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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ___________
Commission file number 0-17827
VIRAGEN (EUROPE) LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2788282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATED OR ORGANIZATION) IDENTIFICATION NO.)
865 SW 78TH AVENUE, SUITE 100, PLANTATION, FLORIDA 33324
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 233-8377
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the common stock on September 18,
1997 was approximately $10,974,000.
As of September 18, 1997, the Company had outstanding 7,116,059 shares of
common stock.
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VIRAGEN (EUROPE) LTD.
INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1997
PART I
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PAGE
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Item 1. Business......................................................................................1
Item 2. Properties....................................................................................6
Item 3. Legal Proceedings.............................................................................7
Item 4. Submission of Matters to a Vote of Security Holders...........................................7
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.....................8
Item 6. Selected Financial Data.......................................................................8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........9
Item 8. Financial Statements and Supplementary Data..................................................11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........11
PART III
Item 10. Directors and Executive Officers of the Registrant..........................................12
Item 11. Executive Compensation......................................................................13
Item 12. Security Ownership of Certain Beneficial Owners and Management..............................15
Item 13. Certain Relationships and Related Transactions..............................................16
PART IV
Item 14. Exhibits and Reports on Form 8-K............................................................17
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Viragen (Europe) Ltd., a Delaware corporation, (the "Company") was
organized in November 1985 (formerly "Action Associates, Inc.," and thereafter,
SRSI Capital Group, Inc.," and "Sector Associates, Ltd.," respectively) to
initially seek business opportunities offering a potential for profit including
the acquisition of existing businesses or the acquisition of assets sufficient
to establish an active business for the Company.
In September, 1995, the Company (whose corporate name was then "Sector
Associates, Ltd.") entered into an Agreement and Plan of Reorganization to
acquire 100% of the outstanding stock of Viragen (Scotland) Ltd. ("VSL") a
Scottish private company organized in 1995, in exchange for the distribution to
Viragen, Inc., ("Viragen"), owner of 100% of the shares of VSL of newly issued
shares of Convertible Preferred Stock of the Company. The shares issued
represented approximately 94% of the then issued and outstanding capital stock
interest of the Company. As the previous owners of VSL received voting control
of the Company in this transaction, the stock exchange represented a reverse
acquisition. (see "Recent Developments and Change in Control", below).
Effective May 2, 1996 the Company's name changed from Sector
Associates, Ltd. to Viragen (Europe) Ltd., the par value of the Common Stock was
reduced from $.10 per share to $.01 per share and the Common Stock was reverse
split one for fourteen (1:14).
Through a license granted by Viragen Technology, Inc. ("VTI") a
wholly-owned subsidiary of Viragen in July 1995, VSL secured certain exclusive
rights applicable to the European Union ("EU") and certain non-exclusive rights
throughout the world (but specifically excluding the United States and its
territories). Pursuant to such license, VSL is authorized to engage in the
manufacture and sale of certain immunological products for commercial
applications, particularly human leukocyte-derived interferon including
OMNIFERON(TM), Viragen's natural human leukocyte-derived interferon product (the
"Product"), for antiviral and therapeutic applications. Natural Interferon is a
protein substance that inhibits malignant cell growth without materially
interfering with normal cells. Natural Interferon stimulates and modulates the
human immune system and, in addition, impedes the growth and propagation of
various viruses. OMNIFERON is the trade name for the Product in injectable form.
The Product has not been approved by the EU governmental or regulatory agencies
nor by the United States Food and Drug Administration ("FDA"), and there can be
no assurances that such approvals will be obtained at any time in the future.
The Company intends to seek to obtain EU approvals for various uses of
OMNIFERON in the future. Such approvals are expected to require several years of
clinical trials and substantial additional funding. The Company expects to
concentrate its efforts in preparing, filing and processing its applications and
obtaining necessary approvals for its Product from the EU regulatory
authorities. Viragen has assembled an advisory committee consisting of
scientists, medical researchers and clinicians to assist Viragen and the Company
in regulatory compliance matters and its applications to the EU regulatory
authorities.
BACKGROUND
Organized on November 4, 1985, the Company's purpose was to seek
business opportunities. Following a brief ownership of South Richmond
Securities, Inc. in 1986, the Company commenced active business operation in
1987 upon the acquisition of ToSi, Inc. ("ToSi"). From 1987 until January 1993,
through its ToSi subsidiary, the Company operated a number of retail furniture
stores in the South Florida region that featured Thomasville(TM) (residential)
furniture. The operations of ToSi, however, were characterized by recurring
losses and by January 1993, the Company was compelled to abandon the business,
discontinue its operations and close all of its remaining retail operations. In
November 1993, an affiliate of the Company's then principal stockholder acquired
100% of ToSi in consideration for agreeing
1
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to indemnify the Company against certain outstanding liabilities of ToSi. This
transaction was completed in conjunction with a broad-based reorganization of
the Company's outstanding finances and recapitalization completed during
November 1993. From March 1993 until June 1993, the Company also briefly engaged
in the printing and graphic arts business following the acquisition of Drew
Communications Group, Inc.
Between 1993 and 1995 the Company went through a series of corporate
reorganizations and related equity transactions in an effort to establish a
viable operating component on which to base future expansion. In December 1995,
a 94% equity interest in the Company was acquired by Viragen through a reverse
acquisition with Viragen's then wholly-owned subsidiary, VSL.
RECENT DEVELOPMENTS AND CHANGE OF CONTROL
On September 20, 1995, the Company (whose corporate name was then
"Sector Associates, Ltd.") entered into an Agreement and Plan of Reorganization
(the "Reorganization Agreement") to acquire 100% of the outstanding stock of
VSL, a Scottish private company organized in 1995, in exchange for the
distribution to Viragen of newly issued shares of Convertible Preferred Stock of
the Company (representing approximately 94% of the then issued and outstanding
capital stock interest of the Company) in a reverse acquisition transaction.
On November 7, 1995, the Reorganization Agreement was amended to (i)
extend the closing date; (ii) provide for an interim loan of $500,000 to VSL
(which was deemed satisfied at closing); and (iii) provide for an additional
cash capital contribution of $300,000 into Sector prior to closing. On December
8, 1995, the consummation of the transactions contemplated by the Reorganization
Agreement, as amended, occurred. Upon closing, Mr. Andrew Panzo resigned as the
President and a Director of the Company, and Mr. Gerald Smith was elected as the
President and a Director of the Company. Ms. Cecile Coady resigned as Treasurer
and Secretary of the Company, but continued as a Director of the Company until
January 8, 1996. On January 8, 1996, Messrs. Robert H. Zeiger and Dennis W.
Healey were elected to the Board of Directors.
On May 2, 1996, (i) the Company's name was changed from Sector
Associates, Ltd., to Viragen (Europe) Ltd., (ii) the par value of the Common
Stock was reduced from $.10 per share to $.01 per share and (iii) the Company
effectuated a one-for-fourteen (1:14) reverse stock split.
OPERATIONS
VSL has been organized by Viragen to manufacture and distribute
OMNIFERON and related products in the EU and other countries outside the United
States. Viragen has transferred patent and related proprietary rights associated
with the production of its natural human leukocyte-derived interferon and
related technology to VSL for this purpose. The Scottish Government's National
Blood Transfusion Service ("SNBTS") has committed to provide source leukocytes,
personnel and certain capital equipment in sufficient scale to accommodate the
EU clinical trials. VSL may engage in commercial sales in amounts to be agreed
upon by the parties and the European regulatory authorities. SNBTS has agreed to
cooperate with the Company in the production, clinical trials and distribution
of the Product.
Capital investments made through a series of private placements
provided the Company with the capital necessary (i) for the construction of
manufacturing facilities in Scotland; (ii) the purchase of laboratory equipment
at the Company's Scottish facilities; and (iii) to provide working capital.
However, the Company will require additional financing to engage in and complete
clinical trials necessary in obtaining EU approval for distribution of the
Product. Clinical testing toward EU approval is an expensive process which is
expected to take several years to accomplish with no assurance that such
approval would be obtained.
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LICENSE AGREEMENT
Through a license granted on July 12, 1995 by VTI, VSL secured certain
exclusive rights applicable to the EU countries and non-exclusive rights
throughout the world (excluding the United States and its territories) to engage
in the manufacture and distribution of certain proprietary products and
technologies relating to the therapeutic application of human leukocyte-derived
interferon. The initial term of the license is for 15 years, which is
automatically renewed for two successive 15 year periods.
On July 20, 1995, VSL entered into a License and Manufacturing
Agreement (the "Scottish Agreement") with the Common Services Agency of Scotland
(the "Agency") an agency acting on behalf of the Scottish National Blood
Transfusion Service, SNBTS has agreed to cooperate in the manufacture of VSL's
natural human interferon product, OMNIFERON (the Product) for exclusive
distribution within the EU and non-exclusively worldwide (excluding the United
States and its territories) in return for certain royalties and preferential
access to the Product for Scottish patients at a preferential price.
The term of the Scottish Agreement is for a five-year period with two
additional five-year extension terms exercisable at the option of VSL. The
Scottish Agreement also contains provisions protecting proprietary rights of VSL
and Viragen and the preclusion of certain competitive activities by SNBTS.
Pursuant to the Scottish Agreement, VSL and VTI will provide SNBTS with
full access to the proprietary technology and related specialized equipment,
provide suitable training to SNBTS's personnel regarding proprietary processes,
defray costs associated with securing permits and regulatory approvals, and
augmenting SNBTS's facilities, as necessary, to manufacture the Product within
EU regulatory guidelines. SNBTS will receive reduced compensation for Product
manufactured for use in clinical trials in the EU, for Product manufactured for
sale prior to obtaining new drug application approval, and for sales following
such approval, at varying percentages in relation to manufacturing costs.
Product manufactured and utilized for humanitarian purposes or for medical use
by Scottish patients will be preferentially priced under a specific allocation
to be agreed upon. See also "Intellectual Property."
CLINICAL TRIALS
In order to commence clinical trials, the EU regulatory authorities
must approve the Scottish manufacturing facility, method and techniques of
manufacture, as delineated in Standard Operating Procedures ("SOPs") and the
parameters of the clinical trials. Viragen, on behalf of the Company and VSL,
has engaged recognized consultants familiar with the EU regulatory approval
process. SNBTS will provide its best efforts, working in conjunction with the
Company, to obtain a United Kingdom current Good Manufacturing Practices
("cGMP") manufacturing license and subsequent Product approval. At such time as
the Company obtains a manufacturing license for the Product, Viragen may then
seek U.S. FDA manufacturing approval of the Scottish manufacturing facility.
There can be no assurance that the EU regulators will approve the manufacturing
facility or permit clinical testing and distribution of the Product within the
EU, or that the FDA will license or approve the Scottish manufacturing facility
or the Product for clinical trials and subsequent distribution in the United
States.
THE PRODUCT
Since its incorporation, Viragen has focused its efforts on the
research and potential commercial application of human leukocyte-derived
interferon-alpha. Natural interferon is one of the body's natural defensive
responses to foreign substances such as viruses, and is so named because it
"interferes" with viral growth. Interferon consists of protein molecules that
induce antiviral, antitumor and immunomodulatory responses within the body.
Medical studies have indicated that interferons may inhibit malignant cell and
tumor growth without affecting normal cell activity.
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There are two basic types of interferon-alpha, differentiated primarily
by their method of manufacture and resultant composition. The first, as produced
by Viragen and the Company, is natural, human leukocyte-derived alpha interferon
("Natural Interferon") produced by stimulated human white blood cells. The human
white blood cells are cultivated and stimulated by the introduction of a
harmless virus that induces the cells to produce Natural Interferon which
contains multiple subtypes. The Natural Interferon is then extracted and
purified to produce a highly concentrated product for clinical use. The second,
recombinant alpha interferon, is a genetically-engineered synthetic interferon
produced by recombinant DNA techniques ("Synthetic Interferon") which usually
contains a single subtype.
Studies have indicated that there may be significant clinical
differences between the use of Natural Interferon and Synthetic Interferon.
Viragen is advised that studies have found that treatment with Synthetic
Interferon in certain cases may cause an immunological response ("neutralizing
and/or binding antibodies") that may reduce the effectiveness of the treatment.
The Company believes that the production of neutralizing and/or binding
antibodies is virtually non-existent in patients treated with Natural
Interferon. Furthermore, primarily due to other differences including dosage
requirements (less of the natural product may be required to treat the subject
diseases), the side effects of treatment with Natural Interferon, in most
instances, may be less severe.
THE INDUSTRY
Prior to 1985, Natural Interferon was the only type of interferon
available. Research institutions and other biomedical companies similar to the
Company were working to solve the manufacturing problems associated with
commercial scale production of Natural Interferon. In 1985, Hoffman-LaRoche,
Inc. and Schering-Plough Corporation, two major pharmaceutical companies,
successfully developed synthetic interferon using DNA technology and
subsequently received FDA approval to produce and market their recombinant alpha
interferon products for the treatment of hairy cell leukemia, hepatitis B & C
and Kaposi's Sarcoma, an AIDS related skin cancer. After the emergence of
recombinant alpha interferon, the medical community's interest in Natural
Interferon diminished, and most clinical studies thereafter were based on the
synthetic product, due primarily to its availability and substantially lower
unit cost compared to Natural Interferon.
Hoffman-LaRoche, Inc., and Schering-Plough Corporation continue to
actively market their products and promote the therapeutic benefits of their
respective Synthetic Interferon products in medical journals and through direct
physicians contact. In 1993 Chiron Corp. received FDA approval of its
recombinant beta interferon for the treatment of relapsing/remitting multiple
sclerosis ("MS"). In 1996, Biogen, Inc. received FDA approval for its
recombinant beta interferon for the treatment of Multiple Sclerosis.
In addition to the manufacturers of synthetic interferon, a domestic
manufacturer of natural interferon-alpha received FDA approval in 1989 to sell,
in injectable form, their natural interferon product for the treatment of
genital warts. This manufacturer also has clinical trials underway for other
indications in order to obtain FDA approval. They continue to market their
product for their approved indication.
MANUFACTURE OF INTERFERON
Human source leukocytes ("white blood cells") and a stimulating virus,
raw materials which are readily available to the Company, are needed to produce
human leukocyte interferon by conventional (non-recombinant) means. A
stimulating virus, harmless to humans, is introduced into the white blood cell
which induces the cell to produce alpha interferon. The interferon is then
extracted and purified. ALPHA LEUKOFERONTM, which is also a natural human
leukocyte-derived interferon-alpha in injectable form, was manufactured by
Viragen and distributed in limited quantities in Florida under Florida Statute
499 as administered by the Department of Health & Rehabilitative Services (HRS).
The Company's newer variation of the Product, OMNIFERON, is currently in
development for eventual commencement of clinical trials initially in the EU.
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Production methods developed by Viragen and licensed to the Company, as
well as enhanced methods currently under development, have reduced the Company's
cost of production of Natural Interferon. While production of the natural
Product is still believed to be somewhat more costly on a per unit basis, the
Company believes that the production efficiencies of its technology currently
under development and the possible lower dosage requirements for the Natural
Interferon will make the Product's market price competitive to the synthetic
interferons. However, there can be no assurances that such new manufacturing
technology will enable the Company to achieve the level of manufacturing
proficiency and Product improvement anticipated by management.
RESEARCH AND DEVELOPMENT
The entire process of research, development and EU regulatory approvals
(if obtained) of a new biopharmaceutical product will take several years and
require substantial funding. Pursuant to the Scottish Agreement, the Company
intends to commence pre-clinical trials in the EU in 1998. The Company's present
focus is the continued research and development of OMNIFERON and commencement of
full scale clinical trials in the EU.
Following the receipt of additional funding from the Company's Private
Placements completed in March 1996, the Company's research efforts increased
together with associated costs which can be expected to continue to increase as
the Company continues its development efforts for its proprietary production
technology for its Product.
INTELLECTUAL PROPERTY
Viragen has recently made substantial advances in its technology but
has not, as yet, applied for patent protection for its new technology and is
currently relying on protection through trade secret laws and confidentiality
agreements until such time it does file for patent protection. In July 1995, all
of the patented and proprietary technology relating to the Product owned by
Viragen was subsequently transferred to its wholly-owned subsidiary, VTI and
ultimately licensed to the Company.
