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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON December 22, 1999
Registration No. 333-75749
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
ON FORM S-1 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIRAGEN, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 2836 59-2101668
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization Classification Code Number) Identification No.)
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865 S.W. 78th Avenue
Suite 100
Plantation, FL 33324
Telephone (954) 233-8746
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(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
Copies to:
Gerald Smith James M. Schneider, Esq.
Chairman of the Board Atlas, Pearlman, Trop & Borkson, P.A.
Viragen, Inc. 200 East Las Olas Boulevard
865 SW 78th Avenue, Suite 100 Suite 1900
Plantation, Florida 33324 Fort Lauderdale, Florida 33301
(954) 233-8746 (954) 763-1200
- -------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed
sale to the public: From time to time after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462
(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _______
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE(1) REGISTRATION FEE
------------------------------------ ------------ ------------ ----------------- ----------------
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Common stock, $.01 par value per
share, issuable upon the conversion of
8% redeemable convertible promissory
notes 9,912,622 (2) $ 0.52 $ 5,155,000 $ 1,562
Common stock, $.01 par value per
share, issuable upon exercise of
common stock purchase warrants 932,039(3) 0.52 485,000 147
Common stock, $.01 par value per
share, issuable upon exercise of
common stock purchase warrants 155,339(4) 0.52 81,000 25
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Total 11,000,000 $ 5,721,000 $ 1,734
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(1) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low sale price for our common stock, $.01
par value per share, as reported on the NASDAQ National Market System at March
31, 1999.
(2) Includes up to an aggregate of 9,912,622 shares of our common stock issuable
upon the conversion of our 8% redeemable convertible notes convertible at the
lesser of $.644 or the lowest closing bid price of our common stock during the
10 consecutive trading days immediately preceding each conversion date of the
notes.
(3) Includes up to an aggregate of 932,039 shares of our common stock issuable
upon the exercise of warrants exercisable at the lower of $.773 or the lowest
closing bid price of our common stock during the 10 consecutive trading days
immediately preceding each conversion date of the notes.
(4) Includes an aggregate of up to 155,339 shares of our common stock issuable
upon the exercise of warrants exercisable at $.773. Pursuant to Rule 416 under
the Securities Act of 1933, there are also being registered an additional number
of shares as may be issuable as a result of the anti-dilution provisions of the
notes and warrants, but not as a result of pure adjustments attributable to
changes in market price.
Viragen, Inc. hereby amends this registration statement on those date
or dates as may be necessary to delay its effective date until Viragen shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on the date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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Subject to Completion
Dated ______________, 1999
Selling Security Holder Offering Prospectus
Viragen, Inc.
6,220,121 shares of common stock
OTC Bulletin Board symbol: VRGN
Recent price: $1.00 at December 14, 1999.
The selling security holders will receive the proceeds from the re-sale of the
shares. They are underwriters within the meaning of the Securities Act of 1933
in connection with the sale of the shares offered.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is____________, 1999.
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TABLE OF CONTENTS
PAGE
Prospectus Summary 3
High Risk Factors 6
Use of Proceeds 11
Price Range of Common Stock and Dividend Policy 12
Capitalization 13
Selected Financial Data 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Business 22
Management 33
Certain Transactions 40
Principal Stockholders 41
Selling Security Holders 42
Plan of Distribution 46
Description of Securities 46
Shares Eligible for Future Sale 48
Legal Matters 48
Experts 49
Additional Information 49
List of Financial Statements F-1
You should rely only on the information contained in this document or
to which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information contained in this document may only be
accurate on the date of this document.
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PROSPECTUS SUMMARY
This summary highlights information included elsewhere in our
prospectus. This summary does not include all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors."
OUR COMPANY
Viragen, Inc. is in the business of researching and developing products
which help the human immune system resist viral infections. We were organized in
1980. Our primary product is a natural interferon product named Omniferon(TM),
which we produce using human white blood cells. Natural interferon stimulates
and controls the human immune system. In addition, interferon may stem the
growth of various viruses including those involved with diseases like hepatitis,
multiple sclerosis, cancer and HIV/AIDS.
Neither the United States Food and Drug Administration nor the
European Union regulatory authorities has approved our product. When we refer to
"product" later in this prospectus, we do not intend to imply that our product
has regulatory approvals that will allow it to be marketed currently. Viragen
will seek Food and Drug Administration and European Union regulatory authority
approval for various uses of its Omniferon product in the future. This approval
requires several years of clinical trials and substantial additional funds. We
are concentrating our efforts in obtaining approval for our Omniferon product.
This will be initially in the European Union and eventually from the Food and
Drug Administration for the United States.
Our affiliate, Viragen (Scotland) Ltd., has entered into a license and
manufacturing agreement with the Common Services Agency of Scotland, and the
Scottish National Blood Transfusion Service. As a result of this agreement, the
Scottish National Blood Transfusion Service will help in the manufacture of our
natural interferon product for exclusive distribution in the European Union and
on a non-exclusive basis worldwide. The Scottish National Blood Transfusion
Service will receive royalties and special access to our Omniferon product. We
have also entered into agreements with the American Red Cross, America's Blood
Centers and the German Red Cross for supplies of white blood cells. These
sources of white blood cells will enable us to manufacture Omniferon in
sufficient quantities to conduct planned European Union and United States
clinical trials. Subject to regulatory approvals, these sources will also
provide sufficient quantities of white blood cells for commercial manufacturing
in the future.
Our executive offices are located at 865 S.W. 78th Avenue, Suite 100,
Plantation, FL 33324. Our telephone number is (954) 233-8746; our facsimile
number is (954) 233-1414.
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THE OFFERING
Common stock offered
by selling security holders: 6,220,121 shares
Common stock to be outstanding
after the offering: 77,626,292 shares
This number excludes 10,205,834
shares of common stock reserved for
issuance upon the conversion of
preferred stock and exercise of
outstanding options and warrants held
by officers, directors, employees and
consultants.
Use of proceeds: We will not receive any of the
proceeds from re-sale of common stock
offered by selling security holders.
OTC Bulletin Board symbol: VRGN
Risk factors: For a discussion of risks
that you should consider before
buying shares of our common stock
from selling security holders, see
"Risk Factors."
Summary financial data:
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)
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Three Months Ended
Year Ended June 30, September 30,
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1999 1998 1997 1996 1995 1999 1998
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(Unaudited)
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Revenues .......................... $ 374 $ 1,143 $ 1,404 $ 739 $ 722 $ 20 $ 107
Net Loss .......................... (10,651) (7,856) (4,775) (4,672) (3,952) (2,863) (2,398)
Loss attributable to common stock . (11,653) (10,354) (14,674) (5,570) (3,955) (2,865) (3,036)
Loss per average common share ..... (0.19) (0.21) (0.37) (0.15) (0.12) (0.04) (0.06)
Weighted average shares outstanding 60,109 50,503 39,135 36,198 32,138 72,876 53,299
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CONSOLIDATED BALANCE SHEET DATA
(in thousands)
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June 30, September 30,
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1999 1998 1997 1996 1995 1999
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(Unaudited)
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Working capital (deficit) $ (2,290) $ 7,842 $ 29,331 $18,266 $ 1,614 $ (2,156)
Total assets 8,529 15,895 37,462 20,617 3,330 7,721
Long-term debt 352 7,466 239 116 857 336
Stockholders' equity 3,836 5,887 32,144 17,275 1,698 4,044
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RISK FACTORS
An investment in our common stock is very risky. You should be aware
you could lose the entire amount of your investment. Prior to making an
investment decision, you should carefully read this entire prospectus and
consider the following risk factors.
WE HAVE A HISTORY OF LOSSES DUE TO LACK OF SALES AND REGULATORY APPROVAL. IF WE
DO NOT RECEIVE NECESSARY REGULATORY APPROVALS AND DEVELOP PROFITABLE OPERATIONS,
WE WILL NEED TO TERMINATE OUR OPERATIONS. AS A RESULT, INVESTORS MAY LOSE THEIR
ENTIRE INVESTMENT.
Since the organization of Viragen, we have incurred operating losses.
Losses have totaled:
o $2,862,529 for the three month period ended September 30, 1999,
o $10,650,832 for the fiscal year ended June 30, 1999,
o $7,856,136 for the fiscal year ended June 30, 1998, and
o $4,775,245 for the fiscal year ended June 30, 1997.
At September 30, 1999, we had a total deficit since organization of $ 53,386,436
and a working capital deficit of $2,156,091.
We presently produce a single product known as Omniferon(TM), a natural
human leukocyte derived alpha interferon. However, because the United States
Food and Drug Administration and the European Union regulatory authorities have
not yet approved our natural interferon product, we cannot sell this product. As
a result, we have no current source of income from operations.
We will not be able to reduce our losses or operate profitably, until
we obtain the necessary approvals to sell natural interferon. While we currently
have a 10% interest in a company that is developing a product for the treatment
of rheumatoid arthritis, we expect sales of natural interferon to be our primary
source of income. Investors must understand that our natural interferon product
may never receive the necessary approvals from regulatory authorities. In
addition, even if the product is approved, we may not be able to recover
sufficient profit from the sale of natural interferon. If we do not obtain the
required approvals or we do not profit from the sale of natural interferon or
other products, Viragen most likely will terminate its operations. In that case,
those who have invested in Viragen will likely lose their entire investment.
As a result of these conditions, our independent certified public
accountants included an explanatory paragraph in their report dated September
17, 1999. Their report indicated that these conditions raised substantial doubt
about our ability to continue as a going concern. As of November 30, 1999, our
financial condition has not improved.
VIRAGEN HAS BEEN DELISTED FROM NASDAQ. IF THE PENNY STOCK RULES BECOME
APPLICABLE TO OUR STOCK, IT MAY BECOME MORE DIFFICULT TO SELL OUR STOCK.
On June 28, 1999, the NASDAQ Stock Market delisted our common stock.
The hearing review panel was concerned that we would not be able to maintain a
closing bid price for our common stock of at least $1.00, as well as continue to
meet NASDAQ's minimum $4 million net worth requirement. Our common stock is now
traded on the OTC Bulletin Board, which is a more limited market than the NASDAQ
Stock Market. Stocks quoted in this market generally do not have the same
following as stocks traded on the NASDAQ Stock Market. In general, local and
national newspapers do not quote OTC Bulletin Board stocks in the stock market
tables. In addition, our common stock could become subject to the penny stock
rules under the Securities Exchange Act of 1934, if we do not maintain a minimum
tangible net worth of at least $2 million. As of September 30, 1999, our
tangible net worth totaled $4,044,026.
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The penny stock rules require broker-dealers to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission,
prior to a transaction in a penny stock. This document provides information
about penny stocks and the risks in the penny stock market. The broker-dealers
must also provide the customer the following:
o current bid and offer quotations for the penny stock,
o the compensation of the broker-dealer and its salesperson in the
transaction, and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
The broker-dealers must give the quotations and compensation
information to the customer, orally or in writing, prior to completing the
transaction. They must give this information to the customer, in writing, before
or with the customer's confirmation.
In addition, the penny stock rules require that, prior to a transaction
in a penny stock, the broker and/or dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser.
The broker and/or dealer must receive the purchaser's written agreement to the
transaction. These disclosure requirements may reduce the level of purchases in
our common stock and trading activity in the secondary market for Viragen's
common stock. If our common stock becomes subject to the penny stock rules, it
will be more difficult for you to sell the common stock. This may reduce the
value of your investment.
COMPETITIVE CONDITIONS IN THE PHARMACEUTICAL INDUSTRY MAY FORCE US TO TERMINATE
OPERATIONS.
Competition for investment capital and market share in the
immunological and pharmaceutical products industry is very strong. Our
competitors, which include major pharmaceutical companies, have more experience
in research, development and clinical testing of pharmaceutical and biomedical
products. We do not have, as yet, an immunological product that can be marketed.
Our competitors also have greater financial, marketing and human resources than
Viragen. Some of our competitors, including Hoffman-La Roche, Inc.,
Shering-Plough Corporation, Biogen, Inc., Chiron Corp., and Baxter Laboratories,
already have approvals for their synthetic interferons. They have been marketing
their products, since 1986. These companies have received wide acceptance from
the medical community and the patient population for their products. This will
make it more difficult for us to introduce our product, if and when we receive
regulatory approval. We only expect competition to increase in the future. In
addition, technological advances made by our competitors may make synthetic
products more effective, less costly and with less harmful side effects. Viragen
may not be able to keep pace with technological advances by others, either
because we do not have sufficient resources or because we cannot achieve greater
improvements in our technology. If we are unable to compete with our larger,
more experienced competitors, we may terminate operations.
Competition for funding in the pharmaceutical industry is also intense.
As explained above, we have no source of income, as yet. We may not have
sufficient sources of income or investment capital for a significant period of
time, if ever. We need additional funds to conduct clinical trials so we can
receive regulatory approvals. We must obtain additional funding from outside
sources to conduct these trials. If we are unable to locate funding or obtain
funding on reasonable terms, we will most likely terminate operations. In that
case, any investment in Viragen could be lost.
GOVERNMENT REGULATION MAY AFFECT VIRAGEN'S ABILITY TO DEVELOP AND DISTRIBUTE
NATURAL INTERFERON.
All pharmaceutical manufacturers are subject to state and federal rules
and regulations. In particular, we must comply with the United States Food and
Drug Administration guidelines governing production, testing and marketing.
European Union regulatory authorities also impose similar regulations. These
rules and regulations are constantly changing. These changes could extend the
period of clinical trials, involve costly compliance measures and may restrict
our ability to produce and distribute our natural interferon product based on
the results of testing. It is possible that we may never receive these
regulatory approvals for any specific illness or range of illnesses that we are
attempting to treat with our natural interferon product.
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IF PATIENTS HAVE PROBLEMS RECEIVING THIRD PARTY REIMBURSEMENTS OF OUR PRODUCT,
IT WILL BE MORE DIFFICULT TO MARKET OUR PRODUCT. IN ADDITION, OUR MARKETING
COSTS WOULD INCREASE.
Our ability to successfully market our products depends in part on the
receipt of reimbursements from government health administration authorities,
private health coverage insurers and other organizations. The pricing of
products similar to ours or the amount of reimbursement available to patients
may affect our ability to market our product at a profit. Third party
reimbursement limitations could restrict the patient population that will make
use of our product. If we have difficulty in getting third party payors to allow
reimbursement for our product, this could also require us to increase our
marketing efforts. This will involve greater expenses.
OUR PROPRIETARY TECHNOLOGY AND ANY FUTURE PATENTS THAT WE RECEIVE MAY NOT
PROVIDE SUFFICIENT PROTECTION TO US.
We intend to rely, in part, on technology developed by Viragen's
scientists for the efficient and safe production of natural interferon. We
believe that this technology allows us to produce our natural interferon more
efficiently and with less possible contaminants. Viragen recently filed two
patent applications relating to our Omniferon production technology. If we are
not successful in obtaining patents or demonstrating that our production process
is proprietary under trade secret law, we will have limited protection against
those who might copy our technology. In addition, we may be damaged if we are
accused of misappropriating a competitor's proprietary technology, even if these
claims are untrue. We cannot assure you that our patent applications will be
approved. Even if granted, we cannot assure you that these patents or our other
proprietary rights will provide necessary protection to us.
TECHNOLOGY TRANSFERS BY VIRAGEN TO THIRD PARTIES MAY NOT RESULT IN REVENUE TO
US.
One of our proposed marketing strategies is to license our
manufacturing technology to third parties. They, in turn, will use it to produce
natural human leukocyte alpha interferon outside the United States. We cannot
guarantee that these third parties will be able to successfully market the
product or that we will receive revenue from their efforts.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS, AND OUR PRODUCT LIABILITY
INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL CLAIMS OR CONTINUE TO BE AVAILABLE
TO US.
Persons, who claim to be injured from use of our natural interferon,
may file claims for personal injuries or other damages against us. In order to
protect Viragen against these claims, we maintain product liability insurance in
the amount of $1,000,000 per occurrence and $2,000,000 in total. We cannot be
sure that this insurance will be adequate to cover any liabilities that may
result from the use of our natural interferon. Also, we may not be able to
afford this form of insurance in the future.
OUR RELIANCE ON FOREIGN THIRD PARTY MANUFACTURER MAY DISRUPT OPERATIONS.
Viragen (Scotland) Ltd., a wholly-owned subsidiary of Viragen (Europe)
Ltd., our majority-owned subsidiary, entered into a manufacturing agreement with
the Common Services Agency of Scotland for the production of Omniferon. Under
this agreement, Viragen (Scotland) and the Common Services Agency will jointly
manufacture Omniferon. Our decision to use an offshore manufacturer could expose
us to risks involved with fluctuations in exchange rates of foreign currencies.
In addition, relying on the Common Services Agency exposes us to all the risks
of dealing with a foreign manufacturing source. These risks include:
o local governmental regulations,
o tariffs,
o import and export restrictions,
o transportation,
o taxes, and
o foreign health and safety regulations.
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Foreign manufacturing arrangements will limit our control. For
instance, the Common Services Agency has limited our access to portions of their
facility, when introducing stimulating agents during production. This may lead
to the disruption of our operations. This could negatively affect our operations
and your investment in us.
WE ARE DEPENDENT ON KEY EXECUTIVES AND THEIR LOSS WOULD BE DAMAGING TO VIRAGEN.
Mr. Gerald Smith, our chairman of the board and president, Mr. Dennis
W. Healey, our executive vice president, treasurer and chief financial officer,
and Dr. D. Magnus Nicolson, the managing director of Viragen (Scotland) Ltd.,
manage our day-to-day operations. We have employment agreements with Messrs.
Smith, Healey and Nicolson which restrict competitive activities by them.
However, the loss of their services would have a negative effect on our ability
to conduct business. Our future success will greatly depend on our ability to
attract and retain additional skilled personnel in various phases of our
operations.
OUR TRANSACTION WITH SELLING SECURITY HOLDERS MAY CAUSE SUBSTANTIAL DILUTION TO
OUR SHAREHOLDERS.
We expect to issue up to 6,220,121 shares of our common stock, or 8.1%
of the issued and outstanding common stock as of November 30, 1999, to the
selling security holders in connection with the notes and warrants described in
this prospectus. Sales of our shares by the selling security holders may depress
the price of our stock in the market. Future transactions with other investors
could further depress the price of our stock because of additional stockholder
dilution. We may have to issue millions of additional shares in future
transactions.
PAYMENT OF PENALTY FEES AND REDEMPTION OF COMMON SHARES HELD BY SELLING SECURITY
HOLDERS COULD NEGATIVELY AFFECT OUR OPERATIONS.
Events of default, on our obligations to the selling security holders,
include:
o default under the promissory notes,
o failure to maintain effectiveness of our registration under
the Securities Act of 1933,
o delisting our stock from NASDAQ (which has occurred), and
o failure to have our registration statement become effective by
July 7, 1999 (which has occurred).
Penalties on default involve payments of many thousands of dollars. The
sum of the penalties depends on the period that we are in non-compliance. To
date, we have incurred approximately $240,000 in penalty fees. The penalty
amount will continue to increase $40,000 per month, until this registration
becomes effective.
The selling security holders have the right to force redemption of
their common shares, because this registration statement is not yet effective.
As described in the "Selling Security Holders" section of this prospectus, the
redemption value, if elected by the selling security holders, would exceed the
initial investment of $2 million. The redemption value is the greater of:
o $2 million and related interest plus a premium of 15%; or
o market value of the shares to be redeemed, on the date the
selling security holders elect redemption.
Payment of the penalty fees and redemption of common shares held by
selling security holders will negatively affect our ability to finance our
current and future operations.
WE MAY HAVE VIOLATED SECTION 5 OF THE SECURITIES ACT OF 1933 AND MAY HAVE A
CONTINGENT LIABILITY TO INVESTORS.
In March 1999, we issued 8% convertible promissory notes in the amount
of $2,000,000 to the selling security holders. In June 1999, we modified our
agreements with the selling security holders to lower the conversion price of
their promissory notes. We did this in order to obtain a waiver from the selling
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security holders for an interim financing. We did the interim financing in May
1999 when we received $1,375,000 from three investors through the sale of our
common stock. Since we had a pending registration statement at the time of the
June 1999 modification and the May 1999 interim financing, the Securities and
Exchange Commission has informed us that we may have violated Section 5 of the
Securities Act of 1933. If this is so, we may have a contingent liability to the
selling security holders and the three investors in the interim financing, since
they may have the right to rescind their transactions.
OUR OPERATIONS MAY SUFFER FROM COMPUTER PROBLEMS RELATING TO THE YEAR 2000.
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the year 2000. Some older
computer systems store dates with only a two-digit year with an assumed prefix
of "19." Consequently, this limits those systems to dates between 1900 and 1999.
If not corrected, many computer systems and applications could fail or create
erroneous results by or at the year 2000.
Because we rely heavily on computers to conduct our business, we are
subject to all the risks associated with the year 2000 condition. We have
assessed the scope of our risks related to problems these computer systems may
have upon the arrival of the year 2000. We believe that we have adequately
addressed these risks. In addition, we have questioned our vendors and business
partners about their progress in identifying and addressing problems related to
the year 2000. We intend to continue these inquiries through the calendar
year-end. However, we cannot assure you that all of these third party systems or
our computer systems will be year 2000 compliant.
WE WILL REQUIRE ADDITIONAL FUNDING TO CONDUCT OPERATIONS. THE FUNDING MAY NOT BE
AVAILABLE AND CAUSE US TO TERMINATE OUR OPERATIONS.
Viragen will continue to require significant funding in the future to
continue its operations. We estimate that we will require funding of
approximately $30 million over the next three years. These funds would be used
to fund operations and clinical trials. We cannot assume that any additional
financing will be available. If financing is not available, we may have to sell,
suspend, or terminate our operations.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never paid cash dividends on our common stock. We do not expect
to pay cash dividends on our common stock any time in the near future. The
future payment of dividends directly depends upon our future earnings, capital
requirements, financial requirements and other factors that our board of
directors will consider. For the foreseeable future, we will use any earnings
from operations, if any, to finance our growth, and we will not pay dividends to
our common stockholders. Since we do not anticipate paying cash dividends on our
common stock, return on your investment, if any, will depend solely on an
increase in the market value of Viragen's common stock.
POSSIBLE SALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET VALUE OF OUR STOCK.
As of December 14, 1999, we had 14,883,032 shares of common stock
outstanding, which were "restricted securities," as defined by Rule 144 under
the Securities Act of 1933. Also, as of that date, we had convertible preferred
stock, options and warrants outstanding, which if exercised, would result in
10,909,922 additional shares of our common stock outstanding. Under Rule 144, a
person who holds restricted securities for a period of one year may sell a
limited number of shares to the public in ordinary brokerage transactions. Sales
under Rule 144 and sales of common stock covered by registration statements
filed by us, including shares covered by this prospectus, may reduce the market
price of our common stock and will increase the number of our publicly-held
securities.
WE COULD USE PREFERRED STOCK TO RESIST TAKEOVERS AND MAY ALSO CAUSE POTENTIAL
ADDITIONAL DILUTION.
Our Certificate of Incorporation authorizes 1,000,000 shares of
preferred stock, of which at November 30, 1999, 2,650 shares of series A
preferred stock were issued and outstanding. Our Certificate of Incorporation
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gives our board of directors the authority to issue preferred stock without
approval of our stockholders. We may issue additional shares of preferred stock
to raise money to finance our operations. We may authorize the issuance of the
preferred stock in one or more series. In addition, we may set the following
terms:
o dividend and liquidation preferences,
o voting rights,
o conversion privileges,
o redemption terms, and
o other privileges and rights of the shares of each authorized
series.
The issuance of large blocks of preferred stock could possibly have a dilutive
effect to our existing stockholders. It can also negatively impact our existing
stockholders' liquidation preferences. In addition, while we include preferred
stock in our capitalization to improve our financial flexibility, we could
possibly issue our preferred stock to friendly third parties to preserve control
by present management. This could occur if we become subject to a hostile
takeover that could ultimately benefit Viragen and Viragen's stockholders.
USE OF PROCEEDS
Viragen received $1,861,820, net of finders' fees, from the sale of the
convertible notes with detachable warrants. We may receive additional proceeds
upon the exercise of the warrants. We will not, however, receive any proceeds
from the re-sale of shares of common stock acquired by the selling security
holders.
Viragen used these proceeds to fund operations.
11
<PAGE> 14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Viragen's common stock traded on the NASDAQ National Market between
December 29, 1996 and June 28, 1999, under the symbol "VRGN". Our common stock
began trading on the over-the-counter bulletin board on June 29, 1999. The stock
symbol continues to be "VRGN". The following table lists the high and low bid
quotations for our common stock since July 1, 1997.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1999 - 2000
First quarter ended 9/30/99 $ 1.05 $ 0.48
1998-1999
First quarter ended 09/30/98 $ 2.19 $ 1.06
Second quarter ended 12/31/98 1.44 .63
Third quarter ended 03/31/99 .97 .38
Fourth quarter ended 06/30/99 1.22 .38
1997-1998
First quarter ended 09/30/97 $ 3.00 $ 2.16
Second quarter ended 12/31/97 2.25 1.09
Third quarter ended 03/31/98 2.86 .97
Fourth quarter ended 06/30/98 2.81 1.75
</TABLE>
These quotations represent prices between dealers, and do not include
retail mark-ups, markdowns or commissions. These quotations may not necessarily
represent actual transactions.
As of December 14, 1999, we had approximately 2,700 stockholders of record.
As of December 14, 1999, the closing price of the common stock was $1.00 per
share.
We have never paid any dividends on our common stock. We do not anticipate
paying any cash dividends in the foreseeable future because:
o we have experienced losses since inception,
o we have significant capital requirements in the future, and
o we presently intend to retain future earnings, if any, to
finance the expansion of our business.
Future dividend policy will depend on:
o our earnings, if any,
o capital requirements,
o expansion plans,
o financial condition, and
o other relevant factors.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
o on an actual basis; and
o reflects the issuance of 4,112,219 shares of common stock issued
upon conversion of the 8% convertible promissory notes, including
related interest, at the rate of $0.50 per common share. The
re-set shares totaling 1,098,193 shares are also included
<TABLE>
<CAPTION>
September 30, 1999
------------------------
Actual
------------------------
<S> <C>
Long-term debt, less current portion $ 213,018
Convertible series I cumulative preferred stock, $1.00 par value. Authorized 200
shares; issued and outstanding 11 shares 123,137
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
Common stock, $0.01 par value. Authorized 125,000,000 shares;
issued 75,400,430 shares, of which 845,277 shares are held as treasury stock 754,002
Capital in excess of par value 58,229,493
Treasury stock, at cost (1,277,613)
Retained deficit (53,386,436)
Accumulated other comprehensive income 192,381
Notes due from directors (470,451)
Total stockholders' equity 4,044,026
----------
Total capitalization $4,380,181
==========
</TABLE>
The table does not reflect the possible issuance of 1,009,709 common shares,
which are issuable upon exercise of the related warrants.
13
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with selected historical
consolidated financial data of Viragen, Inc. We have prepared this information
using Viragen Inc.'s audited consolidated financial statements for the five
years ended June 30, 1999 and the unaudited consolidated condensed financial
statements for the three months ended September 30, 1999 and 1998.
When you read this selected historical consolidated financial data, it
is important that you read along with it the historical consolidated financial
statements and related notes included in our annual reports, as well as the
section of our annual reports titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Our annual reports are filed
with the Securities and Exchange Commission.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30, September 30,
--------------------------------------------------------------- --------------------------
1999 1998 1997 1996 1995 1999 1998
------------ ------------ ------------ ----------- ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 374 $ 1,143 $ 1,404 $ 739 $ 722 $ 20 $ 107
Net Loss (10,651) (7,856) (4,775) (4,672) (3,952) (2,863) (2,398)
Loss attributable to common stock (11,653) (10,354) (14,674) (5,570) (3,955) (2,865) (3,036)
Loss per average common share (0.19) (0.21) (0.37) (0.15) (0.12) (0.04) (0.06)
Weighted average shares outstanding 60,109 50,503 39,135 36,198 32,138 72,876 53,299
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
---------------------------------------------------------------------------- ------------------
1999 1998 1997 1996 1995 1999
--------------- -------------- --------------- -------------- -------------- ------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $ (2,290) $ 7,842 $ 29,331 $ 18,266 $ 1,614 $ (2,156)
Total assets 8,529 15,895 37,462 20,617 3,330 7,721
Long-term debt 352 7,466 239 116 857 336
Stockholders' equity 3,836 5,887 32,144 17,275 1,698 4,044
</TABLE>
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements contained in this report on Form S-1 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. These include statements regarding Viragen's expectations, hopes,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include our 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 on this date, and we assume no obligation to update any of our
forward-looking statements. You should note that actual results could differ
materially from those contained in forward-looking statements. Among the factors
that may cause our actual results to differ materially are the risks discussed
in the "Risk Factors" section included in this prospectus.
Viragen has incurred operational losses and operated with negative cash
flows since its inception in December 1980. Losses have totaled $2,862,529,
$10,650,832, $7,856,136, and $4,775,245 for the three month period ended
September 30, 1999, and fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 14, 1999, Viragen has limited capital to sustain its
operations. The fiscal 1999 report of independent certified public accountants,
included in our annual report on Form 10-K, noted our financial condition raises
substantial doubt as to our ability to continue as a going concern. Our
financial condition has not improved since this report was issued. We are
actively seeking new investment capital. However, we cannot assure you as to the
timing of any new investment, if at all. If we are unable to attract new
investment capital in the near-term, we will need to significantly reduce or
completely suspend all operations.
Our working capital deficit totaled approximately $2,156,000 on September
30, 1999, an increase in working capital of $134,000 from the previous year end
balance. This increase was attributed to the conversion of $2,000,000 in
convertible notes plus related interest into 5,210,412 shares of common stock.
This increase was reduced by operational losses of approximately $2,863,000 and
additions to property, plant and equipment of $219,000.
While subject to significant limitation, Viragen, at September 30, 1999,
has available approximately $33 million in net tax operating loss carry-forwards
expiring between 2000 and 2019. We can use these carry-forwards to offset
taxable income, if any, during those periods. Our ability to generate revenues
during future periods is dependent upon obtaining regulatory approvals of our
Omniferon and/or LeukoVAX products. As we cannot determine that we will be
successful in obtaining the necessary regulatory approvals, we are unable to
conclude that realization of benefits from our deferred tax assets is more
likely than not, as prescribed by SFAS 109. As a result, we have recognized a
valuation allowance to offset 100% of the deferred tax assets related to these
carry-forwards.
We believe that our Omniferon product, which is currently under
development, can be manufactured in sufficient quantity and be priced at a level
to offer patients an attractive alternative treatment to the synthetic
interferons currently being marketed. We began our clinical trials in the
European Union during the forth calendar quarter of 1999 and intend to
eventually submit an Investigational New Drug Application to the U.S. Food and
Drug Administration. Approvals of these projects cannot be assured and require
the successful completion of lengthy and costly clinical trials. The completion
of the projects also depends on our ability to raise significant additional
investment capital.
We need additional funding to conduct the clinical trial process relating
to Omniferon both in the European Union and domestically, prior to receiving
regulatory approval to market Omniferon. Management estimates our funding
requirements related to approval of Omniferon for hepatitis C, the first
approval we are seeking in the European Union, are as follows:
15
<PAGE> 18
o Phase I and Phase II trials -- $3.2 million, and
o Phase III studies -- $9.1 million.
We estimate that we will require funding of approximately $30 million, over the
next three years. These funds would be used to fund operations and clinical
trials.
In addition, anticipated funding requirements for U.S. operations include:
o the establishment of domestic manufacturing capacity -- $6 million,
o joint research and development projects -- $4 million, and
o commencement of domestic preclinical Phase I and Phase II studies
-- $1.5 - $2.0 million.
We will also use future fundings, if any, for continued product development,
general working capital purposes, including administrative support functions,
and possible equity investments in businesses complementary to our operations.
In August 1998, Viragen 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 LeukoVAX, an immunomodulating white blood cell
(leukocyte) preparation. LeukoVAX is currently in U.S. Food and Drug
Administration Phase I/II clinical trials for rheumatoid arthritis. Under the
terms of this agreement, we have options to acquire an additional 70% equity
position in Inflammatics through two additional fundings.
We will make the additional funding, if any, at our sole option, based upon
our evaluation of LeukoVAX clinical trial data. This funding will be used to
underwrite a Phase III clinical trial. The agreement also provides for us to
issue up to 3 million shares of our common stock and warrants to acquire 300,000
shares of common stock, in exchange for additional series A convertible shares
of Inflammatics, if all funding phases are completed. Preliminary estimates for
the funding of Phase III clinical trials of LEUKOVAX range between $6.0 million
and $10.0 million.
On August 10, 1999, Viragen mortgaged its Florida-based research facility
for $600,000. We must pay interest on the promissory note in eleven monthly
installments, which began on September 10, 1999. Interest is calculated at the
rate of 1% over the prime rate per annum, as quoted by the Wall Street Journal,
and the rate is adjusted on a daily basis. The principal balance of $600,000
plus any unpaid interest is due on July 10, 2000.
On November 3, 1999, Viragen secured a $400,000 short-term loan by pledging
its domestic scientific equipment and a second mortgage on our Florida-based
research facility as collateral. We must pay interest on the promissory note in
6 monthly installments, which began on December 3, 1999. Interest is calculated
at the rate of 12% per annum. The principal balance of $400,000 plus any unpaid
interest is due on May 3, 2000.
On November 24, 1999, Viragen entered into a common stock and warrants
purchase agreement with:
o AMRO International, S.A.,
o Markham Holdings, Limited, and
o Tashdale Ltd.
The agreement was for gross proceeds of $2.5 million. Viragen contracted to
issue, in three tranches, 4,600,000 shares of common stock and warrants to
purchase 375,000 shares of common stock. We entered into this financing under
Regulation S of the Securities Act of 1933. Gross proceeds from the first
tranche totaled $650,000, in exchange for:
o the sale of 1,000,000 shares and warrants to purchase 50,000 shares
to AMRO International, and
o the sale of 300,000 shares and warrants to purchase 15,000
shares to Markham Holdings Limited.
16
<PAGE> 19
The warrants are exercisable at $1.15 per share and expire at November 30, 2002.
When Viragen files the registration statement for this financing, Viragen
will receive an additional $650,000. In this tranche:
o AMRO International will acquire an additional 1,000,000 shares of
common stock and warrants to purchase 50,000 shares, and
o Markham Holdings will acquire, at the same time, 300,000 additional
shares and warrants to purchase 15,000 shares.
The warrants are also exercisable at $1.15 per share and expire on November 30,
2002.
Viragen will issue 2,000,000 shares and warrants to purchase 120,000 shares
to Tashdale, in the third tranche, for consideration of $1,200,000. The warrants
are exercisable at $1.15 per share and will expire at November 30, 2002. This
tranche will occur when the Securities and Exchange Commission declares the
related registration statement effective.
Curzon Capital Corp. was the placement agent in the November 1999
financing. They will receive 125,000 warrants to purchase common stock upon
completion of the three tranches. The warrants are exercisable at $1.15 per
share through November 30, 2002. Curzon will also receive 7% of the gross
proceeds as a placement fee.
On March 17, 1999, we entered into a purchase agreement with the Isosceles
Fund Limited and Cefeo Investments Limited, which was amended on June 16, 1999.
Under the purchase agreement, we issued Isosceles and Cefeo 8% convertible
promissory notes in the aggregate principal amount of $2,000,000 and warrants to
purchase our common stock.
To date, Viragen has incurred approximately $240,000 in penalties payable
to the selling security holders. We continue to incur $40,000 in penalties per
month, until this registration statement becomes effective, at which time the
accrued penalty will be paid. Also, the selling security holders have the right
to force redemption of their common shares, because this registration statement
is not yet effective. As described in the "Selling Security Holders" section of
this prospectus, the redemption value, if elected by the selling security
holders, would exceed the initial investment of $2 million. The redemption value
is the greater of:
o $2 million and related interest plus a premium of 15%; or
o market value of the shares to be redeemed, on the date the selling
security holders elect redemption.
The selling security holders have not requested a cash redemption.
In May 1999, Viragen completed a private placement for the sale of
2,750,000 shares of common stock. The common shares were sold to three
accredited investors at $0.50 per share. Viragen received proceeds of $1,375,000
from the sale of these shares.
As we indicated, in June 1999, we modified our agreements with the selling
security holders to lower the conversion price of the promissory notes. We did
this in order to obtain a waiver from the selling security holders to permit the
interim financing in May 1999. Since we had a pending registration statement at
the time of the May 1999 interim financing and June 1999 modification, the
Securities and Exchange Commission has informed us that we may have violated
Section 5 of the Securities Act of 1933. Accordingly, we may have a contingent
liability to the selling security holders and the three investors in the interim
financing since they may have a right to rescind their transactions. We have,
however, obtained waivers from both the selling security holders and May 1999
investors of their rescission rights under Section 5 of the Securities Act of
1933. In the case of the selling security holders, they still have the right to
rescind their investments by the terms of their agreement with us, because we
are no longer NASDAQ-listed and were not able to process our registration
statement on a timely basis.
Management will seek additional funding arrangements in the future.
RESULTS OF OPERATIONS
As the discussion of Liquidity and Capital Resources noted, our fiscal 1999
report of independent certified public accountants noted our financial condition
raises substantial doubts as to our ability to continue as a going concern.
17
<PAGE> 20
Viragen recognized no sales revenue or related costs for the three months
ended September 30, 1999 or the fiscal years ended June 30, 1999, 1998, or 1997.
We have limited potential for sales prior to receiving the necessary regulatory
approvals from the U.S. Food and Drug Administration and/or comparable European
authorities. We could begin generating sales revenue through export sales of
Omniferon prior to the end of fiscal 2000 under an agreement with the AGC group
of companies. These sales, however, are contingent upon AGC's receipt of the
required regulatory approvals for product commercialization in the designated
territories, and our receipt of required regulatory approvals.
We did receive approval of our Clinical Trial Exemption Application from
the European Union regulatory authorities to begin clinical trials of Omniferon,
our multi-species natural human leukocyte-derived alpha interferon. We began
clinical trials in the European Union during the fourth calendar quarter of
1999. Eventually, we will submit an Investigational New Drug Application to the
Food and Drug Administration. We cannot assure you that we will receive these
approvals. These approvals require the successful completion of clinical trials
and our ability to raise significant additional investment capital to fund the
completion of these trials.
Fiscal 1999 Compared to Fiscal 1998
The significant decline in interest and other income for 1999, compared to
the previous year reflects the reduction in cash balance invested between
periods. This reduction resulted primarily from operational losses, the cash
investment in Inflammatics, Inc., and expenditures associated with expansion of
our laboratory and manufacturing facility in Scotland.
Research and development costs totaled approximately $5,153,000 for fiscal
1999 compared to $4,222,000 for the previous year. The increase of $931,000
(22%) included an increase in research related salaries and support fees of
$468,030, and an increase in equipment maintenance costs of $127,988. We also
recognized $136,021 in compensation expense on warrants issued to scientific
consultants, under the guidelines of FAS 123. We did not incur this expense in
the prior year. We are now performing the bulk of our development work in our
Scottish facility.
General and administrative expenses totaled approximately $5,528,000 for
fiscal 1999, a decrease of approximately $52,000 from the preceding year.
During 1999, we waived a 90-day expiration provision on stock options held by
three directors who were not re-elected to the board of directors. We recognized
$171,875 in compensation expense, as a result of the modified grants. We also
recognized $61,751 in compensation expense on warrants issued to consultants
during the year. Overall, compensation expense from stock options and warrants
increased by $176,000 compared to the prior year. These increased expenses were
offset by a decrease in insurance costs of $93,689 from the prior year due to
favorable rates obtained on policy renewals. Also, legal fees decreased by
$222,600 between periods due to the settlement of litigation during the prior
year, as well as the completion of contract negotiations.
During the year, we recognized approximately $757,000 in losses related to
our investment in Inflammatics, Inc. This loss reflects 100% of the losses
incurred by Inflammatics associated with the clinical testing of LeukoVAX. The
loss also includes the amortization of the capitalized finders fee and warrant
costs. These costs are being amortized in proportion to the losses incurred by
Inflammatics as compared to our initial cash capital contribution to
Inflammatics.
Fiscal 1998 Compared to Fiscal 1997
Interest and other income of $1,143,112 represented earnings on invested
cash balances during fiscal 1998. This was a 19% decline from the previous
fiscal year. This significant decline reflected the decline in cash balance from
the previous year. This decline was due primarily to cash redemptions on
convertible preferred stock issuances and operational losses.
Research and development costs totaled $4,222,332, for fiscal 1998 compared
to $2,360,416 for the previous year. This increase reflected the overall
increase in research activities being conducted between the periods both in the
U.S. and Scotland. These activities related primarily to the scale-up of our
manufacturing technology in the 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 the Common Services
Agency of Scotland 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 our Florida and Scottish
facilities.
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<PAGE> 21
Selling, general and administrative expenses totaled $5,580,213 for fiscal
1998, reflecting an increase of $1,531,127 (38%) over the preceding year. This
increase included increases in administrative salaries and related taxes of
$599,400. This increase was due primarily to the addition of administrative
staff in our Florida facility and domestic salary increases. We also recognized
increases in rent expense, commencing in August 1997, related to our new
administrative facility in Plantation, Florida, as well as the expansion of
leased space in our Scottish manufacturing facility. Total rent expense for our
facilities increased by $393,600 over the prior year. Legal fees between the
periods have increased by $559,000. Legal fees associated with research of
technology patents increased by $111,300. We also expanded our efforts in
collaborative agreements and general contractual transactions, both domestically
and in Europe, for an increase of $211,200. Finally, costs associated with
litigation increased by $222,900. During the year, we also recognized $109,900
in bad debt expense attributable to a director loan with related accrued
interest. These increases were offset by compensation expense in the prior year
of $396,500 attributable to the issuance of options, which was not incurred in
fiscal 1998, and a decrease of $250,391 in losses on the settlement of
litigation. During the prior year, we settled threatened litigation for
$288,245. The potential litigation stemmed from allegations of a former
Cytoferon Corp. shareholder. The shareholder claimed compensation due under a
consulting agreement entered into with Cytoferon Corp. While Cytoferon Corp. and
Viragen denied any wrong doing in this matter, it was believed that the
settlement, through the issuance of treasury shares, would prove less costly to
us. We also experienced increased travel costs attributable to administrative
support functions related to the establishment of our Scottish facility.
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.
This note was issued in exchange for the series B convertible stock then
outstanding. This note was paid-in-full in April 1998.
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Research and development costs totaled approximately $1,062,000 for the
first quarter of fiscal 2000 compared to $940,000 for the same period of the
previous year. The increase of $122,000 included an increase in laboratory
supplies expense of $26,200, and an increase in research related salaries and
support fees of $130,100.
The increase in research and development costs is net of the decreased
development activity, related to OMNIFERON, being performed domestically, as the
technology transfer to our Scottish facility was deemed completed. During the
quarter, domestic lab supplies and research related support fees decreased by
$77,100 and $84,900 respectively, when compared to the same period of the
previous year. In November 1999, we ceased all research projects being conducted
in our Florida laboratory facility. All research related projects, including
research related to production scale-up, are now being conducted in our
Edinburgh, Scotland facility. We believe that this consolidation step will
improve and streamline our scientific development efforts as well as reduce
operating costs by consolidating operations in one facility. Research and
development costs, however, will continue to increase in the following periods
as we commence our clinical trials of OMNIFERON.
General and administrative expenses totaled approximately $1,013,000 for
the quarter ended September 30, 1999, a decrease of approximately $590,000 from
the same period of the preceding year. This decrease reflects a decrease in
domestic administrative salaries and support fees of $182,200 due to the
implementation of our cost reduction program. Also, Viragen waived a 90-day
expiration provision on stock options held by three directors who were not
re-elected to the Board of Directors during the first quarter of the previous
year. Accordingly, last year we recognized $324,500 in compensation expense, in
accordance with the provisions of FAS 123, during the first quarter of fiscal
1999. This expense was not incurred during the current fiscal year.
We recognized approximately $146,000 in losses during the quarter related
to our investment in Inflammatics, Inc. up from $116,000 in the prior year. This
loss reflects 100% of the losses incurred by Inflammatics associated with the
clinical testing of LEUKOVAX and the expensing of our excess investment costs.
19
<PAGE> 22
The significant increase in interest expense is related to debt instruments
which were outstanding during the first quarter of fiscal 2000, but not
outstanding during the same period of fiscal 1999. Specifically, Viragen had
outstanding 8% convertible promissory notes with a principal balance of
$2,000,000 and a short-term promissory note totaling $600,000. Also, Viragen
incurred approximately $700,000 of interest expense on reset shares issued to
investors upon the conversion of the promissory notes.
Our management anticipates operational losses will continue increasing as
we begin planned clinical trials of OMNIFERON. In January 1999, we began
implementing a cost-reduction plan. Planned cost reductions implemented in
calendar 1999 are expected to save approximately $2.4 million annually in
operating expenses. The reductions include the elimination of administrative and
research positions in the U.S. saving approximately $1.6 million. We also closed
our Florida-based research facility, consolidating these operations in our
Scottish facility and saving approximately an additional $800,000 annually. We
intend to sell our Florida facility during the second fiscal quarter. These
changes in operations reflect the shift from developing OMNIFERON in our
domestic laboratories to scale-up development and conducting clinical research
in the European Union. As a result, while significant savings will be realized
in the U.S., particularly in general and administrative expenses, these savings
will be more than offset by increasing expenses in our Scottish facilities
related to scale-up process and the start of clinical trials scheduled to
commence in the fourth calendar quarter of 1999.
YEAR 2000
Viragen 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 we are dependent. We rely
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 addition, through strategic alliance and supply
agreements currently in place, we are 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.
We have been utilizing both internal and external resources to isolate and
as necessary, reprogram, update or replace hardware or software found to be
non-Year 2000 compliant. Due to the limited size of our administrative staff,
most of this work has been performed by outside contractors retained
specifically for this project. We believe that all of our significant computer
dependent systems, both administrative and scientific, are now Year 2000
compliant. The total estimated costs to us to complete our internal Year 2000
project was approximately $50,000, including hardware replacements where
indicated. Funding for the evaluation and corrective phases was provided from
general working capital.
We have contacted external third parties, including raw material vendors
and scientific equipment manufacturers considered critical to our current and
planned future operations to discuss and evaluate their own compliance programs.
We will continue to evaluate the third party responses through the calendar
year-end and intend to mitigate third party Year 2000 issues, as necessary. For
example, while we believe our current suppliers of white blood cells, a critical
component to our manufacturing process, are year 2000 compliant, we have
identified and confirmed alternate sources of this material, if needed.
The ultimate success of our Year 2000 compliance program is dependent in
large part upon compliance programs of external third parties or scientific
equipment and software vendors over whom we have no direct control. Accordingly,
the inability of critical vendors to meet Year 2000 compliance deadlines could
have a material adverse impact on our operations from a product development,
clinical trial or commercial manufacturing standpoint. This could negatively
affect our financial condition, results of operations and cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On January 28, 1997, the Securities and Exchange Commission adopted
Securities Act Release No. 7386. This release requires that we disclose our
policies used to account for derivatives and quantitative and qualitative
information about market risk exposures. Market risk generally represents the
risk of loss that may result from the potential change in value of a financial
instrument as a result of fluctuations in interest rates and market prices.
20
<PAGE> 23
We have not traded or otherwise transacted in derivatives nor do we expect
to do so in the future. We have established policies and internal processes
related to the management of market risks which we use in the normal course of
our business operations.
Interest Rate Risk
The fair value of long-term interest rate debt is subject to interest rate
risk. As we had a minimal amount of long-term debt at June 30, 1999, a change in
interest rates would not have a material impact on our future operating results
or cash flows.
Foreign Currency Exchange Risk
We believe our foreign currency risk is not material. At the present time,
we do not have sales revenues or related receivables. Also, we do not purchase
foreign currencies on a regular basis. Transfers of funds to our foreign
subsidiary in Scotland are infrequent and are transferred at the then current
exchange rate.
We were not impacted by the European Union's adoption of the "Euro"
currency. Our foreign operations are located in Scotland, and the United Kingdom
did not participate in the adoption of the Euro. The United Kingdom does not
have a scheduled date for the eventual adoption of the Euro.
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BUSINESS
INTRODUCTION
Viragen, Inc., a Delaware corporation, was organized in 1980. We operate
through:
o Viragen, Inc. - parent company
o Viragen U.S.A. - 94% owned by Viragen, Inc.
o Viragen (Europe) Ltd - 87% owned by Viragen, Inc.
o Viragen (Scotland) Ltd - 100% owned by Viragen (Europe)
o Viragen (Germany) GmbH - 100% owned by Viragen (Europe)
We are in the business of researching and developing products which help the
human immune system resist viral infections. Our primary product will be a
natural interferon product named Omniferon(TM). We produce Omniferon from human
white blood cells. Natural interferon stimulates and controls the human immune
system. In addition, interferon may stem the growth of various viruses including
those involved with diseases like hepatitis, multiple sclerosis, cancer and
HIV/AIDS.
Neither the United States Food and Drug Administration nor the European
Union regulatory authorities have approved Omniferon. Viragen is currently
seeking European Union regulatory authority approval for its Omniferon product.
We will seek U.S. Food and Drug Administration approval in the future. These
approvals require several years of clinical trials and substantial additional
funds.
In August 1998, we acquired a 10% equity interest, with an option to
acquire up to an 80% interest, in Inflammatics, Inc. Inflammatics has licensed
the rights to LeukoVAX, also a human blood derived natural product, for the
treatment of rheumatoid arthritis. LeukoVAX is currently in U.S. Food and Drug
Administration Phase I/II clinical trials.
We are concentrating our efforts on the clinical trials necessary to obtain
approvals for Omniferon, currently within the European Union, and later in the
United States. We began our preclinical studies with Omniferon in March 1998 and
obtained approval of our Clinical Trial Exemption Application in July 1999.
Next, we began our clinical trials of Omniferon, in Europe, during the fourth
calendar quarter of 1999.
RECENT DEVELOPMENTS
We have entered into a series of strategic alliance and supply agreements
with major worldwide suppliers of blood products. These agreements secure
reliable and safe sources of human white blood cells, also known as leukocytes,
which are critical to the production of both Omniferon and LeukoVAX. During
1998, we entered into agreements with the American Red Cross and America's Blood
Centers. Between them, they collect annually a substantial majority of the U.S.
blood supply. We also entered into a series of agreements covering a majority of
the blood supply in Germany, a major European supplier.
In July 1998, we entered into a strategic alliance and supply agreement
with America's Blood Centers for the supply of human white blood cells.
America's Blood Centers is a national network of non-profit, independent
community blood centers operating in 45 states. America's Blood Centers members
annually collect over 45% of the U.S. blood supply through member blood donation
centers and mobile collection facilities. Under the America's Blood Centers
agreement, we have first and preferential access to all leukocytes produced by
America's Blood Centers members who have elected to participate in the program.
We pay a fixed cost per leukocyte provided during the first two years of the
agreement. After the first two years, the price may vary based upon increased
costs incurred by participating America's Blood Centers members.
The America's Blood Centers agreement also provides for a royalty payment
to be paid for each leukocyte provided under this agreement. The royalty is
based on the higher of:
o a percentage of net revenues realized by Viragen,
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o the estimated net revenues that could have been realized, based on the
sale of Omniferon, using the America's Blood Centers leukocytes
provided, or
o a fixed dollar amount per leukocyte.
No minimum order requirement exists under the agreement. However, we have agreed
with them that, prior to the date that a New Drug Approval Application becomes
approved by the Food and Drug Administration, we will negotiate in good faith to
reach an agreement on a minimum leukocyte purchase commitment.
In August 1998, we entered into a fifteen-year agreement with the American
Red Cross for the supply of leukocytes. The American Red Cross collects
approximately half of the U.S. blood supply. The American Red Cross agreement
provides for us to purchase leukocytes, consistent with agreed upon
specifications, based on quarterly forecasts. We may pay for the leukocytes in
cash or our common stock at the option of the American Red Cross. The valuation
of shares will be based on the average closing price of our shares for the five
days prior to the payment due date less a discount. The American Red Cross
agreement also contains an initial price per leukocyte modified by a volume
discount pricing schedule and rebate program. This pricing schedule may change
based on periodic renegotiations. Upon execution of the agreement, the American
Red Cross received a warrant to purchase up to 500,000 shares of our common
stock with exercise prices ranging from $5.50 to $11.00 per share. We also
entered into a stockholder's agreement and registration rights agreement. These
agreements relate to shares underlying the warrant and shares received in lieu
of cash for leukocyte purchases.
In August 1998, we entered into a strategic alliance with Inflammatics,
Inc., a private drug development company, headquartered in Philadelphia, PA. At
the same, time we purchased a 10% equity interest in Inflammatics, which is
focused on the development of LeukoVAX, an immunomodulating therapy derived from
leukocytes. LeukoVAX is currently in Food and Drug Administration Phase I/II
clinical trials for rheumatoid arthritis.
Under the Inflammatics agreement, we made an initial investment by
purchasing series A convertible preferred stock of Inflammatics for $1 million
and warrants to purchase 250,000 shares of our common stock. The warrants are
exercisable at prices ranging between $1.00 and $1.78 per share. We also
received two options to acquire up to an additional 70% equity position in
Inflammatics through two additional fundings. These fundings would be made
solely at our option.
The first additional funding is subject to our evaluation of the Phase I/II
clinical trial results. It would include:
o the issuance of 1,000,000 shares of common stock,
o the issuance of 300,000 common stock purchase warrants exercisable
at $1.00 through August 14, 2003, and
o the underwriting of Phase III clinical trials.
In exchange, we can acquire an additional 36.3% equity interest in Inflammatics.
Preliminary estimates of the cost for Phase III clinical trials of LeukoVAX
range between $6.0 million and $10.0 million.
The second additional funding is subject to our further evaluation of the
Phase III clinical trial results. It provides for the issuance of an additional
2,000,000 shares of common stock in exchange for an additional 33.3% equity
interest in Inflammatics.
In November 1998, Viragen signed an exclusive supply and distribution
agreement with AGC, a Pakistan-based, multinational conglomerate. This agreement
provides for the purchase and distribution of Omniferon. Under this agreement,
AGC's designated territories include:
o India,
o Pakistan,
o Saudi Arabia,
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o Kuwait,
o Yemen,
o Oman,
o UAE,
o Brunei, and
o other Middle Eastern countries.
AGC must purchase a minimum of $20 million of Omniferon over five years. The
purchase minimums become binding on AGC if and when:
o AGC receives the required regulatory approvals for product
commercialization in all of the above territories, and
o we receive the regulatory approvals to export Omniferon from our
commercial manufacturing facility in Edinburgh, Scotland.
AGC has agreed to provide Viragen with its projected annual requirements to be
updated quarterly. Projected requirements in excess of agreed purchase minimums
are binding on AGC. The purchase minimums, if contractually triggered, will be
secured by a $1 million irrevocable revolving letter of credit. AGC and Viragen
have agreed that if and when we obtain regulatory approval for commercialization
of Omniferon in the United States and/or Europe, both parties will negotiate in
good faith an amendment to the agreement which could modify the purchase
minimums and selling price.
The AGC agreement has been approved by the boards of directors of AGC and
Viragen.
Under the AGC agreement, AGC is responsible for clinical and regulatory
costs to obtain approvals for commercialization of Omniferon in their designated
territories. AGC is also responsible for all subsequent sales, marketing and
distribution activities. AGC is required to build, own and operate, at their
expense, a pharmaceutical distribution facility in a mutually agreeable location
within the territories. AGC has informed us that they initially intend to focus
on distribution for hepatitis B and C. These diseases are at epidemic
proportions in the designated territories.
In July 1999, Viragen entered into a letter of intent with Drogsan
Healthcare, a Turkish pharmaceutical company. The letter of intent outlines the
terms of a supply and distribution agreement between Viragen and Drogsan for
natural interferon. These terms are similar to the AGC agreement. The final
terms of this agreement are still being negotiated.
OPERATIONS
In July 1999, Viragen (Scotland) Ltd. received regulatory approval of its
Clinical Trial Exemption Application, to begin Phase I/II human clinical trials
of its Omniferon product, initially for the treatment of hepatitis C. We began
our clinical trials in the fourth calendar quarter of 1999.
Viragen will require significant additional financing to conduct and
complete clinical trials for the purpose of obtaining European Union and/or Food
and Drug Administration approvals for Omniferon or LeukoVAX. Clinical testing
toward European Union and/or Food and Drug Administration approval is an
expensive process. This is expected to take several years to accomplish with no
assurance that regulatory approvals will eventually be obtained.
THE PRODUCTS
Viragen derives its Omniferon from human white cells also known as
leukocytes. Natural interferon is one of the body's natural defensive responses
to foreign substances like viruses. It 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 indicate that interferons may inhibit malignant cell and tumor growth
without affecting normal cell activity.
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There are two basic types of interferon. They are differentiated primarily
by their method of manufacture and resulting composition. The first, as produced
by Viragen, is a multi-species natural, human leukocyte-derived alpha interferon
. This is produced by cultivated human white blood cells. The introduction of a
harmless agent 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 type of interferon is
recombinant or synthetic interferon (alpha or beta). This is a genetically
engineered interferon. Generally, it is produced from a single human gene in
bacterial cells by recombinant DNA techniques.
Clinical studies indicate that there may be significant therapeutic
differences between the use of natural interferon and synthetic interferon. We
believe that treatment with synthetic interferon may cause an immunological
response through the production by the human immune system of neutralizing
and/or binding antibodies. These antibodies reduce the effectiveness of the
treatment or may cause adverse side effects. We believe that the production of
neutralizing and/or binding antibodies is fairly non-existent in patients
treated with natural interferon. Furthermore, primarily due to biological
differences, the side effects of treatment with natural interferon. may be
milder than with a recombinant or synthetic interferon.
THE INTERFERON INDUSTRY
Prior to 1985, natural interferon was the only type of interferon
available. Research institutions and other biomedical companies like Viragen
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. They
subsequently received Food and Drug Administration approval to produce and
market their recombinant alpha interferon products for the treatment of
hairy-cell leukemia, hepatitis and Kaposi's Sarcoma, an AIDS-related skin
cancer.
After the emergence of recombinant or synthetic alpha interferon, the
medical community's interest in natural interferon diminished. This was due
primarily to the limited availability and its higher cost of production. 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 synthetic
interferon products. In 1993, Chiron Corp. received Food and Drug Administration
approval of BetaSeron(TM), its recombinant beta interferon, for the treatment of
relapsing/remitting multiple sclerosis. In 1996, Biogen, Inc. received Food and
Drug Administration approval for Avonex(TM), its recombinant beta interferon,
for relapsing/remitting multiple sclerosis. In 1997, Teva Pharmaceuticals
received Food and Drug Administration approval of its peptide chemical compound,
Copaxone(TM), for relapsing/remitting multiple sclerosis. In addition to the
manufacturers of synthetic interferons, Interferon Sciences, Inc. received Food
and Drug Administration approval in 1989 to sell, in injectable form,
Alferon(TM), a natural interferon product, for genital warts.
