Document:

<PAGE>   1

                                                                   EXHIBIT 10.40

                           PLEDGE AND ESCROW AGREEMENT

         THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered
into as of this third day of October, 2000 by and among DENNIS W. HEALEY
(hereinafter referred to as "Pledgor"), Viragen, Inc., a Delaware corporation
(hereinafter referred to as "Pledgee") and ATLAS PEARLMAN P.A. (hereinafter
referred to as "Escrow Agent").

                              W I T N E S S E T H:

         WHEREAS, Dennis W. Healey (the Pledgor referred to in this Agreement)
is the Member of the Board of Directors of Viragen, Inc (the Pledgee referred to
in this Agreement) and entered into a Stock Option Agreement with the Pledgee on
October 6, 1995, a copy of which is attached hereto as Exhibit A;

         WHEREAS, pursuant to such Stock Option Agreement, Pledgor was afforded
the right to acquire 100,000 shares of Common Stock of the Pledgee at $0.50 per
share for an aggregate purchase price of $50,000.

         WHEREAS, the Pledgor has executed a five-year promissory note in the
principal amount of $50,000 (the "Note") in favor of Pledgee for the purchase
price payable in respect to the acquisition of the 100,000 shares of Common
Stock of the Pledgee, a copy of which is attached hereto as Exhibit B;

         WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 100,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and

         WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;

         NOW, THEREFORE, in consideration of the premises, covenants and
agreement hereinafter set forth, the parties mutually agree as follows:

         1.       SECURITY INTEREST. Pledgor hereby grants to Pledgee a first
                  lien security interest, superior to all other liens and
                  encumbrances, in and to the Pledged Shares. Copies of stock
                  powers representing the Pledged Shares, endorsed in blank, are
                  attached hereto as Exhibit "C". The Pledged Shares and stock
                  powers shall be held by Escrow Agent as collateral for the
                  indebtedness owed by the Pledgor to Pledgee pursuant to the
                  Note.

<PAGE>   2

         2.       REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
                  represents, warrants and covenants that, except for the
                  security interest granted hereunder, and except that the
                  Pledged Shares are partially paid shares subject to assessment
                  for the balance of the purchase price as represented by the
                  principal amount of the Note, Pledgor is the legal and
                  equitable owner of the Pledged Shares and holds same free and
                  clear of all liens, charges, encumbrances and security
                  interest of every kind and nature, and that Pledgor will make
                  no assignment, pledge, mortgage, hypothecation or transfer of
                  the Pledged Share; that Pledgor has good right and legal
                  authority to pledge the Pledged Shares in the manner hereby
                  done or contemplated and will defend Pledgor's title to the
                  Pledged Shares against the claim of all persons whomsoever;
                  that no consent or approval of any governmental body or
                  regulatory authority, or of any securities exchange, is
                  necessary to the validity of the pledge effected hereby,
                  except for any consents or approvals which have been obtained;
                  that the pledge of the Pledged Shares is effective to vest in
                  Pledgee the rights of the Pledgor in the Pledged shares set
                  forth herein; and that the Pledged Shares have been duly and
                  validly authorized.

         3.       RIGHT TO VOTE. Except as otherwise provided herein, during the
                  term of this Agreement and so long as Pledgor is not in
                  default in the performance of any of the terms of this
                  Agreement or in the payment of principal or interest under the
                  Note, the Pledgor shall be entitled to all rights of
                  ownership, including, but not limited to, the right to vote
                  the Pledged shares on all corporate questions.

         4.       ADJUSTMENTS. In the event that, during the term of this
                  Agreement, any stock dividend shall be declared an or with
                  respect to any of the Pledged Shares, or there is a
                  reclassification, readjustment, merger, consolidation, stack
                  split or any other change is made in the capital structure of
                  the Pledgee which has issued the Pledged Shares or any
                  successor thereto, all new, substituted and additional shares
                  or other securities issued by reason of such a change shall be
                  delivered and held by Escrow Agent under the terms of this
                  Agreement in the same manner as the Pledged Shares.

         5.       DEFAULT. In the event of default by the Pledgor under the
                  Note, in addition to any right or remedy which it may have
                  hereunder, the Pledgee shall have all of the rights and
                  remedies of a secured party under Article 9 of the Uniform
                  Commercial Code as it is now or hereafter in effect in the
                  State of Florida, including without limitation the right to
                  retain or to sell or otherwise dispose at all or any portion
                  of the Pledged Shares. Upon the occurrence of a default under
                  the Note, the Pledgee shall, in its sole discretion, have the
                  right to cancel the Pledged Shares or to offer for sale, and
                  to sell, all or any of the Pledged Shares at any private or
                  public sale; provided, however, that the Pledge shall give to
                  the Pledgor at least ten (10) business days notice of the
                  time, date and place of any such private or public sale, which
                  provision for notice, the Pledgor hereby expressly agrees is
                  commercially reasonable. Furthermore, the Pledgor hereby
                  expressly agrees that the Pledgee may (1) sell all or any
                  portion of the Pledged Shares at any private or public sale
                  for cash, upon credit, or for other property, for immediate or
                  future delivery, and for such price or prices and on such
                  terms as the Pledgee in its sole discretion shall deem
                  appropriate, (ii) bid on and purchase the Pledged Shares at
                  any private or public sale, and (iii) hold any of the Pledged
                  shares purchased by the Pledgee at any private or public sale
                  in its own right, free and clear of any and all claims of