United States patents have been issued to others with respect to
genetically engineered and human leukocyte interferon purified to a certain
degree. Subject to the extent of such existing patent claims, Viragen may have
to negotiate license agreements with such patent holders to use such processes
and products in Viragen's human leukocyte-derived interferon program. As a
result, the Company may be required to become a party to these license
agreements which could have an adverse effect on the Company's profitability
since it is likely that the Company would be required to pay cash compensation
or royalties.
The validity and enforceability of a patent can be challenged by
litigation after its issuance and if the outcome of such litigation is adverse
to the owner of the patent, other parties may be free to use the subject matter
covered by the patent. In addition, the degree of protection afforded by foreign
patents may be different than in the United States. There can be no assurance
that the patent now held or any obtained in the future will be of substantial
protection or commercial benefit to the Company. Moreover, because of the
progress in related technology, many of the patents now owned by VTI may be
commercially obsolete.
While Viragen has attempted to protect its proprietary technology, to
the extent that such protections are inadequate, Viragen could lose the benefit
of a part or all of these rights, which, in turn, could have a material adverse
effect on the Company. Furthermore, to the extent that any of Viragen's patents
or other proprietary technology is challenged or infringed, such challenges or
infringement will likely have an adverse effect on the Company's License
Agreement with VTI and the Company's Scottish Agreement with the Common Services
Agency and SNBTS, as well as on the Company's operations. See "Licensing
Agreements."
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REGULATION
In accordance with EU regulations, the Product is classified as a
"protein identical to naturally occurring human polypeptides and protein." The
EU regulations specifically provide for more abbreviated preclinical studies for
naturally occurring substances such as the Product than for genetically
engineered products. Accordingly, while there can be no assurance, the Company
believes it may receive a more expeditious review of the various EU processes
and clinical trials prerequisite to market approval.
In order to secure physical resources, expertise and a continuing
leukocyte supply for clinical trials and, the commercialization of the Product,
upon regulatory approval, on July 20, 1995, VSL entered into the Scottish
Agreement with the National Health Service in Scotland and the Scottish National
Blood Transfusion Service (SNBTS). The SNBTS owns and operates a blood
fractionation facility in Edinburgh, Scotland, located near the Company's
newly-completed production facility. SNBTS has the physical and (with the
Company's proprietary technology) the technical capacity to assist in the
manufacture OMNIFERON. The Scottish Agreement was considered critical for the
Company to successfully conduct EU clinical trials as well as to provide for
expected commercial manufacturing upon regulatory approval.
In order to conduct clinical trials, the Company's Scottish
manufacturing plant and manufacturing SOPs must be approved by the EU regulatory
authorities. The Company has engaged a recognized consulting firm familiar with
the EU regulatory process to assist in submissions prerequisite to the EU
regulatory approval process. In addition, the SNBTS has a full time regulatory
department that has obtained approval of numerous EU approved blood-derived
products. SNBTS will provide its best efforts, working in conjunction with the
Company, to obtain a manufacturing license and subsequently approval of the
Product at the conclusion of the EU clinical studies. At such time as a
manufacturing license has been obtained for the Product, Viragen intends to seek
U.S. FDA approval of the Product for clinical trials in the United States.
Pursuant to the Scottish Agreement, the Agency has committed to assist
in the manufacture and provide an adequate supply of leukocytes for the supply
the Product within the EU (excluding the United States and its territories). The
Agency has committed to assist in the manufacture of the Product in sufficient
scale to accommodate the EU clinical trials and, thereafter, for subsequent
commercial sales in amounts to be agreed upon by the parties.
The Company is providing SNBTS with full access to proprietary
technology and specialized equipment and will train SNBTS personnel regarding
its proprietary technology. In addition, the Company has agreed to defray all
costs associated with securing permits and regulatory approvals, augmenting the
SNBTS's facilities to manufacture the Product and secure documentation in order
to substantiate compliance with EU regulatory requirements. SNBTS will receive
compensation for Product manufactured for use in clinical trials in the EU and
for Product manufactured for sales prior to obtaining new drug application
approval. In addition, for sales of the Product for humanitarian purposes or for
medical use by patients of the Scottish National Health Services or the United
Kingdom National Health Services, Product distribution will involve either no
payments to the Agency or payments at substantially discounted prices.
COMPETITION
Competition in the immunological and pharmaceutical products industry
is intense. Competitors include major pharmaceutical, chemical, energy and food
companies, some of which have already marketed genetically engineered alpha and
beta interferon products for various diseases and many of which have or plan to
expand into modern biotechnology. Competition is expected to increase in the
future based upon the perceived potential commercial applications for such
products. Many of the Company's competitors have existing programs, more
experience in research, development and clinical testing of pharmaceutical
products, and substantially greater financial, marketing and human resources
than the Company.
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EMPLOYEES
As of September 18, 1997, the Company had four full-time employees,
including Dr. Magnus Nicolson, the Managing Director of VSL, an administrative
assistant, and two laboratory personnel. Through the provisions of the Scottish
Agreement, the Company utilizes additional personnel and departments within
SNBTS, including Dr. Blair Anderson, the Company's Production Manager and
external consultants as needed. In addition, the Company has employment
agreements with Mr. Gerald Smith who serves as the Company's President and
Chairman and Mr. Dennis W. Healey who serves as the Company's Executive Vice
President, Chief Financial Officer, Treasurer and Secretary.
ITEM 2. PROPERTIES
Viragen, Inc., the majority stockholder of the Company, currently owns
a mortgage free 14,000 square foot building at 2343 West 76th Street, Hialeah,
Florida 33016 which serves as Viragen's chief laboratory and research facility
in the United States.
In November 1996, the Company executed a five year lease with Lothian
and Edinburgh Enterprise Limited ("LEEL") for a newly constructed laboratory and
manufacturing facility located in the Pentlands Science Park. The facility
consists of approximately 10,000 square feet with an annual lease rate of 85,308
UK pounds ($141,600 per year). The lease further provides for up to four five
year extensions at the option of the Company. As part of the lease agreement,
LEEL provided the Company with a 10% per annum, working capital loan in the
amount of 100,000 UK Pounds (approximately $166,000), payable over a 20 year
term with quarterly payments due through maturity, August 2017. The Company has
the right to renew the lease for four additional five-year terms.
The Company considers all of its properties as suitable and adequate to
carry on the Company's business. The Company further believes that it maintains
sufficient insurance coverage on the Company's real and personal property.
ITEM 3. LEGAL PROCEEDINGS
An action is pending in the Circuit Court for Broward County, Florida
against the Company (then named Sector Associates, Ltd.) alleging that Sector
Associates, Ltd., mishandled payment of amounts due to a Roy Woods, a secured
creditor (ROY WOODS AS TRUSTEE V. SECTOR ASSOCIATES, LTD.). The Company has
denied the claim and has filed a counterclaim. In addition, a stockholder of
Sector Associates, Ltd., is obligated and has agreed to indemnify the Company in
this matter and has assumed responsibility for defense of this lawsuit. Based on
the nature of the damages alleged as well as the indemnification received from
the stockholder defending the lawsuit, management does not believe that the
litigation will result in any material liability to the Company.
In May 1997, the Company in the name of Sector Associates, Ltd.,
("Sector") was named as a defendant in an action brought in the United States
Bankruptcy Court, Southern District of Florida by the bankruptcy trustee. The
suit alleges that during the period from December 1993 to May 1994, prior to
the Company's reverse acquisition of Sector, Sector received preferential
transfers of approximately $2.1 million. The Company denies that such
transfers were preferential and will vigorously defend the claims. However,
the Company cannot predict the ultimate outcome of this matter.
The Company knows of no other material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the Company's
fiscal year to a vote of security holders through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the NASDAQ SmallCap
under the symbol "VERP." Between April 5, 1996 and December 4, 1996, the
Company's stock traded on the OTC Bulletin Board under the symbol "VERP." The
following table sets forth the high and low bid quotations for the Common Stock
for the periods indicated.
<TABLE>
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PERIOD HIGH LOW
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First Quarter ended 09/30/94 .................. 1 3/4 1/4
Second Quarter ended 12/31/94 * ............... 1 1/2 3/8
Period 04/06/96 - 05/01/96 .................... 2 3/4
Period 05/02/96** -- 06/30/96 ................. 27 25
First Quarter ended 09/30/96 .................. 25 1/2 14
Second Quarter ended 12/31/96 ................. 19 13 1/2
Third Quarter ended 03/31/97 .................. 17 1/2 12 1/4
Fourth Quarter ended 06/30/97 ................. 13 4 3/8
</TABLE>
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* No public trading was undertaken with respect to the Company's Common Stock
between January 1, 1995 and April 5, 1996.
** Effective May 2, 1996, the Company effectuated a 1:14 reverse stock split
simultaneously with the change of the name of the Company from Sector
Associates, Ltd. to Viragen (Europe) Ltd.
(a) The above quotations reflect prices between dealers, do not include retail
mark-ups, mark-downs or commission and may not necessarily represent actual
transactions.
(b) On September 18, 1997, the closing bid price for the Common Stock was
$6.00.
(c) As of September 18, 1997, the approximate number of record holders of the
Company's Common Stock was 107 with an estimated total number of
shareholders of 1,200.
The Company has not paid any cash dividends on its Common Stock since
incorporation. As the Company is in the development stage, has an accumulated
deficit, and has significant capital requirements in the future and presently
intends to retain future earnings, if any, to finance the expansion of its
business, it is not anticipated that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on the Company's
earnings, if any, capital requirements, expansion plans, financial condition and
other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED YEAR ENDED WEEKS ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Interest and other income ....................... $ 233,552 $ 73,945 $ 626
Net (loss) Income ............................... (859,214) (475,351) 626
Net (loss) income per average common share
outstanding .................................. (.12) (.13) 6.26
Weighted average shares outstanding and
equivalents .................................. 7,048,967 3,685,705 100
</TABLE>
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CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED YEAR ENDED WEEKS ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Working capital (deficit) ....................... $ 3,197,265 $ 5,795,786 $ (5,467)
Total Assets .................................... 7,750,737 5,953,949 57,933
Long-term debt .................................. 157,686 -- --
Stockholder' equity ............................. 6,452,137 5,829,565 2,240
</TABLE>
The information in this table has been retroactively restated to
reflect a one-for-fourteen (1:14) reverse stock split in the Company's shares on
Common Stock on May 2, 1996. The weighted average number of shares outstanding
includes the assumed conversion of the convertible preferred shares as of the
issuance date, as they were issued with the intention of granting Viragen
control of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-K that are not
purely historical are forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange
Act of 1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include the Company's statements regarding liquidity, anticipated
cash needs and availability, and anticipated expense levels in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including expected product clinical trial introductions, expected research and
development expenditures, new facility completion dates and related anticipated
costs. All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements. Among the factors that could cause actual
results to differ materially are the factors detailed below and the risks
discussed in the "Risk Factors" section included in the Company's Registration
Statement Form SB-2 declared effective by the Securities and Exchange Commission
on July 12, 1996 and related Post-Effective Amendment dated April 18, 1997. You
should also consult the risk factors listed from time to time in the Company's
Reports on Form 10-Q, 8-K, 10-K and Annual Reports to the Shareholders.
The biopharmaceutical industry is highly competitive and subject to
rapid technological change. Significant competitive factors in the
pharmaceutical and biopharmaceutical markets include product efficacy, price and
timing of new product introductions. Increased competition from existing
biopharmaceutical companies as well as the entry into the market of new
competitors could adversely affect the Company's financial condition and results
of operations.
The Company's future success depends in part upon its intellectual
property, including patents, trade secrets, know-how and continuing technology
innovation. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products. There can
be no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's future patent
applications will be issued with the scope of the claims sought by the Company,
if at all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology, duplicate
the Company's technology or design around the patents owned by the Company.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
On December 8, 1995, the Company (then named Sector Associates, Ltd.)
acquired 100% of stock of Viragen (Scotland) Ltd. ("VSL") for 2,000,000 shares
of Series B Convertible Preferred Stock of the Company which, upon conversion,
represented 5,600,000 shares of Common Stock or approximately 94% of the then
issued and outstanding capital stock interest of the Company. As the
stockholders of VSL gained voting control of the Company in this transaction,
they became the acquiring entity and accounting survivor. Accordingly, the
acquisition was accounted for as a reverse acquisition whereby the historical
financial statements reflect those of the accounting acquirer, VSL, not the
financial statements of the legal acquirer, the Company. The historical
financial statements for all periods presented up to December 8, 1995 included
herein are therefore those of the predecessor, or VSL, the accounting survivor
of the reverse acquisition. Moreover, since at the time of the acquisition the
legal acquirer, the Company, was a shell corporation with no operations,
stockholders' equity of the combined entity was recapitalized to reflect the
capital structure of the surviving legal entity and the accumulated deficit of
VSL.
VSL was organized during April 1995 by Viragen, Inc. as a Scottish
private company to manufacture and distribute Viragen's Product in the EU and
other countries outside the United States. Accordingly, no financial data is
available for Viragen (Europe) Ltd. and its subsidiary, VSL, prior to April
1995.
Through a license granted by Viragen, VSL's ultimate parent, VSL
secured certain rights to engage in the development, manufacture and
distribution of certain proprietary products and technologies that related to
the therapeutic application of human leukocyte interferon for various diseases
that affect the human immune system. Pursuant to these rights, on July 20, 1995,
VSL entered into a License and Manufacturing Agreement with the Common Services
Agency, an agency acting on behalf of the Scottish National Blood Transfusion
Services, ("SNBTS") pursuant to which SNBTS, on behalf of VSL, will assist in
the manufacture of VSL's Product and upon regulatory approval, for distribution
in the EU in return for certain fees and additional rights. SNBTS' services will
be subject to all governmental regulations and procedures pertaining to the
manufacture and distribution of the Product. SNBTS has committed to assist in
the manufacture of the Product in sufficient scale to accommodate the EU
clinical trials and may simultaneously engage in commercial sales in amounts to
be agreed upon by the parties and the European regulatory authorities. SNBTS
will also cooperate with the Company in studies relevant to the Product and with
eventual production, clinical trials and distribution. Management considers it
critical to the Company's operation and to planned clinical trials to have
secured a sufficient qualified source of human leukocytes, a critical component
in the manufacture of the Product. VSL was a newly formed company which
commenced operations concurrent with the execution of its agreement with SNBTS.
Pursuant to the provisions of the License Agreement between VSL and
Viragen, a $2,000,000 Initial Royalty Prepayment and Deposit was paid to Viragen
in June 1997. In September 1997, VSL and Viragen mutually agreed to extend the
technology transfer completion dates. Accordingly, the agreement was modified
such that the $2,000,000 Initial Royalty Prepayment would represent the
contractual prepayment for the one year period commencing November 1, 1997. The
agreement was further modified to provide that in the event the proprietary
technology was not transferred pursuant to the provisions of the agreement,
which is not anticipated, the Initial Royalty Prepayment would be refunded to
VSL.
The Company initiated a series of Private Placements to accredited
investors to raise capital necessary to complete the planned reverse
acquisition, raise the funding necessary to complete construction of its
Scottish facility and for initial Product testing phases by VSL in Scotland. In
December 1995, the Company completed a Private Placement, raising approximately
$750,000 through the sale of 336,000 units for a purchase price of $2.23 per
Unit. Each Unit consists of 0.71 shares of Common Stock and 2.5 Common Stock
Purchase Warrants having an exercise price of $6.00 per share, representing a
total of 240,000 Shares and 840,000 Warrants. In March 1996, the Company
completed two additional Private Placements, issuing a total of 768,000 shares
of Common Stock and 216,500 Warrants having an exercise price of $12.00 per
share. These offerings yielded net cash proceeds of $5,102,000. The completion
of the Private Placements provided the Company with the initial capital
necessary (i) for the construction of a building and related facilities in
Scotland, (ii) for the purchase of equipment at the Companys Scottish
facilities, (iii) to provide a minimum royalty to the Company's affiliate, VTI,
to commence in calendar year 1997 (iv) to expand the number of employees of VEL
and (v) for general working capital. However, the Company will require
additional financing to engage in and complete clinical trials for the purpose
of obtaining EU approval for the Product. The entire process of research,
development and EU regulatory approvals (if obtained), of a new
biopharmaceutical product takes several years and requires substantial funding.