APPLICATIONS OF INTERFERON
Human leukocyte interferon is a naturally occurring protein which serves to
enhance the body's immune response to viral infections. Viragen believes
interferons can arrest the progress of viral based infections, reducing symptoms
and disease related complications with a minimum of side effects.
Hepatitis C
The hepatitis C virus 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. Approximately 30,000 new cases are diagnosed each
year. It 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 our scientific staff and
advisors, we believe that our Omniferon product may prove effective in the
treatment of this indication. Currently, the Food and Drug Administration has
approved interferons for the treatment of Hepatitis C including:
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o Hoffman-LaRoche's Roferon(TM),
o Schering-Plough's Intron A(TM), and
o Amgen's Infergen(TM).
Hepatitis B
Approximately 45% of the world population live in areas with a high
prevalence of hepatitis B infection. In these areas, the lifetime risk of
infection can exceed 60%. Most infections in these areas are acquired at birth
or during early childhood, when the risk of developing chronic infection is
highest. The United States is not in a high prevalence area. Here approximately
300,000 cases of acute hepatitis B are diagnosed annually. Between 2% and 10% of
these patients develop chronic infections. These infections put the patients at
risk of progressive liver disease possibly leading to cirrhosis and/or
hepatocellar carcinoma.
Synthetic interferon alpha is the only U.S. Food and Drug Administration
approved drug for hepatitis B. It has proven to be effective in the treatment of
some cases. Viragen believes that Omniferon may also prove effective in the
treatment of hepatitis B.
Multiple Sclerosis
In 1988, we conducted a patient funded, multi-phase clinical trial for the
treatment of multiple sclerosis with Alpha Leukoferon, our first-generation
natural interferon product. We conducted this study on a double-blind basis.
Certain patients received different dosage levels of that product and other
patients received a placebo. The study terminated in mid-1992. Published
information on these trials indicates that, in many cases, our Alpha Leukoferon
product provides favorable results in the treatment of patients afflicted with
relapsing/remitting, relapsing progressive and chronic progressive multiple
sclerosis.
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 our Alpha Leukoferon product in the treatment of various types of
multiple sclerosis. In 1994, the abstract, titled "Stabilization of
Relapsing-Remitting and Progressive Multiple Sclerosis with Natural Interferon
Alpha: A Preliminary Trial," was published in the Annals of Neurology. This is
the official journal of the American Neurological Association. The investigators
and Viragen published an additional article, titled "Natural Alpha Interferon in
Multiple Sclerosis: Results of Three Preliminary Series." It appeared in the
Journal of International Medical Research in 1996.
Chronic Myelogenous Leukemia
Chronic myelogenous leukemia is one of a group of diseases called
myeloproliferative disorders. It is usually recognized by a distinctive
cytogenetic abnormality, known as the Philadelphia chromosome. The current
treatment for chronic myelogenous leukemia is high dose chemotherapy with bone
marrow transplantation. Interferon therapy has emerged as a possible effective
initial treatment in this disease. This kind of therapy affects both the
presence of leukemia cells as well as the number of bone marrow cells having the
Philadelphia chromosome.
HIV/AIDS
In March 1996, Viragen, in collaboration with Biodoron, a Hollywood,
Florida based clinic, received approval from Health and Rehabilitative Services
under Florida's Investigational Drug Program to conduct an investigational study
in Florida of our Alpha Leukoferon product. This approval was for the treatment
of HIV/AIDS in hemophiliacs. Viragen entered into an agreement with Quantum
Health Resources, Inc., which contributed $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 began in March 1996. A total of 35
patients enrolled to receive Alpha Leukoferon for a minimum of six months in
combination with a comprehensive HIV/AIDS treatment program. While the study
suggested that Alpha Leukoferon was safe or well tolerated, the overall study
results proved to be inconclusive due to the smaller than anticipated number of
patients that finished the study.
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MANUFACTURE OF INTERFERON
Human white blood cells, also known as leukocytes, and a stimulating agent
are needed to produce human interferon. These raw materials are readily
available to us. A Food and Drug Administration approved stimulating agent,
which is harmless to humans, will be introduced into the white blood cell, which
induces the cell to produce interferon. The interferon is then separated from
other proteins, extracted and purified. Viragen's Omniferon product is currently
being manufactured in our Scottish facility for use in the human clinical
trials, which began in the fourth quarter of calendar 1999.
Production methods that we have developed, as well as enhanced methods
currently under development, we believe will reduce our costs of production and,
ultimately, the market price of Omniferon to patients. However, we cannot assure
you that this new manufacturing technology will achieve the level of
manufacturing proficiency and product improvement hoped for.
RESEARCH AND DEVELOPMENT
The entire process of research, development and European Union and/or Food and
Drug Administration approvals of a new bio-pharmaceutical drug takes several
years. It also requires substantial funding. In July 1999, Viragen received
approval of its European Clinical Trial Exemption Application to begin clinical
trials of Omniferon. Through our equity investment in Inflammatics, we are
currently involved n Food and Drug Administration Phase I/II clinical trials of
LeukoVAX. Our present focus is the continued research and development of
Omniferon for the treatment of hepatitis B and C, multiple sclerosis, chronic
myelogenous leukemia, herpes and HIV/AIDS.
We have spent a substantial amount of time and resources on the research
and development of improved cell stimulation and purification techniques for our
Omniferon product. We believe improving these processes will improve the purity
of the product while increasing production yields. We believe that focusing
research efforts on increased production yields, if successful, will
significantly lower costs of production. This will result in a lower more
competitive sales price of Omniferon.
Research and development costs totaled $1,062,034, $5,152,748, $4,222,332
and $2,360,416, for the three months ended September 30, 1999, and the fiscal
years ended June 30, 1999, 1998 and 1997, respectively .
ROYALTY AGREEMENT
Viragen and Medicore, Inc., a former affiliate, have a royalty agreement.
It provides for a maximum cap on royalties to be paid to Medicore of $2,400,000.
It includes a schedule of royalty payments of:
o 5% of the first $7,000,000 of sales of interferon and related
products,
o 4% of the next $10,000,000, and
o 3% of the next $55,000,000
until the total of $2,400,000 royalty is paid. The agreement also states that
royalties of approximately $108,000 previously accrued as payable to Medicore
will be the final payment. As we have had no interferon sales, no royalty
expense has been recognized for the three months ended September 30, 1999 or the
three fiscal years ended June 30, 1999.
PATENTS
Viragen believes its production techniques are unique and are capable of
yielding a superior quality product. We believe that our production techniques
will allow us to offer Omniferon at a price competitive with the recombinant
interferons.
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Viragen has filed two patent applications covering Omniferon production
techniques. We have also submitted several foreign patent applications relating
to natural interferon for topical use. Several of these patents have been
granted. During fiscal 1999, our patent issued in Japan for the topical use of
interferon was challenged by a Japanese company. We successfully defended our
patent position.
Under a license agreement between Viragen and Viragen (Europe) Ltd. dated
July 12, 1995, Viragen (Europe) has exclusive rights to Viragen's technologies.
These include technologies covered by patent, for all countries in the European
Union. In addition, we granted Viragen (Europe) the non-exclusive rights to
Viragen's technology throughout the world, excluding the United States and its
territories. Viragen (Europe) will pay Viragen a royalty ranging from 10% to 5%
of sales, with a minimum of $2 million per year, subsequently modified to
$167,000 per month. Viragen deferred the minimum royalty payment until Viragen
(Europe) has the necessary cash flow to meet this payment. The initial term of
this agreement is 15 years and automatically renews for two successive 15-year
periods.
United States patents have been issued to others for genetically engineered
and human-derived interferon. In the event of valid claims, Viragen may have to
negotiate license agreements with patent holders to use some processes and
products. We believe that we do not infringe upon any current patent. Also, no
one has alleged patent infringement by Viragen.
Someone can challenge the validity and enforceability of a patent by
litigation after its issuance. If the outcome is against the owner of the
patent, other parties may be free to use the subject matter of the patent.
Protection provided by foreign patents may be different than in the United
States. We cannot assure you that any future patents will offer substantial
protection or commercial benefit to us.
REGULATION
United States and European Union
Viragen's activities and its products and processes are subject to
substantial government regulation in the United States and within the European
Union. The European Union, Food and Drug Administration, state and local
agencies regulate the manufacturing, advertising and sale of biologic substances
and pharmaceutical products. The Food and Drug Administration has mandatory
procedures and standards, which apply to the clinical testing, marketing and
manufacture of any biologic product, including ours. European Union and/or Food
and Drug Administration approvals for commercialization of any new product can
take significant time and capital, since it involves extensive testing
procedures and lengthy clinical trials. These trials involve the measurement of
product safety, toxicity, and efficacy under specific protocols. The process of
obtaining European Union and/or Food and Drug Administration approvals requires
extensive animal testing to demonstrate product safety and preferred dosages.
Human tests are then performed to show and to document findings as to safety,
effectiveness, toxicity and side effects. Data is then gathered and evaluated,
followed by the submission of all information and data to the regulatory
authorities.
Viragen, through Viragen (Scotland), has completed the preclinical studies
of its Omniferon product in the European Union. In July 1999, we received
approval of our Clinical Trial Exemption application to begin clinical trials on
humans. We began the clinical trials in the European Union during the fourth
calendar quarter of 1999. Eventually, we expect to submit an Investigative New
Drug Application to the Food and Drug Administration for use of Omniferon in the
U.S. To help us during the approval process, we assembled a clinical advisory
committee. It consists of scientists, medical researchers and clinicians. They
are acting in an advisory capacity to assist us in developing the medical,
scientific and clinical aspects in support of our clinical trials. This is
initially with the European Union and eventually in the United States.
In Europe and the United States, human clinical trial programs generally
involve a three phase process. Typically, Phase I trials are conducted in
healthy volunteers to determine any early side effects 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 effectiveness and safety required by regulatory agencies. If Phase II
evaluations indicate potential effectiveness with an acceptable safety profile,
Phase III trials are performed. Phase III is performed to conclusively
demonstrate clinical effectiveness 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.
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Regulatory approvals depend on a number of factors, including. These
include 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 Food and Drug Administration jurisdiction. Semi-finished
drugs may be shipped, under controlled circumstances, for further processing,
packaging, labeling and distribution to third parties in approved foreign
countries. This controlled distribution is subject to the laws that apply in
those countries. For Viragen to conduct this type of sale, we must comply with
all Food and Drug Administration rules and regulations.
License and Manufacturing Agreement
European Union regulations require less stringent preclinical studies for
naturally occurring substances like our Omniferon product, than for genetically
engineered products. While we provide you with no assurances, we expect to
possibly receive an accelerated review of the various European Union processes
and clinical trials prior to market approval in the European Union.
In July 1995, Viragen (Scotland) entered into a license and manufacturing
agreement with the Common Services Agency of Scotland to secure a sufficient
source of needed raw materials. We also wanted their 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.
It has the physical and technical capacity to supply leukocytes and manufacture
alpha interferon from human leukocytes using our processes. We believe that
securing a sufficient qualified long-term source of blood-derived raw materials
within the European Union is critical for us to conduct European Union clinical
trials as well as providing a sufficient source of raw materials for future
subsequent commercial manufacturing.
During fiscal 1998, we were notified that, due to concerns over the
possible presence of Mad Cow disease in the UK blood supply, human leukocytes
collected in Scotland would not be approved for use in our clinical trials or
potential commercial production. This would remain until the European regulatory
authorities were satisfied that the risk of contamination had been minimized.
Due to their situation, we intend to use leukocytes collected in Germany under
our German Red Cross contractual arrangements, as well as other approved
sources.
Under the terms of the agreement with the German Red Cross, our subsidiary,
Viragen (Germany) GmbH, has the right to receive on a preferential basis
leukocytes produced by the German Red Cross. Viragen (Germany) has a right to
receive 1,000,000 leukocytes per year with deliveries to be ordered on a
quarterly basis. During the initial two-year period of the agreement, Viragen
(Germany) may determine its annual order quantity up to 1,000,000 leukocytes.
After the initial two-year period, the annual order quantity will be 1,000,000
leukocytes plus or minus 15%. Under this agreement, we will pay the German Red
Cross on a percentage of sales of Omniferon attributable to Viragen (Germany)
leukocytes. The German Red Cross will also be entitled to receive priority
distributions of Omniferon from German sourced leukocytes. Leukocytes provided
by the German Red Cross have been approved for use in our Scottish facility.
We engaged professionally recognized consultants familiar with the European
Union regulatory process to assist in the manufacturing and product approval
submissions. In addition, the Scottish Blood Transfusion Service has a full-time
regulatory department that has obtained approval in the European Union of
numerous European Union blood-derived products. The Scottish Blood Transfusion
Service will also work with us to obtain a manufacturing license and later
product approvals at the conclusion of the European Union clinical studies.
After obtaining a manufacturing license for Omniferon, we intend to seek Food
and Drug Administration manufacturing approval of our Scottish manufacturing
facility. However, we can give you no assurances that the Food and Drug
Administration will license or approve the Scottish manufacturing facility or
Omniferon for clinical trials and distribution in the United States.
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Viragen (Scotland) was organized to manufacture and distribute Omniferon
and related products in the European Union and other countries outside the
United States. Viragen has transferred patent and proprietary rights to Viragen
(Scotland) under a grant of license. Viragen (Scotland) has provided the
Transfusion Service 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 European Union. The Transfusion Service has
committed to participate with us in the manufacture of Omniferon in sufficient
scale to accommodate the European Union clinical trials. They also agreed to
conduct studies relevant to our product and cooperate with us in complying with
the laws and regulations of the European Union.
We are providing the Transfusion Service with full access to our
proprietary technology and specialized equipment under the license and
manufacturing agreement. We are also absorbing all costs of securing permits and
regulatory approvals, and expanding the Transfusion Service facilities, if
necessary, to participate in the manufacture of Omniferon. In addition, we are
bearing the costs of obtaining documentation showing compliance with European
Union regulatory requirements.
We have agreed to pay the Transfusion Service for product manufactured for
use in clinical trials in the European Union,
o for sales prior to obtaining new drug application approval, and o for
sales following regulatory approval. Under this arrangement, payments
will be made at varying percentages in relation to costs.
o for products manufactured for clinical trials, they are entitled to
cost plus 25%, for sales prior to obtaining new drug application
approval, cost plus 40%, and
o for sales following approval, cost plus 50%.
o products manufactured and used 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.
We also have agreed to pay the Transfusion Service for providing process
documentation for any additional manufacturing facilities we might establish.
The term of the license and manufacturing agreement is for a five-year
period. There are also two additional five-year extension terms at our option.
The agreement also contains provisions protecting our proprietary rights and
limits various competitive activities by the Transfusion Service.
COMPETITION
Competition in the research, development and production of interferon, and
other immunological products is intense. It involves major, well-established and
well-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 synthetic DNA technology.
A number of large companies, including Hoffman-LaRoche, Inc., Schering-Plough
Corporation, Biogen, Inc., Chiron Corp., Berlex Laboratories and Ares-Serono are
producing, selling and conducting clinical trials with these recombinant
interferons (alpha and beta) and other immunological products. These relate to
the treatment of cancer and viral infections, including hepatitis C, our first
targeted use of Omniferon.
In addition to the manufacturers of synthetic interferons, Interferon
Sciences, Inc., a domestic manufacturer of natural interferon, received Food and
Drug Administration approval in 1989 to sell, in injectable form, their natural
interferon product for genital warts.
We believe 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.
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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. Our
ability to develop products, complete clinical studies and obtain governmental
approvals in the past had been hampered by a lack of adequate capital. Viragen
is not presently competitive in the biopharmaceutical industry, because it does
not have a product, which can be distributed, at this time.
EMPLOYEES
As of December 14, 1999, we have 40 employees. Of these, 31 are research
and development and quality assurance/quality control personnel. The remaining 9
employees are management, regulatory and/or administrative personnel.
PROPERTIES
In November 1996, Viragen entered into a ten year lease for 14,800 square
feet in Plantation, Florida. This location contains our domestic administrative
and executive offices. The lease contains an option for up to two additional
five-year terms. Base lease payments on the facility total $15,700 per month.
Our administrative offices are located at 865 SW. 78th Avenue, Suite 100,
Plantation, Florida 33324; phone (954) 233-8746.
Viragen owns a 14,000 square foot building in Hialeah, Florida. This
facility includes a laboratory for biomedical research and development
activities. In August 1999, we obtained a $600,000 mortgage on our Florida
laboratory facility. The facility is also pledged against a $400,000 promissory
note obtained in November 1999. We intend to sell our Florida laboratory
facility during fiscal 2000, and consolidated our research and production assets
in our Edinburgh, Scotland facility.
In November 1996, through Viragen (Scotland), we entered into a five year
lease agreement in a biotechnology park in the Edinburgh area of Scotland. This
facility, consisting of approximately 12,000 sq. ft., contains our European
laboratory and production facilities. This location augments other productive
assets available to us within the Transfusion Service facility under the
Scottish agreement. The annual base lease rate for the facility is 71,700 UK
pounds or approximately US$119,700 plus adjustment for common area maintenance
charges. Viragen (Scotland) has the right to renew the lease for four additional
five-year terms.
We believe our properties are in good condition, well-maintained and
generally suitable and adequate to carry on our business. We also believe that
we maintain sufficient insurance coverage on all of our real and personal
property.
LEGAL PROCEEDINGS
In October 1997, Viragen, 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). The
plaintiff is a former Viragen stockholder 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. Viragen filed a motion to
dismiss denying the allegations and requesting reimbursement of its costs.
In November 1997, the plaintiff filed a notice of voluntary dismissal with
the federal court concurrently notifying Viragen of his intent to refile a
complaint in circuit court in the state of Florida.
In December 1998, the U.S. District court awarded us reimbursement of
attorneys' fees and expenses under Rule 11 of the Federal Rules of Civil
Procedure and the Private Securities Litigation Reform Act. We have submitted to
the Court a request for reimbursement of litigation related costs of
approximately $75,000, but we are uncertain what we can recover.
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<PAGE> 34
The plaintiff 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. It seeks an unspecified monetary
judgment and specific performance delivery of 441,368 shares of common stock.
The plaintiff is claiming that he is entitled to additional shares of common
stock under a consulting agreement. He also says that Viragen's president
breached his fiduciary duty to Cytoferon Corp. by not achieving sufficient
financing for Viragen which would have entitled Cytoferon Corp. to additional
shares. He is also claiming misrepresentations in connection with the previous
Cytoferon financings.
In March 1998 the Circuit Court granted Viragen's Motion to Dismiss the
complaint. Subsequently, the plaintiff filed an Amended Complaint alleging
breach of contract, fraud, violation of Florida's RICO ACT and breach of
fiduciary duties and seeking an unspecified monetary judgement and specific
performance delivery of 441,368 shares of common stock. In April 1998, Viragen
filed a Motion to Dismiss plaintiff's amended complaint which was denied by the
Court. Viragen denies the allegations of the complaint and intends to continue
to vigorously defend the claims.. We cannot determine at this point, the
ultimate liability, if any, resulting from this litigation. No accrual for loss
has been recorded.
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
SERVED AS OFFICER AND/OR
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE CLASS
---- --- ------------------------- ------------------------- -----
<S> <C> <C> <C>
Gerald Smith 69 Chairman of the Board 1994
Chief Executive Officer 1998 C
President 1993
Robert Zeiger 55 Vice Chairman of the Board 1998 B
Dennis W. Healey 51 Chief Financial Officer 1980
Treasurer 1980 B
Director 1984
Executive Vice President 1993
Secretary 1994
Dr. Magnus Nicolson 39 Chief Operating Officer 1999
Melvin Rothberg 52 Executive Vice President 1999
Carl N. Singer 81 Director 1997 C
Peter D. Fischbein 59 Director 1981 B
Sidney Dworkin, Ph.D. 78 Director 1994 A
Robert Salisbury 54 Director 1998 A
Charlie Simons 81 Director 1998 A
Jose I. Ortega 27 Controller 1996
</TABLE>
On February 28, 1997, we amended our Certificate of Incorporation and set up a
classified board of directors with the 1997 annual meeting. Following that
meeting, we divided directors into three subclasses consisting of class A, class
B and class C.. The initial term of the class A directors expired after the 1998
annual meeting of stockholders; the term of the class B directors initially
expires after the 1999 annual meeting; and the term of the class C directors
initially expires after the 2000 annual meeting. At each annual meeting,
stockholders will elect directors of the class whose term expired. Directors
will be elected to hold office for a term to expire at the third ensuing annual
meeting.
Gerald Smith became president of Viragen in May 1993. Since 1982, Mr. Smith
was a principal stockholder, president, chief executive officer and a director
of Business Development Corp. Business Development 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 was also the president, chief
executive officer and a director of Cinescopic Corporation and International
Database Service, Inc. These are computer-oriented companies which developed
database technology using the personal computer for audio, video, animation and
real time communication. Mr. Smith discontinued the operations of Business
Development Corp. in order to devote all of his time to Viragen. Mr. Smith is
also chairman of the board and president of Viragen (Europe) Ltd.
Robert H. Zeiger was appointed chief executive officer and chief operating
officer of Viragen, during May 1995. At that time, he was also elected as a
director. 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. He served as vice president and general manager of their
Dermatological Division from 1985 to 1988. He then served as vice president and
general manager of Glaxo Pharmaceuticals from 1991 to 1994. Previously, Mr.
Zeiger served as vice president marketing and sales with Stiefel Laboratories,
Inc., Coral Gables, Florida, from 1979 to 1985. He was national sales manager to
Knoll Pharmaceutical Company, Whipping, New Jersey from 1971 to 1979. Mr. Zeiger
has also served as chief executive officer and a director of Viragen (Europe).
On July 31, 1998 Mr. Zeiger resigned his positions of chief executive officer of
Viragen and Viragen (Europe) and director of Viragen (Europe) for health
reasons. His resignations were effective September 30, 1998. Mr. Zeiger
continues to serve as vice chairman and senior pharmaceutical advisor to the
Viragen board. He is a member of the executive committee of the board of
directors.
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<PAGE> 36
Dennis W. Healey is a certified public accountant. He was appointed
chairman of the board and chief executive officer on April 13, 1993. In June
1994, Mr. Healey relinquished his position as chairman of the board to Mr.
Smith. In July 1994, he relinquished the position of chief executive officer.
Upon Gerald Smith becoming president in May 1993, Mr. Healey became executive
vice president. He has served as chief financial officer and treasurer 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. This is a public company engaged primarily in
electronics assembly and ownership of dialysis centers. He was also executive
vice president of its Techdyne affiliate. He served as treasurer of most of
Medicore's subsidiaries. He was also vice president of Dialysis Corporation of
America, a subsidiary of Medicore, and as secretary, treasurer and director of
other Dialysis Corporation of America subsidiaries. Mr. Healey joined Medicore
in 1976 as its controller. Mr. Healey is also executive vice president,
treasurer, secretary and a director of Viragen (Europe) and Viragen U.S.A.
D. Magnus Nicolson, Ph.D. was appointed chief operating officer of Viragen
and Viragen (Europe) upon the resignation of Dr. Jay Sawardeker in July 1999 and
August 1999, respectively. Dr. Nicolson was elected a director of Viragen
(Europe) in 1997. He has served as the managing director of Viragen (Scotland)
since April 1996. From 1992 to 1995, Dr. Nicolson was employed by Scottish
Enterprise, an agency of the Scottish government responsible for generating
economic development in Scotland. During his time at Scottish Enterprise, he
served as:
o technology manager for Locate in Scotland (1995),
o senior executive (1993 to 1995), and
o contractor, healthcare liaison office of Dunbartonshire Enterprise
(1992 to 1993).
From 1990 to 1992, Dr. Nicolson conducted various market research projects for a
variety of public and private enterprises as an independent marketing
consultant. In 1988, Dr. Nicolson was awarded a Doctorate in Immunology from the
University of Strathclyde. He earned a Masters Degrees in both Immunology and
Business in 1985 and 1992, respectively. Dr. Nicolson is a Fellow of the Royal
Society of Medicine, a Member of the Royal Society of Chemistry, and a Member of
the Chartered Institute of Marketing.
Melvin Rothberg joined Viragen as chief executive officer of Viragen U.S.A.
in April 1998. In April 1999, Mr. Rothberg assumed the position of an executive
vice president of Viragen. Prior to joining Viragen, Mr. Rothberg served as a
vice president of Althin Medical, Inc., a U.S. subsidiary of a Swedish medical
company, from 1990 to 1998. Mr. Rothberg served as a director and manager of a
number of divisions of C.D. Medical, a division of the Dow Chemical Company,
from 1983 to 1990. He was an engineer with Cordis Dow Corporation from 1974 to
1983.
Carl N. Singer was elected a director in August 1997. He currently serves
as chairman of the executive committee of the board of directors. Since 1981,
Mr. Singer has served as chairman of Fundamental Management Corporation, a
Florida-based institutional investment fund. Mr. Singer has also 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 34 years. Mr. Fischbein served as Viragen's secretary between May
and December 1994. His former law firm on occasion represented Viragen, Medicore
and the Viragen Research Associates Limited Partnership, which has contracts
with Viragen, Inc. Mr. Fischbein is also a director of Medicore since 1984 and a
director of 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. was elected a director in August 1994. He 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
are publicly-traded companies.
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<PAGE> 37
Charles J. Simons was elected to the board of directors in July 1998. He
currently serves as chairman of the audit, finance and compensation committee of
the board of directors. Mr. Simons has been a director of Renex Corp. since its
inception in July 1993. Mr. Simons is the chairman of the board of G.W.
Plastics, Inc., a plastic manufacturer. Also, he is an independent management
and financial consultant. From 1940 to 1981, he was employed by Eastern
Airlines, last serving as vice chairman, executive vice president and as a
director. Mr. Simons is a director of Arrow Air, Inc., a cargo air carrier;
Veridian, Inc., an aerospace company; and a number of private companies. He was
also a director of Home Intensive Care, Inc. from 1988 until July 1993. Mr.
Simons is also a director of MedWaste, Inc.
Robert C. Salisbury was appointed a director of Viragen in December 1998.
From 1974 to 1995, Mr. Salisbury was employed by the Upjohn Company serving in
several financial related positions. These positions included manager of cash
management, internal control and corporate finance from 1975 to 1981. He was
vice president from 1985 to 1990, senior vice president from 1991 to 1994, and
executive vice president for finance and chief financial officer from 1994 to
1995. Following the merger of Pharmacia and Upjohn, Inc. in 1995, Mr. Salisbury
served as executive vice president and chief financial officer until 1998.
Jose I. Ortega is a certified public accountant and joined Viragen as its
controller in June 1996. From 1993 until joining Viragen, Mr. Ortega was a
member of the audit staff of Ernst & Young LLP, Viragen's independent audit
firm.
There is no family relationship between any of the officers and directors.
During fiscal 1999, Viragen's board of directors met on four occasions.
Viragen has an executive committee and an audit, finance and compensation
committee. The executive committee consists of Messrs. Singer (chairperson),
Smith and Zeiger. The audit, finance and compensation committee includes Messrs.
Simons (chairperson), Dworkin, Salisbury and Healey.
The executive committee acts for the full board during intervals between
board meetings, except on matters which by law may not be delegated. The
executive committee will meet as necessary. All actions by the committee are to
be reported at the next board of directors meeting. During fiscal 1999, the
executive committee met on four occasions.
The audit, finance and compensation committee oversees Viragen'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 communicates with Viragen's independent certified
public accountants, on behalf of the board of directors. This committee receives
written reports, supplemented by oral reports, 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. The
committee is responsible for supervising the implementation of Viragen's budget
process. Prior to fiscal 1998, our board of directors acted, as a whole, as the
audit, finance and compensation committee. During fiscal 1999, the audit,
finance and compensation committee met four times with all committee members
present.
AUDIT, FINANCE AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
Currently, there are four members of the audit, finance and compensation
committee. Three members 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 Viragen. Mr. Healey also
serves in a similar capacity for one or more of Viragen's subsidiaries. Mr.
Healey abstains from any discussions or votes concerning his salary and other
forms of compensation.
35
<PAGE> 38
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table includes information concerning the compensation and
employment agreements of the chief executive officers of Viragen and the four
other most highly compensated executive officers as of June 30, 1999.
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL RESTRICTED OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS (#) PAYOUTS COMPENSATION
- ------------------ ---- ------ ----- ------------ ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith 1999 $282,000
Chairman of Board 1998 263,000
and President 1997 175,885 1,050,000
Robert H. Zeiger 1999 22,582
CEO, Director 1998 111,347
1997 65,250 12,500 5,000 50,000
Dennis W. Healey 1999 252,000
Exec. V.P., 1998 240,000
Treasurer, CFO 1997 163,345 350,000
and Director
Charles F. Fistel 1999 151,846
Exec. V.P., 1998 150,000
Director 1997 138,886 300,000
Jay Sawardeker 1999 174,039
Exec. V.P., and 1998 148,470
Director 1997 113,462 200,000
</TABLE>
Employment Agreements
On March 1, 1997 Mr. Smith entered into a two-year employment agreement.
This agreement provided for:
o a salary of $190,000 and $200,000 for the first and second years,
respectively,
o options to purchase 1,000,000 shares of common stock at $3.22 per
share exercisable over five years,
o health and life insurance,
o similar employee benefits generally available to other employees,
o use of an automobile and related maintenance, and
o reimbursement of business related expenses.
On March 1, 1997, Mr. Smith also entered into a two year employment
agreement with Viragen (Europe) Ltd. under terms similar to those of his Viragen
employment agreement. The agreement provided for an annual salary of $10,000 and
$20,000 for the first and second years. We amended the agreement on July 3,
1997, to provide for an annual salary of $72,000 for the year July 1, 1997
through June 30, 1998, and $82,000 per annum for the period from July 1, 1998
through February 28, 1999. Mr. Smith's employment agreements with both Viragen
and Viragen (Europe) expired on March 1, 1999. On that date, he entered into a
single employment agreement with Viragen under terms similar to his previous
agreement. This agreement provides for a total annual salary of $282,000. Mr.
Smith continues to serve as the president and chairman of Viragen (Europe).
On May 9, 1995, Viragen entered into a two-year employment agreement
with Robert H. Zeiger. Under the agreement, he was to serve as chief executive
officer and chief operating officer through May 1, 1997. The agreement provided
for:
36
<PAGE> 39
o an annual salary of $120,000,
o the issuance of options to purchase 1,000,000 shares of common stock
at an exercise price of $.96 per share, with 500,000 shares being
exercisable commencing May 8, 1996 through May 8, 2001 and the
remaining 500,000 shares being exercisable commencing May 8, 1997
through May 8, 2002,
o health and life insurance,
o similar employee benefits generally made available to other employees,
o use of an automobile and related maintenance expenses, and
o reimbursement of business related expenses.
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, during the first six months of the contract term.
In July 1998, Mr. Zeiger resigned for health reasons his positions as chief
executive officer of Viragen and Viragen (Europe) and director of Viragen
(Europe), effective September 30, 1998. Mr. Zeiger continues to serve as vice
chairman and as senior pharmaceutical advisor to the Viragen board. He is a
member of the executive committee of the board of directors.
On March 1, 1997 Mr. Healey entered into a two-year employment agreement.
The agreement, which was amended on July 1, 1997, provided for:
o a salary $190,000 and $195,000 for the first and second years,
o options to purchase 300,000 shares of common stock at $3.22 per share,
exercisable over five years,
o health and life insurance,
o similar employee benefits generally available to other employees, and
o reimbursement of automobile and business related expenses.
This agreement as amended July 1, 1997, provided for and.
On July 30, 1996, Viragen (Europe) entered into a two-year employment
agreement with Mr. Healey under terms similar to his employment agreement with
Viragen. It provided 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 new two-year employment agreement,
subsequently amended on July 3, 1997. This agreement was to run concurrent with
Mr. Smith's Viragen (Europe) agreement and superceded 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. Upon the expiration of Mr. Healey's
employment agreements with Viragen and Viragen (Europe), on March 1, 1999, he
entered into a single employment agreement with Viragen under terms similar to
his previous agreements. The agreement provides for a total annual salary of
$252,000. Mr. Healey continues to serve as executive vice president, chief
financial officer, secretary and director of Viragen (Europe).
On July 1, 1996, Viragen entered into a two-year employment agreement with
Charles Fistel to serve as executive vice president. This agreement provided
for:
o an annual salary of $140,000 and $150,000 for the first and second
years,
o health and life insurance,
o similar employee benefits generally made available to other employees,
and
o use of an automobile and related expenses.
In February 1997, Viragen issued to Mr. Fistel five-year options to purchase
250,000 shares at $2.75 per share. Viragen 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, Viragen entered into a two year
employment agreement with Mr. Fistel. The terms of this agreement are similar to
his previous agreement, modified to increase his annual salary to $172,500
during the two year term. Mr. Fistel resigned on May 14, 1999.
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<PAGE> 40
From March 1996 to May 1996, Dr. Sawardeker served as an consultant to
Viragen in scientific affairs. On May 6, 1996, Dr. Sawardeker entered into two
year employment agreement effective July 1, 1996. This agreement provided for:
o a salary of $100,000 per year,
o a five year option to acquire 250,000 shares of common stock,
exercisable at $1.80 per share, vesting one third on the effective
date of the employment agreement and an additional one third vesting
on the first and second anniversary dates,
o SIMILAR EMPLOYEE BENEFITS GENERALLY AVAILABLE TO EXECUTIVE EMPLOYEES,
o $400 PER MONTH AUTO ALLOWANCE, AND
o REIMBURSEMENT OF BUSINESS RELATED EXPENSES.
Dr. Sawardeker's employment agreement was subsequently amended and extended
through June 30, 1999. It provided 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. Upon the expiration on Dr. Sawardeker's contract, he resigned as chief
operating officer of Viragen and a director of Viragen (Europe).
On July 1, 1999, Dr. Nicolson entered into a two year employment agreement
with Viragen. This agreement supercedes all previous agreements. The agreement
provided for:
o an annual salary of $170,000,
o the grant of an option to acquire 200,000 shares of common stock at
$.625, vesting one-half on the first anniversary of the grant date and
one-half on the second anniversary,
o similar employee benefits generally available to executive officers,
o use of an automobile, and
o reimbursement of business related expenses.
On July 1, 1999, Mr. Rothberg entered into a two year employment agreement
with Viragen. This agreement supercedes all previous agreements. The agreement
provided for:
o an annual salary of $160,000 and $172,500 for the first and second
years,
o the grant of an option to acquire 250,000 shares of common stock at
$.625 per share, vesting one-half on the date of grant and one-half on
the first year anniversary,
o health insurance,
o similar employee benefits generally available to executive employees,
o $400 per month auto allowance, and
o reimbursement of business related expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table includes information as to the grant of options to
purchase shares of common stock during the fiscal year ended June 30, 1999 to
each person named in the summary compensation table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES # OF TOTAL OPTIONS/SARS
UNDERLYING OPTIONS/SARS GRANTED TO EMPLOYEES IN FISCAL EXERCISE OR BASE PRICE
NAME GRANTED (#) YEAR ($/SHARES) EXPIRATION DATE
- ---------------------- ----------------------- ------------------------------ --------------------- ---------------
<S> <C> <C> <C> <C>
Gerald Smith -- -- -- --
Robert H. Zeiger -- -- -- --
Dennis W. Healey -- -- -- --
Charles F. Fistel -- -- -- --
Jay Sawardeker -- -- -- --
</TABLE>
38
<PAGE> 41
OPTION EXERCISES AND HOLDINGS
The following table includes information as to the exercise of options to
purchase shares of common stock during the fiscal year ended June 30, 1999 to
each person named in the summary compensation table and the unexercised options
held as of the end of the 1999 fiscal year.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND 1999 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN THE MONEY
OPTIONS AT FY-END
SHARES VALUE REALIZED NUMBER OF UNEXERCISED OPTIONS (BASED ON FY-END/SHARE)
SHARES MARKET PRICE AT AT FY END PRICE OF $0.75
ACQUIRED ON EXERCISE LESS ----------------------------- ---------------------------------
NAME EXERCISE PRICE EXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- ----------------- ------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Gerald Smith 250,000 139,000 2,450,000 -- $ 350,000 $ --
Robert H. Zeiger -- -- 1,050,000 -- -- --
Dennis W. Healey 250,000 139,000 650,000 -- 75,000 --
Charles F. Fistel 410,000 41,250 300,000 -- -- --
Jay Sawardeker -- -- 450,000 -- -- --
</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, called the 1995 stock option plan. On
September 22, 1995, the board of directors amended the 1995 stock option plan to
define certain terms and clarify the minimum exercise price of the non-qualified
options. The minimum exercise price of non-qualified options cannot be less than
55% of the fair market value. Viragen stockholders ratified the 1995 stock
option plan at the annual meeting held on December 15, 1995.
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
1997 stock option plan contains terms and provisions similar to the 1995 stock
option plan. Viragen stockholders ratified the 1997 stock option plan at the
annual meeting held on February 28, 1997. On April 24, 1998 the board of
directors adopted, subject to ratification by the stockholders, an amendment to
the 1997 stock option plan. This amendment reserved an additional 1,000,000
shares of common stock for issuance under that plan. This amendment brought the
total shares reserved under the 1997 stock option plan to 4,000,000 shares. On
July 31, 1998, the stockholders ratified this amendment to the 1997 stock option
plan.
The audit, finance and compensation committee of the board of directors and
the board of directors currently administer the plans. Administration of the
plan includes determining:
o the persons who will be granted plan options,
o the type of plan options to be granted,
o the number of shares subject to each plan options, and
o the plan options price.
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<PAGE> 42
Options granted under either the 1995 or the 1997 stock option plans may qualify
as incentive stock options, under Section 422 of the Internal Revenue Code of
1986, as amended. In addition, the plans also include a reload option provision.
This provision permits an eligible person to pay the exercise price of the plan
option with shares of common stock owned by the eligible person. The person then
receives a new plan option to purchase shares of common stock equal in number to
the tendered shares. Any incentive option, which is granted under a 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. The exercise price of any
incentive option granted to an eligible employee owning more than 10% of our
common stock must be at least 110% of the fair market value, as determined on
the date of the grant. The board of directors or the audit, finance and
compensation committee determine the term of each plan option and the manner in
which it may be exercised. No plan option may be exercisable more than 10 years
after the date of its grant. In the case of an incentive option granted to an
eligible employee owning more than 10% of Viragen's common stock, no plan option
may be exercisable more than five years after the date of the grant.
Officers, directors, key employees and consultants of Viragen and its
subsidiaries are eligible to receive non-qualified options under the stock
option plans. Only officers, directors and employees who are employed by Viragen
or by any of its subsidiaries are eligible to receive incentive options.
Incentive options are non-assignable and nontransferable, except by will or
by the laws of descent and distribution during the lifetime of the optionee.
Only the optionee may exercise incentive options. Under a recent amendment to
the 1997 stock option plan, non-qualified options may be transferable under
limited circumstances for 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 if an optionee is not an employee
but is a member of Viragen'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 will lapse to the extent unexercised on the earlier of the
expiration date or 30 days following the date of termination. If the optionee
dies during the term of his employment, the plan option granted to him will
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, 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 the disability.
The board of directors or the audit, finance and compensation committee may
amend, suspend or terminate the stock option plans at any time. However, no
amendment can be made which changes the minimum purchase price, except in the
event of adjustments due to changes in Viragen's capitalization. Unless the
plans have been suspended or terminated by the board of directors, the 1995
stock option plan will terminate on May 15, 2005, and the 1997 stock option plan
will terminate on January 27, 2007. The termination of either plan will not
affect the validity of any plan options previously granted.
As of December 14, 1999, we have issued 3,965,000 options under the 1995
stock option plan and 3,584,000 options under the 1997 stock option plan.
OTHER OPTION GRANTS
During fiscal 1999, Viragen issued options to purchase 25,000 shares of
common stock to each of the two directors who joined the board of directors
during the year. In addition, we issued 35,000 options to Dr. Ray Ziai our vice
president of research and development in connection with an amendment and
extension of his employment agreement. All options were issued with a five year
term, exercisable at the market price on the date of grant.
CERTAIN TRANSACTIONS
Gerald Smith and Dennis W. Healey, who are principal officers of Viragen,
also serve as the principal officers of Viragen (Europe). Messrs. Smith and
Healey also serve as principal officers of our majority-owned subsidiary,
Viragen U.S.A., Inc.
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<PAGE> 43
On April 25, 1997, Viragen loaned William Saeger, a former director,
$100,000. In exchange, Viragen received a one year promissory note bearing
interest at 8 1/2%. In April 1998, Mr. Saeger defaulted on this note. Due to a
subsequent deterioration in Mr. Saeger's health and financial condition, we were
unable to determine the amounts which could ultimately be realized on the
promissory note. Accordingly, we wrote-off the entire amount due under the note
with related accrued interest of approximately $10,000 as uncollectible by
fiscal 1998 year end. We intend to pursue collection efforts relative to this
transaction.
On September 1, 1998, Gerald Smith and Dennis W. Healey each exercised
250,000 options to purchase common stock. Both exercised their options through
the issuance of promissory notes payable to Viragen totaling $300,000. Smith and
Healey also entered into related pledge and escrow agreements. The promissory
notes bear interest at 5.47%, payable semi-annually, and are secured by the
underlying common stock purchased. The purchased shares are being held in
escrow, pending payment of the related notes pursuant to the provisions of the
pledge and escrow agreements.
Mr. Carl Singer, a director, also exercised options for 50,000 shares on
October 1, 1998. Mr. Peter Fischbein, a director, exercised options for 200,000
shares on October 8, 1998. Mr. Charles F. Fistel, a former officer, exercised
options totaling 410,000 shares on May 3, 1999 and May 11, 1999 These options
were all exercised through the issuance of promissory notes payable Viragen
totaling $302,000, and related pledge and escrow agreements. The promissory
notes bear interest at rates ranging between 5.06% and 5.15%, payable semi-
annually, and are secured by the underlying common stock purchased. The
purchased shares are being held in escrow, pending payment of the related notes
pursuant to the provisions of the pledge and escrow agreements.
PRINCIPAL STOCKHOLDERS
The following table shows certain information regarding Viragen's common stock
beneficially owned at December 14, 1999, by:
o each person who is known by us to own beneficially or exercise voting
or dispositive control over 5% or more of Viragen's common stock,
o each of Viragen's directors, and
o all officers and directors as a group.
A person is considered a beneficial owner of any securities that the person has
the right to acquire beneficial ownership of within 60 days. At December 14,
1999, there were 76,538,914 shares of common stock outstanding. Other than
indicated in the notes, we have been informed that these persons have sole
voting and dispositive power with respect to their shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ -------------------- ----------------
<S> <C> <C>
Gerald Smith 3,000,000 (1) 3.8 %
Robert H. Zeiger 995,000 (2) 1.3
Carl N. Singer 1,915,541 (3) 2.4
Dennis W. Healey 1,005,000 (4) 1.3
Peter D. Fischbein 400,000 (5) 0.5
Sidney Dworkin, Ph.D. 325,244 (6) 0.4
Charles J. Simons 35,000 (7) 0.0
Robert C. Salisbury 30,000 (8) 0.0
Officers & Directors (as a Group of 12 persons) 9,410,240 11.7
The Isosceles Fund 4,606,838 (9) 6.0
</TABLE>
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<PAGE> 44
(1) Mr. Smith is chairman of the board of directors and president of
Viragen. Includes (a) 550,000 shares owned directly by Mr. Smith; (b)
1,400,000 options exercisable at $.50 per share granted Mr. Smith's
October 6, 1995 employment agreement; (c) 1,000,000 options exercisable
at $3.22 per share granted pursuant to Mr. Smith's March 1, 1997
employment agreement and (d) 50,000 options exercisable at $3.22
granted to all directors in February 1997.
(2) Mr. Zeiger was chief executive officer of Viragen until his
resignation for health reasons effective September 30, 1998. Mr. Zeiger
continues to serve as vice chairperson of the board of directors and
senior pharmaceutical advisor to the board. Includes (a) 945,000
common stock purchase options exercisable at $.96 per share pursuant to
Mr. Zeiger's May 9, 1995 employment agreement and (b) 50,000 options
exercisable at $3.22 granted to all directors in February 1997.
(3) Mr. Singer is a director of Viragen. Includes (a) 79,500 shares
owned directly by Mr. Singer and (b) 1,836,041 shares held by
Fundamental Management Corporation, an institutional investment fund
for which Mr. Singer serves as chairman.
(4) Mr. Healey is executive vice president, treasurer, chief financial
officer, secretary and a director of Viragen. Includes (a) 555,000
shares held in Mr. Healey's name; (b) 100,000 options exercisable at
$.50 per share granted pursuant to Mr. Healey's October 6, 1995
employment agreement; (c) 300,000 options exercisable at $3.22 per
share granted with Mr. Healey's March 1, 1997 employment agreement and
(d) 50,000 options exercisable at $3.22 granted to all directors in
February 1997.
(5) Mr. Fischbein is a director. Includes (a) 325,000 shares held in
Mr. Fischbein's name (b) 25,000 options exercisable at $.50 per share
granted in October 1995; and (c) 50,000 options exercisable at $3.22
granted to all directors in February 1997.
(6) Mr. Dworkin is a director. Includes (a) 175,244 shares owned
directly by Mr. Dworkin and his wife; (b) 100,000 options exercisable
at $.50 per share granted in October 1995; and (c) 50,000 options
exercisable at $3.22 granted to all directors in February 1997.
(7) Mr. Simons was elected a director of Viragen in July 1998. Includes
(a) 10,000 shares owned directly by Mr. Simons and (b) 25,000 options
exercisable at $1.88 granted on July 31, 1998.
(8) Mr. Salisbury was appointed to the board of directors in December,
1998. Includes30,000 shares owned directly.
(9) Includes (a) 3,907,809 shares acquired upon conversion of notes and
related re-set shares, and (b) 699,029 shares which may be acquired
upon the exercise of warrants. The Isosceles Fund is controlled by
Linford Asset Management Ltd.
SELLING SECURITY HOLDERS
TRANSACTION OVERVIEW
On March 17, 1999, we entered into a purchase agreement with the Isosceles
Fund Limited and Cefeo Investments Limited. We signed an amended agreement to
the purchase agreement on June 16, 1999. This amendment reduced the conversion
price, waived first refusal rights for an interim financing and extended the
date for Viragen to complete the processing of its registration statement. The
purchase agreement:
o describes the terms pursuant to which we issued Isosceles and Cefeo 8%
redeemable promissory notes in the aggregate principal amount of
$2,000,000 and warrants to purchase shares of our common stock;
42
<PAGE> 45
o requires us to indemnify Isosceles, Cefeo and their respective
officers, directors and affiliates from any damages they incur if we
breach the purchase agreement; and
o gives Isosceles a right of first refusal to participate in private
equity financings we undertake prior to March 17, 2000.
At the same time we executed the purchase agreement, we entered into a
memorandum of agreement with Isosceles which gave us the option to sell
Isosceles an aggregate of up to $7,000,000 of additional notes and warrants in
two tranches. Neither Viragen nor the selling security holders have an
obligation to complete the subsequent tranches.
NOTES. We issued Isosceles and Cefeo promissory notes in the principal
amount of $2,000,000 under the purchase agreement. The principal amount of the
notes accrued interest at a rate of 8% annually.
CONVERSION. One-half of the principal balance and accrued interest on the
related principal converted automatically into 2,049,534 shares of our common
stock on July 7, 1999. In addition, the remaining one-half of the principal
balance and accrued interest on the notes converted automatically into 2,062,685
shares of our common stock on August 6, 1999. The conversion price was $0.50 per
common share.
In addition to the shares issued on conversion of the notes, the note
holders were entitled to receive additional shares of our common stock 30 days
after each one-half of the notes converted into shares of our common stock, as
required by a re-set provision. The purpose of this arrangement was to make sure
that the selling security holders had a return of at least 20% on the shares
received on the conversion of the first half of the notes and at least 22%
return on the conversion on the remaining half of the notes.
The number of additional shares to which the note holders were entitled was
calculated by dividing $0.644 by the lowest closing bid price of our common
stock during the ten consecutive trading days preceding each re-set date. The
quotient obtained was multiplied by 1.2 on the first re-set date and 1.22 on the
second re-set date. The resulting product was reduced by 1. The resulting number
was then multiplied by the shares issued on the first or second conversion
dates, as appropriate. The formula is as follows:
(applicable rate X $0.644/future price) -1) x (shares issued)
On August 6, 1999, Isosceles and Cefeo received a total of 546,990
additional common shares, based on the first re-set calculation. These shares
were issued using a future price of $0.61 per share. On September 5, 1999,
Isosceles and Cefeo received a total of 551,203 additional common shares, based
on the second re-set calculation. These shares were issued using a future price
of $0.62 per share.
DEFAULT. The purchase agreement, notes and registration rights agreement
defined several events of default including:
o failure to continue trading on the NASDAQ stock market;
o failure to have this registration statement effective by July 7, 1999,
the initial deadline;
o failure to have this registration statement effective by September 13,
1999, the final deadline;
o failure to maintain this registration as effective for 30 consecutive
days.
As Viragen was delisted from the NASDAQ Stock Market on June 28, 1999, and
has failed to meet the two registration deadline requirements, we are in default
of these terms if declared by the selling shareholders. To date, we have
incurred approximately $240,000 in penalties. Accordingly, we continue to accrue
a penalty of $40,000 per month, until the date this registration statement is
declared effective, at which time the accrued penalty will be paid. Also,
Isosceles and Cefeo holders have the right to request a cash redemption of the
common shares issued upon conversion of the notes. The redemption value, if
requested, would be the greater of:
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<PAGE> 46
o $2 million and related interest plus a premium of 15% , or
o market value of the shares to be redeemed, on the date the selling
security holders elect redemption.
To date, the selling security holders have not requested a cash redemption.
THE WARRANTS
The warrants entitle Isosceles and Cefeo to purchase a total of 932,039
shares of our common stock. The warrants are exercisable until March 17, 2004
with the exercise price of $0.50 per share. The warrants also contain a cashless
exercise provision which allows the selling security holders to use the
difference between the closing price of the common stock, at the time of
exercise, minus the exercise price as a currency to acquire the shares without
paying cash. By way of example, if 1,000 shares are being exercised when the
closing price is $1.00 and the exercise price is $0.50, the selling shareholders
could use 500 shares with a market value of $500 to pay for the exercise of the
warrants. The holder would receive 500 shares net, as a result of the cashless
exercise.
We must, however, reduce the exercise price of the warrants if we sell
shares of our common stock, grant options or adjust the exercise prices of
options or issue other securities convertible into our common stock at prices
less than $.50. We must pay the warrant holders a fee of up to $2,500 per day if
we do not deliver the shares issuable upon exercise of the warrants within three
trading days after the warrants are exercised.
ADDITIONAL WARRANTS
We also issued warrants to purchase an aggregate of up to 155,339 shares of
our common stock at $.774 per share to Ballsbridge Finance Limited, Elliot Layne
& Associates, Inc. and Ven-Gua Capital Markets, Ltd. in consideration for
introducing Viragen to Isosceles and Cefeo. The warrants we issued to
Ballsbridge, Elliot Layne and Ven-Gua are exercisable currently until March 17,
2004. As we did not pre-pay the notes issued to Isosceles and Cefeo, before July
7, 1999, one-half of the warrants issued to Ballsbridge, Elliot Layne and
Ven-Gua were returned to Viragen. We entered into a registration rights
agreement with Ballsbridge, Elliot Layne & Associates and Ven-Gua similar to the
one we entered into with Isosceles and Cefeo.
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<PAGE> 47
The following table sets forth as of November 30, 1999:
o the name of the selling security holders,
o the amount of common stock held directly or indirectly or underlying
the notes and the warrants to be offered by the selling security
holders, and
o the amount to be owned by the selling security holders following the
sale of these shares.
As of December 14, 1999, there were outstanding 76,538,914 shares of Viragen's
common stock.
The total of 6,220,121 potential shares allocated to the selling
security holders was derived as follows:
o 4,112,219 shares issued upon conversion of the promissory notes and
related interest at $0.50 per share;
o 1,098,193 shares issued under the re-set provision of the notes; and
o 1,009,709 shares issuable upon exercise of related warrants.
<TABLE>
<CAPTION>
NAME OF SELLING NUMBER OF SHARES PERCENTAGE OF SHARES OWNED SHARES TO BE OWNED AFTER
SECURITY HOLDERS OWNED PRIOR TO OFFERING OFFERING
--------------- ---------------- -------------------------- ------------------------
<S> <C> <C> <C>
The Isosceles Fund Limited 4,606,838 6.0 % 0
Cefeo Investments Limited 1,535,619 2.0 % 0
Ballsbridge Finance, Limited 19,418 * 0
Elliott Layne & Associated, Inc. 29,126 * 0
Ven-Gua Capital Markets Ltd. 29,126 * 0
</TABLE>
* Is less than 1%
Isosceles Fund's ownership includes 3,907,809 shares acquired upon
conversion of notes and related re-set shares, and 699,029 shares which may be
acquired upon the exercise of warrants. The Isosceles Fund is controlled by
Linford Asset Management Ltd.
Cefeo Investments' ownership includes 1,302,603 shares acquired upon
conversion of notes and related re-set shares, and 233,010 shares which may be
acquired upon the exercise of warrants. Cefeo Investments Limited is
beneficially owned by Banca, Privata, Solari and Blum, S.A.
Placement agent ownership represents shares issuable upon exercise of
warrants exercisable at $.773 until March 17, 2004.
Viragen agreed to pay for all costs and expenses in the issuance, offer,
sale and delivery of the shares of our common stock. These include, all expenses
and fees of preparing, filing and printing the registration statement and
mailing of these items. Viragen will not pay selling commissions and expenses
for any sales by the selling security holders. Viragen will indemnify the
selling security holders against civil liabilities including liabilities under
the Securities Act of 1933.
POTENTIAL CONTINGENT LIABILITY
As discussed above, in June 1999, we amended the purchase agreement with
the selling security holders. This was done to provide a waiver of the selling
security holders' first refusal rights for an interim financing in which Viragen
received $1,375,000 from three investors through sale of our common stock. Since
we had a pending registration statement on behalf of the selling security
45
<PAGE> 48
holders at the time of the May 1999 interim financing and June 1999
modification, the Securities and Exchange Commission has informed us that we may
have violated Section 5 of the Securities Act of 1933. If this is so, we may
have a contingent liability to the selling security holders and the three
investors in the interim financing since they may have a right to rescind their
transactions.
PLAN OF DISTRIBUTION
These shares of our common stock may be sold by the selling security
holders or by other successors in interest. The sales may be made on one or more
exchanges or in the over-the-counter market, at prices related to the then
current market price, or in negotiated transactions. The shares of our common
stock may be sold by one or more of the following methods, including:
o a block trade in which the broker-dealer will attempt to sell the
shares of our common stock as agent, but may position and resell a
portion of the block as principal;
o purchases by a broker or dealer as principal and resale by the broker
or dealer;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face or other direct transactions between the selling security
holders and purchasers without a broker-dealer or other intermediary.
Sale of our common stock is not limited to these methods.
In addition, the selling security holders may, subject to the restrictions
described below and previously under "Selling Security Holders", sell short the
common stock of Viragen. In these instances, this prospectus may be delivered in
the connection with the short sale, and the shares offered may be used to cover
the short sale. The selling security holders are underwriters, within the
meaning of the Securities Act of 1933, in connection with the sale of the shares
offered. In making sales, broker-dealers or agents engaged by the selling
security holders may arrange for other broker-dealers or agents to participate.
Broker-dealers may receive commissions or discounts from the selling security
holders in amounts to be negotiated immediately prior to the sale. These
broker-dealers, agents and any other participating broker-dealers or agents, as
well as the selling security holders and the placement agent are "underwriters"
within the meaning of the Securities Act of 1933. In addition, any securities
covered by this prospectus that qualify for sale under Rule 144 may be sold
under Rule 144 rather than by this prospectus.
We informed the selling security holders that the anti-manipulative rules
under the Securities Exchange Act of 1934, including Regulation M, may apply to
their sales in the market. We have furnished the selling security holders with a
copy of these rules. We have also informed the selling security holders that
they must deliver a copy of this prospectus with any sale of their shares.
DESCRIPTION OF SECURITIES
Viragen is currently authorized to issue up to 125,000,000 shares of common
stock, par value $.01 per share. There were 76,538,914 shares outstanding as of
December 14, 1999. Viragen is also authorized to issue up to 1,000,000 shares of
preferred stock, par value $1.00 per share. There were 2,650 shares of series A
preferred stock were outstanding as of December 14, 1999.
COMMON STOCK
Subject to the dividend rights of preferred stockholders, common
stockholders share dividends on a proportionate basis, as may be declared by the
board of directors. Upon liquidation, dissolution or winding up of Viragen,
after payment to creditors and holders of our outstanding preferred stock,
Viragen's assets will be divided proportionately on a per share basis among the
holders of our common stock.
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<PAGE> 49
Each share of our common stock has one vote. Holders of our common stock do
not have cumulative voting rights. This means that the holders of a plurality of
the shares voting for the election of directors can elect all of the directors.
In that event, the holders of the remaining shares will not be able to elect any
directors. Viragen's By-Laws provide that a majority of the outstanding shares
of our common stock are a quorum to transact business at a stockholders'
meeting. Our common stock has no preemptive, subscription or conversion rights.
Also, our common stock is not redeemable.
PREFERRED STOCK
Viragen is authorized to issue a total of 1,000,000 shares of preferred
stock, par value $1.00 per share. Viragen's board of directors may issue
preferred stock by resolutions, without any action of the stockholders. These
resolutions may authorize issuance of preferred stock in one or more series. In
addition, the board of directors may fix and determine all privileges and rights
of the authorized preferred stock series including:
o dividend and liquidation preferences,
o voting rights,
o conversion privileges, and
o redemption terms.
Viragen includes preferred stock in its capitalization to improve its
financial flexibility. However, Viragen could use preferred stock to preserve
control by present management, in the event of a potential hostile takeover of
Viragen. In addition, the issuance of large blocks of preferred stock could have
a dilutive effect to existing holders of Viragen's common stock.
SERIES A PREFERRED STOCK
Viragen established the series A preferred stock in November 1986. Each
share of series A preferred stock is immediately convertible into 4.26 shares of
our common stock. Dividends on the series A preferred stock are cumulative and
have priority to our common stock. These dividends are payable in either cash or
common stock, at Viragen's option.
