Registration No. 333-34597
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
AMENDMENT NO. 7
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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AGRITOPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 8731 93-0820945
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NUMBER)
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CLASSIFICATION CODE NUMBER)
8505 S.W. Creekside Place, Beaverton, Oregon 97008
(503) 641-6115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Adolph J. Ferro, Ph.D., Chairman, President and Chief Executive Officer
Agritope, Inc.
8505 S.W. Creekside Place, Beaverton, Oregon 97008
(503) 641-6115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
Erich W. Merrill, Jr. Brian G. Booth
Miller, Nash, Wiener, Hager Tonkon Torp LLP
& Carlsen LLP Suite 1600
111 S.W. Fifth Avenue 888 S.W. Fifth Avenue
Portland, Oregon 97204-3699 Portland, Oregon 97204
(503) 224-5858 (503) 221-1440
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED DISTRIBUTION TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |-|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |-| --------
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |-| --------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |-|
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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[Epitope letterhead]
[Date]
Dear Shareholder:
We are pleased to inform you that the Board of Directors has authorized
a spin-off of the Company's wholly owned subsidiary, Agritope, Inc. To effect
the spin-off, Epitope, Inc. is distributing the Agritope Common Stock it now
holds to Epitope shareholders as a dividend. After the distribution, Agritope
will operate as an independent public company.
You will receive one share of Agritope Common Stock for every five
shares of Epitope Common Stock that you owned on the record date of December
- ---, 1997. You will receive cash instead of fractional shares of Agritope Common
Stock. The Company has received an opinion of counsel that the spin-off will be
tax-free to most shareholders, except for cash received for any fractional
shares. You should consult your own tax advisor about the tax consequences of
the spin-off to you.
In connection with the spin-off, Agritope is raising working capital by
selling newly issued Agritope common and preferred stock to certain investors
and a strategic partner. Agritope could not operate as an independent company
without this additional working capital. Shares of preferred stock sold to the
strategic partner will be convertible into common stock on a share-for-share
basis, subject to adjustment in certain events.
The shares being distributed to Epitope shareholders as a dividend are
expected to represent between 53 percent and 63 percent of the Agritope voting
stock outstanding after the distribution and sales of common and preferred stock
are completed. The exact percentage will depend on the extent to which an option
to purchase additional shares of preferred stock is exercised, as more fully
described in the attached Information Statement/Prospectus.
You do not need to take any action for the spin-off to occur. You do
not have to pay for the shares of Agritope Common Stock that you will receive,
nor do you have to surrender or exchange shares of Epitope Common Stock in order
to receive shares of Agritope Common Stock. The number of shares of Epitope
Common Stock you own will not change as a result of the spin-off.
The attached Information Statement/Prospectus gives detailed
information about Agritope and the spin-off. We encourage you to read it
carefully.
Very truly yours,
Roger L. Pringle
Chairman
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Information Statement/Prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation, or sale would
be unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997.
INFORMATION STATEMENT/PROSPECTUS
AGRITOPE, INC.
DISTRIBUTION OF UP TO ----------- SHARES OF COMMON STOCK
OF AGRITOPE, INC. TO SHAREHOLDERS OF EPITOPE, INC.
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This Information Statement/Prospectus is being furnished to the
shareholders of Epitope, Inc. ("Epitope"), in connection with the spin-off of
Epitope's wholly owned subsidiary, Agritope, Inc. ("Agritope" or the "Company").
The spin-off will be accomplished through a dividend distribution (the
"Distribution") to Epitope shareholders of all the Agritope common stock, par
value $.01 per share, including associated preferred stock purchase rights
("Agritope Common"), held by Epitope. As a result of the Distribution, Agritope
will cease to be a subsidiary of Epitope and will operate as an independent
public company. Neither Epitope nor Agritope will receive any cash or other
proceeds from the Distribution.
Epitope will make a distribution to holders of record of Epitope common
stock, no par value ("Epitope Stock"), on December ---, 1997 (the "Record Date")
of one share of Agritope Common, including one preferred stock purchase right,
for every five shares of Epitope Stock outstanding. On the Record Date, Epitope
had outstanding ------------ shares of Epitope Stock, its only outstanding class
of stock. Therefore, an aggregate of approximately 2.7 million shares of
Agritope Common will be issued in the Distribution.
In order to finance the operations of Agritope after the Distribution,
Agritope has entered into agreements for the sale of 1,343,704 shares of
Agritope Common to certain foreign investors (the "Regulation S Sale") pursuant
to the Regulation S exemption ("Regulation S") under the Securities Act of 1933,
as amended (the "Securities Act"). The shares will be sold at a price of $7 per
share for an aggregate price of $9.4 million. Agritope expects to receive
proceeds from the Regulation S Sale immediately following the Distribution.
In connection with a research and development collaboration, Agritope and
Vilmorin & Cie ("Vilmorin"), an affiliate of Groupe Limagrain, have entered into
an agreement for the sale under Regulation S of 214,285 shares of Agritope
Series A Preferred Stock ("Series A Convertible Preferred") at a price of $7 per
share for an aggregate purchase price of $1.5 million (the "Preferred Stock
Sale"). Agritope expects to receive proceeds of the Preferred Stock Sale three
business days following the Distribution Date. In addition, Agritope has granted
Vilmorin an option (the "Series A Option"), exercisable by Vilmorin or its
designees and expiring January 15, 1998, to purchase up to 785,715 additional
shares of Series A Convertible Preferred at a price of $7 per share. Vilmorin
will own 19.9 percent of the outstanding Agritope voting stock if it exercises
the Series A Option in full. Series A Convertible Preferred has preemptive
rights and the right to elect a director, but otherwise has rights substantially
equivalent to Agritope Common and is convertible at any time into shares of
Agritope Common on a share-for-share basis, subject to adjustment upon the
occurrence of certain events. Holders of Series A Convertible Preferred will
vote on an "as converted" basis with holders of Agritope Common. Vilmorin has
been exempted from triggering the Company's stockholder rights plan under
certain circumstances.
The Epitope board of directors (the "Epitope Board") believes that the
funds raised in the Regulation S Sale are sufficient to finance the operations
of Agritope as a separate business for a period of not less than two years
following the Distribution, although no assurance to that effect can be given.
Agritope could not operate as an independent entity without such financing.
Following the Regulation S Sale and the Preferred Stock Sale, the Agritope
Common to be issued in the Distribution will represent between 53 percent and 63
percent of outstanding Agritope voting stock, depending on the extent to which
the Series A Option is exercised. Shares sold in the Regulation S Sale will
represent between 27 percent and 32 percent of outstanding Agritope voting
stock, depending on the extent to which the Series A Option is exercised.
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Fractional shares of Agritope Common will not be issued in the
Distribution. If the aggregate number of shares due an Epitope shareholder of
record includes a fraction of a share, Epitope will pay the cash value of the
fractional share to the holder, based on a price of $7 per share of Agritope
Common. Shareholders who own their stock in "street name" through a broker or
other nominee listed as the holder of record will have their fractional shares
handled according to the practices of the broker or nominee.
Currently, no public market for Agritope Common exists. Agritope has
applied to have Agritope Common approved for quotation on The Nasdaq SmallCap
Market under the symbol "AGTO." Agritope Common received in the Distribution
will be freely tradeable by nonaffiliates of Agritope.
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PERSONS RECEIVING THIS INFORMATION STATEMENT/PROSPECTUS SHOULD CAREFULLY
CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION "RISK FACTORS" ON PAGE 10.
