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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1999.
Registration No. 333-75749
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------------------------
VIRAGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2101668
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
865 S.W. 78th Avenue
Suite 100
Plantation, FL 33324
Telephone (954) 233-8746
------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Copies to:
James M. Schneider, Esq.
Gerald Smith Robert J. Burnett, Esq.
Chairman of the Board Atlas, Pearlman, Trop & Borkson, P.A.
Viragen, Inc. Suite 1900
865 S.W. 78th Avenue, Suite 100 200 East Las Olas Boulevard
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 the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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 of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount of
Shares to be to be Price Per Offering Registration
Registered Registered Share(1) Price(1) Fee
- ------------ ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
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 issuable upon
exercise of common stock
purchase warrants 932,039(3) $0.52 $ 485,000 $ 147
Common stock issuable upon
exercise of common stock
purchase warrants 155,339(4) $0.52 $ 81,000 $ 25
Total 11,000,000 $5,721,000 $1,734
========== ========== ======
</TABLE>
(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 such 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 such 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 such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION
____________, 1999
Selling Security Holder Offering Prospectus
VIRAGEN, INC.
11,000,000 shares of common stock
Viragen, Inc. is researching and developing
products which help the human immune system
resist viral infections.
Viragen, Inc. is registering up to
11,000,000 shares of its common stock
issuable to the selling security holders
upon the conversion of promissory notes and
the exercise of warrants.
NASDAQ National Market Symbol: VRGN Recent
Price: $0.52 at March 31, 1999
The selling security holders may sell
the following securities:
9,912,622 shares from the conversion of
promissory notes; and
1,087,378 shares from warrant exercises;
We will not receive any proceeds from the sale of common stock from
the accounts of the selling security holders. We may however receive proceeds
from the exercise of the warrants.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "HIGH RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
High Risk Factors................................................................................ 3
Where You Can Find More Information.............................................................. 10
Incorporation of Certain Information by Reference................................................ 10
The Company...................................................................................... 12
Selling Security Holders......................................................................... 14
Plan of Distribution............................................................................. 18
Description of Securities........................................................................ 19
Legal Matters.................................................................................... 22
Experts.......................................................................................... 22
Indemnification.................................................................................. 23
</TABLE>
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HIGH 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:
HISTORY OF LOSSES DUE TO LACK OF SALES AND REGULATORY APPROVAL
Since the organization of Viragen, Inc., we have incurred operating
losses. The net loss for our fiscal year ended June 30, 1998 was $7,856,136. As
of March 31, 1999, our net loss for the nine month period then ended was
$7,490,642. At March 31, 1999, we had a total deficit since organization of
$47,357,982.
We presently produce a single product known as 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 and,
therefore, 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 separate product for the treatment of
rheumatoid arthritis, sales of natural interferon are expected 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 approval is received, we may not be able to recover
sufficient profit from the sale of natural interferon. If we do not obtain the
required approvals or profit from the sale of natural interferon or other
products, Viragen most likely will be forced to terminate its operations. In
that case, those who have invested in Viragen will likely lose their entire
investment.
POSSIBLE NASDAQ DELISTING AND PENNY STOCK RULES MAY NEGATIVELY IMPACT THE
MARKET FOR OUR COMMON STOCK
On December 16, 1998, we received notice from the Nasdaq Stock Market
that our common stock was in jeopardy of being delisted from the Nasdaq
National Market because our common stock failed to maintain a closing bid price
of $1.00 per share. We are in the process of soliciting proxies from our
stockholders, which if approved will give our board of directors the authority
to complete up to a 1 for 8 reverse stock split of our common stock. A reverse
stock split should assist in increasing the closing bid price of our common
stock above $1.00. However, we cannot assure you our stockholders will approve
the reverse stock split, or if the stock split is approved, whether it will
increase the closing bid price of our common stock above $1.00 for a sufficient
period of time. If we are delisted from Nasdaq, there could be less interest in
our stock as well as a more limited market. This could reduce the value of your
investment.
If our common stock is delisted from the Nasdaq National Market System
and continues to trade at less than $5.00 per share, our common stock will most
likely be subject to the penny
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stock rules under the Securities Exchange Act of 1934. Penny stocks generally
are equity securities with a price of less than $5.00 which do not trade on
certain national securities exchanges or are quoted on the Nasdaq National
Market System. The penny stock rules require broker-dealers, prior to a
transaction in a penny stock which is not exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Securities and Exchange
Commission that provides information about penny stocks and the risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to completing the transaction and must be given 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 which is not exempt from the penny stock rules, the broker
and/or dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing 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 which may reduce the value of your investment.
COMPETITION IN PHARMACEUTICAL INDUSTRY
Competition for investment capital and market share in the
immunological and pharmaceutical products industry is intense. Our competitors,
which include major pharmaceutical companies, have more experience in research,
development and clinical testing of pharmaceutical and biomedical products. Our
competitors also have greater financial, marketing and human resources than
Viragen. Some of our competitors already have approvals for and are already
marketing synthetic products similar to our product. Competition is only
expected to increase in the future. If we are unable to compete with our
larger, more experienced competitors, we may be forced to terminate operations.
Competition for funding in the pharmaceutical industry is also
intense. As explained above, we have no source of income and may not have
sufficient sources of income for a significant period of time, if ever.
Additional funds will be needed to conduct clinical trials so we can receive
regulatory approvals. We must obtain additional funding from outside sources to
conduct these trials. In the event we are unable to locate funding or obtain
funding on reasonable terms, we will most likely be required to terminate
operations. In that case, any investment in Viragen would be lost.
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RISK OF TECHNOLOGICAL OBSOLESCENCE MAY AFFECT OUR ABILITY TO PRODUCE OUR
PRODUCT
The research and development of natural interferon involves rapid
technological change. This change can severely affect the production methods,
costs, marketing and acceptance of biomedical products. We cannot be certain
that we will have the resources to keep pace with technological changes or that
products developed by our competitors will not make it difficult or impossible
to market our product. If we are unable to successfully market interferon, we
may be forced to terminate our operations.
GOVERNMENT REGULATION MAY AFFECT DEVELOPMENT AND DISTRIBUTION OF 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 the productivity, testing and
marketing. European Union regulatory authorities also impose regulations. These
rules and regulations are constantly changing, require costly compliance
measures and may restrict our ability to produce and distribute our natural
interferon product.
DIFFICULTY TESTING PRODUCT MAY PREVENT US FROM DEVELOPING INTERFERON
Our ability to receive the approval of either the United States Food
and Drug Administration or the European Union regulatory authorities depends,
in part, on our ability to test natural interferon on human patients. If we are
unable to comply with United States and European Union regulations or are
prohibited from testing natural interferon on human patients, we will have to
terminate our operations which would result in a complete loss of your
investment.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
Our ability to successfully market our products may depend on the
receipt of reimbursements from government health administration authorities,
private health coverage insurers and other organizations. The pricing of
products similar to those we produce or the amount of reimbursement available
from governmental agencies or third party insurers may affect our ability to
market our product or market our product at a profit.
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RISK THAT PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT PROVIDE PROTECTION
We intend to rely, in part, on our proprietary technology for the
efficient and safe production of natural interferon that was developed by
Viragen's scientists. Viragen recently filed two patent applications relating
to our Omniferon(TM) production technology. We cannot assure you that our
production technology will enable us to either manufacture natural interferon
more efficiently and with less contaminants, or enable us to compete
effectively with our competitors. 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, and if granted, that these patents will provide necessary protection
to us.
TECHNOLOGY TRANSFERS TO THIRD PARTIES MAY NOT RESULT IN REVENUE TO US
One of our proposed marketing strategies is to license the right to
use our technology and product manufacturing techniques to third parties, who
will in turn use them to produce natural human leukocyte alpha interferon
outside the United States. We cannot guarantee that we will be able to
successfully market the product or receive revenue from their efforts.
EXPOSURE TO PRODUCT LIABILITY CLAIMS AND LIMITATIONS OF PRODUCT LIABILITY
INSURANCE
We may be subject to claims for personal injuries or other damages
resulting from the use of our natural interferon. 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 or that we will be able to afford this insurance
in the future.
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(TM), our natural interferon product. Under this agreement, Viragen
(Scotland) Ltd. and the Common Services Agency of Scotland will jointly
manufacture Omniferon(TM). Our decision to use an offshore manufacturer could
expose Viragen (Scotland) to risks involved with fluctuations in exchange rates
of foreign currencies. In addition, relying on the Common Services Agency of
Scotland exposes us to all the risks of dealing with a foreign manufacturing
source. These include governmental regulations, tariffs, import and export
restrictions, transportation, taxes and foreign health and safety regulations.
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Foreign manufacturing arrangements will limit our control and may lead to the
disruption of our operations which could negatively affect our operations and
your investment in us.
RISK OF DEPENDENCE ON KEY PERSONNEL
Our day-to-day operations are managed by 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. We have employment agreements
with Messrs. Smith, Healey and Nicolson which restrict competitive activities
by them during the term of their agreements and for a two-year period
thereafter. 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.
POSSIBLE ISSUANCE OF ADDITIONAL SHARES AND PAYMENT OF PENALTY FEES
As described in the "Selling Security Holders" section of this
prospectus, we may be obligated to pay the selling security holders penalty
fees, in excess of the amount of their investment, and issue additional shares
of our common stock if we default on our obligations to the selling security
holders. If we are required to pay any penalty fees, our ability to finance our
current and future operations could be negatively affected. If we are required
to issue additional shares of our common stock, your ownership interest in us
may be significantly diluted.
IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS
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 will rely heavily on computers to conduct our business, we
are subject to all the risks associated with the year 2000. We have assessed
the scope of our risks related to problems these computer systems may have
related to the year 2000 and we believe these risks have been addressed. In
addition, we are in the process of questioning our vendors and business
partners about their progress in identifying and addressing problems related to
the year 2000. However, we cannot assure you that all of these third party
systems or our computer systems will be year 2000 compliant.
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DILUTIVE EFFECTS OF TRANSACTION WITH SELLING SECURITY HOLDERS
Based on the current market price of our common stock we may issue
approximately 6,000,000 shares of our common stock (or 9.2% of the issued and
outstanding common stock as of March 31, 1999) to the selling security holders.