The series A preferred stock has voting rights only if dividends are in
arrears for five annual dividends. Upon this occurrence, the voting is limited
to the election of two directors. Voting rights terminate upon payment of the
cumulative dividends. Viragen may redeem the series A preferred stock at any
time after expiration of ten consecutive business days during which the bid or
last sale price for our common stock is $6.00 per share or higher. There is no
mandatory redemption or sinking fund obligation for the series A preferred
stock.
Owners of the series A preferred stock are entitled to receive $10.00 per
share, plus accrued and unpaid dividends, upon liquidation, dissolution or
winding up of Viragen. This must be satisfied before any distribution or payment
is made to holders of the common stock or other stock of Viragen junior to the
series A preferred stock.
SERIES I PREFERRED STOCK
The remaining 11 shares of the series I preferred stock were converted into
common stock on October 20, 1999. There are no outstanding shares of the series
I preferred stock.
The series I preferred stock had no dividends, although an 8% accretion
factor was included for purposes of determining the liquidation and conversion
amounts. The series I preferred stock carried no voting rights and had a stated
value of $10,000 per share.
The series I preferred stock and the 8% accretion factor were convertible
into shares of our common stock at the lower of:
47
<PAGE> 50
(1) $1.59; or
(2) the variable conversion price which was equal to 82% of the market
price on the date of conversion.
The amount of the shares of our common stock a holder of the series I preferred
stock could have converted into a limited to a maximum of 15% of the aggregate
principal amount of the series I preferred stock issued to a holder for each
monthly period. This was subject to a maximum of 25% per monthly period if the
holder had not elected to convert the permitted 15% amount for the series during
any previous monthly conversion period. . This conversion quota became void when
Viragen completed private offerings of its debt and equity securities.
TRANSFER AGENT
The transfer agent for the shares of our common stock is Chase Mellon
Shareholders Services, Overpeck Centre, 85 Challenger Road, Ridgefield Park, New
Jersey 07660-2108.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
this offering could negatively affect the market price of our common stock. They
could also impair our future ability to raise capital through the sale of our
equity securities.
Upon the completion of the re-sale of common stock by the selling security
holders, we will have outstanding 77,472,546 shares of common stock. Of these
shares, approximately:
o 69,099,926 shares will be freely tradable by persons, other than
"affiliates," without restriction under the Securities Act of 1933;
and
o 8,372,620 shares will be "restricted" securities, within the meaning
of Rule 144 under the Securities Act of 1933, and may not be sold in
the absence of registration under the Securities Act of 1933 unless an
exemption from registration is available, including the exemption
provided by Rule 144.
In general, under Rule 144, a person or persons whose shares are
aggregated, including any affiliate of Viragen who has beneficially owned
restricted securities for at least one year, would be entitled to sell within
any three-month period, a number of shares that does not exceed 1% of the number
of common stock then outstanding. This would be approximately 774,725 shares
immediately after the completion of this offering.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about
Viragen. Under Rule 144(k), a person who is not considered to have been an
affiliate of Viragen at any time during the 90 days preceding a sale, and who
has beneficially owned restricted securities for at least two years, including
the holding period of any prior owner except an affiliate of Viragen, may sell
these shares without following the terms of Rule 144.
LEGAL MATTERS
Atlas, Pearlman, Trop & Borkson, P.A. will review the validity of the
issuance of the shares of our common stock being offered. They are located at
200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. Members
of that firm or members of their family own a total of 37,000 shares of our
common stock.
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<PAGE> 51
EXPERTS
Ernst & Young LLP, independent certified public accountants, have audited
our consolidated financial statements at June 30, 1999 and 1998, and for each of
the three years ended June 30, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus is a part of the registration statement.
It does not contain all of the information set forth in the registration
statement. For further information about Viragen, Inc. and its common stock, you
should refer to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to in
this prospectus are not necessarily complete. Where a contract or other document
is an exhibit to the registration statement each of you should review the
provisions of the exhibit, to which reference is made. You may obtain these
exhibits from the Securities and Exchange Commission, as discussed below.
We are required to file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may review the registration statement, as well as reports and other
information we have filed, without charge at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies may also be obtained from:
o the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, or
o the Commission's web site at HTTP://WWW.SEC.GOV.
These materials may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. For further information on
the operation of the public reference rooms, please call 1-800-SEC-0330. You may
also review these statements at the regional offices of the Securities and
Exchange Commission at:
o 7 World Trade Center, Suite 1300, New York, New York 10048, and
o Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511.
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<PAGE> 52
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and
subsidiaries are included:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated balance sheets -- June 30, 1999 and 1998 (audited) and September 30, 1999 (unaudited) F-3
Consolidated statements of operations -- Years ended June 30, 1999, 1998 and 1997
(audited) and three months ended September 30, 1999 and 1998 (unaudited) F-4
Consolidated statements of stockholders' equity - Years ended June 30, 1999, 1998 and 1997
(audited) and three months ended September 30, 1999 (unaudited) F-5
Consolidated statements of cash flows -- Years ended June 30, 1999, 1998 and 1997 (audited) and
three months ended September 30, 1999 and 1998 (unaudited) F-9
Notes to consolidated financial statements F-11
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
elated instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 53
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, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1999. 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that Viragen Inc. and subsidiaries will continue as a going concern. As
discussed in Note A to the consolidated financial statements, the Company has
incurred recurring operating losses and has an accumulated deficit of
approximately $51 million at June 30, 1999. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Miami, Florida
September 17, 1999
F-2
<PAGE> 54
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------------- September 30,
1999 1998 1999
------------ ------------ ------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,055,587 $ 2,708,317 $ 430,867
Restricted cash -- -- 45,600
Marketable securities, available-for-sale -- 6,105,076 --
Prepaid expenses 254,057 206,995 254,405
Other current assets 306,433 530,950 203,443
------------ ------------ ------------
Total Current Assets 1,616,077 9,551,338 934,315
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 3,492,585 3,538,926 3,580,796
Equipment and furniture 5,556,106 5,311,327 6,023,464
Construction in progress 309,431 48,655 --
------------ ------------ ------------
9,358,122 8,898,908 9,604,260
Less accumulated depreciation (3,337,807) (2,744,827) (3,529,070)
------------ ------------ ------------
6,020,315 6,154,081 6,075,190
INVESTMENT IN UNCONSOLIDATED COMPANY 671,744 -- 525,617
DEPOSITS AND OTHER ASSETS 221,218 189,806 185,475
------------ ------------ ------------
$ 8,529,354 $ 15,895,225 $ 7,720,597
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,132,323 $ 829,661 $ 1,814,170
Short-term promissory note -- -- 600,000
8% Convertible promissory notes 1,929,877 -- --
Accrued expenses and other liabilities 702,209 708,005 543,481
Current portion of long-term debt 142,109 171,277 132,755
------------ ------------ ------------
Total Current Liabilities 3,906,518 1,708,943 3,090,406
ROYALTIES PAYABLE 107,866 107,866 107,866
DEFERRED INCOME -- 200,000 --
LONG-TERM DEBT, less current portion 231,107 280,094 213,018
MINORITY INTEREST 326,684 525,936 142,144
CONVERTIBLE SERIES H cumulative preferred stock, $1.00 par value.
Authorized 500 shares; issued and outstanding 500 shares at June 30,
1998 -- 5,146,851 --
CONVERTIBLE SERIES I cumulative preferred stock, $1.00 par
value. Authorized 200 shares; issued and outstanding 11 shares at
September 30, 1999 and June 30, 1999, and 200 shares at June 30, 1998 120,920 2,039,014 123,137
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 2,650
Common stock, $.01 par value. Authorized 125,000,000 shares at
September 30, 1999, and 75,000,000 shares at June 30, 1999 and 1998; issued
75,400,430, 69,913,762 and 53,416,912 shares at September 30, 1999,
June 30, 1999, and June 30, 1998, respectively, of which 845,277
shares are held as treasury stock at September 30, 1999, and June
30, 1999 and 606,277 shares are held as treasury stock at June 30, 1998 699,135 534,168 754,002
Capital in excess of par value 55,353,205 45,686,143 58,229,493
Treasury stock, at cost (1,277,613) (996,541) (1,277,613)
Retained deficit (50,521,028) (39,624,889) (53,386,436)
Accumulated other comprehensive income 46,752 284,990 192,381
Notes due from directors (466,842) -- (470,451)
------------ ------------ ------------
Total Stockholders' Equity 3,836,259 5,886,521 4,044,026
------------ ------------ ------------
$ 8,529,354 $ 15,895,225 $ 7,720,597
============ ============ ============
</TABLE>
See notes to consolidated financial statements
which are an integral part of these statements.
F-3
<PAGE> 55
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- --------------------------------
1999 1998 1997 1999 1998
------------ ------------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income
Interest and other income $ 374,064 $ 1,143,112 $ 1,403,610 $ 19,948 $ 107,093
------------ ------------ ------------ ------------ ------------
374,064 1,143,112 1,403,610 19,948 107,093
Cost and Expenses
Research and development costs 5,152,748 4,222,332 2,360,416 1,062,034 940,414
Selling, general and administrative
expenses 5,528,410 5,580,213 4,049,086 1,012,734 1,602,980
Equity in losses of unconsolidated
company 757,256 -- -- 146,127 115,665
Interest expense 574,375 590,867 30,713 846,122 11,757
------------ ------------ ------------ ------------ ------------
12,012,789 10,393,412 6,440,215 3,067,017 2,670,816
------------ ------------ ------------ ------------ ------------
Loss before minority interest (11,638,725) (9,250,300) (5,036,605) (3,047,069) (2,563,723)
Minority interest in loss of consolidated
subsidiaries 987,893 1,394,164 261,360 184,540 165,683
------------ ------------ ------------ ------------ ------------
NET LOSS (10,650,832) (7,856,136) (4,775,245) (2,862,529) (2,398,040)
Deduct required dividends on convertible
preferred stock, Series A 2,650 2,823 20,760 663 663
Deduct required dividends on convertible
preferred stock, Series B -- -- 4,441,676 -- --
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 676,498 733,681 -- -- 432,224
Deduct required dividends on convertible
preferred stock, Series I 322,774 232,154 -- 2,217 205,091
------------ ------------ ------------ ------------ ------------
LOSS ATTRIBUTABLE TO COMMON
STOCK $(11,652,754) $(10,354,488) $(14,673,984) $ (2,865,409) $ (3,036,018)
============ ============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE,
after deduction for required dividends
on convertible preferred stock $ (0.19) $ (0.21) $ (0.37) $ (0.04) $ (0.06)
============ ============ ============ ============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE COMMON SHARES 60,109,133 50,502,503 39,134,631 72,875,763 53,299,268
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
F-4
<PAGE> 56
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, 1996 $ 2,650 $ 15,000 $ $ $ $ $ 378,959
Exercise of common stock
options & warrants 5,183
Exercise of Viragen
(Europe) Ltd.. warrants
Exercise of Viragen USA
Inc. options
Compensation expense on
common stock options
Additional issuance costs
for series B preferred stock
Sale of series C preferred
stock, net of issuance costs 5,000
Sale of series D preferred
stock, net of issuance costs 15,000
Sale of series E preferred
stock, net of issuance costs 5,000
Dividends on preferred
stock, paid in common stock 235
Forgiveness of officer note
Loan to director
Interest income on director
loan
Cash dividends on preferred
stock
Conversion of series B
preferred stock (7,555) 42,163
Conversion of series C
preferred stock (4,026) 11,636
Conversion of series D
preferred stock (3,800) 24,425
Exercise of cash-out option
on conversion of series D
preferred stock (1,000)
Purchase of treasury stock
Issuance of treasury stock
for settlement of litigation
Foreign currency
translation adjustment
Unrealized loss on
marketable securities,
available for sale
Net Loss
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 $ 2,650 $ 7,445 $ 974 $ 10,200 $ 5,000 $ -- $ 462,601
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Capital In Other Notes Due
Excess of Treasury Retained Comprehensive from
Par Value Stock Deficit Income Directors
------------- ------------ -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1996 $38,618,391 $ $(21,782,872) $ 43,057 $ --
Exercise of common stock
options & warrants 378,654 (12,500)
Exercise of Viragen
(Europe) Ltd.. warrants 697,464
Exercise of Viragen USA
Inc. options (4,128)
Compensation expense on
common stock options 450,300
Additional issuance costs
for series B preferred stock (24,996)
Sale of series C preferred
stock, net of issuance costs 4,735,923
Sale of series D preferred
stock, net of issuance costs 14,035,349
Sale of series E preferred
stock, net of issuance costs 4,676,744
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)
Cash dividends on preferred
stock (1,095,257)
Conversion of series B
preferred stock (34,608)
Conversion of series C
preferred stock (2,548,739)
Conversion of series D
preferred stock (20,625)
Exercise of cash-out option
on conversion of series D
preferred stock (999,000) (112,164)
Purchase of treasury stock (987,395)
Issuance of treasury stock
for settlement of litigation 288,245
Foreign currency
translation adjustment 230,412
Unrealized loss on
marketable securities, (10,612)
available for sale
Net Loss (4,775,245)
------------- ------------ -------------- ---------------- ------------
Balance at June 30, 1997 $59,995,768 $(699,150) $(27,802,624) $ 262,857 $(101,417)
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
F-5
<PAGE> 57
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>
Balance at June 30, 1997 $ 2,650 $ 7,445 $ 974 $ 10,200 $ 5,000 $ $ 462,601
Exercise of common stock
options and warrants 2,305
Compensation expense on stock
options and warrants
Cost of issuance of series H
preferred stock, net
Cost of issuance of series I
preferred stock, net
Exchange of series B
preferred stock for a (7,445)
promissory note
Purchase of treasury stock
Conversion of series C
preferred stock (974) 2,814
Conversion of series D
preferred stock (2,250) 13,903
Conversion of series E
preferred stock (1,000) 5,060
Exchange of series D
preferred stock for series F (7,950) 7,950
preferred stock
Exchange of series E
preferred stock for series G (4,000)
preferred stock
Conversion of series F
preferred stock (5,500) 43,377
Exercise of cash-out option
on conversion of series F
preferred stock (2,450)
Conversion of series G
preferred stock 3,511
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
preferred stock
Interest income on director
loan
Bad debt expense on director
loan
Foreign currency translation
adjustment
Unrealized gain on marketable
securities, available for sale
Net Loss
---------- ----------- ----------- ---------- ----------- ---------- -----------
Balance at June 30, 1998 $ 2,650 $ -- $ -- $ -- $ -- $ -- $ 534,168
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Capital In Other Notes Due
Excess of Treasury Retained Comprehensive from
Par Value Stock Deficit Income Directors
------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $59,995,768 $(699,150) $(27,802,624) $ 262,857 $ (101,417)
Exercise of common stock
options and warrants 115,583
Compensation expense on stock
options and warrants 57,530
Cost of issuance of series H
preferred stock, net (374,520)
Cost of issuance of series I
preferred stock, net (159,689)
Exchange of series B
preferred stock for a (7,437,555) (2,247,748)
promissory note
Purchase of treasury stock (297,391)
Conversion of series C
preferred stock (554,881)
Conversion of series D
preferred stock (11,653)
Conversion of series E
preferred stock (4,060)
Exchange of series D
preferred stock for series F
preferred stock
Exchange of series E
preferred stock for series G (3,996,000)
preferred stock
Conversion of series F
preferred stock (37,877)
Exercise of cash-out option
on conversion of series F
preferred stock (2,447,550) (294,000)
Conversion of series G
preferred stock 454,489
Cash dividends on preferred (521,725)
stock
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
preferred stock (625,059)
Interest income on director (8,500)
loan
Bad debt expense on director 109,917
loan
Foreign currency translation
adjustment 13,612
Unrealized gain on marketable
securities, available for sale 8,521
Net Loss (7,856,136)
------------- ------------ -------------- --------------- ------------
Balance at June 30, 1998 $45,686,143 $(996,541) $(39,624,889) $ 284,990 $ --
</TABLE>
See notes to consolidated financial statements which are
an integral part of these statements
F-6
<PAGE> 58
.
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, 1998 $ 2,650 $ -- $ -- $ -- $ -- $ -- $ 534,168
Consulting fees paid with
common stock 250
Compensation expense on
stock options and warrants
Exercise of common stock
options and warrants 3,285
Sale of detachable
warrants on 8%
convertible promissory
notes
Cost of warrants issued
to finders on 8%
convertible promissory
notes
Private placement of
common stock 27,500
Purchase of treasury stock
Exercise of common stock
options 11,600
Accrued interest income
on directors' notes
Capitalized cost of
warrants issued for
investment in
unconsolidated company
Capital contribution to
Viragen (Europe) Ltd.
Common stock issued on
conversion of preferred
stock, series H 82,556
Common stock issued on
conversion of preferred
stock, series I 32,718
Dividend on preferred
stock, series A
Accretion of series H and
series I preferred stock
Accretion paid in common
stock 7,058
Foreign currency
translation adjustment
Unrealized gain on
marketable securities,
available for sale
Net Loss
----------- ----------- ------------ ----------- ----------- ----------- -----------
Balance at June 30, 1999 $ 2,650 $ -- $ -- $ -- $ -- $ -- $ 699,135
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Capital In Other Notes Due
Excess of Treasury Retained Comprehensive from
Par Value Stock Deficit Income Directors
------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 $45,686,143 $(996,541) $(39,624,889) $ 284,990 $ --
Consulting fees paid with
common stock 12,250
Compensation expense on
stock options and warrants 369,647
Exercise of common stock
options and warrants 250,204
Sale of detachable
warrants on 8%
convertible promissory 344,854
notes
Cost of warrants issued
to finders on 8%
convertible promissory 24,078
notes
Private placement of
common stock 1,347,500
Purchase of treasury stock (281,072)
Exercise of common stock
options 592,900 (459,500)
Accrued interest income
on directors' notes (7,342)
Capitalized cost of
warrants issued for
investment in 329,000
unconsolidated company
Capital contribution to
Viragen (Europe) Ltd. (788,641)
Common stock issued on
conversion of preferred
stock, series H 4,917,444
Common stock issued on
conversion of preferred
stock, series I 1,857,282
Dividend on preferred
stock, series A (2,650)
Accretion of series H and
series I preferred stock (242,657)
Accretion paid in common
stock 410,544
Foreign currency
translation adjustment (240,329)
Unrealized gain on
marketable securities,
available for sale 2,091
Net Loss (10,650,832)
------------- ------------ -------------- --------------- ------------
Balance at June 30, 1999 $55,353,205 (1,277,613) $(50,521,028) $ 46,752 $ (466,842)
</TABLE>
See notes to consolidated financial statements which are
an integral part of these statements
.
F-7
<PAGE> 59
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, 1999 $ 2,650 $ -- $ -- $ -- $ -- $ --
Transactions occurring
during the three months
ended September 30, 1999
(unaudited):
Conversion of 8%
convertible promissory
notes into common stock
Reset shares issued on 8%
convertible promissory
notes
Exercise of common stock
options and warrants
Compensation expense on
stock options and warrants
Dividend on preferred
stock, Series A
Accretion of Series I
preferred stock
Accrued interest income
on directors' notes
Foreign currency
translation adjustment
Net loss
----------- ----------- ------------ ----------- ----------- -----------
Balance at
September 30, 1999
(Unaudited) $ 2,650 $ -- $ -- $ -- $ -- $ --
=========== =========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Capital In Other Notes Due
Common Excess of Treasury Retained Comprehensive from
Stock Par Value Stock Deficit Income Directors
----------- ------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 699,135 $55,353,205 $(1,277,613) $(50,521,028) $ 46,752 $ (466,842)
Transactions occurring
during the three months
ended September 30, 1999
(unaudited):
Conversion of 8%
convertible promissory
notes into common stock 41,123 2,014,987
Reset shares issued on 8%
convertible promissory 10,981 686,265
notes
Exercise of common stock
options and warrants 2,763 140,892
Compensation expense on
stock options and warrants 34,144
Dividend on preferred
stock, Series A (662)
Accretion of Series I
preferred stock (2,217)
Accrued interest income
on directors' notes (3,609)
Foreign currency
translation adjustment 145,629
Net loss (2,862,529)
----------- ------------- ------------ -------------- --------------- ------------
Balance at
September 30, 1999
(Unaudited) $ 754,002 $ 58,229,493 $(1,277,613) $(53,386,436) $ 192,381 $ (470,451)
=========== ============= ============ ============== =============== ============
</TABLE>
See notes to consolidated financial statements which are
an integral part of these statements
F-8
<PAGE> 60
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1999 1998 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
Net Loss $ (10,650,832) $(7,856,136) $(4,775,245)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 635,692 506,934 281,920
Amortization of discount on 8% convertible
promissory notes 274,731 -- --
Interest expense on reset shares -- -- --
-------- ---------- --------
Issuance of treasury stock for expenses -- -- 288,245
Consulting fees paid with common stock 12,500 -- --
Compensation expense on stock options 369,647 57,530 450,300
Officers and directors notes forgiven on
stock purchases -- -- 12,500
Minority interest in loss of subsidiary (987,893) (1,394,164) (261,360)
Accrued interest income on notes due from directors (7,342) (8,500) (1,417)
Bad debt expense 24,630 109,917 --
Increase (decrease) relating to operating activities from:
Prepaid expenses (37,566) 73,097 (149,804)
Other current assets 344,887 198,022 (501,277)
Investment in unconsolidated company 757,256 -- --
Deposits and other assets 215,977 19,705 (26,932)
Accounts payable 302,662 (601,550) 1,121,172
Accrued expenses and other liabilities (9,783) 133,663 49,053
Deferred income (200,000) 200,000 --
-------------- ------------- ---------------
Net cash used in operating activities (8,955,434) (8,561,482) (3,512,845)
INVESTING ACTIVITIES
Sale of marketable securities, available-for-sale 6,108,504 27,347,892 8,915,872
Purchase of marketable securities, available-for-sale -- (14,897,903) (27,468,100)
Investment in unconsolidated company (1,100,000) -- --
Additions to property, plant and equipment, net (497,117) (1,622,817) (4,482,166)
-------------- ------------- ---------------
Net cash provided by (used in) investing activities 4,511,387 10,827,172 (23,034,394)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net -- -- --
-------- ---------- --------
Proceeds from sale of 8% convertible promissory
notes, net 1,516,966 -- --
Proceeds from sale of detachable warrants with 8%
convertible promissory notes 344,854 -- --
Proceeds from private placement 1,375,000 -- --
Payments on long-term debt (168,977) (43,374) (682,176)
Proceeds from long-term debt -- -- 166,000
Proceeds from sale of preferred stock series B, C, D and
E, net -- -- 23,448,020
Proceeds from sale of preferred stock series H and I, net -- 6,465,791 --
Proceeds from exercise of options and warrants 253,489 117,888 371,337
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 (281,072) (297,391) (987,395)
Loan to director -- -- (100,000)
Proceeds from exercise of subsidiaries' options
and warrants -- -- 1,254,574
-------------- ------------- ---------------
Net cash provided by (used in) financing
activities 3,040,260 (12,444,286) 19,741,069
Effect of exchange rate fluctuations on
cash (248,943) 13,612 230,412
-------------- ------------- ---------------
Decrease in cash (1,652,730) (10,164,984) (6,575,758)
Cash and cash equivalents at beginning of period 2,708,317 12,873,301 19,449,059
-------------- ------------- ---------------
Cash and cash equivalents at end of period $1,055,587 $2,708,317 $ 12,873,301
============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Net Loss $(2,862,529) $(2,398,040)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 164,008 154,967
Amortization of discount on 8% convertible
promissory notes 70,123 --
Interest expense on reset shares 697,246 --
-------- --------
Issuance of treasury stock for expenses -- --
Consulting fees paid with common stock -- --
Compensation expense on stock options 34,144 355,312
Officers and directors notes forgiven on
stock purchases -- --
Minority interest in loss of subsidiary (184,540) (165,683)
Accrued interest income on notes due from directors (3,609) (4,371)
Bad debt expense -- --
Increase (decrease) relating to operating activities from:
Prepaid expenses 20,238 (5,036)
Other current assets 102,990 198,242
Investment in unconsolidated company 146,127 115,665
Deposits and other assets 55,792 (15,188)
Accounts payable 681,847 (144,974)
Accrued expenses and other liabilities (103,279) (362,537)
Deferred income -- --
--------------- ---------------
Net cash used in operating activities (1,181,442) (2,271,643)
INVESTING ACTIVITIES
Sale of marketable securities, available-for-sale -- 5,100,357
Purchase of marketable securities, available-for-sale -- --
Investment in unconsolidated company -- (1,100,000)
Additions to property, plant and equipment, net (218,883) (257,220)
--------------- ---------------
Net cash provided by (used in) investing activities (218,883) 3,743,137
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 534,351 --
-------- --------
Proceeds from sale of 8% convertible promissory
notes, net -- --
Proceeds from sale of detachable warrants with 8%
convertible promissory notes -- --
Proceeds from private placement -- --
Payments on long-term debt (48,997) (40,843)
Proceeds from long-term debt -- --
Proceeds from sale of preferred stock series B, C, D and
E, net -- --
Proceeds from sale of preferred stock series H and I, net -- --
Proceeds from exercise of options and warrants 143,654 50,000
Preferred dividends paid to preferred stock
series A, B, D, E, F and G -- (835)
Payments on promissory note -- --
Refund of capital investment to preferred stock
series C investors -- --
Exercise of cash-out option on conversion of
preferred stock series D -- --
Exercise of cash-out option on conversion of
preferred stock series F -- --
Redemption of redeemable preferred stock series G -- --
Purchase of treasury stock -- (174,906)
Loan to director -- --
Proceeds from exercise of subsidiaries' options
and warrants -- --
--------------- ---------------
Net cash provided by (used in) financing
activities 629,008 (166,584)
Effect of exchange rate fluctuations on
cash 146,597 74,031
--------------- ---------------
Decrease in cash (624,720) 1,378,941
Cash and cash equivalents at beginning of period 1,055,587 2,708,317
--------------- ---------------
Cash and cash equivalents at end of period $ 430,867 $ 4,087,258
=============== ===============
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
F-9
<PAGE> 61
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR RNDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------- -------------------------------
1999 1998 1997 1999 1998
-------------- -------------- --------------- ---------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 299,644 $ 580,271 $ 31,172 $ 78,753 $ 11,757
Income taxes paid -- -- 13,840 -- --
</TABLE>
During the years ended June 30, 1999, 1998 and 1997 and the three months
ended September 30, 1999 and 1998, Viragen, Inc. had the following non-cash
investing and financing activities:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- ------------------------------
1999 1998 1997 1999 1998
------------ ------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Preferred dividends paid in common stock $ -- $ 91,732 $ 35,274 $ -- $ --
Accretion paid in common stock 417,602 -- -- -- 55,659
Conversion of 8% convertible notes and
accrued interest into common stock -- -- -- 2,056,110 --
Conversion of preferred stock into common
shares 6,890,000 467,724 78,224 -- 1,370,000
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 -- -- --
Purchase of insurance with notes payable 94,627 210,147 -- 20,586 --
Issuance of treasury stock for expenses -- -- 288,245 -- --
Sale of common stock with promissory notes 604,500 -- -- -- 300,000
Equipment acquired through capital leases 4,809 -- -- -- --
Contribution of intercompany balances as
capital to Viragen (Europe) Ltd. (788,641) -- -- -- --
Capitalized cost of warrants issued for
investment in unconsolidated company 329,000 -- -- -- 270,000
Cost of warrants issued to finders on 8%
convertible notes 24,078 -- -- -- --
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
F-10
<PAGE> 62
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation: Viragen, Inc. and its subsidiaries
are engaged in the research, development and manufacture of immunological
products for commercial application. The consolidated financial statements
include the parent company and all subsidiaries, including those operating
outside the U.S. All significant transactions among our businesses have been
eliminated. We made certain reclassifications to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
Viragen owns a 10% equity interest in Inflammatics, Inc., a
biopharmaceutical company currently in the research and development stage. While
we have the option to increase our ownership interest up to 80%, the financial
accounts of Inflammatics are not consolidated with those of Viragen. We account
for our investment under the equity method of accounting. The parties that own
the remaining 90% equity in Inflammatics are not currently funding its research
and development efforts. Accordingly, while Viragen only owns 10% of
Inflammatics, it is recognizing 100% of the losses incurred by the
unconsolidated company. Costs related to this transaction include finders fees
and warrants issued. These costs are being amortized in proportion to the losses
incurred by Inflammatics as compared to our initial cash contribution to
Inflammatics.
In preparing the financial statements, management must use some estimates
and assumptions that may affect reported amounts and disclosures. Estimates are
used when accounting for depreciation, amortization, and asset valuation
allowances. We are also subject to risks and uncertainties that may cause actual
results to differ from estimated results including changes in the health care
environment, competition, foreign exchange and legislation.
During fiscal 1999 Viragen incurred a loss of $10,650,832 and had negative
operating cash flow of $8,955,434. As a result, our accumulated deficit
increased to $50,521,028. These operating results were caused by a lack of
regulatory approval for the sale of our products. Management has plans to
increase working capital by its efforts related to obtaining additional capital
funding. Viragen's ability to continue as a going concern is dependent on the
availability of additional capital funding, regulatory approval of our
pharmaceutical products, and adequate downsizing to operate at a reduced level
of expense. Management plans to continue to pursue available funding and adjust
operating expenses accordingly. The Company's financial statements have been
prepared assuming it will continue as a going concern and do not reflect any
costs or charges that could result from this uncertainty.
Unaudited Interim Financial Data: The unaudited interim financial
statements for the three months ended September 30, 1999 and 1998 include, in
the opinion of our management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the financial
condition on September 30, 1999, the results of operations and cash flows for
the three months ended September 30, 1999 and 1998, and the changes in
stockholders' equity for the three months ended September 30, 1999.
Operating results for the three months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending June 30, 2000.
Cash and Cash Equivalents: Cash equivalents include demand deposits,
certificates of deposit and time deposits with maturity periods of three months
or less when purchased.
F-11
<PAGE> 63
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable Securities, Available-for-Sale: Viragen invests 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 investment in marketable
securities, available-for-sale totaled $6,108,503 at June 30, 1998. Realized
gains and losses are computed based on the cost of securities sold using the
specific identification method.
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, 1999. 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.
Other Current Assets: Other current assets consisted of the following at
June 30, 1999 and 1998:
JUNE 30,
---------------------------------------
1999 1998
---------------- ----------------
Notes receivable $ 171,123 $ 55,222
VAT tax refund receivable 119,352 256,504
Other current assets 15,958 219,224
---------------- ----------------
$306,433 $530,950
================ ================
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. The estimated
useful lives used for financial reporting purposes are:
Building and improvements 15-39 years
Equipment and furniture 5-10 years
Convertible Debt Issued with Stock Purchase Warrants: Viragen accounts for
convertible debt issued with stock purchase warrants in accordance with APB 14
- -- "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants." At June 30, 1999, the $2,000,000 principal in convertible notes is
being off-set by $70,123 in unamortized discount from the issuance of detachable
warrants.
Accrued Expenses and Other Liabilities: Accrued expenses and other
liabilities consisted of the following at June 30, 1999 and 1998:
JUNE 30,
---------------------------------------
1999 1998
---------------- ----------------
Accrued salaries $ 24,317 $ 150,389
Accrued rent expense 122,213 97,163
Accrued accounting fees 114,940 80,000
Accrued legal fees 36,077 77,243
Other accrued expenses 404,622 303,210
---------------- ----------------
$ 702,209 $ 708,005
================ ================
Deferred Income: Viragen had deferred the recognition of income from an
option fee until the period in which it is was earned.
F-12
<PAGE> 64
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Stock by Subsidiaries: Viragen accounts for sales of stock by its
subsidiaries as capital transactions for financial reporting purposes.
Foreign Currency Translation: For foreign operations, local currencies are
considered their functional currencies. Viragen translates assets and
liabilities to their U.S. dollar equivalents at rates in effect at the balance
sheet date and record translation adjustments in stockholders' equity. Statement
of operations accounts are translated at average rates for the period.
Transaction adjustments, which are not material, are recorded in results of
operations.
Research and Development Costs: Viragen accounts for research and
development costs in accordance with SFAS No. 2 -- "Accounting for Research and
Development Costs." Accordingly, all research and development costs are expensed
as incurred.
Stock Based Compensation: Viragen 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 SFAS 123 -- "Accounting for Stock-Based Compensation."
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.
Loss Per Common Share: Loss per common share has been computed based on the
weighted average number of shares outstanding during each period, in accordance
with SFAS 128 -- "Earnings per Common Share." The effect of convertible debt and
equity securities, warrants, and options are antidilutive. As a result, diluted
loss per share data does not include the assumed conversion of these instruments
and has been presented jointly with basic loss per share. Loss attributable to
common stock reflects adjustments for cumulative preferred dividends, as well as
embedded dividends arising from discounted conversion terms on convertible
preferred stocks and related warrants.
Embedded dividends included in loss attributable to common stock during
each fiscal year presented are:
PREFERRED STOCK 1999 1998 1997
- --------------- ---- ---- ----
Series A $ -- $ -- $ --
Series B -- -- 3,683,731
Series C -- -- 844,960
Series D -- -- 3,292,683
Series E -- -- 882,353
Series F -- -- --
Series G -- -- --
Series H 510,731 586,830 --
Series I 245,884 193,140 --
Comprehensive Loss: In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130 -- "Reporting Comprehensive Income." Viragen's SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. The adoption of SFAS No. 130 had no impact
on Viragen's net loss or stockholders' equity. Viragen's comprehensive loss for
fiscal years 1999, 1998, and 1997 totaled $10,889,070, $7,834,003 and
$4,555,445, respectively.
Recent Pronouncements: In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133 -- "Accounting for Derivative Instruments and Hedging
Activities" which is effective for fiscal quarters of fiscal years
F-13
<PAGE> 65
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. This statement amends
SFAS No. 52 -- "Foreign Currency Translation", and supersedes SFAS No. 80 --
"Accounting for Future Contracts", No. 105 -- "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk", No. 107 -- "Disclosures about Fair Value of
Financial Instruments". Viragen plans to adopt SFAS No. 133 in fiscal 2000.
Management believes that the impact of SFAS No. 133 will not be significant
to Viragen.
NOTE B -- REDEEMABLE PREFERRED STOCK
Series G
In September 1997, Viragen concluded an exchange agreement whereby 4,000 of
the outstanding shares of the 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, or $667,000 in principal, per month over a 6 month period.
The provisions further provided that we were required to redeem $667,000 per
month less the number of series G preferred shares converted during the
preceding calendar month. In addition, the holder was restricted from converting
into common stock if the market price of our common stock was less than $2.50,
subject to adjustment, at the date of the conversion notice. In consideration
for the restrictions on conversion, management agreed to increase the dividend
rate from 5% for the series E preferred stock to 10% for the series G preferred
stock.
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 Series I
During the third and fourth fiscal quarters of 1998, Viragen closed $7
million of financing replacing a portion of the funds used to redeem previous
preferred stock issuances. In February 1998, we received net proceeds of
approximately $4,625,000 from the sale of 500 shares of series H convertible
preferred stock with an aggregate stated value of $5 million. In April 1998,
Viragen received net proceeds of approximately $1,840,000 from the sale of 200
shares of series I convertible preferred stock. We incorporated certain
restrictions as part of the series H and series I preferred stock designations
which, in the opinion of management, would facilitate a more orderly market
relative to the underlying shares of our common stock. The series H and series I
preferred stock bear no dividends although, upon liquidation or conversion, an
8% accretion factor is 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 (1) $1.59 per share,
and (2) the variable conversion price which is equal to 82% of the market price
at the date of conversion. Management 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 was 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 any month in the event the holder has converted less
than 15% in any of the preceding months.
F-14
<PAGE> 66
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (1) remain
qualified for trading; (2) convert preferred shares to common stock; and (3)
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 Viragen'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 and series I preferred stock also received Nine Month warrants, Twelve
Month warrants and Fifteen Month warrants to purchase shares of common stock of
Viragen. The number of warrants and exercise price were to be determine at
future dates during fiscal 1999.
During fiscal 1999, Viragen allocated the warrants reserved for the series
H and I investors, as follows:
<TABLE>
<CAPTION>
H Investors I Investors Total
-------------- -------------- -------------
<S> <C> <C> <C>
Investor warrants reserved at June 30, 1998 1,948,052 779,221 2,727,273
Less warrants allocated to investors during fiscal 1999:
Nine Month warrants (exercise price = $0.80/share) 352,627 166,273 518,900
Twelve Month warrants (exercise price = $0.59/share) 193,221 114,406 307,627
Fifteen Month warrants (exercise price = $0.39/share) -- 56,410 56,410
-------------- -------------- -------------
Investor warrants cancelled during fiscal 1999 1,402,204 442,132 1,844,336
============== ============== =============
</TABLE>
The Nine Month, Twelve Month, and Fifteen Month warrants are exercisable
through February 17, 2003.
The series H and series I 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
placement agent warrants to purchase an aggregate of 402,052 shares of common
stock, which were subsequently transferred to affiliates and employees of the
placement agent. The placement agent warrants entitle the holders thereof to
exercise those warrants at an exercise price of $1.684 per share 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 $1.684 per share 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
Series A
The series A preferred stock provides for a 10% cumulative dividend,
payable at the option of Viragen, 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. Management 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, at
$11.00 per share for a period of five years from that date, and then at $10.00
per share.
F-15
<PAGE> 67
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B
On June 7, 1996, Viragen entered into a securities purchase agreement with
GFL Performance Ltd., GFL Advantage Fund Ltd. and Proton Global Asset
Management, LDC pursuant to which they acquired 15,000 shares of 5% cumulative
convertible preferred stock, series B for $15 million.
In connection with the sale and issuance of the series B preferred stock,
we issued warrants to purchase 225,000 shares of common stock at $10.59 per
share for a period of 3 years from date of issuance. Viragen also paid
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. All of the
warrants expired on June 6, 1999.
The series B preferred stock provided for a cash dividend equal to 5% of
the stated value of the series B preferred stock, although management had the
option to utilize shares of common stock, under certain conditions, to satisfy
the dividend requirement. The investors had the right to convert the series B
preferred stock into shares of common stock at a conversion price equal to the
lesser of 76.8% of the average market price of Viragen's common stock, as
described in the securities purchase agreement, prior to the conversion date, or
$8.74. 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. The principal value of the note was comprised of the following
components:
Principal balance $7,445,000
Beneficial conversion feature ($7.445
million/76.81% minus $7.445 million) $2,247,748
Preferred dividends earned (6/8/97 -- 7/1/97) $27,493
The note was paid-in-full in April 1998.
Series C
In December 1996, Viragen issued 5,000 shares of its series C convertible
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., 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 purchasers of the series C
preferred stock.
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 on or after 10
days from the date the registration statement registering the underlying shares
was 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 series C preferred stock, or
$1,000 per share, by the closing price of Viragen's common stock over the five
day period preceding notice of conversion. 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.
F-16
<PAGE> 68
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 over
a two month period. The modified conversion price was the lower of (1) $2.20 per
share or (2) the average closing price of Viragen'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, we were 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, we paid $1,391,198 in capital refunds to the series C
purchasers. Of the total 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.
Series D and Series F
In February 1997, Viragen issued 15,000 shares of its 6% series D
convertible 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 sock was
convertible into a number of shares of common stock determined by dividing the
five day trading average price of our 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, we
also issued 375,000 common stock purchase warrants, exercisable at $6.00 per
share. All of the warrants expired on June 30, 1998.
In September 1997, we 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 restriction on the holder limiting conversion
during any two week period to 800 preferred shares, or $800,000 in principal.
The terms also provided management 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, we 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, Viragen paid $2,744,000 to the series F holder upon exercise of the
cash-out option on conversions.
Series E
In February 1997, Viragen also issued 5,000 shares of its 5% series E
convertible preferred stock in consideration for $4,681,744, net of issuance
costs totaling $318,256. Dividends on the series E preferred stock accrued from
the date of issuance and were payable quarterly commencing April 1, 1997.
Dividends were payable in cash or, at management's option and subject to certain
other conditions, in shares of common stock.
The series E preferred stock was convertible into shares of common stock
commencing May 11, 1997 at a conversion price of the lesser of (1) the average
market price for the five trading days prior to the notice of conversion
multiplied by 85%, subject to adjustment, or (2) $7.00, subject to adjustment.
COMMON STOCK
During May 1999, Viragen completed a private placement for the sale of
2,750,000 shares of common stock. The common shares were sold to three
accredited investors at $0.50 per share. Viragen received proceeds of $1,375,000
from the sale of these shares.
At our 1998 annual stockholders' meeting, which was concluded on July 19,
1999, the stockholders approved the following proposals:
(1) authorization for up to a 1-for-8 reverse stock split; and
F-17
<PAGE> 69
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) an increase in the number of authorized common shares, if the board of
directors did not effect the reverse split.
On August 13, 1999, the board of directors elected to increase the
authorized common shares up to 125,000,000 shares.
OPTIONS AND WARRANTS
Under Viragen's 1995 stock option plan, 4,000,000 shares of common stock
were reserved for issuance to officers, directors, employees and consultants of
Viragen for stock options designated as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code. Options granted under the
1995 stock option plan have various vest dates and all options granted have
five-year terms from the vesting date.
Viragen's 1997 incentive stock option plan, adopted during February 1997,
authorized the grant of options to management personnel, directors and employees
for up to 3,000,000 shares of common stock. In April 1998, the 1997 stock option
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, we granted a total of 2,941,500 options to purchase
Viragen common stock. Of these, 1,750,000 were granted to our officers and
directors. 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, Viragen 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.
During fiscal 1997, we granted 120,000 options that were not part of the
above stock option plan to an employee. The options vested immediately and have
a 5 year term from that date.
Viragen 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 1998, management 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. Viragen also 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.
Viragen 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.
During fiscal 1998, we issued 230,565 shares of common stock upon the
exercise of options and warrants. Viragen received $117,888 upon exercise of
these options and warrants.
During fiscal 1999, Viragen granted an aggregate of 85,000 options to one
officer and two directors. The options have exercise prices ranging between
$0.41 and $1.81, which represented market price on the date of grant. These
options vest over various dates and are exercisable for five years from the
vesting dates. Three employees were also granted a total of 9,000 options with
exercise prices ranging between $1.75 and $1.87. The options, which vest over
various dates, are exercisable for five years from the vesting dates.
F-18
<PAGE> 70
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Viragen issued 1,245,000 common stock warrants to consultants during fiscal
1999. The warrants were issued as compensation for services provided to the
company during the year. The warrants vest over various dates, subject to
performance provisions, and have exercise prices ranging from $0.50 to $11.00.
During fiscal 1999, Viragen issued 1,488,473 shares of commons stock from
the exercise of options and warrants. We received $253,489 in cash and $602,000
was secured by promissory notes and related pledge and escrow agreements.
At June 30, 1999, 35,000 shares and 926,000 shares remain available under
the 1995 and the 1997 stock option plans, respectively.
STOCK BASED COMPENSATION
Viragen has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 -- "Accounting
for Stock-Based Compensation" requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, Viragen
recognized compensation expense in the amount of $172,000, $-0- and $450,000 in
1999, 1998 and 1997, respectively, because the exercise price of a portion of
the company's employee stock options was less than the market price of the
underlying stock on the date of grant. During 1999, 1998 and 1997, we recognized
approximately $199,000, $58,000 and $-0- in compensation expense on warrants
granted to consultants pursuant to SFAS 123, respectively.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if we had accounted for our
employee stock options under the fair value method of that statement. The fair
value for these 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; 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 Viragen's common stock of .77, .75 and
.64 for 1999, 1998 and 1997, 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 Viragen's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value 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.
Based on calculations using a Black-Scholes option pricing model, the
weighted average grant date fair value of options was $0.57, $1.10 and $1.51 in
fiscal 1999, 1998 and 1997, respectively. The pro forma impact on Viragen's net
loss per share had compensation cost been recorded as determined under the fair
value method is shown below.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Pro forma net loss $ (11,122,679) $(8,897,455) $(8,267,089)
Pro forma loss attributable to common stock (12,124,601) (11,395,807) (18,165,828)
Pro forma loss per common share (0.20) (0.23) (0.46)
</TABLE>
F-19
<PAGE> 71
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of Viragen's stock option activity, and related information for
the years ended June 30, follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF WEIGHTED AVERAGE OPTIONS AVERAGE
OPTIONS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Outstanding at July 1, 1996 5,135,000 $ 0.74 4,313,333 $ 0.63
Granted with exercise prices equal to market 2,559,500 3.02
Granted with exercise prices less than market 400,000 2.07
Exercised (199,000) 0.50
Cancelled -- --
------------- -------------------
Outstanding at June 30, 1997 7,895,500 1.59 6,443,167 1.51
Granted 417,500 2.08
Exercised (100,000) 0.50
Cancelled -- --
------------- -------------------
Outstanding at June 30, 1998 8,213,000 1.62 7,379,500 1.54
Granted 94,000 1.00
Exercised (1,210,000) 0.54
Cancelled (33,500) 2.21
------------- -------------------
Outstanding at June 30, 1999 7,063,500 $ 1.79 6,896,500 $ 1.79
============= ===================
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ----------------------------------------------------------------------- ------------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED AVERAGE
NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE
RANGE OF EXERCISE PRICES OPTIONS (YEARS) EXERCISE PRICE OPTIONS
- ---------------------------------- ------------- ---------------------- -------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
$0.30 - $0.50 1,985,000 1.34 $ 0.50 1,967,500 $ 0.50
$0.75 - $1.00 1,430,000 2.10 0.95 1,430,000 0.95
$1.50 - $2.50 1,202,000 4.30 1.95 1,052,500 1.91
$2.75 - $4.13 2,434,500 2.61 3.25 2,434,500 3.25
$7.13 12,000 3.59 7.13 12,000 7.13
------------- ---------------- -----------
$0.30 - $7.13 7,063,500 2.44 $ 1.79 6,896,500 $ 1.79
============= ================ ===========
</TABLE>
F-20
<PAGE> 72
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of Viragen's warrant activity, excluding warrants issued in
conjunction with the series B, C, D, H and I preferred stock offerings and the
convertible notes and related information for the years ended June 30, follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE OPTIONS EXERCISABLE EXERCISE PRICE
-------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1996 1,083,550 $ 0.99 970,217 $ 0.86
Granted 12,000 2.22
Exercised (319,229) 0.93
Cancelled (30,000) 5.12
-------------------- ----------------------
Outstanding at June 30, 1997 746,321 0.87 734,321 0.84
Granted 32,000 1.00
Exercised (130,565) 0.52
Cancelled (12,500) 0.80
-------------------- ----------------------
Outstanding at June 30, 1998 635,256 1.06 635,256 1.06
Granted 1,500,000 3.67
Exercised -- --
Cancelled (305,000) 1.26
-------------------- ----------------------
Outstanding at June 30, 1999 1,830,256 $ 3.12 405,256 $ 1.26
==================== ======================
</TABLE>
The following table summarizes information about stock warrants outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ----------------------------------- ------------- ---------------------- ---------------- -------------------
WEIGHTED AVERAGE
REMAINING
NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OPTIONS (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ----------------------------------- ------------- ---------------------- -------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
$0.50 - $0.80 816,256 1.42 $ 0.51 291,256 $ 0.53
$1.00 252,000 4.13 1.00 52,000 1.00
$1.78 - $2.22 262,000 4.09 1.80 12,000 2.22
$5.50 - $7.50 150,000 14.13 6.83 50,000 5.50
$9.00 - $11.00 350,000 14.13 10.14 -- --
------------- ----------------
$0.50 - $11.00 1,830,256 5.65 $ 3.12 405,256 $ 1.26
============= ================
</TABLE>
The weighted-average fair value of each Viragen warrant granted in fiscal
1999, 1998 and 1997 was $1.00, $1.52 and $1.05, respectively.
Viragen's majority owned subsidiary, Viragen (Europe) Ltd., has also
granted stock options to one of its officers. The fair value of Viragen (Europe)
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; volatility
factor of the expected market price of Viragen (Europe)'s common stock of .723
for 1998; and an expected life of the options of 3 years. The weighted average
fair value of each Viragen (Europe) option granted in fiscal 1998 was $2.97.
F-21
<PAGE> 73
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of Viragen (Europe)'s stock option activity, and related
information for the years ended June 30, follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE OPTIONS EXERCISABLE EXERCISE PRICE
------------------ ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1996 50,000 $ 7.00 -- $ --
Granted -- --
Exercised -- --
Cancelled -- --
------------------
Outstanding at June 30, 1997 50,000 7.00 50,000 7.00
Granted 75,000 5.72
Exercised -- --
Cancelled -- --
------------------
Outstanding at June 30, 1998 125,000 6.23 50,000 7.00
Granted -- --
Exercised -- --
Cancelled -- --
------------------
Outstanding at June 30, 1999 125,000 $ 6.23 7,500 $ 6.45
==================
</TABLE>
The weighted average remaining contractual life of Viragen (Europe) options
outstanding as of June 30, 1999 is 4.11 years.
Viragen's majority owned subsidiary, Viragen U.S.A., Inc., has also granted
stock options to certain officers and employees. The fair value of Viragen
U.S.A. 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.
The weighted average fair value of each Viragen U.S.A. option granted in
fiscal 1998 and 1997 was $0.05 and $0.22, respectively.
A summary of Viragen U.S.A.'s stock option activity, and related
information for the years ended June 30 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE OPTIONS EXERCISABLE EXERCISE PRICE
-------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1996 -- $ -- -- $ --
Granted below market price 320,000 0.01
Exercised (320,000) 0.01
Cancelled -- --
--------------------
Outstanding at June 30, 1997 -- -- -- --
Granted 125,000 0.22
Exercised -- --
Cancelled -- --
--------------------
Outstanding at June 30, 1998 125,000 0.22 -- --
Granted -- --
Exercised -- --
Cancelled -- --
--------------------
Outstanding at June 30, 1999 125,000 $ 0.22 50,000 $ 0.22
====================
</TABLE>
F-22
<PAGE> 74
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average remaining contractual life of options outstanding at
June 30, 1999, is 5.42 years.
COMMON SHARES RESERVED
Shares of our common stock reserved at June 30, 1999 for possible future
issuance are as follows:
<TABLE>
<CAPTION>
<S> <C>
Convertible preferred stock, series A 11,289
Convertible preferred stock, series I 220,000
8% Convertible notes 5,210,412
Warrants -- consultants (exercisable through August 2013) 1,554,000
Employee option plans (exercisable through August 2005) 646,500
Officers and directors options (exercisable through October 2004) 6,417,000
Warrants -- debt and equity offerings (exercisable through March 2004) 2,584,743
</TABLE>
NOTE D -- INVESTMENT IN UNCONSOLIDATED COMPANY
In August 1998, Viragen 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 is focused
on the development of therapeutic drugs for autoimmune disorders. Its lead
product is LeukoVAX, an immunomodulating leukocyte preparation currently in Food
and Drug Administration Phase I/II clinical trials for rheumatoid arthritis.
Under the terms of the Inflammatics agreement, Viragen made an initial
investment in the form of series A convertible preferred stock of Inflammatics
for $1 million and warrants to purchase 250,000 shares of common stock at prices
ranging between $1.00 and $1.78 per share. Viragen further obtained two options
to acquire an additional 70% equity position in Inflammatics through two
additional fundings to be made at our option. The first additional funding,
subject to management's evaluation of the Phase I/II clinical trial results,
provides for the issuance of 1,000,000 shares of common stock, the issuance of
300,000 commons stock purchase warrants exercisable at $1.00 through August 14,
2003, and the underwriting of Phase III clinical trials, in exchange for an
additional 36.3% equity interest. Preliminary estimates for the funding of Phase
III clinical trials of LeukoVAX range between $6.0 million and $10.0 million.
The second additional funding, subject to management's further evaluation of
clinical trial results, provides for the issuance of an additional 2,000,000
shares of commons stock in exchange for an additional 33.3% equity interest.
The investment in Inflammatics was capitalized at $1,429,000, which
consisted of the $1,000,000 paid to Inflammatics, a $100,000 finders fee paid to
Sumitomo Bank, and $329,000 in costs associated with the warrants issued, which
were valued using a Black-Scholes valuation model.
Viragen recognized approximately $757,000 in losses related to its
investment in Inflammatics, Inc. during the fiscal year ended June 30, 1999.
This loss reflects 100% of the losses incurred by Inflammatics associated with
the clinical testing of LeukoVAX. The loss also includes the amortization of the
capitalized finders fee and warrant costs. These costs are being amortized in
proportion to the losses incurred by Inflammatics as compared to our initial
cash capital contribution to Inflammatics.
NOTE E -- CONVERTIBLE NOTES WITH DETACHABLE WARRANTS
On March 17, 1999, we entered into a purchase agreement with the Isosceles
Fund Limited and Cefeo Investments Limited, which was subsequently amended on
June 16, 1999. Under the purchase agreement, we issued Isosceles and Cefeo 8%
convertible promissory notes in the aggregate principal amount of $2,000,000
with detachable warrants to purchase 932,039 shares of our commons stock.
Viragen received $1,861,820 from the issuance of the convertible notes and
detachable warrants. The proceeds were net of $138,180 paid as finders' fees. As
required by APB Opinion No. 14 -- "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants", we valued the detachable warrants
F-23
<PAGE> 75
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
using a Black-Scholes valuation model. The model valued the detachable warrants
at $344,854, which was recorded as a discount on principal.
Subsequent to June 30, 1999, one-half of the principal balance, which
accrued interest at a rate of 8% annually, and accrued interest on the related
principal converted automatically into 2,049,534 shares of our common stock on
July 7, 1999. In addition, the remaining one-half of the principal balance and
accrued interest on the notes converted automatically into 2,062,685 shares of
our common stock on August 6, 1999. The conversion price was $0.50 per common
share.
In addition to the shares issued on conversion of the notes, the note
holders were entitled to receive additional shares of our common stock 30 days
after each one-half of the notes converted into shares of our common stock, as
required by a re-set provision. The purpose of this arrangement was to make sure
that the note holders had a return of at least 20% on the shares received on the
conversion of the first half of the notes and at least a 22% return on the
conversion on the remaining half of the notes. The number of additional shares
to which the note holders were entitled was calculated by dividing $0.644 by the
lowest closing bid price of our common stock during the ten consecutive trading
days preceding each re-set date.
On August 6, 1999, Isosceles and Cefeo received an aggregate amount of
546,990 additional common shares, based on the first re-set calculation. These
shares were issued using a future price of $0.61 per share. On September 5,
1999, Isosceles and Cefeo received an aggregate amount of 551,203 additional
common shares, based on the second re-set calculation. These shares were issued
using a future price of $0.62 per share. Viragen will recognize approximately
$700,000 in interest expense during the first quarter of fiscal 2000, as a
result of issuing these additional shares.
The warrants issued to Isosceles and Cefeo to purchase an aggregate of
932,039 shares of our common stock are exercisable until March 17, 2004 with an
exercise price of $.50 per share. However, we must reduce the exercise price of
the warrants if we sell shares of our common stock, grant options or adjust the
exercise prices of options or issue other securities convertible into our common
stock at prices less than $.50 per common share.
We also issued warrants to purchase an aggregate of up to 155,339 shares of
our common stock at $.773 per share to certain parties in consideration for
introducing Viragen to Isosceles and Cefeo. The warrants issued are exercisable
currently until March 17, 2004. As we did not pre-pay the notes issued to
Isosceles and Cefeo before July 7, 1999, one-half of these warrants were
returned to Viragen.
Events of default, on our obligations to the investors, include: default
under the promissory notes, failure to maintain effectiveness of our
registration under the Securities Act of 1933, delisting our stock from NASDAQ
(which has occurred), and failure to have our registration statement become
effective by July 7, 1999 (which has occurred).
The sum of the penalties depends on the period that we are in
non-compliance. As of September 17, 1999, we have incurred approximately
$140,000 in penalty fees. The penalty amount will continue to increase $40,000
per month, until the related registration statement becomes effective.
The investors have the right to force redemption of their common shares,
because the related registration statement is not yet effective and the stock
has been delisted from NASDAQ. The redemption value, if elected by the
investors, would exceed the initial investment of $2 million. The redemption
value is the greater of: $2 million and related interest plus a premium of 15%;
or market value of the shares to be redeemed, on the date the investors elect
redemption.
F-24
<PAGE> 76
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LONG-TERM DEBT
Long-term debt at June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1999 1998
------------------ ---------------
<S> <C> <C>
Notes payable resulting from purchase of insurance. Notes
range in term up to 36 months, with interest rates ranging
from 7.00% to 10.75% $ 187,170 $ 207,272
Unsecured loan from Scotland Regional Development Authority.
Payable quarterly over 20 years, with an effective
interest rate of 11.00%. Note matures on August 28, 2017 139,852 162,906
Capital lease obligations resulting from acquisition of equipment, with a cost
totaling $217,939 capitalized from three to five years 46,194 81,193
------------------ ---------------
373,216 451,371
Less current portion (142,109) (171,277)
------------------ ---------------
$ 231,107 $ 280,094
================== -- ===============
</TABLE>
Scheduled maturities of long-term debt at June 30, 1999 are: 2000 --
$142,109; 2001 -- $76,907; 2002 -- $37,985; 2003 -- $7,879; and 2004 and
thereafter -- $108,336.
NOTE G -- INCOME TAXES
Viragen, Inc. and its majority-owned subsidiaries, as defined by the
Internal Revenue Code, file consolidated federal and state income tax returns.
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, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1999 1998
------------------ ---------------
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation $ 137,000 $ 118,000
Other 21,000 21,000
------------------ ---------------
Total deferred tax liabilities 158,000 139,000
Deferred tax assets Net operating loss carry forwards 11,782,000 9,875,000
Research and development credit 622,000 478,000
Deferred compensation 205,000 --
Other 308,000 249,000
------------------ ---------------
Total deferred tax assets 12,917,000 10,602,000
Valuation allowance for deferred tax assets 12,759,000 10,463,000
------------------ ---------------
158,000 139,000
------------------ ---------------
Net deferred taxes $ -- $ --
================== ===============
</TABLE>
F-25
<PAGE> 77
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in the valuation allowance was a net increase of $2,296,000 for
the year ended June 30, 1999.
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 carry-forwards, with expiration dates, as
follows:
AMOUNT EXPIRATION
----------------- -------------
$ 270,000 2000
2,870,000 2001 -- 2003
3,120,000 2004 -- 2006
25,051,000 2007 -- 2019
-----------------
$31,311,000
=================
In addition, tax credits of $622,000 and $478,000 for income tax purposes
are being carried forward that expire in years 2001 through 2014, at June 30,
1999 and 1998, respectively. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to these
carry-forwards.
The reconciliation of income tax computed at the U.S. federal statutory
rate applied to Viragen's net loss is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate (34.00) % (34.00) % (34.00) %
State taxes, net of federal benefit (3.63) % (3.63) % (3.63) %
Non-deductible items 0.18 % (2.89) % 4.46 %
Change in valuation allowance 34.21 % 40.00 % 30.68 %
Other 3.24 % 0.52 % 2.49 %
------------ ------------ -----------
-- % -- % -- %
============ ============ ===========
</TABLE>
Viragen (Europe) Ltd. was included in Viragen's consolidated federal and
state income tax returns for the period December 8, 1995 through March 15, 1996,
when Viragen, Inc.'s percentage ownership of Viragen (Europe) Ltd. exceeded 80%.
