securities by the Company under Rule 502
of the Securities Act of 1933 or other applicable law.
15. NOTICES. Except as otherwise expressly provided in this Agreement:
15.1 Whenever notice is required by the provisions of this Agreement to be
given to the Company, such notice shall be in writing, addressed to the Company,
at:
IF TO COMPANY: Attn: Dennis W. Healey
Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
Telephone: (954) 233-8746
Facsimile: (954) 233-1416
WITH A COPY TO: Attn: James M. Schneider, Esq.
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Atlas, Pearlman, Trop & Borkson, PA
New River Center, Suite 1900
200 East Las Olas Blvd.
Ft. Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile: (954) 523-1952
15.2 Whenever notice is required by the provisions of this Agreement to be
given to the Placement Agent, such notice shall be given in writing, addressed
to the Placement Agent, at:
IF TO THE PLACEMENT AGENT: Attn: Eric Swartz, President
Swartz Investments, LLC
1080 Holcomb Bridge Road
200 Roswell Summit, Suite 285
Roswell, Georgia 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
WITH A COPY TO: Attn: Robert L. Hopkins, President
Dunwoody Brokerage Services, Inc.
8309 Dunwoody Place
Atlanta, Georgia 30350
Telephone: (770) 640-0011
Facsimile: (770) 993-1324
16. MISCELLANEOUS.
16.1 Benefit. This Agreement is made solely for the benefit of the
Placement Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the Act and their respective
successors and assigns, and no other person may acquire or have any right under
or by virtue of this Agreement, including, without limitation, the holders of
any Securities. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchasers, as such, of any of the
Securities.
16.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and the Placement
Agent, or the officers, directors or controlling persons of the Company and the
Placement Agent as set forth in or made pursuant to this Agreement and the
indemnity agreements of the Company and the Placement Agent shall survive and
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company or the Placement Agent or any such officer, director or
controlling person of the Company or of the Placement Agent; (ii) delivery of or
payment for the Securities; or (iii)
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any Closing Date, and any successor of the Company or the Placement Agent or any
controlling person, officer or director thereof, as the case may be, shall be
entitled to the benefits hereof.
16.3 Governing Law, Jurisdiction and Arbitration. The validity,
interpretation and construction of this Agreement and of each party hereof will
be governed by the Laws of the State of Delaware. Any controversy or claim
arising out of or related to this Agreement or the breach thereof, shall be
settled by binding arbitration in Wilmington, Delaware in accordance with the
Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of the
American Arbitration Association (AAA). A proceeding shall be commenced upon
written demand by Company or any Holder to the other. The arbitrator(s) shall
enter a judgment by default against any party which fails or refuses to appear
in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if they are unable to agree within ten (10)
days, the AAA shall select the arbitrator(s). The arbitrators must be experts in
securities law and financial transactions. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of parties'
respective positions in the issues in dispute. The award of the arbitrator(s)
shall be final and binding upon the parties and may be enforced in any court
having jurisdiction. The arbitration shall be held in such place as set by the
arbitrator(s) in accordance with Rule 55.
16.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
16.5 Confidential Information. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
16.6 Public Announcements. Neither party hereto will issue any public
announcement concerning the within transactions without the review and comment
of the other party. The Placement Agent shall have the right to review and
comment upon any press release issued by the Company in connection with the
Offering.
16.7 [Intentionally Left Blank].
22
<PAGE> 78
16.8 Recitals. The recitals to this Agreement are a material part hereof,
and each recital is incorporated into this Agreement by reference and made a
part of this Agreement.
16.9 Capitalized Terms. Unless otherwise specified, capitalized terms used
herein shall have the meaning given to them in the Private Equity Line
Agreement.
[INTENTIONALLY LEFT BLANK]
23
<PAGE> 79
IN WITNESS WHEREOF, the parties hereto have duly caused this Placement
Agent Agreement to be executed as of the day and year first above written.