Pursuant to its Licensing Agreement with SNBTS, the Company and SNBTS intend to
commence EU preclinical trials in calendar 1997. The Company's
10
<PAGE> 13
present focus is the continued research and development of the Company's Product
for the treatment of Hepatitis B and C, Multiple Sclerosis, HIV/AIDS and herpes.
Following the receipt of additional funding from the Company's Private
Placement completed in March 1996, research efforts commenced and related costs
were incurred which can be expected to increase as the Company continues its
development efforts for its proprietary production technology for its Product.
In November 1996, the Company executed a five year lease agreement in a
biotechnology park in the Edinburgh area of Scotland. This facility, comprised
of approximately 10,000 sq. ft., contains the Company's European laboratory
and production facilities. Monthly rental for the facility is 7,109 UK
Pounds or approximately US$11,400 subject to adjustment for common area
maintenance charges. The lease provides for four five-year extensions at the
option of the Company. Other augmenting productive assets located within the
SNBTS facility are available to the Company under the Scottish Agreement.
During fiscal 1997, the Company had $3,400,000 in property, plant and
equipment expenditures related to the establishment of its Scottish laboratory
and manufacturing facility. The Company had also incurred commitments for
additional equipment purchases of approximately $200,000 at June 30, 1997.
RESULTS OF OPERATIONS
Income for fiscal 1997 of $233,552 represents interest earned for an
entire year on the investment of Private Placement proceeds (see "Liquidity and
Capital Resources" above) completed during fiscal 1996. Interest income for
fiscal 1996 of $73,945 represents the return on similar investments for a
portion of that year.
Research and development costs during the year totalled $314,326, an
increase of $257,902 over the fiscal 1996 total. This increase reflects a full
year of expenditures associated with development projects relating to the
transfer of technology from the Company's parent, Viragen, Inc., begun in fiscal
1996, related to the Company's Omniferon product. Components of the increase
include $103,800 in scientific professional fees paid to SNBTS, up from $32,500
paid the previous year, increases in laboratory supplies expense and laboratory
equipment rentals of $100,700 and $29,600, respectively, and increases in
scientific salaries and travel expenditures associated with the transfer of
technology.
General and administrative expenses increased significantly between the
periods, totalling $757,786 for fiscal 1997, representing a $266,638 (54%)
increase over the previous year. This increase between the periods represents a
full year of administrative support functions, begun in fiscal 1996, associated
with the establishment and construction of the Company's laboratory and
manufacturing facility in Scotland and related technology transfer activities.
Components of this increase include higher administrative salaries and related
payroll taxes between the periods of $231,400, including a full year's salary
for the Company's Managing Director in Scotland, an increase in legal and
accounting fees of approximately $20,000 associated with facility construction
agreements and mandated reporting requirements, facility rental expenses with
related utilities and services totalling $39,400, and a general increase in all
administrative support functions including travel expenses associated with the
establishment of the Scottish facility. These increases were offset by a
reduction in compensation expense of $243,000 resulting from stock option
issuances in fiscal 1996, not recognized during fiscal 1997.
Interest expense recognized in fiscal 1997 reflects the Company's
100,000 UK pound (US$166,000) working capital loan obtained from Lothian and
Edinburgh Enterprises (see Item 2 "Properties").
The increase in depreciation expense reflects a full year of asset
utilization in fiscal 1997 associated with the Company's Scottish operations
commenced during the prior year.
During fiscal 1996, the Company incurred general and administrative
expenses associated primarily with the commencement of operations including fees
associated with the Company's License and Manufacturing Agreement with the SNBTS
and domestic professional fees associated with public filings. Such fees
included legal and accounting fees of $107,200, administrative consulting fees
in Scotland of $56,300 and travel related costs between the U.S. and Scotland of
$43,500. Also, included is compensation expense of $243,000 representing the
value of options issued to three officers and directors in September 1995.
Management believes that the working capital currently on-hand is
adequate to maintain its research and product development operations for the
foreseeable future and provide the administrative support associated with the
preclinical trial phase of the Product's development and the commencement of
clinical trials. Additional funding will be required to complete the clinical
trials and administrative filings necessary to obtain final EU regulatory
approvals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
11
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
SERVED AS
OFFICER AND/OR
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ---- --- ------------------------- -----
<S> <C> <C>
GERALD SMITH .............................. 67 CHAIRMAN OF THE BOARD 1995
PRESIDENT 1995
DIRECTOR 1995
DIRECTOR OF VIRAGEN (SCOTLAND)
LIMITED 1995
ROBERT H. ZEIGER .......................... 53 CHIEF EXECUTIVE OFFICER 1995
CHIEF OPERATING OFFICER 1995
DIRECTOR 1995
DIRECTOR OF VIRAGEN (SCOTLAND)
LIMITED 1995
DENNIS W. HEALEY .......................... 49 EXECUTIVE VICE PRESIDENT 1996
TREASURER, SECRETARY AND DIRECTOR 1996
DIRECTOR OF VIRAGEN (SCOTLAND)
LIMITED 1995
DIRECTOR 1996
DR. MAGNUS NICOLSON ....................... 37 MANAGING DIRECTOR OF VIRAGEN
(SCOTLAND) LTD. 1996
DIRECTOR 1997
DR. JAY SAWARDEKER ........................ 59 DIRECTOR 1997
</TABLE>
The Company's directors are collectively elected at the annual meeting
of stockholders and hold office for one year and until their successors are
elected and qualified. The Company's officers are appointed by the Board of
Directors and serve at the pleasure of the Board.
Set forth below is a biographical description of each director and
executive officer of the Company.
GERALD SMITH, in accordance with reorganization by, between and among
the Company, Viragen, Inc., and Viragen (Scotland) Limited, became the President
and Chairman of the Board of Directors of the Company on December 8, 1995. Mr.
Smith has also served as a Director of Viragen (Scotland) Limited since its
inception in April 1995. Since February 5, 1993, Mr. Smith has served as a
Director of Viragen, Inc., the majority stockholder of the Company, and on May
12, 1993, Mr. Smith became President of Viragen. In June 1994, Mr. Healey
relinquished his position as Chairman of the Board of Directors of Viragen in
favor of Mr. Smith. Since 1982, he was a Principal Stockholder, President, Chief
Executive Officer and Director of Business Development Corp. ("BDC") of Miami,
Florida, which has served as a managing entity and consultant to several high
technology ventures including Compupix Technology Joint Venture of Boca Raton,
Florida. In 1988, Mr. Smith was the Founder, President and a Director of
Club-Theatre Network, Inc. of Boca Raton, Florida, an audience interactive
private video theater. Mr. Smith sold his interest in that company in March
1989. From August 1991 to December 1991, Mr. Smith was the Chief Executive
Officer of Electronic Imagery, Inc. located in Pompano, Florida, a company
engaged in the development of imaging software. Mr. Smith is also the President,
Chief Executive Officer and a Director of Cinescopic Corporation and
International Database Service, Inc. located in Palm Beach Gardens, Florida,
computer-oriented companies which developed database technology using the
personal computer for audio, video, animation and real time communication. Mr.
Smith has advised that his services to these companies will not materially
affect his ability to render services to the Company. Mr. Smith has wound down
BDC's operations in order to devote substantially all of his time to the Company
and Viragen.
12
<PAGE> 15
ROBERT H. ZEIGER was appointed a Director, Chief Executive Officer and
Chief Operating Officer of the Company in January, 1996. Mr. Zeiger has also
served as a Director of Viragen (Scotland) Limited, a wholly-owned subsidiary of
the Company since April, 1995 and a Director of Viragen, Inc., the majority
stockholder of the Company, since June, 1995. From 1985 to 1994, Mr. Zeiger was
employed by Glaxo, Inc., a pharmaceutical manufacturer serving as Vice President
and General Manager of Glaxo Pharmaceuticals Division (1991 to 1994). He has
also served as Vice President and General Manager of the Allen & Hansbury
Division, and Vice President and General Manager of the Dermatology Division
(1985 to 1988).
DENNIS W. HEALEY is a Certified Public Accountant and was appointed the
Company's Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and a Director of the Company in January, 1996. Mr. Healey has also
served as a Director of Viragen (Scotland) Limited since April. 1995. In April
1993, he was appointed Chairman of the Board and Chief Executive Officer of
Viragen, Inc., the majority stockholder of the Company, and in June 1994, Mr.
Healey relinquished that position to Mr. Smith and in July 1994 relinquished the
position of Chief Executive Officer. Upon Gerald Smith becoming President of
Viragen on May 12, 1993, Mr. Healey became Executive Vice President and has
served as Chief Financial Officer and Treasurer of Viragen since 1980 and its
Secretary since 1994. In July 1996, Mr. Healey, resigned his position as Chief
Financial Officer and Treasurer of Medicore, Inc., a publicly traded company on
the NASDAQ, and as Executive Vice President of its Techdyne affiliate. Mr.
Healey joined Medicore in 1976 as its Controller. He also resigned his position
as Treasurer of Medicore's subsidiaries and as Vice President of Dialysis
Corporation of America, a publicly traded subsidiary of Medicore.
MAGNUS NICOLSON, PH.D. has served as the Managing Director of Viragen
(Scotland) Limited, since April 1996. From 1992 to 1995, Dr. Nicolson was
employed by Scottish Enterprise, an agency of the Scottish government
responsible for generating economic development in Scotland. During his time at
Scottish Enterprise, he served as Technology Manager for "Locate in Scotland"
(1995), Senior Executive (1993 to 1995), and Contractor, Healthcare Liaison
Office of Dunbartonshire Enterprise (1992 to 1993). From 1990 to 1992, Dr.
Nicolson conducted various market research projects for a variety of public and
private enterprises, as an independent marketing consultant. In 1988, Dr.
Nicolson was awarded a Doctorate in Immunology from the University of
Strathclyde, in addition to acquiring Masters Degrees in both Immunology and
Business in 1985 and 1992, respectively. Dr. Nicolson is a Member of the Royal
Societies of Medicine and Chemistry, as well as a Member of the Chartered
Institute of Marketing.
JAY SAWARDEKER, PH.D. served as a consultant to Viragen prior to
joining Viragen as its Executive Vice President - Technical Affairs and Chief
Operating Officer in July 1996. Prior to joining Viragen, Dr. Sawardeker had
served in various pharmaceutical senior technical management capacities
including most recently Corporate Vice President - Worldwide Quality Assurance
for Glaxo Holdings. Prior thereto, he served as Corporate Vice President -
Technical Operations for Glaxo Latin America and Glaxo Far East, and as Vice
President - Manufacturing and Vice President - Quality Assurance of Glaxo, Inc.
There is no family relationship between any of the officers and
directors.
ITEM 11. EXECUTIVE COMPENSATION
Commencing in July 1996, Mr. Dennis W. Healey, the Company's Executive
Vice President, Chief Financial Officer, Treasurer, and Secretary, and a
Director began receiving an annual salary of $85,000 pursuant to a two-year
Employment Agreement with the Company. In March 1997, Mr. Gerald Smith entered
into a two year Employment Agreement to serve as President of the Company and
Mr. Healey amended his Employment Agreement to run concurrent with Mr. Smith's.
The Employment Agreements provide for annual compensation to Mr. Smith and Mr.
Healey of $72,000 and $52,000, respectively. During the fiscal years ended June
30, 1996 or 1995, no compensation was paid to any executive officers of the
Company.
13
<PAGE> 16
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND ANNUAL RESTRICTED ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD SARS (#) PAYOUTS SATION
-------- ---- ------ ----- ------ ----- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith
Chairman of 1997 $2,923 $ -- $ -- $ -- $ -- $ -- $ --
Board and 1996 -- -- -- -- -- -- --
President (1) 1995 -- -- -- -- -- -- --
Robert H. Zeiger 1997 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Chief Executive 1996 -- -- -- -- -- -- --
Officer (2) 1995 -- -- -- -- -- -- --
Director
Dennis W. Healey 1997 $76,865 $ -- $ -- $ -- $ -- $ -- $ --
Exec.,Vice Pres. 1996 -- -- -- -- -- -- --
Chief Finan. Off. 1995 -- -- -- -- -- -- --
Secretary, Trea.
And Director
Andrew Panzo 1997 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Chairman of 1996 -- -- -- -- -- -- --
Board and 1995 -- -- -- -- -- -- --
President (3)
</TABLE>
- ------------------
(1) Mr. Smith became the Chairman of the Board, Chief Executive Officer,
President and a Director of the Company on December 8, 1995, pursuant to
the Companys Agreement and Plan of Reorganization ("Reorganization
Agreement" by, between and among the Company, Viragen, Inc., and Viragen
(Scotland) Limited.
(2) Mr. Zeiger was appointed Chief Executive Officer and a Director on
January 8, 1996 which position was relinquished by Mr. Smith, Chairman of
the Board of Directors and President.
(3) Mr. Panzo resigned as the Company's Chairman of the Board, Chief Executive
Officer, President and a Director of the Company on December 8, 1995,
concurrent with the Company's reverse acquisition transaction and pursuant
to the provisions of the Company's Reorganization Agreement.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended June 30,
1997 to each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARES) DATE
- ---- ----------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Gerald Smith ...................... -- -- -- --
Robert H. Zeiger .................. -- -- -- --
Dennis W. Healey .................. -- -- -- --
Andrew Panzo ...................... -- -- -- --
</TABLE>
OPTION EXERCISES AND HOLDINGS
14
<PAGE> 17
The following table sets forth information with respect to the exercise
of options to purchase shares of Common Stock during the fiscal year ended June
30, 1997 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 1997 fiscal year.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND 1997 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
LESS EXERCISE
VALUE REALIZED VALUE OF UNEXERCISED
MARKET PRICE IN THE MONEY OPTIONS AT
SHARES AT EXERCISE NUMBER OF UNEXERCISED FY-END (BASED ON FY-END)
ACQUIRED LESS PRICE OPTIONS AT FY-END PRICE OF $ /SHARE)
NAME ON EXERCISE EXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith ......... -- -- -- -- -- --
Robert H. Zeiger ..... -- -- -- -- -- --
Dennis W. Healey ..... -- -- -- -- -- --
Andrew Panzo ......... -- -- -- -- -- --
</TABLE>
ADDITIONAL STOCK OPTIONS
In November 1995, VSL, a wholly-owned subsidiary of the Company, issued
an aggregate of 7.144 shares of VSL common stock at $56.00 per share to
individuals now serving as officers and directors of the Company and to an
employee of Viragen, all of whom were expected to contribute to the operations
of VSL. In connection with the Agreement and Plan of Reorganization, these
shares were exchangeable into an aggregate of 400,000 shares of the Company. Of
these options, 100,000 were granted each to (i) Mr. Gerald Smith, the current
President and Chairman of the Board of Directors of the Company, (ii) Mr. Robert
H. Zeiger, the Chief Executive Officer, Chief Operating Officer, and a Director
of the Company, (iii) Dennis W. Healey, the Company's Treasurer, Chief Financial
Officer, Secretary and a director of the Company, and (iv) to Mr. Steven
Sanders, an employee of Viragen, who provided various services to the Company.
All options in VSL were exercised on December 5, 1995 at $.001 per share. The
Company recognized $243,000 in compensation expense as a result of the issuance
of these shares. See "Principal Stockholders" and "Certain Relationship and
Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned at September 18, 1997 (i) by each
person who is known by the Company to own beneficially or exercise voting or
dispositive control over 5% or more of the Company's Common Stock, (ii) by each
of the Company's directors, and (iii) by all officers and directors as a group.
A person is deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within sixty days. At
September 18, 1997, there were 7,116,059 shares of Common Stock of the Company
outstanding.
<TABLE>
<CAPTION>
AMOUNT
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
- ------------------------------------ ------------- ---------
<S> <C> <C>
Viragen, Inc. (3) ................................. 5,000,000 70.3
Gerald Smith (4) .................................. 100,000 1.4
Robert H. Zeiger (5) .............................. 87,0000 1.2
Dennis W. Healey (6) .............................. 100,000 1.4
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
Dr. Magnus Nicolson (7) ........................... 125,000 1.7
Officers and Directors as a Group (4 persons) ..... 412,000 5.7
</TABLE>
- ------------------
(1) Based upon information furnished to the Company by the principal security
holders or obtained from the stock transfer books of the Company. Other
than indicated in the notes, the Company has been informed that such
persons have sole voting and dispositive power with respect to their
shares. All of the individuals listed are officers and/or directors of the
Company whose address is 865 SW 78th Avenue, Suite 100, Plantation, Florida
33324, which is also the address of Viragen, Inc.