Even though Viragen's ownership percentage of Viragen (Europe) exceeds 80% again
as of December 31, 1998, Viragen (Europe) may have to continue filing separate
income tax returns. Viragen (Scotland) Ltd., a wholly-owned subsidiary of
Viragen (Europe), files separate income tax returns in the United Kingdom.
Viragen (Germany) GmbH, also a wholly-owned subsidiary of Viragen (Europe),
files separate income tax returns in Germany.
Deferred tax assets of Viragen (Europe)'s U.S. operations at June 30, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Total deferred tax assets $ 993,000 $ 1,164,700
Valuation allowance for deferred tax assets 993,000 1,164,700
-------------- -------------
$ -- $ --
============== =============
</TABLE>
F-26
<PAGE> 78
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1999, Viragen (Europe) has net operating losses totaling
approximately $2,580,000, expiring between 2000 and 2019. Viragen (Scotland) has
approximately $9,847,000 in net operating losses available to carry-forward at
June 30, 1999.
For financial reporting purposes, net loss before income taxes includes the
following components:
YEAR ENDED JUNE 30,
----------------------------------------
1999 1998
------------------ -----------------
U.S. $ (6,048,656) $ (3,615,140)
Foreign (4,602,176) (4,240,996)
------------------ -----------------
$ (10,650,832) $ (7,856,136)
================== =================
NOTE H -- TRANSACTIONS WITH RELATED PARTIES
In June 1996, Viragen loaned $50,000 to a now-former employee. The
promissory note is for a term of five years with an annual interest rate of
6.48%. Interest is to be paid semi-annually with the principal balance and
unpaid interest payable on the fifth anniversary of the note. Management has
reserved approximately $25,000 of the principal balance as uncollectable at June
30, 1999. Management intends to pursue collection of this promissory note.
In November 1996, Viragen forgave a $12,500 balance due to the company by
its chief executive officer.
In April 1997, management loaned $100,000 to one of Viragen's directors.
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. In
April 1998, the director defaulted on the note. Management 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 was been written-off as uncollectable
on June 30, 1998. Management intends to pursue collection efforts relative to
this transaction.
On July 31, 1998, we held our 1997 annual shareholders meeting. Certain
directors did not seek reelection to serve as directors of the company. In
appreciation of their past service, Viragen 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. We recognized
approximately $199,000 in compensation expense upon waiving the 90-day
expiration clause.
During fiscal 1999, certain directors and former officer exercised
1,160,000 options to purchase common stock at prices ranging between $0.30 and
$1.19 per share. The options were exercised through the issuance of promissory
notes payable to Viragen with related pledge and escrow agreements. The
promissory notes bear interest at rates ranging between 5.06% and 5.47%, payable
semi-annually and are secured by the underlying common stock purchased. The
shares are being held in escrow pending payment of the related notes pursuant to
the provisions of the pledge and escrow agreements.
NOTE I -- COST REDUCTION PLAN
During fiscal 1999, Viragen began implementing a cost-reduction plan
targeted to reduce domestic and research costs. These changes in operations
reflect our shift from developing our product in our domestic laboratories to
scale-up development and clinical research in our European facility.
SFAS No. 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
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VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by those assets are less then the assets' carrying amount. EITF 94-3 --
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity" requires restructuring costs to be accrued under specific
guidelines.
No losses or exit costs have been accrued by Viragen. We have not done so
because the criteria for recognizing losses and exit costs, as specified in SFAS
121 and EITF 94-3, have not been met.
Much of the savings to be realized from personnel reductions comes from the
elimination of positions where employment agreements have expired. Accordingly,
these individuals are not receiving severance pay. Of the remaining positions to
be eliminated, management has not yet approved any severance packages to be
offered.
Viragen is not aware of any impairment of its equipment, and accordingly,
we have not recognized any loss due to impairment on our long-lived laboratory
equipment or facility. Upon termination of research activities in our domestic
facility, equipment considered to be useful to our Scottish operations will be
transferred to our Scottish facility, where it will be used in continuing
research activity, as well as manufacturing and quality assurance operations.
Equipment identified for disposal, if any, will be sold for the highest bid.
Viragen has not yet identified any equipment for disposal, and accordingly, has
not recognized any impairment. We are currently in the process of trying to sell
the domestic research facility, but no impairment has been recorded because an
independent appraisal performed has valued the land, building and related
improvements above its net book value.
NOTE J -- LICENSE AND MANUFACTURING AGREEMENTS
Through a fifteen-year license agreement granted by Viragen, Viragen
(Europe) Ltd. and its wholly-owned subsidiary, Viragen (Scotland) Ltd., 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 for various diseases that
affect the human immune system. Pursuant to these rights, on July 20, 1995,
Viragen (Scotland) entered into a license and manufacturing agreement with the
Common Services Agency, an agency acting on behalf of the Scottish National
Blood Transfusion Service. The Transfusion Service, on behalf of Viragen
(Scotland), will manufacture and supply Viragen (Scotland)'s product to Viragen
(Scotland) for distribution in the European Union in return for certain fees. It
was considered critical to our 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. Viragen (Scotland) commenced
operations concurrent with the execution of its agreement with the Transfusion
Service. The term of the Scottish agreement is five years with two additional
five-year extension terms exercisable at the option of Viragen (Scotland).
Pursuant to the terms of the license, Viragen (Scotland) was to prepay $2
million to Viragen, within six months of the effective date, July 12, 1995.
Commencing one year from the effective date, Viragen (Scotland), is to pay to
Viragen 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 Viragen transferred the processes and technology, as defined by the
license, to Viragen (Scotland). Viragen had substantially transferred the
processes and technology to Viragen (Scotland) by the end of May 1997. At that
time, Viragen required the initial royalty payment be made. Completion of the
transfer occurred on November 1, 1997.
In April 1998, Viragen entered into an option agreement with Southern
Health SDN.DHD, a private Malaysian/Australian-based healthcare investment
group. The option agreement initially provided Southern Health the right to
acquire, through September 30, 1998, subsequently extended to March 31, 1999, an
exclusive, private-label
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VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
manufacturing and distribution license covering Malaysia, Indonesia, the
Philippines, Thailand, Taiwan, Korea, Singapore, Australia and New Zealand, for
our proprietary natural interferon production process in exchange for an initial
cash licensing fee of $20 million and a continuing royalty of 12% of Southern
Health's related revenues. Southern Health paid a $200,000 option fee.
On March 31, 1999, the option agreement expired, without being exercised.
We recognized one-half of the fee, or $100,000, as revenue, and the balance was
refunded to Southern Health during April 1999.
NOTE K -- RESEARCH AND DEVELOPMENT AGREEMENTS
Viragen has a contract with Viragen Research Associated Limited
Partnership, for Viragen to perform the research and development with respect to
two therapeutic products for the topical treatment of herpes virus infections.
Pursuant to the contract, we assigned all of our patent rights to the processes
and topical products to Viragen Research Associated in exchange for an exclusive
worldwide licensing agreement. Viragen Research Associated is to receive 5% of
the gross revenues of topical products until it has received approximately
$900,000 and, thereafter, it is to receive 2% of the gross revenues of topical
products. Viragen is not presently pursuing the development or commercialization
of a topically applied product.
NOTE L -- ROYALTY AGREEMENT
Viragen has a royalty agreement with Medicore, Inc. 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.
NOTE M -- COMMITMENTS
In November 1996, Viragen (Scotland) Ltd. executed a five-year lease on
property located in Edinburgh, Scotland that will serve as our laboratory and
production facilities. Base monthly rental on the property is approximately
$9,975. In addition, Viragen (Scotland) may extend the term of the lease at its
option, for four five-year periods.
In November 1996, Viragen entered into a ten-year lease on property in
Plantation, Florida. This facility contains our executive and administrative
offices. 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, 1999, 1998 and 1997, Viragen recognized
rent expense and related charges of $298,000, $290,000 and $47,000 for its
Plantation, Florida property lease and $195,000, $202,000 and $29,000
attributable to its Edinburgh, Scotland facility. Future minimum lease payments
on the two facilities are: 2000 -- $300,912; 2001 -- $307,255; 2002 -- $224,019;
and 2003 -- $200,913; and 2004 and thereafter -- $817,339.
Viragen has entered into employment agreements with its officers and key
employees. These agreements represent a commitment to pay an aggregate amount of
approximately $1,200,000, per year in salaries to these individuals.
NOTE N -- CONTINGENCIES
In May 1997, Viragen in the name of Viragen (Europe) (formerly Sector
Associates, Ltd.) 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
Viragen's reverse acquisition of Sector,
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VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 was recognized during fiscal 1998.
In October 1997, Viragen, the company's president, and Cytoferon Corp., a
former affiliate of Viragen's 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 Viragen shareholder 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 specific performance delivery of 441,368
shares of common stock. Viragen 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 Viragen 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 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 Viragen'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, Viragen filed a motion to
dismiss the plaintiff's amended complaint which was denied by the court. Viragen
denies the 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.
In September 1999, the federal court recommended that Viragen receive
reimbursement for attorney's fees and expenses incurred in the federal suit
described above. Management has filed an objection claiming that the award does
not adequately cover the fees and expenses incurred defending the suit. A final
decision is pending.
NOTE O -- GEOGRAPHIC INFORMATION
In 1997, Viragen completed a manufacturing facility in Edinburgh, Scotland.
Identifiable assets in Scotland totaled $4,506,000 and $4,745,000 at June 30,
1999 and 1998, respectively. Identifiable assets represent those assets used in
the operations of the geographic area.
NOTE P -- SUBSEQUENT EVENTS
On August 10, 1999, Viragen mortgaged its Florida-based research facility
for $600,000. Interest on the promissory note is payable in twelve monthly
installments, commencing on August 10, 1999. Interest is calculated at the rate
of 1% over the prime rate per annum, as quoted by the Wall Street Journal, and
the rate is adjusted on a daily basis. The principal balance of $600,000 plus
any unpaid interest is due on July 10, 2000.
UNAUDITED SUBSEQUENT EVENT INFORMATION
On November 3, 1999, Viragen secured a $400,000 short-term loan by pledging
its domestic scientific equipment and a second mortgage on our Florida based
research facility as collateral. Interest on the promissory note is payable in 6
monthly installments, commencing on December 3, 1999. Interest is calculated at
the rate of 12% per annum. The principal balance of $400,000 plus any unpaid
interest is due on May 3, 2000.
On November 24, 1999, Viragen entered into a common stock and warrants
purchase agreement with three institutional investors. The agreement was for
gross proceeds of $2,500,000 in exchange for 4,600,000 shares of common stock
and warrants to purchase 357,000 shares of common stock. The proceeds are
payable in three tranches: $650,000 upon the execution of the agreement;
$650,000 upon the filing of the related registration statement; and $1,200,000
upon the registration statement becoming effective. The warrants are exercisable
at $1.15 per share through November 30, 2002.
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VIRAGEN, INC.
PROSPECTUS
December___, 1999
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the common stock being registered, other
than underwriting discounts and commissions.
Securities and Exchange Commission
registration fee $ 1,734
Legal fees and expenses 50,000*
Accounting fees and expenses 32,500*
Blue sky fees and expenses 500*
Printing expenses 10,000*
Registrar and transfer agent's fee 1,500*
Miscellaneous 1,766*
---------------
Total $ 98,000
===============
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware allows a
corporation to indemnify any person who was or is, or is threatened to be made a
party to any threatened, pending, or completed suit or proceeding. This applies
whether the matter is civil, criminal, administrative or investigative because
he or she is or was a director, officer, employee or agent of the corporation.
A corporation may indemnify against expenses, including attorney's
fees, and, except for an action by or in the name of the corporation, against
judgments, fines and amounts paid in settlement as part of this suit or
proceeding. This applies only if the person indemnified acted in good faith and
in a manner he or she reasonably believed to be in the best interest of the
corporation. In addition, with respect to any criminal action or proceeding, the
person had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, as to which the person
has been found to be liable to the corporation. The exception is if the court in
which this action was brought determines that the person is reasonably entitled
to indemnity for expenses.
Section 145 of the General Corporation Law of Delaware further provides
that if a director, officer, employee or agent of the corporation has been
successful in the defense of any suit, claim or proceeding described above, he
or she will be indemnified for expenses, including attorney's fees, actually and
reasonably incurred by him or her.
Indemnification for liabilities arising under the Securities Act of
1933, as amended, is permitted as to directors, officers and controlling persons
of Viragen, in the opinion of the Securities and Exchange Commission,
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification against these liabilities, other than
the payment by Viragen in the successful defense of any action, suit or
proceeding, is asserted, Viragen will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy. Viragen will be governed by the final adjudication of this issue.
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ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, Viragen issued 5,000 shares of its series C
convertible preferred stock to three accredited investors for a cash
consideration of $5,000,000. The issuance was effected pursuant to Rule 506
under Section 4(2) of the Securities Act of 1933. The issuance also included
warrants to purchase an aggregate of 214,593 shares of common stock.
In February 1997, Viragen issued 15,000 shares of its series D
convertible preferred stock to a single accredited investor for an aggregate
consideration of $20,000,000. The transaction was effected pursuant to Rule 506
under Section 4(2) of the Securities Act of 1933. In connection with this
issuance, Viragen also issued 375,000 common stock purchase warrants. In
September 1997, we exchanged an equal number of shares of our series F
convertible preferred stock for the remaining series D convertible preferred
stock outstanding pursuant to Section 3(9) of the Securities Act of 1933.
In February 1997, Viragen issued 15,000 shares of its series E
convertible preferred stock to a single accredited investor for an aggregate
consideration of $5,000,000. The transaction was effected pursuant to Rule 506
under Section 4(2) of the Securities Act of 1933. In September 1997, we
exchanged an equal number of shares of our series G convertible preferred stock
for the remaining series E convertible preferred stock outstanding pursuant to
Section 3(9) of the Securities Act of 1933.
During February 1998 and April 1998, Viragen issued 500 shares of its
series H convertible preferred stock for an aggregate consideration of
$5,000,000 and 200 shares of its series I preferred stock, respectively, to five
accredited investors for an aggregate consideration of $2,000,000. The
transaction was completed pursuant to Rule 506 under Section 4(2) of the
Securities Act of 1933. In connection with the issuance of the securities, we
issued to the holders of the series H and series I preferred stock, warrants to
purchase a total of 1,844,336 shares of common stock of Viragen. In addition,
warrants to purchase 402,052 shares of common stock of Viragen were issued to a
finder for the transaction.
In each of the above instances, the purchasers of the Series C, Series
B, Series E and Series H convertible preferred stock were limited in number,
were highly experienced in making investments of this type, were sophisticated
investors based on our discussions and awareness of their backgrounds and
provided representations as to this information as well as their investment
intentions, these investors were accredited investors. A review of Rule 506 and
those portions of Rule 501 and 502 relevant to Rule 506 show Viragen to be in
compliance with Rule 506 in these transactions.
In June 1997, Viragen issued 138,223 shares of common stock in order to
settle threatened litigation with a former investor in Cytoferon and, an
existing stockholder of Viragen. The shares had a cost of approximately
$288,000. In view of the circumstance that the shares were issued to a single
investor, who was an experienced, sophisticated and highly accredited investor,
who had access to information concerning Viragen, both previously and at the
time of the settlement, and agreed to hold for investment, the issuance was
exempt under Section 4(2) of the Securities Act of 1933.
In March 1999, Viragen issued convertible promissory notes in the
aggregate principal amount of $2,000,000 to two accredited investors. In June
1999, Viragen modified the terms of conversion of the promissory notes. Viragen
also issued to these investors warrants to purchase 932,039 shares of common
stock of the Company. The transaction was undertaken pursuant to Rule 506 under
Section 4(2) of the Securities Act of 1933. Viragen also issued warrants to
purchase 155,339 shares of its common stock to certain finders in the
transaction.
In May 1999, Viragen issued 2,750,000 shares of its common stock to
three accredited investors for an aggregate consideration of $1,375,000. Each of
the investors was highly sophisticated, had significant financial resources, had
pre-existing relationships with Viragen and was provided with access to relevant
information relating to Viragen. The transaction was undertaken in accordance
with Section 4(2) of the Securities Act of 1933.
We have been advised by the staff of the Securities and Exchange
Commission that since we had a pending registration statement on behalf of the
selling security holders at the time of the May 1999 interim financing and June
1999 modification of the agreement with the selling security holders in the
March 1999 financing, Viragen may have violated Section 5 of the Securities Act
of 1933. In the event the conduct of the interim financing in May 1999 and the
modification in June 1999 represent a violation of Section 5 of the Securities
Act of 1933, we may have a contingent liability to the selling security holders
and the three investors in the interim financing since they may have a right to
rescind their transactions.
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In April 1999, Viragen issued 25,000 shares of common stock to a
marketing consultant as compensation for services performed by the consultant in
locating potential strategic partners for foreign co-ventures. The shares had a
value of $12,500. In view of the circumstances that the consultant was an
experienced and sophisticated investor, who had access to information pertaining
to Viragen, was provided copies of the Company's relevant public filings, and
agreed to hold for investment, the transaction was exempt in accordance with
Section 4(2) of the Securities Act of 1933.
In November 1999, Viragen issued 1,000,000 shares of common stock and
warrants to purchase 50,000 shares for $500,000 or $.50 per share and 300,000
shares of common stock and warrants to purchase 15,000 shares for $150,000 or
$.50 per share to two non-U.S. investors under Regulation S. Viragen also paid a
commission of 6% and a non-accountable expense allowance of 1% to a placement
agent who is also based outside the United States. This placement agent also
received disclosures and documentation consistent with Regulation S, provided
representations as to their non-U.S. status and agreed to restrictions as to
resale of securities as requested by Regulation S. Accordingly, the transaction
was exempt in accordance with Regulation S of the Securities Act of 1933.
ITEM 16. EXHIBITS 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)
(iii) Certificate of Amendment to Certificate of Incorporation of
Viragen, Inc.
(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)
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(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))
(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))
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(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))
(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))
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(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))
(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))
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<PAGE> 89
(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)
II-7
<PAGE> 90
(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)
(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 (Certain portions of this exhibit have been redacted
pursuant to a Confidentiality Request submitted to the Securities and
Exchange Commission)
II-8
<PAGE> 91
(lxi) Strategic Alliance Agreement between the Company and
Inflammatics, Inc. and Inflammatics Inc. Series A Convertible Preferred
Stock Purchase Agreement (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1998)
(lxii) Common Stock Private Equity Line Subscription Agreement,
Registration Rights Agreement, Private Placement Agreement, Placement Agent
Warrant and Investor Warrant dated September 22, 1998 (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998)
(lxiii) Gerald Smith Pledge and Escrow Agreement for 200,000 shares
dated September 1, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).
(lxiv) Gerald Smith Pledge and Escrow Agreement for 50,000 shares
dated September 1, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).
(lxv) Dennis W. Healey Pledge and Escrow Agreement for 200,000 shares
dated September 1, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).
(lxvi) Dennis W. Healey Pledge and Escrow Agreement for 50,000 shares
dated September 1, 1998 (incorporated by reference to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).
(lxvii) Southern Health SDN. BHD Option to Purchase Master License
dated March 23, 1998.
(lxviii) Placement Agreement, Placement Agent Warrant and Investor
Warrant dated September 22, 1998 (incorporated by reference to Viragen's
Annual Report on Form 10-K for the year ended June 30, 1998)
(lxiv) Purchase Agreement between the Registrant, the Isosceles Fund
and Cefeo Investments Limited dated March 17, 1999 (incorporated by
reference to Viragen's Amendment No. 1 to Registration Statement on Form
S-3 filed on June 21, 1999, File No. 333-75749).
(lxv) 8% Redeemable Convertible Promissory Note to the Isosceles Fund
dated March 17, 1999. (incorporated by reference to Viragen's Form S-3
registration statement filed April 6, 1999, File No. 333-75749).
(lxvi) 8% Redeemable Convertible Promissory Note to Cefeo Investments
Limited dated March 17, 1999. (incorporated by reference to Viragen's Form
S-3 registration statement filed April 6, 1999, File No. 333-75749).
(lxvii) Common Stock Purchase Warrant issued to the Isosceles Fund
dated March 17, 1999. (incorporated by reference to Viragen's Form S-3
registration statement filed April 6, 1999, File No. 333-75749).
II-9
<PAGE> 92
(lxviii) Supply and Distribution Agreement between Viragen and the
Adamjee Group of Companies dated November 16, 1998 (incorporated by
reference to the Viragen (Europe) Ltd. Annual Report on Form 10-K for the
year ended June 30, 1999).
(lxix) Employment Agreement between Viragen and Gerald Smith dated
March 1, 1999 (incorporated by reference to Viragen's Annual Report on Form
10-K for the year ended June 30, 1999).
(lxx) Employment Agreement between Viragen and Dennis W. Healey dated
March 1, 1999 (incorporated by reference to Viragen's Annual Report on Form
10-K for the year ended June 30, 1999).
(lxxi) Memorandum of Agreement between the Isosceles Fund and the
Company dated March 17, 1999 (incorporated by reference to Viragen's Annual
Report on Form 10-K for the year ended June 30, 1999).
(lxxii) Letter of Intent between the Company and Drogsan Healthcare
dated July 2, 1999 (incorporated by reference to the Viragen (Europe) Ltd.
Annual Report on Form 10-K for the year ended June 30, 1999).
(lxxiii) Common stock and Warrants Agreement. Stock Purchase Warrant
and Registration Rights Agreement dated November 24, 1999 (incorporated by
reference to Viragen's Current Report on Form 8-K dated December 9, 1999.)
(lxxiv) Carl N. Singer Promissory Note, Pledge and Escrow Agreement
for 50,000 shares dated October 1, 1998.*
(lxxv) Peter Fischbein Promissory Note, Pledge and Escrow Agreement
for 200,000 shares dated October 8, 1998.*
(lxxvi) Employment Agreement, Stock Option Agreement between Viragen
and Melvin Rothberg dated July 1, 1999.*
(lxxvii) Employment Agreement, Stock Option Agreement between Viragen
(Scotland) Ltd. and Dr. D. Magnus Nicolson dated July 1, 1999.*
(lxxviii) Promissory Note and Mortgage and Security Agreement dated
August 10, 1999.*
(lxxix) Mortgage and Security Agreement dated November 3, 1999.*
(21) Subsidiaries of the registrant (incorporated by reference to Viragen's
Annual Report on Form 10-K for the year ended June 30, 1999).
(23) Consent of Independent Certified Public Accountants.*
(b) Reports on Form 8-K filed during the fourth quarter
None
* Filed herewith
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-10
<PAGE> 93
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, Viragen has
been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
Viragen in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, Viragen will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
II-11
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Plantation, state of Florida on December 20, 1999.
VIRAGEN, INC.
BY: /s/ Gerald Smith
-------------------------------------------
Gerald Smith
Chairman of the Board of Directors
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------- -------- -------
<S> <C> <C>
/s/ Gerald Smith Chairman of the Board December 20, 1999
- ------------------------------------------------- Of Directors, President,
Gerald Smith And Principal Executive Officer
/s/ Robert H. Zeiger Vice Chairman of the Board December 20, 1999
- -------------------------------------------------
Robert H. Zeiger
/s/ Carl N. Singer Director and Chairman of the Executive Committee December 20, 1999
- -------------------------------------------------
Carl N. Singer
/s/ Dennis W. Healey Executive Vice President, Treasurer, Principal Financial December 20, 1999
- ------------------------------------------------- Officer, Director and Secretary
Dennis W. Healey
/s/ Charles J. Simons Director December 20, 1999
- -------------------------------------------------
Charles J. Simons
/s/ Peter D. Fischbein Director December 20, 1999
- -------------------------------------------------
Peter D. Fischbein
Director December __, 1999
- -------------------------------------------------
Sidney Dworkin
Director December __, 1999
- -------------------------------------------------
Robert C. Salisbury
/s/ Jose I. Ortega Controller and Principal Accounting Officer December 20, 1999
- -------------------------------------------------
Jose I. Ortega
</TABLE>
II-12
<PAGE> 1
EXHIBIT 10.LXXIV
PROMISSORY NOTE
$59,000 October 1, 1998
FOR VALUE RECEIVED, CARL N. SINGER ("Maker"), having an
address at 4000 Hollywood Blvd, Suite 610N, Hollywood, Florida hereby promises
to pay to the order of VIRAGEN, INC., a Delaware corporation ("Holder"), having
an address at 865 SW 78th Ave. Suite 100, Plantation, Florida 33324, the
principal sum of Fifty Nine Thousand Dollars ($59,000), together with simple
interest there on at the annual rate equal to 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, as amended from time to time, or any successor provision
of law) in effect on the date hereof, at the address of Holder set forth above,
payable as follows: Interest accrued hereon shall be paid semi-annually on each
six-month anniversary of the date of this Note. The entire principal amount of
this Note, together with any then accrued and unpaid interest, shall be payable
on the fifth (5th) anniversary of the date of this Note (the "Maturity Date").
In the event that Holder incurs attorneys' fees and/or costs
in connection with the enforcement of this Note, Maker shall pay Holder,
immediately upon Holder's demand therefor, the amount of all reasonable
attorneys' fees and costs so incurred by Holder.
Each of the following shall constitute an event of default
under this Note ("Event of Default"):
(i) the failure of Maker to pay all sums owing to Holder
hereunder on or before the Maturity Date;
(ii) the failure of Maker to pay to Holder any installment of
interest when due;
(iii) the filing of a petition by Maker pursuant to which
Maker seeks to avail himself of the protection of any
federal or state bankruptcy, insolvency or similar law;
(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or
(v) the making of a general assignment by Maker for benefit
of Maker's creditors.
Upon the occurrence of an Event of Default (other than the Event
of Default described in subparagraph (i) , which is inapplicable to the
following provision) or in the event of the sale, transfer, further pledging or
disposition of any common stock of Holder owned by Maker which secures this
Note, unless concurrently with such sale, transfer, further pledge or
disposition, Maker prepays a portion of principal necessary to release the stock
being sold, transferred, further pledged or disposed of from said security
interest, Holder may, in Holder's
<PAGE> 2
sole and absolute discretion, accelerate this Note by declaring in a written
notice to Maker that the then entire outstanding principal sum hereof, together
with all then accrued and unpaid interest hereon, is immediately due and
payable. The entire amount accelerated (inclusive of any accrued and unpaid
interest) will, commencing the date notice of acceleration is given, bear
interest until paid at a rate equal to the lower of (a) 12% per annum and (b)
the highest rate then permitted by law (the "Default Rate"). In the event that
the Event of Default described in subparagraph (i) occurs, interest shall then
accrue at the Default Rate on the aggregate amount of all sums which are then
owing to Holder hereunder.
Maker may prepay this Note, in whole or in part, at any time or
from time to time, without premium or penalty; provided, however, that any
prepayment will be applied first to pay accrued and unpaid interest and then in
reduction of principal, and, provided further, that each partial prepayment of
principal shall be at least $9,000 or, if greater than $9,000 a multiple of
$9,000.
Maker hereby waives presentment, demand, protest, notice of
dishonor, notice of nonpayment, notice of protest and diligence in collection.
The non-exercise by Holder of any of Holder's rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance. Any waiver of any right, term or condition hereby by Holder must be in
writing to be valid. Maker has the right to rely on any oral statement
purporting to be a waiver.
This Note shall inure to the benefit of Holder and Holder's
successors and assigns. This Note shall be binding upon Maker and Maker's
successors and assigns.
In no contingency or event whatsoever shall the amount paid or
agreed to be paid to Holder or deemed advanced for the use, forbearance or
detention of any amount advanced hereunder exceed the highest lawful rate
permissible under any law which a court of competent jurisdiction may deem
applicable hereto, and any such excess shall automatically be credited to the
principal amount hereof so that at all times this Note is and remains a lawful
instrument.
Maker shall reimburse Holder the amount of all documentary stamp
taxes and similar taxes or fees which are payable by Holder or assessable in
respect of this Note.
This Note shall be governed by Florida law in all respects.
Maker:
-------------------
CARL N. SINGER
<PAGE> 3
PLEDGE AND ESCROW AGREEMENT
THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered into
as of this 1ST day of October, 1998 by and among Carl N. Singer (hereinafter
referred to as "Pledgor"), VIRAGEN, INC., a Delaware corporation (hereinafter
referred to as "Pledgee") and ATLAS, PEARLMAN, TROP & BORKSON, P.A. (hereinafter
referred to as "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Carl N. Singer (the Pledgor referred to in this Agreement) is
a Director of Viragen, Inc. (the Pledgor referred to in this Agreement).
WHEREAS, for services rendered as a Director, Pledgor was afforded the
right to acquire 50,000 shares of Common Stock of the Pledgee at $1.19 per share
for an aggregate purchase price of $59,500, which was paid in part through the
rendering of services by Pledgor, which services Pledgor and Pledgee have
acknowledged is at least equivalent to the par value of the Common Stock;
WHEREAS, the Pledgor has executed a five-year promissory note in the
principal amount of $59,000 (the "Note") in favor of Pledgee for the balance of
the purchase price payable in respect to the acquisition of the 50,000 shares of
Common Stock of the Pledgee, a copy of which is attached hereto as Exhibit B;
WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 50,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and
WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements hereinafter set forth, the parties mutually agree as follows:
1. SECURITY INTEREST. Pledgor hereby grants to Pledgee a first lien
security interest, superior to all other liens and encumbrances, in and to the
Pledged Shares. Copies of stock powers representing the Pledged Shares, endorsed
in blank, and copies of the certificates representing the Pledged Shares, are
attached hereto as Exhibit "C". The Pledged Shares and stock powers shall be
held by Escrow Agent as collateral for the indebtedness owed by the Pledgor to
Pledgee pursuant to the Note.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants that, except for the security interest
granted hereunder, and except that the Pledged Shares are partially paid shares
subject to assessment for the balance of the purchase price as represented by
the principal amount of the Note, Pledgor is the legal and
<PAGE> 4
equitable owner of the Pledged Shares and holds same free and clear of all
liens, charges, encumbrances and security interest of every kind and nature, and
that Pledgor will make no assignment, pledge, mortgage, hypothecation or
transfer of the Pledged Shares; that Pledgor has good right and legal authority
to pledge the Pledged Shares in the manner hereby done or contemplated and will
defend Pledgor's title to the Pledged Shares against the claim of all persons
whomsoever; that no consent or approval of any governmental body or regulatory
authority, or of any securities exchange, is necessary to the validity of the
pledge effected hereby, except for any consents or approvals which have been
obtained; that the pledge of the Pledged Shares is effective to vest in Pledgee
the rights of the Pledgor in the Pledged Shares set forth herein; and that the
Pledged Shares have been duly and validly authorized.
3. RIGHT TO VOTE. Except as otherwise provided herein, during the term
of this Agreement and so long as Pledgor is not in default in the performance of
any of the terms of this Agreement or in the payment of principal or interest
under the Note, the Pledgor shall be entitled to all rights of ownership,
including, but not limited to, the right to vote the Pledged Shares on all
corporate questions.
4. ADJUSTMENTS. In the event that, during the term of this Agreement,
any stock dividend shall be declared on or with respect to any of the Pledged
Shares, or there is a reclassification, readjustment, merger, consolidation,
stock split or any other change is made in the capital structure of the Pledgee
which has issued the Pledged Shares or any successor thereto, all new,
substituted and additional shares or other securities issued by reason of such a
change shall be delivered and held by Escrow Agent under the terms of this
Agreement in the same manner as the Pledged Shares.
5. DEFAULT. In the event of default by the Pledgor under the Note, in
addition to any right or remedy which it may have hereunder, the Pledgee shall
have all of the rights and remedies of a secured party under Article 9 of the
Uniform Commercial Code as it is now or hereafter in effect in the State of
Florida, including without limitation the right to retain or to sell or
otherwise dispose of all or any portion of the Pledged Shares. Upon the
occurrence of a default under the Note, the Pledgee shall, in its sole
discretion, have the right to cancel the Pledged Shares or to offer for sale,
and to sell, all or any of the Pledged Shares at any private or public sale;
provided, however, that the Pledgee shall give to the Pledgor at least ten (10)
business days notice of the time, date and place of any such private or public
sale, which provisions for notice, the Pledgor hereby expressly agrees is
commercially reasonable. Furthermore, the Pledgor hereby expressly agrees that
the Pledgee may (i) sell all or any portion of the Pledged Shares at any private
or public sale for cash, upon credit, or for other property, for immediate or
future delivery, and for such price or prices and on such terms as the Pledgee
in its sole discretion shall deem appropriate, (ii) bid on and purchase the
Pledged Shares at any private or public sale, and (iii) hold any of the Pledged
Shares purchased by the Pledgee at any private or public sale in its own right,
free and clear of any and all claims of the Pledgor. The Pledgee may from time
to time, upon such default, sell all or any part of the Pledged Shares. The
Pledgor hereby appoints Pledgee as its attorney-in-fact to execute such
documents and take such action as may be necessary to accomplish the provisions
of this Agreement, including, without limiting the generality of the foregoing,
the right to ask for, demand, sue for, collect, receive and give acquittance for
any and all monies due or to become due with respect to or in connection
<PAGE> 5
with any of the Pledged Shares, to endorse checks, drafts, orders and other
instruments for the payment of money representing any interest or dividend or
other distribution with respect to or in connection with the Pledged Shares or
any part thereof and to give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto and to
sell, assign, endorse, pledge, transfer and make any agreement respecting same,
or otherwise deal with the same. Such appointment is irrevocable and coupled
with an interest. Unless Pledgee retains the Pledged Shares in full satisfaction
of Pledgor's obligations under the Note as provided herein, Pledgee shall apply
the proceeds of disposition of the Pledge Shares in the manner provided by
Florida law. In lieu of any such sale, Pledgee may retain the Pledged Shares in
full satisfaction of Pledgor's obligations under the Note.
6. ESCROW. Pledgor shall deposit with Escrow Agent the Pledged Shares, along
with the aforesaid stock powers (all of which items shall hereinafter be
referred to as the "Pledged Documents" including all stock assignments), to be
held in escrow for future delivery as follows:
a. Escrow Agent shall deliver the Pledged Documents to Pledgee within
ten (10) business days after receiving an affidavit signed by Pledgee stating
that:
(i) Pledgor is in default under the Note and all periods of
time within which to cure such default have expired;
(ii) Pledgee is accelerating the entire unpaid balance due
under the Note; and
(iii) Pledgee demands delivery of the Pledged Documents.
Pledgee shall simultaneously furnish Pledgor with a copy of such affidavit. If
Escrow Agent has not received any protest or objection from Pledgor within ten
(10) business days of receipt of such affidavit, the Pledged Documents shall be
delivered to the Pledgee. Upon such delivery of the Pledged Documents, Escrow
Agent's duties hereunder shall terminate.
b. In the event Escrow Agent has received written instructions signed
by both Pledgor and Pledgee notifying Escrow Agent of a sale of a portion of the
Pledged Shares pursuant to the Employment Agreement, Escrow Agent may release a
portion or all of the Pledged Shares, as provided in such written instructions,
and if Escrow Agent is designated to be the recipient of the proceeds from the
sale of all or a portion of the Pledged Shares, them Escrow Agent shall deliver
any such proceeds received in accordance with such written instructions.
c. In the event Escrow Agent has not delivered the Pledged documents
pursuant to subparagraph a. above, then Escrow Agent shall deliver the Pledged
Documents to Pledgor within ten (10) business days after receipt of the original
of the Note marked "paid in full", accompanied by instructions from Pledgor
indicating that the Note has been paid in full and the Pledged documents shall
be delivered to Pledgor at the address specified therein. Upon such delivery of
the Pledged Documents. Escrow Agent's duties hereunder shall terminate. Pledgee
agrees to deliver the Note to Pledgor marked "paid in full", immediately upon
satisfaction thereof.
<PAGE> 6
7. DISPUTE. It is specifically understood and agreed that should any
dispute arise between the parties hereto concerning this Agreement or its
construction, or for any other reason, the Escrow Agent in its sole discretion,
shall have the right to deposit the Pledged Documents held by it pursuant to
this Escrow Agreement and any documents relating thereto that may have been
delivered to the Escrow Agent, with the Clerk of the Circuit Court of Broward
County, Florida, and notify all parties concerned, and whereupon, all liability
hereunder on the part of the Escrow Agent shall fully cease except to the extent
of accounting for the Pledged Documents and any other documents that may have
been delivered to it.
8. INTERPLEADER. In the event the Escrow Agent places the Pledged
Documents that have actually been delivered to Escrow Agent in the registry of
the Circuit Court in and for Broward County, Florida, and files an action of
interpleader naming Pledgor and Pledgee, and other necessary parties, Escrow
Agent shall be released and relieved from any and all further obligations and
liabilities hereunder or in connection herewith. Pledgor and Pledgee hereby,
jointly and severally, indemnify and hold Escrow Agent harmless from any damages
or losses arising hereunder or in connection herewith, including, but not
limited to, all costs and expenses incurred by Escrow Agent in connection with
the filing of such action and reasonable attorney's fees and costs for Escrow
Agent's attorneys through and including all appeals.
9. NATURE OF ESCROW AGENTS DUTIES. It is agreed that the duties of
Escrow Agent are only such as are herein specifically provided and are purely
ministerial in nature. Hence, Escrow Agent shall not be held liable for any
matter or thing except for Escrow Agent's gross negligence or willful
misconduct. Pledgor and Pledgee shall at all times hereafter, jointly and
severally indemnify Escrow Agent and hold Escrow Agent harmless from any claim
asserted against it and from any damages, costs, expenses, liability and/or
losses sustained by Escrow Agent (except for Escrow Agent's gross negligence or
willful misconduct) , including, but not limited to, reasonable attorneys' fees
and costs for Escrow Agent's attorneys through and including all appeals and
whether or not litigation is instituted. The obligations and duties of the
Escrow Agent are confined to those specifically enumerated in this Agreement.
The Escrow Agent shall not be subject to nor be under any obligation to
ascertain or construe the terms and conditions of any instrument whether or not
now or hereafter deposited with or delivered to the Escrow Agent or referred to
in this Agreement. Nor shall the Escrow Agent be obliged to inquire as to the
form, execution and sufficiency or validity or any instruments, or to inquire as
to the identity, authority or rights of any person executing or delivering the
same.
10. RETENTION OF LEGAL COUNSEL. It is agreed that Escrow Agent shall
have full discretion as to whom it may retain as legal counsel to protect its
interests (including retaining itself as a law firm) and same shall not affect
or in any way prejudice or limit Escrow Agent's entitlement to reasonable
attorneys' fees for the services of such attorneys as set forth in this Escrow
Agreement.
11. VENUE. It is recognized that this Escrow Agreement shall be deemed
to have been entered into by the parties hereto in Broward County, Florida, and
that the property which is the subject of this Escrow Agreement is located in
Broward County,
<PAGE> 7
Florida. Therefore, it is agreed that venue with respect to any matter arising
herefrom shall only lie in Broward County, Florida, except to the extent, and
only to the extent, that this provision with respect to venue is deemed in
contravention of any applicable law.
12. AMBIGUITY, CONFLICTING INSTRUCTIONS. In the event the Escrow Agent
shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands from any of the parties hereto or from third
persons with respect to the Pledged documents held hereunder, which in its sole
opinion, are in conflict with any provision of this Agreement, it shall be
entitled to refrain from taking any action until it shall be directed otherwise
in writing by all the parties hereto and said third persons, if any, or by a
final order or judgment of a court of competent jurisdiction.
13. NOTICES. Notices and deliveries under this Agreement shall be given
or made by certified mail, return receipt requested, as follows:
PLEDGOR:
CARL N. SINGER
4000 Hollywood Blvd, Suite 610N
Hollywood, FL 33021
PLEDGEE:
VIRAGEN, INC.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
ESCROW AGENT:
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
or such other address as any of the above-mentioned parties shall have
designated in writing to the other parties.
14. TERMINATION. All parties agree that the services of the Escrow
Agent may be terminated be the Escrow Agent or by the joinder of both Pledgee
and Pledgor upon thirty (30) days written notice to the other. In the event of
such termination, the Pledgee and Pledgor shall mutually agree to a Successor
Escrow Agent. Failing such mutual agreement, application shall be made to the
appropriate court of Broward County, Florida, for the appointment of a Successor
Escrow Agent. Upon such appointment, the Escrow Agent shall deliver all escrow
documents to said Successor for continuation of the escrow in accordance with
the terms of this Agreement.
<PAGE> 8
15. MISCELLANEOUS.
a. BENEFIT OF AGREEMENT. This Agreement shall be binding upon
the parties hereto and their heirs, successors, assigns and personal or legal
representatives.
b. MODIFICATION. The Escrow Agent shall not be bound by any
modification, cancellation or rescission of this Agreement unless in writing and
signed by the parties hereto. In no event, however, shall any modification of
this agreement, which shall affect the rights or duties of the Escrow Agent, be
binding upon Escrow Agent unless it shall have given its prior written consent.
c. ATTORNEYS' FEES. In the event Pledgor or Pledgee shall seek
to enforce this Agreement, whether or not through litigation, the prevailing
party shall be entitled to receive reasonable attorneys fees and all costs
incurred in connection with such enforcement, including fees and costs of
appeal.
d. FURTHER COOPERATION. From and after the date of this
Agreement, each of the parties hereto agrees to execute whatever additional
documentation or instruments as are necessary to carry out the intent and
purposes of this Agreement.
e. WAIVER. No indulgences extended by any party hereto or any
other party shall be construed as a waiver of any breach on the part of such
other party, nor shall any waiver of one breach be construed as a waiver of any
rights or remedies with respect to any subsequent breach.
f. CONSTRUCTION. It is the intention of the parties that the
laws of the State of Florida shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties of
the parties. The parties agree and acknowledge that each party has reviewed and
revised this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting parties shall not
be employed in the interpretation of this Agreement or any amendment or exhibits
thereto.
g. TRUTH OF RECITALS. The recitals and statements contained on
page 1 of this Agreement are true and correct and are hereby incorporated
relating thereto.
h. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
i. GENDER. Wherever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender; all singular words shall include the plural and all plural shall
include the singular.
j. HEADINGS. The headings used in this Agreement are used for
reference purposes only and are not to be deemed controlling with respect to the
contents thereof.
k. COUNTERPARTS. This agreement may be executed in any number
of counterparts, and each such counterpart shall for all purposes be deemed to
be an original.
<PAGE> 9
l. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this Agreement by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
PLEDGOR:
- --------------------
CARL N. SINGER
PLEDGEE:
VIRAGEN, INC.
By:
-------------------------
DENNIS W. HEALEY,
EXECUTIVE VICE PRESIDENT
ESCROW AGENT:
ATLAS, PEARLMAN, TROP &
BORKSON, P.A.
By:
----------------------
Authorized Person
<PAGE> 10
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED CARL N. SINGER hereby sells, assigns and transfers unto Fifty
Thousand Shares of Common Stock of Viragen, Inc. standing in his name on the
books of said corporation represented by Certificate No.______ herewith and to
hereby irrevocably constitute and appoint ATLAS, PEARLMAN, TROP & BORKSON, P.A.
attorney to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Date: October 1, 1998 Signature:
----------------------
Carl N. Singer
In Presence of:
Date: October 1, 1998 Signature:
----------------------
Dennis W. Healey
(1) (1) The shares subject to this stock power have been pledged to Atlas,
Pearlman, Trop & Borkson, P.A. pursuant to that certain Security Agreement made
as of June 21, 1994 between Carl N. Singer and Atlas, Pearlman, Trop & Borkson,
P.A.
<PAGE> 11
ATTACHMENT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the within Option granted
October 6, 1995 to the extent of purchasing 150,000 shares of Common Stock of
Viragen, Inc., a Delaware corporation, and hereby makes payment through the
issuance of a Note payable to Viragen, Inc. of $59,000 in payment therefor.
------------------------
Carl N. Singer
October 1, 1998
INSTRUCTIONS FOR ISSUANCE OF STOCK
Name: Carl N. Singer
Address: 4000 Hollywood Blvd, Suite 610N
Hollywood, FL 33021
Social Security Number:
<PAGE> 1
EXHIBIT 10.LXXV
PROMISSORY NOTE
$98,000 October 8, 1998
FOR VALUE RECEIVED, PETER D. FISCHBEIN ("Maker"), having an
address at 777 Terrace Avenue, Hasbrouck Heights, NJ 07604 hereby promises to
pay to the order of VIRAGEN, INC., a Delaware corporation ("Holder"), having an
address at 865 SW 78th Ave. Suite 100, Plantation, Florida 33324, the principal
sum of Ninety Eight Thousand Dollars ($98,000), together with simple interest
there on at the annual rate equal to 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, as amended from time to time, or any successor provision
of law) in effect on the date hereof, at the address of Holder set forth above,
payable as follows: Interest accrued hereon shall be paid semi-annually on each
six-month anniversary of the date of this Note. The entire principal amount of
this Note, together with any then accrued and unpaid interest, shall be payable
on the fifth (5th) anniversary of the date of this Note (the "Maturity Date").
In the event that Holder incurs attorneys' fees and/or costs
in connection with the enforcement of this Note, Maker shall pay Holder,
immediately upon Holder's demand therefor, the amount of all reasonable
attorneys' fees and costs so incurred by Holder.
Each of the following shall constitute an event of default
under this Note ("Event of Default"):
(i) the failure of Maker to pay all sums owing to Holder
hereunder on or before the Maturity Date;
(ii) the failure of Maker to pay to Holder any installment of
interest when due;
(iii) the filing of a petition by Maker pursuant to which
Maker seeks to avail himself of the protection of any federal or state
bankruptcy, insolvency or similar law;
(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or
(v) the making of a general assignment by Maker for benefit of
Maker's creditors.
Upon the occurrence of an Event of Default (other than the Event
of Default described in subparagraph (i) , which is inapplicable to the
following provision) or in the event of the sale, transfer, further pledging or
disposition of any common stock of Holder owned by Maker which secures this
Note, unless concurrently with such sale, transfer, further pledge or
disposition, Maker prepays a portion of principal necessary to release the stock
being sold, transferred, further pledged or disposed of from said security
interest, Holder may, in Holder's
<PAGE> 2
sole and absolute discretion, accelerate this Note by declaring in a written
notice to Maker that the then entire outstanding principal sum hereof, together
with all then accrued and unpaid interest hereon, is immediately due and
payable. The entire amount accelerated (inclusive of any accrued and unpaid
interest) will, commencing the date notice of acceleration is given, bear
interest until paid at a rate equal to the lower of (a) 12% per annum and (b)
the highest rate then permitted by law (the "Default Rate"). In the event that
the Event of Default described in subparagraph (i) occurs, interest shall then
accrue at the Default Rate on the aggregate amount of all sums which are then
owing to Holder hereunder.
Maker may prepay this Note, in whole or in part, at any time or
from time to time, without premium or penalty; provided, however, that any
prepayment will be applied first to pay accrued and unpaid interest and then in
reduction of principal, and, provided further, that each partial prepayment of
principal shall be at least $9,000 or, if greater than $9,000 a multiple of
$9,000.
Maker hereby waives presentment, demand, protest, notice of
dishonor, notice of nonpayment, notice of protest and diligence in collection.
The non-exercise by Holder of any of Holder's rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance. Any waiver of any right, term or condition hereby by Holder must be in
writing to be valid. Maker has the right to rely on any oral statement
purporting to be a waiver.
This Note shall inure to the benefit of Holder and Holder's
successors and assigns. This Note shall be binding upon Maker and Maker's
successors and assigns.
In no contingency or event whatsoever shall the amount paid or
agreed to be paid to Holder or deemed advanced for the use, forbearance or
detention of any amount advanced hereunder exceed the highest lawful rate
permissible under any law which a court of competent jurisdiction may deem
applicable hereto, and any such excess shall automatically be credited to the
principal amount hereof so that at all times this Note is and remains a lawful
instrument.
Maker shall reimburse Holder the amount of all documentary stamp
taxes and similar taxes or fees which are payable by Holder or assessable in
respect of this Note.
This Note shall be governed by Florida law in all respects.
Maker:
-------------------
PETER D. FISCHBEIN
<PAGE> 3
PLEDGE AND ESCROW AGREEMENT
THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered into
as of this 8th day of October, 1998 by and among Peter D. Fischbein (hereinafter
referred to as "Pledgor"), VIRAGEN, INC., a Delaware corporation (hereinafter
referred to as "Pledgee") and ATLAS, PEARLMAN, TROP & BORKSON, P.A. (hereinafter
referred to as "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Peter D. Fischbein (the Pledgor referred to in this Agreement)
is a Director of Viragen, Inc. (the Pledgor referred to in this Agreement).
WHEREAS, for services rendered as a Director, Pledgor was afforded the
right to acquire 200,000 shares of Common Stock of the Pledgee at $.50 per for
an aggregate purchase price of $100,000, which was paid in part through the
rendering of services by Pledgor, which services Pledgor and Pledgee have
acknowledged is at least equivalent to the par value of the Common Stock;
WHEREAS, the Pledgor has executed a five-year promissory note in the
principal amount of $98,000 (the "Note") in favor of Pledgee for the balance of
the purchase price payable in respect to the acquisition of the 200,000 shares
of Common Stock of the Pledgee, a copy of which is attached hereto as Exhibit B;
WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 200,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and
WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements hereinafter set forth, the parties mutually agree as follows:
1. SECURITY INTEREST. Pledgor hereby grants to Pledgee a first lien
security interest, superior to all other liens and encumbrances, in and to the
Pledged Shares. Copies of stock powers representing the Pledged Shares, endorsed
in blank, and copies of the certificates representing the Pledged Shares, are
attached hereto as Exhibit "C". The Pledged Shares and stock powers shall be
held by Escrow Agent as collateral for the indebtedness owed by the Pledgor to
Pledgee pursuant to the Note.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants that, except for the security interest
granted hereunder, and except that the Pledged Shares are partially paid shares
subject to assessment for the balance of the purchase price as represented by
the principal amount of the Note, Pledgor is the legal and
<PAGE> 4
equitable owner of the Pledged Shares and holds same free and clear of all
liens, charges, encumbrances and security interest of every kind and nature, and
that Pledgor will make no assignment, pledge, mortgage, hypothecation or
transfer of the Pledged Shares; that Pledgor has good right and legal authority
to pledge the Pledged Shares in the manner hereby done or contemplated and will
defend Pledgor's title to the Pledged Shares against the claim of all persons
whomsoever; that no consent or approval of any governmental body or regulatory
authority, or of any securities exchange, is necessary to the validity of the
pledge effected hereby, except for any consents or approvals which have been
obtained; that the pledge of the Pledged Shares is effective to vest in Pledgee
the rights of the Pledgor in the Pledged Shares set forth herein; and that the
Pledged Shares have been duly and validly authorized.
3. RIGHT TO VOTE . Except as otherwise provided herein, during the
term of this Agreement and so long as Pledgor is not in default in the
performance of any of the terms of this Agreement or in the payment of
principal or interest under the Note, the Pledgor shall be entitled to all
rights of ownership, including, but not limited to, the right to vote the
Pledged Shares on all corporate questions.
4. ADJUSTMENTS. In the event that, during the term of this Agreement,
any stock dividend shall be declared on or with respect to any of the Pledged
Shares, or there is a reclassification, readjustment, merger, consolidation,
stock split or any other change is made in the capital structure of the
Pledgee which has issued the Pledged Shares or any successor thereto, all new,
substituted and additional shares or other securities issued by reason of such
a change shall be delivered and held by Escrow Agent under the terms of this
Agreement in the same manner as the Pledged Shares.
5. DEFAULT. In the event of default by the Pledgor under the Note, in
addition to any right or remedy which it may have hereunder, the Pledgee shall
have all of the rights and remedies of a secured party under Article 9 of the
Uniform Commercial Code as it is now or hereafter in effect in the State of
Florida, including without limitation the right to retain or to sell or
otherwise dispose of all or any portion of the Pledged Shares. Upon the
occurrence of a default under the Note, the Pledgee shall, in its sole
discretion, have the right to cancel the Pledged Shares or to offer for sale,
and to sell, all or any of the Pledged Shares at any private or public sale;
provided, however, that the Pledgee shall give to the Pledgor at least ten
(10) business days notice of the time, date and place of any such private or
public sale, which provisions for notice, the Pledgor hereby expressly agrees
is commercially reasonable. Furthermore, the Pledgor hereby expressly agrees
that the Pledgee may (i) sell all or any portion of the Pledged Shares at any
private or public sale for cash, upon credit, or for other property, for
immediate or future delivery, and for such price or prices and on such terms
as the Pledgee in its sole discretion shall deem appropriate, (ii) bid on and
purchase the Pledged Shares at any private or public sale, and (iii) hold any
of the Pledged Shares purchased by the Pledgee at any private or public sale
in its own right, free and clear of any and all claims of the Pledgor. The
Pledgee may from time to time, upon such default, sell all or any part of the
Pledged Shares. The Pledgor hereby appoints Pledgee as its attorney-in-fact to
execute such documents and take such action as may be necessary to accomplish
the provisions of this Agreement, including, without limiting the generality
of the foregoing, the right to ask for, demand, sue for, collect, receive and
give acquittance for any and all monies due or to become due with respect to
or in connection
<PAGE> 5
with any of the Pledged Shares, to endorse checks, drafts, orders and other
instruments for the payment of money representing any interest or dividend or
other distribution with respect to or in connection with the Pledged Shares or
any part thereof and to give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto and to
sell, assign, endorse, pledge, transfer and make any agreement respecting same,
or otherwise deal with the same. Such appointment is irrevocable and coupled
with an interest. Unless Pledgee retains the Pledged Shares in full satisfaction
of Pledgor's obligations under the Note as provided herein, Pledgee shall apply
the proceeds of disposition of the Pledge Shares in the manner provided by
Florida law. In lieu of any such sale, Pledgee may retain the Pledged Shares in
full satisfaction of Pledgor's obligations under the Note.
6. ESCROW. Pledgor shall deposit with Escrow Agent the Pledged Shares, along
with the aforesaid stock powers (all of which items shall hereinafter be
referred to as the "Pledged Documents" including all stock assignments), to be
held in escrow for future delivery as follows:
a. Escrow Agent shall deliver the Pledged Documents to Pledgee within
ten (10) business days after receiving an affidavit signed by Pledgee stating
that:
(i) Pledgor is in default under the Note and all periods of
time within which to cure such default have expired;
(ii) Pledgee is accelerating the entire unpaid balance due
under the Note; and
(iii) Pledgee demands delivery of the Pledged Documents.
Pledgee shall simultaneously furnish Pledgor with a copy of such affidavit. If
Escrow Agent has not received any protest or objection from Pledgor within ten
(10) business days of receipt of such affidavit, the Pledged Documents shall be
delivered to the Pledgee. Upon such delivery of the Pledged Documents, Escrow
Agent's duties hereunder shall terminate.
b. In the event Escrow Agent has received written instructions signed
by both Pledgor and Pledgee notifying Escrow Agent of a sale of a portion of the
Pledged Shares pursuant to the Employment Agreement, Escrow Agent may release a
portion or all of the Pledged Shares, as provided in such written instructions,
and if Escrow Agent is designated to be the recipient of the proceeds from the
sale of all or a portion of the Pledged Shares, them Escrow Agent shall deliver
any such proceeds received in accordance with such written instructions.
c. In the event Escrow Agent has not delivered the Pledged documents
pursuant to subparagraph a. above, then Escrow Agent shall deliver the Pledged
Documents to Pledgor within ten (10) business days after receipt of the original
of the Note marked "paid in full", accompanied by instructions from Pledgor
indicating that the Note has been paid in full and the Pledged documents shall
be delivered to Pledgor at the address specified therein. Upon such delivery of
the Pledged Documents. Escrow Agent's duties hereunder shall terminate. Pledgee
agrees to deliver the Note to Pledgor marked "paid in full", immediately upon
satisfaction thereof.
<PAGE> 6
7. DISPUTE. It is specifically understood and agreed that should any
dispute arise between the parties hereto concerning this Agreement or its
construction, or for any other reason, the Escrow Agent in its sole discretion,
shall have the right to deposit the Pledged Documents held by it pursuant to
this Escrow Agreement and any documents relating thereto that may have been
delivered to the Escrow Agent, with the Clerk of the Circuit Court of Broward
County, Florida, and notify all parties concerned, and whereupon, all liability
hereunder on the part of the Escrow Agent shall fully cease except to the extent
of accounting for the Pledged Documents and any other documents that may have
been delivered to it.
8. INTERPLEADER. In the event the Escrow Agent places the Pledged
Documents that have actually been delivered to Escrow Agent in the registry of
the Circuit Court in and for Broward County, Florida, and files an action of
interpleader naming Pledgor and Pledgee, and other necessary parties, Escrow
Agent shall be released and relieved from any and all further obligations and
liabilities hereunder or in connection herewith. Pledgor and Pledgee hereby,
jointly and severally, indemnify and hold Escrow Agent harmless from any damages
or losses arising hereunder or in connection herewith, including, but not
limited to, all costs and expenses incurred by Escrow Agent in connection with
the filing of such action and reasonable attorney's fees and costs for Escrow
Agent's attorneys through and including all appeals.
9. NATURE OF ESCROW AGENTS DUTIES. It is agreed that the duties of
Escrow Agent are only such as are herein specifically provided and are purely
ministerial in nature. Hence, Escrow Agent shall not be held liable for any
matter or thing except for Escrow Agent's gross negligence or willful
misconduct. Pledgor and Pledgee shall at all times hereafter, jointly and
severally indemnify Escrow Agent and hold Escrow Agent harmless from any claim
asserted against it and from any damages, costs, expenses, liability and/or
losses sustained by Escrow Agent (except for Escrow Agent's gross negligence or
willful misconduct) , including, but not limited to, reasonable attorneys' fees
and costs for Escrow Agent's attorneys through and including all appeals and
whether or not litigation is instituted. The obligations and duties of the
Escrow Agent are confined to those specifically enumerated in this Agreement.
The Escrow Agent shall not be subject to nor be under any obligation to
ascertain or construe the terms and conditions of any instrument whether or not
now or hereafter deposited with or delivered to the Escrow Agent or referred to
in this Agreement. Nor shall the Escrow Agent be obliged to inquire as to the
form, execution and sufficiency or validity or any instruments, or to inquire as
to the identity, authority or rights of any person executing or delivering the
same.
10. RETENTION OF LEGAL COUNSEL. It is agreed that Escrow Agent shall
have full discretion as to whom it may retain as legal counsel to protect its
interests (including retaining itself as a law firm) and same shall not affect
or in any way prejudice or limit Escrow Agent's entitlement to reasonable
attorneys' fees for the services of such attorneys as set forth in this Escrow
Agreement.