The selling security holders may invest additional funds in Viragen on terms
virtually identical to those described in the "Selling Security Holders"
section of the prospectus. Because the price the selling security holders must
pay for those shares is based on the market price of our common stock on
various dates and due to the large percentage of shares of our common stock we
may sell to the selling security holders, you may experience substantial
dilution of your investment in us. In addition, sales of our share by the
selling security holders may depress the price of our stock in the market.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE
We have never paid cash dividends on our common stock and 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 to be determined
by our Board of Directors. For the foreseeable future, any earnings from
operations will be used to finance our growth and will not be paid to our
common stockholders in the form of dividends. Since we do not anticipate paying
cash dividends on our common stock, return on your investment, if any, will
have to issue from sales by you of our common stock.
POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of March 31, 1999, we had 4,361,177 shares of common stock
outstanding which were "restricted securities" as that term is defined by Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). As of
March 31, 1999, we had options and warrants outstanding which if exercised would
result in 12,039,011 additional shares of our common stock outstanding. The
shares of common stock outstanding do not include shares of common stock that
may be issued on conversion of various options and warrants. 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 such as shares covered by this prospectus may reduce the market
price of our common stock and increase the number of our publicly held
securities.
USE OF PREFERRED STOCK COULD BE USED 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 May 31, 1999, 2,650 shares of Series A Preferred
Stock and 11 shares of Series I Preferred
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Stock were issued and outstanding. Our Certificate of Incorporation 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 issuance of the preferred
stock in one or more series. In addition, we may set the dividend and
liquidation preferences, voting rights, conversion privileges, redemption terms
and 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 and 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 in the event we become subject to a hostile
takeover that could ultimately benefit Viragen and Viragen's stockholders.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from our web site at
www.viragen.com or at the Securities and Exchange Commission's web site at
http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the Securities and Exchange
Commission will automatically update and replace this information. We
incorporate by reference the documents listed below and any future filings made
with the Securities and Exchange Commission under Sections 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934 until the selling security holder
sells all the shares. This prospectus is part of a registration statement we
filed with the Securities and Exchange Commission (Registration No. 333-75749).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-- Annual Report on Form 10-K/A for the year ended June 30, 1998
(Commission File No. 0-10252)
-- Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 (Commission File No. 0-10252)
-- Quarterly Report on Form 10-Q for the quarter ended December 31,
1998 (Commission File No. 0-10252)
-- Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1999
(Commission File No. 0-10252)
-- Future Filings
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You may request a copy of these filings and their exhibits, at no
cost, by writing or telephoning us at the following address:
Corporate Secretary
Viragen, Inc.
865 S.W. 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No.: (954) 233-8746
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling security holders
will not make any offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of those
documents.
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THE COMPANY
Viragen, Inc. was organized in 1980 and is in the business of
researching and developing products which help the human immune system resist
viral infections. Our primary product is a natural interferon product named
Omniferon(TM) which is produced 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 such
as hepatitis, multiple sclerosis, cancer and HIV/AIDS.
Our product has not been approved by the United States Food and Drug
Administration or the European Union regulatory authorities. Viragen will seek
Food and Drug Administration and European Union regulatory authority approval
for various uses of its Omniferon(TM) product in the future. This approval
requires several years of clinical trials and substantial additional funds.
Until 1993, we did not operate actively because of limited funds. As a result of
funds previously raised by us as well as funds from the current transaction, we
are concentrating our efforts in obtaining approval for our Omniferon(TM)
product initially in the European Union and eventually from the Food and Drug
Administration for the United States.
Our affiliate, Viragen (Scotland) Ltd., 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
Viragen (Scotland)'s 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(TM) product. We have also recently 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(TM) in sufficient quantities to conduct planned
European Union and United States clinical trials and, subject to regulatory
approvals, also provide for commercial manufacturing in the future.
Our executive offices are 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.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS SET
FORTH IN THIS PROSPECTUS ARE FORWARD LOOKING AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. VIRAGEN'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DESCRIBED FOR A VARIETY OF FACTORS. SUCH FACTORS COULD INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "HIGH RISK FACTORS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN VIRAGEN'S
FORM 10-K/A ANNUAL REPORT FILED FOR THE FISCAL YEAR ENDED JUNE 30, 1998,
VIRAGEN'S FORM 10-Q QUARTERLY REPORTS FOR THE QUARTERS ENDED SEPTEMBER 30,
1998, DECEMBER 31, 1998, AND MARCH 31, 1999, AS WELL AS THOSE DISCUSSED
ELSEWHERE IN OTHER PUBLIC FILINGS MADE BY VIRAGEN WITH THE SECURITIES AND
EXCHANGE
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COMMISSION. FORWARD LOOKING STATEMENTS INCLUDE VIRAGEN'S STATEMENTS REGARDING
LIQUIDITY, ANTICIPATED CASH NEEDS AND AVAILABILITY, AND ANTICIPATED EXPENSE
LEVELS IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" INCLUDING EXPECTED PRODUCT CLINICAL TRIAL INTRODUCTIONS,
EXPECTED RESEARCH AND DEVELOPMENT EXPENDITURES, AND RELATED ANTICIPATED COSTS.
ALL FORWARD LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON
INFORMATION AVAILABLE TO VIRAGEN ON THE DATE HEREOF, AND VIRAGEN ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD LOOKING STATEMENTS. IT IS IMPORTANT TO
NOTE THAT VIRAGEN'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD LOOKING STATEMENTS.
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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. The purchase agreement:
- 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;
- 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
- 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 gives us the option to sell
Isosceles an aggregate of up to $7,000,000 of additional notes and warrants in
two tranches, subject to the satisfactory completion of due diligence by
Isosceles.
THE NOTES
We issued Isosceles and Cefeo promissory notes in the aggregate
principal amount of $2,000,000 under the purchase agreement. The principal
amount of the notes accrues interest at a rate of 8% annually.
OPTIONAL PRE-PAYMENT. At our option, we may pre-pay the notes at 120%
of their outstanding principal balance plus the accrued interest until July 7,
1999.
MANDATORY REDEMPTION. If we do not obtain the approval of our
stockholders to complete up to a 1 for 4 reverse stock split of our outstanding
common stock by June 30, 1999, the note holders may require us to redeem an
amount of the notes, or any shares of our common stock issued to the note
holders upon conversion of the notes, necessary to permit:
- conversion of the remaining note(s);
- re-sale of the shares of our common stock issuable upon
conversion of the notes;
- issuance of additional shares; and
- exercise of the warrants
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without violating NASDAQ rules. Any redemption we would be required to make
would be at a cash price equal to the greater of 125% of the face amount of the
notes or the aggregate conversion price paid for the shares of our common stock
issuable on conversion of the notes being redeemed plus all other fees
described below.
CONVERSION. If we do not pre-pay or redeem the notes, then on the
trading day following sooner to occur of June 30, 1999 or the date a
registration statement registering the shares of common stock issuable upon
conversion of the notes becomes effective, one-half of the principal balance
and accrued interest on the notes will automatically convert into shares of our
common stock. In addition, 31 days after the date the first half of the
principal balance and accrued interest on the notes converts, the remaining
one-half of the principal balance and accrued interest on the notes will
automatically convert into shares of our common stock. The conversion price per
share will be the lesser of $0.50 or the lowest closing bid price of our
common stock during the ten consecutive trading days immediately preceding each
of the conversion dates. The number of shares of our common stock that will be
issued to each note holder on conversion will be determined by dividing the
principal balance and accrued interest on the notes by the conversion price in
effect on each conversion date.
In addition to the shares issuable on conversion of the notes, the
note holders are entitled to receive additional shares of our common stock 31
days and again 61 days after the date the first one-half of the notes convert
into shares of our common stock. The number of additional shares the note
holders are entitled to receive will be calculated by subtracting 1 from the
quotient obtained by dividing $.644 by the lowest closing bid price of our
common stock during the ten consecutive trading days immediately preceding each
conversion date multiplied by 1.2 on the first date the additional shares are
issued and 1.22 on the second date the additional shares are issued multiplied
by the number of shares issuable on conversion of the notes.
DELIVERY DEFAULTS. We will commit a delivery default if we do not
deliver the shares issuable on conversion of the notes and the additional
shares to the note holders within four business days after we receive proper
notice from the note holders. If we commit a delivery default we must pay each
note holder up to $2,500 in cash for each day we do not deliver the shares
issuable on conversion of the notes or the additional shares. Any late fee may,
at the note holders' option, be added to the principal amount of the notes.
If we commit a delivery default because we do not have enough
authorized but unissued shares of our common stock to deliver to the note
holders, we must issue the note holders all of the shares of our common stock
which are then available. The conversion price for the shares we were unable to
deliver will be adjusted to the lower of the conversion price on the date we
commit the delivery default or the conversion price on the conversion date. The
number of additional shares issuable will also be adjusted based on the date
our shares of common stock are actually delivered. In addition to the late fee,
we must also make cash payments to the note holders based on the number of days
the delivery default exists. At the note holders' option, the
15
<PAGE> 18
additional payments for each calendar month are payable in cash or convertible
into our common stock at the conversion price for the notes then in effect. In
the event the note holder elects to take such payment in common stock, the
holder may convert payment amount into common stock at the conversion price in
effect at the time of conversion.
RESTRICTION. As long as the notes are outstanding, we may not pay any
dividend, redeem any of our outstanding securities, assume any liability for
borrowed money, lend money or guarantee any obligations, incur any obligations
senior to the notes, sell or lease assets, except in the ordinary course of
business, without the prior written consent of the note holders.
DEFAULT. If we default on our obligations under the purchase agreement
or the notes, the note holders may require us to immediately pay no less than,
and possibly more than, 130% of the principal balance, the accrued interest and
any other sums due the note holders under the notes. If we fail to make the
payment within five business days of written notice that the payment is due,
the note holders may, in lieu of the payment, require us to immediately issue a
number of shares of our common stock equal to the default payment amount
divided by the conversion price for the notes then in effect.
THE WARRANTS
The warrants entitle Isosceles and Cefeo to purchase an aggregate of
932,039 shares of our common stock. The warrants are exercisable until March 17,
2004. The warrants are exercisable at the lower of $.50 or the lowest closing
bid price of our common stock during the ten consecutive trade days immediately
preceding the conversion date on the 31st and 61st days after the date the first
one half of the notes converts. The warrants also contain a cashless exercise
provision.
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. We are required to 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.
REGISTRATION RIGHTS
The registration rights agreement we entered into with Isosceles and
Cefeo required us to pay Isosceles and Cefeo a fee if any of the following
events occur:
- We fail to have a registration statement registering the
shares of common stock issuable on the exercise or conversion of the notes and
warrants effective on or before July 7, 1999;
16
<PAGE> 19
- We fail to maintain the effectiveness of the registration
statement registering such shares; or
- Our common stock is de-listed from trading on NASDAQ.
The amount of the fee for each separate default is two percent (2%) of
the principal amount of the notes converted plus the exercise price paid for
warrants exercised plus the principal amount of outstanding unconverted notes.
