10. Subsequent Events

On July 30, 2012, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which the Company: (i) sold to the Purchasers an aggregate of 8,666,665 shares of the Company’s Common Stock at a price per share of $1.50 (the “Common Shares”) for aggregate gross proceeds of approximately $13,000,000 (the “Offering”). The Company intends to use the net proceeds from this offering to accelerate development of several of the Company’s key initiatives including its recently announced Channel Agreement with Intrexon relating to the Company’s lantibiotics program, sales and marketing of the Company’s probiotic product lines and general corporate purposes.

In connection with the Offering, the Company also entered into a registration rights agreement with the Purchasers (the “Registration Rights Agreement”). The Registration Rights Agreement requires that the Company file a registration statement (the “Initial Registration Statement”) with the Securities and Exchange Commission (the “SEC”) within forty-five (45) days of the closing date of the Offering (the “Filing Date”) for the resale by the Purchasers of all of the Common Shares and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto (the “Registrable Securities”). The Initial Registration Statement must be declared effective by the SEC within ninety (90) days of the closing date of the Offering (the “Effectiveness Date”) subject to certain adjustments. Upon the occurrence of certain events (each an “Event”), including, but not limited to, that the Initial Registration Statement is not filed prior to the Filing Date, the Company will be required to pay liquidated damages to each of the Purchasers equal to 1.0% of the aggregate purchase price paid by such Purchaser for the Registrable Securities upon the date of the Event and then monthly thereafter until the earlier of: (i) the Event is cured, or (ii) the registrable shares are eligible for resale under Rule 144 without manner of sale or volume limitations. In no event shall the aggregate amount of liquidated damages payable to each of the Purchasers exceed in the aggregate 6% of the aggregate purchase price paid by such Purchaser for the Registrable Securities.

Griffin Securities, Inc. (the “Placement Agent”) served as the placement agent for the Offering. In consideration for services rendered as the Placement Agent in the Offering, the Company agreed to (i) pay to the Placement Agent cash commissions equal to $899,698, or 7.0% of the gross proceeds received in the Offering less certain excluded proceeds, (ii) issue to the Placement Agent, or its designee, a five-year warrant to purchase up to 771,169 shares of the Company’s Common Stock (representing 9% of the Common Shares sold in the Offering) with an exercise price of $1.50 per share (the “Agent Warrants”); and (iii) reimburse the Placement Agent for its reasonable actual out-of-pocket expenses, incurred in connection with the Offering, including reasonable legal fees and disbursements up to a maximum aggregate amount of $50,000. The determination of the Placement Agent’s fees did not include any shares issued to the KFLP, (in connection with the automatic conversion of its secured debt with the Company described below) or shares acquired by any officers or directors participating in the Offering.

Because the Offering constituted a “qualified financing” under the terms of the Company’s Loan Agreement with the KFLP, the Company’s secured debt in the principal amount of $2.5 million, together with accrued but unpaid interest thereon, due to the KFLP was automatically converted contemporaneously with the closing of the Offering into 1,692,123 shares of common stock issued to the KFLP at the same price of $1.50 per share paid by the Purchasers in the Offering. The KFLP waived receiving comparable registration rights as the Purchasers in the Offering as well as its piggyback registration rights applicable to the Offering. Intrexon also waived its piggyback registration rights applicable to the Offering and waived its participation rights. As a result of the conversion of the secured indebtedness, the Loan Agreement together with the related Security Agreement and related agreements have been terminated.

On August 6, 2012, the Compensation Committee of the Board of Directors (the “Board”) of the Company met and determined that one of the performance goals established in the Company’s Long Term Incentive Program as part of executive compensation had been achieved. The performance goal met was the goal related to the Company successfully raising $10,000,000 of new capital. As a result of the Compensation Committee’s determination, and pursuant to the Long Term Incentive Program, Dr. John Bonfiglio, the Company’s Chief Executive Officer and Dr. Martin Handfield, the Company’s Director of Research and Development, were entitled to awards of 0.70% and 0.23% respectively of the Company’s common stock outstanding at the time of the Compensation Committee’s determination that such goal had been met. Accordingly, Dr. Bonfiglio and Dr. Handfield were awarded 188,482 and 61,929 shares of Company common stock under the Company’s Amended and Restated 2002 Stock Option and Incentive Plan (the “Plan”), respectively. Also on August 6, 2012 the Board met and determined that a similar performance goal under the previously established Long Term Incentive Program for the compensation of non-employee directors had been met. As a result, the Board approved the award of 43,081 shares of common stock under the Plan, to each of the Company’s directors who were not employed by the Company, including Frederick Telling, Charles Pope, Alan Dunton, Christine Koski and Robert Koski.

The aggregate shares awarded under the Plan of 465,816, consisted of a total of 215,405 shares to non-employee directors and 250,411 shares to executive officers. Of the aggregate 465,816 shares awarded under the LTIP, (i) 132,000 shares were awarded to Dr. Bonfiglio of which 34,914 shares were retained by the Company for applicable tax withholding obligations, (ii) 43,000 shares were awarded to Dr. Handfield of which 11,373 shares were retained by the Company for applicable tax withholding obligation, and (iii) 30,000 shares were awarded to each of the five non-employee directors, with the balance of the remaining aggregate shares awarded of 140,816 to be issued in the future at such time that an increase in the number of shares available under the Plan has been approved by the shareholders.