"THE COMPANY"
VIRAGEN, INC.
By: _______________________________
Dennis W. Healey, Exec. VP/CFO
"THE PLACEMENT AGENT"
SWARTZ INVESTMENTS, LLC
d/b/a SWARTZ INSTITUTIONAL FINANCE
By: _______________________________
Eric S. Swartz, President
24
<PAGE> 80
Exhibit (10)(LXII).05
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN REGULATION D COMMON
STOCK EQUITY LINE SUBSCRIPTION AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER
REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase
"N" shares
- ------
WARRANT TO PURCHASE COMMON STOCK
OF
VIRAGEN, INC.
THIS CERTIFIES that Swartz Investments LLC d/b/a Swartz Institutional
Finance or any subsequent holder hereof ("Holder"), has the right to purchase
from VIRAGEN, INC., a Delaware corporation (the "Company"), up to "N" fully paid
and nonassessable shares, wherein "N" is defined in Section 3.5 of that certain
Placement Agent Agreement by and between the Company and Holder of even date
herewith, of the Company's common stock, $.01 par value per share ("Common
Stock"), subject to adjustment as provided herein, at a price equal to the
Exercise Price as defined in Section 3 below, at any time beginning on the Date
of Issuance (defined below) and ending at 5:00 p.m., New York, New York time, on
_____________ ___, 20__ (the "Exercise Period"). Within ten (10) days of the
date of any Six Month Anniversary, as defined in the Subscription Agreement, the
Company shall provide written confirmation to the Holder of the number of shares
of Common Stock, as adjusted if applicable, which the Holder has the right to
purchase hereunder.
Holder agrees with the Company that this Warrant to Purchase Common Stock
of Viragen, Inc. (this "Warrant") is issued and all rights hereunder shall be
held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on _____________ ___, 19__ ("Date
of Issuance").
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with
<PAGE> 81
the full Exercise Price (as defined below) for each share of Common Stock as to
which this Warrant is exercised, at the office of the Company, Attention: Dennis
W. Healey, Executive VP/CFO, 865 SW 78th Avenue, Suite 100, Plantation, FL
33324, Telephone No. (954) 233-8746, Telecopy No. (954) 233-1416, or at such
other office or agency as the Company may designate in writing, by overnight
mail, with an advance copy of the Exercise Form sent to the Company and its
Transfer Agent by facsimile (such surrender and payment of the Exercise Price
hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
(e) Limitation on Exercise. Notwithstanding anything to the contrary
contained herein, this Warrant may not be exercised by the Warrant Holder to the
extent that, after giving effect to Warrant Shares to be issued pursuant to an
Exercise Form, the total number of shares of Common Stock deemed beneficially
owned by such Holder (other than by virtue of ownership of this Warrant, or
ownership of other securities that have limitations on the Holder's rights to
convert or exercise similar to the limitations set forth herein), together with
all shares of Common Stock deemed beneficially owned by the Holder's
"affiliates" (as defined in Rule 144 of the Securities Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") exists,
would exceed 9.9%; provided that (w) each Warrant Holder shall have the right at
any time and from time to time to reduce such percentage from 9.9% immediately
upon notice to the Company or in the event of a Change in Control Transaction,
as defined below, (x) each Warrant Holder shall have the right at any time and
from time to time to increase such percentage from 9.9% or otherwise waive in
whole or in part the restrictions of this Section 2(e) upon 61 days' prior
notice to the Company or immediately in the event of a Change in Control
Transaction, (y) each Warrant Holder can make subsequent adjustments pursuant to
(w) or (x) any number of times from time to time (which adjustment shall be
effective immediately if it results in a decrease in the percentage or shall be
effective upon 61 days' prior written notice or immediately in the event of a
Change in Control Transaction if it results in an increase in percentage) and
(z) each Warrant Holder may eliminate or reinstate this limitation at any time
and from time to time (which elimination will be effective upon 61 days' prior
notice and which reinstatement will be effective immediately). Without limiting
the foregoing, in the event of a Change in Control Transaction, any holder may
reinstate immediately (in whole or in part) the requirement that any increase in