We are also obligated to redeem for cash all notes, warrants and
common stock issued upon exercise or conversion of either, if beginning
September 13, 1999, the registration statement ceases to be effective for a
period of 30 consecutive business days or 60 business days during any 12 month
period. The redemption price is equal to the greater of:
- the number of shares of our common stock the notes and
warrants issuable upon conversion to the selling security holders multiplied by
the high trade price of our common stock on the day we receive redemption
notice from the selling security holders; or
- 115% of the principal amount of the notes, the aggregate
exercise price paid for the exercise of the warrants plus any other fees
described above owed to the selling security holder.
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. All of the
warrants we issued to Ballsbridge, Elliot Layne and Ven-Gua are exercisable
until March 17, 2004, if we pre-pay the notes issued to Isosceles and Cefeo. If
we do not pre-pay the notes issued to Isosceles and Cefeo, then only half of
the warrants are exercisable. 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.
The following table sets forth as of March 17, 1999 (1) the name of
the selling security holders, (2) 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 (3) the amount to be owned by the selling security
holders following the sale of such shares. As of March 17, 1999, there were
outstanding 64,995,402 shares of Viragen's common stock.
17
<PAGE> 20
<TABLE>
<CAPTION>
Percentage
Name of Selling of Shares Shares to be
After Number of Owned Prior Owned
Security Holders Shares Owned to Offering Offering
- ---------------- ------------ ----------- ------------
<S> <C> <C> <C>
The Isosceles Fund Limited(1) 8,133,496 12.5% 0
Cefeo Investments Limited(2) 2,711,165 4.2% 0
Ballsbridge Finance, Limited(3) 38,835 * 0
Elliott Layne & Associates, Inc.(3) 58,252 * 0
Ven-Gua Capital Markets Ltd.(3) 58,252 * 0
</TABLE>
* Denotes less than 1%
- ------------------
(1) Assumes that (A) 7,434,467 shares will be acquired upon conversion of
notes and (B) 699,029 shares will be acquired upon the exercise of
warrants. The Isosceles Fund is beneficially owned by Linford Asset
Management Ltd.
(2) Assumes that (A) 2,478,155 shares will be acquired upon conversion of
notes and (B) 233,010 shares will be acquired upon the exercise of
warrants. Cefeo Investments Limited is beneficially owned by Banca,
Privata, Solari and Blum, S.A.
(3) 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, as amended.
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 including the Nasdaq National
Market of The Nasdaq Stock Market, or 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, without limitation:
(1) a block trade in which the broker-dealer so engaged will attempt
to sell the shares of our common stock as agent, but may position and resell a
portion of the block as principal;
18
<PAGE> 21
(2) purchases by a broker or dealer as principal and resale by such
broker or dealer;
(3) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
(4) face-to-face or other direct transactions between the selling
security holders and purchasers without a broker-dealer or other intermediary.
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 connection with such short sale and the shares offered may be
used to cover such short sale. The selling security holders may be considered
underwriters within the meaning of the Securities Act of 1933, as amended, in
connection with the sale of the shares offered hereby. In making sales,
broker-dealers or agents engaged by the selling security holders may arrange
for other broker-dealers or agents to participate. Such 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 and agents
and any other participating broker-dealers or agents, as well as the selling
security holders and the placement agent, may be considered to be
"underwriters" within the meaning of the Securities Act of 1933, as amended. 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 75,000,000 shares of
common stock, par value $.01 per share, of which 65,605,012 shares were
outstanding as of March 31, 1999. Viragen is also authorized to issue up to
1,000,000 shares of preferred stock, par value $1.00 per share, of which 2,650
shares of Series A Preferred Stock and 11 shares of Series I Preferred Stock
were outstanding as of March 31, 1999.
COMMON STOCK
Subject to the dividend rights of the holders of preferred stock,
holders of shares of common stock are entitled to share, on a proportionate
basis, such dividends 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.
19
<PAGE> 22
Each share of our common stock has one vote. Holders of our common
stock do not have cumulative voting rights, which 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
issued and 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 and 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. The preferred stock may be issued
by resolutions of Viragen's Board of Directors without any action of the
stockholders. However, any issuance of 20% or more of Viragen's common stock
will require stockholder approval under Nasdaq Rule 4460(i)(1)(D)(ii). These
resolutions may authorize issuances of such preferred stock in one or more
series. In addition, they may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms and other
privileges and rights of the shares of each authorized series.
While Viragen includes preferred stock in its capitalization to
improve its financial flexibility, preferred stock could possibly be used by
Viragen 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 also 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, have priority to our common stock and 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 such occurrence, the voting is
limited to the election of two directors. Voting rights terminate upon payment
of the cumulative dividends. The Series A Preferred Stock is redeemable at the
option of Viragen 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 before any
20
<PAGE> 23
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 Series I Preferred Stock have no dividends, although an 8%
accretion factor has been included for purposes of determining the liquidation
and conversion amounts. The Series I Preferred Stock carries no voting rights
and has a stated value of $10,000 per share.
The Series I Preferred Stock and the 8% accretion factor is
convertible into shares of our common stock at the lower of:
(1) $1.59; or
(2) the variable conversion price which will equal 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 may convert into is 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 is subject to a maximum of 25% per monthly period
if the holder has not elected to convert the permitted 15% amount for the
series during any previous monthly conversion period. In addition, this
conversion quota will not be applicable in the event Viragen completes a
private offering of its debt or equity securities.
At Viragen's option, any shares of Series I Preferred Stock which are
outstanding on August 19, 2000 will either be (1) automatically converted at
the conversion rate in effect at that time or (2) automatically redeemed at
$10,000 per preferred share plus any liquidated damages and any other cash
payments then due from Viragen.
Viragen also has the right to redeem all or any part of the Series I
Preferred Stock submitted for conversion if on the date of conversion the
conversion price of Viragen's common stock is less than $1.50. Under the right
to redeem option, if the closing bid price of the common stock on the date of
conversion is less than $1.50, the redemption price paid by Viragen to the
holder will be $11,200 per share of the Series I Preferred Stock. On the other
hand, if the closing bid price is greater than $1.50, the redemption price paid
by Viragen to the holder will be $11,750 per share of Series I Preferred Stock.
OVER-THE-COUNTER MARKET
Viragen's common stock is traded in the Nasdaq National Market under
the symbol "VRGN." If for any reason Viragen does not maintain the requirements
for inclusion of our common stock on Nasdaq, then our common stock would
continue to be traded in the over-the-counter market through the "pink sheets"
or the NASD's OTC Bulletin Board. In the event our
21
<PAGE> 24
common stock would be covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell Viragen's securities. It also may affect the ability of
purchasers in this offering to sell their shares in the secondary market. See
the section of this prospectus entitled "High Risk Factors" and the subheading
"Possible Delisting from Nasdaq and Penny Stock Rules" for more information on
the topics discussed above.
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.
LEGAL MATTERS
The validity of the issuance of the shares of our common stock being
offered hereby will be passed upon by Atlas, Pearlman, Trop & Borkson, P.A., 200
East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. Members of
that firm or members of their family own a total of 37,000 shares of our common
stock.
EXPERTS
Ernst & Young LLP, independent certified public accountants, have
audited our consolidated financial statements included in our Annual Report on
Form 10-K/A for the year ended June 30, 1998, as amended, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
INDEMNIFICATION
Section 145 of the General Corporation Law of Delaware allows a
corporation to indemnify any person who was 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 such suit or
proceeding. This applies only if the person indemnified acted in good faith and
22
<PAGE> 25
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 such 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 attorneys' fees,
actually and reasonably incurred by him or her.
Insofar as indemnification for liabilities arising under the Act is
permitted as to directors, officers and controlling persons of Viragen, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and is, therefore, unenforceable. In the event that a
claim for indemnification against such 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 such indemnification by it is against public
policy. Viragen will be governed by the final adjudication of such issue.
23
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses, all of
which are being paid by Viragen, in connection with this offering.
<TABLE>
<S> <C>
Registration fee............................ $ 1,734
Legal fees and expenses..................... 10,000*
Accounting fees and expenses................ 10,000*
Printing expenses........................... 3,000*
Miscellaneous............................... 2,266*
-------------- -------
Total........................................ $27,000*
===== =======
</TABLE>
- --------------------
*Estimated
Item 15. 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 such 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 such 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 attorneys' fees,
actually and reasonably incurred by him or her.
II-1
<PAGE> 27
Insofar as indemnification for liabilities arising under the Act is
permitted as to directors, officers and controlling persons of Viragen, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and is, therefore, unenforceable. In the event that a
claim for indemnification against such 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 such indemnification by it is against public
policy. Viragen will be governed by the final adjudication of such issue.
Item 16. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation
or succession (incorporated by reference to Viragen's
registration statement on Form S-3 dated April 15, 1997, as
amended, File No. 333-25187, Part II, Item 16, (2)("April
1997 Form S-3)).
(2)(i) Plan of Merger between Florida Immunological Institute, Inc.