(2) Based on 7,116,059 shares of Common Stock outstanding at September 18,
1997.
(3) Viragen, Inc. is the majority stockholder of the Company.
(4) Mr. Smith is President and Chairman of the Board of Directors of the
Company.
(5) Mr. Zeiger is Chief Executive Officer, Chief Operating Officer and a
Director of the Company.
(6) Mr. Healey is Executive Vice President, Treasurer, Chief Financial Officer,
Secretary and a Director of the Company.
(7) Dr. Nicolson was elected a Director of the Company in July 1997. Includes
(i) 50,000 common stock options exercisable at $7.00 per share granted
pursuant to Dr. Nicolson's Service Agreement dated April 1, 1996; and (ii)
75,000 options granted pursuant to Dr. Nicolson's Amendment Service
Agreement date September 5, 1997.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Companys equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent (10%) stockholders are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 30, 1997, and that all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent (10%) beneficial owners were completed in a timely
manner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH CURRENT AFFILIATES OF THE COMPANY
On September 20, 1995, the Company entered into an Agreement and Plan
of Reorganization pursuant to which the Company agreed to acquire 100% of the
issued and outstanding stock of VSL, in exchange for the distribution to
Viragen, of newly-issued shares of Convertible Preferred Stock that upon
conversion represented 5,600,000 shares of Common Stock of the Company or
approximately 94% of the then outstanding capital stock interest of the Company.
On November 7, 1995, the Company, VSL, and Viragen entered into an
Amendment to Agreement and Plan of Reorganization (the "Amendment") to extend
the Closing Date to December 8, 1995. Additionally, the Amendment provided for
an interim loan of $500,000 to VSL to be deemed satisfied at the Closing. The
Amendment also provided for an additional cash capital contribution of $300,000,
payable at closing. Upon the consummation of the transactions contemplated by
the Agreement and the Amendment in December 1995, VSL became a wholly-owned
subsidiary of Viragen.
On July 12, 1995 VSL entered into a License Agreement ("Agreement")
with Viragen granting VSL rights to certain proprietary technology, including
the right the manufacture and distribute the Company's Omniferon product.
Pursuant to the terms of the Agreement, VSL is obligated to pay an annual
royalty payment equal to the greater of (i) $2,000,000 or (ii) 10% of VSL's
gross revenues until such time as total royalty payments of $18 million has been
paid to VTI. Once the $18 million royalty amount has been paid, VSL is obligated
to pay VTI an amount equal to 8% of VSL's gross revenues until such time as
total royalty payment of $25 million has been paid to VTI. Once the
16
<PAGE> 19
$25 million royalty amount has been paid, VSL is obligated to pay VTI an amount
equal to 5% of VSL's gross revenues thereafter. The initial term of the license
agreement is for fifteen years and automatically renews for 2 successive fifteen
year periods. In September 1997, VTI and VSL mutually agreed to extend the
technology transfer completion dates. Accordingly, the Agreement was modified
such that the $2,000,000 Initial Royalty Prepayment paid to Viragen in June 1997
would represent the contractual prepayment for the one year period commencing
November 1, 1997. The Agreement was further modified to provide that in the
event the proprietary technology was not transferred pursuant to the provisions
of the Agreement, which is not anticipated, the Initial Royalty Prepayment would
be refunded to VSL.
Mr. Gerald Smith, the Company's President and Chairman, is also the
Chairman and President of Viragen, the majority stockholder of the Company. Mr.
Robert H. Zeiger, Chief Executive Officer and Chief Operating Officer and a
Director of the Company is also the Chief Executive Officer and Chief Operating
Officer and a Director of Viragen. Mr. Dennis W. Healey, the Company's Executive
Vice President, Chief Financial Officer, Treasurer, Secretary and a Director
also serves in the same capacities for Viragen. Viragen currently owns 5,000,000
shares of Common Stock of the Company, representing 70.3% of the Company's
outstanding capital stock interest on September 18, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS IN FORM
8-K
(a) The following is a list of documents filed as part of this
report.
1. All financial statements - See Index to Consolidated
Financial Statements.
2. Financial statements schedules - See Index to
Consolidated
Financial Statements.
3. Exhibits
<TABLE>
<CAPTION>
<S> <C>
(i) Certificate of Incorporation dated November 4, 1985.
(incorporated by reference to the Company's initial
Registration Statement, File No. 33-1952-NY
("Registration Statement")
(ii) Amended Certificate of Incorporation dated April 14, 1987.
(incorporated by reference to the Company's Registration Statement).
(iii) Amended Certificate of Incorporation dated October 9, 1987.
(incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1995 ("1994 10-KSB")
(iv) Amended Certificate of Incorporation dated November 18, 1987.
(incorporated by reference to the 1994 10-KSB)
(v) Amended Certificate of Incorporation dated December 9, 1987.
(incorporated by reference to the 1994 10-KSB)
(vi) Amended Certificate of Incorporation dated December 18, 1987.
(incorporated by reference to Post-Effective Amendment No. 3 to
the Company's Registration Statement filed on or about May 2, 1989
("Post-Effective Amendment No. 3")
(vii) Amended Certificate of Incorporation dated January 17, 1989.
(incorporated by reference to the 1994 10-KSB)
(viii) Amended Certificate of Incorporation dated June 9, 1989.
(incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1993 ("1993 10-KSB")
(ix) Amended Certificate of Incorporation dated August 12, 1993.
(incorporated by reference to the 1993 10-KSB)
4. Instrument defining the rights of security holders, including indentures
(i) Amended Certificate of Incorporation dated December 13, 1993.
(incorporated by reference to the 1993 10-KSB)
(ii) By laws of the Company (incorporated by reference to Post-Effective
Amendment No. 3)
(iii) Form of Common Stock Certificate (incorporated by reference to Form 8-A
dated June 14, 1989)
(iv) Form of Class A Redeemable Common Stock Purchase Warrant (incorporated
by reference to Form 8-A dated June 14, 1989)
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C>
(v) Form of Class B Redeemable Common Stock Purchase Warrant (incorporated by
reference to Form 8-A dated June 14, 1989)
(vi) Warrant Agreement (incorporated by reference to Form 8-A dated June 14, 1989)
(vii) Amendment to Warrant Agreement (incorporated by reference to Post-Effective
Amendment No. 3)
(viii) Amendment to Warrant Agreement (incorporated by reference to the 1993 10-KSB)
(ix) Forms of Securities Purchase Agreement (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1995 ("1995 10-KSB")
(x) Form of Common Stock Purchase Warrant (associated with Securities Purchase
Agreement) (incorporated by reference to the 1995 10-KSB
(xi) Subscription Agreement and Investment Letter - Sector Associates Ltd., dated
November 12, 1993 (incorporated by reference to the 1993 10-KSB)
(xii) Securities Purchase Agreement dated January 25, 1995 (incorporated by
reference to the 1994 10-KSB)
(10)-- Material Contracts
(i) Employment Agreement between Gerald Smith and
the Company dated March 1, 1997
(ii) Employment Agreement between Dennis W. Healey
and the Company dated March 1, 1997
(iii) Amendment to Service Agreement between the
Company and Donald Magnus Nicolson Ph.D.
dated September 5, 1997
(11)-- Statement re: computation of per share earnings
(22)-- Subsidiaries of the registrant
(27)-- Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K filed during the fourth quarter.
None.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIRAGEN (EUROPE) LTD.
By /s/ DENNIS W. HEALEY
---------------------------------
Dennis W. Healey
EXECUTIVE VICE PRESIDENT,
TREASURER AND PRINCIPAL FINANCIAL
OFFICER
Dated: September 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ GERALD SMITH Chairman of the Board of September 25, 1997
- ------------------------------------- Directors, Principal Executive
Gerald Smith Officer and President
/s/ ROBERT H. ZEIGER Chief Executive Officer, Chief September 25, 1997
- ------------------------------------- Operating Officer and Director
Robert H. Zeiger
/s/ DENNIS W. HEALEY Executive Vice President September 24, 1997
- ------------------------------------- Treasurer, Director and
Dennis W. Healey Principal Financial Officer
/s/ JOSE I. ORTEGA Controller and September 25, 1997
- ------------------------------------- Principal Accounting
Jose I. Ortega Officer
/s/ DR. JAY SAWARDEKER Director September 28, 1997
- --------------------------------------
Dr. Jay Sawardeker
/s/ DR. D. MAGNUS NICOLOSON Director September 28, 1997
- --------------------------------------
Dr. D. Magnus Nicolson
</TABLE>
19
<PAGE> 22
FORM 10-K - ITEM 8
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen (Europe) Ltd. and
subsidiary are included:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ........................ F-2
Consolidated balance sheets - June 30, 1997 and 1996....................... F-3
Consolidated statements of operations - Years ended June 30,
1997 and 1996 and for the eleven week period ended June 30, 1995......... F-4
Consolidated statements of stockholders' equity - Years ended June 30,
1997 and 1996 and for the eleven week period ended June 30, 1995 ........ F-5
Consolidated statements of cash flows - Years ended June 30, 1997 and
1996 and for the eleven week period ended June 30, 1995.................. F-7
Notes to consolidated financial statements................................. F-8
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F1
<PAGE> 23
REPORT OF INDEPENDENT CERTIFED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Viragen (Europe) Ltd.
We have audited the accompanying consolidated balance sheets of Viragen
(Europe) Ltd. and subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years ended June 30, 1997 and for the eleven week period ended
June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viragen (Europe) Ltd. and subsidiary at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
two years ended June 30, 1997 and for the eleven week period ended June 30,
1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
September 25, 1997
F2
<PAGE> 24
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents ................................. $ 2,144,271 $ 4,985,897
Prepaid royalty ........................................... 2,000,000 --
Advances to parent ........................................ -- 882,960
Other current assets ...................................... 193,908 51,313
----------- -----------
Total current assets .......................... 4,338,179 5,920,170
PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements .................................... 1,815,409 --
Equipment and furniture ................................... 1,606,406 5,985
Construction in progress .................................. -- 21,811
----------- -----------
3,421,815 27,796
Less accumulated depreciation ............................. (9,257) (183)
----------- -----------
3,412,558 27,613
Other Assets ................................................ -- 6,166
----------- -----------
$ 7,750,737 $ 5,953,949
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses ..................... $ 679,514 $ 124,384
Current portion of long-term debt.......................... 6,225 --
Advances from parent ...................................... 455,175 --
----------- -----------
Total current liabilities ..................... 1,140,914 124,384
Long-term debt, less current portion ........................ 157,686 --
Commitments and contingencies
Stockholders' Equity
Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 7,116,059 and 6,922,830 shares at
June 30, 1997 and 1996, respectively .................... 71,160 69,228
Additional paid-in capital ................................ 7,441,447 6,192,005
Retained deficit .......................................... (1,333,939) (474,725)
Foreign currency translation adjustment ................... 273,469 43,057
----------- -----------
Total Stockholders' Equity .................... 6,452,137 5,829,565
----------- -----------
$ 7,750,737 $ 5,953,949
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F3
<PAGE> 25
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, ELEVEN
-------------------- WEEKS ENDED
1997 1996 JUNE 30, 1995
---- ---- -------------
<S> <C> <C> <C>
Income
Interest and other income......................... $ 233,552 $ 73,945 $ 626
---------- --------- -----
233,552 73,945 626
Costs and Expenses
Research and development costs.................... 314,326 56,424 --
General and administrative expenses............... 757,786 491,148 --
Interest expense.................................. 5,532 -- --
Depreciation and amortization..................... 15,122 1,724 --
---------- --------- -----
1,092,766 549,296 --
---------- --------- -----
Net (loss) income................................... $ (859,214) $(475,351) $ 626
========== ========= =====
Net (loss) income per common share ................. $ (0.12) $ (0.13) $6.26
========== ========= =====
Weighted average common shares outstanding.......... 7,048,967 3,685,705 100
========== ========= =====
</TABLE>
See notes to consolidated financial statements.
F4
<PAGE> 26
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON COMMON PREFERRED ADDITIONAL COMMON RETAINED FOREIGN
STOCK, STOCK, STOCK PAID-IN STOCK EARNINGS CURRENCY
PAR $.01 PAR $1.61 SERIES B CAPITAL SUBSCRIBED (DEFICIT) TRANSLATION
-------- --------- -------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Incorporation of
VSL in
April 1995 (100
shares)............. $ -- $ 161 $ -- $ 1,453 $ -- $ -- $ --
Net income............ 626
------- ----- -------- ---------- ----------- --------- -------
Balance at
June 30, 1995....... -- 161 -- 1,453 -- 626 --
Exercise of VSL
options by
Directors and
Affiliate........... 12 390
Reverse acquisition
of Sector
Associates, Ltd. ... 1,198 (173) 20,000 144,160
Issuance of stock
to Directors and
Affiliate .......... 243,000
Private placement
(December 1995)
net of issuance
costs.............. 2,400 746,880
Private placement
(March 1996),
net of issuance
costs .............. 5,101,752
Conversion of
Series B
preferred stock..... 56,000 (20,000) (36,000)
Issuance of
common stock
subscribed.......... 9,630 5,092,122 (5,101,752)
Foreign currency
translation
adjustment.......... 43,057
Net loss.............. (475,351)
------- ----- -------- ---------- ----------- --------- -------
Balance at
June 30, 1996....... $69,228 $ -- $ -- $6,192,005 $ -- $(474,725) $43,057
</TABLE>
See notes to consolidated financial statements.
F5
<PAGE> 27
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-(CONT.)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON COMMON PREFERRED ADDITIONAL COMMON RETAINED FOREIGN
STOCK, STOCK, STOCK PAID-IN STOCK EARNINGS CURRENCY
PAR $.01 PAR $1.61 SERIES B CAPITAL SUBSCRIBED (DEFICIT) TRANSLATION
-------- --------- -------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1996....... $ 69,228 $ -- $ -- $6,192,005 $ -- $ (474,725) $ 43,057
Exercise of $6.00
Warrants............ 1,592 953,782
Exercise of $8.00
Warrants............ 280 223,720
Exercise of $12.00
Warrants............ 60 71,940
Foreign currency
translation
adjustment.......... 230,412
Net loss.............. (859,214)
-------- ----- -------- ---------- -------- ----------- --------
Balance at
June 30, 1997 ...... $ 71,160 $ -- $ -- $7,441,447 $ -- $(1,333,939) $273,469
======== ===== ======== ========== ======== =========== ========
</TABLE>
F6
<PAGE> 28
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, ELEVEN
------------------- WEEK ENDED
1997 1996 JUNE 30, 1995
---- ---- -------------
<S> <C> <C> <C>
NET (LOSS) INCOME .......................................... $ (859,214) $ (475,351) $ 626
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Issuance of stock to Directors and Affiliate ......... -- 243,000 --
Depreciation and amortization ........................ 15,122 1,724 --
Increase (decrease) relating to operating activities from:
Prepaid royalty ...................................... (2,000,000) -- --
Other current assets ................................. (142,595) 143,687 (7,707)
Other assets ......................................... 6,166 -- --
Accounts payable and accrued expenses ................ 555,130 69,736 7,307
----------- ----------- --------
Net cash (used in) provided by operating
activities ......................................... (2,425,391) (17,204) 226
INVESTING ACTIVITIES
Additions to property, plant and equipment ............... (3,400,067) (27,796) --
----------- ----------- --------
Net cash used in investing activities ................ (3,400,067) (27,796) --
FINANCING ACTIVITIES
Proceeds from exercise of warrants ....................... 1,251,374 -- --
Proceeds from long-term debt ............................. 166,000 -- --
Payments on long-term debt ............................... (2,089) -- --
Proceeds from March 1996 private placements, net of
related expenses ....................................... -- 5,101,752 --
Cash acquired through reverse acquisition of Sector
Associates, Ltd. ....................................... -- 768,823 --
Advances (to) from parent ................................ 1,338,135 (933,361) 50,000
Contributions from officers .............................. -- 400 --
----------- ----------- --------
Net cash provided by financing activities ............ 2,753,420 4,937,614 50,000
Effect of exchange rate fluctuations on cash ............... 230,412 43,057 --
----------- ----------- --------
(Decrease) increase in cash ................................ (2,841,626) 4,935,671 50,226
Cash and cash equivalents at beginning of period ........... 4,985,897 50,226 --
----------- ----------- --------
Cash and cash equivalents at end of period ................. $ 2,144,271 $ 4,985,897 $ 50,226
=========== =========== ========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended June 30, 1997 and 1996 and the eleven weeks ended
June 30, 1995, the Company had the following non-cash investing and financing
activities:
<TABLE>
<S> <C> <C> <C>
Other receivables acquired through reverse acquisition
of Sector Associates, Ltd. .............................. $ -- $ 195,000 $ --
Liabilities assumed through reverse acquisition of
Sector Associates, Ltd .................................. -- 47,341 --
Issuance of stock to Directors and Affiliate .............. -- 243,000 --
</TABLE>
See notes to consolidated financial statements.