the percentage be subject to 61 days' prior written notice, notwithstanding such
Change in Control Transaction, without imposing
2
<PAGE> 82
such requirement on, or otherwise changing such Holder's rights with respect to,
any other Change in Control Transaction. For this purpose, any material
modification of the terms of a Change in Control Transaction will be deemed to
create a new Change in Control Transaction. A "Change in Control Transaction"
will be deemed to have occurred upon the earlier of the announcement or
consummation of a transaction or series of transactions involving (x) any
consolidation or merger of the Company with or into any other corporation or
other entity or person (whether or not the Company is the surviving
corporation), or any other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Company's voting power is
transferred through a merger, consolidation, tender offer or similar
transaction, or (y) in excess of 50% of the Corporation's Board of Directors
consists of directors not nominated by the prior Board of Directors of the
Company, or (z) any person (as defined in Section 13(d) of the Exchange Act),
together with its affiliates and associates (as such terms are defined in Rule
405 under the Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power. The delivery of
an Exercise Form by the Warrant Holder shall be deemed a representation by such
Holder that it is in compliance with this paragraph. Notwithstanding anything in
this subsection (e), the exercise of this Warrant may only be deferred until
____________ ___, 20__.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price") shall equal $_________.
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Bid Price of the Common Stock
for the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap Market, or if the Common Stock is
not traded on the Nasdaq Small Cap Market, the Average Closing
Price in any other over-the-counter market; provided, however,
that if the Common Stock is listed on a stock exchange, the
Market Price shall be the Average Closing Price on such
exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not
traded during the five (5) trading days prior to the Date of
Exercise, then the closing price for the last publicly traded
day shall be deemed to be the
3
<PAGE> 83
closing price for any and all (if applicable) days during such
five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the National Market System ("NMS"), the New York Stock Exchange,
the Nasdaq Small Cap Market, or the OTC Bulletin Board, or if no longer traded
on the NMS, the New York Stock Exchange, the Nasdaq Small Cap Market, or the OTC
Bulletin Board, the "Closing Bid Price" shall equal the closing price on the
principal national securities exchange or the over-the-counter system on which
the Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange or the National
Securities Exchange on which the Common Stock is so traded.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about September ___, 1998 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of
4
<PAGE> 84
Common Stock which Holder shall be entitled to purchase upon Exercise of this
Warrant shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in the number of shares of Common Stock
by reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of shares,
proportionally increased. The Company shall give Holder the same notice it
provides to holders of Common Stock of any transaction described in this Section
5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or
5
<PAGE> 85
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6
<PAGE> 86
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been issued in a
transaction exempt from the registration requirements of the Act by virtue of
Regulation D and exempt from state registration under applicable state laws. The
Warrant and the Common Stock issuable upon the Exercise of this Warrant may not
be pledged, transferred, sold or assigned except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
7
<PAGE> 87
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention:
Dennis W. Healey, Executive VP/CFO, 865 SW 78th Avenue, Suite 100, Plantation,
FL 33324, Telephone No. (954) 233-8746, Telecopy No. (954) 233-1416. Notices or
demands pursuant to this Warrant to be given or made by the Company to or on
Holder shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, to the address
of Holder set forth in the Company's records, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
____ day of _____________, 19__.
VIRAGEN, INC.