and Vira-Tech, Inc., dated September 30, 1986 (incorporated
by reference to Viragen'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)
(2)(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 Viragen's registration statement on Form S-1,
dated June 8, 1981, as amended, File No. 2-72691, "Form S-1",
Part II, Item 30(b) 3.1 and 3.2)
(3)(ii) Amended Certificate of Incorporation (incorporated by
reference to 1986 Form S-2, Part II, Item 16, 4.2)
(4) Instruments defining the rights of security holders, including
indentures (incorporated by reference to April 1997 Form S-3,
Item 16, (4))
(4)(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)
(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 16, 4.5)
(4)(iii) Omitted
</TABLE>
II-2
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(4)(iv) Omitted
(4)(v) Omitted
(4)(vi) Omitted
(4)(vii) Omitted
(4)(viii) Form of three year 8.5% Convertible Subordinated Debenture
(incorporated by reference to Viragen's Current Report on
Form 8- K dated November 17, 1993)
(4)(ix) Form of Stock Option Agreement dated November 19, 1993, issued
to Messrs. Dennis W. Healey and Peter D. Fischbein
(incorporated by reference to Viragen's Current Report on
Form 8-K dated November 17, 1993)
(4)(x) 1995 Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 filed June 9,
1995)
(4)(xi) Certificate of Designation for Series B Preferred Stock,
(incorporated by reference to Viragen's Current Report on
Form 8-K dated June 7, 1996)
(4)(xii) Omitted
(4)(xiii) Certificate of Designations Preferences and Rights for Series
C Preferred Stock (incorporated by reference to Viragen's
Current Report on Form 8-K dated February 14, 1997)
(4)(xiv) Certificate of Designations Preferences and Rights for Series
D Preferred Stock (incorporated by reference to Viragen's
Current Report on Form 8-K dated February 14, 1997)
(4)(xv) Certificate of Designations, Preferences and Rights for Series
E Preferred Stock (incorporated by reference to Viragen's
Current Report on Form 8-K dated March 6, 1997)
</TABLE>
II-3
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(4)(xvi) Certificate of Designations, Preferences and Rights for Series
F Preferred Stock (incorporated by reference to Viragen's
Current Report on Form 8-K dated September 22, 1997)
(4)(xvii) Certificate of Designations, Preferences and Rights for
Series G 10% Cumulative Convertible Preferred Stock
(incorporated by reference to Viragen's Current Report on
Form 8-K dated September 22, 1997)
(4)(xvii) Certificate of Designations, Preferences and Rights for Series
H Preferred Stock (incorporated by reference to Viragen's
Registration Statement on Form S-3 (File No. 333-65199))
(4)(xviii) Certificate of Designations, Preferences and Rights of Series
I Preferred Stock (incorporated by reference to Viragen's
Registration Statement on Form S-3 (File No. 333-65199))
(5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the
validity of the securities being registered*
(10) Material contracts
(10)(i) Research Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983
(incorporated by reference to Medicore S-1, File No. 2-89390,
dated February 10, 1984 ("Medicore S-1"), Part II, Item
16(a)(10)(xxxiii))
(10)(ii) License Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983
(incorporated by reference to Medicore S-1, Part II, Item 16
(a)(10)(xxxiv))
(10)(iii) Omitted
(10)(iv) Royalty Agreement between Viragen and Medicore, Inc. dated
November 7, 1986 (incorporated by reference to the November
1986 Form 8-K, Item 7(c)(i))
(10)(v) Amendment to Royalty Agreement between Viragen and Medicore,
Inc. dated November 21, 1989 (incorporated by reference to
Viragen's Current Report on Form 8-K dated December 6, 1989,
Item 7 (c)(i))
</TABLE>
II-4
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(10)(vi) Promissory Note from Viragen to Medicore, Inc. dated August 6,
1991 (incorporated by reference to Viragen's 1991 Form 10-K,
Part IV, Item 10(a)(10)(xx))
(10)(vii) Loan Agreement between Viragen and Medicore, Inc. dated
January 31, 1991 (incorporated by reference to Viragen's
Current Report on Form 8-K dated February 26, 1991, Item
7(c)(ii))
(10)(viii) Amendment to Loan Agreement between Viragen and Medicore,
Inc. dated August 6, 1991 (incorporated by reference to
Viragen's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(ix) Florida Real Estate Mortgage and Security Agreement from
Viragen to Medicore, Inc. dated August 6, 1991 (incorporated
by reference to Viragen's 1991 Form 10-K, Part IV, Item
14(a)(10)(xxii))
(10)(x) Omitted
(10)(xi) Omitted
(10)(xii) Promissory Note to Equitable Bank dated August 2, 1991
(incorporated by reference to Viragen'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))
(10)(xiii) Mortgage and Security Agreement issued to the Equitable Bank
dated August 2, 1991 (incorporated by reference to Viragen's
June, 1991 Form 10-Q, Part II, Item 6(a)(28)(ii))
(10)(xiv) Acquisition Agreement between Viragen and Medicore, Inc.
dated August 2, 1991 (incorporated by reference to Viragen's
1991 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xv) Lease between Viragen and Medicore, Inc. dated December 8,
1992 (incorporated by reference to Viragen's Current Report
on Form 8-K, dated January 21, 1993 ("January 1993 Form
8-K"), Item 7(c)(10)(i))
(10)(xvi) Addendum to Lease between Viragen and Medicore, Inc. dated
January 15, 1993 (incorporated by reference to Viragen's
January 1993 Form 8-K, Item 7(c)(10)(ii))
(10)(xvii) Agreement for Sale of Stock between Viragen and Cytoferon
Corp. dated February 5, 1993 (incorporated by reference to
Viragen's Current Report on Form 8-K, dated February 11,
1993, Item 7(c)(28))
</TABLE>
II-5
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(10)(xviii) Addendum to Agreement for Sale of Stock between Viragen and
Cytoferon Corp. dated May 4, 1993 (incorporated by reference
to Viragen's Current Report on Form 8-K dated May 5, 1993,
Item 7(c)(28)(i))
(10)(xix) Amendment No. 2 to the Royalty Agreement between Viragen and
Medicore, Inc. dated May 11, 1993 (incorporated by reference
to Viragen's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xix))
(10)(xx) Note and Mortgage Modification Agreement between Viragen and
Medicore, Inc. dated August 18, 1993 (incorporated by
reference to Viragen's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xx))
(10)(xxi) Amendment No. 2 to the Loan Agreement between Viragen and
Medicore, Inc. dated August 18, 1993 (incorporated by
reference to Viragen's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xxi))
(10)(xxii) Amendment to Acquisition Agreement between Viragen and
Medicore, Inc. dated August 18, 1993 (incorporated by
reference to Viragen's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xxii))
(10)(xxiii) Marketing and Management Services Agreement between Viragen
and Cytoferon Corp. dated August 18, 1993 (incorporated by
reference to Viragen's June 30, 1993 Form 10-K, Part IV, Item
14(a)(10)(xxiii))
(10)(xxiv) Agreement for Sale of Stock between Cytoferon and Viragen
dated November 19, 1993 (incorporated by reference to
Viragen's current report on Form 8-K, dated November 12,
1993)
(10)(xxv) Employment Agreement between Gerald Smith and Viragen dated
November 19, 1993 (incorporated by reference to the Company's
current report on Form 8-K, dated November 12, 1993) as
amended by Modified Employment Agreement dated December 15,
1994. (incorporated by reference to Viragen's 1995 Form SB-2,
Part II, Item 27(10)(xxv)
(10)(xxvi) Common Stock Purchase Warrant Agreement between Northlea
Partners Ltd. and Viragen dated January 6, 1994 (incorporated
by reference to Viragen's Current Report on Form 8- K, dated
November 17, 1993)
(10)(xxvii) Management Consulting Agreement between Viragen, Medvest,
Inc. and Dr. John Abeles dated January 6, 1994 (incorporated
by reference to Viragen's Current Report on Form 8-K, dated
November 17, 1993)
</TABLE>
II-6
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(10)(xxviii) Employment Agreement between Dennis W. Healey and Viragen
dated April 8, 1994 (incorporated by reference to Viragen's
Annual Report on Form 10-K for the year ended June 30, 1994)
as amended by Modified Employment Agreement dated December
15, 1994
(10)(xxix) Promissory Note between Viragen and Gerald Smith dated April
18, 1994 (incorporated by reference to Viragen's June 30,
1994 Form 10-K, Part IV, Item 14(a)(10)(xxviii))
(10)(xxx) Employment Agreement between Charles F. Fistel and Viragen
dated July 1, 1994 (incorporated by reference to Viragen's
Annual Report on Form 10-K for the year ended June 30, 1994)
as amended by Modified Employment Agreement dated December
15, 1994
(10)(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant
issued to Laidlaw Equities, Inc. and designees (incorporated
by reference to the April 1997 Form S-3, Part II, Item 16,
10(xxxi)).
(10)(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))
(10)(xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter
D. Fischbein(1) (incorporated by reference to Viragen's 1995
Form SB-2, Part II, Item 27(10)(xxxiii))
(10)(xxxiv) Agreement with Moty Hermon (incorporated by reference to
Viragen's 1995 Form SB-2, Part II, Item 27(10)(xxxiv))
(10)(xxxv) Agreement with University of Nebraska Medical Center
(incorporated by reference to Viragen's 1995 Form SB-2, Part
II, Item 27(10)(xxxv))
(10)(xxxvi) License and Manufacturing Agreement with Common Services
Agency (incorporated by reference to Viragen's 1995 Form
SB-2, Part II, Item 27(10)(xxxiv))
(10)(xxxvii) Agreed Motion for Consent Final Order and Settlement
Agreement dated August 29, 1995 (incorporated by reference to
Viragen's June 30, 1995 Form 10-KSB)
(10)(xxxviii) Agreement and Plan of Reorganization dated November 8, 1995
and Amendment thereto (incorporated by reference to Viragen's
Post-Effective Amendment No. 1 to Registration Statement on
Form SB-2)
</TABLE>
II-7
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(10)(xxxix) Private Securities Subscription Agreement dated June 7, 1996,
and Registration Rights Agreement (incorporated by reference
to Viragen's Current Report on Form 8-K dated June 7, 1996)
(10)(xl) Employment Agreement between Charles F. Fistel and Viragen
dated July 1, 1996 (incorporated by reference to Viragen's
Annual Report on Form 10-K for the year ended June 30, 1996)
(10)(xli) Stock Option Agreement between Viragen and Fred D. Hirt dated
August 2, 1996 (incorporated by reference to Viragen's Annual
Report on Form 10-K for the year ended June 30, 1996)
(10)(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 Viragen's Current Report on Form 8-K dated February 14,
1997)
(10)(xliii) Private Securities Subscription Agreement dated February 3,
1997 and related Regulation Rights Agreement, Common Stock
Purchase Warrant and related agreements (incorporated by
reference to Viragen's Current Report on Form 8-K dated
February 14, 1997)
(10)(xliv) Securities Purchase Agreement dated as of December 31, 1996
and related Registration Rights Agreement (incorporated by
reference to Viragen's Current Report on Form 8-K dated March
6, 1997)
(10)(xlv) Employment Agreement between Gerald Smith and Viragen dated
March 1, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K, dated June 30, 1997)
(10)(xlvi) Employment Agreement between Dennis W. Healey and Viragen
dated March 1, 1997 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June
30, 1997)
(10)(xlvii) Employment Agreement between Robert C. Reeh and Viragen dated
May 19, 1997 (incorporated by reference to Viragen's Annual
Report on Form 10-K for the year ended June 30, 1997)
(10)(xlviii) 11 month 10% Promissory Note dated July 1, 1997 (incorporated
by reference to Viragen's Current Report on Form 8-K dated
August 28, 1997)
</TABLE>
II-8
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(10)(xlix) Employment Agreement between Robert H. Zeiger and Viragen
dated August 1, 1997 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June
30, 1997)
(10)(l) Omitted
(10)(li) Omitted
(10)(lii) Stock Exchange Agreement (Series F Convertible Preferred
Stock Exchange Agreement) (incorporated by reference to the
Company's Current Report on Form 8-K dated September 22,
1997, Item 7(c)4)
(10)(liii) Stock Exchange Agreement (Series G Convertible Preferred
Stock Exchange Agreement) (incorporated by reference to the
Company's Current Report on Form 8-K dated September 22,
1997, Item 7(c)5)
(10)(liv) 10% Promissory Note to Clearwater Fund IV, LTD. (incorporated
by reference to Viragen's Current Report on Form 8-K dated
September 22, 1997, Item 7(c)1)
(10)(lv) Cooperation and Supply Agreement between Viragen and the
German Red Cross dated May 19, 1998 (incorporated by
reference to Viragen's Annual Report on Form 10-K for the
year ended June 30, 1998)
(10)(lvi) Series H Convertible Preferred Stock, Form of Subscription
Agreement dated February 17, 1998 and related Registration
Rights Agreement and Common Stock Purchase Warrants
(incorporated by reference to Viragen's Registration
Statement on Form S-3 dated April 17, 1998)
(10)(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 Viragen's Registration Statement on Form S-3
dated April 17, 1998)
(10)(lviii) Cooperation and Supply Agreement between Viragen, 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 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June
30, 1998)
(10)(lix) Buffycoat Supply Agreement between American's Blood Centers
and Viragen dated July 15, 1998 (Certain portions of this
exhibit have been redacted pursuant to a Confidentiality
Request submitted to the Securities and Exchange Commission)
</TABLE>
II-9
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
(incorporated by reference to Viragen's Annual Report on Form
10-K for the year ended June 30, 1998)
(10)(lx) Agreement between Viragen the American Red Cross dated August
18, 1998 (incorporated by reference to Viragen's Annual
Report on Form 10-K for the year ended June 30, 1998)
(10)(lxi) 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)
10(lxii) Purchase Agreement between the Registrant, the Isosceles Fund
and Cefeo Investments Limited dated March 17, 1999.*
10(lxiii) 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)
10(lxiv) 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)
10(lxv) 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)
10(lxvi) Common Stock Purchase Warrant issued 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)
10(lxvii) Common Stock Purchase Warrant issued to Ven-Gua Capital
Markets Ltd. dated March 17, 1999. (incorporated by reference
to Viragen's Form S-3 registration statement filed April 6,
1999, File No. 333-75749)
10(lxviii) Common Stock Purchase Warrant issued to Elliott, Lane &
Associates, Inc. dated March 17, 1999. (incorporated by
reference to Viragen's Form S-3 registration statement filed
April 6, 1999, File No. 333-75749)
10(lxix) Common Stock Purchase Warrant issued to Ballsbridge Finance
Ltd dated March 17, 1999. (incorporated by reference to
Viragen's Form S-3 registration statement filed April 6,
1999, File No. 333-75749)
</TABLE>
II-10
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
-----------
<S> <C>
10(lxx) Registration Rights Agreement between the Registrant, The
Isosceles Fund and 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)
10(lxxi) Registration Rights Agreement between the Registrant,
Ballsbridge Finance Limited, Elliot, Lane & Associates, Inc.