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NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. NO
PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO SEND A PROXY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Information Statement/Prospectus is December ---, 1997.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION......................................................................................... 1
NOTE REGARDING FORWARD-LOOKING STATEMENTS..................................................................... 1
SUMMARY....................................................................................................... 2
The Distribution......................................................................................... 2
Agritope ................................................................................................ 6
Summary of Risk Factors.................................................................................. 6
Summary Financial Data................................................................................... 8
RISK FACTORS.................................................................................................. 10
INTRODUCTION.................................................................................................. 15
THE DISTRIBUTION.............................................................................................. 16
Reasons for the Distribution............................................................................. 16
Manner of Effecting the Distribution..................................................................... 17
Trading of Agritope Common............................................................................... 17
Certain Federal Income Tax Consequences.................................................................. 18
REGULATION S SALE............................................................................................. 21
SALE OF SERIES A CONVERTIBLE PREFERRED........................................................................ 21
RELATIONSHIP BETWEEN AGRITOPE AND EPITOPE AFTER THE DISTRIBUTION.............................................. 22
Separation Agreement..................................................................................... 22
Employee Benefits Agreement.............................................................................. 23
Tax Allocation Agreement................................................................................. 25
Transition Services Agreement............................................................................ 25
SELECTED FINANCIAL DATA....................................................................................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................... 28
Overview ................................................................................................ 28
Results of Operations.................................................................................... 29
Liquidity and Capital Resources.......................................................................... 30
Vinifera, Inc............................................................................................ 32
Results of Operations.................................................................................... 32
Liquidity and Capital Resources.......................................................................... 32
DESCRIPTION OF BUSINESS....................................................................................... 33
General ................................................................................................ 33
Agritope Biotechnology Program........................................................................... 33
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Commercialization Strategy............................................................................... 39
Grants and Contracts..................................................................................... 39
Vinifera ................................................................................................ 40
Competition.............................................................................................. 40
Government Regulation.................................................................................... 40
Patents and Proprietary Information...................................................................... 42
Personnel................................................................................................ 42
Scientific Advisory Board................................................................................ 43
Properties............................................................................................... 43
Legal Proceedings........................................................................................ 43
DIVIDEND POLICY............................................................................................... 44
TRANSFER AGENT................................................................................................ 44
MANAGEMENT.................................................................................................... 45
Directors and Executive Officers......................................................................... 45
Committees of the Board.................................................................................. 47
Compensation of Directors................................................................................ 48
Executive Compensation................................................................................... 48
Grants of Options to Purchase Agritope Common............................................................ 49
Aggregated Option Exercises in Last Fiscal Year and Outstanding Options for Agritope
Common.......................................................................................... 50
Employment; Change in Control Agreements................................................................. 50
1997 STOCK AWARD PLAN......................................................................................... 51
General ................................................................................................ 51
Purpose ................................................................................................ 51
Awards and Eligibility................................................................................... 51
New Options.............................................................................................. 51
Description of Terms of Awards........................................................................... 52
Federal Income Tax Consequences.......................................................................... 53
1997 EMPLOYEE STOCK PURCHASE PLAN............................................................................. 55
General ................................................................................................ 55
Purpose ................................................................................................ 55
Subscriptions............................................................................................ 55
Federal Income Tax Consequences.......................................................................... 56
EMPLOYEE STOCK OWNERSHIP PLAN................................................................................. 56
401(K) PROFIT SHARING PLAN.................................................................................... 57
CERTAIN TRANSACTIONS.......................................................................................... 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................ 58
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SHARES ELIGIBLE FOR FUTURE SALE............................................................................... 60
DESCRIPTION OF AGRITOPE CAPITAL STOCK......................................................................... 61
Agritope Common.......................................................................................... 61
Agritope Preferred....................................................................................... 61
Agritope Series A Convertible Preferred.................................................................. 62
Agritope Warrants........................................................................................ 63
Preemptive Rights........................................................................................ 63
Stockholder Rights Plan.................................................................................. 63
Other Anti-takeover Measures............................................................................. 64
Delaware Business Combinations Statute................................................................... 65
Indemnification of Directors and Officers; Limitation of Liability; Insurance............................ 65
LEGAL MATTERS................................................................................................. 66
EXPERTS....................................................................................................... 66
FINANCIAL STATEMENTS ........................................................................................ F-1
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AVAILABLE INFORMATION
After the Distribution of Agritope Common, Agritope will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Accordingly, Agritope will file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). You may read and copy the information
Agritope files without charge at the Commission's public reference rooms at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. You may also
obtain the information from commercial document retrieval services and at the
Internet web site maintained by the Commission at "http://www.sec.gov."
Agritope filed a Registration Statement on Form S-1 (together with all
amendments, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), to register Agritope Common with the Commission.
This Information Statement/Prospectus is part of the Registration Statement. As
allowed by Commission rules, this Information Statement/Prospectus omits some
information included in the Registration Statement. Statements contained in this
Information Statement/Prospectus about contracts or other exhibits to the
Registration Statement are not necessarily complete and are qualified by the
full text of the exhibits. You may read and copy the Registration Statement,
including the exhibits, as described above.
Agritope intends to distribute to shareholders annual reports containing
audited financial statements, but does not plan to furnish shareholders with
quarterly reports containing unaudited interim financial information for the
first three fiscal quarters of each fiscal year.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Information Statement/Prospectus about future events or
performance are "forward-looking statements." The forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results to be materially different from those expressed or implied by the
forward-looking statements. Certain of these factors are discussed in more
detail under the caption "Risk Factors" and elsewhere in this Information
Statement/Prospectus. Given these uncertainties, shareholders are cautioned not
to place undue reliance on the forward-looking statements. Agritope does not
intend to update any forward-looking statements.
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SUMMARY
This summary highlights certain information contained elsewhere in this
Information Statement/Prospectus. To better understand the Distribution and
Agritope, you should read this entire document, including the section "Risk
Factors" beginning on page 9. Capitalized terms used but not defined in this
summary have the meanings given elsewhere in this Information
Statement/Prospectus.
THE DISTRIBUTION
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DISTRIBUTING CORPORATION AND BUSINESS ....................... Epitope, Inc., an Oregon corporation. Epitope uses biotech-
nology to develop and market medical diagnostic products.
DISTRIBUTED CORPORATION AND
BUSINESS..................................................... Agritope, Inc., a Delaware corporation, currently a wholly
owned subsidiary of Epitope. Agritope is a biotechnology
company specializing in the development of new fruit and
vegetable plant varieties for sale to the fresh produce
industry. Agritope is also the majority owner of Vinifera,
which management believes offers one of the most technically
advanced grapevine plant propagation and disease screening
and elimination programs available to the wine and table
grape production industry. See "Summary--Agritope" and
"Description of Business."
FINANCING OF AGRITOPE ....................................... In order to finance the operations of Agritope after the
Distribution, Agritope has entered into agreements for the
sale of 1,343,704 shares of Agritope Common at a price of $7
per share in the Regulation S Sale for an aggregate price of
$9.4 million. Agritope expects to receive proceeds of the
Regulation S Sale immediately following the Distribution.
The Epitope Board believes that the funds raised in the
Regulation S Sale are sufficient to finance the operations
of Agritope as a separate business for a period of not less
than two years following the Distribution, although no
assurance to that effect can be given. See "Risk
Factors--Need for Additional Funds." In connection with a
research and development collaboration, Agritope and
Vilmorin, an affiliate of Groupe Limagrain, have entered
into an agreement for the sale under Regulation S of 214,285
shares of Series A Convertible Preferred at a price of $7
per share for an aggregate purchase price of $1.5 million.
Agritope could not operate as an independent entity without
the financing to be raised in the Regulation S Sale. See
"Regulation S Sale" and "Sale of Series A Convertible
Preferred."
DISTRIBUTION RATIO........................................... Each Epitope shareholder will receive one share of Agritope
Common for every five shares of Epitope Stock held as of the
Record Date.
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RECORD DATE.................................................. Close of business on December ---, 1997.
DISTRIBUTION DATE............................................ December 30, 1997.
DISTRIBUTION AGENT........................................... ChaseMellon Shareholder Services, L.L.C.
MAILING OF STOCK CERTIFICATES ............................... Certificates representing shares of Agritope Common issued
in the Distribution will be mailed as soon as practicable
after the Distribution Date.
SHARES TO BE DISTRIBUTED..................................... An aggregate of approximately 2.7 million shares of Agritope
Common will be issued in the Distribution. Following the
Distribution, the Regulation S Sale and the Preferred Stock
Sale, approximately 4.2 million shares of Agritope voting
stock will be outstanding, and shares distributed to Epitope
shareholders in the Distribution will represent between 53
and 63 percent of Agritope voting stock outstanding,
depending on the extent to which the Series A Option is
exercised.
FRACTIONAL SHARE INTERESTS................................... Fractional shares of Agritope Common will not be issued in
the Distribution. If the number of shares of Agritope Common
to be issued to any record holder of Epitope Stock includes
a fraction of a share, Epitope will pay an amount in cash
for the fractional share. See "The Distribution--Manner of
Effecting the Distribution."
TRADING MARKET............................................... Agritope has applied to include Agritope Common for
quotation on The Nasdaq SmallCap Market under the symbol
"AGTO." There is currently no public market for Agritope
Common. There can be no assurance that an active trading
market in shares of Agritope Common will develop after the
Distribution. See "The Distribution--Trading of Agritope
Common" and "Risk Factors--No Assurance as to Market
Performance of Agritope Common."
PRIMARY PURPOSES OF THE DISTRIBUTION......................... The primary purpose of the Distribution is to enable
Agritope to raise immediately needed working capital through
the sale of its own equity securities. The Distribution also
is intended to permit Epitope and Agritope each to (i) adopt
strategies and pursue objectives appropriate to its specific
business; (ii) enable management to concentrate attention
and financial resources on its core business; (iii) make
acquisitions and enter into transactions with strategic
partners by issuing its own equity securities; (iv)
implement incentive compensation arrangements that are more
directly based on results of operations of its separate
business; and (v) be recognized and evaluated by the
financial community as a separate and distinct business. See
"The Distribution--Reasons for the Distribution."
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TAX CONSEQUENCES............................................. Epitope has received an opinion of counsel that the
Distribution will be treated as a tax free transaction to
Epitope's shareholders, with the exception of shareholders
who received their shares of Epitope Stock as compensation,
who are not U.S. citizens or residents, or who are otherwise
subject to special tax treatment. Epitope has not applied,
and does not intend to apply, for a ruling from the Internal
Revenue Service to that effect. See "The
Distribution--Certain Federal Income Tax Consequences."
RELATIONSHIP WITH EPITOPE
AFTER THE DISTRIBUTION ...................................... Following the Distribution, Epitope will not own any shares
of Agritope's capital stock, and Epitope and Agritope will
be operated as independent public companies. Epitope will
not make financing of any kind available to Agritope after
the Distribution. Epitope and Agritope will, however,
continue to have a relationship as a result of agreements
they have entered into in connection with the Distribution,
which include a Separation Agreement, an Employee Benefits
Agreement, a Tax Allocation Agreement and a Transition
Services and Facilities Agreement (the "Transition Services
Agreement"). In addition, two individuals will continue to
serve as directors of both Agritope and Epitope after the
Distribution. Except as set forth in the agreements listed
above or as otherwise described in this Information
Statement/Prospectus, Epitope and Agritope will cease to
have any material relationship with each other following the
Distribution. See "Relationship Between Agritope and Epitope
After the Distribution" and "Management--Directors and
Executive Officers."