11. VENUE. It is recognized that this Escrow Agreement shall be deemed
to have been entered into by the parties hereto in Broward County, Florida, and
that the property which is the subject of this Escrow Agreement is located in
Broward County,
<PAGE> 7
Florida. Therefore, it is agreed that venue with respect to any matter arising
herefrom shall only lie in Broward County, Florida, except to the extent, and
only to the extent, that this provision with respect to venue is deemed in
contravention of any applicable law.
12. AMBIGUITY, CONFLICTING INSTRUCTIONS. In the event the Escrow Agent
shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands from any of the parties hereto or from third
persons with respect to the Pledged documents held hereunder, which in its sole
opinion, are in conflict with any provision of this Agreement, it shall be
entitled to refrain from taking any action until it shall be directed otherwise
in writing by all the parties hereto and said third persons, if any, or by a
final order or judgment of a court of competent jurisdiction.
13. NOTICES. Notices and deliveries under this Agreement shall be given
or made by certified mail, return receipt requested, as follows:
PLEDGOR:
PETER D. FISCHBEIN
430 East 86th Street, Apt. 10-A
New York, NY 10028
PLEDGEE:
VIRAGEN, INC.
865 SW 78th Avenue, Suite 100
Plantation, FL 33324
ESCROW AGENT:
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
or such other address as any of the above-mentioned parties shall have
designated in writing to the other parties.
14. TERMINATION. All parties agree that the services of the Escrow
Agent may be terminated be the Escrow Agent or by the joinder of both Pledgee
and Pledgor upon thirty (30) days written notice to the other. In the event of
such termination, the Pledgee and Pledgor shall mutually agree to a Successor
Escrow Agent. Failing such mutual agreement, application shall be made to the
appropriate court of Broward County, Florida, for the appointment of a Successor
Escrow Agent. Upon such appointment, the Escrow Agent shall deliver all escrow
documents to said Successor for continuation of the escrow in accordance with
the terms of this Agreement.
<PAGE> 8
15. MISCELLANEOUS.
a. BENEFIT OF AGREEMENT. This Agreement shall be binding upon
the parties hereto and their heirs, successors, assigns and personal or legal
representatives.
b. MODIFICATION. The Escrow Agent shall not be bound by any
modification, cancellation or rescission of this Agreement unless in writing and
signed by the parties hereto. In no event, however, shall any modification of
this agreement, which shall affect the rights or duties of the Escrow Agent, be
binding upon Escrow Agent unless it shall have given its prior written consent.
c. ATTORNEYS' FEES. In the event Pledgor or Pledgee shall seek
to enforce this Agreement, whether or not through litigation, the prevailing
party shall be entitled to receive reasonable attorneys fees and all costs
incurred in connection with such enforcement, including fees and costs of
appeal.
d. FURTHER COOPERATION. From and after the date of this
Agreement, each of the parties hereto agrees to execute whatever additional
documentation or instruments as are necessary to carry out the intent and
purposes of this Agreement.
e. WAIVER. No indulgences extended by any party hereto or any
other party shall be construed as a waiver of any breach on the part of such
other party, nor shall any waiver of one breach be construed as a waiver of any
rights or remedies with respect to any subsequent breach.
f. CONSTRUCTION. It is the intention of the parties that the
laws of the State of Florida shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties of
the parties. The parties agree and acknowledge that each party has reviewed and
revised this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting parties shall not
be employed in the interpretation of this Agreement or any amendment or exhibits
thereto.
g. TRUTH OF RECITALS. The recitals and statements contained on
page 1 of this Agreement are true and correct and are hereby incorporated
relating thereto.
h. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
i. GENDER. Wherever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender; all singular words shall include the plural and all plural shall
include the singular.
j. HEADINGS. The headings used in this Agreement are used for
reference purposes only and are not to be deemed controlling with respect to the
contents thereof.
k. COUNTERPARTS. This agreement may be executed in any number
of counterparts, and each such counterpart shall for all purposes be deemed to
be an original.
<PAGE> 9
l. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this Agreement by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
PLEDGOR:
- ----------------------------
PETER D. FISCHBEIN
PLEDGEE:
VIRAGEN, INC.
By:
-------------------------
DENNIS W. HEALEY,
EXECUTIVE VICE PRESIDENT
ESCROW AGENT:
ATLAS, PEARLMAN, TROP &
BORKSON, P.A.
By:
-------------------------
Authorized Person
<PAGE> 10
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED PETER D. FISCHBEIN hereby sells, assigns and transfers unto
Two Hundred Thousand Shares of Common Stock of Viragen, Inc. standing in his
name on the books of said corporation represented by Certificate No.______
herewith and to hereby irrevocably constitute and appoint ATLAS, PEARLMAN, TROP
& BORKSON, P.A. attorney to transfer the said stock on the books of the within
named Company with full power of substitution in the premises.
Date: October 8, 1998 Signature:
----------------------
Peter D. Fischbein
In Presence of:
Date: October 8, 1998 Signature:
----------------------
Dennis W. Healey
(1) (1) The shares subject to this stock power have been pledged to Atlas,
Pearlman, Trop & Borkson, P.A. pursuant to that certain Security Agreement made
as of June 21, 1994 between Peter D. Fischbein and Atlas, Pearlman, Trop &
Borkson, P.A.
<PAGE> 11
ATTACHMENT A
------------
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the within Option granted
October 6, 1995 to the extent of purchasing 200,000 shares of Common Stock of
Viragen, Inc., a Delaware corporation, and hereby makes payment through the
issuance of a Note payable to Viragen, Inc. of $98,000 in payment therefor.
------------------------
Peter D. Fischbein
October 8, 1998
INSTRUCTIONS FOR ISSUANCE OF STOCK
Name: Peter D. Fischbein
Address: 430 East 86th Street, Apt. 10-A
New York, NY 10028
Social Security Number: ###-##-####
<PAGE> 1
EXHIBIT 10.LXXVI
EMPLOYMENT AGREEMENT
AGREEMENT dated July 1, 1999 (the "Effective Date") by and between
VIRAGEN, INC., a Delaware corporation ("Employer or the "Company"), and MELVIN
ROTHBERG ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ the Employee upon the terms and
conditions hereinafter set forth and Employee desires to accept employment upon
such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, Employer hereby employs Employee and Employee hereby
accepts employment under the following terms and conditions:
1. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon all the terms and conditions hereinafter set forth.
2. TERM
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Agreement shall commence on the Effective Date and shall
end as of the close of business on June 30, 2001 (the "Employment Term"). The
term "first year", as used herein, means the period commencing on the Effective
Date and ending as of the close of business on June 30, 2000, the term "second
year", as used herein, means the period commencing on July 1, 2000 and ending as
of the close of business on June 30, 2001, and the term "year", as used herein,
means, as the context requires, the first year or the second year.
Notwithstanding any of the foregoing to the contrary, if this Employment
Agreement is terminated prior to the expiration of the Employment Term, a year
shall mean, with respect to the year during which termination occurs, the period
commencing on the first day of such year and ending as of the close of business
of the day of termination of Employee's employment, and "Employment Term" shall
mean the period commencing on the Effective Date and ending as of the close of
business of the day of termination of Employee's employment.
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that he is free
to accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which would in
any way interfere with his
<PAGE> 2
acceptance of employment pursuant to the terms hereof or the full performance of
his obligations hereunder or the exercise of his best efforts in his employment
hereunder.
4. DUTIES AND EXTENT OF SERVICES
Employee shall be employed as Employer's Executive Vice
President and Chief Executive Officer of Employer's US Subsidiary Viragen
U.S.A., Inc. and, as such, shall, subject to the direction of Employer's
President, supervise the conduct of certain of the Employer's operations and
affairs as assigned by the President, and perform such other duties and
responsibilities as may be assigned to Employee from time to time consistent
with such title by Employer's President. Employee agrees to devote sufficient
time, skill, attention and energy diligently and competently to perform the
duties and responsibilities reasonably assigned to him hereunder or pursuant
hereto to the best of his abilities. Employee shall use his best efforts to be
loyal and faithful at all times and constantly endeavor to improve his ability
and his knowledge of the business of Employer in an effort to increase the value
of his services for the mutual benefit of Employer and Employee. Employee agrees
not to enter into any other employment agreement, other than with subsidiaries
and/or affiliates of the Company as may be approved by the Company's President
and/or Board of Directors, during the term hereof.
5. COMPENSATION
Employee shall receive an annual salary during the first year
of the Employment Term of $160,000. Employee's salary for the second year of the
Employment Term shall be $172,500. Employee's salary shall be payable in
accordance with the Company's normal payroll process, currently bi-weekly.
Additional consideration payable to Employee hereunder consists (a) the grant to
Employee of options to acquire 250,000 shares of common stock of Employer (as
further described herein) and (b) of fringe benefits, if any, that shall be made
available to Employee further described herein.
6. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE PLANS. Employee shall be eligible (subject to the
terms and conditions of particular plans and programs) to participate in such
medical, hospitalization, group health, accident, disability and life insurance
programs and plans, such pension, profit sharing, stock option, incentive
compensation and stock purchase plans and such other employee benefit programs
to the same extent such plans and programs are made generally available from
time to time by Employer to all of its other similarly-situated employees;
provided, however, Employer shall be under no obligation to make any of such
plans or programs available to its employees or continue any which currently or
in the future exist, except as otherwise required by law.
B. AUTOMOBILE. For the term of this Agreement, Employer shall
provide to Employee an automobile allowance of $400 per month, and shall pay all
gas and other automotive fluids, for performance of Employee's duties on behalf
of Employer as specified herein.
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<PAGE> 3
C. OTHER EXPENSES. Employer shall promptly pay directly or
reimburse Employee for his reasonable out-of-pocket costs and expenses incurred
in connection with the performance of his duties and responsibilities hereunder
subject to the submission by Employee of appropriate invoices, receipts and
other supporting documentation, consistent with Employer's customary
reimbursement policies and procedures.
D. GROUP HEALTH AND DENTAL COVERAGE EXPENSES. Employer shall
pay all monthly premium cots related to Employee's individual and family Group
Health and Dental Coverage Expenses.
7. VACATIONS
Employee shall be entitled to normal vacation (of not less
than two weeks) taken by other members of senior management during each
twelve-month period of the Employment Term. Employee shall not entitled to be
compensated for any unused vacation upon termination of this Agreement. The
periods during which Employee will be absent from work shall be determined by
Employee taking into account the needs of Employer's business.
8. FACILITIES
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably determines is adequate for Employee's performance of his duties and
responsibilities under this Agreement.
9. TERMINATION OF EMPLOYMENT
A. TERMINATION EVENTS. Notwithstanding any provisions of this
Agreement to the contrary, Employee's employment may be terminated by Employer
with Cause (as hereinafter defined) effective upon the delivery of written
notice to Employee. In addition, Employee's employment shall terminate (i) upon
Employee's death or (ii) upon Employee becoming Disabled (as hereinafter
defined).
B. DEFINITION OF DISABLED. For purposes of this Agreement,
Employee shall be deemed to be "Disabled" when, by reason of physical or mental
illness or of injury, he is unable to perform substantially all of the duties
and responsibilities required of him in connection with his employment
hereunder. No disability shall be deemed to exist until after Employee shall be
unable to perform his duties hereunder for ninety (90) consecutive days (the
"Disability Period"). If Employee shall have been under a disability but shall
have returned to work prior to the end of the Disability Period, any new
disability commencing within thirty (30) days of the termination of the prior
disability shall be a continuation of the prior disability, and the period of
all such disabilities shall be added together to determine whether, or how much
of, the Disability Period has elapsed.
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<PAGE> 4
C. DEFINITION OF CAUSE. For purposes of this Agreement,
"Cause" shall be: (a) conviction for fraud or criminal conduct (other than
conviction of, or a plea of guilty to, a traffic violation), from which no
appeal can be taken; (b) habitual drunkenness or drug addiction; (c)
embezzlement; (d) material sanctions against Employee in his capacity as an
employee of Employer by regulatory agencies governing Employer or against
Employer because of wrongful acts or conduct of Employee which have a material
adverse affect upon the Employer and its business; (e) material breach or
default by Employee of any of the material terms or conditions of this
Agreement, and the continuation of such material breach or default by Employee
for a period of seven (7) days following the date of receipt of written notice
from Employer specifying the breach or default of Employee; or (f) the
resignation or quitting of Employee prior to the end of the Employment Term (in
this last event, Employee's employment shall be deemed terminated with Cause on
the date that he resigns or quits).
If Employee's employment is terminated by Employer without
Cause as defined in this Section, Employee shall be given sixty (60) days
written notice of termination by Employer and be entitled to receive the greater
of (i) two years compensation and fringe benefits/expenses as provided for in
Sections 5 & 6 hereof or (ii) compensation and fringe benefits/expenses as
provided for in Sections 5 & 6 payable through the remainder of the Employment
Term as provided for in Section 2 hereof. Additionally, in the event of
termination without Cause, or non-renewal of this Agreement at the end of the
Employment Term, any outstanding but unexercised stock options or warrants
granted to Employee shall continue to be fully exercised through their stated
respective Exercise Period(s).
D. TERMINATION FOLLOWING A CHANGE OF CONTROL.
i. In the event that a "Change of Control" as
hereinafter defined, and the occurrence of a "Good Reason" as hereinafter
defined, of the Company shall occur at any time during the Employment Term, the
Employee shall have the right to terminate the Employee's employment under this
Agreement upon thirty (30) days written notice given at any time within one year
after the occurrence of such events, and such termination of the Employee's
employment with the Company pursuant to this Subsection 9D, then, in any such
event, such termination shall be deemed to be a Termination by the Company Other
than for Cause and the Employee shall be entitled to such Compensation and
Benefits as set forth in Subsection 9C of this Agreement.
ii. For purposes of this Agreement, a "Change of
Control" of the Company shall mean a change in control (A) as set forth in
Section 280G of the Internal Revenue Code or (B) of a nature that would be
required to be reported in response to Item 1 of the current report on Form 8K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without
limitation, such a change in control shall be deemed to have occurred at such
time as:
(a) any person (as such term is used in Section
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing
4
<PAGE> 5
fifty percent (50%) or more of the combined voting power of the Company's
outstanding securities then having the right to vote at elections of directors;
or,
(b) the individuals who at the commencement
date of this Agreement the Board of Directors cease for any reason to constitute
a majority thereof unless the election, or nomination for election, of each new
director was approved by a vote of at least two thirds of the directors then in
office who were directors at the commencement of this Agreement; or
(c) there is a failure to elect five or more
(or such number of directors as would constitute a majority of the Board of
Directors) candidates nominated by management of the Company to the Board of
Directors; or
(d) the business of the Company for which
the Employee's services are principally performed is disposed of by the Company
pursuant to a partial or complete liquidation of the Company, a sale of assets
(including stock of a subsidiary of the Company) or otherwise.
Anything herein to the contrary notwithstanding, this Subsection 9D will not
apply where the Employee gives the Employee's explicit written waiver stating
that for the purposes of this Subsection 9D a Change in Control shall not be
deemed to have occurred. The Employee's participation in any negotiations or
other matters in relation to a Change in Control shall in no way constitute such
a waiver which can only be given by an explicit written waiver as provided in
the preceding sentence.
Anything to the contrary notwithstanding, termination shall not be deemed
Termination without Cause if there shall not have also occurred at or around a
change in control a second event.
The second event is that the Employee is given "Good Reason" for choosing to
terminate. Good Reason means, without the Employee's express written consent,
the occurrence of any of the following events after a Change in Control:
I. a reduction by the Employer of the Employee's rate of annual
compensation,
II. the failure of the Employer to continue in effect any Employee
benefit plan or compensation plan in which the Employee
participating following the Change in Control, unless the
Employee is permitted to participate in other plans providing
substantially comparable benefits, or the taking of any action
by the Employer which would adversely affect the Employee's
participation in or materially reduce benefits under any such
plan, PROVIDED, HOWEVER, that changes affecting the
participation or benefits of all similarly situated Employee's
shall not be treated as Good Reason hereunder,
III. a materially adverse change in the level of the Employee's
employment responsibilities, PROVIDED, HOWEVER, that changes
in title or changes in the
5
<PAGE> 6
affiliate of the Employer which employs the Employee shall not
be treated as Good Reason hereunder,
IV. a relocation of Employers offices such that Employee would be
required to relocate his primary residence to provide for a
reasonable daily travel distance to such new location.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. CONFIDENTIAL INFORMATION. Employee acknowledges that
Employee has been informed that it is the policy of Employer to maintain as
secret and confidential all information relating to (i) the financial condition,
businesses and interests of Employer and its affiliates, (ii) the systems,
know-how, products, services, costs, inventions, patents, patent applications,
formulae, research and development procedures, notes and results, computer
software programs, marketing and sales techniques and/or programs, methods,
methodologies, manuals, lists and other trade secrets heretofore or hereafter
acquired, sold, developed and/or used by Employer and its affiliates and (iii)
the nature and terms of Employer's and its affiliates' relationships with their
respective customers, clients, suppliers, lenders, vendors, consultants,
independent contractors and employees (all such information being hereinafter
collectively referred to as "Confidential Information"), and Employee further
acknowledges that such Confidential Information is of great value to Employer
and its affiliates and, in and by reason and as a result of Employee's
employment by Employer, Employee will be making use of, acquiring and/or adding
to such Confidential Information. Therefore, Employee understands that it is
reasonably necessary to protect Employer's and its affiliates' trade secrets,
good will and business interests that Employee agree and, accordingly, Employee
does hereby agree, that Employee will not directly or indirectly (except where
authorized by the President or Board of Directors of Employer for the benefit of
Employer and/or its affiliate(s) and/or as required in the course of his
employment) at any time hereafter divulge or disclose for any purpose whatsoever
to any persons, firms, corporations or other entities other than Employer or its
affiliates (hereinafter referred to collectively as "Third Parties"), or use or
cause or authorize any Third Parties to use, any such Confidential Information,
except as otherwise required by law.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer or its affiliates any research and development
materials, drawings, notebooks, notes, reports, formulae, software programs or
disc or other containers of software, manuals, data, books, records, materials
or documents of any kind or description for any purpose unconnected with the
strict performance of Employee's duties with Employer and (ii) upon the
cessation or termination of Employee's employment with Employer for any reason,
Employee shall forthwith deliver or cause to be delivered up to Employer any and
all research and development materials, drawings, notebooks, notes, reports,
formulae, software programs or discs or other containers of software, manuals,
data, books, records, materials and other documents and materials in Employee's
possession or under Employee's control relating to any Confidential Information
or any property or information which is otherwise the property of Employer or
its affiliates.
6
<PAGE> 7
11. COVENANT-NOT-TO-COMPETE
In view of the Confidential Information to be obtained by or
disclosed to Employee, because of the know-how acquired and to be acquired by
Employee, and as a material inducement to Employer to enter into this Agreement
and continue to employ Employee, Employee covenants and agrees that, so long as
Employee is employed by Employer and for a period of two (2) years after
Employee ceases for any reason to be employed by Employer, Employee shall not,
directly or indirectly, (i) divert business from, (ii) solicit or transact any
business competitive with Employer or its affiliates with, or (iii) sell any
products or services sold or offered by Employer or its affiliates to, any
customer or former customer of Employer or its affiliates. In addition, Employee
covenants and agrees that, so long as Employee is employed by Employer and for a
period of two (2) years after Employee ceases for any reason to be employed by
Employer, Employee hereby agrees to refrain from, anywhere in the world (the
"Geographical Area"), directly or indirectly owning, managing, operating,
controlling or financing, or participating in the ownership, management, control
or financing of, or being connected with or having an interest in, or otherwise
taking any part as a stockholder, director, officer, employee, agent,
consultant, partner or otherwise in, any business competitive with that engaged
in or being developed by Employer or its affiliates during Employee's term of
employment. Without limitation of the foregoing, Employer's business is
acknowledged to include the development, manufacture and sale of human leukocyte
interferon therapy and products and other natural or recombinant technologies
aimed at enhancing the human immune system. Employee acknowledges that
Employer's business is anticipated to be international in scope, that a similar
business could effectively compete with Employer's and its affiliates businesses
from any location in the world, and that, therefore, the restricted Geographical
Area is reasonable in scope to protect Employer's and its affiliates' trade
secrets and legitimate business interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 & 11
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Sections 10
or 11 hereof, Employer and/or its affiliates shall be entitled to an accounting
and repayment of all profits, compensation, commissions, remuneration's or
benefits which Employee directly or indirectly has realized or realizes as a
result of, growing out of or in connection with any such violation or breach. In
addition, in the event of a breach or violation or threatened or imminent breach
or violation of any provisions of Sections 10 or 11 hereof, Employer and/or its
affiliates shall be entitled to a temporary and permanent injunction or any
other appropriate decree of specific performance or equitable relief, without
posting of bond, from a court of competent jurisdiction in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any third parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any damages which are suffered, and the prevailing party shall be
entitled to reasonable attorney's and paralegals' fees and costs and other costs
incurred in connection with any such litigation, both before and at trial and at
all tribunal levels.
7
<PAGE> 8
Resort by Employer and/or its affiliates to such injunctive or other equitable
relief shall not be deemed to waive or to limit in any respect any other rights
or remedies which Employer or its affiliates may have with respect to such
breach or violation.
13. REASONALBENESS OF RESTRICTIONS
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Sections 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and its affiliates and that it would be very
difficult or impossible to measure the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and goodwill of Employer and its
affiliates.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employer in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction and that, in the event that any one of the provisions of, or
restrictions in, Section 10, 11 and/or 12 hereof shall be held to be invalid or
unenforceable, the remaining provisions thereof and restrictions therein shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable provisions or restrictions had not been included therein, and any
one or more of such valid provisions and restrictions may be enforced in whole
or in part as the circumstances warrant. In the event that any such provision
relating to time period and/or geographical and/or type of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical area or type of restriction such court
deems reasonable and enforceable, said time period and/or geographical and/or
type of restriction shall be deemed to become and shall thereafter be the
maximum time period and/or geographical restriction and/or type of restriction
which such court deems reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this
Agreement shall survive any termination of this Agreement or of Employee's
employment (for any reason, including expiration of the Employment Team).
D. COMPARABLE RESTRICTIONS. Employer agrees that it will use
its best efforts to have other senior executives execute and observe agreements
containing similar provisions as are contained in Sections 10, 11 and 12
thereof.
14. STOCK OPTIONS
Effective the Effective Date, Employer hereby grants to
Employee, pursuant to Employer's 1997 Stock Option Plan (the "Plan"), options to
acquire up to 250,000 shares of the Company's Common Stock (the "Options"), for
a period of five (5) years from the date hereof, in accordance with the Stock
Option Agreement attached hereto (Exhibit A) and
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<PAGE> 9
made a part hereof. Such Options shall vest; 125,000 options upon the Effective
Date of this Employment Agreement and 125,000 options upon the first anniversary
of this Employment Agreement.
Employer represents and warrants that (i) all shares
underlying the Options will be issued from shares authorized by and subject to
the provisions of the Plan (ii) the Plan and the shares underlying the Options
have been registered under the applicable regulations of the Securities and
Exchange Commission on Form S-8 (iii) such registration is effective as of the
Effective Date, and (iv) such registration covering the shares underlying the
Options will be maintained as effective for the longer of (a) the Employment
Term or (b) the Exercise Period of the Options as defined in Exhibit A.
15. EMPLOYEE'S DISCLOSURES AND REPRESENTATIONS AND WARRANTIES
Employee hereby acknowledges, represents and warrants to,
and/or agrees with Employer that Employee has full right, power and authority to
perform all obligations under this Agreement.
Employee hereby agrees to indemnify and hold harmless Employer
and its shareholders, directors, officers, employees and agents from and against
any and all loss, damage, liability, cost or expense (including reasonable
attorney's and paralegals' fees and costs before and at trial and at all
appellate levels) due to or arising out of any material inaccuracy in, or
material breach of, any material representation, warranty or covenant of
Employee contained herein.
16. INDEPENDENT COUNSEL
Employer and Employee agree that each of them have been, or
were advised and fully understand that they are entitled to be represented by
independent legal counsel with respect to all matters contemplated herein from
the commencement of negotiations at all times through the execution hereof.
17. LAW APPLICABLE
This Agreement shall be governed by and construed pursuant to
the laws of the State of Florida, without giving effect to conflicts of law
principles.
18. NOTICES
Any notices required or permitted to be given pursuant to this
Agreement shall be sufficient, if in writing, and if personally delivered or
sent by certified or registered mail, return receipt requested, to his
residence, in the case of Employee, or to its then principal office, in the case
of Employer.
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<PAGE> 10
19. SUCCESSION
This Agreement shall inure to the benefit of the be binding
upon the parties hereto and their respective legal representatives, heirs,
assignees and/or successors in interest of any kind whatsoever; provided,
however, that Employee acknowledges and agrees that he cannot assign or delegate
any of his rights, duties, responsibilities or obligations hereunder to any
other person or entity.
20. ENTIRE AGREEMENT
This Agreement constitutes the entire final agreement between
the parties with respect to, and supersedes any and all prior agreements, both
oral and written, between the parties hereto, except as related to rights of the
Employee and obligations related thereto of Employer regarding previously
granted stock options and previously purchased stock, as may have been modified
from time to time. The subject matter hereof may not be amended, modified or
terminated except by writing signed by the parties hereto.
21. SEVERABILITY
If any provision of this Agreement shall be held to be invalid
or unenforceable, and is not reformed by a court of competent jurisdiction, such
invalidity or enforceability shall attach only to such provision and shall not
in any way affect or render invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if such invalid or
unenforceable provision were not contained herein.
22. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant contained herein shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
23. ATTORNEYS' FEES
In the event that either of the parties to this Agreement
institutes suit against the other party to this Agreement to enforce any of his
or its rights hereunder, the prevailing party in such action shall be entitled
to recover from the other party all reasonable costs thereof, including
reasonable attorneys' and paralegals' fees and costs incurred before and at
trial and at all tribunal levels.
24. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be an original, but both of which together shall constitute one and the
same instrument.
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<PAGE> 11
25. INDEMNITY OF EMPLOYEE
Employer shall indemnify and hold harmless Employee from and
against any and all claims, judgements, fines, penalties, liabilities, losses,
costs and expenses (including reasonable attorneys' fees and costs) asserted
against or incurred by Employee as a result of acts or omissions of Employee
taken or made in the course of performing his duties for Employer or by reason
of Employee acting or having acted as a director or officer of Employer, to the
maximum extent permitted by law, including Section 607.850, Florida Statutes
(including the advancement of expense provisions thereof); provided, however,
that such indemnity shall not apply to acts or omissions of Employee which
constitute misconduct, gross negligence or which were intended by Employee to
personally benefit Employee, directly or indirectly, at the expense of Employer,
unless the matter which benefits Employee was first fully disclosed to the Board
of Directors of Employer and approved by said Board.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
VIRAGEN, INC.
By:
--------------------------------
GERALD SMITH
President
EMPLOYEE
-------------------------------
MELVIN ROTHBERG
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<PAGE> 12
ADDENDUM #1 TO EMPLOYMENT AGREEMENT
BETWEEN VIRAGEN U.S.A., INC. (EMPLOYER)
AND MELVIN ROTHBERG (EMPLOYEE)
As employer's majority shareholder, Viragen, Inc. has engaged Employee
under a contract dated July 1, 1999, it is agreed by employer and
employee that the Employment Agreement between Employer and Employee
dated April 27, 1998, be amended such that all paragraphs other than
paragraph 14 cease and paragraph 14 and Exhibit A (attached) be
replaced in its entirety by the following:
14. Effective the Effective Date, Employer hereby grants
to Employee, pursuant to Employer's 1997 Stock Option
Plan (the "Plan"), options to acquire up to 100,000
shares of the Company's Common Stock (the "Options"),
for a period of five (5) years from the date hereof,
in accordance with the Stock Option Agreement
attached hereto (Exhibit A) and made a part hereof.
Such Options shall vest; 50,000 options upon the
first anniversary of the execution of this Employment
Agreement and 50,000 options upon the second
anniversary of this Employment Agreement.
Employer represents and warrants that (i) all shares
underlying the Options will be issued from shares
authorized by and subject to the provisions of the
Plan (ii) the Company shall use its best efforts to
register the Plan and the shares underlying the
Options under the applicable regulations of the
Securities and Exchange Commission on Form S-8 and
prior to the vesting of any or all of Employee's
Options (iii) such registration covering the shares
underlying the Options will be maintained as
effective for the longer of (a) the Employment Term
or (b) the Exercise Period of the Options as defined
in Exhibit A.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
July 1, 1999.
Viragen (Europe) Ltd.
By:
-----------------------------
Dennis W. Healey
Executive Vice President
Employee
By:
-----------------------------
Melvin Rothberg
<PAGE> 13
EXIHBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 1, 1999 (the "Effective Date") between
Viragen, Inc., a Delaware Corporation (the "Company") and MELVIN ROTHBERG
("Optionee").
The Company, pursuant to the provisions of its 1997 Stock Option Plan (the
"Plan"), hereby grants to Optionee an Incentive Stock Option ("ISO") to acquire
Common Stock, par value $.01 per share, of the Company (the "Common Stock"),
subject to the following terms and conditions:
1. GRANT OF OPTION. The Company hereby grants to Optionee (the
"Option") to purchase up to 250,000 shares of Common Stock (the "Shares"), to be
transferred upon the exercise thereof, fully paid and nonassessable.
2. EXERCISE PRICE. The exercise price of the Shares subject to the
Option shall be at market at the Grant Date, $0.625 per share. The Company shall
pay all original issue or transfer taxes upon the exercise of the Option by
Optionee.
3. EXERCISABILITY OF OPTION; RIGHTS AND PRIVILEGES.
Subject to the provisions of Paragraph 6 hereof, the Option shall be exercisable
by Optionee from time to time, for a period of five (5) years commencing: (i)
125,000 options from the Effective Date and (ii) 125,000 Options from the first
anniversary of the Effective Date.
All granted but unexercised Options shall continue to be fully exercisable in
accordance with the provisions herein:
(i) if there occurs any corporate transaction (which
shall include a series of corporate transactions occurring within 60 days or
occurring pursuant to a plan), that has the result that shareholders of the
Company immediately before such transaction cease to own at least 66 2/3 percent
of the voting stock of the Company in a (a) reorganization, (b) consolidation,
(c) merger, (d) liquidation or (e) a similar or corporate transaction;
(ii) if the shareholders of the Company shall approve
a plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
<PAGE> 14
(iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
4. NON-ASSIGNABILITY OF OPTION. The Option shall not be given, granted,
sold, exchanged, transferred, pledged, encumbered, assigned or otherwise
disposed of by Optionee, other than by will or the laws of descent and
distribution, and during the lifetime of Optionee, shall not be exercisable by
any other person, but only by Optionee.
5. METHOD OF EXERCISE OF OPTION. Optionee shall notify the Company by
written notice, in the form of the Notice of Exercise attached hereto
(Attachment A), delivered to the Company's principal office, attention: Chief
Financial Officer. At the Optionee's option, the payment for the Shares may be
made either by Optionee's check payable to the order to the Company in full
payment for the total exercise price of the number of Shares purchased or by
execution and delivery by the Optionee to the Company of a Note(s), in similar
form and content as Notes previously used by the Company for similar purposes
("Note(s)"), dated as of each Notice of Exercise. As soon as practicable after
the receipt of such Notice of Exercise and accompanying payment for the purchase
of Shares, the Company shall, at its principal office, tender to Optionee a
certificate or certificates issued in Optionee's name evidencing the Shares
purchased by Optionee hereunder.
6. TERMINATION OF OPTION. To the extent exercisable but not exercised,
the Option shall terminate upon the first to occur of the following dates:
(a) five (5) years from the Exercise Date as defined herein;
or
(b) the expiration of ninety (90) days following the date
Optionee's employment terminates with the Company and/or any of its subsidiaries
included in the Plan with Cause, as defined in Optionee's Employment Agreement
attached hereto.
Subject to the provisions of this paragraph, in the event of Optionee's death,
the exercisable but unexercised portion of the Option may be exercised by the
estate of Optionee, or by the person who acquired the right to exercise the
Option by bequest or inheritance or by reason of the death of Optionee.
In the event of Employee's termination without Cause, all granted but
unexercised Options shall continue to be fully exercisable in accordance with
the provisions herein. Additionally, in the event this Agreement is not renewed
at the end of the Employment Term, then all granted but unexercised Options
shall continue to be fully exercisable in accordance with the provisions herein.
7. PLEDGE OF SHARES. If payment for the purchase of Shares under this
Option is made through execution and delivery of a Note(s), effective upon
Optionee's purchase(s), of the Shares and the delivery of the Note(s), in order
to secure the Company's obligations under the Note(s), Optionee hereby pledges,
assigns and sets over
2
<PAGE> 15
to the Company, and grants to the Company a security interest in, the Shares.
The Shares pledged pursuant hereto shall be maintained in escrow with Atlas,
Pearlman, Trop & Borkson, P.A. pursuant to the terms of a Pledge and Escrow
Agreement previously used by the Company for similar purposes, which shall be
executed by Optionee and the Company upon delivery of a Note(s). As long as any
Shares remain subject to the lien of the Pledge, such Shares may not be further
pledged or encumbered in any manner, and shall not be sold, transferred or
otherwise disposed of. The Escrow Agent shall not be required to relinquish the
Pledge or the Escrow Agent's possession of the certificates evidencing the
Shares, unless no later than concurrently with the sale of the Shares pursuant
to an S-8 registration, all Notes which are secured by such Shares are paid in
full. In the event any of the Shares are to be titled in the name of an
immediate family member of Optionee or a trust pursuant to the terms herein, as
a condition thereto the designated title holder(s) of such Shares shall execute
and deliver to the Company a pledge and escrow agreement, in form and content
reasonably satisfactory to the Company and its counsel, consistent with the
terms herein. No transfer of Shares to, or designation by Optionee of (for the
purposes of owning Shares) any person or entity shall relieve Optionee of any of
his obligations under the Note(s) or this Agreement. With respect to each Note
under which a voluntary prepayment is made by Optionee, provided that interest
payments on such Note are current through the date of prepayment and such Note
is not in default and has not been accelerated, for each $2,200 of principal
paid by Optionee under such Note, 10,000 Shares of the Shares pledged to secure
such Note shall be released from the lien of the Pledge. As long as no event of
default has occurred with respect to a Note and no event giving right to
accelerate such Note has occurred, Optionee shall retain all voting rights with
respect to all Shares securing such Note. Following an event of default or an
acceleration event, the Company shall have and may exercise all voting rights
with respect to such Shares. Optionee hereby irrevocably appoints the Company
Optionee's attorney-in-fact for such purpose, it being acknowledged that such
appointment is coupled with an interest. Any dividends or distributions payable
in respect of any Shares subject to the Pledge shall automatically be applied to
pay down the Note(s) in inverse order of their respective maturity date(s). In
the event of a default under any Note, in addition to and not in limitation or
lieu of any other rights or remedies the Company may have against Optionee as a
result of such default, the Company may exercise all of its rights at law and in
equity as a secured party, including without limitation under the Uniform
Commercial Code, with respect to all Shares then securing the Note with respect
to which the default has occurred. Upon a default, without limiting any of the
Company's other rights and remedies, the Company may conduct a public or private
foreclosure sale of the Shares securing th Note with respect to which the
default has occurred. Optionee agrees that 10 days notice to him of any private
sale is fair and reasonable. The Company may be the purchaser at any public
foreclosure sale, and may bid any commercially reasonable amount at such sale.
In all events, in the event of a public or private foreclosure sale, Optionee
shall be liable for any deficiency. All of the Company's rights and remedies
under the Note(s), the Pledge and this Agreement, and at law or in equity, are
cumulative, and none is intended to be in substitution or in lieu of, nor is the
exercise of one intended to be a waiver of, any other. The Company shall have no
obligation to proceed against the Shares before proceeding against Optionee with
respect to any default under any of the Notes.
3
<PAGE> 16
8. SECURITIES LAWS. Employer represents and warrants that (i) all
shares underlying the Options will be issued from shares authorized by and
subject to the provisions of the Plan; (ii) the Company shall use its best
efforts to register the Plan and the shares underlying the Options under the
applicable regulations of the Securities and Exchange Commission on Form S-8
prior to the vesting of any Options held by Optionee; and (iii) such
registration covering the shares underlying the Options will be maintained as
effective for the longer of (a) the Employment Term or (b) the Exercise Period
of th Options as defined herein.
9. ADJUSTMENT OF SHARES. If at any time prior to the expiration or
exercise in full of the Option, there shall be any increase or decrease in the
number of issued and outstanding shares of the Common Stock through the
declaration of a stock dividend or through any recapitalization resulting in a
stock split-up, combination or exchange of the Common Stock, then and in such
event:
(i) appropriate adjustment shall be made in the maximum number
of Shares available for grant, so that the same percentage of the Company's
issued and outstanding Shares shall continue to be subject to being so optioned;
and
(ii) appropriate adjustment shall be made in the number of
Shares, and the exercise price per Share thereof, that remain unexercised under
the Option, so that the same percentage of the Company's issued and outstanding
shares of Common Stock shall remain subject to purchase at the same aggregate
exercise price.
Except as otherwise expressly provided herein, the issuance by the Company of
shares of its capital stock of any class, or securities convertible into shares
of capital stock of any class, either in connection with a direct sale of upon
the exercise of rights or warrants to subscribe therefore, or upon conversions
of shares or obligations the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of exercise price of the Shares that remain
unexercised under the Option.
Without limiting the generality of the foregoing, the existence of unexercised
Shares under the Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recaritalizations, reorganizations or other changes in the Company's capital
structure or its business; (ii) any merger or consolidation of the Company;
(iii) any issue by the Company of debt securities, or preferred or preference
stock that would rank above the Shares issuable upon exercise of the Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer or
assignment of all or any part of the assets or business of the Company; or (vi)
any other corporate act or proceeding, whether of a similar character or
otherwise.
10. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder of the Company in respect of the Shares as to which the Option shall
not have been exercised and payments made therefore as herein provided.
4
<PAGE> 17
11. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
heirs, legal representatives, successors and permitted assigns. Optionee
acknowledges that Optionee has read and understands the Plan and agrees to abide
by its terms.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflict of laws principles thereof. All terms not defined in this Agreement
shall have the same meaning as in the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VIRAGEN, INC.
By:
---------------------------
Gerald Smith
President
OPTIONEE
---------------------------
Melvin Rothberg
5
<PAGE> 18
ATTACHMENT A
------------
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the within Option to the
extent of purchasing ____________ shares of Common Stock of Viragen Inc.,
Delaware Corporation, and hereby makes payments of $ ________ in payment
therefor.
---------------------------
Signature
---------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK AND CORPORATE RECORDS
--------------------------------------------------------
Name:
--------------------------------------
(Please type or print in block letters)
Address:
--------------------------------------
--------------------------------------
Social Security #:
----------------------------------
Phone #: ( )
--------------------------------------------
Fax #: ( )
----------------------------------------------
6
<PAGE> 1
EXHIBIT 10. LXXVII
EMPLOYMENT AGREEMENT
AGREEMENT dated July 1, 1999 (the "Effective Date") by and between
VIRAGEN (SCOTLAND) LIMITED, a company registered in Scotland with registered
number 155387 and having a place of business at Pentlands Science Park, Bush
Loan, Penicuik, Midlothian EH26 0PZ ("Employer"), and DR. DONALD MAGNUS
NICOLSON, Drumbeg Lodge, Gartness Road, Drymen G63 0DW ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ the Employee upon the terms and
conditions hereinafter set forth and Employee desires to accept employment upon
such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, Employer hereby employs Employee and Employee hereby
accepts employment under the following terms and conditions:
1. DEFINITIONS
In this Agreement unless the context otherwise requires, the
following expressions have the following meanings:
"THE BOARD" means the Board of Directors for the time
being of Employer or any committee duly
appointed by the Board of Directors;
"THE EMPLOYMENT" means the Employee's employment under this
Agreement;
"GROUP COMPANY" means any holding company for the time being
of Employer or any subsidiary for the time
being of Employer or of any such holding
company (other than Employer) (for which
purpose the expressions "holding company" and
"subsidiary" shall have the meaning ascribed
thereto by Section 736 of the Companies Act
1985).
2. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon all the terms and conditions hereinafter set
forth.
<PAGE> 2
3. TERM
Subject to the provisions for earlier termination set forth in
Section 15 hereof and, notwithstanding the date of this Agreement, this
Agreement commenced on 1st July 1999 and shall continue until the close
of business on 30th June 2001 (the "Employment Term").
4. CONTINUOUS EMPLOYMENT
Employee's employment with Employer in terms of this Agreement is
continuous with his previous employment with Employer which commenced on
1st April 1996.
5. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that he is free to
accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which
would in any way interfere with his acceptance of employment pursuant to
the terms hereof or the full performance of his obligations hereunder or
the exercise of his best efforts in his employment hereunder.
6. DUTIES AND EXTENT OF SERVICES
Employee shall be employed as Employer's Managing Director and
Chief Operations Officer of the Group Companies Viragen (Europe) and
Viragen, Inc. The employee shall also act as Vice President of New
Product Development for Viragen Inc. As such, Employee shall, subject to
the direction of the Board, supervise and conduct the Employer's
operations and affairs as assigned by the Board, and perform such other
duties and responsibilities as may be assigned to Employee from time to
time consistent with such title by the Board including where such duties
require Employee to work for any Group Company. Employee accepts that he
may be required to perform other tasks or duties outwith the scope of his
normal duties. Employee agrees to devote sufficient time, skill,
attention and energy diligently and competently to perform the duties and
responsibilities reasonably assigned to him hereunder or pursuant hereto
to the best of his abilities. Employee shall use his best efforts to be
loyal and faithful at all times and constantly endeavor to improve his
ability and his knowledge of the business of Employer in an effort to
increase the value of his services for the mutual benefit of Employer and
Employee. Employer may at its sole discretion transfer this Agreement or
second Employee to any Group Company at any time.
Employer reserves the right to suspend all or any of Employee's
duties and powers on such terms as it considers expedient (including a
term that Employee shall not attend at Employer's premises) or to require
Employee to
<PAGE> 3
carry out the duties of another position of equivalent status either in
addition to or instead of his duties as Managing Director of Employer and
Chief Operations Manager of the Group Company, Viragen Inc. During any
period of suspension, Employee will not be entitled to work either on his
own account or on behalf of any other person, business or company.
7. OTHER INTERESTS
Employee shall not (except with the prior consent of the Board)
accept any appointment to any office in relation to any body, whether
corporate or not, or be directly or indirectly employed, engaged,
concerned or interested in any other business or undertaking, provided
that this shall not prohibit the holding (directly or through nominees)
of investments listed on the London Stock Exchange or in respect of which
dealing takes place in the Alternative Investment Market on the London
Stock Exchange or any recognised stock exchange provided that not more
than 5 per cent of the issued shares or other securities of any class of
any one company shall be so held without the prior sanction of a
resolution of the Board. Employee shall immediately notify Employer of
any actual or potential conflict of interest with the Employment
including without limitation to the foregoing generality any transaction
or dealing which involves, or might involve, a relative of Employee or
any employee of such relative.
Subject to any regulations issued by Employer, Employee shall not
be entitled to receive or obtain directly or indirectly any discount,
rebate or commission in respect of any sale or purchase of goods effected
or other business transacted (whether or not by him) or by or on behalf
of Employer and if he (or any firm or company in which he is interested)
shall obtain any such discount, rebate or commission he shall account to
Employer for the amount received by him (or a due proportion of the
amount received by such company or firm having regard to the extent of
his interest therein).
8. HOURS AND PLACE OF WORK
Employee agrees that he shall work such hours as are necessary for
the proper performance of his duties, including any such hours which
exceed the maximum weekly working time limit of 48 hours imposed by the
Working Time Regulations 1998 or any re-enactment thereof. Employee shall
work a minimum of 37.5 hours per week from 9.30am to 6pm Monday to
Friday, with a break of one hour for lunch each day.
Employee's place of work will initially be Employer's offices at
Penicuik but Employer may require Employee to work at any place within
the United Kingdom on either a temporary or an indefinite basis. Employee
will be given reasonable notice of any change in his place of work.
<PAGE> 4
Employee undertakes to use reasonable endeavours to relocate his
residence closer to Employer's offices.
9. REMUNERATION
Employee shall receive an annual salary during the Employment Term
of (pound)103,000. Employee's salary shall be payable in accordance with
the Company's normal payroll process, currently monthly in arrears on or
around the 18th day of each month. Employee may also be entitled to such
fringe benefits, if any, that shall be made available to Employee further
described herein. The remuneration in this clause shall be inclusive of
any fees to which Employee may be entitled as a director of Employer or
any Group Company.
10. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE PLANS
Employee shall be eligible during the continuance of
Employment to participate in such medical, hospitalisation,
group health, accident, disability and life insurance
schemes and plans, such pension, 401 K and such other
employee benefit schemes to the same extent such plans and
schemes are made generally available from time to time by
Employer to all of its other similarly-situated employees;
provided, however, Employer shall be under no obligation to
make any of such plans or schemes available to its
employees or continue any which currently or in the future
exist, except as otherwise required by law. Entitlement to
such benefits is subject always to:
o the terms and conditions of the schemes or arrangements
from time to time;
o the insurer of the scheme or arrangement honouring
Employer's claim in respect of Employee or his spouse or
children; and
o Employee's acceptance of such variations to his terms
and conditions of employment as may from time to time be
requested by Employer.
All payments under the schemes or arrangements will be
subject to such deductions as may be required by law and
also a sum equivalent to any employer's National Insurance
contributions which are payable by Employer in respect of
any payment under the scheme or arrangements, as
appropriate, and which are not reimbursed by the insurer
under the scheme or arrangement.
<PAGE> 5
Where any payments are made under the permanent health
insurance scheme or arrangement all other benefits provided
to or in respect of Employee by the Employer will cease
immediately (if they have not done so already) except those
benefits for which the Employer receives reimbursement in
full of the total cost to it of the benefit from the
insurer under the appropriate scheme or arrangement.
B. CAR
During the continuance of the Employment, the Employer
shall provide to Employee for performance of Employee's
duties on behalf of Employer as specified herein a car, of
a size and type commensurate (in the opinion of the Board)
with Employee's position for the time being. Employer shall
pay all petrol, maintenance, insurance and other expenses
related thereto. Employee will be permitted to use the car
for reasonable private journeys. If Employee shall be
convicted of any offence under the Road Traffic Acts or is
involved in any accident involving the car, he shall
forthwith notify the Board and supply such information in
connection therewith as the Board may request. Employee
shall at all times maintain a current full driving licence
and shall not do or omit to do anything which would or
might make void or prejudice any insurance policy
maintained by Employer.
C. OTHER EXPENSES
Employer shall promptly pay directly or reimburse Employee
for his reasonable out-of-pocket costs and expenses
incurred in connection with the performance of his duties
and responsibilities hereunder including but not limited to
reasonable travel, accommodation and subsistence expenses
incurred by Employee should the Employee be temporarily
required to carry out his duties elsewhere, in the UK or
abroad, than at his normal place of work but always subject
to the submission by Employee of appropriate invoices,
receipts and other supporting documentation, consistent
with Employer's customary reimbursement policies and
procedures.
D. DEDUCTIONS
For the purposes of the Employment Rights Act 1996,
sections 13-27, Employee hereby authorises the Employer to
deduct from his salary and/or any other sums due under this
Agreement any sums due from him to Employer including,
without limitation, any overpayments, loans or advances
made to him by the Employer, and any losses suffered by the
Employer as a result of any negligence or breach of duty by
Employee.
<PAGE> 6
11. HOLIDAY
Employer's holiday year runs from 1st January to 31st December.
Employee shall be entitled to annual holiday (of not less than 20 days).
Holidays may only be taken with advance permission from the Board.
Employee may not carry any unused holiday entitlement forward to a
subsequent holiday year. Holiday entitlement is accrued PRO RATA
throughout the holiday year, depending on Employee's length of service
within that year. Accrued holiday entitlement will be rounded up to the
nearest whole day.
Upon notice of termination of Employee's employment being served
by either party, Employer may either require Employee to take any unused
holidays accrued at that time during any notice period or may, at its
discretion, make a payment in lieu of such holiday entitlement. Employee
will be required to make a payment to Employer in lieu of any holiday
taken in excess of Employee's holiday entitlement accrued at the date of
termination of the Employment. Any sums so due may be deducted from any
money owing to Employee.
12. SICKNESS
Without prejudice to the terms of clause 15, Employer shall
continue to pay Employee's salary during any period of absence on medical
grounds for up to a maximum period of 13 weeks in any period of 12
consecutive months (such twelve month period beginning on the first day
of absence), provided that Employee shall from time to time if required:
o inform Employer without delay of any injury or incapacity;
o supply Employer with medical certificates covering any period of
sickness or incapacity exceeding seven consecutive days (including
weekends); and
o undergo at Employer's expense a medical examination by a doctor
appointed by Employer.
Payment of Employee's salary pursuant to this clause 12 shall be
made less any amount of Statutory Sick Pay or other benefits to which
Employee may be entitled hereunder or under any relevant legislation.
Once entitlement to salary under this clause 12 lapses, Employee
shall have no right to any benefit or emolument from Employer except to
any permanent health insurance benefit which may be payable in accordance
with clause 10.
<PAGE> 7
If Employee's absence shall be occasioned by the actionable
negligence of a third party in respect of which damages are recoverable,
then all sums paid by Employer during the period of absence in terms of
this clause 12 shall constitute loans to Employee, who shall:
o forthwith notify Employer of all the relevant circumstances and of
any claim, compromise, settlement or judgement made or awarded in
connection therewith;
o if Employer so requires, refund to Employer such sum as Employer may
determine, not exceeding the lesser of:
(i) the amount of damages recovered by him in respect of
loss of earnings during the period of absence under
any compromise, settlement or judgement; and
(ii) the sums advanced to him by Employer in respect of
the period of incapacity.
13. FACILITIES
Employer shall provide and maintain (or cause to be provided and
maintained) such facilities, equipment, supplies and personnel as it
reasonably determines is adequate for Employee's performance of his
duties and responsibilities under this Agreement.
14. PENSIONS
Employer does not operate a pension scheme.
15. TERMINATION OF EMPLOYMENT
A INCAPACITY
For the purposes of this Agreement, Employee shall be
deemed to be "Incapacitated" when, by reason of physical or
mental illness or of injury, he is unable to perform
substantially all of the duties and responsibilities
required of him in connection with his employment
hereunder. No incapacity shall be deemed to exist until
after Employee shall be unable to perform his duties
hereunder for ninety (90) consecutive days (the "Incapacity
Period"). If Employee shall have been incapacitated but
shall have returned to work prior to the end of the
Incapacity Period, any new incapacity commencing within
thirty (30) days of the termination of the prior incapacity
shall be a continuation of the prior incapacity, and the
period of all such disabilities shall be added together to
determine whether, or how much of, the Incapacity Period
has elapsed.
<PAGE> 8
The Employment may be subject to termination by the
Employer by notice if Employee becomes Incapacitated
provided that if at any time during the currency of such
notice Employee can provide a medical certificate
satisfactory to the Board and to the effect that he has
fully recovered his physical and/or mental health and that
no recurrence of illness or incapacity can reasonably be
anticipated, Employer shall withdraw the notice.
B. TERMINATION EVENTS
Notwithstanding any provisions of this Agreement to the
contrary, Employee's employment may be terminated by
Employer with Cause (as hereinafter defined) effective upon
the delivery of written notice to Employee. In addition,
Employee's employment shall terminate upon Employee
reaching the Employer's normal retirement age of 65.
C. DEFINITION OF CAUSE
For purposes of this Agreement, "Cause" shall be: (a)
conviction for fraud or criminal conduct (other than
conviction of, or a plea of guilty to, a minor traffic
offence), from which no appeal can be taken; (b) habitual
drunkenness or drug addiction; (c) fraud or theft in
respect of Employer; (d) material sanctions against
Employee in his capacity as an employee of Employer by
regulatory agencies governing Employer or against Employer
because of deliberate wrongful acts or conduct of Employee
which have a material adverse affect upon the Employer and
its business; (e) material breach or default by Employee of
any of the material terms or conditions of this Agreement,
or the continuation of any breach or default by Employee
for a period of seven (7) days following the date of
receipt of written notice from Employer specifying the
breach or default of Employee; (f) the resignation of
Employee prior to the end of the Employment Term (in this
last event, Employee's employment shall be deemed
terminated with Cause on the date that he resigns); (g)
disqualification as a director by reason of any order made
under the Company Directors Disqualification Act 1986 or
any other enactment; (h) the bankruptcy or insolvency of
Employee; or (i) gross misconduct or gross negligence of
Employee.
D. TERMINATION WITHOUT CAUSE
If Employee's employment is terminated by Employer without
Cause as defined in this Section, Employee shall be given
sixty (60) days written notice of termination by Employer
and be entitled to
<PAGE> 9
receive two years compensation and fringe benefits/expenses
as provided for in Sections 9 & 10 hereof.
E. TERMINATION FOLLOWING A CHANGE OF CONTROL
(i) In the event that a "Change of Control", as
hereinafter defined, of Employer is followed by a
related "Good Reason" as hereinafter defined at any
time during the Employment Term, Employee shall have
the right to terminate his employment under this
Agreement upon thirty (30) days written notice given
at any time within one year after the occurrence of
such events, and such termination of Employee's
employment with Employer pursuant to this Subsection
15E, then, in any such event, such termination shall
be deemed to be a Termination by Employer Other than
for Cause and Employee shall be entitled to such
Compensation and Benefits as set forth in Subsection
15D of this Agreement.
(ii) For purposes of this Agreement, a "Change of
Control" of Employer shall mean a change in the
legal person holding, directly or indirectly, the
shares which carry 50% or more of the voting rights
in either Employer or its holding company, for which
purpose "holding company" shall have the meaning
ascribed thereto by Section 736 of the Companies Act
1985.
(iii) For the purposes of this Agreement, "Good Reason"
shall mean, without the Employee's express written
consent, the occurrence of any of the following
events after a Change in Control:
I. a reduction by the Employer of the Employee's basic rate of
remuneration (excluding any performance related or
discretionary bonuses);
II. the failure of the Employer to continue in effect any
Employee benefit plan or compensation plan in which the
Employee was participating following the Change in Control,
unless the Employee is permitted to participate in other
plans providing substantially comparable benefits, or the
taking of any action by the Employer which would adversely
affect the Employee's participation in or materially reduce
benefits under any such plan, PROVIDED, HOWEVER, that
changes affecting the participation or benefits of all
similarly situated employees shall not be treated as Good
Reason hereunder;
III. a materially adverse change in the level of the Employee's
employment responsibilities, PROVIDED, HOWEVER, that
changes in
<PAGE> 10
title or changes in the Group Company which employs the
Employee shall not be treated as Good Reason hereunder; or
IV. a relocation of Employer's offices such that Employee would
be required to relocate his primary residence to provide
for a reasonable daily travel distance to such new
location.
This Subsection 15E will not apply where the Employee gives Employer his
explicit written waiver stating that for the purposes of this Subsection
15E a Change in Control shall not be deemed to have occurred. The
Employee's participation in any negotiations or other matters in relation
to a Change in Control shall in no way constitute such a waiver which can
only be given by an explicit written waiver as provided in the preceding
sentence.
F. TERMINATION PROVISIONS
If Employer becomes entitled to terminate the Employment pursuant
to this clause 15, it shall be entitled (but without prejudice to
its right subsequently to terminate the Employment on the same or
any other ground) to suspend Employee on full pay for so long as
it may think fit.
Employer reserves the right to give Employee pay in lieu of any
notice of termination (whether given by Employer or by Employee).
For this purpose, Employee agrees that pay in lieu of notice will
consist of his basic salary for the relevant period of notice and
any bonus/commission/share of profit and any other emolument
referable to the Employment. For the avoidance of doubt, the right
of Employer to make a payment in lieu of notice does not give rise
to any right of Employee to receive such a payment.
The giving of any period of notice of termination (whether given
by Employer or Employee), does not limit the Employer's right to
suspend any of Employee's duties and powers under clause 6 and
Employer shall be under no obligation to assign any duties to
Employee and shall be entitled to exclude him from its premises.
Throughout any such period of suspension, Employee shall continue
to receive his normal salary and other contractual benefits to
which he is entitled under this Agreement and shall not be
entitled to work either on his own account or for any other
person, company or business. Alternatively, Employer may, during
the whole or part of such period of notice, require Employee to
perform duties (including any modified duties arising from an
exercise by Employer of its rights under clause 6) at such
locations as the Company may require consistent with clause 8.
On the termination of the Employment or on either Employer or
Employee having served notice of such termination, Employee shall:
<PAGE> 11
o at the request of Employer resign as a Director and/or from
any office held in Employer or any Group Company and shall
transfer without payment to Employer or as Employer may
direct, any shares or other securities held by Employee as
nominee or trustee for Employer or any Group Company
provided however that such resignation shall be without
prejudice to any claims which Employee may have against
Employer or any Group Company arising out of the
termination of the Employment; and
o forthwith deliver to Employer all materials within the
scope of clause 16 and all credit cards, cars, car keys and
other property of or relating to the business of Employer
or of any Group Company which may be in his possession or
under his power or control;
and if Employee should fail to do so Employer is hereby
irrevocably authorised to appoint some person in his name
and on his behalf to sign any documents and do any things
necessary or requisite to give effect thereto.
16. NON-DISCLOSURE QF CONFIDENTIAL INFORMATION
A. CONFIDENTIAL INFORMATION
Employee acknowledges that Employee has been informed that
it is the policy of Employer to maintain as secret and
confidential all information relating to (i) the financial
condition, businesses and interests of Employer and its
Group Companies, (ii) the systems, know-how, products,
services, costs, inventions, patents, patent applications,
formulae, research and development procedures, notes and
results, computer software programs, marketing and sales
techniques and/or programs, methods, methodologies,
manuals, lists and other trade secrets heretofore or
hereafter acquired, sold, developed and/or used by Employer
and its Group Companies and (iii) the nature and terms of
Employer's and its Group Companies' relationships with
their respective customers, clients, suppliers, lenders,
vendors, consultants, independent contractors and employees
(all such information being hereinafter collectively
referred to as "Confidential Information"), and Employee
further acknowledges that such Confidential Information is
of great value to Employer and its Group Companies and, in
and by reason and as a result of Employee's employment by
Employer, Employee will be making use of, acquiring and/or
adding to such Confidential Information. Therefore,
Employee understands that it is reasonably
<PAGE> 12
necessary to protect Employer's and its Group Companies'
trade secrets, good will and business interests that
Employee agree and, accordingly, Employee does hereby
agree, that Employee will not directly or indirectly
(except where authorised by the Board for the benefit of
Employer and/or its Group Companies and/or as required in
the course of his employment) at any time hereafter use for
his own purposes or divulge or disclose for any purpose
whatsoever to any persons, firms, corporations or other
entities other than Employer or its Group Companies
(hereinafter referred to collectively as "Third Parties"),
or use or cause or authorise any Third Parties to use, or
through any failure to exercise due care and diligence,
cause any unauthorised disclosure of any such Confidential
Information, except as otherwise required by law.