                                       2
<PAGE>   3

                  the Pledgor. The Pledgee may, from time to time, upon such
                  default, sell all or any part of the Pledged Shares. The
                  Pledgor hereby appoints Pledgee an its attorney-in-fact to
                  execute such documents and take such action as may be
                  necessary to accomplish the provisions of this Agreement,
                  including, without limiting the generality of the foregoing,
                  the right to ask for, demand, sue for, collect, receive and
                  give acquittance for any and all monies due or to become due
                  with respect to or in connection with any of the Pledged
                  shares, to endorse checks, drafts, orders and other
                  instruments for the payment of money representing any interest
                  or dividend or other distribution with respect to or in
                  connection with the Pledged shares or any part thereof and to
                  give full discharge for the same, to settle, compromise,
                  prosecute or defend any action, claim or proceeding with
                  respect thereto and to sell, assign, endorse, pledge, transfer
                  and make any agreement respecting same, or otherwise deal with
                  the name. Such appointment in irrevocable and coupled with an
                  interest. Unless Pledgee retains the Pledged Shares in full
                  satisfaction or Pledgor's obligations under the Note as
                  provided herein, Pledgee shall apply the proceeds of
                  disposition of the Pledge shares in the manner provided by
                  Florida law. In lieu of any such sale, Pledgee may retain the
                  Pledged Shares in full satisfaction or partial satisfaction of
                  Pledgor's obligations under the Note.

         6.       ESCROW. Pledgor shall deposit with Escrow Agent the Pledged
                  shares, along with the aforesaid stock powers (all of which
                  items shall hereinafter be referred to as the "Pledged
                  Documents" including all stock assignments), to be held in
                  escrow for future delivery as follows:

                  a.       Escrow Agent shall deliver the Pledged Documents to
                           Pledgee within ten (10) business days after receiving
                           an affidavit signed by Pledgee stating that:

                           (i)      Pledgor is in default under the Note and all
                                    periods of time within which to cure such
                                    default have expired;

                           (ii)     Pledgee is accelerating the entire unpaid
                                    balance due under the Note; and

                           (iii)    Pledgee demands delivery of the Pledged
                                    Documents.

                           Pledgee shall simultaneously furnish Pledgor with a
                           copy of such affidavit. If Escrow Agent has not
                           received any protest or objection from Pledgor within
                           ten (10) business days of receipt of such affidavit,
                           the Pledged Documents shall be delivered to the
                           Pledgee. Upon such delivery of the Pledged Documents,
                           Escrow Agent's duties hereunder shall terminate.

                  b.       In the event Escrow Agent has received written
                           instructions signed by both Pledgor and Pledgee
                           notifying Escrow Agent of a sale of a portion of the
                           Pledged, Escrow Agent may release a portion or all of
                           the Pledged Shares, as provided in such written
                           instruction, and if Escrow Agent is designated to be
                           the recipient of the proceeds from the sale of all or
                           a portion of the Pledged Shares, then Escrow Agent
                           shall deliver any such proceeds received in
                           accordance with such written instructions.

                  c.       In the event Escrow Agent has not delivered the
                           Pledged Documents pursuant to subparagraph a. above,
                           then Escrow Agent shall deliver the

                                       3
<PAGE>   4

                           Pledged Documents; to Pledgor within ten (10)
                           business day; after receipt of the original of the
                           Note marked. "Paid in full", accompanied by
                           instructions from Pledgor indicating that the Note
                           has been paid in full and the Pledged documents shall
                           be delivered to Pledgor at the address specified
                           therein. Upon such delivery of the Pledged Documents,
                           Escrow Agent's duties hereunder shall terminate.
                           Pledgee agrees to deliver the Note to Pledgor marked
                           "paid in full", immediately upon satisfaction
                           thereof.

         7.       DISPUTE. It is specifically understood and agreed that should
                  any dispute arise between the parties hereto concerning this
                  Agreement or its construction, or for any other reason, the
                  Escrow Agent in its sole discretion, shall have the right to
                  deposit the Pledged Documents held by it pursuant to this
                  Escrow Agreement and any documents relating thereto that may
                  have been delivered to the Escrow Agent, with the Clerk of the
                  Circuit Court of Broward County, Florida, and notify all
                  parties concerned, and whereupon, all liability hereunder on
                  the part of the Escrow Agent shall fully cease except to the
                  extent of accounting for the Pledged Documents and any other
                  documents that may have been delivered to it.