CERTAIN ANTI-TAKEOVER
CONSIDERATIONS............................................... Certain provisions of Agritope's Certificate of
Incorporation and Bylaws and of Delaware law could make it
more difficult for a party to acquire, or discourage a party
from attempting to acquire, control of Agritope without
approval of the Agritope board of directors (the "Agritope
Board"). Agritope has adopted a Stockholder Rights Plan (the
"Rights Agreement") designed to protect Agritope and its
stockholders from inequitable offers to acquire Agritope. In
addition, Agritope's Certificate of Incorporation and Bylaws
contain certain provisions designed to deter changes in the
composition of the Agritope Board, and to allow the Agritope
Board to issue Agritope Preferred and Agritope Common
without stockholder approval. Each of these provisions may
discourage tender offers or other bids for Agritope Common.
See "Risk Factors--Anti-takeover Considerations" and
"Description of Agritope Capital Stock."
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DIVIDEND POLICY ............................................. Agritope does not anticipate paying dividends in the
foreseeable future.
REGULATION S SALE ........................................... Agritope has entered into agreements for the sale of
1,343,704 shares of Agritope Common in the Regulation S Sale
at a price of $7 per share for an aggregate price of $9.4
million, expected to be received immediately following the
Distribution. Subscribers in the Regulation S Sale have
deposited the purchase price for their shares of Agritope
Common in an escrow account pending the completion of the
Distribution and the closing of the Regulation S Sale.
Shares sold in the Regulation S Sale will represent between
27 percent and 32 percent of the Agritope voting stock
outstanding following the Distribution, depending upon the
extent to which the Series A Option is exercised. See
"Regulation S Sale."
SALE OF SERIES A CONVERTIBLE PREFERRED....................... Agritope has designated 1 million shares of Agritope
Preferred as Series A Convertible Preferred. In connection
with a research and development collaboration, Agritope and
Vilmorin have entered into an agreement for the sale under
Regulation S of 214,285 shares of Series A Convertible
Preferred at a price of $7 per share for an aggregate
purchase price of $1.5 million. See "Risk
Factors--Dependence on Strategic Partners," "Sale of Series
A Convertible Preferred," and "Description of
Business--Agritope Biotechnology Program--Vegetable and
Flower Crops." Agritope expects to receive the proceeds from
the Preferred Stock Sale three business days following the
Distribution Date. In addition, Agritope has granted
Vilmorin the Series A Option, exercisable by Vilmorin or its
designees and expiring January 15, 1998, to purchase up to
785,715 additional shares of Series A Convertible Preferred
at a price of $7 per share. Vilmorin will own 5 percent of
the outstanding Agritope voting stock following the closing
of the Preferred Stock Sale and will own 19.9 percent of the
outstanding Agritope voting stock if it exercises the Series
A Option in full. Series A Convertible Preferred has
preemptive rights and the right to elect a director, but
otherwise has rights substantially equivalent to Agritope
Common and is convertible at any time into shares of
Agritope Common on a share-for-share basis, subject to
adjustment upon the occurrence of certain events. Holders of
Series A Convertible Preferred will vote on an "as
converted" basis with holders of Agritope Common. See
"Description of Agritope Capital Stock--Agritope Series A
Convertible Preferred."
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AGRITOPE
Agritope is a biotechnology company specializing in the development of
new fruit and vegetable plant varieties for sale to the fresh produce industry.
The Company is utilizing its patented ethylene control technology to develop a
wide variety of fruits and vegetables that are resistant to the decaying effects
of ethylene. The Company also recently acquired certain rights to certain
proprietary genes from the Salk Institute for Biological Studies (the "Salk
Genes"). Agritope believes that the Salk Genes may have the potential to confer
disease resistance, enhance crop yield, control flowering and enhance gene
expression in plants. Agritope has an option to obtain a worldwide license to
use the Salk Genes in a wide range of fruit and vegetable species.
The Company consists of two units: Agritope Research and Development
and Vinifera. Agritope Research and Development provides biotechnology and
product development capabilities to strategic partners and provides disease
screening and elimination programs to its Vinifera subsidiary. Through Vinifera,
Agritope offers what management believes to be one of the most technically
advanced grapevine plant propagation and disease screening and elimination
programs available to the wine and table grape production industry. Because
Agritope has not achieved commercialization of any of its products, the majority
of its revenues, to date, have resulted from operations of Vinifera.
Agritope has had a history of significant operating losses. Its
accumulated deficit was $41.2 million as of September 30, 1997.
Agritope was formed under Oregon law in 1987. On December 3, 1997,
Agritope was reincorporated under Delaware law by means of a merger of the
Oregon corporation into Agritope, Inc., a newly formed Delaware corporation,
with the Delaware corporation as the surviving entity.
Agritope's principal offices are located at 8505 S.W. Creekside Place,
Beaverton, Oregon 97008. Its telephone number is (503) 641-6115.
SUMMARY OF RISK FACTORS
The following is a summary of certain of the risk factors that Epitope
shareholders who will receive Agritope Common in the Distribution should
carefully consider, together with other information presented elsewhere in this
Information Statement/Prospectus. See "Risk Factors."
No Operating History as an Independent Company. Since 1987, Agritope
has operated as a wholly owned subsidiary of Epitope. Therefore, it does not
have a recent operating history as an independent company. After December 1,
1997, Epitope will not provide any additional operating capital to Agritope,
other than advances to be repaid by Agritope when the Distribution is completed,
and will provide only the limited administrative and other support provided for
in the Transition Services Agreement. Agritope is required to repay any amounts
advanced by Epitope to Agritope between December 1, 1997, and the Distribution.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of September
30, 1997, had an accumulated deficit of approximately $41.2 million. Agritope
may continue to experience significant operating losses as it continues its
research and development programs. Agritope's ability to increase revenues and
achieve profitability and positive cash flows from operations will depend in
part on successful completion of the development and commercialization of its
genetically engineered products, as to which there can be no assurance. Agritope
has not at this time achieved commercialization of any of its products.
- 6 -
<PAGE>
Need for Additional Funds. The Distribution was conditioned upon a
determination by the Epitope Board that funds from the Regulation S Sale to be
completed immediately following the Distribution will be sufficient to finance
the operations of Agritope as a separate business for at least two years. There
can be no assurance that the determination of Agritope's anticipated cash
requirements will prove to be accurate. The Company's actual capital
requirements will depend on numerous factors, many of which are difficult to
predict. The majority of Agritope's financial requirements to date have been met
by Epitope. Agritope had an accumulated intercompany balance due to Epitope of
approximately $49.0 million as of December 1, 1997, substantially all of which
will be canceled as part of the Distribution. Epitope will not provide
additional financial support following the Distribution, other than advances to
be reimbursed by Agritope when the Distribution is completed. Agritope is
required to repay any amounts advanced by Epitope to Agritope between December
1, 1997 and the Distribution. Agritope may seek or be required to raise
substantial additional funds through public or private financings, collaborative
relationships or other arrangements. There can be no assurance that financing
will be available on satisfactory terms, if at all. Additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve
significant interest expense and restrictive covenants.
Dependence on Strategic Partners. Agritope relies on strategic partners
for access to proprietary plant varieties. In addition, Agritope does not have
or plan to have the capability to grow and distribute genetically engineered
products in commercial quantities. Agritope expects some or all of the
development, manufacturing and marketing of certain of its products to be
performed or paid for by other parties, primarily agricultural companies,
through license agreements, joint ventures or other arrangements. There can be
no assurance that Agritope will be able to maintain its current strategic
relationships or establish additional relationships or that such relationships
will be successful.
Uncertainties Relating to Patents and Proprietary Information. Agritope
has obtained certain patents, has licensed rights under other patents, and has
filed a number of patent applications. Agritope anticipates filing patent
applications for protection of future products and technology. There can be no
assurance that patents applied for will be obtained, that existing patents to
which Agritope has rights will not be challenged, or that the issuance of a
patent will give Agritope any material advantage over its competitors in
connection with any of its products. Competitors may be able to produce products
competing with a patented Agritope product without infringing on Agritope's
patent rights.
Dependence on Key Personnel. Agritope depends to a large extent on the
abilities and continued participation of its principal executive officers and
scientific personnel. The loss of key personnel could have a material adverse
effect on Agritope's business and results of operations.
Technological Change and Competition. A number of companies are engaged
in research related to plant biotechnology, including other companies that rely
on the use of recombinant DNA as a principal scientific strategy. Technological
advances by others could render Agritope's technologies less competitive or
obsolete. Competition in the fresh produce market is intense and is expected to
increase as additional companies introduce products with longer shelf life and
improved quality. There can be no assurance that such competition will not have
an adverse effect on Agritope's business and results of operations.
Limited Marketability of Agritope Common. Agritope has applied to have
Agritope Common approved for quotation on The Nasdaq SmallCap Market, beginning
on or after the Record Date. Prior to the Distribution, there has been no public
market for Agritope Common. There can be no assurance that an active trading
market will develop upon completion of the Distribution or, if it does develop,
that the market will be sustained. The relatively small number of publicly
traded shares of Agritope Common may result in a market in such shares that
lacks liquidity. Also, the market price of Agritope Common could be vulnerable
to significant fluctuations in response to variations in actual and anticipated
operating results, lack of liquidity, failure by the Company to achieve its
growth plans and other events affecting the Company, its competitors or its
industry sector. The market for securities of small market capitalization
companies has been highly volatile in recent years, often as a result of factors
unrelated to their operations.