By: __________________________________
Dennis W. Healey, Executive VP/CFO
8
<PAGE> 88
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: VIRAGEN, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of VIRAGEN,
INC., a Delaware corporation (the "Company"), evidenced by the attached warrant
(the "Warrant"), and herewith makes payment of the exercise price with respect
to such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
________________________________________________________________________
Signature
________________________________________________________________________
Print Name
________________________________________________________________________
Address
________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
9
<PAGE> 89
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of VIRAGEN, INC.,
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
_______________________________________
Name
_______________________________________
Address
_______________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
_______________________________________________________________________________
<PAGE> 90
Exhibit (10)(LXII).04
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN REGULATION D COMMON
STOCK EQUITY LINE SUBSCRIPTION AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER
REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase
"N" shares
- ------
WARRANT TO PURCHASE COMMON STOCK
OF
VIRAGEN, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from VIRAGEN, INC., a Delaware
corporation (the "Company"), up to "N" fully paid and nonassessable shares,
wherein "N" is defined below, of the Company's common stock, $.01 par value per
share ("Common Stock"), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time beginning
on the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time, on ___________ ___, 20___ (the "Exercise Period"); provided, that "N"
shall equal ten percent (10%) of the number of shares of Common Stock purchased
by the Holder pursuant to that certain Regulation D Common Stock Equity Line
Subscription Agreement (the "Subscription Agreement") by and between the Holder
and Company during the six (6) month period immediately preceding any Six Month
Anniversary as defined in the Subscription Agreement. Within ten (10) days of
any Six Month Anniversary, the Company shall provide written confirmation to the
Holder of the number of shares of Common Stock, as adjusted if applicable, which
the Holder has the right to purchase hereunder.
Holder agrees with the Company that this Warrant to Purchase Common Stock
of Viragen, Inc. (this "Warrant") is issued and all rights hereunder shall be
held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on ______________ ___, 19___
("Date of Issuance").
2. Exercise.
<PAGE> 91
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Dennis W. Healey, Executive VP/CFO, 865 SW 78th Avenue,
Suite 100, Plantation, FL 33324, Telephone No. (954) 233-8746, Telecopy No.
(954) 233-1416, or at such other office or agency as the Company may designate
in writing, by overnight mail, with an advance copy of the Exercise Form sent to
the Company and its Transfer Agent by facsimile (such surrender and payment of
the Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
(e) Limitation on Exercise. Notwithstanding anything to the contrary
contained herein, this Warrant may not be exercised by the Warrant Holder to the
extent that, after giving effect to Warrant Shares to be issued pursuant to an
Exercise Form, the total number of shares of Common Stock deemed beneficially
owned by such Holder (other than by virtue of ownership of this Warrant, or
ownership of other securities that have limitations on the Holder's rights to
convert or exercise similar to the limitations set forth herein), together with
all shares of Common Stock deemed beneficially owned by the Holder's
"affiliates" (as defined in Rule 144 of the Securities Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") exists,
would exceed 9.9%; provided that (w) each Warrant Holder shall have the right at
any time and from time to time to reduce such percentage from 9.9% immediately
upon notice to the Company or in the event of a Change in Control Transaction,
as defined below, (x) each Warrant Holder shall have the right at any time and
from time to time to increase such percentage from 9.9% or otherwise waive in
whole or in part the restrictions of this Section 2(e) upon 61 days' prior
notice to the Company or immediately in the event of a Change in Control
Transaction, (y) each Warrant Holder can make subsequent adjustments pursuant to
(w) or (x) any number of times from time to time (which adjustment shall be
effective immediately if it results in a decrease in the percentage or shall be
effective upon 61 days' prior written notice or immediately in the event of a
Change in Control Transaction if it results in an increase in percentage) and
(z) each Warrant Holder may eliminate or reinstate this limitation at any time
and from time to time (which elimination will be effective upon 61 days' prior
notice and which
2
<PAGE> 92
reinstatement will be effective immediately). Without limiting the foregoing, in
the event of a Change in Control Transaction, any holder may reinstate
immediately (in whole or in part) the requirement that any increase in the
percentage be subject to 61 days' prior written notice, notwithstanding such
Change in Control Transaction, without imposing such requirement on, or
otherwise changing such Holder's rights with respect to, any other Change in
Control Transaction. For this purpose, any material modification of the terms of
a Change in Control Transaction will be deemed to create a new Change in Control
Transaction. A "Change in Control Transaction" will be deemed to have occurred
upon the earlier of the announcement or consummation of a transaction or series
of transactions involving (x) any consolidation or merger of the Company with or
into any other corporation or other entity or person (whether or not the Company
is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in excess of 50% of the
Company's voting power is transferred through a merger, consolidation, tender
offer or similar transaction, or (y) in excess of 50% of the Corporation's Board
of Directors consists of directors not nominated by the prior Board of Directors
of the Company, or (z) any person (as defined in Section 13(d) of the Exchange
Act), together with its affiliates and associates (as such terms are defined in
Rule 405 under the Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power. The delivery of