B. EMPLOYER'S MATERIALS
In accordance with the foregoing, Employee furthermore agrees
that:--
(i) Employee will at no time retain or remove from the
premises of Employer or its Group Companies any
research and development materials, drawings,
notebooks, notes, reports, formulae, software
programs or discs or other containers of software,
manuals, data, books, records, materials or documents
of any kind or description for any purpose
unconnected with the strict performance of Employee's
duties with Employer; and
(ii) all such materials shall be and remain the property
of the Employer; and
(iii) upon the cessation or termination of Employee's
employment with Employer for any reason, Employee
shall forthwith deliver or cause to be delivered up
to Employer any and all research and development
materials, drawings, notebooks, notes, reports,
formulae, software programs or discs or other
containers of software, manuals, data, books,
records, materials and other documents and materials
in Employee's possession or under Employee's control
relating to any Confidential Information or any
property or information which is otherwise the
property of Employer or its Group Companies.
17. INVENTIONS AND OTHER INTELLECTUAL PROPERTY
The parties foresee that Employee may make inventions or
create other industrial or intellectual property in the course of his
duties under this Agreement and agree that in this respect Employee
has a special responsibility to further the interests of Employer and
the Group Companies.
Any discovery, development, invention, or improvement, design,
process, formula, method, database, information, computer program,
<PAGE> 13
copyright work, semi conductor or other topography, copyright work,
trade mark or trade name or get-up made, created, devised, developed
or discovered by Employee during the continuance of the Employment
(whether capable of being patented or registered or not and whether
or not made or discovered in the course of the Employment) either
alone or with any other person in connection with or in anyway
affecting or relating to the business of Employer or any Group
Company or capable of being used or adapted for use therein or in
connection therewith ("WORKS") shall forthwith be disclosed to
Employer and shall (subject to sections 39 to 43 Patents Act 1977)
belong to and be the absolute property of Employer or such Group
Company as Employer may direct.
Employee if and whenever required so to do by Employer shall
at the expense of Employer or such Group Company as Employer may
direct:
o apply or join with Employer or such Group Company in applying
for letters patent, registered design, design right, trade
mark or other protection or registration in the United
Kingdom and in any other part of the world for any Works; and
o execute all instruments and do all things necessary for
vesting such works or patents, registered designs, design
rights, trade marks or other protection or registration when
obtained and all right, title and interest to and in the same
absolutely and as sole beneficial owner in Employer or such
Group Company or in such other person as Employer may
specify; and
o sign and execute all such documents and do all such acts as
the Company may reasonably require in connection with any
proceedings in respect of such applications and any
publication or application for revocation of such patents,
registered designs, design rights, trade marks or other
protection.
Employee hereby irrevocably and unconditionally waives all
rights under Chapter IV Copyright, Designs and Patents Act 1988 and
any other moral rights which he may have in the Works or in
connection with the authorship of any existing or future copyright
work in the course of the Employment, in whatever part of the world
such rights may be enforceable including, without limitation:
o the right conferred by section 77 of that Act to be
identified as the author of any such work; and
o the right conferred by section 80 of that Act not to have any
such work subjected to derogatory treatment.
<PAGE> 14
Employee hereby irrevocably appoints Employer to be his
Attorney in his name and on his behalf to execute any such act and to
sign all deeds and documents and generally to use his name for the
purpose of giving to Employer the full benefit of this clause.
Employee agrees that with respect to any third parties a certificate
signed by any duly authorised officer of Employer that any act or
deed or document falls within the authority hereby conferred shall be
conclusive evidence that this is the case.
Nothing in this clause shall be construed as restricting the
rights of Employee or Employee under sections 39 to 43 Patents Act
1977.
18. COVENANT - NOT-TO-COMPETE
A. DEFINITIONS
For the purposes of clause 18B the following words have the
following meanings:
"COMPANY GOODS" means any product researched into, developed,
manufactured, distributed or sold by Employer with which the Employee was
materially concerned or for which he was responsible during the two years
immediately preceding the Termination Date;
"COMPANY SERVICES" means any services (including but not
limited to technical and product support, technical advice and customer
services) supplied by Employer with which the duties of Employee were
materially concerned or for which he was responsible during the two years
immediately preceding the Termination Date;
"CONFIDENTIAL INFORMATION" has the meaning given to it in
clause 16;
"CUSTOMER" means any person, firm, company or other
organisation whatsoever to whom or which Employer distributed, sold or
supplied Company Goods or Company Services during the two years
immediately preceding the Termination Date and with whom or which, during
such period:
(i) Employee had material dealings in the course of
his employment; or
(ii) any employee who was under the direct or
indirect supervision of Employee had material
dealings in the course of his employment;
but in the case of a firm, company or other organisation shall not
include any division, branch or office of such firm, company or other
organisation with which Employee and/or any such employee had no dealings
during the said period;
<PAGE> 15
"PROSPECTIVE CUSTOMER" means any person, firm, company or
other organisation whatsoever with whom or which Employer shall have had
negotiations or discussions regarding the possible distribution, sale or
supply of Company Goods or Company Services during the 12 months
immediately preceding the Termination Date and with whom or which, during
such period:
(i) Employee shall have had material dealings in the
course of his employment by Employer; or
(ii) any employee who was under the direct or
indirect supervision of Employee shall have had
material dealings in the course of his
employment by the Company;
but in the case of a firm, company or other organisation shall not
include any division, branch or office of such firm, company or other
organisation with which Employee and/or any such employee had no dealings
during the said period;
"RESTRICTED AREA" means:
(i) Scotland and;
(ii) any other country in the world where, on the
Termination Date, Employer was engaged in the
research into, development, manufacture,
distribution, sale or supply or otherwise dealt
with Company Goods or Company Services;
"RESTRICTED GOODS" means any product of the same type or
materially similar to Company Goods;
"RESTRICTED SERVICES" means any services of the same type or
materially similar to Company Services;
"RESTRICTED PERIOD" means the period of 12 months immediately
following the Termination Date;
"SENIOR EMPLOYEE" means an employee of the Company who in the
opinion of the Company is a key employee to the Company and who earns a
salary of at least (pound)35,000 per annum at the Termination Date;
"TERMINATION DATE" means the date of termination of the
Employment.
B. RESTRICTIONS
<PAGE> 16
Employee hereby undertakes with Employer that he will not
either during the Employment nor during the Restricted
Period without the prior written consent of Employer whether
by himself, through his employees or agents or otherwise
howsoever and whether on his own behalf or on behalf of any
other person, firm, company or other organisation, directly
or indirectly:
(i) in competition with Employer within the Restricted
Area, be employed or engaged or otherwise interested
in the business of researching into, developing,
manufacturing, distributing, selling, supplying or
otherwise dealing with Restricted Goods or Restricted
Services;
(ii) in competition with Employer, in respect of
Restricted Goods or Restricted Services, solicit
business from or canvass any Customer or Prospective
Customer;
(iii) in competition with Employer, in respect of
Restricted Goods or Restricted Services, accept
orders from, or have any business dealings with, any
Customer or Prospective Customer;
(iv) solicit or induce or endeavor to solicit or induce
any person who, on the Termination Date, was a Senior
Employee of Employer with whom Employee had dealings
during the last 12 months of the Employment to cease
working for or providing services to Employer,
whether or not any such person would thereby commit a
breach of contract;
(v) employ or otherwise engage in the business of
researching into, developing, manufacturing,
distributing, selling, supplying or otherwise dealing
with Restricted Goods or Restricted Services any
person who, during the 12 months preceding the
Termination Date, was employed or otherwise engaged
by Employer and who by reason of such employment or
engagement is in possession of any trade secrets or
Confidential Information relating to the business of
Employer or who has acquired influence over its
Customers and Prospective Customers (defined in
clause 18A, but so that references to Employee shall
be replaced by references to the relevant employee).
C. LIMITATION OF SUSPENSION
If Employer exercises its right to suspend Employee's duties
and powers under clause 6 during any period after notice of
termination of the Employment has been given by Employer or
Employee, the aggregate of the period of the suspension and
the period after the
<PAGE> 17
Termination Date for the which the covenants in sub-clause 18B
shall apply shall not exceed 12 months and, if the aggregate
of the two periods would exceed 12 months, the period after
the Termination Date for which the covenants in sub-clause 18B
shall apply shall be reduced accordingly.
D. GROUP COMPANIES
Clause 18B shall also apply as though references to "Employer"
include references to each Group Company in relation to which
Employee has in the course of his duties for Employer or by
reason of rendering services to or holding office in such
Group Company:
(i) acquired knowledge of its trade secrets or Confidential
Information; or
(ii) had personal dealings with its Customers or Prospective
Customers; or
(iii) supervised directly or indirectly employees having
personal dealings with its Customers or Prospective
Customers,
but so that references in clause 18A to "Employer" shall for this
purpose be deemed to be references to the relevant Group Company. The
obligations undertaken by Employee pursuant to this clause 18D shall,
with respect to each such Group Company, constitute a separate and
distinct covenant and the invalidity or unenforceability of any such
covenant shall not affect the validity or enforceability of the
covenants in favour of any other Group Company or Employer.
E. ASSOCIATION
Employee hereby undertakes with Employer that he will not at
any time:
(i) during the continuance of the Employment or after the
Termination Date engage in any trade or business or
be associated with any other person, firm or company
engaged in any trade or business using the name(s)
Viragen or incorporating the word(s) Viragen;
(ii) after the termination of the Employment in the course
of carrying on any trade or business, claim,
represent or otherwise indicate any present
association with Employer or any Group Company or for
the purpose of carrying on or retaining any business
or custom, claim, represent or otherwise indicate any
<PAGE> 18
past association with Employer or any Group Company
to its detriment.
F. SEVERABILITY
The restrictions in this clause 18 (on which Employee has had
the opportunity to take independent advice, as Employee hereby
acknowledges) are separate and severable restrictions and are considered
by the parties to be reasonable in all the circumstances. It is agreed
that if any such restrictions, by themselves, or taken together, shall be
adjudged to go beyond what is reasonable in all the circumstances for the
protection of the legitimate interests of Employer or a Group Company but
would be adjudged reasonable if part or parts of the wording thereof were
deleted, the relevant restriction or restrictions shall apply with such
deletion(s) as may be necessary to make it or them valid and effective.
19. EMPLOYEE'S DISCLOSURES AND REPRESENTATIONS AND WARRANTIES
Employee hereby acknowledges, represents and warrants to, and/or
agrees with, Employer as follows:
(a) That Employee has full right, power and authority to perform all
obligations under this Agreement.
(b) Employee hereby agrees to indemnify and hold harmless Employer and
its shareholders, directors, officers, employees and agents from
and against any and all loss, damage, liability, cost or expense
(including reasonable legal fees and costs due to or arising out
of any material inaccuracy in, or material breach of, any material
representation, warranty or covenant of Employee contained herein.
<PAGE> 19
20. INDEPENDENT ADVICE
Employer and Employee agree that each of them have been, or were
advised and fully understand that they are entitled to be represented by
independent legal representation with respect to all matters contemplated
herein from the commencement of negotiations at all times through to the
execution hereof.
21. LAW APPLICABLE
This Agreement shall be governed by and construed in accordance
with the law of Scotland.
22. NOTICES
Any notice or other document to be given under this Agreement
shall be in writing and may be given personally to Employee or to the
Secretary of Employer (as the case may be) or may be sent by first class
post or other fast postal service or by facsimile transmission to, in the
case of Employer, its registered office for the time being and in the
case of Employee either to his address shown on the face hereof or to his
last known place of residence.
Any such notice shall be deemed served when in the ordinary course
of the means of transmission it would first be received by the addressee
in normal business hours.
23. COLLECTIVE AGREEMENTS
There are no collective agreements applicable to the Employment.
24. DATA PROTECTION
Employee acknowledges and agrees that Employer is permitted to
hold personal information about Employee as part of its personnel and
other business records and may use such information in the course of
Employee's business. Employee agrees that Employer may disclose such
information to third parties in the event that such disclosure is in
Employer's view required for the proper conduct of Employer's business or
that of any Group Company. This clause applies to information held used
or disclosed in any medium.
25. SUCCESSION
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors in interest of any
kind whatsoever; provided, however, that Employee acknowledges and agrees
that he cannot assign, delegate or transfer any of his rights, duties,
responsibilities or obligations hereunder to any other person or
entity.
<PAGE> 20
26. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
parties with respect to, and supersedes any and all prior agreements,
both oral and written, between the parties hereto, except as related to
rights of the Employee and his statutory waiver of claims on expiry of
this contract. This Agreement can only be amended in writing.
27. NO WAIVER
A waiver of any breach of any term, provision or covenant
contained herein shall not be deemed a continuing waiver or a waiver of
any future or past breach. No oral waiver shall be binding.
28. INDEMNITY OF EMPLOYEE
Employer shall indemnify and hold harmless Employee from and
against any and all claims, judgments, fines, penalties, liabilities,
losses, costs and expenses (including reasonable legal fees and costs)
asserted against or incurred by Employee as a result of acts or omissions
of Employee taken or made in the course of performing his duties for
Employer or by reason of Employee acting or having acted as a director or
officer of Employer, to the maximum extent permitted by law, (including
the advancement of expense provisions thereof); provided, however, that
such indemnity shall not apply to acts or omissions of Employee which
constitute misconduct, gross negligence or which were intended by
Employee to personally benefit Employee, directly or indirectly, at the
expense of Employer, unless the matter which benefits Employee was first
fully disclosed to the Board of Directors of Employer and approved by
said Board.
<PAGE> 21
IN WITNESS WHEREOF, these presents printed on this and the 16 preceding
pages are executed as follows:-
Signed for and on behalf of the said
Viragen (Scotland) Limited
At
On
Nineteen Hundred and Ninety Nine:-
Witness
------------------------ -------------------------------
Dennis W. Healey Director
Address
------------------------
------------------------
Occupation
------------------------
Signed by the said Dr. Donald Magnus Nicolson
At
On
Nineteen Hundred and Ninety Nine:-
Witness
------------------------ -------------------------------
Dr. Nicolson
Address
------------------------
------------------------
Occupation
------------------------
<PAGE> 22
EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 1, 1999 (the "Effective Date") between
Viragen, Inc. a Delaware Corporation (the "Company") and Dr. Donald Magnus
Nicolson ("Optionee").
The Company, pursuant to the provisions of its 1997 Stock Option Plan (the
"Plan"), hereby grants to Optionee an Incentive Stock Option ("ISO") to acquire
Common Stock, par value $.01 per share, of the Company (the "Common Stock"),
subject to the following terms and conditions:
1. GRANT OF OPTION. The Company hereby grants to Optionee (the
"Option") to purchase up to 200,000 shares of Common Stock (the "Shares"), to be
transferred upon the exercise thereof, fully paid and nonassessable.
2. EXERCISE PRICE. The exercise price of the Shares subject to the
Option shall be at market at the Grant Date, $0.625 per share. The Company shall
pay all original issue or transfer taxes upon the exercise of the Option by
Optionee.
3. EXERCISABILITY OF OPTION; RIGHTS AND PRIVILEGES. Subject to
the provisions of Paragraph 6 hereof, the Option shall be
exercisable by Optionee for a period of five (5) years
commencing:
i) one third on the Effective Date,
ii) one third on the first anniversary of the Effective
Date and,
iii) one third on the second anniversary of the Effective
Date.
All granted but unexercised Options shall continue to be fully exercisable in
accordance with the provisions herein:
(i) if there occurs any corporate transaction (which
shall include a series of corporate transactions occurring within 60 days or
occurring pursuant to a plan), that has the result that shareholders of the
Company immediately before such transaction cease to own at least 66 2/3 percent
of the voting stock of the Company in a (a) reorganization, (b) consolidation,
(c) merger, (d) liquidation or (e) a similar of corporate transaction;
(ii) if the shareholders of the Company shall approve
a plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
<PAGE> 23
(iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
4. NON-ASSIGNABILITY OF OPTION. The Option shall not be given, granted,
sold, exchanged, transferred, pledged, encumbered, assigned or otherwise
disposed of by Optionee, other than by will or the laws of descent and
distribution, and during the lifetime of Optionee, shall not be exercisable by
any other person, but only by Optionee.
5. METHOD OF EXERCISE OF OPTION. Optionee shall notify the Company by
written notice, in the form of the Notice of Exercise attached hereto
(Attachment A), delivered to the Company's principal office, attention: Chief
Financial Officer. At the Optionee's option, the payment for the Shares may be
made either by Optionee's check payable to the order to the Company in full
payment for the total exercise price of the number of Shares purchased or by
execution and delivery by the Optionee to the Company of a Note(s), in similar
form and content as Notes previously used by the Company for similar purposes
("Note(s)"), dated as of each Notice of Exercise. As soon as practicable after
the receipt of such Notice of Exercise and accompanying payment for the purchase
of Shares, the Company shall, at its principal office, tender to Optionee a
certificate or certificates issued in Optionee's name evidencing the Shares
purchased by Optionee hereunder.
6. TERMINATION OF OPTION. To the extent exercisable but not exercised,
the Option shall terminate upon the first to occur of the following dates:
(a) five (5) years from the Exercise Date as defined herein;
or
(b) the expiration of ninety (90) days following the date
Optionee's employment terminates with the Company and/or any of its subsidiaries
included in the Plan with Cause, as defined in Optionee's Employment Agreement
attached hereto.
Subject to the provisions of this paragraph, in the event of Optionee's death,
the exercisable but unexercised portion of the Option may be exercised by the
estate of Optionee, or by the person who acquired the right to exercise the
Option by bequest or inheritance or by reason of the death of Optionee.
In the event of Employee's termination without Cause, all granted but
unexercised Options shall continue to be fully exercisable in accordance with
the provisions herein. Additionally, in the event this Agreement is not renewed
at the end of the Employment Term, then all granted but unexercised Options
shall continue to be fully exercisable in accordance with the provisions herein.
7. PLEDGE OF SHARES. If payment for the purchase of Shares under this
Option is made through execution and delivery of a Note(s), effective upon
Optionee's purchase(s) of the Shares and the delivery of the Note(s), in order
to secure the Company's obligations under the Note(s), Optionee hereby pledges,
assigns and sets over
2
<PAGE> 24
to the Company, and grants to the Company a security interest in, the Shares.
The Shares pledged pursuant hereto shall be maintained in escrow with Atlas,
Pearlman, Trop & Borkson, P.A. pursuant to the terms of a Pledge and Escrow
Agreement previously used by the Company for similar purposes, which shall be
executed by Optionee and the Company upon delivery of a Note(s). As long as any
Shares remain subject to the lien of the Pledge, such Shares may not be further
pledged or encumbered in any manner, and shall not be sold, transferred or
otherwise disposed of. The Escrow Agent shall not be required to relinquish the
Pledge or the Escrow Agent's possession of the certificates evidencing the
Shares, unless no later than concurrently with the sale of the Shares pursuant
to an S-8 registration, all Notes which are secured by such Shares are paid in
full. In the event any of the Shares are to be titled in the name of an
immediate family member of Optionee or a trust pursuant to the terms herein, as
a condition thereto the designated title holder(s) of such Shares shall execute
and deliver to the Company a pledge and escrow agreement, in form and content
reasonably satisfactory to the Company and its counsel, consistent with the
terms herein. No transfer of Shares to, or designation by Optionee of (for the
purposes of owning Shares) any person or entity shall relieve Optionee of any of
his obligations under the Note(s) or this Agreement. With respect to each Note
under which a voluntary prepayment is made by Optionee, provided that interest
payments on such Note are current through the date of prepayment and such Note
is not in default and has not been accelerated, for each $6,250 of principal
paid by Optionee under such Note, 10,000 Shares of the Shares pledged to secure
such Note shall be released from the lien of the Pledge. As long as no event of
default has occurred with respect to a Note and no event giving right to
accelerate such Note has occurred, Optionee shall retain all voting rights with
respect to all Shares securing such Note. Following an event of default or an
acceleration event, the Company shall have and may exercise all voting rights
with respect to such Shares. Optionee hereby irrevocably appoints the Company
Optionee's attorney-in-fact for such purpose, it being acknowledged that such
appointment is coupled with an interest. Any dividends or distributions payable
in respect of any Shares subject to the Pledge shall automatically be applied to
pay down the Note(s) in inverse order of their respective maturity date(s). In
the event of a default under any Note, in addition to and not in limitation or
lieu of any other rights or remedies the Company may have against Optionee as a
result of such default, the Company may exercise all of its rights at law and in
equity as a secured party, including without limitation under the Uniform
Commercial Code, with respect to all Shares then securing the Note with respect
to which the default has occurred. Upon a default, without limiting any of the
Company's other rights and remedies, the Company may conduct a public or private
foreclosure sale of the Shares securing the Note with respect to which the
default has occurred. Optionee agrees that 10 days notice to him of any private
sale is fair and reasonable. The Company may be the purchaser at any public
foreclosure sale, and may bid any commercially reasonable amount at such sale.
In all events, in the event of a public or private foreclosure sale, Optionee
shall be liable for any deficiency. All of the Company's rights and remedies
under the Note(s), the Pledge and this Agreement, and at law or in equity, are
cumulative, and none is intended to be in substitution or in lieu of, nor is the
exercise of one intended to be a waiver of, any other. The Company shall have no
obligation to proceed against the Shares before proceeding against Optionee with
respect to any default under any of the Notes.
3
<PAGE> 25
8. SECURITIES LAWS. Employer represents and warrants that (i) all
shares underlying the Options will be issued from shares authorized by and
subject to the provisions of the Plan; (ii) the Plan and the shares underlying
the Options shall be registered under the applicable regulations of the
Securities and Exchange Commission on Form S-8; and (iii) such registration
covering the shares underlying the Options will be maintained as effective for
the longer of (a) the Employment Term or (b) the Exercise Period of the Options
as defined herein.
9. ADJUSTMENT OF SHARES. If at any time prior to the expiration or
exercise in full of the Option, there shall be any increase or decrease in the
number of issued and outstanding shares of the Common Stock through the
declaration of a stock dividend or through any recapitalization resulting in a
stock split-up, combination or exchange of the Common Stock, then and in such
event:
(i) appropriate adjustment shall be made in the maximum number
of Shares available for grant, so that the same percentage of the Company's
issued and outstanding Shares shall continue to be subject to being so optioned;
and
(ii) appropriate adjustment shall be made in the number of
Shares, and the exercise price per Share thereof, that remain unexercised under
the Option, so that the same percentage of the Company's issued and outstanding
shares of Common Stock shall remain subject to purchase at the same aggregate
exercise price.
Except as otherwise expressly provided herein, the issuance by the Company of
shares of its capital stock of any class, or securities convertible into shares
of capital stock of any class, either in connection with a direct sale of upon
the exercise of rights or warrants to subscribe therefore, or upon conversions
of shares or obligations the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of exercise price of the Shares that remain
unexercised under the Option.
Without limiting the generality of the foregoing, the existence of unexercised
Shares under the Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business; (ii) any merger or consolidation of the Company;
(iii) any issue by the Company of debt securities, or preferred or preference
stock that would rank above the Shares issuable upon exercise of the Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer or
assignment of all or any part of the assets or business of the Company; or (vi)
any other corporate act or proceeding, whether of a similar character or
otherwise.
10. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder of the Company in respect of the Shares as to which the Option shall
not have been exercised and payments made therefore as herein provided.
4
<PAGE> 26
11. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
heirs, legal representatives, successors and permitted assigns. Optionee
acknowledges that Optionee has read and understands the Plan and agrees to abide
by its terms.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflict of laws principles thereof. All terms not defined in this Agreement
shall have the same meaning as in the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
VIRAGEN, INC.
By:
----------------------------
Dennis W. Healey
Executive Vice President
OPTIONEE
----------------------------
Dr. Donald Magnus Nicolson
5
<PAGE> 27
ATTACHMENT A
------------
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the within Option to the
extent of purchasing __________ shares of Common Stock of Viragen, Inc., a
Delaware Corporation, and hereby makes payments of $________ in payment
therefor.
--------------------------
Signature
--------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK AND CORPORATE RECORDS
--------------------------------------------------------
Name:
---------------------------------------------
(Please type or print in block letters)
Address:
---------------------------------------------
---------------------------------------------
Social Security #:
--------------------------------------------
Phone #: ( )
-------------------------------------------------------
Fax #: ( )
-------------------------------------------------------
6
<PAGE> 1
EXHIBIT 10.LXXVIII
PROMISSORY NOTE
---------------
$600,000.00 Fort Lauderdale, Florida
August 10, 1999
FOR VALUE RECEIVED, the undersigned, VIRAGEN, INC., A DELAWARE
CORPORATION (the "Maker"), promises to pay to the order of EQUITABLE BANK, a
state banking institution, its successors and/or assigns (collectively
"Lender"), the principal sum of Six Hundred Thousand and 00/100 Dollars
($600,000.00) with interest thereon from the date funds are advanced hereunder
(the "Loan") at a floating rate of interest equal to one percent (1%) over the
Wall Street Journal Prime Rate per annum, with the floating interest rate under
this Note to be adjusted on a daily basis. (Prime Rate shall mean, at any time,
the rate of interest quoted in the Wall Street Journal, Money Rates Section as
the "Prime Rate" (currently defined as the base rate on corporate loans posted
by at least seventy-five percent (75%) of the nation's thirty (30) largest
banks), with the Prime Rate in effect on the first day of a month being
applicable to the entire month. In the event that the Wall Street Journal quotes
more than one rate, or a range of rates as the Prime Rate, then the Prime Rate
shall mean the average of the quoted rates. In the event that the Wall Street
Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average
of the three (3) largest U.S. money center commercial banks, as determined by
Lender. Interest shall be computed on the basis of a 360-day year and based upon
the actual number of days. The Loan shall have a term of one (1) year.
Principal and interest shall be due and payable as follows:
Payments of interest only shall be due and payable in twelve (12)
consecutive monthly installments, commencing on September 10, 1999 and
continuing on the tenth (10th) day of each month thereafter. All
remaining unpaid principal and interest thereon and all other amounts
owing under this Note, the Mortgage (as hereinafter defined), and all
other applicable agreements shall be due and payable in full on August
10, 2000 (the "Maturity Date").
All installments of principal and/or interest are payable at the
offices of Lender, or at such other place as Lender hereof may, from time to
time, designate in writing, in lawful money of the United States of America,
which shall be in legal tender for public and private debts at the time of
payment.
If default is made in the payment of any part of the principal of or
interest due under the terms of this Note or in the performance of any agreement
or covenant contained in the Mortgage or any other instrument evidencing or
securing payment hereof when due, then this Note shall be in default and the
entire principal sum and accrued interest shall become due and payable at once
without notice and demand at the option of Lender. While in default, the
principal of this Note shall bear interest at a rate equal to the maximum rate
permissible under Florida law (the "Default Rate").
In addition to the above, Lender may collect a late charge not to
exceed an amount equal to five percent (5%) of any installment which is not paid
within ten (10) days of the due date thereof to cover the extra expense involved
in handling delinquent payments, provided that collection of said late charge
shall not be deemed a waiver by Lender of any of its other rights under this
Note, the Mortgage or any other instrument given to secure this indebtedness.
This Note may be prepaid in whole or in part without penalty. Partial
payment shall not relieve Maker of the obligation of paying all monthly payments
as they become due thereafter, until all amounts due and payable under this Note
and all other Loan Documents (as hereinafter defined) have been paid in full.
All payments shall be applied when received first, to the payment of
all costs and expenses of Lender in enforcing this Note and any other Loan
Document, including attorneys fees, and any other costs and expenses of Lender
incurred pursuant to any of the Loan Documents, second, to the payment of
interest on the principal balance of this Note from time to time remaining
unpaid, and third, to reduce the principal balance of this Note.
It is agreed that each maker and endorser, jointly and severally, shall
pay all costs of collection, including reasonable attorneys' fees, on failure to
pay any principal or interest when due on this Note. Such
<PAGE> 2
costs and attorneys' fees shall include, but not be limited to, reasonable
attorneys' fees and paralegal fees incurred by Lender hereof in any and all
judicial proceedings, including appellate proceedings, arising out of
enforcement and/or collateral securing this indebtedness, whether such
proceedings arise before or after entry of final judgment. Notwithstanding the
existence of Florida Statute Section 57.105(2) or any statute of a like or
similar nature, Maker hereby waives any right to any attorneys' fees thereunder
and agrees that Lender exclusively shall be entitled to indemnification and
recovery of any and all attorneys' fees in respect of any litigation based
hereon, or arising out of, or related hereto whether, under or in connection
with this Note and/or any agreement contemplated to be executed in conjunction
herewith, or any course of conduct, course of dealing, statements (whether
verbal or written) or actions of any party.
In case any provision (or any part of any provision) contained in this
Note shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or enforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note, but
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein, but only to the
extent it is invalid, illegal or unenforceable.
Notwithstanding any provision of this Note and/or any instrument
securing payment of this Note to the contrary, it is the intent of the
undersigned Maker and Lender that Lender hereof shall never be entitled to
receive, collect or apply as interest on principal of the indebtedness any
amount in excess of the maximum rate of interest permitted to be charged by
applicable law; and in the event Lender ever receives, collects, or applies as
interest any such excess, such amount which should be excessive interest shall
be deemed a partial prepayment of principal and treated hereunder as such; and,
if the principal of the indebtedness secured hereby is paid in full, any
remaining excess funds shall forthwith be paid to Maker. In determining whether
or not the interest paid or payable under any specific contingency exceeds the
highest lawful rate, Maker and Lender shall, to the maximum extent permitted
under applicable law, (a) characterize any non-principal payment as an expense,
fee or premium rather than as interest, (b) exclude voluntary prepayments and
the effects thereof, and (c) amortize, prorate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the indebtedness so that the interest rate is uniform throughout the entire term
of the indebtedness; provided that if the indebtedness is paid and performed in
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the maximum lawful
rate, Lender shall refund to Maker the amount of such excess or credit the
amount of such excess against the principal portion of the indebtedness, and in
such event, Lender shall not be subject to any penalties provided by any laws
for contracting for, charging, or receiving interest in excess of the maximum
lawful rate. In no contingency or event whatsoever shall the amount paid or
agreed to be paid to Lender for the use, forbearance or detention of the
indebtedness collateralized hereby exceed the maximum amount permissible under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or any provision of any instrument securing the primary
obligation at the time performance of such provision shall be due shall involve
transcending the limit of validity prescribed by applicable law, then, IPSO
FACTO, the obligation to be fulfilled shall be reduced to the limit of such
validity. This provision shall control every other provision of this Note.
Maker, and each surety, endorser, guarantor and other party liable for
the payment of any sums of money payable on this Note, severally waive the right
of exemption under the Constitution and Laws of Florida, presentment and demand
for payment, protest and notice of protest and nonpayment, notice of dishonor,
notice of demand or intent to demand, notice of maturity and all requirements
necessary to hold each of them liable as maker, surety, endorser, guarantor and
any other party liable for the payment of sums of money hereunder, and agree
that their liability on this Note shall not be affected by any renewal or
extension in the time of payment thereof or by any release or change in any
security for the payment of this Note, regardless of the number of such
renewals, extensions, releases or changes.
Maker and Lender mutually understand, covenant and agree that the
provisions of this Note (i) shall be binding upon Maker and its successors and
assigns (except as herein otherwise set forth) and shall inure to the benefit of
Lender and its successors and assigns including any subsequent holder of this
Note and (ii) shall be construed, governed and enforced in all respects by the
laws of the State of Florida, including the usury laws of said state.
Time shall be of the essence of each and every covenant and promise
contained in this Note and every other instrument securing the repayment of this
Note.
2
<PAGE> 3
This Note is secured by a Mortgage and Security Agreement of even date
herewith (the "Mortgage") and Assignment of Leases and Rents of even date (the
"Assignment") upon real and personal property located in Miami-Dade County,
Florida, (the "Property") and is to be construed according to the laws of
Florida. Any default occurring under the Mortgage, the Assignment or any other
instrument given to secure this indebtedness or evidence the loan transaction
between Maker and Lender (collectively, the "Loan Documents") shall constitute a
default under this Note, and Lender, at its option, may declare this Note due
and payable in full.
Maker hereby submits to the jurisdiction of the courts of the State of
Florida in the event any litigation arising from or related to this Note or the
Mortgage is commenced. Maker agrees that Lender may institute any cause of
action against Maker involving this Note or the Mortgage in the courts of
Broward County, Florida, and hereby waives any venue privilege or right to be
sued in any other forum.
LENDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE MORTGAGE,
OR ANY AGREEMENT OR DOCUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (VERBAL OR WRITTEN) OR ACTIONS OF MAKER
OR LENDER. MAKER ACKNOWLEDGES THAT THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
TO LENDER TO MAKE THE LOAN EVIDENCED BY THIS NOTE.
DOCUMENTARY STAMP TAX IN THE AMOUNT OF $2,100.00 HAS BEEN PAID.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Note the day and year first hereinabove provided.
VIRAGEN, INC.
By:
-------------------------------------------
Dennis W. Healey, Executive Vice President
Mailing Address: 865 Southwest 78th Avenue #100
Plantation, FL 33324
STATE OF FLORIDA )
) ss:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this ____ day of
August, 1999, by Dennis W. Healey, as Executive Vice President of VIRAGEN, INC.,
who is personally known to me or has produced a Florida driver's license or
_____________________ as identification.
------------------------------------------
Notary Public, State of Florida
My Commission Expires
3
<PAGE> 4
PREPARED BY AND RETURN TO:
TRIPP SCOTT, P.A.
Steven C. Elkin, Esq.
110 SE Sixth Street, 15th Floor
Fort Lauderdale, Florida 33301
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT is executed effective the
____ day of August, 1999 by and between VIRAGEN, INC., A DELAWARE CORPORATION
(hereinafter referred to as the "Mortgagor"), whose mailing address is 865
Southwest 78th Avenue, #100, Plantation, Florida 33324, and EQUITABLE BANK, a
state banking institution (hereinafter referred to as the "Mortgagee"), whose
mailing address is 633 South Federal Highway, Fort Lauderdale, Florida 33301.
W I T N E S S E T H:
That for diverse, good and valuable considerations and to
secure the payment of an indebtedness in the aggregate sum of SIX HUNDRED
THOUSAND AND 00/100 DOLLARS ($600,000.00) or so much thereof as may be advanced,
to be paid in accordance with a promissory note of even date herewith, as such
promissory note may hereafter be amended, consolidated, renewed or restated
(hereinafter referred to as the"Note") together with interest thereon and any
and all sums due or which may become due from the Mortgagor to the Mortgagee,
which Note provides that the final installment of principal and interest shall
be due and payable not later than August ___, 2000. The Mortgagor does grant,
bargain, sell, alien, remise, release, convey and confirm unto the Mortgagee,
its successors and assigns, in fee simple, all of that certain tract of land of
which the Mortgagor is now seized and possessed and in actual possession,
situate in the County of Miami-Dade, State of Florida, which is more fully
described in EXHIBIT "1" attached hereto and made a part hereof, together with
the buildings and improvements thereon erected or to be erected (hereinafter
referred to as the "Premises");
TOGETHER with all leasehold estate, right, title and interest
of the Mortgagor in and to all leases or subleases covering the Premises or any
portion thereof now or hereafter existing or entered into, and all right, title
and interest of the Mortgagor thereunder, including, without limitation, all
cash or security deposits, advance rentals, and deposits or payments of similar
nature;
TOGETHER with all right, title and interest of the Mortgagor
in and to all options to purchase or lease the Premises or any portion thereof
or interest therein, and any greater estate in the Premises owned or hereafter
acquired;
TOGETHER with all interests, estate or other claims, both in
law and in equity which the Mortgagor now has or may hereafter acquire in the
Premises;
TOGETHER with all easements, rights-of-way and rights used in
connection therewith or as a means of access thereto, and all tenements,
hereditaments and appurtenances thereof and thereto, and all water rights;
<PAGE> 5
TOGETHER with any and all buildings, structures and
improvements now or hereafter erected thereon, and all machinery, apparatus,
equipment, fittings, fixtures, whether actually or constructively attached to
the Premises and including all trade, domestic and ornamental fixtures, and
articles of personal property of every kind and nature whatsoever now or
hereafter located in, upon, above or under the Premises or any part thereof and
used or useable in connection with any present or future operation of the
Premises (hereafter collectively called "Improvements" or "Personal Property"),
including, but not limiting the generality of the foregoing, all elevator,
escalator, heating, irrigation, lighting, laundry, incinerating, dynamo,
electrical, electronic, and generating systems and equipment; all engines,
pipes, pumps, tanks, motors, conduits; all telephones and telephone systems,
switches, computerized processors and switchboards; all plumbing and plumbing
fixtures; all lifting, cleaning, fire prevention, fire extinguishing,
refrigerating, ventilating and communications systems, appliances and apparatus;
all boilers, stoves, ranges, furnaces, oil burners or units thereof; all air
conditioning and air cooling systems and apparatus; and control systems for any
of the foregoing and all other appliances, furniture and furnishings; in any of
which foregoing equipment Mortgagor now has or may at any time hereafter acquire
any rights of any kind whatsoever, to the full extent of the value of such
Equipment, together with all additions thereto, replacements thereof and all
proceeds of the foregoing personal property. (Mortgagor hereby agreeing with
respect to all additions and replacements, to execute and deliver form time to
time such further instruments as may be requested by Mortgagee to confirm the
conveyance, mortgage, transfer and assignment of any of the foregoing.);
TOGETHER with all right, title and interest of the Mortgagor
in and to any streets and roads abutting said Premises to the center lines
thereof and in and to any strips or gores of land therein;
Whenever requested by the Mortgagee, the Mortgagor will execute and
record at the Mortgagor's expense such financing statements and other
instruments as the Mortgagee may reasonably require in order to insure that all
Personal Property now or hereafter owned by the Mortgagor and used in connection
with the operation of the Premises covered hereby shall be subject to the lien
created by this Mortgage and shall be security for the payment of the Note as
herein provided. The Mortgagor shall have the right hereunder and under said
financing statements or other chattel instruments to replace fixtures or
appliances from time to time with similar items of equal value, provided the
replacements are free of any outstanding ownership interest, financing
statements or encumbrances of any kind in favor of anyone other than the
Mortgagee. In the event the Mortgagor shall fail to execute and record chattel
instruments as required herein within ten (10) days after written request by the
Mortgagee, then the Mortgagor hereby irrevocably appoints the Mortgagee its
attorney-in-fact to execute and deliver such financing statements or other
instruments in the name of, and on behalf of, the Mortgagor;
TOGETHER with all awards and proceeds of condemnation for the
Premises or any part thereof to which the Mortgagor is entitled for any taking
of all or any part of the Premises by condemnation or exercise of the right of
eminent domain. All such awards and condemnation proceeds are hereby assigned to
the Mortgagee, and the Mortgagee is hereby authorized, subject to the provisions
contained in this Mortgage, to apply such awards and condemnation proceeds or
any part thereof, after deducting therefrom any expenses incurred by the
Mortgagee in the collection or handling thereof, toward the payment, in full or
in part, of the Note secured by this Mortgage, notwithstanding the fact that the
amount owing thereon may not then be due and payable;
TOGETHER with all rents, issues and profits of the Premises
and all the estate, right, title and interest of every nature whatsoever of the
Mortgagor in and to the same. The Mortgagor shall execute evidences of such
assignment and such further evidences of such assignment as the Mortgagee may
from time to time reasonably request, which evidences shall include, but not be
limited to, such assignments of rents, issues and profits, in reasonable form,
as the Mortgagee may from time to time request. The Mortgagor shall pay the cost
of recording any such assignments. The Mortgagee is authorized to notify any or
all lessees, tenants or occupants of all or part of said Premises of the
assignment of rents, issues or profits made hereunder or under any such special
assignments. The Mortgagee shall have no personal liability for the performance
of the Mortgagor's covenants under any of said leases either as a result of said
general assignment or any special assignment or as the result of the Mortgagee
taking possession of the Premises or a part thereof for default as hereinafter
provided. The Mortgagee shall not be liable to the Mortgagor for any action
taken or omitted in connection with any such leases or rentals or the operation
of said Premises.
2
<PAGE> 6
Until the occurrence of a default as hereinafter provided, the
Mortgagor may use and occupy the Premises and receive all rents, issues and
profits thereof.
All of the foregoing property, rights, privileges and
franchises are collectively referred to as the "Mortgaged Property".
TO HAVE AND TO HOLD all and singular Premises hereby conveyed,
the tenements, hereditaments and appurtenances thereunto belonging or in anywise
appertaining and the reversion and reversions, remainder and remainders, rents,
issues and profits thereof and also all the estate, right, title, interest,
property, possession, claim and demand whatsoever as well in law as in equity of
the said Mortgagor in and to the same and every part and parcel thereof unto the
said Mortgagee in fee simple.
PROVIDED ALWAYS, that if the Mortgagor shall pay unto the
Mortgagee any and all indebtedness due by the Mortgagor to the Mortgagee,
including the indebtedness evidenced by the Note including any and all renewals
of the same, and shall perform, comply with and abide by each and every
stipulation, agreement, condition and covenant of the Note and of this Mortgage,
then this Mortgage and the estate hereby created shall cease and be null and
void. Provided, it is further covenanted and agreed by the parties hereto that
this Mortgage also secures the payment of and includes all future or further
advances as shall be made by the Mortgagee herein, or its successors or assigns
to or for the benefit of the Mortgagor, or its heirs, personal representatives,
or assigns within twenty (20) years from the date hereof (except as qualified in
Section 5.10 below) to the same extent as if such future advances were made on
the date of the execution of this Mortgage; provided, however, that the unpaid
balance so secured by this Mortgage at any one time shall not exceed twice the
amount of the indebtedness stated on page 1 of this Mortgage plus interest
thereon; and plus any disbursements made by the Mortgagee for the payment of
taxes, levies and insurance premiums on the said Premises, together with
interest thereon.
To protect the security of this Mortgage, the Mortgagor
further covenants, warrants and agrees with the Mortgagee as follows:
ARTICLE I
COVENANTS AND AGREEMENTS OF MORTGAGOR
1.01 PAYMENT OF SECURED OBLIGATIONS. Mortgagor shall pay when
due the principal of, and the interest on, the indebtedness evidenced by the
Note, charges, fees and the principal of, and interest on, any future advances
secured by this Mortgage and shall otherwise comply with all the terms of the
Note, this Mortgage and all other documents executed by Mortgagor in connection
with the Note.
1.02 WARRANTIES AND REPRESENTATIONS. The Mortgagor hereby
covenants with the Mortgagee that the Mortgagor is indefeasibly seized of the
Premises in fee simple; that the Mortgagor has full power and lawful right to
convey the same in fee simple as aforesaid; that it shall be lawful for said
Mortgagee at all times peaceably and quietly to enter upon, hold, occupy and
enjoy said Premises and every part thereof; that said Mortgagor will make such
further assurances to perfect the fee simple title to said Premises in the
Mortgagee, as may reasonably be required; and that the Mortgagor does hereby
fully warrant the title to said Premises and every part thereof and will defend
the same against the lawful claims of all persons whomsoever, subject only to
those matters shown as exceptions in the title insurance policy being delivered
to the Mortgagee simultaneously herewith. The Mortgagor warrants further that
the Improvements have been constructed in compliance with all applicable zoning
and building regulations and in compliance with environmental protection laws
and regulations.
1.03 GROUND LEASES, LEASES OR SUBLEASES. The Mortgagor will,
at the Mortgagor's sole cost and expense, maintain or cause to be performed all
of the covenants, agreements, terms, conditions and provisions on its part to be
kept, observed and performed under any ground lease, lease, or sublease which
may constitute a portion of or an interest in the Premises, shall require its
tenants or subtenants to keep, observe and perform all of the covenants,
agreements, terms, conditions and provisions on their part to be kept, observed
or performed under any and all ground leases, leases or subleases; and shall not
suffer or permit any breach or default to occur with respect to the foregoing;
and in default thereof the Mortgagee shall have the right to perform or to
require performance of any such covenants, agreements, terms, conditions or
provisions of any such ground lease, lease or sublease, and to add any expense
incurred in
3
<PAGE> 7
connection therewith to the debt secured hereby, which such expense shall bear
interest from the date of payment to the date of recovery by the Mortgagee at a
rate of interest which is the maximum permitted by Florida law. Any such payment
by the Mortgagee with interest thereon shall be immediately due and payable. The
Mortgagor will not, without the consent of the Mortgagee, consent to the
modification, amendment, cancellation, termination or surrender of any such
ground lease, lease or sublease.
No release or forbearance of any of the Mortgagor's
obligations under any such ground lease, lease or sublease, pursuant to any such
ground lease, lease or sublease, or otherwise, shall release the Mortgagor from
any of its obligations under this Mortgage.
1.04 REQUIRED INSURANCE. The Mortgagor will at all times while
this Mortgage is in effect, at the Mortgagor's sole cost and expense, maintain
or cause to be maintained with respect to the Mortgaged Property and each part
thereof, the following insurance:
(a) So long as any Improvements are located upon the
Premises, Insurance against risks customarily covered by insurance of the type
known as "all risks fire and extended coverage", including, but not limited to,
loss by fire, windstorm, hail, earthquakes, boiler, machinery, explosion, riot,
aircraft, smoke, vandalism, malicious mischief, and vehicle damage, in an amount
not less than the greater of the full one hundred percent (100%) replacement
cost of the Improvements or the face amount of the Note. The policy or policies
shall contain a standard mortgagee clause showing the Mortgagee as the loss
payee.
(b) If at any time during the term of this Mortgage
or any extension, or renewal thereof the Premises are designated a flood prone
or flood risk area pursuant to the Flood Disaster Protection Act of 1973, as
amended or supplemented, and any Improvements are located upon the Premises, the
Mortgagor shall maintain flood insurance as required by the Mortgagee.
(c) Comprehensive public liability insurance
(including coverage for elevators and escalators, if any, on the Premises and,
if any construction of new Improvements occurs after execution of this Mortgage,
completed operations coverage for two (2) years after construction of the
Improvements has been completed) on an "occurrence basis" against claims for
"personal injury" including without limitation bodily injury, death or property
damage occurring on, in or about the Premises and the adjoining streets,
sidewalks and passageways, plus loss of rents coverage, such insurance to afford
immediate minimum protection to a limit of not less than One Million and 00/100
Dollars ($1,000,000.00), or in such greater amount as the Mortgagee may
reasonably require. The policy shall include the Mortgagee as a named insured.
(d) During the course of any construction or repair
of Improvements on the Premises:
(i) Worker's compensation insurance
(including employer's liability insurance, if requested by the Mortgagee) for
all employees of the Mortgagor engaged on or with respect to the Premises in
such amount as is reasonably satisfactory to the Mortgagee, or, if such limits
are established by law, in such amounts; and
(ii) Builder's completed value risk
insurance against "all risks of physical loss", including collapse and transit
coverage, during construction of such Improvements, with deductibles not to
exceed One Thousand and 00/100 Dollars ($1,000.00), in non-reporting form,
covering the total value of work performed and equipment, supplies and materials
furnished. Said policy of insurance shall contain the "permission to occupy upon
completion of work or occupancy" endorsement.
(e) Such other insurance, and in such amounts, as may
from time to time be required by the Mortgagee against the same or other
hazards.
The Mortgagor may effect for its own account any insurance not
required under this Section 1.04, but any such insurance effected by the
Mortgagor on the Premises, whether or not so required, shall be for the mutual
benefit of the Mortgagor and the Mortgagee and shall be subject to the other
provisions of this Mortgage.
4
<PAGE> 8
1.05 DELIVERY OF POLICIES, PAYMENT OF PREMIUMS. All policies
of insurance shall be issued by companies and in amounts in each company
satisfactory to the Mortgagee. All policies must have no less than a Best's
Class A XII category designation. All policies of insurance shall have attached
thereto a lender's loss payment endorsement and a waiver of subrogation rights,
both for the benefit of the Mortgagee in form satisfactory to the Mortgagee. The
Mortgagee consents to the Mortgagor providing any of the required insurance
through blanket policies carried by the Mortgagor and covering more than one
location. The Mortgagor shall furnish the Mortgagee with a certificate of
insurance for each such policy setting forth the coverage, the limits of
liability, the name of the carrier, the policy number, and the expiration date.
At least thirty (30) days prior to the expiration of each such policy, the
Mortgagor shall furnish the Mortgagee with evidence satisfactory to the
Mortgagee of the payment of the premium and the reissuance of a policy
continuing insurance in force as required by this Mortgage. All such policies
shall contain the New York standard mortgagee clause and a provision that such
policies will not be cancelled, allowed to expire or materially amended, which
term shall include any reduction in the scope or limits of coverage, without at
least thirty (30) days prior written notice to the Mortgagee. In the event the
Mortgagor fails to provide, maintain, keep in force or deliver and furnish to
the Mortgagee the policies of insurance or certificates thereof, as required by
this Section, the Mortgagee may procure such insurance or single-interest
insurance for such risks covering the Mortgagee's interest, and the Mortgagor
will pay all premiums thereon promptly upon demand by the Mortgagee, and until
such payment is made by the Mortgagor the amount of all such premiums together
with interest thereon at the Default Rate (as that term is defined in the Note)
shall be secured by this Mortgage. In the alternative to demanding payment of
such insurance premiums, the Mortgagee may add the amount of such insurance
premiums to the outstanding principal balance of the Note and secured by this
Mortgage.
1.06 INSURANCE PROCEEDS. That after the happening of any
casualty to the Premises or any part thereof, the Mortgagor shall give prompt
written notice thereof to the Mortgagee.
(a) In the event of any damage or destruction of the
Improvements, the Mortgagee shall have the option in its sole discretion of
applying or paying all or part of the insurance proceeds (i) to any indebtedness
secured hereby and in such order as the Mortgagee may determine, or (ii) to any
restoration of the Improvements, or (iii) to the Mortgagor.
(b) In the event of such loss or damage, all proceeds
of insurance shall be payable to the Mortgagee, and the Mortgagor hereby
authorizes and directs any affected insurance company to make payment of such
proceeds directly to the Mortgagee. The Mortgagee is hereby authorized and
empowered by the Mortgagor to settle, adjust or compromise any claims for loss,
damage or destruction under any policy or policies of insurance.
(c) Nothing herein contained shall be deemed to
excuse the Mortgagor from repairing or maintaining the Premises as provided in
this Mortgage or restoring all damage or destruction to the Premises, regardless
of whether or not there are insurance proceeds available or whether any such
proceeds are sufficient in amount, and the application or release by the
Mortgagee of any insurance proceeds shall not cure or waive any default or
notice of default under this Mortgage or invalidate any act done pursuant to
such notice.
1.07 ASSIGNMENT OF POLICIES UPON FORECLOSURE. In the event of
foreclosure of this Mortgage or other transfer of title or assignment of the
Premises in extinguishment, in whole or in part, of the debt secured hereby all
right, title and interest of the Mortgagor in and to all policies of insurance
required by this Section shall inure to the benefit of and pass to the successor
in interest to the Mortgagor or the purchaser or grantee of the Premises. The
Mortgagor hereby appoints the Mortgagee its attorney-in-fact to endorse any
checks, drafts or other instruments representing any proceeds of such insurance,
whether payable by reason of loss thereunder or otherwise.
1.08 INDEMNIFICATION; SUBROGATION; WAIVER OF OFFSET.
(a) If the Mortgagee is made a party defendant to any
litigation concerning this Mortgage or the Premises or any part thereof or
interest therein, or the occupancy thereof by the Mortgagor,
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then the Mortgagor shall indemnify, defend and hold the Mortgagee harmless from
all liability by reason of said litigation, including reasonable attorneys' fees
and expenses incurred by the Mortgagee in any such litigation, whether or not
any such litigation is prosecuted to judgment. If the Mortgagee commences an
action against the Mortgagor to enforce any of the terms hereof or because of
the breach by the Mortgagor of any of the terms hereof, or for the recovery of
any sum secured hereby, the Mortgagor shall pay to the Mortgagee reasonable
attorneys' fees and expenses, and the right to such reasonable attorneys' fees
and expenses shall be deemed to have accrued on the commencement of such action,
and shall be enforceable whether or not such action is prosecuted to judgment.
If the Mortgagor breaches any term of this Mortgage, the Mortgagee may employ an
attorney or attorneys to protect its rights hereunder, and in the event of such
employment following any breach by the Mortgagor, the Mortgagor shall pay the
Mortgagee's reasonable attorneys' fees and expenses incurred by the Mortgagee,
whether or not an action is actually commenced against the Mortgagor by reason
of breach. Notwithstanding the existence of Florida Statute 57.105(2) or any
statute of a like or similar nature, the Mortgagor hereby waives any right to
any attorneys' fees thereunder and the Mortgagor agrees that the Mortgagee
exclusively shall be entitled to indemnification and recovery of any and all
attorneys' fees arising out of or related to this Mortgage and/or any agreement
contemplated to be executed in conjunction herewith.
(b) The Mortgagor waives any and all right to claim or recover
against the Mortgagee, its officers, employees, agents and representatives, for
loss of or damage to the Mortgagor, the Premises, the Mortgagor's property or
the property of others under the Mortgagor's control from any cause insured
against or required to be insured against by the provisions of this Mortgage.
(c) All sums payable by the Mortgagor hereunder shall be paid
without notice, demand, counterclaim, set off, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of the Mortgagor hereunder shall in no way be released or
discharged (except as expressly provided herein) by reason of: (i) any damage to
or destruction of or any condemnation or similar taking of the Premises or any
part thereof; (ii) any restriction or prevention of or interference with any use
of the Premises or any part thereof; (iii) any title defect or encumbrance or
any eviction from the Premises or the Improvements or any part thereof by title
paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to the Mortgagee, or any action taken with respect to this Mortgage by
any trustee or receiver of the Mortgagee, or by any court, in any such
proceeding.
1.09 TAXES, UTILITIES AND IMPOSITIONS. The Mortgagor will
pay, or cause to be paid and discharged, on or before the last day on which they
may be paid without penalty or interest, all such duties, taxes, sewer rents,
charges for water, or for setting or repairing meters, and all other utilities
in the Improvements or on the Premises or any part thereof, or any assessments
and payments, usual or unusual, extraordinary or ordinary, which shall be
imposed upon or become due and payable or become a lien upon the Premises or any
part thereof and the sidewalks or streets in front thereof and any vaults
therein by virtue of any present or future law of the United States or of the
State, County or City wherein the Premises are located (all of the foregoing
being herein collectively called "Impositions"). In default of any such payment
of any Imposition, the Mortgagee may pay the same and the amount so paid by the
Mortgagee shall, at the Mortgagee's option, either (i) become immediately due
and payable with interest at the maximum rate permitted by Florida law or (ii)
be added to the outstanding principal balance of the loan evidenced by the Note,
and in either case, shall be deemed part of the indebtedness secured by this
Mortgage.
If at any time there shall be assessed or imposed (i) a tax or
assessment on the Premises in lieu of or in addition to the Impositions payable
by the Mortgagor pursuant to this Section or (ii) a license fee, tax or
assessment imposed on the Mortgagee and measured by or based in whole or in part
upon the amount of the outstanding obligations secured hereby, then all such
taxes, assessments or fees shall be deemed to be included within the term
"Impositions" as defined in this Section, and the Mortgagor shall pay and
discharge the same as herein provided with respect to the payment of Impositions
or, at the option of the Mortgagee, all obligations secured hereby together with
all accrued interest thereon, shall immediately become due and payable. Anything
to the contrary herein notwithstanding, the Mortgagor shall have no obligation
to pay any franchise, estate, inheritance, income, excess profits or similar tax
levied on the Mortgagee or on the obligations secured hereby.
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The Mortgagor will pay all mortgage recording taxes payable
with respect to this Mortgage or other mortgage or transfer taxes due on account
of this Mortgage or the Note secured hereby.
The Mortgagor covenants to pay and hereby indemnifies the
Mortgagee from the payment of all documentary stamp taxes and intangible and all
other taxes (whether due and payable annually or otherwise) that may be levied
upon the holding of this indebtedness evidenced by the Note, the making or
recording of the Mortgage or any modification thereof or any evidence of
indebtedness secured hereby, or the transactions contemplated by this Mortgage,
including interest, penalties and costs. The Mortgagor agrees to pay the
Mortgagee's reasonable attorneys' fees and costs incurred in connection with any
inquiry from or assertion by any governmental authority that any such taxes have
not been paid promptly when due. In the event the Mortgagee becomes obligated to
pay any such taxes, penalties and costs, then the Mortgagee shall have the right
to accelerate the payment of all sums secured by this Mortgage and all principal
and interest accrued thereon shall, without notice, immediately become due and
payable at the option of the Mortgagee.
The Mortgagor will exhibit to the Mortgagee the original
receipts or other reasonably satisfactory proof of the payment of all
Impositions which may affect the Premises or any part thereof or the lien of the
Mortgage promptly following the last date on which each such Imposition is
payable hereunder.