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<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
The following table presents summary financial data of Agritope and its
subsidiaries. The balance sheet data at September 30, 1997, and 1996 and the
operating results data for the years ended September 30, 1997, 1996, and 1995
have been derived from audited consolidated financial statements and notes
thereto included in this Information Statement/Prospectus. This information
should be read in conjunction with Agritope's consolidated financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
YEAR ENDED SEPTEMBER 30
1997 1996 1995(1)
CONSOLIDATED OPERATING RESULTS (2)
<S> <C> <C> <C>
Revenues......................................... $ 1,551 $ 585 $2,110
Operating costs and expenses..................... 6,089 2,821 9,920
Other expense, net............................... (4,153)(3) (265) (235)
Net loss......................................... (8,691) (2,501) (8,045)
Pro forma net loss per share (4)................. (3.23) ( .93) (2.99)
Pro forma shares used in
per share calculations (4)..................... 2,691 2,691 2,691
SEPTEMBER 30
1997 1996
As adjusted (5)
pro forma Actual
(unaudited)
CONSOLIDATED BALANCE SHEET
Working capital (deficiency)..................... $11,740 $ 1,659 $(3,163)
Total assets..................................... 17,366 7,285 5,670
Long-term debt................................... 15 15 -
Convertible notes, due 1997...................... - - 3,620
Accumulated deficit.............................. (41,168) (41,168) (32,478)
Shareholder's equity............................. 14,844 4,763 1,008
</TABLE>
(1) Data for 1995 includes revenues of $2.0 million and operating losses of
$3.8 million, attributable to business units which were divested. See
Note 3 to consolidated financial statements.
(2) For additional pro forma financial information relating to Vinifera's
operating results during the period it was divested, see Selected
Financial Data. See also Note 3 to consolidated financial statements.
(3) Includes non-cash charges of $2.3 million, reflecting the permanent
impairment in the value of Agritope's investment in affiliated
companies, and $1.2 million for the conversion of Agritope convertible
notes into Epitope Stock at a reduced price. See Notes 3 and 5 to
consolidated financial statements.
(4) Net loss per share is presented on a pro forma basis assuming that the
Distribution of Agritope Common pursuant to the Agritope spin-off had
occurred on October 1, 1994. Pro forma calculations exclude shares to
be issued in the Regulation S Sale, the Preferred Stock Sale, and upon
the exercise of the Series A Option. See Note 11 to Consolidated
Financial Statements.
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<PAGE>
(5) The capitalization of Agritope as adjusted reflects the effects of the
Regulation S Sale of 1,343,704 shares of Agritope Common and the sale
of 214,285 shares of Series A Convertible Preferred for aggregate
proceeds of $10.9 million, less issuance costs of $825,000.
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<PAGE>
RISK FACTORS
Epitope shareholders who will receive Agritope Common in the
Distribution should carefully consider the following risk factors, as well as
the other information provided elsewhere in this Information
Statement/Prospectus.
No Operating History as an Independent Company. Since 1987, Agritope
has operated as a wholly owned subsidiary of Epitope. Therefore, it does not
have a recent operating history as an independent company. After December 1,
1997, Epitope will not provide any additional operating capital to Agritope,
other than advances to be repaid by Agritope when the Distribution is completed,
and will provide only the limited administrative and other support provided for
in the Transition Services Agreement. Agritope is required to repay any amounts
advanced by Epitope to Agritope between December 1, 1997, and the Distribution.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of September
30, 1997, had an accumulated deficit of $41.2 million. Agritope may continue to
experience significant operating losses as it continues its research and
development programs. Agritope's ability to increase revenues and achieve
profitability and positive cash flows from operations will depend in part on
successful completion of the development and commercialization of its
genetically engineered products. See "Risk Factors--Dependence on Strategic
Partners." Agritope has not at this time achieved commercialization of any of
its products. There can be no assurance that Agritope's development efforts will
result in commercially viable genetically engineered products, that Agritope's
products will obtain required regulatory clearances or approvals or that any
such products will achieve a significant level of market acceptance. As such,
there can be no assurance that Agritope will ever achieve profitability.
Need for Additional Funds. The Distribution was conditioned upon a
determination by the Epitope Board that funds from the Regulation S Sale to be
completed immediately following the Distribution will be sufficient to finance
the operations of Agritope as a separate business for at least two years.
Subscribers in the Regulation S Sale have agreed to purchase a total of $9.4
million of Agritope Common and have deposited the purchase price in an escrow
account, pending the closing of the Regulation S Sale. The Preferred Stock Sale
will generate an additional $1.5 million in proceeds, excluding proceeds from
the exercise of the Series A Option, if any. There can be no assurance that the
determination of Agritope's anticipated cash requirements will prove to be
accurate. Historically, the majority of Agritope's financial requirements have
been met by Epitope. Agritope has also received funding from $5.4 million
principal amount of convertible notes, $1.6 million in investments in Vinifera
by minority shareholders, and $1.0 million of funding from strategic partners
and other research grants. Agritope had an accumulated intercompany balance due
to Epitope of approximately $49.0 million as of December 1, 1997, substantially
all of which will be canceled as part of the Distribution. After December 1,
1997, Epitope will not provide any financial support to Agritope, except
advances to be repaid by Agritope when the Distribution is completed. The actual
future liquidity and capital requirements of Agritope will depend on numerous
factors, including: the costs and success of development efforts; the costs and
timing of establishment of sales and marketing activities; the success of its
current strategic collaborations; the success of Agritope in securing additional
strategic partners; the extent to which existing and new products gain market
acceptance; competing technological and market developments; product sales and
royalties; the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights;
and the availability of third party funding for research projects. In any event,
Agritope may seek or be required to raise substantial additional funds through
public or private financings, collaborative relationships or other arrangements.
There can be no assurance that financing will be available on satisfactory
terms, if at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve significant interest
expense and restrictive covenants. In addition, subsequent changes in ownership
due to future equity sales could adversely affect Agritope's ability to utilize
existing net operating losses. See Note 7 to consolidated financial statements.
Collaborative arrangements, if necessary to raise additional funds, may require
that Agritope relinquish its rights to certain of its technologies, products or
marketing territories. The failure of Agritope to raise capital could require it
to scale
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<PAGE>
back, delay or eliminate certain of its programs and would have a material
adverse effect on its business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Strategic Partners. Agritope relies on strategic partners
for access to proprietary plant varieties. In addition, Agritope does not have
or plan to have the capability to grow and distribute genetically engineered
products in commercial quantities. Agritope expects some or all of the
development, manufacturing and marketing of certain of its products to be
performed or paid for by other parties, primarily agricultural companies,
through license agreements, joint ventures or other arrangements. Agritope has
entered into several such arrangements. Agritope and Vilmorin have entered into
a collaborative research and development arrangement. See "Sale of Series A
Preferred Stock" and "Description of Business--Agritope Biotechnology
Program--Vegetable and Flower Crops." The Company has also entered agreements
with Sweetbriar Development, Inc.; Harris Moran Seed Company, an affiliate
company of Groupe Limagrain; and Sunseeds Company. Commercialization of
Agritope's products will require the assistance of Agritope's current strategic
partners and may require that Agritope enter additional strategic partnerships
with businesses experienced in the breeding, developing, producing, marketing
and distributing of produce varieties. Agritope's future revenues will be
dependent on the success of products developed pursuant to such collaborative
relationships. There can be no assurance that Agritope will be able to establish
additional strategic relationships or maintain its current strategic
relationships or that such relationships will be on terms sufficiently favorable
to permit Agritope to operate profitably. Furthermore, conflicts may arise
between the Company and its partners or among these third parties that could
discourage them from working cooperatively with the Company. Agritope's
commercial success will be dependent in part upon the performance of its
strategic partners. See "Description of Business."
Uncertainties Relating to Patents and Proprietary Information. Agritope
has obtained certain patents, has license rights under other patents, and has
filed a number of patent applications. Agritope anticipates filing patent
applications for protection of future products and technology. There can be no
assurance that patents applied for will be obtained, that existing patents to
which Agritope has rights will not be challenged, or that the issuance of a
patent will give Agritope any material advantage over its competitors in
connection with any of its products. Competitors may be able to produce products
competing with a patented Agritope product without infringing on Agritope's
patent rights. The issuance of a patent to Agritope or to a licensor is not
conclusive as to validity or as to the enforceable scope of claims therein. The
validity and enforceability of a patent can be challenged by litigation after
its issuance and, if the outcome of the litigation is adverse to the owner of
the patent, the owner's rights could be diminished or withdrawn.
The patent laws of other countries may differ from those of the U.S. as
to the patentability of Agritope's products and processes. Moreover, the degree
of protection afforded by foreign patents may be different from that of U.S.
patents.
The technologies used by Agritope may infringe the patents or
proprietary technology of others. The cost of enforcing Agritope's patent rights
in lawsuits that Agritope may bring against infringers or of defending itself
against infringement charges by other patent holders may be high and could
interfere with Agritope's operations.
Trade secrets and confidential know-how are important to Agritope's
scientific and commercial success. Although Agritope seeks to protect its
proprietary information through confidentiality agreements and appropriate
contractual provisions, there can be no assurance that others will not develop
independently the same or similar information or gain access to proprietary
information of Agritope. See "Description of Business--Patents and Proprietary
Information."
Dependence on Key Personnel. Agritope depends to a large extent on the
abilities and continued participation of its principal executive officers and
scientific personnel. The loss of key personnel could have a material adverse
effect on Agritope's business and results of operations. Agritope's key
personnel include, among
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<PAGE>
others, the individuals identified under "Management." Competition for
management and scientific staff in the agricultural biotechnology field is
intense. No assurance can be given that Agritope will be able to continue to
attract and retain personnel with sufficient experience and expertise to satisfy
its needs.