an Exercise Form by the Warrant Holder shall be deemed a representation by such
Holder that it is in compliance with this paragraph. Notwithstanding anything in
this subsection (e), the exercise of this Warrant may only be deferred until
______________ ___, 20___.
3. Payment of Warrant Exercise Price.
The Exercise Price shall equal $_______ per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the next to the last sentence of this
Section 3, surrender of this Warrant at the principal office of the Company
together with notice of cashless election, in which event the Company shall
issue Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average closing bid price of the Common Stock
for the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap Market, or if the Common Stock is
not traded on the Nasdaq Small Cap Market, the Average Closing
Price in any other over-the-counter market; provided, however,
that if the Common Stock is listed on a stock exchange, the
Market Price shall be the
3
<PAGE> 93
Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such issuance (x) be immediately transferable in the United States free of any
restrictive legend, including without limitation under Rule 144; (y) be then
registered pursuant to an effective registration statement filed pursuant to
that certain Registration Rights Agreement dated on or about September ___, 1998
by and among the Company and certain investors; or (z) otherwise be registered
under the Securities Act of 1933, as amended.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about September ___, 1998 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that
4
<PAGE> 94
the shares of Common Stock shall be changed into or become exchangeable for a
larger or smaller number of shares, then upon the effective date thereof, the
number of shares of Common Stock which Holder shall be entitled to purchase upon
Exercise of this Warrant shall be increased or decreased, as the case may be, in
direct proportion to the increase or decrease in the number of shares of Common
Stock by reason of such recapitalization, reclassification or similar
transaction, and the Exercise Price shall be, in the case of an increase in the
number of shares, proportionally decreased and, in the case of decrease in the
number of shares, proportionally increased. The Company shall give Holder the
same notice it provides to holders of Common Stock of any transaction described
in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to
5
<PAGE> 95
shares of Common Stock shall be deemed to refer to and include such shares
and/or other securities or assets; and thereafter the number of such shares
and/or other securities or assets shall be subject to adjustment from time to
time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been issued in a
transaction exempt from the registration requirements of the Act by virtue of
Regulation D and exempt from state registration under applicable state laws. The
Warrant and the Common Stock issuable upon the Exercise of this Warrant may not
be pledged, transferred, sold or assigned except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. Applicable Law.
6
<PAGE> 96
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention:
Dennis W. Healey, Executive VP/CFO, 865 SW 78th Avenue, Suite 100, Plantation,
FL 33324, Telephone No. (954) 233-8746, Telecopy No. (954) 233-1416. Notices or
demands pursuant to this Warrant to be given or made by the Company to or on
Holder shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, to the address
of Holder set forth in the Company's records, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ________________, 19___.
VIRAGEN, INC.