and Ven-Gua Capital Markets, Ltd. dated March 17, 1999.
(incorporated by reference to Viragen's Form S-3 registration
statement filed April 6, 1999, File No. 333-75749)
10(lxxii) Agreement of Consent, Waiver and Amendment between the
Registrant, the Isosceles Fund and Cefeo Investments Limited
dated June 16, 1999*
(11) Computation of Per Share Earnings (incorporated by reference
to Viragen's Quarterly Report on Form 10-Q/A for the quarterly
period ended March 31, 1999, Part II, Item 6 (11))
(21) Subsidiaries of the Registrant (incorporated by reference to
Viragen's June 30, 1998 Form 10-K/A)
(23)(i) Consent of Ernst & Young LLP*
(23)(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included as
part of Exhibit (5))
</TABLE>
- --------------------
* Filed herewith.
Item 17. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(i) to file, during any period in which it
offers or sells securities, a post-effective amendment to this Registration
Statement to include any additional or changed material information on the plan
of distribution;
(ii) that, for determining any liability under
the Securities Act, treat each such post-effective amendment as a new
Registration Statement of the securities offered at that time shall be deemed
to be the initial bona fide offering thereof;
(iii) to file a post-effective amendment to remove
from registration any of the securities that remain unsold at the end of the
offering; and
II-11
<PAGE> 37
(iv) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(b) The undersigned Registrant hereby undertakes that,
for purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's Annual Report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement 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.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-12
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Viragen certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plantation and the State
of Florida, on the 9th day of June, 1999.
VIRAGEN, INC.
By: /s/ Gerald Smith
--------------------
Gerald Smith
Chairman of the Board of Directors
and President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----- ----
<S> <C> <C>
/s/ Gerald Smith Chairman of the June 9, 1999
- ---------------------------------- Board of Directors,
Gerald Smith President and Principal
Executive Officer
/s/ Dennis W. Healey Executive Vice President June 9, 1999
- ---------------------------------- Treasurer, Principal
Dennis W. Healey Financial Officer,
Director and Secretary
/s/ Jose I. Ortega Controller and Principal
- ---------------------------------- Accounting Officer June 9, 1999
Jose I. Ortega
/s/ Sidney Dworkin Director June 9, 1999
- ----------------------------------
Sidney Dworkin
/s/ Peter D. Fischbein Director June 9, 1999
- ----------------------------------
Peter D. Fischbein
/s/ Carl N. Singer Director June 9, 1999
- ----------------------------------
Carl N. Singer
</TABLE>
II-13
<PAGE> 39
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----- ----
<S> <C> <C>
/s/ Charles J. Simons Director June 9, 1999
- -----------------------------
Charles J. Simons
/s/ Robert H. Zeiger
- ----------------------------- Director June 9, 1999
Robert H. Zeiger
/s/ Robert Salisbury Director June 9, 1999
- -----------------------------
Robert Salisbury
</TABLE>
II-14
<PAGE> 1
EXHIBIT 5.1
June 10, 1999
Viragen, Inc.
865 S.W. 78th Avenue, Suite 100
Plantation, FL 33324
RE: REGISTRATION STATEMENT ON FORM S-3; VIRAGEN, INC. (THE "COMPANY"),
11,000,000 SHARES OF COMMON STOCK
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration by the
Company of an aggregate of 11,00,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), to be sold by The Isosceles Fund Limited and Cefeo
Investments Limited (the "Subscribers") and Ballsbridge Finance, Limited, Elliot
Layne & Associates, Inc. and Ven-Gua Capital Markets Ltd. (the "Finders") as
designated in the Registration Statement. The shares of Common Stock to be sold
consist of up to (i) 9,912,622 shares of Common Stock (the "Note Shares")
issuable to the Subscriber upon the conversion of the 8% Redeemable Promissory
notes (the "Notes") as set forth in the Purchase Agreement between the Company
and the Subscribers dated March 17, 1999 (the "Purchase Agreement"); (ii)
932,039 shares of Common Stock issuable upon the exercise of common stock
purchase warrants issuable to the Subscriber pursuant to the Purchase Agreement
(the "Warrants"); (iii) 155,379 shares of Common Stock (the "Finder Shares")
issuable to the Finders, for the transactions contemplated in the Purchase
Agreement, upon the exercise of Common Stock purchase warrants (the "Finders'
Warrants").
In our capacity as counsel to the Company, we have examined the
original, certified, conformed, photostat or other copies of the Company's
Certificate of Incorporation (as Amended), By-Laws, the Purchase Agreement and
documents pertaining to the Purchase Agreement, and exhibits and corporate
minutes provided to us
<PAGE> 2
Viragen, Inc.
June 10, 1999
Page 2
by the Company. In all such examinations, we have assumed the genuineness of all
signatures on original documents, and the conformity to originals or certified
documents of all copies submitted to us as conformed, photostat or other copies.
In passing upon certain corporate records and documents of the Company, we have
necessarily assumed the correctness and completeness of the statements made or
included therein by the Company, and we express no opinion thereon.
Based upon and in reliance of the foregoing, we are of the opinion that
the Common Stock to be issued to the Subscribers and the Finders in accordance
with the Purchase Agreement and the Notes and upon the exercise of the Warrants
and Finders' Warrants (assuming payment of the respective exercise prices
therefor), when issued in accordance with the terms of the Purchase Agreement,
the Notes, the Warrants and the Finders' Warrants will be validly issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion in Amendment No. 1 to the
Registration Statement on Form S-3 to be filed with the Commission.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ ATLAS, PEARLMAN, TROP & BORKSON, P.A
<PAGE> 1
EXHIBIT 10(lxii)
PURCHASE AGREEMENT
BETWEEN
THE ISOSCELES FUND, CEFEO INVESTMENTS LIMITED
AND
VIRAGEN, INC.
DATED AS OF MARCH 17, 1999
This PURCHASE AGREEMENT (this "Agreement") is entered into as of the 17
day of March, 1999, by and between The Isosceles Fund, an entity organized and
existing under the laws of the Commonwealth of the Bahamas, Cefeo Investments
Limited, an entity organized and existing under the laws of Switzerland
(together, the "Subscribers") and Viragen, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Subscribers
as provided herein, and the Subscribers shall purchase, an aggregate of
$2,000,000 principal amount of Redeemable Convertible Notes and Warrants (as
defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) of and Regulation D under the United States Securities Act of
1933, as amended (the "Securities Act"), and/or upon such other exemption from
the registration requirements of the Securities Act as may be available with
respect to any or all of the investments to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "CLOSING MARKET PRICE" shall mean the average of the
closing bid prices of the Company's Common Stock during the five consecutive
trading days preceding the Initial Purchase Date.
Section 1.2 "COMMON STOCK" shall mean the Company's common stock $.01
par value per share.
Section 1.3 "CONDITION SATISFACTION DATE" See Section 8.2.
Section 1.4 "DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.5 "EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the Registered
Shares as set forth in Section 7.3(a).
Section 1.6 "ENGAGEMENT PERIOD" shall having the meaning given in
Section 2.1(a).
1
<PAGE> 2
Section 1.7 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder.
Section 1.8 "INITIAL CLOSING" shall mean the closing of the purchase
and sale of Notes and Warrants on the Initial Purchase Date.
Section 1.9 "INITIAL PURCHASE DATE" shall mean the date of the original
issuance of the Notes.
Section 1.10 "INVESTMENT AMOUNT" shall mean the amounts to be paid by
the Subscribers to the Company pursuant to Article II hereof.
Section 1.11 "LEGEND" See Section 9.1.