Limited Marketability of Agritope Common. Agritope has applied to have
Agritope Common approved for quotation on The Nasdaq SmallCap Market, beginning
on or after the Record Date. Prior to the Distribution, there has been no public
market for Agritope Common. There can be no assurance that an active trading
market will develop upon completion of the Distribution or, if it does develop,
that the market will be sustained. The relatively small number of publicly
traded shares may result in a market in shares of Agritope Common that lacks
liquidity. Also, the market price of Agritope Common could be vulnerable to
significant fluctuations in response to variations in actual and anticipated
operating results, lack of liquidity, failure by the Company to achieve its
growth plans and other events affecting the Company, its competitors, or its
industry sector. The market for securities of small market capitalization
companies has been highly volatile in recent years, often as a result of factors
unrelated to their operations.
Uncertainty of Product Development. Agritope's genetically engineered
products are at various stages of development. There are difficult scientific
objectives to be achieved in certain product development programs before the
technological or commercial feasibility of the products can be demonstrated.
Even the more advanced programs could encounter technological problems that may
significantly delay or prevent product development or product introduction. See
"Description of Business." There can be no assurance that any of Agritope's
products under development, if and when fully developed and tested, will perform
in accordance with Agritope's expectations, that necessary regulatory approvals
will be obtained in a timely manner, if at all, or that these products can be
successfully and profitably produced, distributed and sold.
Terms for Commercialization of Certain Vegetable and Flower Crops.
Under the terms of the research and development agreement between Agritope and
Vilmorin (the "Vilmorin Research Agreement"), the terms of agreements for
commercializing any covered vegetable and flower crops resulting from Agritope
research funded by Vilmorin are to be determined by "baseball" style arbitration
if the parties are unable to reach agreement. In this style of arbitration, the
arbitrator must choose all terms proposed by one party or the other, without
modification or compromise. Although "baseball" style arbitration is intended to
encourage the parties to make reasonable offers and to compromise their
differences, there can be no assurance that it will do so. Accordingly, Agritope
may not control the terms on which some of its research will be commercialized,
and there can be no assurance that the terms selected by an arbitrator will be
favorable to Agritope or allow it to operate profitably.
Technological Change and Competition. A number of companies are engaged
in research related to plant biotechnology, including other companies that rely
on the use of recombinant DNA as a principal scientific strategy. Technological
advances by others could render Agritope's technologies less competitive or
obsolete. Agritope believes that, despite barriers to new competitors such as
patent positions and substantial research and development lead time, competition
will intensify, particularly from agricultural biotechnology firms and major
agrichemical, seed and food companies with biotechnology laboratories.
Competition in the fresh produce market is intense and is expected to increase
as additional companies introduce products with longer shelf life and improved
quality. Many of Agritope's competitors have substantially greater financial,
technical and marketing resources than Agritope. There can be no assurance that
such competition will not have an adverse effect on Agritope's business,
financial condition and results of operations. See "Description of
Business--Competition."
Need for Public Acceptance of Genetically Engineered Products. The
commercial success of Agritope's genetically engineered products will depend in
part on public acceptance of the cultivation and consumption of genetically
engineered plants and plant products. Public attitudes may be influenced by
claims that genetically engineered plant products are unsafe for consumption or
pose a danger to the environment. There can be no assurance that Agritope's
genetically engineered products will gain public acceptance.
- 12 -
<PAGE>
Product Liability and Recall Risk. Agritope could be subject to claims
for personal injury or other damages resulting from its products or services or
product recalls. Agritope carries liability insurance against the negligent acts
of certain of its employees and a general liability insurance policy that
includes coverage for product liability, but not for product recall. In
addition, Agritope may require increased product liability coverage as its
products are commercially developed. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. Also, no assurance
can be given that any product liability claim or product recall will not have a
material adverse effect on Agritope's business, financial condition and results
of operations.
Government Regulation. Many of Agritope's products and activities are
subject to regulation by various local, state, and federal regulatory
authorities in the U.S. and by governmental authorities in foreign countries
where its products may be marketed. Agritope is devoting substantial effort to
the development of genetically engineered plants, using recombinant DNA methods.
Many of Agritope's proposed agricultural products are subject to regulation by
both the U.S. Department of Agriculture ("USDA") and the Food and Drug
Administration ("FDA") and may be subject to regulation by the Environmental
Protection Agency ("EPA") and other federal, state, local and foreign
authorities. The extent of regulation depends on the intended uses of the
products, how they are derived, and how applicable statutes and regulations are
interpreted to apply to new genetic technologies and products thereof. The
regulatory approaches of the USDA, FDA, EPA and other agencies are still
evolving with respect to products of modern biotechnology, such as those derived
from the use of recombinant DNA methods. No assurance can be given that any
regulatory approvals, exemptions, permits or other clearances, if required, can
be obtained in a timely manner, if at all, either for research or commercial
activities. See "Description of Business--Government Regulation."
No Assurance as to Market Performance of Agritope Common. There can be
no assurance that the combined market values of the Epitope Stock and the
Agritope Common held by a shareholder after the Distribution will equal or
exceed the market value of the Epitope Stock held by the shareholder prior to
the Distribution Date. The trading price of Agritope Common may also be subject
to significant fluctuations. The market prices for securities of agricultural
biotechnology companies historically have been volatile. Many factors such as
announcements of technological innovations or new commercial products by
Agritope or its competitors, governmental regulation, patent or proprietary
rights developments, industry alliances, public concern as to the safety or
other implications of products, and market conditions in general may have a
significant impact on the market price of Agritope Common. In addition, broad
market fluctuations and general economic conditions may adversely affect the
market price of Agritope Common.
Agritope has applied to include Agritope Common for quotation on The
Nasdaq SmallCap Market. In order to maintain its listing on The Nasdaq SmallCap
Market, Agritope will be required to comply with certain Nasdaq listing
maintenance standards including minimum tangible asset value amounts, public
float requirements and minimum stock price amounts. There can be no assurance
that Agritope will be able to comply with the listing maintenance standards of
The Nasdaq SmallCap Market as in effect from time to time.
Possibility of Substantial Sales of Agritope Common. Any sales of
substantial amounts of Agritope Common in the public market, or the perception
that such sales might occur, whether as a result of the Distribution or
otherwise, could materially adversely affect the market price of Agritope
Common. See "The Distribution-- Trading of Agritope Common" and "Shares Eligible
for Future Sale."
Agreements with Epitope; Lack of Arm's-length Negotiations. In
contemplation of the Distribution, Agritope has entered into a number of
agreements with Epitope, including a Separation Agreement, an Employee Benefits
Agreement, a Tax Allocation Agreement, and a Transition Services Agreement, for
the purpose of defining its ongoing relationship with Epitope. Although these
agreements were not the result of arm's-length negotiations between independent
parties, Agritope believes such agreements contain terms comparable to those
that would have
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<PAGE>
resulted from negotiations between unaffiliated parties. There can be no
assurance, however, that the terms of the agreements are in fact comparable to
those that would have been negotiated on an arm's-length basis. See
"Relationship Between Agritope and Epitope After the Distribution."
Anti-takeover Considerations. Agritope's Certificate of Incorporation
and Bylaws may have the effect of making an acquisition of control of Agritope
in a transaction not approved by the Agritope Board more difficult. For example,
the Certificate of Incorporation and Bylaws provide for a classified board,
prohibit the removal of directors except for "cause," limit the ability of the
stockholders and directors to change the size of the board, and require advance
notice before stockholders are permitted to nominate directors or submit other
proposals at stockholder meetings. The Agritope Board has also adopted the
Rights Agreement. In addition, subject to limitations prescribed by Delaware
law, the Agritope Board has the authority to issue up to 10 million shares of
Agritope Preferred and to fix the rights, preferences, privileges and
restrictions of those shares, and to issue up to a total of 30 million shares of
Agritope Common, all without any vote or action by Agritope's stockholders,
except as may be required by law or any stock exchange or automated securities
interdealer quotation system on which Agritope Common may be listed or quoted.
Agritope is also subject to Delaware statutory provisions governing business
combinations with persons deemed to be "interested stockholders." See
"Description of Agritope Capital Stock." Finally, awards made under the 1997
Stock Award Plan may vest in full immediately in the event of a change in
control of Agritope or similar event. See "1997 Stock Award Plan." The potential
issuance of additional shares of Agritope capital stock and other considerations
referenced above may have the effect of delaying or preventing a change in
control of Agritope, may discourage offers for Agritope Common, and may
adversely affect the market price of, and the voting and other rights of the
holders of, Agritope Common.
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<PAGE>
INTRODUCTION
On --------------------, 1997, the Epitope Board authorized management
to proceed with the distribution to Epitope shareholders of all the Agritope
Common held by Epitope. The Distribution will be made to holders of record of
Epitope Stock at the close of business on the Record Date, in the ratio of one
share of Agritope Common for every five shares of Epitope Stock held.
Shareholders will receive cash in lieu of any fractional shares. Epitope
shareholders participating in the Distribution will not be required to surrender
or exchange shares or pay any consideration for the Agritope Common. After the
Distribution, Agritope will cease to be a subsidiary of Epitope and will operate
as an independent public company.
Agritope will sell 1,343,704 shares of Agritope Common in the
Regulation S Sale and 214,285 shares of the Series A Convertible Preferred in
the Preferred Stock Sale, for an aggregate price of $10.9 million, immediately
following the Distribution. The Epitope Board believes that the proceeds of the
Regulation S Sale are sufficient to finance the operations of Agritope as a
separate business for a period of not less than two years, although no assurance
to that effect can be given. Agritope could not operate as an independent entity
without the financing to be raised in the Regulation S Sale. See "Risk
Factors--Need for Additional Financing."