         8.       INTERPLEADER. In the event the Escrow Agent places the Pledged
                  Documents that have actually been delivered to Escrow Agent in
                  the registry of the Circuit Court in and for Broward County,
                  Florida, and files an action of interpleader naming Pledgor
                  and Pledgee, and other necessary parties, Escrow Agent shall
                  be released and relieved from any and all further obligations
                  and liabilities hereunder or in connection herewith. Pledgor
                  and Pledgee hereby, jointly and severally, indemnify and hold
                  Escrow Agent harmless from any damages or losses arising
                  hereunder or in connection herewith, including, but not
                  limited to, all costs and expenses incurred by Escrow Agent in
                  connection with the filing at such action and reasonable
                  attorneys' teen and costs for Escrow Agent's attorney(s)
                  through and including all appeals.

         9.       NATURE OF ESCROW AGENT'S DUTIES. It is agreed that the duties
                  of Escrow Agent are only such as are herein specifically
                  provided and are purely ministerial in nature. Hence, Escrow
                  Agent shall not be held liable for any matter or thing except
                  for Escrow Agent's gross negligence or willful misconduct.
                  Pledgor and Pledgee shall at all times hereafter, jointly and
                  severally indemnify Escrow Agent and hold Escrow Agent
                  harmless from any claim assorted against it and for any
                  damages, costs, expenses, liability and/or losses sustained by
                  Escrow Agent (except for Escrow Agent's gross negligence or
                  willful misconduct), including, but not limited to, reasonable
                  attorneys' fees and costs for Escrow Agent's attorney(s)
                  through and including all appeals and whether or not
                  litigation is instituted. The obligations and duties of the
                  Escrow Agent are confined to those specifically enumerated in
                  this Agreement. The Escrow Agent shall not be subject to nor
                  be under any obligation to ascertain or construe the terms and
                  conditions of any instrument whether or not now or hereafter
                  deposited with or delivered to the Escrow Agent or referred to
                  in this Agreement. Nor shall the Escrow Agent be obliged to
                  inquire as to the form, execution and sufficiency or validity
                  or any instruments, or to inquire as to the identity,
                  authority or rights of any person executing or delivering the
                  same.

         10.      RETENTION OF LEGAL COUNSEL. It is agreed that Escrow Agent
                  shall have full discretion as to whom it may retain as legal
                  counsel to protect its interests (including retaining itself
                  as a law firm) and same shall not affect or in

                                       4
<PAGE>   5

                  any way prejudice or limit Escrow Agent's entitlement to
                  reasonable attorneys' fees for the services of such attorneys
                  as set forth in this Escrow Agreement.

         11.      VENUE. It is recognized that this Escrow Agreement shall be
                  deemed to have been entered into by the parties hereto in
                  Broward County, Florida, and that the property which is the
                  subject of thin Escrow Agreement is located in Broward County,
                  Florida. Therefore, it is agreed that venue with respect to
                  any matter arising herefrom shall only lie in Broward County,
                  Florida, except to the extent, and only to the extent, that
                  this provision with respect to venue is deemed in
                  contravention of any applicable law.

         12.      AMBIGUITY: CONFLICTING INSTRUCTIONS. In the event the Escrow
                  Agent shall be uncertain as to its duties or rights hereunder
                  or shall receive instructions, claims or demands from any of
                  the parties hereto or from third persons with respect to the
                  Pledged documents held hereunder, which in its sole opinion,
                  are in conflict with any provision of this Agreement, it shall
                  be entitled to refrain from taking any action until it shall
                  be directed otherwise in writing by all the parties hereto and
                  said third persons, if any, or by a final order or judgment of
                  a court of competent jurisdiction.

         13.      NOTICES. Notices and deliveries under this Agreement shall be
                  given or made by certified mail, return receipt requested, as
                  follows:

                  PLEDGOR:

                  DENNIS W. HEALEY
                  1920 Augusta Terrace
                  Coral Springs, FL 33071

                  PLEDGEE:

                  VIRAGEN, INC.
                  865 SW 78th Avenue
                  Suite 100
                  Plantation, FL 33324

                  ESCROW AGENT:

                  ATLAS PEARLMAN P.A.
                  350 East Las Olas Boulevard
                  Suite 1700
                  Ft. Lauderdale, FL 33301

                  Or such other address as any of the above-mentioned parties
                  shall have designated in writing to the other parties.

                                       5
<PAGE>   6

         14.      TERMINATION. All parties agree that the services of the Escrow
                  Agent may be terminated by the Escrow Agent or by the joinder
                  of both Pledgee and Pledgor upon thirty (30) days written
                  notice to the other. In the event of such termination, the
                  Pledgee and Pledgor shall mutually agree to a Successor Escrow
                  Agent. Failing such mutual agreement, application shall be
                  made to the appropriate court of Broward County, Florida, for
                  the appointment of a Successor Escrow Agent. Upon such
                  appointment, the Escrow Agent shall deliver all Pledged
                  Documents accordance with the terms of this Agreement.