By: __________________________________
Dennis W. Healey, Executive VP/CFO
7
<PAGE> 97
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: VIRAGEN, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of VIRAGEN,
INC., a Delaware corporation (the "Company"), evidenced by the attached warrant
(the "Warrant"), and herewith makes payment of the exercise price with respect
to such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
________________________________________________________________________
Signature
________________________________________________________________________
Print Name
________________________________________________________________________
Address
________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
8
<PAGE> 98
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of VIRAGEN, INC.,
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
_______________________________________
Name
_______________________________________
Address
_______________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
________________________________________________________________________
<PAGE> 1
EXHIBIT 11
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares outstanding............. 50,502,503 39,134,631 36,198,302
============ ============ ===========
Net Loss........................................ $ (7,856,136) $ (4,775,245) $(4,672,271)
Deduct required dividends on convertible
preferred stock, Series A..................... 2,823 20,760 2,650
Deduct required dividends on convertible
preferred stock, Series B..................... -- 4,441,676 894,976
Deduct required dividends on convertible
preferred stock, Series C..................... -- 844,960 --
Deduct required dividends on convertible
preferred stock, Series D..................... 169,221 3,619,407 --
Deduct required dividends on convertible
preferred stock, Series E..................... 127,918 971,936 --
Deduct required dividends on convertible
preferred stock, Series F..................... 524,416 -- --
Deduct required dividends on convertible
preferred stock, Series G..................... 708,139 -- --
Deduct required dividends on convertible
preferred stock, Series H..................... 733,681 -- --
Deduct required dividends on convertible
preferred stock, Series I..................... 232,154 -- --
------------ ------------ -----------
Net loss attributable to common stock........... $(10,354,488) $(14,673,984) $(5,569,897)
============ ============ ===========
Loss per common share after deduction for
required dividends on convertible preferred
stock......................................... $ (0.21) $ (0.37) $ (0.15)
============ ============ ===========
</TABLE>
F-33
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OWNED BY
INCORPORATION REGISTRANT
--------------- ----------
<S> <C> <C>
Vira-Tech, Inc.(1).......................................... Florida 100%
Viragen Technology, Inc.(2)................................. Florida 100%
Viragen Reagents, Inc.(3)................................... Florida 100%
Viragen U.S.A., Inc.(4)..................................... Delaware 94%
Viragen (Europe) Ltd.(5).................................... Delaware 70%
Viragen (Scotland) Ltd.(6).................................. Scotland (UK) 70%
Viragen (Germany) GmbH(7)................................... Germany 70%
</TABLE>
- ---------------
(1) Incorporated January 12, 1981
(2) Incorporated January 13, 1995
(3) Incorporated July 14, 1997
(4) Incorporated April 4, 1996
(5) Acquired December 8, 1995
(6) Incorporated January 17, 1995; 100% owned by Viragen (Europe) Ltd.
(7) Acquired November 14, 1997; 100% owned by Viragen (Europe) Ltd.
F-34
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-50403) pertaining to the Viragen, Inc. Amended 1997 Stock
Option Plan and (Form S-8 No. 33-60131) pertaining to the Viragen, Inc. 1995
Stock Option Plan, Employment Contracts with Key Executives and Stock Option
Agreements with Directors of Viragen, Inc. and (Form S-8 No. 333-18197)
pertaining to the Consulting Agreement with Girmon Investment Co., Limited and
Common Stock Purchase Option Granted to Key Employee, of our report dated
September 18, 1998, with respect to the consolidated financial statements of
Viragen, Inc. included in its Annual Report (Form 10-K) for the year ended June
30, 1998.
/s/ Ernst & Young LLP
Miami, Florida
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,708,317
<SECURITIES> 6,105,076
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,551,338
<PP&E> 8,898,908
<DEPRECIATION> 2,744,827
<TOTAL-ASSETS> 15,895,225
<CURRENT-LIABILITIES> 1,708,943
<BONDS> 280,094
7,185,865
2,650
<COMMON> 534,168
<OTHER-SE> 5,349,703
<TOTAL-LIABILITY-AND-EQUITY> 15,895,225
<SALES> 0
<TOTAL-REVENUES> 1,143,112
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,802,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590,867
<INCOME-PRETAX> (7,856,136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,856,136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,856,136)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