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred. See "Description of Agritope Capital
Stock--Series A Convertible Preferred Stock." In connection with a research and
development collaboration between Agritope and Vilmorin, Agritope has entered
into an agreement for the sale of 214,285 shares of the Series A Convertible
Preferred to Vilmorin, an affiliate of Groupe Limagrain, for an aggregate
purchase price of $1.5 million. See "Sale of Series A Convertible Preferred" and
"Description of Business--Agritope Biotechnology Program--Vegetable and Flower
Crops." In addition, Agritope has granted Vilmorin the Series A Option,
exercisable by Vilmorin or its designees and expiring January 15, 1998, to
purchase up to 785,715 additional shares of Series A Convertible Preferred at a
price of $7 per share. Series A Convertible Preferred has preemptive rights and
the right to elect a director, but otherwise has rights substantially equivalent
to Agritope Common and is convertible at any time into shares of Agritope Common
on a share-for-share basis, subject to adjustment upon occurrence of certain
events. Holders of Series A Convertible Preferred will vote on an "as converted"
basis with holders of Agritope Common.
After giving effect to the Regulation S Sale, the Preferred Stock Sale
and the Distribution, the shares of Agritope Common distributed to Epitope
shareholders in the Distribution will represent between 53 and 63 percent of all
Agritope voting stock outstanding following the Distribution, depending on the
extent to which the Series A Option is exercised. Shares issued in the
Regulation S Sale will represent between 27 percent and 32 percent of Agritope
voting stock outstanding, depending on the extent to which the Series A Option
is exercised.
Agritope will operate separately from Epitope after the Distribution,
but has entered into various agreements with Epitope, including a Separation
Agreement, an Employee Benefits Agreement, a Tax Allocation Agreement, and a
Transition Services Agreement, to facilitate Agritope's transition to
independent operation. In connection with the Transition Services Agreement,
Epitope has agreed to provide office and laboratory facilities and accounting
and human resources services to Agritope for approximately 3 months following
the Distribution. Agritope has leased new office and laboratory facilities under
a lease commencing March 1, 1998. See "Description of Business--Properties."
Epitope's and Agritope's executive offices are at 8505 S.W. Creekside
Place, Beaverton, Oregon 97008, telephone (503) 641-6115. Epitope shareholders
with questions about the Distribution should contact Mary W. Hagen, Investor
Relations Department, at the address or telephone number above. After the
Distribution Date, Agritope stockholders with questions about Agritope or
Agritope Common should contact Gilbert N. Miller, Secretary, at Agritope's
executive offices.
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<PAGE>
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
In July 1997, the Epitope Board approved a management proposal to spin
off Agritope, subject to obtaining financing for Agritope and satisfaction of
certain other considerations. The proposal resulted from the Epitope Board's
1996 decision to make changes in corporate structure to enable investors and
management to focus separately on the agricultural and medical products business
units of Epitope.
In November 1996, the Epitope Board proposed creating two separate
classes of Epitope common stock, one to reflect the business and operations of
Epitope and the other to reflect the business and operations of Agritope (the
"Targeted Stock Proposal"). In addition, in December 1996, Epitope acquired
Andrew and Williamson Sales, Co. ("A&W"), a producer and distributor of fruits
and vegetables, as a direct wholly owned subsidiary of Epitope. In May 1997,
prior to a shareholder vote on the Targeted Stock Proposal, the Epitope Board
rescinded its acquisition of A&W and withdrew the Targeted Stock Proposal in
light of events surrounding a Hepatitis A outbreak allegedly associated with
strawberries shipped by A&W prior to its acquisition by Epitope. The potential
liabilities arising out of the outbreak convinced the Epitope Board that a
targeted stock structure presented too great a risk that liabilities of one
business unit could affect the other. In addition, the rescission and events
related to the Hepatitis A outbreak increased pressure on Epitope's available
capital and decreased the funds available for Agritope's operations. The Epitope
Board believed that in light of uncertainties surrounding the outbreak and
subsequent rescission of the purchase of A&W, raising the funds necessary to
fund the operations of both Epitope and Agritope on terms acceptable to Epitope
was unlikely. The Epitope Board ultimately concluded that, in light of the
different risks, operating environments, stages of development and respective
financing requirements of the medical products and agricultural biotechnology
businesses and the current need to raise substantial capital for Agritope, a
complete separation of the two businesses was in the best interests of Epitope
and its shareholders.
The primary purpose of the Distribution is to allow Agritope to raise
immediately needed working capital through the sale of its own equity
securities. See "Regulation S Sale" and "Sale of Series A Preferred." Agritope's
history of operating losses is expected to continue, giving rise to a need for
additional capital that cannot be satisfied in Epitope's current corporate
structure. The Regulation S Sale and the sale of Series A Preferred can only be
accomplished if Agritope becomes an independent public company. The Epitope
Board considered certain disadvantages of a spin-off as compared to a targeted
stock structure, such as a loss of efficiencies gained by sharing a common
administrative framework and management team and a loss of synergies in the two
companies' research and development programs but determined that such
disadvantages were outweighed by the risks that the liability of one business
would affect the value of the other.
The Distribution will separate the businesses of Epitope and Agritope,
each having its own distinct operating, financial, and investment
characteristics, so that each company can adopt strategies and pursue objectives
more appropriate to its specific business than is possible with Agritope
operating as a wholly owned subsidiary of Epitope. The Epitope Board believes
that the Distribution will better enable management of each company to
concentrate attention and financial resources on research and development and
management of growth in each of its respective core businesses, without regard
to the corporate objectives, policies, challenges and investment criteria of the
other. The Distribution is also intended to afford Agritope increased
flexibility to make acquisitions and enter into strategic partnering
transactions, by issuing its own equity securities. Finally, as a separate
company, Agritope will be able to develop incentive-based compensation programs
that are keyed directly to its earnings and performance, enhancing Agritope's
ability to attract, motivate and retain key employees.
The Epitope Board has also been concerned that the investment community
has historically focused principally on the products and business of Epitope and
has not given sufficient recognition to the value of Agritope's business.
Agritope's status as a separate public company after the Distribution will allow
investors to better evaluate the performance and investment characteristics and
the future prospects of its business. There can
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be no assurance that the combined market values of Epitope Stock and Agritope
Common held by a shareholder after the Distribution Date will equal or exceed
the market value of the existing Epitope Stock held by the shareholder prior to
the Distribution Date. See "Risk Factors--Limited Marketability of Agritope
Common" and "--No Assurance as to Market Performance of Agritope Common."
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set
forth in a Separation Agreement between Agritope and Epitope dated December 1,
1997. See "Relationship Between Agritope and Epitope After the
Distribution--Separation Agreement."
Holders of Epitope Stock on the Record Date will not be required to pay
cash or other consideration for the Agritope Common received in the Distribution
or to surrender or exchange certificates representing shares of Epitope Stock in
order to receive Agritope Common in the Distribution.
Under the Separation Agreement, on or before the Record Date, Epitope
will deliver to the Distribution Agent a certificate or certificates
representing all of the then outstanding shares of Agritope Common held by
Epitope. Epitope will then instruct the Distribution Agent to distribute to each
holder of record of Epitope Stock on the Record Date a certificate or
certificates representing one share of Agritope Common for every five shares of
Epitope Stock outstanding. Any shares not distributed on account of the
arrangements made for paying cash in lieu of fractional shares as described
below, will be returned to Agritope for cancellation. A total of approximately
2.7 million shares of Agritope Common will be issued in the Distribution.
Fractional shares of Agritope Common will not be issued in the
Distribution. If the aggregate number of shares due an Epitope shareholder of
record includes a fraction of a share, Epitope will pay the cash value of the
fractional share to the holder, based on a price of $7 per share of Agritope
Common. Shareholders who own their stock in "street name" through a broker or
other nominee listed as the holder of record will have their fractional shares
handled according to the practices of the broker or nominee, which may result in
those shareholders receiving a price for their fractional share interests that
is higher or lower than the price paid by Agritope to shareholders of record.
Certificates representing shares of Agritope Common will be mailed by
the Distribution Agent as soon as practicable following the Distribution Date.
The distributed shares of Agritope Common will be fully paid and nonassessable
and will not be entitled to preemptive rights. Initially, the preferred stock
purchase rights associated with each share of Agritope Common will be
represented by the certificate for such share of Agritope Common.
See "Description of Agritope Capital Stock--Stockholder Rights Plan."
TRADING OF AGRITOPE COMMON
After the Distribution, Epitope and Agritope will operate as
independent public companies. Immediately after the Distribution and the
consummation of the Regulation S Sale, Agritope expects to have approximately
1,035 holders of record of Agritope Common and 4 million shares of Agritope
Common outstanding, based on the number of holders of record of outstanding
Epitope Stock, the distribution ratio, and the number of investors and amount of
shares involved in the Regulation S Sale. The actual number of shares of
Agritope Common to be distributed will be determined as of the Record Date.
Following the Preferred Stock Sale, Agritope expects to have
outstanding 214,285 shares of Series A Convertible Preferred, and up to 785,715
additional shares of Series A Convertible Preferred that may be issued upon
exercise of the Series A Option. Series A Convertible Preferred is convertible
at any time into shares of Agritope Common, on a share-for-share basis, subject
to adjustment upon the occurrence of certain events.
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Agritope has applied to include Agritope Common for quotation on The
Nasdaq SmallCap Market under the symbol "AGTO." There can be no assurance,
however, that, if accepted, Agritope will meet the requirements for continued
inclusion on The Nasdaq SmallCap Market, or that an active trading market for
shares of Agritope Common will develop after the Distribution.