Section 1.12 "MATERIAL ADVERSE AFFECT" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.13 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.14 "NOTES" shall mean the amount of Redeemable Convertible
Notes issued from time to time by the Company in an amount divisable by $25,000
with an interest rate of 8% per annum, and having substantially the terms and
condition set forth in Exhibit A hereto.
Section 1.15 "OUTSTANDING CAPITAL SHARES" shall mean, all issued and
outstanding shares of the Company, and shall include all such shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; PROVIDED, HOWEVER, that "Outstanding Capital Shares"
shall not mean any such Shares then directly or indirectly owned or held by or
for the account of the Company.
Section 1.16 "PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.17 "PRE-PAYMENT DEADLINE" shall mean the sooner of the end of
the applicable Registration Period or the Effective Date.
Section 1.18 "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.19 "PROXY" shall mean the proxy to be filed with the SEC
pursuant to Section 7.2(d).
Section 1.20 "REGISTRATION PERIOD" shall mean 90 days after the Initial
Purchase Date if there are no comments from the SEC or 105 days after the
Initial Purchase Date if there are comments from the SEC.
2
<PAGE> 3
Section 1.21 "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the Common
Stock underlying the Notes and the Warrants, entered into between the Company
and the Subscribers as of the Subscription Date.
Section 1.22 "REGULATION D" shall mean Regulation D under the
Securities Act.
Section 1.23 "SEC" shall mean the Securities and Exchange Commission.
Section 1.24 "SECTION 4(2)" shall mean Section 4(2) of the Securities
Act.
Section 1.25 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26 "SEC DOCUMENTS" shall mean the Company's latest Form 10-K
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.27 "SUBSCRIPTION DATE" shall mean the date of this Agreement.
Section 1.28 "TRADING DAY" shall mean any day during which the NASDAQ
shall be open for business.
Section 1.29 "WARRANTS" shall mean warrants to purchase Common Stock
substantially in the form set forth in Exhibit B hereto.
Section 1.30 "WARRANT AMOUNT" shall mean Common Stock equivalent to 30%
of the Investment Amount divided by the applicable Closing Market Price.
ARTICLE II
PURCHASE AND SALE OF REDEEMABLE CONVERTIBLE NOTES AND WARRANTS
Section 2.1 INVESTMENTS.
(a) Engagement Period. The Initial Closing shall occur prior
to 5 pm, New York time, March 17, 1999. The Initial Closing
shall be automatically extended for a reasonable period of
time, if the Initial Closing is not consummated due to delays
in the preparation of final documentation, such extensions
not to exceed 3 business days.
(b) Initial Purchase. On the Initial Purchase Date, The
Isosceles Fund shall purchase for $1,500,000 and Cefeo
Investment Limited shall purchase for $500,000 an equivalent
principal amount of Notes and Warrants in the Warrant Amount,
in the manner set forth in Section 2.2.
Section 2.2 CLOSING. On the Initial Closing Date, (i) the Company shall
deliver into escrow the Notes and the Warrants, to be purchased by the
Subscribers,
3
<PAGE> 4
registered in the name of the Subscribers, and (ii) the Subscribers shall
deliver into escrow the principal amount of the Notes. In addition, on or prior
to the Initial Closing Date each of the Company and the Subscribers shall
deliver all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein.
Payment of funds to the Company and delivery of the certificates to the
Subscribers shall occur out of escrow in accordance with the Escrow Agreement
between the parties hereto and Chase Manhattan Bank & Trust Co. dated as of
March 17, 1999 (the "Escrow Agreement") following (x) the Company's deposit into
escrow of the certificates representing the Notes and Warrants and (y) the
Subscribers' deposit into escrow of the relevant Investment Amount; PROVIDED,
HOWEVER, that the amount of $500,000 from the Investment Amount shall be
retained in escrow and released to the Company only upon both filing of the
Proxy with the SEC by March 16, 1999 and filing of the Registration Statement in
accordance with the Registration Rights Agreement and that if such conditions
are not met, such amount shall be returned to the Subscribers proportionately to
their Investment Amounts, and PROVIDED FURTHER that to the extent the Company
has not paid the fees, expenses and disbursements of the Subscribers' counsel in
accordance with Section 13.1, the amount of such fees, expenses and
disbursements shall be paid from the escrow account in immediately available
funds, at the direction of the Subscribers, to Subscribers' counsel with no
reduction in the number of Notes or Warrants issuable to the Subscribers on such
Closing Date.
Section 2.3 TERMINATION OF INVESTMENT OBLIGATION. The obligation of the
Subscribers to purchase Notes and Warrants shall terminate permanently in the
event that (i) the Initial Closing does not occur before the end of the
Engagement Period; (ii) the Registration Statement is not effective within 90
after the Initial Purchase Date if there are no comments from the SEC or 105
days after the Initial Purchase Date if there are comments from the SEC; (iii)
there shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of 30 Trading Days, for any reason other
than deferrals or suspension in accordance with Section 2.1(i) of the
Registration Rights Agreement, as a result of corporate developments subsequent
to the Subscription Date that would require such Registration Statement to be
amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act; or (iv) the Company shall at any
time fail to comply with the requirements of Article VI hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBSCRIBERS
Each Subscriber represents and warrants to the Company that:
Section 3.1 INTENT. The Subscriber is entering into this Agreement for
its own account and the Subscriber has no present arrangement (whether or not
legally binding) to sell the Notes or Common Stock obtained upon conversion of
Notes or exercise of the Warrants to or through any person or entity; provided,
however, that by making the representations herein, the Subscriber does not
agree to hold the Notes and Warrants for any minimum or other specific term and
reserves the right to dispose of the Notes and Warrants at any time in
accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an Accredited
Investor (as defined in Rule 501 of Regulation D), and Subscriber has such
experience in business and financial matters that it is capable of evaluating
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the merits and risks of an investment in Common Stock. The Subscriber
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 AUTHORITY. This Agreement has been duly authorized and
validly executed and delivered by the Subscriber and is a valid and binding
agreement of the Subscriber enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. The Subscriber is not an officer,
director or "affiliate" (as that term is defined in Rule 405 promulgated under
the Securities Act) of the Company.
Section 3.5 ORGANIZATION AND STANDING. Subscriber is duly organized,
validly existing, and in good standing under the laws of the Bahamas or
Switzerland, as applicable.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Subscriber, or, to
the Subscriber's knowledge, (a) violate any provision of any indenture,
instrument or agreement to which Subscriber is a party or is subject, or by
which Subscriber or any of its assets is bound, (b) conflict with or constitute
a material default thereunder, (c) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Subscriber to any third party,
or (d) require the approval of any third party (which has not been obtained)
pursuant to any material contract, agreement, instrument, relationship or legal
obligation to which Subscriber is subject or to which any of its assets,
operations or management may be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Subscriber has received
all documents, records, books and other information pertaining to Subscriber's
investment in the Company that have been requested by Subscriber. The Company is
subject to the periodic reporting requirements of the Exchange Act, and
Subscriber has reviewed or received copies of any such reports that have been
requested by it.
ARTICLE IV
CAPITAL RAISING LIMITATIONS
Section 4.1 LIMITATIONS. The Company will not, until 90 days after the
Pre-Payment Deadline (the "Limitation Period") offer for sale or sell any Common
Stock (or any security convertible into, or exercisable or exchangeable for,
Common Stock) without the written consent of the Subscribers. This restriction
will terminate on the earlier of (i) redemption or Pre-Payment by the Company or
(ii) the end of the Limitation Period.
Section 4.2 EXCEPTIONS. The provisions of this Article IV will not
apply to;
(a) the issuance of securities upon the exercise or conversion of the
Company's options, warrants or other convertible securities outstanding
as of the date hereof; or
(b) underwritten public offerings; or
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(c) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option plan or
restricted stock option plan for the benefit of the Company's
employees, directors or consultants; or
(d) a loan from a commercial bank or an affiliate; or
(e) any transaction involving the Company's issuance of securities (i)
as consideration in a merger, or (ii) in connection with any strategic
partnership or joint venture (the primary purpose of which is not to
raise equity capital) or (iii) as consideration for any acquisition; or
(f) any equipment leasing financing facility.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscribers that:
Section 5.1 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own, lease and operate its
properties and to carry on its business as now being conducted. Except as set
forth in the SEC Documents, the Company does not have any subsidiaries. Except
as set forth in the SEC Documents, the Company does not own more than fifty
percent (50%) of or control any other business entity. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 5.2 AUTHORITY. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, the Escrow Agreement and the Registration Rights Agreement and to
issue the Notes and Warrants; (ii) the execution, issuance and delivery of this
Agreement and the Registration Rights Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (iii) this
Agreement and the Registration Rights Agreement have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 5.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 75,000,000 shares of Common Stock, of which 60,720,815 shares were
issued and outstanding as of March 12. Except as disclosed in the financial
statements of the Company included in the report on Form 10-Q for the fiscal
quarter ended December 31, 1998, there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable and
subject to no preemptive rights. As of the effective date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any
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of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries except as set forth in the SEC
Documents, (ii) there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of its or
their securities under the Securities Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the Notes,
the Warrants, the Conversion Shares or Warrant Shares. The Company has furnished
to the Buyer true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof, the Company's By-laws, as in
effect on the date hereof, and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
Section 5.4 COMMON STOCK. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock except as set forth in the NASD's letter to the Company of December 16,
1998, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq National
Market.
Section 5.5 SEC DOCUMENTS. The Company has delivered or made available
to the Subscribers true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Subscribers any information that, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.6 VALID ISSUANCES. The Notes, Warrants and Common Stock
issuable upon the conversion of the Notes or exercise of the Warrants have been
and will be properly issued pursuant to Rule 4(2), Regulation D and/or any
applicable state law. When issued, the shares of common stock underlying the
Notes and Warrants will be duly and validly issued, fully paid, and
nonassessable. Neither the sales of the Notes and Warrants pursuant to, nor the
Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement will (i) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Purchased Shares or
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to
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subscribe to or acquire the Capital Shares or other securities of the Company.
The Notes and Warrants shall not subject the Subscribers to personal liability
by reason of the ownership thereof.
Section 5.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Notes and Warrants, or (ii)
made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Notes or
Warrants or Common Stock issuable upon the conversion of the Notes or exercise
of the Warrants under the Securities Act.
Section 5.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to the Subscribers true and correct copies of the Company's
Certificate of Incorporation, as amended and in effect on the date hereof, and
the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 5.9 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance of
the Notes, Warrants, and Common Stock issuable upon the conversion of the Notes
or redemption of the Warrants do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Notes, Warrants or Common Stock in accordance
with the terms hereof (other than any SEC, NASD or state securities filings that
may be required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq National Market.