F7
<PAGE> 29
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTES A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen (Europe) Ltd. ("VEL") and its
subsidiary are engaged in the research, development and manufacture of certain
immunological products for commercial application. The consolidated financial
statements include the accounts of Viragen (Europe) Ltd. and its wholly-owned
subsidiary, Viragen (Scotland) Ltd. ("VSL"), collectively known as the Company.
VSL is a private Scottish company. All material intercompany accounts and
transactions have been eliminated in consolidation. Viragen (Europe) Ltd. is a
majority-owned subsidiary of Viragen, Inc., ("Viragen"). See Note B for further
discussion relating to basis of presentation.
Name Change and Reverse Stock Split: Effective May 2, 1996, the
Company's name was changed from Sector Associates, Ltd. to Viragen (Europe) Ltd.
The common stock was reverse split one share for fourteen (1:14) and the par
value was changed from $.10 per share to $.01 per share. The number of
authorized common shares was reduced from 50 million shares to 20 million
shares.
The effect of the reverse split has been reflected in the consolidated
financial statements and accompanying notes for all periods presented.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Property, Plant and Equipment: Property, plant and equipment is stated
at the lower of cost or net realizable value. Depreciation was computed by using
the straight-line method over the estimated useful life for financial reporting
purposes and using accelerated methods for income tax purposes.
The Company adopted the provisions of FAS 121 - Accounting for the
Impairment of Long-Lived Assets, as of July 1, 1995. FAS 121 requires impairment
losses to be recorded on long-lived assets when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less then the assets' carrying amount. The Company believes no
impairment indicators exist at June 30, 1997.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes: Deferred income taxes at the end of each period are
determined by applying enacted tax rates applicable to future periods in which
the taxes are expected to be paid or recovered to differences between financial
accounting and tax basis of assets and liabilities.
Income (Loss) Per Common Share: Income (loss) per common share has been
computed based on the weighted average number of shares outstanding during each
period. The weighted average number of shares outstanding includes the assumed
conversion of the convertible preferred shares as of the issuance date, as they
were issued with the intention of granting Viragen control of the Company.
Common stock subscribed is assumed outstanding as of the completion of the
March 1996 private placements for purposes of the weighted average shares
outstanding calculation. The effect of warrants and stock options (common stock
equivalents) are antidilutive. Fully diluted earnings per share is not
presented since it is antidilutive.
Financial Instruments: The carrying amount of financial instruments,
including cash and cash equivalents, and accounts payable approximate fair value
as of June 30, 1997. The Company's long-term debt approximates fair value since
it was recently negotiated. Fair market value of advances from parent is
estimated to be $414,000 based on a discount rate of 9% and payment within one
year.
F8
<PAGE> 30
Foreign Currency Translation: The financial statements of VSL have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. All balance sheet accounts have been translated
using the current exchange rates at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the reporting
period. The translation adjustments resulting from the change in exchange rates
from year to year have been reported separately as a component of stockholders'
equity. Foreign currency transaction gains and losses, which are not material,
are included in results of operations. These gains and losses result from
exchange rate changes between the time transactions are recorded and settled
and, for unsettled transactions, exchange rate changes between the time
transactions are recorded and the balance sheet date.
Stock Based Compensation: Effective July 1, 1996, the Company adopted
the provisions of FAS 123 - Accounting for Stock-Based Compensation. The Company
continues to account for stock-based compensation plans under the provisions of
APB 25-Accounting for Stock Issued to Employees and, accordingly, recognizes no
compensation expense for stock option grants where the exercise price equals or
exceeds fair market value at date of grant.
Recent Pronouncements: In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings per Share, which is required
to be adopted on December 31, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
Statement No. 128 on the calculation of primary loss per share for the years
ended June 30, 1997 and 1996, will be immaterial.
NOTE B - ACQUISITION - BASIS OF PRESENTATION
On September 20, 1995, Sector Associates, Ltd. ("Sector") (now VEL)
entered into an agreement and Plan of Reorganization (the "Agreement") with
Viragen, a Delaware corporation. Under the terms of the Agreement, Sector was to
acquire a 100% interest in VSL, in consideration for Viragen receiving a 94%
interest in Sector.
On November 7, 1995, the Agreement was amended to provide for an interim
loan of $500,000 by Sector to VSL, the filing of certain financial reports by
Sector prior to closing, a capital contribution of $300,000 into Sector within
thirty days, and the modification of a related investment banking agreement. The
$500,000 loan was funded November 9, 1995, bearing interest at 4% per annum,
secured by a 3.77% equity interest in VSL, and was guaranteed by Viragen, Inc.
Upon closing of the Agreement on December 8, 1995, the principal amount of the
note was deemed contributed capital to Sector.
On December 8, 1995, Sector finalized the Agreement and acquired 100% of
the stock of VSL in exchange for 2,000,000 voting shares of Series B Convertible
Preferred Stock , convertible into 5,600,000 shares of common stock or
approximately 94% of the then issued and outstanding shares, as well as 94% of
the voting privileges, of Sector. Viragen retained an 84% ownership interest in
Sector, as 71,429 of the preferred shares (convertible into 200,000 common
shares) were disbursed as finders' fees, and 142,857 of the preferred shares
(convertible into 400,000 common shares) were issued to the Directors and an
affiliate, in exchange for their common shares of VSL. The Company recognized
$243,000 in compensation expense related to the disbursement of stock to the
Directors and affiliate. As the Parent Company of VSL gained voting control of
Sector in this transaction, VSL became the acquiring entity and accounting
survivor. Accordingly, the transaction was accounted for as a reverse
acquisition whereby the historical financial statements contained herein reflect
those of the accounting acquirer, VSL, not the financial statements of the legal
acquirer, VEL (formerly Sector). The historical financial statements for all
periods presented up to December 8, 1995 included herein are, therefore, those
of the predecessor, or VSL, the accounting survivor of the reverse acquisition.
Moreover, since at the time of the acquisition the legal acquirer, VEL, was a
shell corporation with no operations, the stockholder's equity of the conformed
entity was recapitalized to reflect the capital structure of the surviving legal
entity and the accumulated deficit of VSL.
NOTE C - COMMON STOCK
The Company initiated a series of Private Placement Offerings to raise
the agreed upon capital necessary to complete the planned reverse acquisition
(see Note B) and to raise the capital necessary to complete the construction of
a plant in Edinburgh, Scotland, fund initial product testing phases by VSL in
F9
<PAGE> 31
Scotland, and provide working capital.
In December 1995, the Company completed a Private Placement Offering,
raising approximately $750,000 through the sale of 336,000 units for a purchase
price of $2.23 per unit. Each unit consists of approximately 0.71 share of
Common Stock, resulting in the issuance of 240,000 shares of Common Stock, and
2.5 Common Stock Purchase Warrants having an exercise price of $6.00 per share,
exercisable through November 3, 1998.
In March 1996, the Company completed two additional Private Placement
Offerings, issuing 768,000 shares of Common Stock and 216,500 Common Stock
Purchase Warrants having an exercise price of $12.00 per share, exercisable
through March 15, 1998. These two Offerings yielded net cash proceeds of
approximately $5,102,000 after related expenses of $601,400, of which $229,900
was paid through the issuance of 195,000 shares of Common Stock and 450,000
Common Stock Purchase Warrants having an exercise price of $8.00 per share,
exercisable through March 18, 1999.
Viragen's ownership interest in the Company was reduced to 72%, upon
completion of the March 1996 private placements.
During fiscal 1996, three officers and one employee were each
granted options to purchase 100,000 shares at $.001 per share. These options
vested upon issuance and all of these options were exercised shortly after
issuance. In addition, on April 1, 1996, the Company granted Magnus Nicolson,
Managing Director of VSL, 50,000 options to purchase common stock in VEL, as
part of his Employment Agreement. One half of the options vested on March 30,
1997, and the balance vest on March 30, 1998. The options are exercisable at
$7.00 per share for a period of five years from the vesting dates. Under APB
25, VEL recognized compensation expense of $243,000 for the 400,000 options in
1996, because the exercise price of a portion of the Company's employee stock
options is less than the market price of the underlying stock on the date of
grant.
The Company's 1997 Incentive Stock Option Plan has authorized the grant
of options to management personnel, directors, employees, or consultants for up
to 600,000 shares of the Company's common stock of which 600,000 remain
available.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996: risk-free interest rate of 6%; volatility factor of the
expected market price of the Company's common stock of .60; and a
weighted-average expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do no necessarily provide a reliable
single measure of the fair value of its employee stock options.
F10
<PAGE> 32
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
applying Statement 123 for providing pro forma disclosure are not indicative of
future amounts until the new rules are applied to all, nonvested awards. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pro forma net loss $(904,588) $(695,977)
Pro forma loss per share (.13) (.19)
</TABLE>
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION WEIGHTED AVERAGE
SHARES PRICE EXERCISE PRICE
<S> <C> <C> <C>
Options Outstanding July 1, 1995 -- -- --
Granted at less than market price 400,000 $.001 $.001
Granted above market price 50,000 7.00 7.00
Exercised 400,000 .001 .001
Canceled -- -- --
-------
Options Outstanding June 30, 1996 50,000 $7.00 $7.00
Granted -- -- --
Exercised -- -- --
Canceled -- -- --
-------
--
Options Outstanding June 30, 1997 50,000 $7.00 $7.00
======= ===== ====
Exercisable at June 30, 1996 25,000
=======
Exercisable at June 30, 1997 50,000
=======
</TABLE>
Exercise prices for options outstanding as of June 30, 1997 were $7.00.
The weighted average remaining contractual life of those options is 4.25 years.
Shares of the Company's common stock reserved at June 30, 1997 for
possible future issuance are as follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE 1997
----- ----
<S> <C> <C>
December 1995 Private Placement Warrants................... $ 6.00 680,771
Employee options........................................... 7.00 50,000
March 1996 Private Placement Warrants...................... 8.00 422,000
March 1996 Private Placement Warrants...................... 12.00 210,500
Class F Warrant (exercisable through November 1, 1998)..... 105.00 44,196
---------
1,407,467
=========
</TABLE>
On September 5, 1997, options to purchase 75,000 shares of common stock
at $5.60 per share were issued to Magnus Nicolson in connection with an amended
employment agreement. The options vest, as follows: 37,500 shares the earlier of
one year from grant or the date of the Company's filing of a Clinical Trial
Exemption ("CTX") in the EU; and 37,500 shares the earlier of two years from the
date of grant or acceptance of the Company's CTX application by EU regulatory
authorities.
NOTE D - TRANSACTIONS WITH RELATED PARTIES
VSL was organized during April 1995 by Viragen to cause or to undertake
clinical trials in the European Union ("EU") and for manufacturing and
distribution of Viragen's natural leukocyte-derived alpha interferon and
related
F11
<PAGE> 33
products in the EU and other countries outside the United States. Accordingly,
no financial data is available for Viragen (Europe) Ltd. and subsidiary prior to
April 1995.
Through a fifteen-year License Agreement (the "License") granted by
Viragen, VSL's ultimate Parent, VSL secured certain rights to engage in the
development and manufacture of certain proprietary products and technologies
that related to the therapeutic application of human leukocyte interferon (the
"Product") for various diseases that affect the human immune system. Pursuant to
these rights, on July 20, 1995, VSL entered into a License and Manufacturing
Agreement with the Common Services Agency ("Agency"), an agency acting on behalf
of the Scottish National Blood Transfusion Service ("SNBTS") pursuant to which
SNBTS, on behalf of VSL, will participate in the manufacture and supply of VSL's
Product to VSL for distribution in the EU in return for certain fees. It was
considered critical to VSL's operations and to planned clinical trials to secure
a sufficient qualified source of human source leukocytes, a critical component
in the manufacture of the Product. VSL was a newly formed corporation which
commenced operation concurrent with the execution of its agreement with SNBTS.
Pursuant to the terms of the License, VSL is to prepay $2 million of
royalties to Viragen, within six months of the Effective Date (July 12, 1995).
Commencing one year from the Effective Date, VSL is to pay to Viragen royalties,
as follows: the greater of $2 million annually or 10% of gross revenues until
the sum of $18 million has been paid; 8% of gross revenues until the sum of $25
million has been paid; and 5% of gross revenues thereafter. The License will
renew automatically for two consecutive fifteen-year terms.
Both parties have modified the License deferring the initial
royalty payment until the date when Viragen transfers the processes and
technology, as defined by the License, to VSL. Viragen has transferred a
substantial portion of the processes and technology to VSL by the end of May
1997. At that time, Viragen required the initial royalty payment be made.
Completion of the transfer is targeted for November 1997, with subsequent
royalty payments commencing November 1, 1998.
In the event the transfer of processes and technology is not deemed
complete by both parties, the initial royalty payment of $2.0 million will be
refunded to the Company.
Viragen provides certain administrative services to the Company
including management and general corporate assistance. These expenses are
charged on the basis of direct usage, when identifiable, or on the basis of
time spent. In the opinion of management, this method of allocation is
reasonable. The amount of expenses allocated by Viragen totalled approximately
$99,800 for the year ended June 30, 1997.
Advances from parent at June 30, 1997 represent cash advanced by
Viragen. The amount is non interest bearing and there are no formal repayment
terms consequently, the amount is classified as current.
NOTE E - INCOME TAXES
As discussed in Notes B and C, the percentage of ownership in VEL held
by its Parent Company, Viragen, exceeded 80% only during the period December 8,
1995 through March 15, 1996. As a result, VEL will be included in the Parent
Company's consolidated federal and state income tax return only for that period.
VSL files separate income tax returns in the United Kingdom. Net
operating losses of approximately $847,000 are being carried forward to future
periods.
As of June 30, 1997, the Company has net operating loss carryforwards
("NOL's") for U.S. income tax purposes of approximately $1.9 million, including
$1.2 million whose use is limited to $48,000 per year as a result of a change in
ownership in December 1995, as defined by Internal Revenue Code Section 382,
that expire at various dates between 2003 and 2012 and a capital loss
carryforward of approximately $0.8 million that expires in 1998.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of
F12
<PAGE> 34
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Accrued liabilities (U.S.)....................... $ 2,000 $ 7,500
Net operating loss carryforwards (U.S.).......... 738,700 615,900
Capital loss carryforwards (U.S.) ............... 295,000 295,000
---------- ---------
Total deferred tax assets.................... 1,035,700 918,400
Valuation allowance for deferred tax assets........ (1,035,700) (918,400)
---------- ---------
$ -- $ --
========== =========
</TABLE>
The change in the valuation allowance was a net increase of $117,300
for the year ended June 30, 1997; a net decrease of $194,000 for the year ended
June 30, 1996; and a net decrease of $237,600 for the year ended June 30, 1995.
The valuation allowance was $1,112,400 at June 30, 1995.
For financial reporting purposes, loss income before income taxes
include the following components:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Pre-tax loss income:
U.S.............................................. $(276,271) $(371,139)
Foreign ......................................... (582,943) (104,212)
--------- ---------
$(859,214) $(475,351)
========= =========
</TABLE>
NOTE F - LONG TERM DEBT
Long-term debt at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Unsecured loan from Scotland Regional
Development Authority. Payable quarterly over 20 years,
with an effective interest rate of 8.68%.