         15.      MISCELLANEOUS.

                  a.       BENEFIT OF AGREEMENT. This Agreement shall be binding
                           upon the parties hereto and their heirs, successors,
                           assigns and personal or legal representatives.

                  b.       MODIFICATION. The Escrow Agent shall not be bound by
                           any modification, cancellation or rescission of this
                           Agreement unless in writing and signed by the parties
                           hereto. In no event, however, shall any modification
                           of this agreement, which shall affect the rights or
                           duties of the Escrow Agent, be binding upon Escrow
                           Agent unless it shall have given its prior written
                           consent.

                  c.       ATTORNEYS' FEES. In the event Pledgor or Pledgee
                           shall seek to enforce this Agreement, whether or not
                           through litigation, the prevailing party shall be
                           entitled to receive reasonable attorneys' fees and
                           all costs incurred in connection with such
                           enforcement, including fees and costs of appeal.

                  d.       FURTHER COOPERATION. From and after the date of this
                           Agreement, each of the parties hereto agrees to
                           execute whatever additional documentation or
                           instruments as are necessary to carry out the intent
                           and purpose of this Agreement.

                  e.       WAIVER. No indulgences extended by any party hereto
                           or any other party shall be construed as a waiver of
                           any breach on the part of such other party, nor shall
                           any waiver of one breach be construed as a waiver of
                           any rights or remedies with respect to any subsequent
                           breach.

                  f.       CONSTRUCTION. It is the intention of the parties that
                           the laws of the State of Florida shall govern the
                           validity of this Agreement, the construction of its
                           terms, and the interpretation of the rights and
                           duties of the parties. The parties agree and
                           acknowledge that each party has reviewed and revised
                           this Agreement and that the normal rule of
                           construction to the effect that any ambiguities are
                           to be resolved against the drafting parties shall not
                           be employed in the interpretation of this Agreement
                           or any amendment or exhibits thereto.

                  g.       TRUTH OF RECITALS. The recitals and statements
                           contained on page 1 of this Agreement are true and
                           correct and are hereby incorporated into this
                           Agreement.

                  h.       ENTIRE AGREEMENT. This Agreement sets forth the
                           entire agreement and understanding of the parties on
                           the subject matter hereof and supersedes all prior
                           agreements and understandings relating thereto.

                                       6
<PAGE>   7

                  i.       SEVERABILITY. The invalidity or unenforceability of
                           any particular provision of this Agreement shall not
                           affect the other provisions hereof and this Agreement
                           shall be construed in all respects as if such invalid
                           or unenforceable provision was omitted.

                  j.       GENDER. Wherever the context shall so require, all
                           words herein in any gender shall be deemed to include
                           the masculine, feminine or neuter gender; all
                           singular words shall include the plural and all
                           plural shall include the singular.

                  k.       HEADINGS. The headings used in this Agreement are
                           used for reference purposes only and are not to be
                           deemed controlling with respect to the contents
                           thereof.

                  l.       COUNTERPARTS. This Agreement may be executed in any
                           number of counterparts, and each such counterpart
                           shall for all purposes be deemed to be an original.

                  m.       INCORPORATION BY REFERENCE. The Exhibits referred to
                           in this Agreement are hereby incorporated into this
                           Agreement by reference.

                           IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the day and year first above written.

PLEDGOR:

/s/ Dennis W. Healey
------------------------------------
DENNIS W. HEALEY

PLEDGEE:

VIRAGEN, INC.

By:

/s/ Jose Ortega
------------------------------------
Jose Ortega
Controller

ESCROW AGENT:

ATLAS PEARLMAN P.A.

By:

------------------------------------
Authorized Person<PAGE>   1

                                                                EXHIBIT 10.42(A)

                              EMPLOYMENT AGREEMENT

         AGREEMENT dated as of March 1, 2001 (the "Effective Date") by and
between VIRAGEN, INC., a Delaware corporation ("Employer" or the "Company"), and
GERALD SMITH ("Employee").

                                   WITNESSETH:

         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.

         1.       EMPLOYMENT

                  Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon all the terms and conditions hereinafter set forth.

         2.       TERM OF AGREEMENT

                  Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Agreement shall commence on the date hereof and shall
continue in effect until February 28, 2003. Commencing on March 1, 2003 and each
March 1st thereafter, the term of this Agreement shall automatically be extended
for one additional year unless at least 90 days prior to such March 1st date,
the Company or Employee shall have given notice that this Agreement shall not be
extended. (Employment Term").

         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.

<PAGE>   2

         4.       DUTIES AND EXTENT OF SERVICES

                  Employee shall be employed as Employer's President and Chief
Executive Officer and, as such, shall, subject to the direction of the Board of
Directors ("Board"), supervise the conduct the Employer's operations and affairs
as assigned by the Board, and perform such other duties and responsibilities as
may be assigned to Employee from time to time consistent with such title by the
Board. 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, during the term hereof.

         5.       COMPENSATION

                  Employee shall receive an annual salary during the Employment
Term of $325,000. 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) the grant to employee of options
to acquire 850,000 shares of 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, 401K, profit sharing, stock option,
incentive compensation and stock purchase plans and such other employee benefit
programs to the same extent such plans and programs are made generally available
from time to time by Employer to all of its other similarly-situated employees;
provided, however, Employer shall be under no obligation to make any of such
plans or programs available to its employees or continue any which currently or
in the future exist, except as otherwise required by law.