1.10 DEPOSITS OF TAXES AND INSURANCE PREMIUMS. In order to
more fully protect the security of this Mortgage and the fulfillment by the
Mortgagor of the obligations and undertakings contained in Sections 1.04, 1.05
and 1.09 hereof and, solely as additional security to the Mortgagee, in addition
to the monthly payments of interest and principal as provided herein, the
Mortagee may require at any time and from time to time, for any or no reason,
that the Mortgagor pay to the Mortgagee or to its designated representative, to
be held in a commingled non-interest bearing escrow account, on the date set in
this Mortgage for the payment of principal and interest, an amount which shall
be equal to 1/12th of the annual Impositions that may become due during the year
and an amount which shall be equal to 1/12th of the annual insurance premiums
with respect to insurance coverage that the Mortgagor is required to maintain
pursuant to the provisions of this Mortgage (all as estimated by the Mortgagee,
or its representative). If the Mortgagee makes the aforesaid election, the
Mortgagor shall cause all bills, statements or other documents relating to
Impositions or the payment of insurance premiums to be sent or mailed directly
to the Mortgagee or its designated representative. Upon receipt of such bills,
statements or other documents, and, providing the Mortgagor has deposited
sufficient funds with the Mortgagee or its designated representative pursuant to
the provisions of this Section, the Mortgagee or its designated representative
shall pay such amounts as may be due thereunder out of the funds so deposited
with the Mortgagee or its designated representative. If the aforesaid sums are
found to be insufficient to fully pay the said Impositions or insurance premiums
when said items become due, the Mortgagor agrees to pay such deficiency
immediately upon demand, and in default thereof the Mortgagee may pay the same
and add the sum so paid to the principal sum secured by this Mortgage, and said
additional sum shall be payable to the Mortgagee on demand with interest thereon
at the maximum rate permitted by Florida law; also the Mortgagor agrees to pay
when due, all prior Impositions and insurance premiums for which provisions have
not been made hereinbefore and promptly to deliver the official receipt therefor
to the Mortgagee, and in default of payment thereof, the Mortgagee may pay the
same and add the amounts so paid to the principal sum secured by this Mortgage,
and said additional sums shall be payable to the Mortgagee on demand with
interest thereon at the maximum rate permitted by Florida law. The failure to
pay any of the aforesaid payments referred to in this Section shall after
fifteen (15) days' prior written notice and failure of the Mortgagor to cure
within such time, be deemed a default under the terms of this Mortgage, for
which the Mortgagee may, at its sole option, declare the entire unpaid balance
of principal then due and owing, to be immediately due and payable. Said
payments shall be paid to the Mortgagee until the Note is paid in full. The
Mortgagee under the provisions of this Mortgage may at any time, in its sole
discretion, apply any balance accumulated in the above funds as a credit against
any unpaid interest due under the Note and/or in reduction of the amount of
principal then remaining unpaid under the Note. Notwithstanding all of the
foregoing, nothing contained herein shall cause the Mortgagee or its designated
representative to be deemed a trustee of said funds or to be obligated to pay
any amounts in excess of the amounts of funds deposited with the Mortgagee or
its designated representative pursuant to this Section. The Mortgagee or its
designated representative may commingle said reserve with its own funds, and the
Mortgagor shall be entitled to no interest thereon. In the event that the
Mortgagee elects to permit the
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Mortgagor to pay Impositions directly, the Mortgagor shall cause the Mortgagee
to receive evidence of paid Impositions no later than March 20th of the year
following the year in which such Impositions were assessed.
It is the intention of the Mortgagor and the Mortgagee herein
that the payments as set forth in the paragraph above shall be sufficient so
that when such payments are due to any taxing authority or insurance carrier,
there will be sufficient money held by the Mortgagee to make such payments on
their due dates.
1.11 MAINTENANCE, REPAIRS, ALTERATIONS. The Mortgagor will
keep the Mortgaged Property, or cause the same to be kept, in good condition and
repair and fully protected from the elements to the satisfaction of the
Mortgagee; the Mortgagor will commit or permit no waste thereon and will do or
permit no act by which the Premises shall become less valuable; the Mortgagor
will not remove, demolish or structurally alter any of the Improvements (except
such alterations as may be required by laws, ordinances or regulations) without
the prior written permission of the Mortgagee; the Mortgagor will complete
promptly and in good and workmanlike manner any building or other Improvement
which may be constructed on the Premises and promptly restore in like manner any
Improvement which may be damaged or destroyed thereon and will pay when due all
claims for labor performed and materials furnished therefor; and the Mortgagor
will use and operate, and will require its lessees or licensees to use or
operate, the Premises in compliance with all applicable laws, ordinances,
regulations, covenants, conditions and restrictions, and with all applicable
requirements of any ground lease, lease or sublease now or hereafter affecting
the Premises or any part thereof. The Mortgagee and its representatives shall
have access to the Premises at all reasonable times to determine whether the
Mortgagor is complying with its obligations under this Mortgage, including, but
not limited to, those set out in this Section.
1.12 EMINENT DOMAIN. Should the Mortgaged Property, or any
part thereof or interest therein, be taken or damaged by reason of any public
use or improvement or condemnation proceeding, or in any other manner
("Condemnation"), or should the Mortgagor receive any notice or other
information regarding such Condemnation, the Mortgagor shall give prompt written
notice thereof to the Mortgagee.
(a) The Mortgagee shall be entitled, to all compensation,
awards and other payments or relief granted in connection with such
Condemnation, and shall be entitled, at its option, to commence, appear in its
own name any action or proceedings relating thereto. In the event of such an
appearance, the Mortgagor agrees to pay reasonable attorneys' fees incurred by
the Mortgagee. All such compensation, awards, damages, rights of action and
proceeds awarded to the Mortgagor (the "Proceeds") are hereby assigned to the
Mortgagee, and the Mortgagor agrees to execute such further assignments of the
Proceeds as the Mortgagee may require.
(b) In the event any portion of the Mortgaged Property is so
taken or damaged, the Mortgagee shall have the option in its sole and absolute
discretion, to apply all such Proceeds, after deducting therefrom all costs and
expenses (regardless of the particular nature thereof and whether incurred with
or without suit), including reasonable attorneys' fees, incurred by it in
connection with such Proceeds, upon any indebtedness secured hereby or to apply
all such Proceeds, after such deductions, to the restoration of the Premises
upon such reasonable conditions as the Mortgagee may determine. Such application
or release shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.
(c) Any amounts received by the Mortgagee hereunder (after
payment of any costs in connection with obtaining same) shall, if retained by
the Mortgagee, be applied in payment of any accrued interest and then in
reduction of the then-outstanding principal sum of the Note secured hereby
notwithstanding that the same may not then be due and payable. Any amount so
applied to principal shall be applied to the payment of installments of
principal on the Note in inverse order of their due dates.
1.13 ACTIONS AFFECTING THE SECURITY OF THIS MORTGAGE. The
Mortgagor shall appear in and contest any action or proceeding purporting to
affect the security hereof or the rights or powers of the Mortgagee. If any
action or proceeding affecting the Mortgaged Property or any part thereof shall
be commenced, to which action or proceeding the Mortgagee is made a party or in
which the right to use the Mortgage Property or any part thereof is threatened
or in which, in the opinion of the Mortgagee, it becomes
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necessary to defend or uphold the lien of this Mortgage, all sums paid by the
Mortgagee in connection therewith, including reasonable attorneys' fees, shall
be paid by the Mortgagor, together with interest thereon at the maximum rate
permitted by Florida law, and any such sum and the interest thereon shall be a
lien on the Premises, prior to any right or title to, interest in, or claim upon
the Premises attaching or accruing subsequent to or otherwise subordinate to the
lien of this Mortgage and shall be deemed to be secured by this Mortgage.
1.14 ACTIONS BY MORTGAGEE TO PRESERVE THE SECURITY OF THIS
MORTGAGE. If the Mortgagor fails to make any payment or to do any act as and in
the manner provided for in this Mortgage or the Note secured hereby, the
Mortgagee, in its own discretion, without obligation so to do, may make or do
the same in such manner and to such extent as the Mortgagee may deem necessary
to protect the security hereof. The Mortgagor will pay upon demand all expenses
incurred or paid by the Mortgagee (including, but not limited to, reasonable
counsel fees and court costs) on account of the exercise of any of the aforesaid
rights or privileges or on account of any litigation which may arise in
connection with this Mortgage or the Note or on account of any attempt, without
litigation, to enforce the terms of this Mortgage or said Note. In case the
Mortgaged Property or any part thereof shall be advertised for foreclosure sale
and not sold, the Mortgagor shall pay all costs in connection therewith.
In the event that the Mortgagee is called upon to pay any sums
of money to protect this Mortgage and the Note secured hereby as aforesaid, all
monies advanced or due hereunder shall become immediately due and payable,
together with interest at a rate equal to the Default Rate of the Note (as that
term is defined in the Note), computed from the date of such advance to the date
of the actual receipt of payment thereof by the Mortgagee and shall be deemed
part of the indebtedness secured by this Mortgage. All such payments to protect
this Mortgage and the Note shall be secured by the Mortgage, regardless of when
made, notwithstanding the limitation on the duration of the right to lien for
future advances expressed by Florida law or in the introductory provisions or in
Section 5.10 of this Mortgage.
The Mortgagor for itself and for all future owners of the
Premises herein described, agrees that in the event the Mortgagee shall obtain a
money judgment, in accordance with the terms and conditions contained in the
Note and/or Mortgage, then interest at a rate of interest equal to the Default
Rate (as that term is defined in the Note) shall be secured hereunder and shall
accrue and be due and payable on said money judgment from the date of entry
thereof, until the said judgment is paid in full.
In the event this Mortgage is placed in the hands of an
attorney for the collection of any sum payable hereunder, the Mortgagor agrees
to pay all costs of collection, including reasonable attorneys' fees, incurred
by the Mortgagee, either with or without the institution of any action or
proceeding, and in addition to all costs, disbursements and allowances provided
by law. All such costs so incurred shall be deemed to be secured by this
Mortgage.
1.15 SURVIVAL OF WARRANTIES. The Mortgagor covenants to fully
and faithfully satisfy and perform the obligations of the Mortgagor contained in
the Mortgagor's loan application and the Mortgagee's loan commitment, and any
such application and commitment between the Mortgagor and any assignee of the
Mortgagee, and each agreement of the Mortgagor incorporated by reference therein
or herein, and any modification or amendment thereof. All representations,
warranties and covenants of the Mortgagor contained therein or incorporated by
reference shall survive the close of escrow and funding of the loan evidenced by
the Note and shall remain continuing obligations, warranties and representations
of the Mortgagor during any time when any portion of the obligations secured by
this Mortgage remain outstanding.
1.16 ADDITIONAL SECURITY. In the event the Mortgagee at any
time holds additional security for any of the obligations secured hereby, it may
enforce the sale thereof or otherwise realize upon the same, at its option,
either before or concurrently herewith or after a sale is made hereunder.
1.17 INSPECTIONS. The Mortgagee, or its agents,
representatives or workmen, are authorized to enter at any reasonable time upon
or in any part of the Premises for the purpose of inspecting the same and for
the purpose of performing any of the acts it is authorized to perform under the
terms of this Mortgage. The Mortgagor agrees to reimburse the Mortgagee for
reasonable out-of-pocket expenses incurred for biannual property inspections
performed by independent third parties.
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1.18 LIENS. The Mortgagor shall pay and promptly discharge, at
the Mortgagor's cost and expense, all liens, encumbrances and charges upon the
Mortgaged Property or any part thereof or interest therein. The Mortgagor shall
have the right to contest in good faith the validity of any such lien,
encumbrance or charge, provided the Mortgagor shall first deposit with the
Mortgagee a bond or other security satisfactory to the Mortgagee in such amounts
as the Mortgagee shall reasonably require, but not more than the amount required
to legally bond off such claim, and provided further that the Mortgagor shall
thereafter diligently proceed to cause such lien, encumbrance or charge to be
removed and discharged. If the Mortgagor shall fail to discharge any such lien,
encumbrance or charge, then, in addition to any other right or remedy of the
Mortgagee, the Mortgagee may, but shall not be obligated to, discharge the same,
either by paying the amount claimed to be due, or by procuring the discharge of
such lien by depositing in court a bond for the amount claimed or otherwise
giving security for such claim, or in such manner as is or may be prescribed by
law. Any amount so paid by the Mortgagee shall, at the Mortgagee's option,
become immediately due and payable together with interest at a rate of interest
equal to the Default Rate (as that term is defined in the Note), and shall be
deemed part of the indebtedness secured by this Mortgage.
1.19 FUTURE MODIFICATIONS. The Mortgagor, for itself and for
all future owners of the Mortgaged Property, agrees that this Mortgage may be
modified, varied, extended, renewed or reinstated at any time by agreement
between the holder of this Mortgage and the Mortgagor or the then owner of the
Mortgaged Property, without notice to, or the consent of, any subordinate
mortgagee or lienor, and any such modification, variance, extension, renewal or
reinstatement shall be binding upon such subordinate mortgagee or lienor with
the same force and effect as if said subordinate mortgagee or lienor had
affirmatively consented thereto. This clause shall be self-operative, and no
further instrument of subordination shall be required from any subordinate
mortgagee or lienor.
1.20 CONTINUED OCCUPANCY. If at any time the use or occupancy
of any part of the Mortgaged Property as a laboratory shall, pursuant to any
zoning or other law, ordinance or regulation, be permitted only so long as such
use or occupancy shall continue, the Mortgagor will not cause or permit such use
or occupancy to be discontinued without the prior written consent of the
Mortgagee.
1.21 FINANCIAL STATEMENTS. The Mortgagor shall furnish to the
Mortgagee within ninety (90) days of the end of the Mortgagor's fiscal year, in
a form acceptable to the Mortgagee, annual certified audited financial
statements of the Mortgagor. All financial statements shall be in accordance
with generally accepted accounting practices.
1.22 ENVIRONMENTAL PROTECTION. The Mortgagor, its successors
and assigns, after reasonable inquiry, covenants, warrants and represents that,
No pollutants or other toxic or hazardous substances, as defined under
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C.ss.9601 et. seq., or any other federal or Florida law,
including any solid, liquid, gaseous, or thermal irritant or contaminant, such
as smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste (including
materials to be recycled, reconditioned or reclaimed) (collectively "Hazardous
Materials") have been or shall be discharged, disbursed, released, stored,
treated, generated, disposed of, or allowed to escape or migrate, or shall
threaten to be injected, emptied, poured, leached, or spilled (collectively
referred to as the "release") on or from the Mortgaged Property.
a. No asbestos or asbestos-containing materials have been or
will be (during the term of the Note) installed, used, incorporated into, placed
on, or disposed of on the Mortgaged Property.
b. No polychlorinated biphenyls ("PCBs") are or will be
(during the term of the Note) located on or in the Mortgaged Property, in the
form of electrical transformers, fluorescent light fixtures with ballasts,
cooling oils, or any other device or form.
c. No underground storage tanks are or will be (during the
term of the Note) located on the Mortgaged Property or were located on the
Mortgaged Property and subsequently removed or filled, except for the existing
storage tank which has been filed and rendered useless.
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d. No investigation, administrative order, consent order and
agreement, litigation, settlement, lien or encumbrance (collectively referred to
as the "action") with respect to Hazardous Materials is proposed, threatened,
anticipated or in existence with respect to the Mortgaged Property.
e. The Mortgaged Property and the Mortgagor's operations at
the Mortgaged Property are in compliance with all applicable federal, state and
local statutes, laws and regulations. No notice has been served on the
Mortgagor, or any subsidiary of the Mortgagor, from any entity, governmental
body, or individual claiming any violation of any law, regulation, ordinance or
code, or requiring compliance with any law, regulation, ordinance or code, or
demanding payment or contribution for environmental damage or injury to natural
resources. Copies of any such notices received after settlement shall be
forwarded to the Mortgagee within three (3) days of their receipt.
f. The Mortgagor has no knowledge of the release or threat of
release of any Hazardous Material from any property adjoining or in the
immediate vicinity of the Mortgaged Property.
g. No portion of the Mortgaged Property is a wetland or other
water of the United States subject to jurisdiction under Section 404 of the
Clean Water Act (33 U.S.C. ss. 1344) or any comparable state statute or local
ordinance or regulation defining or protecting wetlands or other special aquatic
areas.
h. There are no concentrations of radon or other radioactive
gases or materials in any buildings or structures on the Mortgaged Property that
exceed background ambient air levels.
i. To the best of the Mortgagor's knowledge, there have been
no complaints of illness or sickness alleged to result from conditions inside
any buildings or structures on the Mortgaged Property.
Failure to comply with any provision of this Section 1.22,
including failure to fully and accurately complete any schedule or attachment
described in this Section 1.22 shall be deemed to be an occurrence of default
under this Mortgage.
The liability of the Mortgagor to the Mortgagee under the
covenants of this Section 1.22 is not limited by any exculpatory provision in
the Note or in the other documents securing the Note. The Mortgagor's covenants,
warranties and representations made in this Section 1.22 shall survive any
termination or expiration of the documents securing the Note and/or the
repayment of the indebtedness evidenced by the Note including but not limited to
any foreclosure on this Mortgage or deed-in-lieu of foreclosure, it being
understood and agreed that the covenants, warranties and representations given
in this Section 1.22 are independent of the secured indebtedness and the
documents securing the Note.
1.23 VALUATION OF THE PREMISES. The value of the Premises
shall at all times during the term of this Mortgage equal at least One Million
and 00/100 Dollars ($1,000,000.00).
1.24 YEAR 2000. The Mortgagor shall take all action necessary
to assure that the Mortgagor's computer-based systems are able to operate and
effectively process data, including dates on and after January 1, 2000. At the
Mortgagee's request, the Mortgagor shall provide the Mortgagee with assurance
acceptable to the Mortgagee of the Mortgagor's Year 2000 compatibility.
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ARTICLE II
ASSIGNMENT OF LEASES, SUBLEASES,
RENTS, ISSUES AND PROFITS
2.01 ASSIGNMENT OF RENTS. The Mortgagor hereby assigns and
transfers to the Mortgagee all the leases, subleases, rents, issues and profits
of the Mortgaged Property, and hereby gives to and confers upon the Mortgagee
the right, power and authority to collect such rents, issues and profits. The
Mortgagor irrevocably appoints the Mortgagee its true and lawful
attorney-in-fact, at the option of the Mortgagee at any time and from time to
time, to demand, receive and enforce payment, to give receipts, releases and
satisfactions, and to sue, in the name of the Mortgagor or the Mortgagee, for
all such rents, issues and profits and apply the same to the indebtedness
secured hereby; provided, however, that the Mortgagor shall have the right to
collect such rents, issues and profits (but not more than one (1) month in
advance) prior to or at any time there is not an event of default under this
Mortgage. The assignment of the leases, subleases, rents, issues and profits of
the Premises in this Article II is intended to be an absolute assignment from
the Mortgagor to the Mortgagee and not merely the passing of a security
interest. The leases, subleases, rents, issues and profits are hereby assigned
absolutely by the Mortgagor to the Mortgagee contingent only upon the occurrence
of an event of default under this Mortgage.
2.02 LEASE DEPOSITS AND OTHER CHARGES. All amounts paid to the
Mortgagor as security deposits, cancellation charges, premium or penalties shall
forthwith be and hereby are pledged to the Mortgagee as additional collateral
for the payment of the sums secured by this Mortgage. Upon default, the
Mortgagee shall be entitled to immediate delivery of said sums and the Mortgagee
may apply such deposits to the indebtedness secured hereby. The Mortgagor shall
comply in all respects with all laws and regulations affecting the collection,
holding and/or disbursement of security deposits.
2.03 COLLECTION UPON DEFAULT. Upon any event of default under
this Mortgage, the Mortgagee may, at any time without notice, either in person,
by agent or by a receiver appointed by a court, and without regard to the
adequacy of any security for the indebtedness hereby secured, enter upon and
take possession of the Premises, or any part thereof, in its own name, sue for
or otherwise collect such rents, issues and profits, including those past due
and unpaid, and apply the same, less costs and expenses of operation and
collection, including reasonable attorneys' fees, upon any indebtedness secured
hereby, and in such order as the Mortgagee may determine. The collection of such
rents, issues and profits, or the entering upon and taking possession of the
Premises, or the application thereof as aforesaid, shall not cure or waive any
default or notice of default hereunder or invalidate any act done in response to
such default or pursuant to such notice of default. In addition (and not as an
election of remedies) upon the occurrence of a default, the Mortgagee may apply
for a court order requiring the Mortgagor to deposit all rents in the court
registry pursuant to Section 697.07, Florida Statutes. The Mortgagor hereby
consents to the entry of such an order upon the sworn EX PARTE motion of the
Mortgagee that a default has occurred hereunder.
2.04 RESTRICTION ON FURTHER ASSIGNMENTS, ETC. Except as
hereinafter specifically provided, the Mortgagor will not, without prior written
consent of the Mortgagee, assign the rents, issues or profits, or any part
thereof, from the Premises or any part thereof; and will not consent to the
modification, cancellation or surrender of any lease or sublease covering the
Premises. Any action of the Mortgagor in violation of the terms of this Section
shall be void as against the Mortgagee in addition to being a default under this
Mortgage.
The Mortgagor will not, without the consent of the Mortgagee,
consent to the cancellation or surrender of, or accept prepayment of rents,
issues or profits, other than rent paid at the signing of a lease or sublease,
under any lease or sublease now or hereafter covering the Premises or any part
thereof, nor modify any such lease or sublease and any such purported
assignment, cancellation, surrender, prepayment or modification made which does
not conform with the provisions hereof shall be void as against the Mortgagee.
The Mortgagor will, upon demand of the Mortgagee, enter into an agreement with
the Mortgagee with respect to the provisions contained in the preceding
provision regarding any lease or sublease covering said Premises or any part
thereof, and the Mortgagor hereby appoints the Mortgagee attorney-in-fact of the
Mortgagor to execute and deliver any such agreement on behalf of the Mortgagor
and deliver written notice thereof to the tenant to whose lease such agreement
relates.
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The Mortgagor agrees to furnish to the Mortgagee within ten
(10) days of the Mortgagee's request a copy of any modification of any lease
presently in effect and copies of all future leases affecting the Premises
covered by this Mortgage.
All leases or subleases hereafter entered into by the
Mortgagor with respect to the Premises or any part thereof, shall be subordinate
to the lien of this Mortgage unless expressly made superior to this Mortgage in
the manner hereinafter provided. At any time or times the Mortgagee may execute
and record in the appropriate Office of the County Clerk of the County where the
Premises are situated, a Notice of Subordination reciting that the lease or
leases therein described shall be superior to the lien of this Mortgage. From
and after the recordation of such Notice of Subordination, the lease or leases
therein described shall be superior to the lien of this Mortgage and shall not
be extinguished by any foreclosure sale hereunder.
2.05 NEW LEASES. The Mortgagor shall not lease any portion of
the Premises without the Mortgagee's prior written consent; provided, however,
that the Mortgagor may lease warehouse space at the Premises in the ordinary
course of business.
ARTICLE III
SECURITY AGREEMENT
3.01 CREATION OF SECURITY INTEREST. The Mortgagor hereby
grants to the Mortgagee a security interest in the Mortgagor's Personal Property
wherever located, including without limitation any and all property of similar
type or kind hereafter located on or at the Premises, and whether now or
hereafter existing or now owned or hereafter acquired or arising, for the
purpose of securing all obligations of the Mortgagor set forth in this Mortgage.
A security interest is also granted to the Mortgagee
in any sums held by the Mortgagee, or its loan servicing agent, pursuant to the
provisions of this Mortgage or other collateral agreements or any agreements
between the Mortgagor, the Mortgagee and any Escrow Agent holding loan proceeds
pending disbursements as provided in said agreements, where such sums are held
for the benefit of the Mortgagee.
3.02 WARRANTIES, REPRESENTATIONS AND COVENANTS OF MORTGAGOR.
The Mortgagor hereby warrants, represents and covenants as follows:
(a) Except for the security interest granted hereby, the
Mortgagor is, and as to portions of the Personal Property to be acquired after
the date hereof will be, the sole owner of the Personal Property, free from any
adverse lien, security interest, encumbrance or adverse claims thereon of any
kind whatsoever. The Mortgagor will notify the Mortgagee of, and will defend the
Personal Property against, all claims and demands of all persons at any time
claiming the same or any interest therein.
(b) The Mortgagor will not lease, sell, convey, encumber or in
any manner transfer the Personal Property without the prior written consent of
the Mortgagee, except to replace it with Personal Property of equal or greater
value.
(c) The Personal Property is not used or bought for personal,
family or household purposes.
(d) The Personal Property will be kept on or at the Premises
and the Mortgagor will not remove the Personal Property from the Premises
without the prior written consent of the Mortgagee, except such portions or
items of Personal Property which are consumed or worn out in ordinary usage, all
of which shall be promptly replaced by the Mortgagor with new items of equal or
greater quality.
(e) The Mortgagor maintains a place of business in the State
of Florida, and the Mortgagor will immediately notify the Mortgagee in writing
of any change in its place of business as set forth in the beginning of this
Mortgage.
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(f) At the request of the Mortgagee, the Mortgagor will join
the Mortgagee in executing one or more financing statements and renewals and
amendments thereof pursuant to the Uniform Commercial Code of Florida in form
satisfactory to the Mortgagee, and will pay the cost of filing the same in all
public offices wherever filing is deemed by the Mortgagee to be necessary or
desirable.
(g) All covenants and obligations of the Mortgagor contained
herein relating to the Premises shall be deemed to apply to the Personal
Property whether or not expressly referred to herein.
(h) This Mortgage constitutes a Security Agreement as that
term is used in the Uniform Commercial Code of Florida.
(i) The Mortgagor is financially solvent at the time of
execution, recording of this Mortgage and disbursement of loan proceeds, and
further represents it has committed no act of bankruptcy nor has any proceeding
been commenced by or against the Mortgagor under any bankruptcy or insolvency
laws, and that there has been no material adverse change in the Mortgagor's
business or financial condition.
(j) The Mortgagor shall comply, and shall ensure that the
Premises comply, at all times while this Mortgage is in effect with all laws,
ordinances, rules and regulations.
3.03 MORTGAGOR'S CHANGE OF NAME. In the event of any change in
name or identity of the Mortgagor which is authorized hereunder, the Mortgagor
shall promptly execute such Uniform Commercial Code forms as are necessary to
maintain the priority of the Mortgagee's lien upon any Personal Property,
including future replacement thereof, which serves as collateral under this
agreement, and shall pay all expenses in connection with the filing and
recording thereof.
3.04 GRANT OF POWER OF ATTORNEY. Mortgagor hereby appoints any
officer or agent of Mortgagee as Mortgagor's true and lawful attorney-in-fact,
after the occurrence of an event of default, with power to endorse the name of
Mortgagor upon any notices, checks, drafts, money orders or other instruments of
payment or Personal Property which may come into possession of Mortgagee; to
sign and endorse the name of Mortgagor upon any invoices, freight or express
bills, bills of lading, stored or warehouse receipts, drafts against account
debtors, assignments, verifications and notices in connection with accounts; and
to give written notice to such office and officials of the United States Postal
Service to effect such change or changes of address so that all mail addressed
to Mortgagor may be delivered directly to Mortgagee (Mortgagee will return all
mail not related to the Note, this Mortgage or the Personal Property); granting
unto Mortgagor's said attorney full power to do any and all things necessary to
be done with respect to the above transaction as fully and effectively as
Mortgagor might or could do so, and hereby ratifying all its said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney shall
be irrevocable for the term of this Mortgage and all transactions hereunder.
ARTICLE IV
REMEDIES UPON DEFAULT
4.01 EVENTS OF DEFAULT. Any one or more of the following shall
constitute a default ("Default") under this Mortgage and the Note hereby if not
cured within the following time periods: (i) upon occurrence as to (c), (g),
(h), (j), (k) and (o), (ii) ten (10) days after written notice is given by the
Mortgagee as to (a) and (b), and (iii) thirty (30) days after written notice is
given by the Mortgagee as to items (d) through (f), (i), (l), (m), (n), (p), (q)
and (r), unless otherwise specifically provided in this Mortgage:
(a) Failure of the Mortgagor to make one or more payments
required by the Note, this Mortgage, or any other document related to the Note
or this Mortgage.
(b) Failure of the Mortgagor to pay the amount of any costs,
expenses or fees (including attorneys fees and expenses at the pre-trial, trial
and appellate levels) of the Mortgagee, with interest thereon, as required by
any provision of this Mortgage or the Note.
(c) Failure to exhibit to the Mortgagee, within ten (10) days
after demand, receipts showing payment of all taxes, water rates, sewer rents
and assessments.
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(d) Except as hereinbefore permitted, the actual or threatened
alteration, demolition or removal of any building on the Premises without the
written consent of the Mortgagee.
(e) If the Improvements on said Premises are not maintained in
good repair pursuant to Section 1.11.
(f) Failure to comply with any requirements or order or notice
of violation of law or ordinance issued by any governmental department claiming
jurisdiction over the Mortgaged Property within thirty (30) days from the
issuance thereof.
(g) The institution of any bankruptcy, reorganization or
insolvency proceedings against the then-owner or the Mortgagor in possession of
the Mortgage Property or the appointment of a receiver or a similar official
with respect to all or a substantial part of the properties of the then-owner or
the Mortgagor in possession of the Mortgaged Property and a failure to have such
proceedings dismissed or such appointment vacated within a period of thirty (30)
days.
(h) The institution of any voluntary bankruptcy,
reorganization or insolvency proceedings by the then owner or the Mortgagor in
possession of the Mortgaged Property or a Guarantor or the appointment of a
receiver or a similar official with respect to all or a substantial part of the
properties of the then owner or the Mortgagor in possession of the Mortgaged
Property or a Guarantor at the instance of the then owner or the Mortgagor in
possession of the Mortgaged Property or a Guarantor.
(i) Failure of the Mortgagor to comply with or perform any
other warranty, covenant or agreement contained herein, the Note, the Commitment
Letter or in any other instrument securing, or relating to, the Note.
(j) The transfer, sale or conveyance of legal or equitable
title to the Premises or any interest therein without the prior written consent
of the Mortgagee.
(k) The further encumbrancing of the Premises without the
Mortgagee's prior written consent.
(l) Any default occurring under or any misrepresentation
contained in the Hazardous Substance Covenants, Warranties and Representations
contained in Section 1.22 hereof, or the Note secured hereby or that certain
Assignment of Rents and Leases made and executed by the Mortgagor in connection
herewith.
(m) Failure of the Mortgagor to pay any other debts as they
come due.
(n) Failure of the Mortgagor to comply with or perform any
covenant or agreement required by any other lender to the Mortgagor.
(o) Any representation warranty, statement or certificate in
any loan document is determined by the Mortgagee to be untrue.
(p) Failure of the Mortgagor to satisfy or discharge any
judgment against the Mortgagor within thirty (30) days after the entry thereof.
(q) The occurrence of a material adverse change in the
business prospects or financial condition of the Mortgagor as determined by the
Mortgagee.
(r) An event of default has occurred and is continuing under
any Guaranty executed in connection with this Mortgage and the Note.
4.02 ACCELERATION UPON DEFAULT, ADDITIONAL REMEDIES. In the
event that one or more defaults as above provided shall occur, the remedies
available to the Mortgagee shall include, but not necessarily be limited to, any
one or more of the following:
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(a) The Mortgagee may declare the entire unpaid balance of the
Note and all accrued interest thereon immediately due and payable without
further notice.
(b) The Mortgagee may take immediate possession of the
Mortgaged Property or any part thereof (which the Mortgagor agrees to surrender
to the Mortgagee) and manage, control or lease the same to such person or
persons and at such rental as it may deem proper and collect all the rents,
issues and profits therefrom, including those past due as well as those
thereafter accruing, with the right in the Mortgagee to cancel any lease or
sublease for any cause which would entitle the Mortgagor to cancel the same; to
make such expenditures for maintenance, repairs and costs of operation as it may
deem advisable; and after deducting the cost thereof and a commission of five
percent (5%) upon the gross amounts of rents collected, to apply the residue to
the payment of any sums which are unpaid hereunder or under the Note. The taking
of possession under this paragraph shall not prevent concurrent or later
proceedings for the foreclosure sale of the Premises as provided elsewhere
herein.
(c) The Mortgagee may apply, on EX PARTE motion, to any court
of competent jurisdiction for the appointment of a receiver to take charge of,
manage, preserve, protect, complete construction of and operate the Premises and
any business or businesses located thereon, to collect rents, issues and profits
and income therefrom; to make all necessary and needed repairs to the Premises;
to pay all taxes and assessments against the Premises and insurance premiums for
insurance thereon; and after the payment of the expenses of the receivership,
including reasonable attorneys' fees to the Mortgagee's attorney, and after
compensation to the receiver for management and completion of the Premises, to
apply the net proceeds derived therefrom in reduction of the indebtedness
secured hereby or in such manner as such court shall direct. The appointment of
such receiver shall be of strict right to the Mortgagee, regardless of the value
of the security for the indebtedness secured hereby or of the solvency of any
party primarily or secondarily bound for the payment of such indebtedness. All
expenses, fees and compensation incurred pursuant to a receivership approved by
such court, shall be secured by the lien of this Mortgage until paid. The
receiver and the receiver's agents shall be entitled to enter upon and take
possession of any and all of the Premises, together with any and all businesses
conducted thereon and all business assets used in conjunction therewith or
thereon, or any part or parts thereof, and operate and conduct such business or
businesses to the same extent and in the same manner as the Mortgagor might
lawfully do. The receiver, personally or through his agents, may exclude the
Mortgagor wholly from the Premises, and have, hold, use, operate, manage and
control the same and each and every part thereof; and may in the name of the
Mortgagor exercise all of the Mortgagor's rights and powers and maintain,
restore, insure and keep insured, the Premises as the receiver may deem
judicious. Such receivership shall, at the option of the Mortgagee, continue
until full payment of all sums secured hereby, or until title to the Premises
shall have passed by foreclosure sale under this Mortgage.
(d) The Mortgagee shall have the right to foreclose this
Mortgage and in case of sale in action or proceeding to foreclose this Mortgage,
the Mortgagee shall have the right to sell the Premises covered hereby in parts
or as an entirety. In addition, the Mortgagee shall have the right to repossess,
take possession and sell any or all of the Personal Property subject to this
Mortgage and security agreement and to apply the proceeds in accordance with
this Agreement. It is intended hereby to give to the Mortgagee the widest
possible discretion permitted by law with respect to all aspects of any such
sale or sales.
(e) Without declaring the entire unpaid principal balance due,
the Mortgagee may foreclose only as to the sum past due, without injury to this
Mortgage or the displacement or impairment of the remainder of the lien thereof,
and at such foreclosure sale the Premises shall be sold subject to all remaining
items of indebtedness; and the Mortgagee may again foreclose, in the same
manner, as often as there may be any sum past due.
(f) The Mortgagor hereby waives any appraisement before sale
of any portion of the Premises, commonly known as appraisement laws; the benefit
of any laws now or hereafter enacted which in any way may extend the time for
enforcement of the collection of the indebtedness secured hereby or creating or
extending any period of redemption from any sale made in collecting said
indebtedness, commonly known as stay laws and redemption laws, all rights of
marshalling in the event of foreclosure of any lien or security interest created
by this Mortgage.
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4.03 ADDITIONAL PROVISIONS. The Mortgagor expressly agrees, on
behalf of itself, its successors and assigns and any future owner of the
Premises, or any part thereof or interest therein, as follows:
(a) All remedies available to the Mortgagee with respect to
this Mortgage shall be cumulative and may be pursued concurrently or
successively. There are no conditions precedent to the enforcement by the
Mortgagee of any of its remedies. No delay by the Mortgagee in exercising any
such remedy shall operate as a waiver thereof or preclude the exercise thereof
during the continuance of that or any subsequent default.
(b) The obtaining of a judgment or decree on the Note, whether
in the State of Florida or elsewhere, shall not in any manner affect the lien of
this Mortgage upon the Premises covered hereby, and any judgment or decree so
obtained shall be secured hereby to the same extent as said Note is now secured.
(c) In event of any foreclosure sale hereunder, all net
proceeds shall be available for application to the indebtedness hereby secured
whether or not such proceeds may exceed the value of the Premises for
recordation tax, mortgage tax, insurance or other purposes.
(d) The Mortgagee shall have the right to set off any and all
sums owed to the Mortgagor by the Mortgagee in any capacity (whether or not then
due) against all amounts due under the Note and/or against any other liabilities
of the Mortgagor to the Mortgagee.
(e) The only limitation upon the foregoing agreements as to
the exercise of the Mortgagee's remedies is that there shall be but one full and
complete satisfaction of the indebtedness secured hereby.
4.04 REMEDIES NOT EXCLUSIVE. The Mortgagee shall be entitled
to enforce payment and performance of any indebtedness or obligations secured
hereby and to exercise all rights and powers under this Mortgage or the Note
secured hereby or under any other agreement or any laws now or hereafter in
force, notwithstanding some or all of the said indebtedness and obligations
secured hereby may now or hereafter be otherwise secured, whether by mortgage,
deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of
this Mortgage nor its enforcement shall prejudice or in any manner affect the
Mortgagee's right to realize upon or enforce any other security now or hereafter
held by the Mortgagee, it being agreed that the Mortgagee shall be entitled to
enforce this Mortgage and any other security now or hereafter held by the
Mortgagee in such order and manner as the Mortgagee may in its absolute
discretion determine. No remedy herein conferred upon or reserved to the
Mortgagee is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given to the Mortgagee or to which
it may be otherwise entitled, may be exercised, concurrently or independently
from time to time and as often as may be deemed expedient by the Mortgagee and
it may pursue inconsistent remedies.
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ARTICLE V
MISCELLANEOUS
5.01 EXISTENCE. If at any time the Premises shall be owned or
held by a person other than a natural person (such as a partnership or a
corporation), such person and any other entity which is a general partner of
that person (if applicable) shall at all times maintain its existence and shall
be fully authorized to do business in the State of Florida and shall maintain in
the State of Florida a duly authorized registered agent and office for service
of process. Failure to comply with such obligations shall, in addition to being
a default under this Mortgage, authorize the Mortgagee, as attorney-in-fact of
the Mortgagor, to appoint any person as agent of the Mortgagor for the service
of process in any proceeding or proceedings concerning this Mortgage or the
Note. Within ninety (90) days after the expiration of the time for filing its
annual report and the payment of appropriate taxes in the State of Florida, the
Mortgagor will furnish to the Mortgagee certificates of good standing or other
evidence satisfactory to the Mortgagee to show compliance with the provisions of
this Section 5.01.
5.02 STATEMENTS BY MORTGAGOR. The Mortgagor, within three (3)
days after request in person or within ten (10) days after request by mail, will
furnish to the Mortgagee or any person, firm or corporation designated by the
Mortgagee, a duly acknowledged written statement setting forth the amount of the
debt secured by this Mortgage, and stating either that no offsets or defenses
exist against such debt, or, if such offsets or defense are alleged to exist,
full information with respect to such alleged offsets and/or defenses.
5.03 SUCCESSORS AND ASSIGNS. The provisions hereof shall be
binding upon and shall inure to the benefit of the Mortgagor, its successors and
assigns (including without limitation subsequent owners of the Premises or the
leasehold estate of the Premises or any part thereof); shall be binding upon and
shall inure to the benefit of the Mortgagee, its successors and assigns and any
future holder of the Note hereby secured, and any successors or assigns of any
future holder of the Note. In the event the ownership of the Premises or any
leasehold estate that may be covered by this Mortgage, becomes vested in a
person other than the Mortgagor, the Mortgagee may, without notice to the
Mortgagor, deal with such successor or successors in interest with reference to
this instrument and the debt hereby secured in the same manner as with the
Mortgagor, and may alter the interest rate and/or alter or extend the terms of
payment of the debt secured hereby without notice to the Mortgagor and such
action shall in no way affect the liability of the Mortgagor hereunder or under
the Note hereby secured or the lien or priority of this Mortgage with respect to
any part of the Mortgaged Property covered hereby.
5.04 RESTRICTION ON TRANSFER. The Mortgagor shall not, without
the prior written consent of the Mortgagee, transfer, sell, convey or encumber
legal or equitable title to the Mortgaged Property or any interest therein. The
Mortgagee reserves the right, in its sole discretion, to accelerate the loan
upon such transfer, sale, conveyance or encumbrance. Upon such acceleration, the
entire principal balance plus all accrued interest thereon shall be due and
payable.
5.05 NOTICES. All notices, demands and requests given by
either party hereto to the other party shall be in writing. All notices, demands
and requests by the Mortgagee to the Mortgagor shall be deemed to have been
properly given if sent by United States registered or certified mail, postage
prepaid, addressed to the Mortgagor at the address indicated on Page 1 hereof,
or at such other address as the Mortgagor may from time to time designate by
written notice to the Mortgagee, given as herein required. All notices, demands
and requests by the Mortgagor to the Mortgagee shall be deemed to have been
properly given if sent by United States registered or certified mail, postage
prepaid, addressed to the Mortgagee as follows:
Equitable Bank
633 S. Federal Highway
Fort Lauderdale, Florida 33301
Attention: Mr. William M. Kurau
With a Copy to: Steven C. Elkin, Esq.
Tripp Scott, P.A.
110 S.E. 6th Street, 15th Floor
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Fort Lauderdale, Florida 33301
or to such other address as the Mortgagee may from time to time designate by
written notice to the Mortgagor given as herein required. Notices, demands and
requests given in the manner aforesaid shall be deemed sufficiently served or
given for all purposes hereunder at the time such notice, demand or request
shall be deposited in any post office or branch post office regularly maintained
by the United States Government.
The Mortgagor shall deliver to the Mortgagee, promptly upon
receipt of same, copies of all notices, certificates, documents and instruments
received by it which materially affect any part of the Premises covered hereby,
including, without limitation, notices from any lessee, sublessee claiming that
the Mortgagor is in default under any terms of any lease, sublease.
5.06 MODIFICATIONS IN WRITING. This Mortgage may not be
changed, terminated or modified orally or in any other manner than by an
instrument in writing signed by the party against whom enforcement is sought.
5.07 CAPTIONS. The captions or headings at the beginning of
each Section hereof are for the convenience of the parties and are not a part of
this Mortgage.
5.08 INVALIDITY OF CERTAIN PROVISIONS. If the lien of this
Mortgage is invalid or unenforceable as to any part of the debt, or if the lien
is invalid or unenforceable as to any part of the Premises, the unsecured
portion of the debt shall be completely paid prior to the payment of the secured
portion of the debt, and all payments made on the debt, whether voluntary or
otherwise, shall be considered to have been first paid on and applied to the
full payment of that portion of the debt which is not secured or fully secured
by the lien of this Mortgage.
5.09 NO MERGER. If both the lessor's and lessee's estates
under any lease or any portion thereof which constitutes a part of the Mortgaged
Property shall at any time become vested in one owner, this Mortgage and the
lien created hereby shall not be destroyed or terminated by application of the
doctrine of merger and, in such event, the Mortgagee shall continue to have and
enjoy all of the rights and privileges of the Mortgagee as to the separate
estates. In addition, upon the foreclosure of the lien created by this Mortgage
on the Premises pursuant to the provisions hereof, any leases or subleases then
existing and created by the Mortgagor shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless the Mortgagee or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of the Mortgagee or any such purchaser
shall constitute a termination of any lease or sublease unless the Mortgagee or
such purchaser shall give written notice thereof to such tenant or subtenants.
5.10 FUTURE ADVANCES. The Mortgagee may, from time to time, at
its option, make further advances to the Mortgagor which shall be secured by the
lien of this Mortgage; provided, however, that the unpaid principal balance so
secured by this Mortgage at any one time shall not exceed twice the amount of
the original indebtedness secured hereunder, plus interest thereon, and plus any
disbursements made by the Mortgagee for the payment of taxes, levies and
insurance premiums on the Mortgaged Property, together with interest thereon.
All additional or further monies which may be advanced by the Mortgagee to the
Mortgagor (or any one of them if there be more than one), after the date hereof,
shall at the option of the Mortgagee be evidenced by a note or notes executed by
the Mortgagor (or any one of them if there be more than one) in favor of the
Mortgagee, bearing such rate of interest and with such maturities as shall be
determined from time to time, but any and all such future advances secured by
this Mortgage shall be made not more than twenty (20) years after the date
hereof. All such notes shall be of equal dignity, and a default in the payment
of any one note shall constitute a default in payment of all other notes, at the
option of the Mortgagee. Each future advance shall be an integral part of the
mortgage obligation and shall be secured by the lien of this Mortgage as fully
and to the same extent as though the same were a part of the original
indebtedness. However, nothing contained herein shall be deemed an obligation on
the part of the Mortgagee to make any future advances. Provided further, that
any payments made by the Mortgagee for taxes and insurance or for any other
purpose to preserve the security of the Note and this Mortgage, as deemed
necessary by the Mortgagee, shall remain secured by this Mortgage
notwithstanding any other
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provisions in this instrument or any provisions of Florida law limiting future
advances to a period of twenty (20) years.
5.11 GOVERNING LAW AND CONSTRUCTION OF CLAUSES. This Mortgage
shall be governed and construed by the laws of the State of Florida. No act of
the Mortgagee shall be construed as an election to proceed under any one
provision of the Mortgage or of the applicable statutes of the State of Florida
to the exclusion of any other such provision, anything herein or otherwise to
the contrary notwithstanding.
5.12 DEFAULT RATE. While in default, any sums due hereunder or
under the Note shall bear interest at the maximum rate permissible under Florida
law (the "Default Rate").
5.13 TIME OF THE ESSENCE. Time shall be of the essence of each
and every covenant and promise contained in this Mortgage and every other
instrument securing the repayment of the Note.
5.14 EXTENSIONS. The granting of any extension or extensions
of time of payment of the Note either to the Mortgagee or any other person, or
taking of other or additional security for payment therefor, or waiver of or
failure to exercise any right to mature the whole debt under any covenant or
stipulation herein contained, shall not in anywise affect this Mortgage or the
rights of the Mortgagee, its successors or assigns hereunder or operate as a
release from any personal liability upon the Note or under any covenant or
stipulation herein contained.
5.15 WAIVER OF JURY TRIAL. THE MORTGAGEE AND THE MORTGAGOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS MORTGAGE OR ANY DOCUMENT EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THE MORTGAGOR ACKNOWLEDGES THAT
THIS MUTUAL WAIVER CONSTITUTES A MATERIAL INDUCEMENT TO THE MORTGAGEE TO ENTER
INTO THIS MORTGAGE.
IN WITNESS WHEREOF, the Mortgagor has hereunto set its hand
and seal all done as of the day and year first hereinbefore written.
Signed, sealed and delivered VIRAGEN, INC.
in the presence of:
By:
-----------------------------------------
Name: Dennis W. Healey, Executive Vice President
--------------------------
Address: 865 Southwest 78th Avenue, #100
Plantation, FL 33324
Name:
--------------------------
STATE OF FLORIDA )
)ss:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this __ day of
August, 1999, by Dennis W. Healey, as Executive Vice President of VIRAGEN, INC.,
who is personally known to me or has produced a driver's license or
__________________ as identification.
-------------------------------------
NOTARY PUBLIC
My Commission Expires:
20
<PAGE> 24
EXHIBIT "1"
-----------
Legal Description
Lots 31, 32, 33 and 34 in Block 5 of PALMETTO - I-75 INDUSTRIAL CENTER SECTION
ONE, according to the Plat thereof recorded in Plat Book 116, Page 35 of the
Public Records of Miami-Dade County, Florida.
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<PAGE> 1
EXHIBIT 10.LXXIX
PREPARED BY AND RETURN TO:
TRIPP SCOTT, P.A.
Steven C. Elkin, Esq.
110 SE Sixth Street, 15th Floor
Fort Lauderdale, Florida 33301
MORTGAGE AND SECURITY AGREEMENT
-------------------------------
THIS MORTGAGE AND SECURITY AGREEMENT is executed effective the
3rd day of November, 1999 by and between VIRAGEN, INC., A DELAWARE CORPORATION
(hereinafter referred to as the "Mortgagor"), whose mailing address is 865
Southwest 78th Avenue, #100, Plantation, Florida 33324, and EQUITABLE EQUITY
LENDING, INC.,a Florida corporation (hereinafter referred to as the
"Mortgagee"), whose mailing address is 633 South Federal Highway, Fort
Lauderdale, Florida 33301.
W I T N E S S E T H:
That for diverse, good and valuable considerations and to
secure the payment of an indebtedness in the aggregate sum of FOUR HUNDRED
THOUSAND AND 00/100 DOLLARS ($400,000.00) or so much thereof as may be advanced,
to be paid in accordance with a promissory note of even date herewith, as such
promissory note may hereafter be amended, consolidated, renewed or restated
(hereinafter referred to as the"Note") together with interest thereon and any
and all sums due or which may become due from the Mortgagor to the Mortgagee,
which Note provides that the final installment of principal and interest shall
be due and payable not later than May 3, 2000. The Mortgagor does grant,
bargain, sell, alien, remise, release, convey and confirm unto the Mortgagee,
its successors and assigns, in fee simple, all of that certain tract of land of
which the Mortgagor is now seized and possessed and in actual possession,
situate in the County of Miami-Dade, State of Florida, which is more fully
described in EXHIBIT "1" attached hereto and made a part hereof, together with
the buildings and improvements thereon erected or to be erected (hereinafter
referred to as the "Premises");
TOGETHER with all leasehold estate, right, title and interest
of the Mortgagor in and to all leases or subleases covering the Premises or any
portion thereof now or hereafter existing or entered into, and all right, title
and interest of the Mortgagor thereunder, including, without limitation, all
cash or security deposits, advance rentals, and deposits or payments of similar
nature;
TOGETHER with all right, title and interest of the Mortgagor
in and to all options to purchase or lease the Premises or any portion thereof
or interest therein, and any greater estate in the Premises owned or hereafter
acquired;
TOGETHER with all interests, estate or other claims, both in
law and in equity which the Mortgagor now has or may hereafter acquire in the
Premises;
TOGETHER with all easements, rights-of-way and rights used in
connection therewith or as a means of access thereto, and all tenements,
hereditaments and appurtenances thereof and thereto, and all water rights;
<PAGE> 2
TOGETHER with any and all buildings, structures and
improvements now or hereafter erected thereon, and all machinery, apparatus,
equipment, fittings, fixtures, whether actually or constructively attached to
the Premises and including all trade, domestic and ornamental fixtures, and
articles of personal property of every kind and nature whatsoever now or
hereafter located in, upon, above or under the Premises or any part thereof and
used or useable in connection with any present or future operation of the
Premises (hereafter collectively called "Improvements" or "Personal Property"),
including, but not limiting the generality of the foregoing, all elevator,
escalator, heating, irrigation, lighting, laundry, incinerating, dynamo,
electrical, electronic, and generating systems and equipment; all engines,
pipes, pumps, tanks, motors, conduits; all telephones and telephone systems,
switches, computerized processors and switchboards; all plumbing and plumbing
fixtures; all lifting, cleaning, fire prevention, fire extinguishing,
refrigerating, ventilating and communications systems, appliances and apparatus;
all boilers, stoves, ranges, furnaces, oil burners or units thereof; all air
conditioning and air cooling systems and apparatus; and control systems for any
of the foregoing and all other appliances, furniture and furnishings; in any of
which foregoing equipment Mortgagor now has or may at any time hereafter acquire
any rights of any kind whatsoever, to the full extent of the value of such
Equipment, together with all additions thereto, replacements thereof and all
proceeds of the foregoing personal property. (Mortgagor hereby agreeing with
respect to all additions and replacements, to execute and deliver form time to
time such further instruments as may be requested by Mortgagee to confirm the
conveyance, mortgage, transfer and assignment of any of the foregoing.);
TOGETHER with all right, title and interest of the Mortgagor
in and to any streets and roads abutting said Premises to the center lines
thereof and in and to any strips or gores of land therein;
Whenever requested by the Mortgagee, the Mortgagor will execute and
record at the Mortgagor's expense such financing statements and other
instruments as the Mortgagee may reasonably require in order to insure that all
Personal Property now or hereafter owned by the Mortgagor and used in connection
with the operation of the Premises covered hereby shall be subject to the lien
created by this Mortgage and shall be security for the payment of the Note as
herein provided. The Mortgagor shall have the right hereunder and under said
financing statements or other chattel instruments to replace fixtures or
appliances from time to time with similar items of equal value, provided the
replacements are free of any outstanding ownership interest, financing
statements or encumbrances of any kind in favor of anyone other than the
Mortgagee. In the event the Mortgagor shall fail to execute and record chattel
instruments as required herein within ten (10) days after written request by the
Mortgagee, then the Mortgagor hereby irrevocably appoints the Mortgagee its
attorney-in-fact to execute and deliver such financing statements or other
instruments in the name of, and on behalf of, the Mortgagor;
TOGETHER with all awards and proceeds of condemnation for the
Premises or any part thereof to which the Mortgagor is entitled for any taking
of all or any part of the Premises by condemnation or exercise of the right of
eminent domain. All such awards and condemnation proceeds are hereby assigned to
the Mortgagee, and the Mortgagee is hereby authorized, subject to the provisions
contained in this Mortgage, to apply such awards and condemnation proceeds or
any part thereof, after deducting therefrom any expenses incurred by the
Mortgagee in the collection or handling thereof, toward the payment, in full or
in part, of the Note secured by this Mortgage, notwithstanding the fact that the
amount owing thereon may not then be due and payable;
TOGETHER with all rents, issues and profits of the Premises
and all the estate, right, title and interest of every nature whatsoever of the
Mortgagor in and to the same. The Mortgagor shall execute evidences of such
assignment and such further evidences of such assignment as the Mortgagee may
from time to time reasonably request, which evidences shall include, but not be
limited to, such assignments of rents, issues and profits, in reasonable form,
as the Mortgagee may from time to time request. The Mortgagor shall pay the cost
of recording any such assignments. The Mortgagee is authorized to notify any or
all lessees, tenants or occupants of all or part of said Premises of the
assignment of rents, issues or profits made hereunder or under any such special
assignments. The Mortgagee shall have no personal liability for the performance
of the Mortgagor's covenants under any of said leases either as a result of said
general assignment or any special assignment or as the result of the Mortgagee
taking possession of the Premises or a part thereof for default as hereinafter
provided. The Mortgagee shall not be liable to the Mortgagor for any action
taken or omitted in connection with any such leases or rentals or the operation
of said Premises.
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<PAGE> 3
Until the occurrence of a default as hereinafter provided, the Mortgagor may use
and occupy the Premises and receive all rents, issues and profits thereof.
All of the foregoing property, rights, privileges and
franchises are collectively referred to as the "Mortgaged Property".
TO HAVE AND TO HOLD all and singular Premises hereby conveyed,
the tenements, hereditaments and appurtenances thereunto belonging or in anywise
appertaining and the reversion and reversions, remainder and remainders, rents,
issues and profits thereof and also all the estate, right, title, interest,
property, possession, claim and demand whatsoever as well in law as in equity of
the said Mortgagor in and to the same and every part and parcel thereof unto the
said Mortgagee in fee simple.
PROVIDED ALWAYS, that if the Mortgagor shall pay unto the
Mortgagee any and all indebtedness due by the Mortgagor to the Mortgagee,
including the indebtedness evidenced by the Note including any and all renewals
of the same, and shall perform, comply with and abide by each and every
stipulation, agreement, condition and covenant of the Note and of this Mortgage,
then this Mortgage and the estate hereby created shall cease and be null and
void. Provided, it is further covenanted and agreed by the parties hereto that
this Mortgage also secures the payment of and includes all future or further
advances as shall be made by the Mortgagee herein, or its successors or assigns
to or for the benefit of the Mortgagor, or its heirs, personal representatives,
or assigns within twenty (20) years from the date hereof (except as qualified in
Section 5.10 below) to the same extent as if such future advances were made on
the date of the execution of this Mortgage; provided, however, that the unpaid
balance so secured by this Mortgage at any one time shall not exceed twice the
amount of the indebtedness stated on page 1 of this Mortgage plus interest
thereon; and plus any disbursements made by the Mortgagee for the payment of
taxes, levies and insurance premiums on the said Premises, together with
interest thereon.
To protect the security of this Mortgage, the Mortgagor
further covenants, warrants and agrees with the Mortgagee as follows:
ARTICLE I
COVENANTS AND AGREEMENTS OF MORTGAGOR
1.01 PAYMENT OF SECURED OBLIGATIONS. Mortgagor shall pay when
due the principal of, and the interest on, the indebtedness evidenced by the
Note, charges, fees and the principal of, and interest on, any future advances
secured by this Mortgage and shall otherwise comply with all the terms of the
Note, this Mortgage and all other documents executed by Mortgagor in connection
with the Note.
1.02 WARRANTIES AND REPRESENTATIONS. The Mortgagor hereby
covenants with the Mortgagee that the Mortgagor is indefeasibly seized of the
Premises in fee simple; that the Mortgagor has full power and lawful right to
convey the same in fee simple as aforesaid; that it shall be lawful for said
Mortgagee at all times peaceably and quietly to enter upon, hold, occupy and
enjoy said Premises and every part thereof; that said Mortgagor will make such
further assurances to perfect the fee simple title to said Premises in the
Mortgagee, as may reasonably be required; and that the Mortgagor does hereby
fully warrant the title to said Premises and every part thereof and will defend
the same against the lawful claims of all persons whomsoever, subject only to
those matters shown as exceptions in the title insurance policy being delivered
to the Mortgagee simultaneously herewith. The Mortgagor warrants further that
the Improvements have been constructed in compliance with all applicable zoning
and building regulations and in compliance with environmental protection laws
and regulations.
1.03 GROUND LEASES, LEASES OR SUBLEASES. The Mortgagor will,
at the Mortgagor's sole cost and expense, maintain or cause to be performed all
of the covenants, agreements, terms, conditions and provisions on its part to be
kept, observed and performed under any ground lease, lease, or sublease which
may constitute a portion of or an interest in the Premises, shall require its
tenants or subtenants to keep, observe and perform all of the covenants,
agreements, terms, conditions and provisions on their part to be kept, observed
or performed under any and all ground leases, leases or subleases; and shall not
suffer or permit any breach or default to occur with respect to the foregoing;
and in default thereof the Mortgagee shall have the right to perform or to
require performance of any such covenants, agreements, terms, conditions or
provisions of any such ground lease, lease or sublease, and to add any expense
incurred in
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<PAGE> 4
connection therewith to the debt secured hereby, which such expense shall bear
interest from the date of payment to the date of recovery by the Mortgagee at a
rate of interest which is the maximum permitted by Florida law. Any such payment
by the Mortgagee with interest thereon shall be immediately due and payable. The
Mortgagor will not, without the consent of the Mortgagee, consent to the
modification, amendment, cancellation, termination or surrender of any such
ground lease, lease or sublease.
No release or forbearance of any of the Mortgagor's
obligations under any such ground lease, lease or sublease, pursuant to any such
ground lease, lease or sublease, or otherwise, shall release the Mortgagor from
any of its obligations under this Mortgage.
1.04 REQUIRED INSURANCE. The Mortgagor will at all times while
this Mortgage is in effect, at the Mortgagor's sole cost and expense, maintain
or cause to be maintained with respect to the Mortgaged Property and each part
thereof, the following insurance:
(a) So long as any Improvements are located upon the
Premises, Insurance against risks customarily covered by insurance of the type
known as "all risks fire and extended coverage", including, but not limited to,
loss by fire, windstorm, hail, earthquakes, boiler, machinery, explosion, riot,
aircraft, smoke, vandalism, malicious mischief, and vehicle damage, in an amount
not less than the greater of the full one hundred percent (100%) replacement
cost of the Improvements or the face amount of the Note. The policy or policies
shall contain a standard mortgagee clause showing the Mortgagee as the loss
payee.
(b) If at any time during the term of this Mortgage
or any extension, or renewal thereof the Premises are designated a flood prone
or flood risk area pursuant to the Flood Disaster Protection Act of 1973, as
amended or supplemented, and any Improvements are located upon the Premises, the
Mortgagor shall maintain flood insurance as required by the Mortgagee.
(c) Comprehensive public liability insurance
(including coverage for elevators and escalators, if any, on the Premises and,
if any construction of new Improvements occurs after execution of this Mortgage,
completed operations coverage for two (2) years after construction of the
Improvements has been completed) on an "occurrence basis" against claims for
"personal injury" including without limitation bodily injury, death or property
damage occurring on, in or about the Premises and the adjoining streets,
sidewalks and passageways, plus loss of rents coverage, such insurance to afford
immediate minimum protection to a limit of not less than One Million and 00/100
Dollars ($1,000,000.00), or in such greater amount as the Mortgagee may
reasonably require. The policy shall include the Mortgagee as a named insured.