Section 5.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1998, no
Material Adverse Effect has occurred or exists with respect to the Company.
Section 5.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's business since December 31,
1998 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
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Section 5.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
1998, no event or circumstance has occurred or exists with respect to the or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 5.13 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
The Company has not engaged in any equity offerings or offerings of securities
of the same class as the Notes and the Warrants in the 180 days preceding the
date of this Agreement except the registration statement filed with the SEC and
withdrawn prior to the Subscription Date pursuant to Section 7.2(b).
Section 5.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or, to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.
Section 5.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Purchased Shares in connection with the
transactions contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 5.16 NO MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to the Subscribers,
any material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 5.17 MANNER OF SALE. At no time was Subscribers presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 5.18 ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Notes, or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
Section 5.19 PATENTS, COPYRIGHTS, ETC. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names
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and copyrights ("Intellectual Property") necessary to enable it to conduct its
business as now operated (and to the best of the Company's knowledge, as
presently contemplated to be operated in the future); there is no claim or
action by any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company with respect to
any Intellectual Property necessary to enable it to conduct its business as now
operated (and to the best of the Company's knowledge, as presently contemplated
to be operated in the future); to the best of the Company's knowledge, the
Company's current and intended products, services and processes do not infringe
on any Intellectual Property or other rights held by any person; and the Company
is unaware of any facts or circumstances which might give rise to any of thc
foregoing. The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
Section 5.20 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
Section 5.21 TAX STATUS. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, state or local tax. None
of the Company's tax returns is presently being audited by any taxing authority.
Section 5.22 CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties,
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
Section 5.23 DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports
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filed under the Exchange Act are being incorporated into an effective
registration statement filed by the Company under the Securities Act).
Section 5.24 ACKNOWLEDGMENT REGARDING SUBSCRIBERS' PURCHASE. The
Company acknowledges and agrees that the Subscriber is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Subscribers are not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by the Subscribers or any of their
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Subscriber's purchase of the Notes and Warrants hereunder. The Company
further represents to the Subscribers that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
Section 5.25 NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for those Finders set forth in the Escrow Agreement.
Section 5.26 ENVIRONMENTAL MATTERS.
(i) There are, to the Company's knowledge, with respect to the
Company or any of its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any common
law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) There are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
Section 5.27 PERMITS: COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its
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business as it is now being conducted (collectively, the "Company Permits"), and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 31,
1998, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
Section 5.28 TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect.
Section 5.29 INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such mounts as management of the Company believes to be prudent
and customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
Section 5.30 INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Section 5.31 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
Section 5.32 SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (I.E., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect
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of its current fiscal year, assuming the Company received the financing
necessary to sustain operations for the forthcoming financial year.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 REGISTRATION OF COMMON STOCK. The Company shall maintain
the listing of the Common Stock (including the Common Stock issued upon
conversion of the Notes or exercise of the Warrants) on a Principal Market, and
as soon as possible but no later than 20 calendar days after the Closing Date,
shall file a registration with the SEC on Form S-3 registering for resale the
shares of the Company's Common Stock underlying the applicable Notes and
Warrants and the Re-Set Shares (collectively, the "Registered Shares"), as
described in the Registration Rights Agreement. The Company further shall, if
the Company applies to have the Common Stock traded on any other Principal
Market, include in such application the Registered Shares, and shall take such
other action as is necessary or desirable in the opinion of the Subscribers to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall take all action necessary to continue the listing
and trading of its Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.3 EXCHANGE ACT REGISTRATION. The Company shall cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.4 LEGENDS. The certificates evidencing the Registered Shares
to be sold by the Subscribers pursuant to Section 2 shall be free of legends,
except as set forth in Article IX.
Section 6.5 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 ADDITIONAL SEC DOCUMENTS; OTHER DOCUMENTS. The Company will
deliver to the Subscribers, and when the originals thereof are submitted to the
SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC. The Company will further deliver copies of all press releases issued by the
Company and all communications to shareholders to the Subscribers.
Section 6.7 REGISTRATION STATEMENT. (a) The Company will immediately
notify the Subscribers upon the occurrence of any of the following events in
respect of a Registration Statement or related prospectus in respect of an
offering of Registrable Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period
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of effectiveness of the Registration Statement, or for amendments or supplements
to the Registration Statement or related prospectus; (ii) the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate; and the Company will promptly make available to
the Subscribers any such supplement or amendment to the related prospectus.
Section 6.8 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) (a) assumes by written instrument the
obligation to deliver to the Subscribers such shares of Common Stock as the
Subscribers are entitled to receive pursuant to this Agreement and (b) is an
SEC-registered company whose common stock is listed on NASDAQ, AMEX or NYSE.
Section 6.9 NOTES AND WARRANTS. The sale and issuance of the Notes and
Warrants shall be made in accordance with the provisions and requirements of
Regulation D and any applicable state law.
Section 6.10 RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Notes and Warrants and issuance of the Conversion Shares and Warrant
Shares in connection therewith (based on the Conversion Price of the Notes or
Exercise Price of the Warrants in effect from time to time). The Company shall
not reduce the number of shares of Common Stock reserved for issuance upon
conversion of Notes and exercise of the Warrants without the consent of the
Subscribers. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than 300%
of the number that is then actually issuable upon full conversion of the Notes
and 150% of the number issuable upon exercise of the Warrants (based on the
Conversion Price of the Notes or Exercise Price of the Warrants in effect from
time to time). If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the number of Conversion Shares and Warrant
Shares issued and issuable upon conversion of the Notes and exercise of the
Warrants (based on the Conversion Price of the Notes or Exercise Price of the
Warrants then in effect), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section 6.10, in
the case of an insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of an increase in such authorized number
of shares.
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Section 6.11 NO INTEGRATION. The Company shall not make any offers or
sales of any other security under circumstances that would require registration
of the offer and sale of Notes and Warrants under the Securities Act or cause
such offering to be integrated with any other offering of securities by the
Company for the purpose of any stockholder approval provision applicable to the
Company or its securities.
Section 6.12 LEGAL OPINION ON SUBSCRIPTION DATE. The Company's
independent counsel shall deliver to the Subscribers on the Subscription Date an
opinion substantially in the form of Exhibit C.
ARTICLE VII
CONDITIONS TO CLOSING; CONDITIONS TO DELIVERY OF PURCHASE NOTICES
Section 7.1 SUBSCRIBER CONDITIONS APPLICABLE TO INITIAL CLOSING. The
obligation hereunder of the Company to issue and sell the Notes and Warrants to
each Subscriber incident to the Initial Closing is subject to the satisfaction,
at or before such closing, of each of the conditions set forth below.
(a) Accuracy of the Subscriber's Representation and
Warranties. The representations and warranties of each
Subscriber shall be true and correct in all material respects
as of the date of this Agreement and as of the date of the
closing as though made at each such time.
(b) Performance by the Subscriber. The Subscriber shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Subscriber at or prior to closing.
Section 7.2 COMPANY CONDITIONS TO INITIAL CLOSING. In addition to the
conditions set forth in Section 7.1, the Initial Closing shall be subject to the
satisfaction, at or before the Initial Closing, the conditions set forth below.
(a) The Company and the Subscribers shall have mutually
agreed on definitive documentation.
(b) The Company shall have withdrawn from the SEC
registration statement No. 333-65119 and suspended the
transaction to which such registration statement relates
prior to the Initial Closing Date.
(c) The Company shall, prior to the Initial Closing Date,
disclose to the Subscribers the amount outstanding under its
Series H and I Preferred Stock and take such action with
respect thereto as may be agreed between the Company and the
Subscribers.
(d) The Company shall prepare for shareholder approval a
proxy to be filed with the SEC no later than March 16, 1999
authorizing a reverse stock split of at least 4:1 (provided
that the foregoing shall not be required in the event that
the requirements of the NASD in its letter to the Company
dated December 16, 1998 are met or withdrawn).
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(e) Senior management of the Company and other shareholders,
constituting approximately 15% or more of the holders of the
Company's voting shares, shall have executed a letter
agreeing to vote in favor of the Proxy.
(f) The Subscribers shall have received an opinion from the
Company's counsel in the form set out as Exhibit C hereto.
(g) The Subscribers shall have received a Certificate in the
form of Exhibit D hereto.
(h) The Company shall have notified the transfer agent of the
terms of this agreement, including each Conversion Date,
Re-Set Date and the deadline for filing of the Registration
Statement and the Effective Date. The Company shall instruct
the transfer agent to issue the respective common stock
certificates without restrictive legend in the name of the
Subscribers or such persons as may be designated by the
Subscribers representing the number of shares of the Issuer's
common stock issuable upon each respective Conversion Date,
Re-Set Date and Warrant Exercise Date, as applicable, and
deliver such shares to escrow within three trading days of
the respective Conversion Date, Re-Set Date and Warrant
Exercise Date. The Issuer represents that instructions to
impose a "stop transfer" will be given to the transfer agent
with respect to the share certificates until the Effective
Date and that thereafter the Issuer's common stock shall
otherwise be freely transferable on the books and records of
the Issuer. Prior to the Purchase Date the Issuer will cause
the transfer agent to execute and acknowledge in writing to
the Subscribers an irrevocable consent to the foregoing (the
"Transfer Agent Consent") in the form set out in Exhibit E
hereto. To the extent set forth in the terms of the Note,
delivery shall be electronically and the Company shall so
instruct the transfer agent.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by the Subscribers, advisors to and representatives of the
Subscribers (who may or may not be affiliated with the Subscribers and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Subscribers pursuant
to the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Subscribers
or any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Subscribers and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION. Each of the
Company, its officers, directors, employees and agents shall in no event
disclose non-public information to the
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<PAGE> 17
Subscribers, advisors to or representatives of the Subscribers unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Subscribers, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review.
ARTICLE IX
LEGENDS
Section 9.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN
A PURCHASE AGREEMENT BETWEEN VIRAGEN, INC. AND ISOSCELES FUND
DATED MARCH __, 1999. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE
COMPANY'S EXECUTIVE OFFICES.
Section 9.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 10.1 has been or shall be placed on the
certificates representing the Notes and Warrants and no instructions or stop
transfer orders, or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article IX.
Section 9.3 REMOVAL OF LEGEND. Pursuant to the Registration Rights
Agreement, the legend specified in Section 9.1 shall be removed from all shares
sold in registered transactions pursuant to the Registration Statement.
Section 9.4 SUBSCRIBERS' COMPLIANCE. Nothing in this Article IX shall
affect in any way the Subscribers' obligations under any agreement to comply
with all applicable securities laws upon resale.