                  B.       Automobile. For the term of this Agreement, Employer
shall provide to Employee an automobile and shall pay all gas, maintenance,
insurance and other expenses related thereto, for performance of Employee's
duties on behalf of Employer as specified herein.

                  C.       Other Expenses. Employer shall promptly pay directly
or reimburse Employee for his reasonable out-of-pocket costs and expenses
incurred in connection with the performance of his duties and responsibilities
hereunder subject to the submission by Employee of appropriate invoices,
receipts and other supporting documentation, consistent with Employer's
customary reimbursement policies and procedures.

                                       2

<PAGE>   3

         7.       STOCK OPTIONS

                  Effective the Effective Date, Employer hereby grants to
Employee, pursuant to Employer's 1997 Stock Option Plan (the "Plan"), options to
acquire up to 850,000 shares of the Company's Common Stock (the "Options"), for
a period of five (5) years from the date hereof, in accordance with the Stock
Option Agreement attached hereto (Exhibit A) and made a part hereof. Such
Options shall vest (i) one-half (1/2) upon the Effective Date of this Employment
Agreement, and (ii) one-half (1/2) upon the first anniversary of the Effective
Date.

                  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 has registered 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 (including extensions thereof, if applicable) or (b) the
Exercise Period of the Options as defined in Exhibit A.

                  In the event the company spin-offs or split-offs any present
or future subsidiaries or affiliated companies (a "Related Company") or creates
a tracking stock or similar instrument on behalf of a related business (each a
"Transaction"), Employee will be entitled to receive that number of options in a
Related Company equal to the percentage by which the Employee's options in the
Company at the date of the Transaction date bears to the fully diluted
outstanding Common Stock of the Company at the date of the Transaction. For the
purpose hereof, options and warrants shall be deemed the same security. The
exercise price for such options shall be the price which bears the same
relationship to the fair market value of the Related Company on the date of the
Transaction as each of the Employees Company Option grant exercise prices bear
to the fair market value of the Company's common stock on the date of the
Transaction i.e.,

<TABLE>
<S>               <C>                                      <C>               <C>                        <C>   <C>
                  Exercise Price(s) of each of
NUMERATOR:        Employees Company Options held
                  on date of Transaction                                     Market value of Related          Exercise Price
                  ----------------------------------------      X            Company on date of         =     of Option in
                  Market Price of Company                  (MULTIPLIED BY)   Transaction                      new Related
DENOMINATOR:      common stock on date of the                                                                 Company
                  Transaction
</TABLE>

         8.       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

                                       3

<PAGE>   4

absent from work shall be determined by Employee taking into account the needs
of Employer's business.

         9.       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.

         10.      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.

                  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, if
applicable (in this last event, Employee's employment shall be deemed terminated
with Cause on the date that he resigns or quits).

                                       4

<PAGE>   5

                  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 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, and the occurrence of a "Good Reason" as hereinafter
defined, of the Company shall occur at any time during the Employment Term or
extensions thereof, if applicable, the Employee shall have the right to
terminate the Employee's employment under this Agreement upon thirty (30) days
written notice given at any time within one year after the occurrence of such
events, and such termination of the Employee's employment with the Company
pursuant to this Subsection 10, 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
this Subsection 10 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 (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 four 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

                                       5

<PAGE>   6

                                    (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 10 will not apply where the Employee gives the Employee's explicit
written waiver stating that for the purposes of this Subsection 10 a Change in
Control shall not be deemed to have occurred. The Employee's participation in
any negotiations or other matters in relation to a Change in Control shall in no
way constitute such a waiver which can only be given by an explicit written
waiver as provided in the preceding sentence.

                  Anything to the contrary notwithstanding, termination shall
not be deemed termination without Cause if there shall not have also occurred at
or around a change in control a second event.

                  The second event is that the Employee is given "Good Reason"
for choosing to terminate. Good Reason means, without the Employee's express
written consent, the occurrence of any of the following events after a Change in
Control:

                           A.       a reduction by the Employer of the
Employee's rate of annual compensation,

                           B.       the failure of the Employer to continue in
effect any Employee benefit plan or compensation plan in which the Employee
participating following the Change in Control, unless the Employee is permitted
to participate in other plans providing substantially comparable benefits, or
the taking of any action by the Employer which would adversely affect the
Employee's participation in or materially reduce benefits under any such plan,
provided, however, that changes affecting the participation or benefits of all
similarly situated Employees shall not be treated as Good Reason hereunder,

                           C.       a materially adverse change in the level of
the Employee's employment responsibilities, provided, however, that changes in
title or changes in the affiliate of the Employer which employs the Employees
shall not be treated as Good Reason hereunder,

                           D.       a relocation of Employers offices such that
Employee would be required to relocate his primary residence to provide for a
reasonable daily travel distance to such new location.

         11.      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

                                       6

<PAGE>   7

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, goodwill 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
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.