(d) During the course of any construction or repair
of Improvements on the Premises:
(i) Worker's compensation insurance
(including employer's liability insurance, if requested by the Mortgagee) for
all employees of the Mortgagor engaged on or with respect to the Premises in
such amount as is reasonably satisfactory to the Mortgagee, or, if such limits
are established by law, in such amounts; and
(ii) Builder's completed value risk
insurance against "all risks of physical loss", including collapse and transit
coverage, during construction of such Improvements, with deductibles not to
exceed One Thousand and 00/100 Dollars ($1,000.00), in non-reporting form,
covering the total value of work performed and equipment, supplies and materials
furnished. Said policy of insurance shall contain the "permission to occupy upon
completion of work or occupancy" endorsement.
(e) Such other insurance, and in such amounts, as may
from time to time be required by the Mortgagee against the same or other
hazards.
The Mortgagor may effect for its own account any insurance not
required under this Section 1.04, but any such insurance effected by the
Mortgagor on the Premises, whether or not so required, shall be for the mutual
benefit of the Mortgagor and the Mortgagee and shall be subject to the other
provisions of this Mortgage.
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<PAGE> 5
1.05 DELIVERY OF POLICIES, PAYMENT OF PREMIUMS. All policies
of insurance shall be issued by companies and in amounts in each company
satisfactory to the Mortgagee. All policies must have no less than a Best's
Class A XII category designation. All policies of insurance shall have attached
thereto a lender's loss payment endorsement and a waiver of subrogation rights,
both for the benefit of the Mortgagee in form satisfactory to the Mortgagee. The
Mortgagee consents to the Mortgagor providing any of the required insurance
through blanket policies carried by the Mortgagor and covering more than one
location. The Mortgagor shall furnish the Mortgagee with a certificate of
insurance for each such policy setting forth the coverage, the limits of
liability, the name of the carrier, the policy number, and the expiration date.
At least thirty (30) days prior to the expiration of each such policy, the
Mortgagor shall furnish the Mortgagee with evidence satisfactory to the
Mortgagee of the payment of the premium and the reissuance of a policy
continuing insurance in force as required by this Mortgage. All such policies
shall contain the New York standard mortgagee clause and a provision that such
policies will not be cancelled, allowed to expire or materially amended, which
term shall include any reduction in the scope or limits of coverage, without at
least thirty (30) days prior written notice to the Mortgagee. In the event the
Mortgagor fails to provide, maintain, keep in force or deliver and furnish to
the Mortgagee the policies of insurance or certificates thereof, as required by
this Section, the Mortgagee may procure such insurance or single-interest
insurance for such risks covering the Mortgagee's interest, and the Mortgagor
will pay all premiums thereon promptly upon demand by the Mortgagee, and until
such payment is made by the Mortgagor the amount of all such premiums together
with interest thereon at the Default Rate (as that term is defined in the Note)
shall be secured by this Mortgage. In the alternative to demanding payment of
such insurance premiums, the Mortgagee may add the amount of such insurance
premiums to the outstanding principal balance of the Note and secured by this
Mortgage.
1.06 INSURANCE PROCEEDS. That after the happening of any
casualty to the Premises or any part thereof, the Mortgagor shall give prompt
written notice thereof to the Mortgagee.
(a) In the event of any damage or destruction of the
Improvements, the Mortgagee shall have the option in its sole discretion of
applying or paying all or part of the insurance proceeds (i) to any indebtedness
secured hereby and in such order as the Mortgagee may determine, or (ii) to any
restoration of the Improvements, or (iii) to the Mortgagor.
(b) In the event of such loss or damage, all proceeds
of insurance shall be payable to the Mortgagee, and the Mortgagor hereby
authorizes and directs any affected insurance company to make payment of such
proceeds directly to the Mortgagee. The Mortgagee is hereby authorized and
empowered by the Mortgagor to settle, adjust or compromise any claims for loss,
damage or destruction under any policy or policies of insurance.
(c) Nothing herein contained shall be deemed to
excuse the Mortgagor from repairing or maintaining the Premises as provided in
this Mortgage or restoring all damage or destruction to the Premises, regardless
of whether or not there are insurance proceeds available or whether any such
proceeds are sufficient in amount, and the application or release by the
Mortgagee of any insurance proceeds shall not cure or waive any default or
notice of default under this Mortgage or invalidate any act done pursuant to
such notice.
1.07 ASSIGNMENT OF POLICIES UPON FORECLOSURE. In the event of
foreclosure of this Mortgage or other transfer of title or assignment of the
Premises in extinguishment, in whole or in part, of the debt secured hereby all
right, title and interest of the Mortgagor in and to all policies of insurance
required by this Section shall inure to the benefit of and pass to the successor
in interest to the Mortgagor or the purchaser or grantee of the Premises. The
Mortgagor hereby appoints the Mortgagee its attorney-in-fact to endorse any
checks, drafts or other instruments representing any proceeds of such insurance,
whether payable by reason of loss thereunder or otherwise.
1.08 INDEMNIFICATION; SUBROGATION; WAIVER OF OFFSET.
(a) If the Mortgagee is made a party defendant to any
litigation concerning this Mortgage or the Premises or any part thereof or
interest therein, or the occupancy thereof by the Mortgagor,
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<PAGE> 6
then the Mortgagor shall indemnify, defend and hold the Mortgagee harmless from
all liability by reason of said litigation, including reasonable attorneys' fees
and expenses incurred by the Mortgagee in any such litigation, whether or not
any such litigation is prosecuted to judgment. If the Mortgagee commences an
action against the Mortgagor to enforce any of the terms hereof or because of
the breach by the Mortgagor of any of the terms hereof, or for the recovery of
any sum secured hereby, the Mortgagor shall pay to the Mortgagee reasonable
attorneys' fees and expenses, and the right to such reasonable attorneys' fees
and expenses shall be deemed to have accrued on the commencement of such action,
and shall be enforceable whether or not such action is prosecuted to judgment.
If the Mortgagor breaches any term of this Mortgage, the Mortgagee may employ an
attorney or attorneys to protect its rights hereunder, and in the event of such
employment following any breach by the Mortgagor, the Mortgagor shall pay the
Mortgagee's reasonable attorneys' fees and expenses incurred by the Mortgagee,
whether or not an action is actually commenced against the Mortgagor by reason
of breach. Notwithstanding the existence of Florida Statute 57.105(2) or any
statute of a like or similar nature, the Mortgagor hereby waives any right to
any attorneys' fees thereunder and the Mortgagor agrees that the Mortgagee
exclusively shall be entitled to indemnification and recovery of any and all
attorneys' fees arising out of or related to this Mortgage and/or any agreement
contemplated to be executed in conjunction herewith.
(b) The Mortgagor waives any and all right to claim or recover
against the Mortgagee, its officers, employees, agents and representatives, for
loss of or damage to the Mortgagor, the Premises, the Mortgagor's property or
the property of others under the Mortgagor's control from any cause insured
against or required to be insured against by the provisions of this Mortgage.
(c) All sums payable by the Mortgagor hereunder shall be paid
without notice, demand, counterclaim, set off, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of the Mortgagor hereunder shall in no way be released or
discharged (except as expressly provided herein) by reason of: (i) any damage to
or destruction of or any condemnation or similar taking of the Premises or any
part thereof; (ii) any restriction or prevention of or interference with any use
of the Premises or any part thereof; (iii) any title defect or encumbrance or
any eviction from the Premises or the Improvements or any part thereof by title
paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to the Mortgagee, or any action taken with respect to this Mortgage by
any trustee or receiver of the Mortgagee, or by any court, in any such
proceeding.
1.09 TAXES, UTILITIES AND IMPOSITIONS. The Mortgagor will
pay, or cause to be paid and discharged, on or before the last day on which they
may be paid without penalty or interest, all such duties, taxes, sewer rents,
charges for water, or for setting or repairing meters, and all other utilities
in the Improvements or on the Premises or any part thereof, or any assessments
and payments, usual or unusual, extraordinary or ordinary, which shall be
imposed upon or become due and payable or become a lien upon the Premises or any
part thereof and the sidewalks or streets in front thereof and any vaults
therein by virtue of any present or future law of the United States or of the
State, County or City wherein the Premises are located (all of the foregoing
being herein collectively called "Impositions"). In default of any such payment
of any Imposition, the Mortgagee may pay the same and the amount so paid by the
Mortgagee shall, at the Mortgagee's option, either (i) become immediately due
and payable with interest at the maximum rate permitted by Florida law or (ii)
be added to the outstanding principal balance of the loan evidenced by the Note,
and in either case, shall be deemed part of the indebtedness secured by this
Mortgage.
If at any time there shall be assessed or imposed (i) a tax or
assessment on the Premises in lieu of or in addition to the Impositions payable
by the Mortgagor pursuant to this Section or (ii) a license fee, tax or
assessment imposed on the Mortgagee and measured by or based in whole or in part
upon the amount of the outstanding obligations secured hereby, then all such
taxes, assessments or fees shall be deemed to be included within the term
"Impositions" as defined in this Section, and the Mortgagor shall pay and
discharge the same as herein provided with respect to the payment of Impositions
or, at the option of the Mortgagee, all obligations secured hereby together with
all accrued interest thereon, shall immediately become due and payable. Anything
to the contrary herein notwithstanding, the Mortgagor shall have no obligation
to pay any franchise, estate, inheritance, income, excess profits or similar tax
levied on the Mortgagee or on the obligations secured hereby.
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<PAGE> 7
The Mortgagor will pay all mortgage recording taxes payable
with respect to this Mortgage or other mortgage or transfer taxes due on account
of this Mortgage or the Note secured hereby.
The Mortgagor covenants to pay and hereby indemnifies the
Mortgagee from the payment of all documentary stamp taxes and intangible and all
other taxes (whether due and payable annually or otherwise) that may be levied
upon the holding of this indebtedness evidenced by the Note, the making or
recording of the Mortgage or any modification thereof or any evidence of
indebtedness secured hereby, or the transactions contemplated by this Mortgage,
including interest, penalties and costs. The Mortgagor agrees to pay the
Mortgagee's reasonable attorneys' fees and costs incurred in connection with any
inquiry from or assertion by any governmental authority that any such taxes have
not been paid promptly when due. In the event the Mortgagee becomes obligated to
pay any such taxes, penalties and costs, then the Mortgagee shall have the right
to accelerate the payment of all sums secured by this Mortgage and all principal
and interest accrued thereon shall, without notice, immediately become due and
payable at the option of the Mortgagee.
The Mortgagor will exhibit to the Mortgagee the original
receipts or other reasonably satisfactory proof of the payment of all
Impositions which may affect the Premises or any part thereof or the lien of the
Mortgage promptly following the last date on which each such Imposition is
payable hereunder.
1.10 DEPOSITS OF TAXES AND INSURANCE PREMIUMS. In order to
more fully protect the security of this Mortgage and the fulfillment by the
Mortgagor of the obligations and undertakings contained in Sections 1.04, 1.05
and 1.09 hereof and, solely as additional security to the Mortgagee, in addition
to the monthly payments of interest and principal as provided herein, the
Mortagee may require at any time and from time to time, for any or no reason,
that the Mortgagor pay to the Mortgagee or to its designated representative, to
be held in a commingled non-interest bearing escrow account, on the date set in
this Mortgage for the payment of principal and interest, an amount which shall
be equal to 1/12th of the annual Impositions that may become due during the year
and an amount which shall be equal to 1/12th of the annual insurance premiums
with respect to insurance coverage that the Mortgagor is required to maintain
pursuant to the provisions of this Mortgage (all as estimated by the Mortgagee,
or its representative). If the Mortgagee makes the aforesaid election, the
Mortgagor shall cause all bills, statements or other documents relating to
Impositions or the payment of insurance premiums to be sent or mailed directly
to the Mortgagee or its designated representative. Upon receipt of such bills,
statements or other documents, and, providing the Mortgagor has deposited
sufficient funds with the Mortgagee or its designated representative pursuant to
the provisions of this Section, the Mortgagee or its designated representative
shall pay such amounts as may be due thereunder out of the funds so deposited
with the Mortgagee or its designated representative. If the aforesaid sums are
found to be insufficient to fully pay the said Impositions or insurance premiums
when said items become due, the Mortgagor agrees to pay such deficiency
immediately upon demand, and in default thereof the Mortgagee may pay the same
and add the sum so paid to the principal sum secured by this Mortgage, and said
additional sum shall be payable to the Mortgagee on demand with interest thereon
at the maximum rate permitted by Florida law; also the Mortgagor agrees to pay
when due, all prior Impositions and insurance premiums for which provisions have
not been made hereinbefore and promptly to deliver the official receipt therefor
to the Mortgagee, and in default of payment thereof, the Mortgagee may pay the
same and add the amounts so paid to the principal sum secured by this Mortgage,
and said additional sums shall be payable to the Mortgagee on demand with
interest thereon at the maximum rate permitted by Florida law. The failure to
pay any of the aforesaid payments referred to in this Section shall after
fifteen (15) days' prior written notice and failure of the Mortgagor to cure
within such time, be deemed a default under the terms of this Mortgage, for
which the Mortgagee may, at its sole option, declare the entire unpaid balance
of principal then due and owing, to be immediately due and payable. Said
payments shall be paid to the Mortgagee until the Note is paid in full. The
Mortgagee under the provisions of this Mortgage may at any time, in its sole
discretion, apply any balance accumulated in the above funds as a credit against
any unpaid interest due under the Note and/or in reduction of the amount of
principal then remaining unpaid under the Note. Notwithstanding all of the
foregoing, nothing contained herein shall cause the Mortgagee or its designated
representative to be deemed a trustee of said funds or to be obligated to pay
any amounts in excess of the amounts of funds deposited with the Mortgagee or
its designated representative pursuant to this Section. The Mortgagee or its
designated representative may commingle said reserve with its own funds, and the
Mortgagor shall be entitled to no interest thereon. In the event that the
Mortgagee elects to permit the
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Mortgagor to pay Impositions directly, the Mortgagor shall cause the Mortgagee
to receive evidence of paid Impositions no later than March 20th of the year
following the year in which such Impositions were assessed.
It is the intention of the Mortgagor and the Mortgagee herein
that the payments as set forth in the paragraph above shall be sufficient so
that when such payments are due to any taxing authority or insurance carrier,
there will be sufficient money held by the Mortgagee to make such payments on
their due dates.
1.11 MAINTENANCE, REPAIRS, ALTERATIONS. The Mortgagor will
keep the Mortgaged Property, or cause the same to be kept, in good condition and
repair and fully protected from the elements to the satisfaction of the
Mortgagee; the Mortgagor will commit or permit no waste thereon and will do or
permit no act by which the Premises shall become less valuable; the Mortgagor
will not remove, demolish or structurally alter any of the Improvements (except
such alterations as may be required by laws, ordinances or regulations) without
the prior written permission of the Mortgagee; the Mortgagor will complete
promptly and in good and workmanlike manner any building or other Improvement
which may be constructed on the Premises and promptly restore in like manner any
Improvement which may be damaged or destroyed thereon and will pay when due all
claims for labor performed and materials furnished therefor; and the Mortgagor
will use and operate, and will require its lessees or licensees to use or
operate, the Premises in compliance with all applicable laws, ordinances,
regulations, covenants, conditions and restrictions, and with all applicable
requirements of any ground lease, lease or sublease now or hereafter affecting
the Premises or any part thereof. The Mortgagee and its representatives shall
have access to the Premises at all reasonable times to determine whether the
Mortgagor is complying with its obligations under this Mortgage, including, but
not limited to, those set out in this Section.
1.12 EMINENT DOMAIN. Should the Mortgaged Property, or any
part thereof or interest therein, be taken or damaged by reason of any public
use or improvement or condemnation proceeding, or in any other manner
("Condemnation"), or should the Mortgagor receive any notice or other
information regarding such Condemnation, the Mortgagor shall give prompt written
notice thereof to the Mortgagee.
(a) The Mortgagee shall be entitled, to all compensation,
awards and other payments or relief granted in connection with such
Condemnation, and shall be entitled, at its option, to commence, appear in its
own name any action or proceedings relating thereto. In the event of such an
appearance, the Mortgagor agrees to pay reasonable attorneys' fees incurred by
the Mortgagee. All such compensation, awards, damages, rights of action and
proceeds awarded to the Mortgagor (the "Proceeds") are hereby assigned to the
Mortgagee, and the Mortgagor agrees to execute such further assignments of the
Proceeds as the Mortgagee may require.
(b) In the event any portion of the Mortgaged Property is so
taken or damaged, the Mortgagee shall have the option in its sole and absolute
discretion, to apply all such Proceeds, after deducting therefrom all costs and
expenses (regardless of the particular nature thereof and whether incurred with
or without suit), including reasonable attorneys' fees, incurred by it in
connection with such Proceeds, upon any indebtedness secured hereby or to apply
all such Proceeds, after such deductions, to the restoration of the Premises
upon such reasonable conditions as the Mortgagee may determine. Such application
or release shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.
(c) Any amounts received by the Mortgagee hereunder (after
payment of any costs in connection with obtaining same) shall, if retained by
the Mortgagee, be applied in payment of any accrued interest and then in
reduction of the then-outstanding principal sum of the Note secured hereby
notwithstanding that the same may not then be due and payable. Any amount so
applied to principal shall be applied to the payment of installments of
principal on the Note in inverse order of their due dates.
1.13 ACTIONS AFFECTING THE SECURITY OF THIS MORTGAGE. The
Mortgagor shall appear in and contest any action or proceeding purporting to
affect the security hereof or the rights or powers of the Mortgagee. If any
action or proceeding affecting the Mortgaged Property or any part thereof shall
be commenced, to which action or proceeding the Mortgagee is made a party or in
which the right to use the Mortgage Property or any part thereof is threatened
or in which, in the opinion of the Mortgagee, it becomes
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necessary to defend or uphold the lien of this Mortgage, all sums paid by the
Mortgagee in connection therewith, including reasonable attorneys' fees, shall
be paid by the Mortgagor, together with interest thereon at the maximum rate
permitted by Florida law, and any such sum and the interest thereon shall be a
lien on the Premises, prior to any right or title to, interest in, or claim upon
the Premises attaching or accruing subsequent to or otherwise subordinate to the
lien of this Mortgage and shall be deemed to be secured by this Mortgage.
1.14 ACTIONS BY MORTGAGEE TO PRESERVE THE SECURITY OF THIS
MORTGAGE. If the Mortgagor fails to make any payment or to do any act as and in
the manner provided for in this Mortgage or the Note secured hereby, the
Mortgagee, in its own discretion, without obligation so to do, may make or do
the same in such manner and to such extent as the Mortgagee may deem necessary
to protect the security hereof. The Mortgagor will pay upon demand all expenses
incurred or paid by the Mortgagee (including, but not limited to, reasonable
counsel fees and court costs) on account of the exercise of any of the aforesaid
rights or privileges or on account of any litigation which may arise in
connection with this Mortgage or the Note or on account of any attempt, without
litigation, to enforce the terms of this Mortgage or said Note. In case the
Mortgaged Property or any part thereof shall be advertised for foreclosure sale
and not sold, the Mortgagor shall pay all costs in connection therewith.
In the event that the Mortgagee is called upon to pay any sums
of money to protect this Mortgage and the Note secured hereby as aforesaid, all
monies advanced or due hereunder shall become immediately due and payable,
together with interest at a rate equal to the Default Rate of the Note (as that
term is defined in the Note), computed from the date of such advance to the date
of the actual receipt of payment thereof by the Mortgagee and shall be deemed
part of the indebtedness secured by this Mortgage. All such payments to protect
this Mortgage and the Note shall be secured by the Mortgage, regardless of when
made, notwithstanding the limitation on the duration of the right to lien for
future advances expressed by Florida law or in the introductory provisions or in
Section 5.10 of this Mortgage.
The Mortgagor for itself and for all future owners of the
Premises herein described, agrees that in the event the Mortgagee shall obtain a
money judgment, in accordance with the terms and conditions contained in the
Note and/or Mortgage, then interest at a rate of interest equal to the Default
Rate (as that term is defined in the Note) shall be secured hereunder and shall
accrue and be due and payable on said money judgment from the date of entry
thereof, until the said judgment is paid in full.
In the event this Mortgage is placed in the hands of an
attorney for the collection of any sum payable hereunder, the Mortgagor agrees
to pay all costs of collection, including reasonable attorneys' fees, incurred
by the Mortgagee, either with or without the institution of any action or
proceeding, and in addition to all costs, disbursements and allowances provided
by law. All such costs so incurred shall be deemed to be secured by this
Mortgage.
1.15 SURVIVAL OF WARRANTIES. The Mortgagor covenants to fully
and faithfully satisfy and perform the obligations of the Mortgagor contained in
the Mortgagor's loan application and the Mortgagee's loan commitment, and any
such application and commitment between the Mortgagor and any assignee of the
Mortgagee, and each agreement of the Mortgagor incorporated by reference therein
or herein, and any modification or amendment thereof. All representations,
warranties and covenants of the Mortgagor contained therein or incorporated by
reference shall survive the close of escrow and funding of the loan evidenced by
the Note and shall remain continuing obligations, warranties and representations
of the Mortgagor during any time when any portion of the obligations secured by
this Mortgage remain outstanding.
1.16 ADDITIONAL SECURITY. In the event the Mortgagee at any
time holds additional security for any of the obligations secured hereby, it may
enforce the sale thereof or otherwise realize upon the same, at its option,
either before or concurrently herewith or after a sale is made hereunder.
1.17 INSPECTIONS. The Mortgagee, or its agents,
representatives or workmen, are authorized to enter at any reasonable time upon
or in any part of the Premises for the purpose of inspecting the same and for
the purpose of performing any of the acts it is authorized to perform under the
terms of this Mortgage. The Mortgagor agrees to reimburse the Mortgagee for
reasonable out-of-pocket expenses incurred for biannual property inspections
performed by independent third parties.
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1.18 LIENS. The Mortgagor shall pay and promptly discharge, at
the Mortgagor's cost and expense, all liens, encumbrances and charges upon the
Mortgaged Property or any part thereof or interest therein. The Mortgagor shall
have the right to contest in good faith the validity of any such lien,
encumbrance or charge, provided the Mortgagor shall first deposit with the
Mortgagee a bond or other security satisfactory to the Mortgagee in such amounts
as the Mortgagee shall reasonably require, but not more than the amount required
to legally bond off such claim, and provided further that the Mortgagor shall
thereafter diligently proceed to cause such lien, encumbrance or charge to be
removed and discharged. If the Mortgagor shall fail to discharge any such lien,
encumbrance or charge, then, in addition to any other right or remedy of the
Mortgagee, the Mortgagee may, but shall not be obligated to, discharge the same,
either by paying the amount claimed to be due, or by procuring the discharge of
such lien by depositing in court a bond for the amount claimed or otherwise
giving security for such claim, or in such manner as is or may be prescribed by
law. Any amount so paid by the Mortgagee shall, at the Mortgagee's option,
become immediately due and payable together with interest at a rate of interest
equal to the Default Rate (as that term is defined in the Note), and shall be
deemed part of the indebtedness secured by this Mortgage.
1.19 FUTURE MODIFICATIONS. The Mortgagor, for itself and for
all future owners of the Mortgaged Property, agrees that this Mortgage may be
modified, varied, extended, renewed or reinstated at any time by agreement
between the holder of this Mortgage and the Mortgagor or the then owner of the
Mortgaged Property, without notice to, or the consent of, any subordinate
mortgagee or lienor, and any such modification, variance, extension, renewal or
reinstatement shall be binding upon such subordinate mortgagee or lienor with
the same force and effect as if said subordinate mortgagee or lienor had
affirmatively consented thereto. This clause shall be self-operative, and no
further instrument of subordination shall be required from any subordinate
mortgagee or lienor.
1.20 CONTINUED OCCUPANCY. If at any time the use or occupancy
of any part of the Mortgaged Property as a laboratory shall, pursuant to any
zoning or other law, ordinance or regulation, be permitted only so long as such
use or occupancy shall continue, the Mortgagor will not cause or permit such use
or occupancy to be discontinued without the prior written consent of the
Mortgagee.
1.21 FINANCIAL STATEMENTS. The Mortgagor shall furnish to the
Mortgagee within ninety (90) days of the end of the Mortgagor's fiscal year, in
a form acceptable to the Mortgagee, annual certified audited financial
statements of the Mortgagor. All financial statements shall be in accordance
with generally accepted accounting practices.
1.22 ENVIRONMENTAL PROTECTION. The Mortgagor, its successors
and assigns, after reasonable inquiry, covenants, warrants and represents that,
a. No pollutants or other toxic or hazardous substances, as
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), 42 U.S.C.ss.9601 et. Seq., or any other federal or
Florida law, including any solid, liquid, gaseous, or thermal irritant or
contaminant, such as smoke, vapor, soot, fumes, acids, alkalis, chemicals or
waste (including materials to be recycled, reconditioned or reclaimed)
(collectively "Hazardous Materials") have been or shall be discharged,
disbursed, released, stored, treated, generated, disposed of, or allowed to
escape or migrate, or shall threaten to be injected, emptied, poured, leached,
or spilled (collectively referred to as the "release") on or from the Mortgaged
Property.
b. No asbestos or asbestos-containing materials have been or
will be (during the term of the Note) installed, used, incorporated into, placed
on, or disposed of on the Mortgaged Property.
c. No polychlorinated biphenyls ("PCBs") are or will be
(during the term of the Note) located on or in the Mortgaged Property, in the
form of electrical transformers, fluorescent light fixtures with ballasts,
cooling oils, or any other device or form.
d. No underground storage tanks are or will be (during the
term of the Note) located on the Mortgaged Property or were located on the
Mortgaged Property and subsequently removed or filled, except for the existing
storage tank which has been filed and rendered useless.
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e. No investigation, administrative order, consent order and
agreement, litigation, settlement, lien or encumbrance (collectively referred to
as the "action") with respect to Hazardous Materials is proposed, threatened,
anticipated or in existence with respect to the Mortgaged Property.
f. The Mortgaged Property and the Mortgagor's operations at
the Mortgaged Property are in compliance with all applicable federal, state and
local statutes, laws and regulations. No notice has been served on the
Mortgagor, or any subsidiary of the Mortgagor, from any entity, governmental
body, or individual claiming any violation of any law, regulation, ordinance or
code, or requiring compliance with any law, regulation, ordinance or code, or
demanding payment or contribution for environmental damage or injury to natural
resources. Copies of any such notices received after settlement shall be
forwarded to the Mortgagee within three (3) days of their receipt.
g. The Mortgagor has no knowledge of the release or threat of
release of any Hazardous Material from any property adjoining or in the
immediate vicinity of the Mortgaged Property.
h. No portion of the Mortgaged Property is a wetland or other
water of the United States subject to jurisdiction under Section 404 of the
Clean Water Act (33 U.S.C. ss. 1344) or any comparable state statute or local
ordinance or regulation defining or protecting wetlands or other special aquatic
areas.
i. There are no concentrations of radon or other radioactive
gases or materials in any buildings or structures on the Mortgaged Property that
exceed background ambient air levels.
j. To the best of the Mortgagor's knowledge, there have been
no complaints of illness or sickness alleged to result from conditions inside
any buildings or structures on the Mortgaged Property.
Failure to comply with any provision of this Section 1.22,
including failure to fully and accurately complete any schedule or attachment
described in this Section 1.22 shall be deemed to be an occurrence of default
under this Mortgage.
The liability of the Mortgagor to the Mortgagee under the
covenants of this Section 1.22 is not limited by any exculpatory provision in
the Note or in the other documents securing the Note. The Mortgagor's covenants,
warranties and representations made in this Section 1.22 shall survive any
termination or expiration of the documents securing the Note and/or the
repayment of the indebtedness evidenced by the Note including but not limited to
any foreclosure on this Mortgage or deed-in-lieu of foreclosure, it being
understood and agreed that the covenants, warranties and representations given
in this Section 1.22 are independent of the secured indebtedness and the
documents securing the Note.
1.23 VALUATION OF THE PREMISES. The value of the Premises
shall at all times during the term of this Mortgage equal at least One Million
and 00/100 Dollars ($1,000,000.00).
1.24 YEAR 2000. The Mortgagor shall take all action necessary
to assure that the Mortgagor's computer-based systems are able to operate and
effectively process data, including dates on and after January 1, 2000. At the
Mortgagee's request, the Mortgagor shall provide the Mortgagee with assurance
acceptable to the Mortgagee of the Mortgagor's Year 2000 compatibility.
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ARTICLE II
ASSIGNMENT OF LEASES, SUBLEASES,
RENTS, ISSUES AND PROFITS
2.01 ASSIGNMENT OF RENTS. The Mortgagor hereby assigns and
transfers to the Mortgagee all the leases, subleases, rents, issues and profits
of the Mortgaged Property, and hereby gives to and confers upon the Mortgagee
the right, power and authority to collect such rents, issues and profits. The
Mortgagor irrevocably appoints the Mortgagee its true and lawful
attorney-in-fact, at the option of the Mortgagee at any time and from time to
time, to demand, receive and enforce payment, to give receipts, releases and
satisfactions, and to sue, in the name of the Mortgagor or the Mortgagee, for
all such rents, issues and profits and apply the same to the indebtedness
secured hereby; provided, however, that the Mortgagor shall have the right to
collect such rents, issues and profits (but not more than one (1) month in
advance) prior to or at any time there is not an event of default under this
Mortgage. The assignment of the leases, subleases, rents, issues and profits of
the Premises in this Article II is intended to be an absolute assignment from
the Mortgagor to the Mortgagee and not merely the passing of a security
interest. The leases, subleases, rents, issues and profits are hereby assigned
absolutely by the Mortgagor to the Mortgagee contingent only upon the occurrence
of an event of default under this Mortgage.
2.02 LEASE DEPOSITS AND OTHER CHARGES. All amounts paid to the
Mortgagor as security deposits, cancellation charges, premium or penalties shall
forthwith be and hereby are pledged to the Mortgagee as additional collateral
for the payment of the sums secured by this Mortgage. Upon default, the
Mortgagee shall be entitled to immediate delivery of said sums and the Mortgagee
may apply such deposits to the indebtedness secured hereby. The Mortgagor shall
comply in all respects with all laws and regulations affecting the collection,
holding and/or disbursement of security deposits.
2.03 COLLECTION UPON DEFAULT. Upon any event of default under
this Mortgage, the Mortgagee may, at any time without notice, either in person,
by agent or by a receiver appointed by a court, and without regard to the
adequacy of any security for the indebtedness hereby secured, enter upon and
take possession of the Premises, or any part thereof, in its own name, sue for
or otherwise collect such rents, issues and profits, including those past due
and unpaid, and apply the same, less costs and expenses of operation and
collection, including reasonable attorneys' fees, upon any indebtedness secured
hereby, and in such order as the Mortgagee may determine. The collection of such
rents, issues and profits, or the entering upon and taking possession of the
Premises, or the application thereof as aforesaid, shall not cure or waive any
default or notice of default hereunder or invalidate any act done in response to
such default or pursuant to such notice of default. In addition (and not as an
election of remedies) upon the occurrence of a default, the Mortgagee may apply
for a court order requiring the Mortgagor to deposit all rents in the court
registry pursuant to Section 697.07, Florida Statutes. The Mortgagor hereby
consents to the entry of such an order upon the sworn EX PARTE motion of the
Mortgagee that a default has occurred hereunder.
2.04 RESTRICTION ON FURTHER ASSIGNMENTS, ETC. Except as
hereinafter specifically provided, the Mortgagor will not, without prior written
consent of the Mortgagee, assign the rents, issues or profits, or any part
thereof, from the Premises or any part thereof; and will not consent to the
modification, cancellation or surrender of any lease or sublease covering the
Premises. Any action of the Mortgagor in violation of the terms of this Section
shall be void as against the Mortgagee in addition to being a default under this
Mortgage.
The Mortgagor will not, without the consent of the Mortgagee,
consent to the cancellation or surrender of, or accept prepayment of rents,
issues or profits, other than rent paid at the signing of a lease or sublease,
under any lease or sublease now or hereafter covering the Premises or any part
thereof, nor modify any such lease or sublease and any such purported
assignment, cancellation, surrender, prepayment or modification made which does
not conform with the provisions hereof shall be void as against the Mortgagee.
The Mortgagor will, upon demand of the Mortgagee, enter into an agreement with
the Mortgagee with respect to the provisions contained in the preceding
provision regarding any lease or sublease covering said Premises or any part
thereof, and the Mortgagor hereby appoints the Mortgagee attorney-in-fact of the
Mortgagor to execute and deliver any such agreement on behalf of the Mortgagor
and deliver written notice thereof to the tenant to whose lease such agreement
relates.
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The Mortgagor agrees to furnish to the Mortgagee within ten
(10) days of the Mortgagee's request a copy of any modification of any lease
presently in effect and copies of all future leases affecting the Premises
covered by this Mortgage.
All leases or subleases hereafter entered into by the
Mortgagor with respect to the Premises or any part thereof, shall be subordinate
to the lien of this Mortgage unless expressly made superior to this Mortgage in
the manner hereinafter provided. At any time or times the Mortgagee may execute
and record in the appropriate Office of the County Clerk of the County where the
Premises are situated, a Notice of Subordination reciting that the lease or
leases therein described shall be superior to the lien of this Mortgage. From
and after the recordation of such Notice of Subordination, the lease or leases
therein described shall be superior to the lien of this Mortgage and shall not
be extinguished by any foreclosure sale hereunder.
2.05 NEW LEASES. The Mortgagor shall not lease any portion of
the Premises without the Mortgagee's prior written consent.
ARTICLE III
SECURITY AGREEMENT
3.01 CREATION OF SECURITY INTEREST. The Mortgagor hereby
grants to the Mortgagee a security interest in the Mortgagor's Personal Property
wherever located, including without limitation any and all property of similar
type or kind hereafter located on or at the Premises, and whether now or
hereafter existing or now owned or hereafter acquired or arising, for the
purpose of securing all obligations of the Mortgagor set forth in this Mortgage.
A security interest is also granted to the Mortgagee
in any sums held by the Mortgagee, or its loan servicing agent, pursuant to the
provisions of this Mortgage or other collateral agreements or any agreements
between the Mortgagor, the Mortgagee and any Escrow Agent holding loan proceeds
pending disbursements as provided in said agreements, where such sums are held
for the benefit of the Mortgagee.
3.02 WARRANTIES, REPRESENTATIONS AND COVENANTS OF MORTGAGOR.
The Mortgagor hereby warrants, represents and covenants as follows:
(a) Except for the security interest granted hereby, the
Mortgagor is, and as to portions of the Personal Property to be acquired after
the date hereof will be, the sole owner of the Personal Property, free from any
adverse lien, security interest, encumbrance or adverse claims thereon of any
kind whatsoever. The Mortgagor will notify the Mortgagee of, and will defend the
Personal Property against, all claims and demands of all persons at any time
claiming the same or any interest therein.
(b) The Mortgagor will not lease, sell, convey, encumber or in
any manner transfer the Personal Property without the prior written consent of
the Mortgagee, except to replace it with Personal Property of equal or greater
value.
(c) The Personal Property is not used or bought for personal,
family or household purposes.
(d) The Personal Property will be kept on or at the Premises
and the Mortgagor will not remove the Personal Property from the Premises
without the prior written consent of the Mortgagee, except such portions or
items of Personal Property which are consumed or worn out in ordinary usage, all
of which shall be promptly replaced by the Mortgagor with new items of equal or
greater quality.
(e) The Mortgagor maintains a place of business in the State
of Florida, and the Mortgagor will immediately notify the Mortgagee in writing
of any change in its place of business as set forth in the beginning of this
Mortgage.
(f) At the request of the Mortgagee, the Mortgagor will join
the Mortgagee in executing one or more financing statements and renewals and
amendments thereof pursuant to the Uniform
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Commercial Code of Florida in form satisfactory to the Mortgagee, and will pay
the cost of filing the same in all public offices wherever filing is deemed by
the Mortgagee to be necessary or desirable.
(g) All covenants and obligations of the Mortgagor contained
herein relating to the Premises shall be deemed to apply to the Personal
Property whether or not expressly referred to herein.
(h) This Mortgage constitutes a Security Agreement as that
term is used in the Uniform Commercial Code of Florida.
(i) The Mortgagor is financially solvent at the time of
execution, recording of this Mortgage and disbursement of loan proceeds, and
further represents it has committed no act of bankruptcy nor has any proceeding
been commenced by or against the Mortgagor under any bankruptcy or insolvency
laws, and that there has been no material adverse change in the Mortgagor's
business or financial condition.
(j) The Mortgagor shall comply, and shall ensure that the
Premises comply, at all times while this Mortgage is in effect with all laws,
ordinances, rules and regulations.
3.03 MORTGAGOR'S CHANGE OF NAME. In the event of any change in
name or identity of the Mortgagor which is authorized hereunder, the Mortgagor
shall promptly execute such Uniform Commercial Code forms as are necessary to
maintain the priority of the Mortgagee's lien upon any Personal Property,
including future replacement thereof, which serves as collateral under this
agreement, and shall pay all expenses in connection with the filing and
recording thereof.
3.04 GRANT OF POWER OF ATTORNEY. Mortgagor hereby appoints any
officer or agent of Mortgagee as Mortgagor's true and lawful attorney-in-fact,
after the occurrence of an event of default, with power to endorse the name of
Mortgagor upon any notices, checks, drafts, money orders or other instruments of
payment or Personal Property which may come into possession of Mortgagee; to
sign and endorse the name of Mortgagor upon any invoices, freight or express
bills, bills of lading, stored or warehouse receipts, drafts against account
debtors, assignments, verifications and notices in connection with accounts; and
to give written notice to such office and officials of the United States Postal
Service to effect such change or changes of address so that all mail addressed
to Mortgagor may be delivered directly to Mortgagee (Mortgagee will return all
mail not related to the Note, this Mortgage or the Personal Property); granting
unto Mortgagor's said attorney full power to do any and all things necessary to
be done with respect to the above transaction as fully and effectively as
Mortgagor might or could do so, and hereby ratifying all its said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney shall
be irrevocable for the term of this Mortgage and all transactions hereunder.
ARTICLE IV
REMEDIES UPON DEFAULT
4.01 EVENTS OF DEFAULT. Any one or more of the following shall
constitute a default ("Default") under this Mortgage and the Note hereby if not
cured within the following time periods: (i) upon occurrence as to (c), (g),
(h), (j), (k) and (o), (ii) ten (10) days after written notice is given by the
Mortgagee as to (a) and (b), and (iii) thirty (30) days after written notice is
given by the Mortgagee as to items (d) through (f), (i), (l), (m), (n), (p), (q)
and (r), unless otherwise specifically provided in this Mortgage:
(a) Failure of the Mortgagor to make one or more payments
required by the Note, this Mortgage, or any other document related to the Note
or this Mortgage.
(b) Failure of the Mortgagor to pay the amount of any costs,
expenses or fees (including attorneys fees and expenses at the pre-trial, trial
and appellate levels) of the Mortgagee, with interest thereon, as required by
any provision of this Mortgage or the Note.
(c) Failure to exhibit to the Mortgagee, within ten (10) days
after demand, receipts showing payment of all taxes, water rates, sewer rents
and assessments.
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(d) Except as hereinbefore permitted, the actual or threatened
alteration, demolition or removal of any building on the Premises without the
written consent of the Mortgagee.
(e) If the Improvements on said Premises are not maintained in
good repair pursuant to Section 1.11.
(f) Failure to comply with any requirements or order or notice
of violation of law or ordinance issued by any governmental department claiming
jurisdiction over the Mortgaged Property within thirty (30) days from the
issuance thereof.
(g) The institution of any bankruptcy, reorganization or
insolvency proceedings against the then-owner or the Mortgagor in possession of
the Mortgage Property or the appointment of a receiver or a similar official
with respect to all or a substantial part of the properties of the then-owner or
the Mortgagor in possession of the Mortgaged Property and a failure to have such
proceedings dismissed or such appointment vacated within a period of thirty (30)
days.
(h) The institution of any voluntary bankruptcy,
reorganization or insolvency proceedings by the then owner or the Mortgagor in
possession of the Mortgaged Property or a Guarantor or the appointment of a
receiver or a similar official with respect to all or a substantial part of the
properties of the then owner or the Mortgagor in possession of the Mortgaged
Property or a Guarantor at the instance of the then owner or the Mortgagor in
possession of the Mortgaged Property or a Guarantor.
(i) Failure of the Mortgagor to comply with or perform any
other warranty, covenant or agreement contained herein, in the Note, in that
certain Security Agreement dated of even date herewith between Mortgagor and
Vira-Tech, Inc., both as debtors, and Mortgagee, as secured party, in that
certain Stock Pledge Agreement dated of even date herewith between Dennis W.
Healey, as pledgor, and Mortgagee, as pledgee, or in any other instrument
securing, or relating to, the Note.
(j) The transfer, sale or conveyance of legal or equitable
title to the Premises or any interest therein without the prior written consent
of the Mortgagee.
(k) The further encumbrancing of the Premises without the
Mortgagee's prior written consent.
(l) Any default occurring under or any misrepresentation
contained in the Hazardous Substance Covenants, Warranties and Representations
contained in Section 1.22 hereof, or the Note secured hereby or that certain
Assignment of Rents and Leases made and executed by the Mortgagor in connection
herewith.
(m) Failure of the Mortgagor to pay any other debts as they
come due.
(n) Failure of the Mortgagor to comply with or perform any
covenant or agreement required by any other lender to the Mortgagor.
(o) Any representation warranty, statement or certificate in
any loan document is determined by the Mortgagee to be untrue.
(p) Failure of the Mortgagor to satisfy or discharge any
judgment against the Mortgagor within thirty (30) days after the entry thereof.
(q) The occurrence of a material adverse change in the
business prospects or financial condition of the Mortgagor as determined by the
Mortgagee.
(r) An event of default has occurred and is continuing under
any Guaranty executed in connection with this Mortgage and the Note.
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4.02 ACCELERATION UPON DEFAULT, ADDITIONAL REMEDIES. In the
event that one or more defaults as above provided shall occur, the remedies
available to the Mortgagee shall include, but not necessarily be limited to, any
one or more of the following:
(a) The Mortgagee may declare the entire unpaid balance of the
Note and all accrued interest thereon immediately due and payable without
further notice.
(b) The Mortgagee may take immediate possession of the
Mortgaged Property or any part thereof (which the Mortgagor agrees to surrender
to the Mortgagee) and manage, control or lease the same to such person or
persons and at such rental as it may deem proper and collect all the rents,
issues and profits therefrom, including those past due as well as those
thereafter accruing, with the right in the Mortgagee to cancel any lease or
sublease for any cause which would entitle the Mortgagor to cancel the same; to
make such expenditures for maintenance, repairs and costs of operation as it may
deem advisable; and after deducting the cost thereof and a commission of five
percent (5%) upon the gross amounts of rents collected, to apply the residue to
the payment of any sums which are unpaid hereunder or under the Note. The taking
of possession under this paragraph shall not prevent concurrent or later
proceedings for the foreclosure sale of the Premises as provided elsewhere
herein.
(c) The Mortgagee may apply, on EX PARTE motion, to any court
of competent jurisdiction for the appointment of a receiver to take charge of,
manage, preserve, protect, complete construction of and operate the Premises and
any business or businesses located thereon, to collect rents, issues and profits
and income therefrom; to make all necessary and needed repairs to the Premises;
to pay all taxes and assessments against the Premises and insurance premiums for
insurance thereon; and after the payment of the expenses of the receivership,
including reasonable attorneys' fees to the Mortgagee's attorney, and after
compensation to the receiver for management and completion of the Premises, to
apply the net proceeds derived therefrom in reduction of the indebtedness
secured hereby or in such manner as such court shall direct. The appointment of
such receiver shall be of strict right to the Mortgagee, regardless of the value
of the security for the indebtedness secured hereby or of the solvency of any
party primarily or secondarily bound for the payment of such indebtedness. All
expenses, fees and compensation incurred pursuant to a receivership approved by
such court, shall be secured by the lien of this Mortgage until paid. The
receiver and the receiver's agents shall be entitled to enter upon and take
possession of any and all of the Premises, together with any and all businesses
conducted thereon and all business assets used in conjunction therewith or
thereon, or any part or parts thereof, and operate and conduct such business or
businesses to the same extent and in the same manner as the Mortgagor might
lawfully do. The receiver, personally or through his agents, may exclude the
Mortgagor wholly from the Premises, and have, hold, use, operate, manage and
control the same and each and every part thereof; and may in the name of the
Mortgagor exercise all of the Mortgagor's rights and powers and maintain,
restore, insure and keep insured, the Premises as the receiver may deem
judicious. Such receivership shall, at the option of the Mortgagee, continue
until full payment of all sums secured hereby, or until title to the Premises
shall have passed by foreclosure sale under this Mortgage.
(d) The Mortgagee shall have the right to foreclose this
Mortgage and in case of sale in action or proceeding to foreclose this Mortgage,
the Mortgagee shall have the right to sell the Premises covered hereby in parts
or as an entirety. In addition, the Mortgagee shall have the right to repossess,
take possession and sell any or all of the Personal Property subject to this
Mortgage and security agreement and to apply the proceeds in accordance with
this Agreement. It is intended hereby to give to the Mortgagee the widest
possible discretion permitted by law with respect to all aspects of any such
sale or sales.
(e) Without declaring the entire unpaid principal balance due,
the Mortgagee may foreclose only as to the sum past due, without injury to this
Mortgage or the displacement or impairment of the remainder of the lien thereof,
and at such foreclosure sale the Premises shall be sold subject to all remaining
items of indebtedness; and the Mortgagee may again foreclose, in the same
manner, as often as there may be any sum past due.
(f) The Mortgagor hereby waives any appraisement before sale
of any portion of the Premises, commonly known as appraisement laws; the benefit
of any laws now or hereafter enacted which in any way may extend the time for
enforcement of the collection of the indebtedness secured hereby or
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creating or extending any period of redemption from any sale made in collecting
said indebtedness, commonly known as stay laws and redemption laws, all rights
of marshalling in the event of foreclosure of any lien or security interest
created by this Mortgage.
4.03 ADDITIONAL PROVISIONS. The Mortgagor expressly agrees, on
behalf of itself, its successors and assigns and any future owner of the
Premises, or any part thereof or interest therein, as follows:
(a) All remedies available to the Mortgagee with respect to
this Mortgage shall be cumulative and may be pursued concurrently or
successively. There are no conditions precedent to the enforcement by the
Mortgagee of any of its remedies. No delay by the Mortgagee in exercising any
such remedy shall operate as a waiver thereof or preclude the exercise thereof
during the continuance of that or any subsequent default.
(b) The obtaining of a judgment or decree on the Note, whether
in the State of Florida or elsewhere, shall not in any manner affect the lien of
this Mortgage upon the Premises covered hereby, and any judgment or decree so
obtained shall be secured hereby to the same extent as said Note is now secured.
(c) In event of any foreclosure sale hereunder, all net
proceeds shall be available for application to the indebtedness hereby secured
whether or not such proceeds may exceed the value of the Premises for
recordation tax, mortgage tax, insurance or other purposes.
(d) The Mortgagee shall have the right to set off any and all
sums owed to the Mortgagor by the Mortgagee in any capacity (whether or not then
due) against all amounts due under the Note and/or against any other liabilities
of the Mortgagor to the Mortgagee.
(e) The only limitation upon the foregoing agreements as to
the exercise of the Mortgagee's remedies is that there shall be but one full and
complete satisfaction of the indebtedness secured hereby.
4.04 REMEDIES NOT EXCLUSIVE. The Mortgagee shall be entitled
to enforce payment and performance of any indebtedness or obligations secured
hereby and to exercise all rights and powers under this Mortgage or the Note
secured hereby or under any other agreement or any laws now or hereafter in
force, notwithstanding some or all of the said indebtedness and obligations
secured hereby may now or hereafter be otherwise secured, whether by mortgage,
deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of
this Mortgage nor its enforcement shall prejudice or in any manner affect the
Mortgagee's right to realize upon or enforce any other security now or hereafter
held by the Mortgagee, it being agreed that the Mortgagee shall be entitled to
enforce this Mortgage and any other security now or hereafter held by the
Mortgagee in such order and manner as the Mortgagee may in its absolute
discretion determine. No remedy herein conferred upon or reserved to the
Mortgagee is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given to the Mortgagee or to which
it may be otherwise entitled, may be exercised, concurrently or independently
from time to time and as often as may be deemed expedient by the Mortgagee and
it may pursue inconsistent remedies.
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ARTICLE V
MISCELLANEOUS
5.01 EXISTENCE. If at any time the Premises shall be owned or
held by a person other than a natural person (such as a partnership or a
corporation), such person and any other entity which is a general partner of
that person (if applicable) shall at all times maintain its existence and shall
be fully authorized to do business in the State of Florida and shall maintain in
the State of Florida a duly authorized registered agent and office for service
of process. Failure to comply with such obligations shall, in addition to being
a default under this Mortgage, authorize the Mortgagee, as attorney-in-fact of
the Mortgagor, to appoint any person as agent of the Mortgagor for the service
of process in any proceeding or proceedings concerning this Mortgage or the
Note. Within ninety (90) days after the expiration of the time for filing its
annual report and the payment of appropriate taxes in the State of Florida, the
Mortgagor will furnish to the Mortgagee certificates of good standing or other
evidence satisfactory to the Mortgagee to show compliance with the provisions of
this Section 5.01.
5.02 STATEMENTS BY MORTGAGOR. The Mortgagor, within three (3)
days after request in person or within ten (10) days after request by mail, will
furnish to the Mortgagee or any person, firm or corporation designated by the
Mortgagee, a duly acknowledged written statement setting forth the amount of the
debt secured by this Mortgage, and stating either that no offsets or defenses
exist against such debt, or, if such offsets or defense are alleged to exist,
full information with respect to such alleged offsets and/or defenses.
5.03 SUCCESSORS AND ASSIGNS. The provisions hereof shall be
binding upon and shall inure to the benefit of the Mortgagor, its successors and
assigns (including without limitation subsequent owners of the Premises or the
leasehold estate of the Premises or any part thereof); shall be binding upon and
shall inure to the benefit of the Mortgagee, its successors and assigns and any
future holder of the Note hereby secured, and any successors or assigns of any
future holder of the Note. In the event the ownership of the Premises or any
leasehold estate that may be covered by this Mortgage, becomes vested in a
person other than the Mortgagor, the Mortgagee may, without notice to the
Mortgagor, deal with such successor or successors in interest with reference to
this instrument and the debt hereby secured in the same manner as with the
Mortgagor, and may alter the interest rate and/or alter or extend the terms of
payment of the debt secured hereby without notice to the Mortgagor and such
action shall in no way affect the liability of the Mortgagor hereunder or under
the Note hereby secured or the lien or priority of this Mortgage with respect to
any part of the Mortgaged Property covered hereby.
5.04 RESTRICTION ON TRANSFER. The Mortgagor shall not, without
the prior written consent of the Mortgagee, transfer, sell, convey or encumber
legal or equitable title to the Mortgaged Property or any interest therein. The
Mortgagee reserves the right, in its sole discretion, to accelerate the loan
upon such transfer, sale, conveyance or encumbrance. Upon such acceleration, the
entire principal balance plus all accrued interest thereon shall be due and
payable.
5.05 NOTICES. All notices, demands and requests given by
either party hereto to the other party shall be in writing. All notices, demands
and requests by the Mortgagee to the Mortgagor shall be deemed to have been
properly given if sent by United States registered or certified mail, postage
prepaid, addressed to the Mortgagor at the address indicated on Page 1 hereof,
or at such other address as the Mortgagor may from time to time designate by
written notice to the Mortgagee, given as herein required. All notices, demands
and requests by the Mortgagor to the Mortgagee shall be deemed to have been
properly given if sent by United States registered or certified mail, postage
prepaid, addressed to the Mortgagee as follows:
Equitable Bank
633 S. Federal Highway
Fort Lauderdale, Florida 33301
Attention: Mr. William M. Kurau
With a Copy to: Steven C. Elkin, Esq.
Tripp Scott, P.A.
110 S.E. 6th Street, 15th Floor
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Fort Lauderdale, Florida 33301
or to such other address as the Mortgagee may from time to time designate by
written notice to the Mortgagor given as herein required. Notices, demands and
requests given in the manner aforesaid shall be deemed sufficiently served or
given for all purposes hereunder at the time such notice, demand or request
shall be deposited in any post office or branch post office regularly maintained
by the United States Government.
The Mortgagor shall deliver to the Mortgagee, promptly upon
receipt of same, copies of all notices, certificates, documents and instruments
received by it which materially affect any part of the Premises covered hereby,
including, without limitation, notices from any lessee, sublessee claiming that
the Mortgagor is in default under any terms of any lease, sublease.
5.06 MODIFICATIONS IN WRITING. This Mortgage may not be
changed, terminated or modified orally or in any other manner than by an
instrument in writing signed by the party against whom enforcement is sought.
5.07 CAPTIONS. The captions or headings at the beginning of
each Section hereof are for the convenience of the parties and are not a part of
this Mortgage.
5.08 INVALIDITY OF CERTAIN PROVISIONS. If the lien of this
Mortgage is invalid or unenforceable as to any part of the debt, or if the lien
is invalid or unenforceable as to any part of the Premises, the unsecured
portion of the debt shall be completely paid prior to the payment of the secured
portion of the debt, and all payments made on the debt, whether voluntary or
otherwise, shall be considered to have been first paid on and applied to the
full payment of that portion of the debt which is not secured or fully secured
by the lien of this Mortgage.
5.09 NO MERGER. If both the lessor's and lessee's estates
under any lease or any portion thereof which constitutes a part of the Mortgaged
Property shall at any time become vested in one owner, this Mortgage and the
lien created hereby shall not be destroyed or terminated by application of the
doctrine of merger and, in such event, the Mortgagee shall continue to have and
enjoy all of the rights and privileges of the Mortgagee as to the separate
estates. In addition, upon the foreclosure of the lien created by this Mortgage
on the Premises pursuant to the provisions hereof, any leases or subleases then
existing and created by the Mortgagor shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless the Mortgagee or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of the Mortgagee or any such purchaser
shall constitute a termination of any lease or sublease unless the Mortgagee or
such purchaser shall give written notice thereof to such tenant or subtenants.
5.10 FUTURE ADVANCES. The Mortgagee may, from time to time, at
its option, make further advances to the Mortgagor which shall be secured by the
lien of this Mortgage; provided, however, that the unpaid principal balance so
secured by this Mortgage at any one time shall not exceed twice the amount of
the original indebtedness secured hereunder, plus interest thereon, and plus any
disbursements made by the Mortgagee for the payment of taxes, levies and
insurance premiums on the Mortgaged Property, together with interest thereon.
All additional or further monies which may be advanced by the Mortgagee to the
Mortgagor (or any one of them if there be more than one), after the date hereof,
shall at the option of the Mortgagee be evidenced by a note or notes executed by
the Mortgagor (or any one of them if there be more than one) in favor of the
Mortgagee, bearing such rate of interest and with such maturities as shall be
determined from time to time, but any and all such future advances secured by
this Mortgage shall be made not more than twenty (20) years after the date
hereof. All such notes shall be of equal dignity, and a default in the payment
of any one note shall constitute a default in payment of all other notes, at the
option of the Mortgagee. Each future advance shall be an integral part of the
mortgage obligation and shall be secured by the lien of this Mortgage as fully
and to the same extent as though the same were a part of the original
indebtedness. However, nothing contained herein shall be deemed an obligation on
the part of the Mortgagee to make any future advances. Provided further, that
any payments made by the Mortgagee for taxes and insurance or for any other
purpose to preserve the security of the Note and this Mortgage, as deemed
necessary by the Mortgagee, shall remain secured by this Mortgage
notwithstanding any other
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provisions in this instrument or any provisions of Florida law limiting future
advances to a period of twenty (20) years.
5.11 GOVERNING LAW AND CONSTRUCTION OF CLAUSES. This Mortgage
shall be governed and construed by the laws of the State of Florida. No act of
the Mortgagee shall be construed as an election to proceed under any one
provision of the Mortgage or of the applicable statutes of the State of Florida
to the exclusion of any other such provision, anything herein or otherwise to
the contrary notwithstanding.
5.12 DEFAULT RATE. While in default, any sums due hereunder or
under the Note shall bear interest at the maximum rate permissible under Florida
law (the "Default Rate").
5.13 TIME OF THE ESSENCE. Time shall be of the essence of each
and every covenant and promise contained in this Mortgage and every other
instrument securing the repayment of the Note.
5.14 EXTENSIONS. The granting of any extension or extensions
of time of payment of the Note either to the Mortgagee or any other person, or
taking of other or additional security for payment therefor, or waiver of or
failure to exercise any right to mature the whole debt under any covenant or
stipulation herein contained, shall not in anywise affect this Mortgage or the
rights of the Mortgagee, its successors or assigns hereunder or operate as a
release from any personal liability upon the Note or under any covenant or
stipulation herein contained.
5.15 WAIVER OF JURY TRIAL. THE MORTGAGEE AND THE MORTGAGOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS MORTGAGE OR ANY DOCUMENT EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THE MORTGAGOR ACKNOWLEDGES THAT
THIS MUTUAL WAIVER CONSTITUTES A MATERIAL INDUCEMENT TO THE MORTGAGEE TO ENTER
INTO THIS MORTGAGE.
IN WITNESS WHEREOF, the Mortgagor has hereunto set its hand
and seal all done as of the day and year first hereinbefore written.
Signed, sealed and delivered VIRAGEN, INC.
in the presence of:
By:
------------------------------------------
Name: Dennis W. Healey, Executive Vice President
-------------------------
Address: 865 Southwest 78th Avenue, #100
Plantation, FL 33324
Name:
-------------------------
STATE OF FLORIDA )
) ss:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this ___ day of
November, 1999, by Dennis W. Healey, as Executive Vice President of VIRAGEN,
INC., who is personally known to me or has produced a driver's license or
_______________ as identification.
------------------------------------
NOTARY PUBLIC
My Commission Expires:
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EXHIBIT "1"
-----------
Legal Description
Lots 31, 32, 33 and 34 in Block 5 of PALMETTO - I-75 INDUSTRIAL CENTER
SECTION ONE, according to the Plat thereof recorded in Plat Book 116,
Page 35 of the Public Records of Miami-Dade County, Florida.
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EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 17, 1999, in Amendment No. 4 to the
Registration Statement (Form S-1 No. 333-75749) and related Prospectus of
Viragen, Inc. for the Registration of 11,000,000 shares of its common stock.
/s/ Ernst & Young LLP
Miami, Florida
December 16, 1999