Note matures on August 28, 2017............................. $163,911
--------
163,911
Less current portion.......................................... (6,225)
--------
$157,686
========
</TABLE>
Scheduled maturity of long-term debt at June 30, 1997 is: 1998- $6,225;
1999- $8,300; 2000- $8,300; 2001- $8,300; and 2002 and thereafter- $132,786.
NOTE G - CONTINGENCIES
In May 1997, the Company, in the name of Sector Associates, Ltd. was
named as a defendant in an action brought in the United States Bankruptcy Court,
Southern District of Florida by the bankruptcy trustee. The suit alleges that
during the period from December 1993 to May 1994, prior to the Company's reverse
acquisition (as described in Note B), Sector received preferential transfers of
approximately $2.1 million. The Company denies that such transfers were
preferential and will vigorously defend the claims. However, the Company can
not predict the ultimate outcome of this matter.
An action is pending against VEL (formerly Sector) alleging that Sector
mishandled payment of amounts due to a secured creditor. Sector has denied that
claim and has filed a counterclaim. Further, a shareholder of Sector has agreed
to indemnify VEL relating to this matter. The ultimate liability, if any, cannot
be determined at this time. Management intends to vigorously defend its
position.
NOTE H - COMMITMENTS
In November 1996, the Company executed a five-year lease on property
located in Edinburgh, Scotland that will serve as the Company's laboratory and
production facilities. Monthly rental on the property is approximately $11,400.
In addition, the Company may extend the term of the lease as its option, for
four five-year periods.
F13
<PAGE> 35
During the year ended June 30, 1997, the Company recognized $29,000 in
rent expense arising from the property lease. Future minimum lease payments on
the facilities are: 1998- $136,800; 1999- $136,800; 2000- $136,800; 2001-
$136,800; and 2002- $ 79,800.
During the year, the Company also entered into a purchase commitment for
plant equipment totaling $1.3 million. Through June 30, 1997, the Company had
made payments totaling $1.1 million towards the purchase of the equipment. The
remaining balance will become due during the second quarter of fiscal 1998.
The Company has entered into Employment Agreements with three officers
of the Company. These agreements represent a commitment by the Company to pay
an aggregate amount of approximately $134,000 per year in salaries to these
individuals.
NOTE I - PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The pro forma financial data included herein reflects the results of
operations, as if the reverse acquisition of VEL had been completed at the
beginning of the 1996 fiscal year. The pro forma financial data was calculated
by pro rating the results of operations of VEL (formerly Sector) for the
applicable period.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1996
----
<S> <C>
Net Loss ........................................... $ (558,403)
==========
Loss per common share .............................. $ (.09)
==========
Weighted average common shares outstanding.......... 6,240,705
==========
</TABLE>
F14
<PAGE> 36
NOTE J - GEOGRAPHIC INFORMATION
In 1997, the Company completed a manufacturing facility in Edinburgh,
Scotland. Identifiable assets in Scotland totaled $7,178,000 and $2,829,000 at
June 30, 1997 and 1996, respectively. Identifiable assets represent those assets
used in the operations of the geographic area.
F15
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of March 1, 1997 (the "Effective Date") by and
between VIRAGEN (EUROPE) LTD., a Delaware corporation ("Employer or the
"Company"), and GERALD SMITH ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employer desires to employ the Employee upon the terms and
conditions hereinafter set forth and Employee desires to accept employment upon
such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, Employer hereby employs Employee and Employee hereby
accepts employment under the following terms and conditions:
1. EMPLOYMENT
----------
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon all the terms and conditions hereinafter set forth.
2. TERM
----
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Agreement shall commence on the Effective Date and shall
end as of the close of business on February 28, 1999 (the "Employment Term").
The term "first year", as used herein, means the period commencing on the
Effective Date and ending as of the close of business on February 28, 1998, the
term "second year", as used herein, means the period commencing on March 1, 1998
and ending as of the close of business on February 28, 1999, and the term
"year", as used herein, means, as the context requires, the first year or the
second year. Notwithstanding any of the foregoing to the contrary, if this
Employment Agreement is terminated prior to the expiration of the Employment
Term, a year shall mean, with respect to the year during which termination
occurs, the period commencing on the first day of such year and ending as of the
close of business of the day of termination of Employee's employment, and
"Employment Term" shall mean the period commencing on the Effective Date and
ending as of the close of business of the day of termination of Employee's
employment.
<PAGE> 2
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Employee represents and warrants to Employer that he is free to
accept employment with Employer as contemplated herein and has no other written
or oral obligations or commitments of any kind or nature which would in any way
interfere with his acceptance of employment pursuant to the terms hereof or the
full performance of his obligations hereunder or the exercise of his best
efforts in his employment hereunder.
4. DUTIES AND EXTENT OF SERVICES
-----------------------------
Employee shall be employed as Employer's President and, as such,
shall, subject to the direction of Employer's Board of Directors, supervise the
conduct of all of Employer's operations and affairs, and perform such other
duties and responsibilities as may be assigned to Employee from time to time
consistent with such title by Employer's Board of Directors. Employee agrees to
devote sufficient time, skill, attention and energy diligently and competently
to perform the duties and responsibilities reasonably assigned to him hereunder
or pursuant hereto to the best of his abilities. Employee shall use his best
efforts to be loyal and faithful at all times and constantly endeavor to improve
his ability and his knowledge of the business of Employer in an effort to
increase the value of his services for the mutual benefit of Employer and
Employee. Employer acknowledges that Employee is Chairman and President of
Cytoferon Corp. and a consultant to Tablelamps USA, Inc. ("Tablelamps") and
Employer consents to Employee continuing to act as Chairman and President of
Cytoferon Corp. and consultant to Tablelamps. Employee has informed Employer
that Employee's duties for Tablelamps are minimal and such duties will not
interfere with the satisfactory performance of his obligations under this
Agreement. Employee agrees not to enter into any other employment agreement,
other than with subsidiaries and/or affiliates of the Company as may be approved
by the Company's Board of Directors, during the term hereof.
5. COMPENSATION
------------
Employee shall receive an annual salary during the Employment Term
as follows: $10,000 for the period March 1, 1997 to February 28, 1998, and
$20,000 for the period March 1, 1998 to February 28, 1999. Employee's salary
shall be payable in accordance with the Company's normal payroll process,
currently bi-weekly. Additional consideration payable to Employee hereunder
consists of (a) subject to authorization of the Company's Board of Directors,
the grant to Employee of options to acquire common stock of Employer (as further
described herein), and (b) fringe benefits, if any, that shall be made available
to Employee further described herein.
6. FRINGE BENEFITS AND EXPENSES
----------------------------
A. EMPLOYEE PLANS. Employee shall be eligible (subject to the
terms and conditions of particular plans and programs) to participate in such
medical, hospitalization, group health, accident, disability and life insurance
programs and plans, such pension, profit
2
<PAGE> 3
sharing, stock option, incentive compensation and stock purchase plans and such
other employee benefit programs to the same extent such plans and programs are
made generally available from time to time by Employer to all of its other
similarly-situated employees; provided, however, Employer shall be under no
obligation to make any of such plans or programs available to its employees or
continue any which currently or in the future exist, except as otherwise
required by law.
B. OTHER EXPENSES. Employer shall promptly pay directly or
reimburse Employee for his reasonable out-of-pocket costs and expenses incurred
in connection with the performance of his duties and responsibilities hereunder
subject to the submission by Employee of appropriate invoices, receipts and
other supporting documentation, consistent with Employer's customary
reimbursement policies and procedures.
7. VACATIONS
---------
Employee shall be entitled to normal vacation (of not less than
two weeks) taken by other members of senior management during each twelve-month
period of the Employment Term. Employee shall not be entitled to be compensated
for any unused vacation upon termination of this Agreement. The periods during
which Employee will be absent from work shall be determined by Employee taking
into account the needs of Employer's business.
8. FACILITIES
----------
Employer shall provide and maintain (or cause to be provided and
maintained) such facilities, equipment, supplies and personnel as it reasonably
determines is adequate for Employee's performance of his duties and
responsibilities under this Agreement.
9. TERMINATION OF EMPLOYMENT
-------------------------
A. TERMINATION EVENTS. Notwithstanding any provisions of this
Agreement to the contrary, Employee's employment may be terminated by Employer
with Cause (as hereinafter defined) effective upon the delivery of written
notice to Employee. In addition, Employee's employment shall terminate (i) upon
Employee's death or (ii) upon Employee becoming Disabled (as hereinafter
defined).
B. DEFINITION OF DISABLED. For purposes of this Agreement,
Employee shall be deemed to be "Disabled" when, by reason of physical or mental
illness or of injury, he is unable to perform substantially all of the duties
and responsibilities required of him in connection with his employment
hereunder. No disability shall be deemed to exist until after Employee shall be
unable to perform his duties hereunder for ninety (90) consecutive days (the
"Disability Period"). If Employee shall have been under a disability but shall
have returned to work prior to the end of the Disability Period, any new
disability commencing within thirty (30) days of the termination of the prior
disability shall be a
3
<PAGE> 4
continuation of the prior disability, and the period of all such disabilities
shall be added together to determine whether, or how much of, the Disability
Period has elapsed.
C. DEFINITION OF CAUSE. For purposes of this Agreement, "Cause"
shall be: (a) conviction for fraud or criminal conduct (other than conviction
of, or a plea of guilty to, a traffic violation), from which no appeal can be
taken; (b) habitual drunkenness or drug addiction; (c) embezzlement; (d)
material sanctions against Employee in his capacity as an employee of Employer
by regulatory agencies governing Employer or against Employer because of
wrongful acts or conduct of Employee which have a material adverse affect upon
the Employer and its business; (e) material breach or default by Employee of any
of the material terms or conditions of this Agreement, and the continuation of
such material breach or default by Employee for a period of seven (7) days
following the date of receipt of written notice from Employer specifying the
breach or default of Employee; or (f) the resignation or quitting of Employee
prior to the end of the Employment Term (in this last event, Employee's
employment shall be deemed terminated with Cause on the date that he resigns or
quits).
If Employee's employment is terminated by Employer without Cause
as defined in this Section, Employee shall be given sixty (60) days written
notice of termination by Employer and be entitled to receive the greater of (i)
two years compensation and fringe benefits/expenses as provided for in Sections
5 & 6 hereof or (ii) compensation and fringe benefits/expenses as provided for
in sections 5 & 6 payable through the remainder of the Employment Term as
provided for in Section 2 hereof. Additionally, in the event of termination
without Cause, or non-renewal of this Agreement at the end of the Employment
Term, any outstanding but unexercised stock options or warrants granted to
Employee shall continue to be fully exercisable through their stated respective
Exercise Period(s).
D. TERMINATION FOLLOWING A CHANGE OF CONTROL.
------------------------------------------
i. In the event that a "Change of Control" as hereinafter
defined, of the Company shall occur at any time during the Employment Term, the
Employee shall have the right to terminate the Employee's employment under this
Agreement upon thirty (30) days written notice given at any time within one year
after the occurrence of such event, and such termination of the Employee's
employment with the Company pursuant to this Subsection 9D, then, in any such
event, such termination shall be deemed to be a Termination by the Company Other
than for Cause and the Employee shall be entitled to such Compensation and
Benefits as set forth in Subsection 9D of this Agreement.
4
<PAGE> 5
ii. For purposes of this Agreement, a "Change of Control" of
the Company shall mean a change in control (A) as set forth in Section 280G of
the Internal Revenue Code or (B) of a nature that would be required to be
reported in response to Item 1 of the current report on Form 8K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"); provided that, without limitation, such a change
in control shall be deemed to have occurred at such time as:
(a) any person (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the Company's outstanding securities then having the right to vote at
elections of directors; or,
(b) the individuals who at the commencement date of this
Agreement the Board of Directors cease for any reason to constitute a majority
thereof unless the election, or nomination for election, of each new director
was approved by a vote of at least two thirds of the directors then in office
who were directors at the commencement of this Agreement; or
(c) there is a failure to elect five or more (or such
number of directors as would constitute a majority of the Board of Directors)
candidates nominated by management of the Company to the Board of Directors; or
(d) the business of the Company for which the Employee's
services are principally performed is disposed of by the Company pursuant to a
partial or complete liquidation of the Company, a sale of assets (including
stock of a subsidiary of the Company) or otherwise.
Anything herein to the contrary notwithstanding, this Subsection 9D will not
apply where the Employee gives the Employee's explicit written waiver stating
that for the purposes of this Subsection 9D a Change in Control shall not be
deemed to have occurred. The Employee's participation in any negotiations or
other matters in relation to a Change in Control shall in no way constitute such
a waiver which can only be given by an explicit written waiver as provided in
the preceding sentence.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
A. CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
has been informed that it is the policy of Employer to maintain as secret and
confidential all information relating to (i) the financial condition, businesses
and interests of Employer and its affiliates, (ii) the systems, know-how,
products, services, costs, inventions, patents, patent applications, formulae,
research and development procedures, notes and results, computer software
programs, marketing and sales techniques and/or programs, methods,
methodologies, manuals, lists and other trade secrets heretofore or hereafter
acquired, sold, developed and/or used by Employer and its affiliates and (iii)
the nature and terms of Employer's and its affiliates' relationships with their
respective customers, clients, suppliers, lenders, vendors, consultants,
independent contractors and employees (all such information being hereinafter
collectively referred to as "Confidential Information"), and Employee further
acknowledges that such Confidential Information is of great value to Employer
and its affiliates and, in and by reason and as a result of Employee's
employment by Employer, Employee will be making use of, acquiring and/or adding
to such Confidential Information. Therefore, Employee understands that it is
reasonably necessary
5
<PAGE> 6
to protect Employer's and its affiliates' trade secrets, good will and business
interests that Employee agree and, accordingly, Employee does hereby agree, that
Employee will not directly or indirectly (except where authorized by the Board
of Directors of Employer for the benefit of Employer and/or its affiliate(s)
and/or as required in the course of his employment) at any time hereafter
divulge or disclose for any purpose whatsoever to any persons, firms,
corporations or other entities other than Employer or its affiliates
(hereinafter referred to collectively as "Third Parties"), or use or cause or
authorize any Third Parties to use, any such Confidential Information, except as
otherwise required by law.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer or its affiliates any research and development
materials, drawings, notebooks, notes, reports, formulae, software programs or
discs or other containers of software, manuals, data, books, records, materials
or documents of any kind or description for any purpose unconnected with the
strict performance of Employee's duties with Employer and (ii) upon the
cessation or termination of Employee's employment with Employer for any reason,
Employee shall forthwith deliver or cause to be delivered up to Employer any and
all research and development materials, drawings, notebooks, notes, reports,
formulae, software programs or discs or other containers of software, manuals,
data, books, records, materials and other documents and materials in Employee's
possession or under Employee's control relating to any Confidential Information
or any property or information which is otherwise the property of Employer or
its affiliates.