         12.      COVENANT-NOT-TO-COMPETE

                  In view of the Confidential Information to be obtained by or
disclosed to Employee, because of the know-how acquired and to be acquired by
Employee, and as a material inducement to Employer to enter into this Agreement
and continue to employ Employee, Employee covenants and agrees that, so long as
Employee is employed by Employer and for a period of two (2) years after
Employee ceases for any reason to be employed by Employer, Employee shall not,
directly or indirectly, (i) divert business from Employer, (ii) solicit or
transact any business competitive with Employer or its affiliates

                                       7

<PAGE>   8

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. Employers business also includes transgenic
technologies and potential commercial applications resulting from this
technology. 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.

         13.      EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 11 & 12

                  Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Sections 11
or 12 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 11 or 12 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.

                                       8

<PAGE>   9

         14.      REASONABLENESS OF RESTRICTIONS

                  A.       Reasonableness. Employee acknowledges that any breach
or violation of Sections 11 or 12 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 11, 12 and 13 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 11, 12 and 13
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 11, 12 and/or 13 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 11, 12, 13 and 14 of
this Agreement shall survive any termination of this Agreement or of Employee's
employment (for any reason, including expiration of the Employment Term,
including extensions thereof, if applicable).

                  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 11, 12 and
13 hereof.

         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, if
any, that Employee is acquiring

                                       9

<PAGE>   10

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 any
Form S-8 Registration 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)      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.      ARBITRATION

                  Any dispute, controversy, or claim arising out of or in
connection with this Agreement, including any questions regarding its existence,
validity or termination, shall be finally resolved by arbitration by the
American Arbitration Association or JAMS/Endispute. Any such dispute,
controversy or claim shall be submitted to a board of arbitrators composed of
three competent disinterested persons, one to be chosen by Employer, one by
Employee and the third to be selected by the two arbitrators so chosen. Such
arbitration shall be conducted in English and all hearings in connection with
such arbitration will take place in Broward County, Florida. The prevailing
party shall be entitled to reimbursement of any and all fees of the arbitration
proceedings.

                  The arbitrators may not award non-monetary or equitable relief
of any sort. They shall have no power to award punitive damages or any other
damages not measured by the prevailing party's actual damages, and the parties
expressly waive their right to obtain such damages in arbitration or in any
other forum. In no event, even if any other portion of these provisions is held
to be invalid or unenforceable, shall the arbitrators have power to make an
award or impose a remedy that could not be made or imposed by a court deciding
the matter in the same jurisdiction.

                                       10

<PAGE>   11

                  No discovery will be permitted in connection with the
arbitration unless it is expressly authorized by the arbitration panel upon a
showing of substantial need by the party seeking discovery.

                  All aspects of the arbitration shall be treated as
confidential. Neither the parties nor the arbitrators may disclose the
existence, content or results of the arbitration, except as necessary to comply
with legal or regulatory requirements. Before making any such disclosure, a
party shall give written notice to all other parties and shall afford such
parties a reasonable opportunity to protect their interests.

                  The result of the arbitration will be binding on the parties,
and judgement on the arbitrators' award may be entered in any court having
jurisdiction.

         19.      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.

                  Employer agrees to notify Employee, by certified mail, 120
days prior to March 1st, 2003 and each March 1st anniversary as further
described in Paragraph 2 of this Agreement.

         20.      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.

         21.      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.

                                       11
<PAGE>   12

         22.      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.

         23.      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.

         24.      ATTORNEY'S 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.

         25.      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.

         26.      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.

                  Employer further agrees to maintain Directors and Officers
insurance coverage, for a minimum of $10 million, during the Employment Term or
any extensions thereof.

                                       12

<PAGE>   13

                  IN WITNESS WHEREOF, the undersigned have hereunto set their
hands on the day and year first above written.

                                       VIRAGEN, INC.

                                   By: /s/ Dennis W. Healey
                                       -----------------------------------------
                                       DENNIS W. HEALEY
                                       Executive Vice President & CFO

                                       EMPLOYEE

                                       /s/ Gerald Smith
                                       ---------------------------
                                       GERALD SMITH

                                       13

<PAGE>   14

                                                                EXHIBIT 10.42(B)

                             STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT, dated as of March 1, 2001 (the "Effective Date") between
Viragen, Inc. a Delaware Corporation (the "Company") and Gerald Smith
("Optionee").

The Company, pursuant to the provisions of its 1997 Stock Option Plan (the
"Plan"), hereby grants to Optionee an Incentive Stock Option ("ISO") (74,000
shares) and a Non-Statutory Option ("NSO") (776,000 shares) to acquire Common
Stock, par value $.01 per share, of the Company (the "Common Stock"), subject to
the following terms and conditions:

         1.       Grant of Option. The Company hereby grants to Optionee (the
"Option") to purchase up to 850,000 shares of Common Stock (the "Shares"), to be
transferred upon the exercise thereof, fully paid and nonassessable.

         2.       Exercise Price. The exercise price of the Shares subject to
the Option shall be at market at the date of grant, $1.35 per share. The Company
shall pay all original issue or transfer taxes upon the exercise of the Option
by Optionee.

         3.       Exercisability of Option; Rights and Privileges. Subject to
the provisions of Paragraph 6 hereof, the Option shall be exercisable by
Optionee; (i) one-half (1/2) upon the Effective Date of the employment
Agreement and (ii) one-half (1/2) upon the first anniversary of the Effective
Date (the "Exercise Dates") for a period of five (5) years for each Exercise
Date.