A "when-issued" market in Agritope Common is expected to develop on or
after the Record Date. Prices at which Agritope Common may trade prior to the
Distribution on a "when-issued" basis or after the Distribution cannot be
predicted. The prices at which trading in Agritope Common occurs may be subject
to significant fluctuations, particularly in the period immediately preceding
and immediately after the Distribution and until an orderly trading market
develops, if at all. See "Risk Factors--No Assurance as to Market Performance of
Agritope Common."
The transfer agent and registrar for the Agritope Common will be
ChaseMellon Shareholder Services, L.L.C.
Shares of Agritope Common distributed to Epitope shareholders in the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of Agritope under the Securities Act.
Persons who may be deemed to be affiliates of Agritope after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, Agritope, and may include certain officers and
directors of Agritope as well as principal stockholders of Agritope, if any.
Persons who are affiliates of Agritope will be permitted to sell their shares of
Agritope Common only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Rule 144 under the Securities
Act.
In general, under Rule 144, any affiliate of Agritope or any person
owning unregistered Agritope Common (Agritope Common held by any such affiliate
or person referred to as "Restricted Securities") who has beneficially owned
Restricted Securities for at least one year (including the holding period of any
prior owner who is not an affiliate of Agritope) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1 percent of the then outstanding shares of Agritope Common
(approximately 40,000 shares immediately after the Distribution and Regulation S
Sale), or (ii) the average weekly trading volume of Agritope Common during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about
Agritope.
The shares of Agritope Common being sold in the Regulation S Sale and
the shares of Agritope Common issuable upon the conversion of the Series A
Convertible Preferred have not been registered under the Securities Act.
Pursuant to Regulation S of the Securities Act, shares of Agritope Common
purchased in the Regulation S Sale and the shares of Agritope Common issuable
upon the conversion of the Series A Convertible Preferred may not be sold in the
U.S. without registration under the Securities Act until 40 days following the
closing of the Regulation S Sale and the Preferred Stock Sale, respectively.
Sale of a significant number of shares by these holders could adversely affect
the market price of Agritope Common. See "Shares Eligible for Future Sale."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Epitope has received an opinion of Miller, Nash, Wiener, Hager &
Carlsen LLP ("Miller Nash") that (i) the Distribution will be treated as a
tax-free transaction to Epitope shareholders qualifying under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the following
discussion concerning the material tax consequences of the transaction, insofar
as it relates to statements of tax law or conclusions thereunder, is correct and
complete in all material respects. For a more complete description of the
limitations, analysis and assumptions underlying the opinion of Miller Nash,
refer to the complete opinion filed with the Registration Statement of which
this Information Statement/Prospectus is a part. The opinion of Miller Nash
received by Epitope
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represents only the best judgment of Miller Nash, and is not binding on the
Internal Revenue Service (the "IRS"). There can be no guarantee that the IRS
will agree with the opinion or that upon challenge by the IRS, a court will not
reach a conclusion contrary to the opinion. Epitope has not requested a ruling
from the IRS with respect to the federal income tax consequences of the
Distribution. Because no ruling will be received, there can be no assurance that
the Distribution will qualify as a tax-free transaction.
Consequences of Qualification as a Tax-Free Distribution. The discussion set
forth below may not be applicable to certain Epitope shareholders who, among
other limitations, received their shares of Epitope Stock as compensation, who
are not citizens or residents of the U.S. or who are otherwise subject to
special treatment under the Code. Subject to such special circumstances that may
apply to certain Epitope shareholders, in the opinion of Miller Nash, the
Distribution will have the following federal income tax consequences:
(1) An Epitope shareholder will not recognize any income, gain or loss
upon the receipt of Agritope Common which is received by the shareholder as a
result of the Distribution, although income and gain or loss will be recognized
in connection with any cash received in lieu of fractional shares, as described
below.
(2) An Epitope shareholder's tax basis in the Epitope Stock with
respect to which Agritope Common is received will be apportioned between the
shareholder's Epitope shares and the shares of Agritope Common received by the
shareholder (including any fractional shares of Agritope Common deemed received)
in proportion to the relative aggregate fair market values of Epitope Stock and
Agritope Common on the Distribution Date.
(3) An Epitope shareholder's holding period for Agritope Common
received in the Distribution will include the period during which the
shareholder held the Epitope Stock with respect to which the Agritope Common is
distributed, provided such Epitope shareholder held the Epitope Stock as a
capital asset at the time of the Distribution.
(4) An Epitope shareholder who receives cash in lieu of a fractional
share of Agritope Common in the Distribution will be treated as if the
fractional share of Agritope Common had been received by the shareholder as part
of the Distribution and then sold by the shareholder for cash. Accordingly, the
shareholder will recognize gain or loss equal to the difference between the cash
so received and the amount of tax basis allocable (as described above) to the
fractional share of Agritope Common. The gain or loss will be capital gain or
loss if the fractional share of Agritope Common would have been held by the
shareholder as a capital asset.
(5) Agritope will not recognize any income, gain or loss as a result of
the Distribution.
Miller Nash has not expressed any opinion concerning the tax
consequences to Epitope of the Distribution. Depending on the number of shares
of Agritope Common issued in the Regulation S Sale and the Preferred Stock Sale
(see "Regulation S Sale" and "Sale of Series A Convertible Preferred"), the
Distribution might result in recognition of taxable gain by Epitope. Epitope
believes that its tax basis in Agritope is greater than the fair market value of
Agritope. Thus, while the Distribution might be deemed to be a taxable
transaction for Epitope, Epitope believes it is more likely than not that the
Distribution will result in the realization of a loss rather than the
recognition of any taxable gain. Epitope will not be allowed to recognize for
income tax purposes any taxable loss realized as a result of the Distribution.
If any taxable gain is recognized, Epitope believes that it has sufficient net
operating loss carryforwards to offset any such gain for regular tax purposes.
However, if any gain is recognized, Epitope would incur an alternative minimum
tax, which amount management believes would be immaterial.
Current U.S. Treasury regulations require that each Epitope shareholder
who receives shares of Agritope Common pursuant to the Distribution attach a
statement to the shareholder's federal income tax return for the taxable year in
which the Distribution occurs, providing certain information with respect to the
applicability of
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Section 355 of the Code to the Distribution. In a Tax Allocation Agreement
between the parties (discussed below), Epitope has represented that it will
provide to each Epitope shareholder of record as of the Record Date information
necessary to comply with this requirement.
Consequences of Failure to Qualify as a Tax-Free Distribution. If the
Distribution ultimately were determined not to qualify as a tax-free transaction
to Epitope shareholders pursuant to Section 355 of the Code, the following
federal income tax consequences would result:
(1) Each Epitope shareholder would be considered to have received a
distribution in an amount equal to the fair market value, when distributed, of
the shares of Agritope Common received by the shareholder plus the amount of any
cash received in lieu of fractional shares of Agritope Common. Such a
distribution would be taxed as a dividend to the shareholder to the extent of
the shareholder's share of (i) Epitope's current earnings and profits for
federal income tax purposes for the fiscal year ending September 30, 1998 (which
current earnings and profits, if any, will be increased by any gain recognized
by Epitope as a result of the Distribution (which would equal the excess, if
any, of the fair market value of Agritope over Epitope's tax basis in Agritope))
or (ii) Epitope's accumulated earnings and profits through September 30, 1998
(including any gain recognized as a result of the Distribution). To the extent
that the aggregate fair market value of the shares of Agritope Common
distributed exceeds Epitope's earnings and profits, the excess would be treated
first as a non-taxable reduction in the tax basis of a shareholder's Epitope
Stock to the extent of the tax basis, and thereafter as short-term or long-term
capital gain, provided the Epitope Stock is held by the shareholder as a capital
asset. Under Epitope's best current estimates, Epitope will not have sufficient
earnings and profits by September 30, 1998, to treat any part of the
Distribution as a dividend. This estimate is, however, subject to change as
current assumptions may change and future events could materially impact
Epitope's earnings and profits.
(2) An Epitope shareholder's tax basis in the shares of Agritope Common
received in the Distribution would equal the fair market value of the Agritope
Common on the Distribution Date, and the shareholder's holding period for the
shares of Agritope Common would begin the day after that date. An Epitope
shareholder's tax basis in the Epitope Stock would not be affected by the
Distribution, unless, as described above, the amount of the Distribution
exceeded the current and accumulated earnings and profits of Epitope
attributable to the shareholder and was treated as a non-taxable reduction in
tax basis. Upon a subsequent sale of the shares of Agritope Common, a
shareholder would recognize gain or loss measured by the difference between the
amount realized on the sale and the shareholder's tax basis in the shares of
Agritope Common sold.
(3) In general, any amount received by a corporate shareholder that is
taxable as a dividend would be eligible for a 70 percent dividends-received
deduction. However, the 70 percent dividends-received deduction would not be
available with respect to stock unless, among other requirements, certain
holding period requirements were satisfied. In this regard, under Section 246(c)
of the Code, the length of time that a taxpayer is deemed to have held stock is
reduced for periods during which the taxpayer's risk of loss with respect to
such stock is diminished by reason of the existence of certain options to sell,
contracts to sell or other similar arrangements.