11. COVENANT-NOT-TO-COMPETE
In view of the Confidential Information to be obtained by or
disclosed to Employee, because of the know-how acquired and to be acquired by
Employee, and as a material inducement to Employer to enter into this Agreement,
issue the Options (as defined below) and continue to employ Employee, Employee
covenants and agrees that, so long as Employee is employed by Employer and for a
period of two (2) years after Employee ceases for any reason to be employed by
Employer, Employee shall not, directly or indirectly, (i) divert business from,
(ii) solicit or transact any business competitive with Employer or its
affiliates with, or (iii) sell any products or services sold or offered by
Employer or its affiliates to, any customer or former customer of Employer or
its affiliates. In addition, Employee covenants and agrees that, so long as
Employee is employed by Employer and for a period of two (2) years after
Employee ceases for any reason to be employed by Employer, Employee hereby
agrees to refrain from, anywhere in the world (the "Geographical Area"),
directly or indirectly owning, managing, operating, controlling or financing, or
participating in the ownership, management, control or financing of, or being
connected with or having an interest in, or otherwise taking any part as a
stockholder (other than deminimus amounts as a passive investor), director,
officer, employee, agent, consultant, partner or otherwise in, any business
competitive with that engaged in or being developed by Employer or its
affiliates during Employee's term of employment. Without limitation of the
foregoing, Employer's business is acknowledged to include the development,
manufacture and sale of human
6
<PAGE> 7
leukocyte interferon therapy and products and other natural or recombinant
technologies aimed at enhancing the human immune system. Employee acknowledges
that Employer's business is anticipated to be international in scope, that a
similar business could effectively compete with Employer's and its affiliates
businesses from any location in the world, and that, therefore, the restricted
Geographical Area is reasonable in scope to protect Employer's and its
affiliates' trade secrets and legitimate business interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 & 11
--------------------------------------------------
Employee covenants and agrees that if Employee shall violate or
breach any of Employee's covenants or agreements provided for in Sections 10 or
11 hereof, Employer and/or its affiliates shall be entitled to an accounting and
repayment of all profits, compensation, commissions, remunerations or benefits
which Employee directly or indirectly has realized or realizes as a result of,
growing out of or in connection with any such violation or breach. In addition,
in the event of a breach or violation or threatened or imminent breach or
violation of any provisions of Sections 10 or 11 hereof, Employer and/or its
affiliates shall be entitled to a temporary and permanent injunction or any
other appropriate decree of specific performance or equitable relief, without
posting of bond, from a court of competent jurisdiction in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any third parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any damages which are suffered, and the prevailing party shall be
entitled to reasonable attorneys' and paralegals' fees and costs and other costs
incurred in connection with any such litigation, both before and at trial and at
all tribunal levels. Resort by Employer and/or its affiliates to such injunctive
or other equitable relief shall not be deemed to waive or to limit in any
respect any other rights or remedies which Employer or its affiliates may have
with respect to such breach or violation.
13. REASONABLENESS OF RESTRICTIONS
------------------------------
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Sections 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and its affiliates and that it would be very
difficult or impossible to measure the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and goodwill of Employer and its
affiliates.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction and that, in the event
7
<PAGE> 8
that any one of the provisions of, or restrictions in, Sections 10, 11 and/or 12
hereof shall be held to be invalid or unenforceable, the remaining provisions
thereof and restrictions therein shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable provisions or restrictions
had not been included therein, and any one or more of such valid provisions and
restrictions may be enforced in whole or in part as the circumstances warrant.
In the event that any such provision relating to time period and/or geographical
and/or type of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum or permissible time period, geographical area
or type of restriction such court deems reasonable and enforceable, said time
period and/or geographical and/or type of restriction shall be deemed to become
and shall thereafter be the maximum time period and/or geographical restriction
and/or type of restriction which such court deems reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants and
agreements of Employee set forth in Sections 10, 11, 12 and 13 of this Agreement
shall survive any termination of this Agreement or of Employee's employment (for
any reason, including expiration of the Employment Term).
D. COMPARABLE RESTRICTIONS. Employer agrees that it will use its
best efforts to have other senior executives execute and observe agreements
containing similar provisions as are contained in Sections 10, 11 and 12 hereof.
14. STOCK OPTIONS
Effective the Effective Date, Employer may grant to Employee,
pursuant to Employer's 1997 Stock Option Plan (the "Plan"), options to acquire
shares of the Company's Common Stock (the "Options"), for a period of five (5)
years from the date hereof, substantially in accordance with the Form of Stock
Option Agreement attached hereto (Exhibit A) and made a part hereof. Such
Options shall be reflected by Amendment to this Agreement.
Employer represents and warrants that (i) all shares underlying
the Options will be issued from shares authorized by and subject to the
provisions of the Plan (ii) the Company shall use its best efforts to register
the Plan and the shares underlying the Options under the applicable regulations
of the Securities and Exchange Commission on Form S-8 and (iii) such
registration covering the shares underlying the Options will be maintained as
effective for the longer of (a) the Employment Term or (b) the Exercise Period
of the Options as defined in Exhibit A.
8
<PAGE> 9
15. EMPLOYEE'S DISCLOSURES & REPRESENTATIONS
& WARRANTIES.
----------------------------------------
Employee hereby acknowledges, represents and warrants to, and/or
agrees with, Employer as follows:
(a) Subject to Employee's right to designate family members
to own the stock acquired through exercise of the Options, that Employee is
acquiring the Options for his own account, for investment purposes only, and not
with a view to the public sale or distribution thereof, except as applicable
under the Form S-8 Registration to be filed by the Company covering the Shares
underlying the Options.
(b) That Employee has full right, power and authority to
perform all obligations under this Agreement.
(c) That Employee understands that the Options are
nonassignable, and that the Shares acquired through exercise of the Options may
be sold or transferred only pursuant to the Form S-8 Registration to be filed by
the Company covering the Shares underlying the Options.
Employee hereby agrees to indemnify and hold harmless Employer and
its shareholders, directors, officers, employees and agents from and against any
and all loss, damage, liability, cost or expense (including reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate levels) due to or arising out of any material inaccuracy in, or
material breach of, any material representation, warranty or covenant of
Employee contained herein.
16. INDEPENDENT COUNSEL
-------------------
Employer and Employee agree that each of them have been, or were
advised and fully understand that they are entitled to be represented by
independent legal counsel with respect to all matters contemplated herein from
the commencement of negotiations at all times through the execution hereof.
17. LAW APPLICABLE
--------------
This Agreement shall be governed by and construed pursuant to the
laws of the State of Florida, without giving effect to conflicts of laws
principles.
9
<PAGE> 10
18. NOTICES
-------
Any notices required or permitted to be given pursuant to this
Agreement shall be sufficient, if in writing, and if personally delivered or
sent by certified or registered mail, return receipt requested, to his
residence, in the case of Employee, or to its then principal office, in the case
of Employer.
19. SUCCESSION
----------
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective legal representatives, heirs, assignees
and/or successors in interest of any kind whatsoever; provided, however, that
Employee acknowledges and agrees that he cannot assign or delegate any of his
rights, duties, responsibilities or obligations hereunder to any other person or
entity.
20. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire final agreement between the
parties with respect to, and supersedes any and all prior agreements, both oral
and written, between the parties hereto, except as related to rights of the
Employee and obligations related thereto of Employer regarding previously
granted stock options and previously purchased stock, as may have been modified
from time to time. The subject matter hereof may not be amended, modified or
terminated except by a writing signed by the parties hereto.
21. SEVERABILITY
------------
If any provision of this Agreement shall be held to be invalid or
unenforceable, and is not reformed by a court of competent jurisdiction, such
invalidity or unenforceability shall attach only to such provision and shall not
in any way affect or render invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if such invalid or
unenforceable provision were not contained herein.
22. NO WAIVER
---------
A waiver of any breach or violation of any term, provision or
covenant contained herein shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
23. ATTORNEYS' FEES
---------------
In the event that either of the parties to this Agreement
institutes suit against the other party to this Agreement to enforce any of his
or its rights hereunder, the prevailing party in such action shall be entitled
to recover from the other party all reasonable costs thereof, including
reasonable attorneys' and paralegals' fees and costs incurred before and at
trial and at all tribunal levels.
10
<PAGE> 11
24. COUNTERPARTS
------------
This Agreement may be executed in counterparts, each of which
shall be an original, but both of which together shall constitute one and the
same instrument.
25. INDEMNITY OF EMPLOYEE
---------------------
Employer shall indemnify and hold harmless Employee from and
against any and all claims, judgments, fines, penalties, liabilities, losses,
costs and expenses (including reasonable attorneys' fees and costs) asserted
against or incurred by Employee as a result of acts or omissions of Employee
taken or made in the course of performing his duties for Employer or by reason
of Employee acting or having acted as a director or officer of Employer, to the
maximum extent permitted by law, including Section 607.0850, Florida Statutes
(including the advancement of expense provisions thereof); provided, however,
that such indemnity shall not apply to acts or omissions of Employee which
constitute misconduct, gross negligence or which were intended by Employee to
personally benefit Employee, directly or indirectly, at the expense of Employer,
unless the matter which benefits Employee was first fully disclosed to the Board
of Directors of Employer and approved by said Board.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
day and year first above written.
VIRAGEN (EUROPE) LTD.
By: /s/ DENNIS W. HEALEY
-----------------------------------
Dennis W. Healey
Executive Vice President
EMPLOYEE
: /s/ GERALD SMITH
-----------------------------------
Gerald Smith
11
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of March 1, 1997 (the "Effective Date") by and
between VIRAGEN (EUROPE) LTD., a Delaware corporation ("Employer or the
"Company"), and DENNIS W. HEALEY ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employer desires to employ the Employee upon the terms and
conditions hereinafter set forth and Employee desires to accept employment upon
such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, Employer hereby employs Employee and Employee hereby
accepts employment under the following terms and conditions:
1. EMPLOYMENT
----------
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon all the terms and conditions hereinafter set forth.
2. TERM
----
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Agreement shall commence on the Effective Date and shall
end as of the close of business on February 28, 1999 (the "Employment Term").
The term "first year", as used herein, means the period commencing on the
Effective Date and ending as of the close of business on February 28, 1998, the
term "second year", as used herein, means the period commencing on March 1, 1998
and ending as of the close of business on February 28, 1999, and the term
"year", as used herein, means, as the context requires, the first year or the
second year. Notwithstanding any of the foregoing to the contrary, if this
Employment Agreement is terminated prior to the expiration of the Employment
Term, a year shall mean, with respect to the year during which termination
occurs, the period commencing on the first day of such year and ending as of the
close of business of the day of termination of Employee's employment, and
"Employment Term" shall mean the period commencing on the Effective Date and
ending as of the close of business of the day of termination of Employee's
employment.
<PAGE> 2
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Employee represents and warrants to Employer that he is free
to accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which would in
any way interfere with his acceptance of employment pursuant to the terms hereof
or the full performance of his obligations hereunder or the exercise of his best
efforts in his employment hereunder.
4. DUTIES AND EXTENT OF SERVICES
-----------------------------
Employee shall be employed as Employer's Executive Vice
President and Chief Financial Officer and, as such, shall, subject to the
direction of Employer's President, supervise the conduct the Employer's
operations and affairs as assigned by the President, and perform such other
duties and responsibilities as may be assigned to Employee from time to time
consistent with such title by Employer's President. Employee agrees to devote
sufficient time, skill, attention and energy diligently and competently to
perform the duties and responsibilities reasonably assigned to him hereunder or
pursuant hereto to the best of his abilities. Employee shall use his best
efforts to be loyal and faithful at all times and constantly endeavor to improve
his ability and his knowledge of the business of Employer in an effort to
increase the value of his services for the mutual benefit of Employer and
Employee. Employee agrees not to enter into any other employment agreement,
other than with subsidiaries and/or affiliates of the Company as may be approved
by the Company's Board of Directors, during the term hereof.
5. COMPENSATION
------------
Employee shall receive an annual salary during the Employment
Term as follows: $95,000 for the period March 1, 1997 to February 28, 1998, and
$100,000 for the period March 1, 1998 to February 28, 1999. Employee's salary
shall be payable in accordance with the Company's normal payroll process,
currently bi-weekly. Additional consideration payable to Employee hereunder
consists of (a) subject to authorization of the Company's Board of Directors,
the grant to Employee of options to acquire common stock of Employer (as further
described herein), and (b) fringe benefits, if any, that shall be made available
to Employee further described herein.
6. FRINGE BENEFITS AND EXPENSES
----------------------------
A. EMPLOYEE PLANS. Employee shall be eligible (subject to the
terms and conditions of particular plans and programs) to participate in such
medical, hospitalization, group health, accident, disability and life insurance
programs and plans, such pension, profit sharing, stock option, incentive
compensation and stock purchase plans and such other employee benefit programs
to the same extent such plans and programs are made generally available from
time to time by Employer to all of its other similarly-situated employees;
provided, however, Employer shall be under no obligation to make any of such
plans or
2
<PAGE> 3
programs available to its employees or continue any which currently or in the
future exist, except as otherwise required by law.
B. OTHER EXPENSES. Employer shall promptly pay directly or
reimburse Employee for his reasonable out-of-pocket costs and expenses incurred
in connection with the performance of his duties and responsibilities hereunder
subject to the submission by Employee of appropriate invoices, receipts and
other supporting documentation, consistent with Employer's customary
reimbursement policies and procedures.
7. VACATIONS
---------
Employee shall be entitled to normal vacation (of not less
than two weeks) taken by other members of senior management during each
twelve-month period of the Employment Term. Employee shall not be entitled to be
compensated for any unused vacation upon termination of this Agreement. The
periods during which Employee will be absent from work shall be determined by
Employee taking into account the needs of Employer's business.
8. FACILITIES
----------
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably determines is adequate for Employee's performance of his duties and
responsibilities under this Agreement.
9. TERMINATION OF EMPLOYMENT
-------------------------
A. TERMINATION EVENTS. Notwithstanding any provisions of this
Agreement to the contrary, Employee's employment may be terminated by Employer
with Cause (as hereinafter defined) effective upon the delivery of written
notice to Employee. In addition, Employee's employment shall terminate (i) upon
Employee's death or (ii) upon Employee becoming Disabled (as hereinafter
defined).
B. DEFINITION OF DISABLED. For purposes of this Agreement,
Employee shall be deemed to be "Disabled" when, by reason of physical or mental
illness or of injury, he is unable to perform substantially all of the duties
and responsibilities required of him in connection with his employment
hereunder. No disability shall be deemed to exist until after Employee shall be
unable to perform his duties hereunder for ninety (90) consecutive days (the
"Disability Period"). If Employee shall have been under a disability but shall
have returned to work prior to the end of the Disability Period, any new
disability commencing within thirty (30) days of the termination of the prior
disability shall be a continuation of the prior disability, and the period of
all such disabilities shall be added together to determine whether, or how much
of, the Disability Period has elapsed.
3
<PAGE> 4
C. DEFINITION OF CAUSE. For purposes of this Agreement,
"Cause" shall be: (a) conviction for fraud or criminal conduct (other than
conviction of, or a plea of guilty to, a traffic violation), from which no
appeal can be taken; (b) habitual drunkenness or drug addiction; (c)
embezzlement; (d) material sanctions against Employee in his capacity as an
employee of Employer by regulatory agencies governing Employer or against
Employer because of wrongful acts or conduct of Employee which have a material
adverse affect upon the Employer and its business; (e) material breach or
default by Employee of any of the material terms or conditions of this
Agreement, and the continuation of such material breach or default by Employee
for a period of seven (7) days following the date of receipt of written notice
from Employer specifying the breach or default of Employee; or (f) the
resignation or quitting of Employee prior to the end of the Employment Term (in
this last event, Employee's employment shall be deemed terminated with Cause on
the date that he resigns or quits).
If Employee's employment is terminated by Employer without
Cause as defined in this Section, Employee shall be given sixty (60) days
written notice of termination by Employer and be entitled to receive the greater
of (i) two years compensation and fringe benefits/expenses as provided for in
Sections 5 & 6 hereof or (ii) compensation and fringe benefits/expenses as
provided for in sections 5 & 6 payable through the remainder of the Employment
Term as provided for in Section 2 hereof. Additionally, in the event of
termination without Cause, or non-renewal of this Agreement at the end of the
Employment Term, any outstanding but unexercised stock options or warrants
granted to Employee shall continue to be fully exercisable through their stated
respective Exercise Period(s).
D. TERMINATION FOLLOWING A CHANGE OF CONTROL.
------------------------------------------
i. In the event that a "Change of Control" as
hereinafter defined, of the Company shall occur at any time during the
Employment Term, the Employee shall have the right to terminate the Employee's
employment under this Agreement upon thirty (30) days written notice given at
any time within one year after the occurrence of such event, and such
termination of the Employee's employment with the Company pursuant to this
Subsection 9D, then, in any such event, such termination shall be deemed to be a
Termination by the Company Other than for Cause and the Employee shall be
entitled to such Compensation and Benefits as set forth in Subsection 9D of this
Agreement.
ii. For purposes of this Agreement, a "Change of
Control" of the Company shall mean a change in control (A) as set forth in
Section 280G of the Internal Revenue Code or (B) of a nature that would be
required to be reported in response to Item 1 of the current report on Form 8K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without
limitation, such a change in control shall be deemed to have occurred at such
time as:
(a) any person (as such term is used in Section
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent
4
<PAGE> 5
(50%) or more of the combined voting power of the Company's outstanding
securities then having the right to vote at elections of directors; or,
(b) the individuals who at the commencement date
of this Agreement the Board of Directors cease for any reason to constitute a
majority thereof unless the election, or nomination for election, of each new
director was approved by a vote of at least two thirds of the directors then in
office who were directors at the commencement of this Agreement; or
(c) there is a failure to elect five or more (or
such number of directors as would constitute a majority of the Board of
Directors) candidates nominated by management of the Company to the Board of
Directors; or
(d) the business of the Company for which the
Employee's services are principally performed is disposed of by the Company
pursuant to a partial or complete liquidation of the Company, a sale of assets
(including stock of a subsidiary of the Company) or otherwise.