All granted but unexercised Options shall continue to be fully exercisable in
accordance with the provisions herein:

                           (i)      if there occurs any corporate transaction
(which shall include a series of corporate transactions occurring within 60 days
or occurring pursuant to a plan), that has the result that shareholders of the
Company immediately before such transaction cease to own at least 66 2/3 percent
of the voting stock of the Company in a (a) reorganization, (b) consolidation,
(c) merger, (d) liquidation or (e) a similar of corporate transaction;

                           (ii)     if the shareholders of the Company shall
approve a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved merger,
consolidation, reorganization, liquidation or dissolution is subsequently
abandoned); or

<PAGE>   15

                           (iii)    if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).

         4.       Non-Assignability of Option. The Option shall not be given,
granted, sold, exchanged, transferred, pledged, encumbered, assigned or
otherwise disposed of by Optionee, other than by will, the laws of descent and
distribution or estate planning purposes, , and during the lifetime of Optionee,
shall not be exercisable by any other person, but only by Optionee.

         5.       Method of Exercise of Option. Optionee shall notify the
Company by written notice, in the form of the Notice of Exercise attached hereto
(Attachment A), delivered to the Company's principal office, attention: Chief
Financial Officer. At the Optionee's option, the payment for the Shares may be
made either by Optionee's check payable to the order to the Company in full
payment for the total exercise price of the number of Shares purchased or by
execution and delivery by the Optionee to the Company of a Recourse Note(s), in
similar form and content as Notes previously used by the Company for similar
purposes ("Note(s)"), dated as of each Notice of Exercise. As soon as
practicable after the receipt of such Notice of Exercise and accompanying
payment for the purchase of Shares, the Company shall, at its principal office,
tender to Optionee a certificate or certificates issued in Optionee's name
evidencing the Shares purchased by Optionee hereunder.

         6.       Termination of Option. To the extent exercisable but not
exercised, the Option shall terminate upon the first to occur of the following
dates:

                  (a)      five (5) years from the Exercise Date as defined
herein if still in the employ of the Company; or

                  (b)      the expiration of one year following the date
Optionee's employment terminates with the Company and/or any of its subsidiaries
in the event of normal retirement or termination without cause.

                  Subject to the provisions of this paragraph, in the event of
Optionee's death, the exercisable but unexercised portion of the Option may be
exercised by the estate of Optionee, or by the person who acquired the right to
exercise the Option by bequest or inheritance or by reason of the death of
Optionee.

                  In the event of Employee's termination without Cause, all
granted but unexercised Options shall continue to be fully exercisable in
accordance with the provisions herein. Additionally, in the event this Agreement
is not renewed at the end of the Employment Term, then all granted but
unexercised Options shall continue to be fully exercisable in accordance with
the provisions herein.

                                       2

<PAGE>   16

         7.       Pledge of Shares. If payment for the purchase of Shares under
this Option is made through execution and delivery of a Recourse Note(s),
effective upon Optionee's purchase(s) of the Shares and the delivery of the
Note(s), in order to secure the Company's obligations under the Note(s),
Optionee hereby pledges, assigns and sets over to the Company, and grants to the
Company a security interest in, the Shares. The Shares pledged pursuant hereto
shall be maintained in escrow with Atlas, Pearlman P.A. pursuant to the terms of
a Pledge and Escrow Agreement previously used by the Company for similar
purposes, which shall be executed by Optionee and the Company upon delivery of a
Note(s). As long as any Shares remain subject to the lien of the Pledge, such
Shares may not be further pledged or encumbered in any manner, and shall not be
sold, transferred or otherwise disposed of. The Escrow Agent shall not be
required to relinquish the Pledge or the Escrow Agent's possession of the
certificates evidencing the Shares, unless no later than concurrently with the
sale of the Shares pursuant to an S-8 Registration, all Notes which are secured
by such Shares are paid in full. In the event any of the Shares are to be titled
in the name of an immediate family member of Optionee or a trust pursuant to the
terms herein, as a condition thereto the designated title holder(s) of such
Shares shall execute and deliver to the Company a pledge and escrow agreement,
in form and content reasonably satisfactory to the Company and its counsel,
consistent with the terms herein. No transfer of Shares to, or designation by
Optionee of (for the purposes of owning Shares) any person or entity shall
relieve Optionee of any of his obligations under the Note(s) or this Agreement.
With respect to each Note under which a voluntary prepayment is made by
Optionee, provided that interest payments on such Note are current through the
date of prepayment and such Note is not in default and has not been accelerated,
for each $13,500 of principal paid by Optionee under such Note, 10,000 Shares of
the Shares pledged to secure such Note shall be released from the lien of the
Pledge.