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ARTICLE X
CHOICE OF LAW
Section 10.1 CHOICE OF LAW. This Agreement shall be construed under the
laws of the State of New York.
ARTICLE XI
ASSIGNMENT; TERMINATION
Section 11.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Subscribers or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the Common Stock purchased or acquired by the Subscribers hereunder
with respect to the Common Stock held by such person, and (b) the Subscribers'
interest in this Agreement may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the Subscribers) upon the
prior written consent of the Company, which consent shall not to be unreasonably
withheld.
Section 11.2 TERMINATION. This Agreement shall terminate at the end of
the Effective Period if the Initial Closing has not occurred; provided, however,
that the provisions of Articles V, VI, XII and XIII shall survive the
termination of this Agreement.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to Viragen, Inc.:
Dennis W. Healey
Chief Financial Officer
Viragen, Inc.
865 SW 78th Avenue, Suite 100
Plantation, Florida 33324-3212
Telephone: (954) 233-8746
Facsimile: (954) 233-1416
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with a copy to (which communication shall not constitute notice):
James Schneider, Esq.
Atlas, Perlman, Trop & Borksoon
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Telephone: (954) 763-1200
Facsimile: (954) 766-7800
If to Isosceles:
The Isosceles Fund Limited
c/o Citco Fund Services Ltd.
Bahamas Financial Centre, 3rd Floor
Shirley & Charlotte Street
P.O. Box CB 13136
Nassau, Bahamas
Attention Ruth Beneby
Telephone: (242) 356-5928
Facsimile: (242) 356-0221
with copies to (which communication shall not constitute notice):
Mohammed Manzur
c/o Manzur Associates, Ltd.
Witan Court, 270 Witan Gate West
Milton Keynes, MK9 1EJ
United Kingdom
Telephone: 011-44-1908-231-007
Facsimile: 011-44-1908-231-006
Sara Hanks, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166
Telephone: (212) 878-8014
Facsimile: (212) 878-8375
If to Cefeo:
Cefeo Investments Limited
Via Genevra 2
6901 Lugano
Switzerland
Attention Rolf Marthaler
Telephone: + 41 91 913 4560
Facsimile: + 41 91 913 4502
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Either party hereto may from time to time change its address or
facsimile number for notices under this Section 13.1 by giving at least 10 days
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 12.2 INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each Subscriber, its partners, affiliates, officers, directors,
employees, and duly authorized agents, and each Person or entity, if any, who
controls the Subscriber within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which the Subscriber, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement.
Section 12.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 13.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section
13.2 (an "Indemnified Party") might seek indemnity under
Section 13.2 is asserted against or sought to be collected
from such Indemnified Party by a person other than the
Company, the Subscriber or any affiliate of the Company or (a
"Third Party Claim"), the Indemnified Party shall deliver a
written notification, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of
Section 13.2 against any person (the "Indemnifying Party"),
together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such Third Party Claim (a "Claim Notice") with reasonable
promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party will not be obligated to
indemnify the Indemnified Party with respect to such Third
Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will
notify the Indemnified Party as soon as practicable within the
period ending 30 calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity
Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party under Section 12.2 and
whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third
Party Claim.
(i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant
to this Section 13.3(a), then the Indemnifying Party
will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously
and diligently prosecuted by the Indemnifying Party
to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party in the case of
any settlement that provides for any relief other
than the payment of
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monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party
will not be indemnified in full pursuant to Section
13.2). The Indemnifying Party will have full control
of such defense and proceedings, including any
compromise or settlement thereof; PROVIDED, HOWEVER,
that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior
to the Indemnifying Party's delivery of the notice
referred to in the first sentence of this clause
(i), file any motion, answer or other pleadings or
take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate
to protect its interests; and provided further, that
if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party
elects to contest. The Indemnified Party may
participate in, but not control, any defense or
settlement of any Third Party Claim controlled by
the Indemnifying Party pursuant to this clause (i),
and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and
expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party
may take over the control of the defense or
settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under
Section 12.2 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party
Claim pursuant to Section 13.3(a), or if the
Indemnifying Party gives such notice but fails to
prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party
fails to give any notice whatsoever within the
Dispute Period, then the Indemnified Party will have
the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable
manner and in good faith or will be settled at the
discretion of the Indemnified Party (with the
consent of the Indemnifying Party, which consent
will not be unreasonably withheld). The Indemnified
Party will have full control of such defense and
proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at
the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified
Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified
the Indemnified Party within the Dispute Period that
the Indemnifying Party disputes its liability or the
amount of its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be
required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this clause
(ii) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying
Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may
participate in, but not control, any defense or
settlement controlled by the
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Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its
liability or the amount of its liability to the
Indemnified Party with respect to the Third Party
Claim under Section 13.2 or fails to notify the
Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes its liability or the
amount of its liability to the Indemnified Party
with respect to such Third Party Claim, the Loss in
the amount specified in the Claim Notice will be
conclusively deemed a liability of the Indemnifying
Party under Section 13.2 and the Indemnifying Party
shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has
timely disputed its liability or the amount of its
liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will
proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through
negotiations within the Resolution Period, such
dispute shall be resolved by arbitration in
accordance with paragraph (c) of this Section 13.3.
(b) In the event any Indemnified Party should have a claim
under Section 13.2 against the Indemnifying Party that does
not involve a Third Party Claim, the Indemnified Party shall
deliver a written notification of a claim for indemnity under
Section 13.2 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith,
of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not
impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the
claim or the amount of the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 13.2 and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the
Resolution Period, such dispute shall be resolved by
arbitration in accordance with paragraph (c) of this Section
13.3.
(c) Any dispute under this Agreement (including, without
limitation, in connection with this Section 13.3) or the
Registration Rights Agreement shall be submitted to
arbitration and shall be finally and conclusively determined
by the decision of a single arbitrator who shall have
experience in civil litigation involving interpretation of
stock purchase agreements (the "Arbitrator"). The arbitration
shall be governed by the United States Arbitration Act, 9
U.S.C. Sections 1-16, 201-208 and judgment upon the award
rendered by the Arbitrator may be entered by any United States
federal or state court in and of the State of New York, to the
non-exclusive jurisdiction of which each of the parties hereto
irrevocably submits. The parties agree to cooperate and use
their reasonable best efforts to cause the Arbitrator render a
decision in any dispute within 30 days following the
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commencement of proceedings with respect thereto and, to the
extent practicable, the decision of the Arbitrator shall be
rendered no more than 30 calendar days following such
commencement. The Arbitrator shall cause its written decision
to be delivered to the Indemnified Party and the Indemnifying
Party within 3 business days following such decision. Any
decision made by the Arbitrator (either prior to or after the
expiration of such 30 calendar-day period) shall be final,
binding and conclusive on the Indemnified Party and the
Indemnifying Party and shall be entitled to be enforced to the
fullest extent permitted by law and entered in any court of
competent jurisdiction. Each party to any arbitration shall
bear its own expense in relation thereto, including but not
limited to such party's attorneys' fees, if any, and the
expenses and fees of the Arbitrator shall be divided between
the Indemnifying Party and the Indemnified Party in the same
proportion as the portion of the related claim determined by
the Arbitrator to be payable to the Indemnified Party bears to
the portion of such claim determined not to be so payable.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 FEES AND EXPENSES. The Company will be responsible for all
legal fees, travel, due diligence, escrow and other costs incurred in connection
with the transaction up to a maximum amount of $30,000.
Section 13.2 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 13.3 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and
the Registration Rights Agreement set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof, including, without limitation, the term sheet dated
executed by the Company, The Isosceles Fund Limited and the Finder on February
11, 1999 and the amendment thereto executed on March 10, 1999. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 13.4 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.6 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for
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the purposes of this Agreement shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Subscribers and the Company shall be
required to employ any other reporting entity.
Section 13.7 RIGHT OF FIRST REFUSAL. For a period of 360 days following
the Purchase Date, The Isosceles Fund Limited shall have a right of first
refusal, exercisable within 10 business days of notice, with respect to
participating in any equity financing proposed by the Company (except the
transactions set out in Section 4.2).
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
THE ISOSCELES FUND
By:
----------------------------------------
Name:
Title:
CEFEO INVESTMENTS LIMITED
By:
----------------------------------------
Name:
Title:
VIRAGEN, INC.
By:
----------------------------------------
Dennis W. Healy
Exec. VP/CFO/Treas./Secy
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EXHIBIT A
FORM OF NOTE
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EXHIBIT B
FORM OF WARRANT
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EXHIBIT C
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
1. The Company is duly organized and validly existing under the laws of
the state of Delaware and has requisite power and authority to enter into the
Purchase Agreement, the Registration Rights Agreement, the Notes, the Warrants
and the Escrow Agreement (the "Agreements"); the execution and delivery of the
Agreements and the consummation by the Company of the transactions contemplated
thereby are duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
Shareholders is required; and the Agreements have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
2. The Shares of Common Stock to be received upon exercise of the
Warrants or conversion of the Notes or issuance of the Re-Set Shares are validly
issued and outstanding, fully paid and non-assessable and subject to no
preemptive rights.
3. The number of authorized shares of the Company (75,000,000) will be
unaffected by a reverse stock split.
4. The sale of the Notes and the Warrants and the conversion or
exercise thereof is not required to be registered under the Securities Act of
1933.
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EXHIBIT D
COMPLIANCE CERTIFICATE
VIRAGEN, INC.
The undersigned hereby certifies, with respect to the Notes and
Warrants of Viragen, Inc. (the "Company") issuable pursuant to the Purchase
Agreement, dated March __, 1999, by and between the Company and the Isosceles
Fund (the "Agreement"), as follows:
The undersigned is the duly elected Executive Vice President and Chief
Financial Officer of the Company.
The representations and warranties of the Company set forth in Article
IV of the Agreement are true and correct in all material respects as though made
on and as of the date hereof.
The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
pursuant to the Agreement and has complied in all material respects with all
obligations and conditions contained in Article VI of the Agreement.
The undersigned has executed this Certificate this ____ day of
________, 199_.
------------------------------------
Dennis W. Healey
Executive Vice President
and Chief Financial Officer
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EXHIBIT E
FORM OF TRANSFER AGENT CONSENT
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EXHIBIT (23)(i)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-75749) and related
Prospectus of Viragen, Inc. for the registration of 11,000,000 shares of its
common stock and to the incorporation by reference therein of our report dated
September 18, 1998, with respect to the consolidated financial statements of
Viragen, Inc. included in its Annual Report (Form 10-K/A) for the year ended
June 30, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Miami, Florida
June 16, 1999