Anything herein to the contrary notwithstanding, this Subsection 9D will not
apply where the Employee gives the Employee's explicit written waiver stating
that for the purposes of this Subsection 9D a Change in Control shall not be
deemed to have occurred. The Employee's participation in any negotiations or
other matters in relation to a Change in Control shall in no way constitute such
a waiver which can only be given by an explicit written waiver as provided in
the preceding sentence.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
A. CONFIDENTIAL INFORMATION. Employee acknowledges that
Employee has been informed that it is the policy of Employer to maintain as
secret and confidential all information relating to (i) the financial condition,
businesses and interests of Employer and its affiliates, (ii) the systems,
know-how, products, services, costs, inventions, patents, patent applications,
formulae, research and development procedures, notes and results, computer
software programs, marketing and sales techniques and/or programs, methods,
methodologies, manuals, lists and other trade secrets heretofore or hereafter
acquired, sold, developed and/or used by Employer and its affiliates and (iii)
the nature and terms of Employer's and its affiliates' relationships with their
respective customers, clients, suppliers, lenders, vendors, consultants,
independent contractors and employees (all such information being hereinafter
collectively referred to as "Confidential Information"), and Employee further
acknowledges that such Confidential Information is of great value to Employer
and its affiliates and, in and by reason and as a result of Employee's
employment by Employer, Employee will be making use of, acquiring and/or adding
to such Confidential Information. Therefore, Employee understands that it is
reasonably necessary to protect Employer's and its affiliates' trade secrets,
good will and business interests that Employee agree and, accordingly, Employee
does hereby agree, that Employee will not directly or indirectly (except where
authorized by the Board of Directors of Employer for
5
<PAGE> 6
the benefit of Employer and/or its affiliate(s) and/or as required in the course
of his employment) at any time hereafter divulge or disclose for any purpose
whatsoever to any persons, firms, corporations or other entities other than
Employer or its affiliates (hereinafter referred to collectively as "Third
Parties"), or use or cause or authorize any Third Parties to use, any such
Confidential Information, except as otherwise required by law.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer or its affiliates any research and development
materials, drawings, notebooks, notes, reports, formulae, software programs or
discs or other containers of software, manuals, data, books, records, materials
or documents of any kind or description for any purpose unconnected with the
strict performance of Employee's duties with Employer and (ii) upon the
cessation or termination of Employee's employment with Employer for any reason,
Employee shall forthwith deliver or cause to be delivered up to Employer any and
all research and development materials, drawings, notebooks, notes, reports,
formulae, software programs or discs or other containers of software, manuals,
data, books, records, materials and other documents and materials in Employee's
possession or under Employee's control relating to any Confidential Information
or any property or information which is otherwise the property of Employer or
its affiliates.
11. COVENANT-NOT-TO-COMPETE
-----------------------
In view of the Confidential Information to be obtained by or
disclosed to Employee, because of the know-how acquired and to be acquired by
Employee, and as a material inducement to Employer to enter into this Agreement,
issue the Options (as defined below) and continue to employ Employee, Employee
covenants and agrees that, so long as Employee is employed by Employer and for a
period of two (2) years after Employee ceases for any reason to be employed by
Employer, Employee shall not, directly or indirectly, (i) divert business from,
(ii) solicit or transact any business competitive with Employer or its
affiliates with, or (iii) sell any products or services sold or offered by
Employer or its affiliates to, any customer or former customer of Employer or
its affiliates. In addition, Employee covenants and agrees that, so long as
Employee is employed by Employer and for a period of two (2) years after
Employee ceases for any reason to be employed by Employer, Employee hereby
agrees to refrain from, anywhere in the world (the "Geographical Area"),
directly or indirectly owning, managing, operating, controlling or financing, or
participating in the ownership, management, control or financing of, or being
connected with or having an interest in, or otherwise taking any part as a
stockholder (other than deminimas amounts as a passive investor), director,
officer, employee, agent, consultant, partner or otherwise in, any business
competitive with that engaged in or being developed by Employer or its
affiliates during Employee's term of employment. Without limitation of the
foregoing, Employer's business is acknowledged to include the development,
manufacture and sale of human leukocyte interferon therapy and products and
other natural or recombinant technologies aimed at enhancing the human immune
system. Employee acknowledges that Employer's business is anticipated to be
international in scope, that a similar business could effectively
6
<PAGE> 7
compete with Employer's and its affiliates businesses from any location in the
world, and that, therefore, the restricted Geographical Area is reasonable in
scope to protect Employer's and its affiliates' trade secrets and legitimate
business interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 & 11
--------------------------------------------------
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Sections 10
or 11 hereof, Employer and/or its affiliates shall be entitled to an accounting
and repayment of all profits, compensation, commissions, remunerations or
benefits which Employee directly or indirectly has realized or realizes as a
result of, growing out of or in connection with any such violation or breach. In
addition, in the event of a breach or violation or threatened or imminent breach
or violation of any provisions of Sections 10 or 11 hereof, Employer and/or its
affiliates shall be entitled to a temporary and permanent injunction or any
other appropriate decree of specific performance or equitable relief, without
posting of bond, from a court of competent jurisdiction in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any third parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any damages which are suffered, and the prevailing party shall be
entitled to reasonable attorneys' and paralegals' fees and costs and other costs
incurred in connection with any such litigation, both before and at trial and at
all tribunal levels. Resort by Employer and/or its affiliates to such injunctive
or other equitable relief shall not be deemed to waive or to limit in any
respect any other rights or remedies which Employer or its affiliates may have
with respect to such breach or violation.
13. REASONABLENESS OF RESTRICTIONS
------------------------------
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Sections 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and its affiliates and that it would be very
difficult or impossible to measure the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and goodwill of Employer and its
affiliates.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction and that, in the event that any one of the provisions of, or
restrictions in, Sections 10, 11 and/or 12 hereof shall be held to be invalid or
unenforceable, the remaining provisions thereof and restrictions therein shall
nevertheless continue to be valid and enforceable as though the invalid or
7
<PAGE> 8
unenforceable provisions or restrictions had not been included therein, and any
one or more of such valid provisions and restrictions may be enforced in whole
or in part as the circumstances warrant. In the event that any such provision
relating to time period and/or geographical and/or type of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical area or type of restriction such court
deems reasonable and enforceable, said time period and/or geographical and/or
type of restriction shall be deemed to become and shall thereafter be the
maximum time period and/or geographical restriction and/or type of restriction
which such court deems reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this
Agreement shall survive any termination of this Agreement or of Employee's
employment (for any reason, including expiration of the Employment Term).
D. COMPARABLE RESTRICTIONS. Employer agrees that it will use
its best efforts to have other senior executives execute and observe agreements
containing similar provisions as are contained in Sections 10, 11 and 12 hereof.
14. STOCK OPTIONS
-------------
Effective the Effective Date, Employer may grant to Employee,
pursuant to Employer's 1997 Stock Option Plan (the "Plan"), options to acquire
up to shares of the Company's Common Stock (the "Options"), for a period of five
(5) years from the date hereof, substantially in accordance with the Form of
Stock Option Agreement attached hereto (Exhibit A) and made a part hereof. Such
Options shall be reflected by Amendment to this Agreement.
Employer represents and warrants that (i) all shares
underlying the Options will be issued from shares authorized by and subject to
the provisions of the Plan (ii) the Company shall use its best efforts to
register the Plan and the shares underlying the Options under the applicable
regulations of the Securities and Exchange Commission on Form S-8 and (iii) such
registration covering the shares underlying the Options will be maintained as
effective for the longer of (a) the Employment Term or (b) the Exercise Period
of the Options as defined in Exhibit A.
15. EMPLOYEE'S DISCLOSURES AND REPRESENTATIONS
AND WARRANTIES.
------------------------------------------
Employee hereby acknowledges, represents and warrants to,
and/or agrees with, Employer as follows:
(a) Subject to Employee's right to designate family
members to own the stock acquired through exercise of the Options, that Employee
is acquiring the Options for his own account, for investment purposes only, and
not with a view to the public
8
<PAGE> 9
sale or distribution thereof, except as applicable under the Form S-8
Registration to be filed by the Company covering the Shares underlying the
Options.
(b) That Employee has full right, power and authority
to perform all obligations under this Agreement.
(c) That Employee understands that the Options are
nonassignable, and that the Shares acquired through exercise of the Options may
be sold or transferred only pursuant to the Form S-8 Registration to be filed by
the Company covering the Shares underlying the Options.
Employee hereby agrees to indemnify and hold harmless Employer
and its shareholders, directors, officers, employees and agents from and against
any and all loss, damage, liability, cost or expense (including reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate levels) due to or arising out of any material inaccuracy in, or
material breach of, any material representation, warranty or covenant of
Employee contained herein.
16. INDEPENDENT COUNSEL
-------------------
Employer and Employee agree that each of them have been, or
were advised and fully understand that they are entitled to be represented by
independent legal counsel with respect to all matters contemplated herein from
the commencement of negotiations at all times through the execution hereof.
17. LAW APPLICABLE
--------------
This Agreement shall be governed by and construed pursuant to
the laws of the State of Florida, without giving effect to conflicts of laws
principles.
18. NOTICES
-------
Any notices required or permitted to be given pursuant to this
Agreement shall be sufficient, if in writing, and if personally delivered or
sent by certified or registered mail, return receipt requested, to his
residence, in the case of Employee, or to its then principal office, in the case
of Employer.
19. SUCCESSION
----------
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective legal representatives, heirs,
assignees and/or successors in interest of any kind whatsoever; provided,
however, that Employee acknowledges and agrees that he cannot assign or delegate
any of his rights, duties, responsibilities or obligations hereunder to any
other person or entity.
9
<PAGE> 10
20. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire final agreement between
the parties with respect to, and supersedes any and all prior agreements, both
oral and written, between the parties hereto, except as related to rights of the
Employee and obligations related thereto of Employer regarding previously
granted stock options and previously purchased stock, as may have been modified
from time to time. The subject matter hereof may not be amended, modified or
terminated except by a writing signed by the parties hereto.
21. SEVERABILITY
------------
If any provision of this Agreement shall be held to be invalid
or unenforceable, and is not reformed by a court of competent jurisdiction, such
invalidity or unenforceability shall attach only to such provision and shall not
in any way affect or render invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if such invalid or
unenforceable provision were not contained herein.
22. NO WAIVER
---------
A waiver of any breach or violation of any term, provision or
covenant contained herein shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
23. ATTORNEYS' FEES
---------------
In the event that either of the parties to this Agreement
institutes suit against the other party to this Agreement to enforce any of his
or its rights hereunder, the prevailing party in such action shall be entitled
to recover from the other party all reasonable costs thereof, including
reasonable attorneys' and paralegals' fees and costs incurred before and at
trial and at all tribunal levels.
24. COUNTERPARTS
------------
This Agreement may be executed in counterparts, each of which
shall be an original, but both of which together shall constitute one and the
same instrument.
25. INDEMNITY OF EMPLOYEE
---------------------
Employer shall indemnify and hold harmless Employee from and
against any and all claims, judgments, fines, penalties, liabilities, losses,
costs and expenses (including reasonable attorneys' fees and costs) asserted
against or incurred by Employee as a result of acts or omissions of Employee
taken or made in the course of performing his duties for Employer or by reason
of Employee acting or having acted as a director or officer of Employer, to the
maximum extent permitted by law, including Section 607.0850, Florida Statutes
(including the advancement of expense provisions thereof); provided, however,
that
10
<PAGE> 11
such indemnity shall not apply to acts or omissions of Employee which constitute
misconduct, gross negligence or which were intended by Employee to personally
benefit Employee, directly or indirectly, at the expense of Employer, unless the
matter which benefits Employee was first fully disclosed to the Board of
Directors of Employer and approved by said Board.
11
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
VIRAGEN (EUROPE) LTD.
By: /s/ GERALD SMITH
--------------------------------
President
EMPLOYEE
: /s/ DENNIS W. HEALEY
----------------------------------
DENNIS W. HEALEY
12
<PAGE> 1
VIRAGEN (SCOTLAND) LIMITED
(Registered Number 155387)
Madeleine Smith House
6/7 Blythswood Square
Glasgow.
G2 4AD.
5th September 1997
Dr. Magnus Nicolson
Formerly of 6 Shepherd's Court
73 Buchanan Street
Blafron
Stirlingshire, G63 OTW and now of
Drumbeg Lodge
Gartness Road
Drymen, G63 ODW.
Dear Dr. Nicolson,
SERIVE AGREEMENT BETWEEN
VIRAGEN (SCOTLAND) LIMITED
AND
DONALD MAGNUS NICOLSON
I refer to the above Service Agreement ("the Agreement") dated 16th and 19th
February, 1996, which is amended as follows:-
1. In respect of the Term clause 4.3 of the Agreement, the date 31st March
2000 shall be substituted for the existing expiry date of 31st March
1998 (the "fixed term date"), the Agreement to be extended for a two
year period, commencing on expiration of the original fixed term date in
terms of the existing Agreement.
2. In respect of the Remuneration clause 5, clause 5.1.4 shall be amended
to read "in respect of the six month period commencing on the expiry of
the Third Period ("the Fourth Period") at the rate of British
Pounds60,000 per annum".
A new clause 5.1.5 shall be added to read "in respect of the one year
period commencing on the expiry of "the Fourth Period" ("the Fifth
Period") at the rate of British Pounds65,000 per annum". A further new
clause 5.1.6 shall be added to read "in respect of the period commencing
on the expiry of the Fifth Period and ending on the fixed term date at
the rate of British Pounds70,000 per annum".
<PAGE> 2
3. In respect of the Expenses and Perquisites of Office, clause 6.2 of the
Agreement shall be deleted and a new clause substituted therefor as
follows:-
"The Company will provide at its own expense a vehicle of a standard
compatible with the office held by Dr. Nicolson for Doctor Nicolson's
own use and shall reimburse Dr. Nicolson petrol and insurance expenses
incurred in respect of such vehicle (subject to exhibiting to the
Company receipts therefor)."
I enclose a duplicate of this letter. Please confirm that you accept the above
amendments and additions to the Agreement by signing the docquet below and
returning this letter to me.
Yours sincerely,
/s/ DENNIS W. HEALEY
- --------------------------------
Dennis W. Healey
Director
For and on Behalf of Viragen (Scotland) Limited
5th September 1997
I hereby acknowledge and agree to the amendments to the Agreement as set out in
for the foregoing letter.
/s/ DONALD MAGNUS NICOLSON
- ------------------------------------
Dr. Donald Magnus Nicolson
<PAGE> 1
EXHIBIT 11
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Primary and Fully Diluted
Weighted average shares outstanding................. 7,048,967 3,685,705 100
========== ========== ==========
Net (loss) income................................... $ (859,214) $ (475,351) $ 626
========== ========== ==========
Net (loss) income per common share.................. $ (0.12) $ (0.13) $ 6.26
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT (22)
<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OWNED BY
INCORPORATION REGISTRANT
------------- ----------
<S> <C> <C>
Viragen (Scotland) Ltd. (1)................. Scotland (UK) 100%
</TABLE>
- --------------
(1) Incorporated January 17, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,144,271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,338,179
<PP&E> 3,421,815
<DEPRECIATION> 9,257
<TOTAL-ASSETS> 7,750,737
<CURRENT-LIABILITIES> 1,140,914
<BONDS> 0
0
0
<COMMON> 71,160
<OTHER-SE> 6,380,977
<TOTAL-LIABILITY-AND-EQUITY> 7,750,737
<SALES> 0
<TOTAL-REVENUES> 233,552
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,087,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,532
<INCOME-PRETAX> (859,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (859,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (859,214)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