                  As long as no event of default has occurred with respect to a
Note and no event giving right to accelerate such Note has occurred, Optionee
shall retain all voting rights with respect to all Shares securing such Note.
Following an event of default or an acceleration event, the Company shall have
and may exercise all voting rights with respect to such Shares. Optionee hereby
irrevocably appoints the Company Optionee's attorney-in-fact for such purpose,
it being acknowledged that such appointment is coupled with an interest. Any
dividends or distributions payable in respect of any Shares subject to the
Pledge shall automatically be applied to pay down the Note(s) in inverse order
of their respective maturity date(s). In the event of a default under any Note,
in addition to and not in limitation or lieu of any other rights or remedies the
Company may have against Optionee as a result of such default, the Company may
exercise all of its rights at law and in equity as a secured party, including
without limitation under the Uniform Commercial Code, with respect to all Shares
then securing the Note with respect to which the default has occurred. Upon a
default, without limiting any of the Company's other rights and remedies, the
Company may conduct a public or private foreclosure sale of the Shares securing
the Note with respect to which the default has occurred. Optionee agrees that 10
days notice to him of any private sale is fair and reasonable. The Company may
be the purchaser at any public foreclosure sale, and may bid any commercially

                                       3

<PAGE>   17

reasonable amount at such sale. In all events, in the event of a public or
private foreclosure sale, Optionee shall be liable for any deficiency.

                  All of the Company's rights and remedies under the Note(s),
the Pledge and this Agreement, and at law or in equity, are cumulative, and none
is intended to be in substitution or in lieu of, nor is the exercise of one
intended to be a waiver of, any other. The Company shall have no obligation to
proceed against the Shares before proceeding against Optionee with respect to
any default under any of the Notes.

         8.       Securities Laws. Employer represents and warrants that (i) all
shares underlying the Options will be issued from shares authorized by and
subject to the provisions of the Plan; (ii) the Plan and the shares underlying
the Options have been registered under the applicable regulations of the
Securities and Exchange Commission on Form S-8; and (iii) such registration
covering the shares underlying the Options will be maintained as effective for
the longer of (a) the Employment Term and any extensions thereof, if
applicable, or (b) the Exercise Period of the Options as defined herein.

         9.       Adjustment of Shares. If at any time prior to the expiration
or exercise in full of the Option, there shall be any increase or decrease in
the number of issued and outstanding shares of the Common Stock through the
declaration of a stock dividend or through any recapitalization resulting in a
stock split-up, combination or exchange of the Common Stock, then and in such
event:

                  (i)      appropriate adjustment shall be made in the maximum
number of Shares available for grant, so that the same percentage of the
Company's issued and outstanding Shares shall continue to be subject to being so
optioned; and

                  (ii)     appropriate adjustment shall be made in the number of
Shares, and the exercise price per Share thereof, that remain unexercised under
the Option, so that the same percentage of the Company's issued and outstanding
shares of Common Stock shall remain subject to purchase at the same aggregate
exercise price.

Except as otherwise expressly provided herein, the issuance by the Company of
shares of its capital stock of any class, or securities convertible into shares
of capital stock of any class, either in connection with a direct sale of upon
the exercise of rights or warrants to subscribe therefore, or upon conversions
of shares or obligations the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of exercise price of the Shares that remain
unexercised under the Option.

Without limiting the generality of the foregoing, the existence of unexercised
Shares under the Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business; (ii) any merger or consolidation of the Company;
(iii) any issue by the Company of debt

                                       4

<PAGE>   18

securities, or preferred or preference stock that would rank above the Shares
issuable upon exercise of the Option; (iv) the dissolution or liquidation of the
Company; (v) any sale, transfer or assignment of all or any part of the assets
or business of the Company; or (vi) any other corporate act or proceeding,
whether of a similar character or otherwise.

         10.      No Rights as Stockholder. Optionee shall have no rights as a
stockholder of the Company in respect of the Shares as to which the Option shall
not have been exercised and payments made therefore as herein provided.

         11.      Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their heirs, legal representatives, successors and permitted assigns. Optionee
acknowledges that Optionee has read and understands the Plan and agrees to abide
by its terms.

         12.      Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the conflict of laws principles thereof. All terms not defined in this
Agreement shall have the same meaning as in the Plan.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

                                       VIRAGEN, INC.

                                   By: /s/ Dennis W. Healey
                                       -----------------------------------------
                                       Dennis W. Healey
                                       Executive Vice President & CFO

                                       OPTIONEE

                                       /s/ Gerald Smith
                                       -----------------------------------------
                                       Gerald Smith

                                       5

<PAGE>   19

                                  ATTACHMENT A

                               NOTICE OF EXERCISE

The undersigned hereby irrevocably elects to exercise the within Option to the
extent of purchasing            shares of Common Stock of Viragen, Inc., a
Delaware Corporation, and hereby makes payments of $         in payment
therefor.

                                       -----------------------------------------
                                       Signature

                                       -----------------------------------------
                                       Date

            INSTRUCTIONS FOR ISSUANCE OF STOCK AND CORPORATE RECORDS

Name:
           ----------------------------------------
           (Please type or print in block letters)

Address:
           ----------------------------------------

           ----------------------------------------

Social  Security #:
                   --------------------------------

Phone #: (    )
          ----  -----------------------------------

Fax #:   (    )
          ----  -----------------------------------

                                       6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}]]