In addition, under Section 1059 of the Code, a corporate shareholder
whose holding period, as determined using rules similar to those contained in
Section 246(c) of the Code, is two years or less (as of the Distribution
announcement date) would be required to reduce the tax basis of such Epitope
Stock (but not below zero) by that portion of any "extraordinary dividend," as
defined in the Code, that is not taxed because of the dividends-received
deduction. If the portion exceeded the corporate shareholder's tax basis for its
Epitope Stock, any such excess would be treated as gain on the subsequent sale
or disposition of the stock for the taxable year in which the extraordinary
dividend is received.
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The summary of federal income tax consequences set forth above is for
general information only and may not be applicable to shareholders who received
their shares of Epitope Stock through the exercise of an option or otherwise as
compensation, who are not citizens or residents of the U.S. or who are otherwise
subject to special treatment under the Code. All shareholders should consult
their own tax advisors as to the particular tax consequences of the Distribution
to them, including the applicability and effect of state, local and foreign tax
laws.
REGULATION S SALE
Immediately following the Distribution, Agritope will sell 1,343,704
shares of Agritope Common at a price of $7 per share, for an aggregate price of
$9.4 million in the Regulation S Sale. Subscribers in the Regulation S Sale have
entered into stock purchase agreements and have deposited the purchase price for
the shares in an escrow account, pending completion of the Distribution and
closing of the Regulation S Sale. Immediately following the Distribution, the
funds held in escrow will be released to Agritope and shares of Agritope Common
will be issued to investors in the Regulation S Sale. Shares sold in the
Regulation S Sale will not be registered under the Securities Act although the
holders of the shares have been granted certain registration rights. Such shares
will represent between 27 percent and 32 percent of the outstanding Agritope
voting stock, depending upon the extent to which the Series A Option is
exercised.
Prior to the Distribution, there was no public market for Agritope
Common. The price of securities to be issued pursuant to Regulation S was
determined by the boards of directors and management of the Company and Epitope
in consultation with Vector Securities International, Inc. ("Vector
Securities"), the Company's financial advisor, and with the placement agent. In
determining the price, the Company took into account, among other things, the
assets and liabilities of the Company, its recent historical financial
performance relative to competitors that are publicly traded, its future
prospects, prospects for the industry in which it competes, the status of the
Company's research programs, and the current state of the economy in the United
States and of the capital markets generally.
The Epitope Board believes that the proceeds of the Regulation S Sale
are sufficient to finance the operations of Agritope as a separate business for
a period of not less than two years. There can be no assurance that the
determination of Agritope's anticipated cash requirements will prove to be
accurate. See "Risk Factors-- Need for Additional Funds."
SALE OF SERIES A CONVERTIBLE PREFERRED
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred. In connection with the Vilmorin Research
Agreement, Agritope and Vilmorin have agreed to the Preferred Stock Sale
providing for the sale under Regulation S of 214,285 shares of Series A
Convertible Preferred at a price of $7 per share for an aggregate purchase price
of $1.5 million. See "Description of Business--Agritope Biotechnology
Program--Vegetable and Flower Crops." In addition, Agritope has granted Vilmorin
the Series A Option, exercisable by Vilmorin or its designees and expiring
January 15, 1998, to purchase up to 785,715 additional shares of Series A
Convertible Preferred at a price of $7 per share. Vilmorin will own 5 percent of
outstanding voting stock of Agritope following the closing of the Preferred
Stock Sale and will own 19.9 percent of outstanding Agritope voting stock if it
exercises the Series A Option in full. Series A Convertible Preferred has
preemptive rights and the right to elect a director, but otherwise has rights
substantially equivalent to Agritope Common, and is convertible at any time into
shares of Agritope Common on a share-for-share basis, subject to adjustment upon
the occurrence of certain events. Holders of Series A Convertible Preferred will
vote on an "as converted" basis with holders of Agritope Common. For a
description of the Series A Convertible Preferred, see "Description of Agritope
Capital Stock--Agritope Series A Convertible Preferred." Shares of Series A
Convertible Preferred will not be registered under the Securities Act, although
holders of such shares have been granted certain registration rights with
respect to Agritope Common issuable upon conversion of the Series A Convertible
Preferred.
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RELATIONSHIP BETWEEN AGRITOPE AND EPITOPE AFTER THE DISTRIBUTION
For purposes of setting forth the conditions to and procedures for the
Distribution, governing the ongoing relationship between Epitope and Agritope
after the Distribution and providing for a more orderly transition of Agritope
to operation as an independent public company, Epitope and Agritope have entered
into various agreements. The agreements summarized in this section are included
as exhibits to the Registration Statement of which this Information
Statement/Prospectus forms a part. The following summary is qualified in its
entirety by reference to the agreements as filed.
Management believes that the administrative costs for Agritope as a
stand-alone company will not be materially different from the administrative
costs incurred and the shared services costs allocated in the historical
financial statements. Additionally, the amounts to be charged to Agritope under
the Transition Services Agreement described below are not expected to differ
materially from what Agritope would incur on a stand-alone basis.
SEPARATION AGREEMENT
Epitope and Agritope have entered into a Separation Agreement, which
provides for, among other things, certain pre-Distribution actions of the
parties, the manner of effecting the Distribution, indemnification rights and
procedures, allocation of expenses prior to and in connection with the
Distribution, insurance matters, access to books and records, and
confidentiality. Expenses to be borne by Agritope under the Separation Agreement
in connection with the Distribution will be approximately $200,000. The
Separation Agreement also provides for the cancellation of substantially all of
Agritope's $49.0 million intercompany balance due to Epitope, which has been
treated as a capital contribution in the consolidated financial statements
included herein. Because Epitope and Agritope have separately conducted their
respective businesses, the Separation Agreement does not otherwise contemplate
either entity transferring any significant assets or property to the other.
The Separation Agreement sets forth all of the material conditions
precedent to the Distribution, which are: (i) receipt by Agritope of binding
commitments for financing in an amount the Epitope Board deems sufficient to
finance Agritope's operation as an independent public company for a period of
not less than two years; (ii) receipt by Epitope of an opinion of its tax
advisors as to certain tax considerations in connection with the Distribution;
(iii) receipt of all material approvals and consents necessary to consummate the
Distribution and absence of any pending or threatened action with respect to the
Distribution; (iv) effectiveness of the Registration Statement; and (v)
occurrence of no other event or development that, in the judgment of the Epitope
Board, would have a material adverse effect on Epitope or its shareholders. The
Distribution is subject to satisfaction or waiver of each of these material
conditions and certain other conditions set forth in the Separation Agreement.
The Separation Agreement may be terminated, and the Distribution abandoned, at
any time prior to the Record Date by, and in the sole discretion of, the Epitope
Board.
In addition, the Separation Agreement provides for the allocation of
benefits under existing insurance policies between Epitope and Agritope, grants
each of Epitope and Agritope access to certain records and information in the
possession of the other, imposes certain confidentiality obligations on each,
and provides that, except as otherwise set forth therein or in any related
agreement, Epitope and Agritope will each pay its own costs and expenses in
connection with the Distribution.
Pursuant to the Separation Agreement, Agritope has increased its
authorized capital stock to 30 million shares of Agritope Common and 10 million
shares of Agritope Preferred, and taken other corporate actions in anticipation
of its transition to an independent public company.
Each of the parties has agreed to indemnify the other against claims
relating to or arising out of their respective businesses prior to the
Distribution and arising out of the Distribution. Agritope has agreed to assume
responsibility for certain expenses incurred prior to and in connection with the
Distribution.
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EMPLOYEE BENEFITS AGREEMENT
It is anticipated that each person who is an Epitope employee or an
Agritope employee immediately prior to the Distribution Date will continue to be
such immediately after the Distribution Date. To address certain employee and
employee benefits matters in connection with the Distribution, Epitope and
Agritope have entered into an Employee Benefits Agreement. Pursuant to the
Employee Benefits Agreement, Agritope will retain or assume, as the case may be,
sole responsibility as employer for all employees of Agritope as of the
Distribution Date, and will cause any Agritope employee who is then a party to
any employment-related agreement with Epitope to terminate such agreement
effective as of the Distribution Date, except as described below.
Epitope currently provides benefits to its employees and employees of
Agritope under the Epitope, Inc. 401-K Profit Sharing Plan (the "Epitope 401(k)
Plan"), the Incentive Stock Option Plan (the "Incentive Plan"), the 1991 Stock
Award Plan (the "1991 Epitope Award Plan"), and the 1993 Employee Stock Purchase
Plan (the "Epitope Purchase Plan"). Pursuant to the Employee Benefits Agreement,
Agritope has amended the Agritope, Inc. 1992 Stock Award Plan (the "1992
Agritope Award Plan") and outstanding options issued thereunder and adopted
other benefit plans to replace the employee benefits provided by Epitope.
Agritope employees will be eligible for the new Agritope plans following the
Distribution. To facilitate the transition, Epitope and Agritope have agreed to
adjust each existing Epitope employee benefit or award in the following manner:
401(k) Plan. The Employee Benefits Agreement provides that Agritope
will establish and administer a new plan named the Agritope 401(k)
Retirement Plan and Trust (the "Agritope 401(k) Plan"), under which
benefits will be provided to all Agritope employees including those who
were eligible for the Epitope 401(k) Plan immediately prior to the
Distribution Date. All Agritope employees who wish to participate in
the Agritope 401(k) Plan will be required to enroll in the Agritope
401(k) Plan in accordance with its terms. Under the Employee Benefits
Agreement, Agritope employees will become fully vested (if not already
fully vested) in their matching accounts under the Epitope 401(k) Plan
as of the Distribution Date, and will be entitled to a distribution
from the Epitope 401(k) Plan of all of their accounts within a
reasonable time after the Distribution Date. The Employee Benefits
Agreement requires the Agritope 401(k) Plan to accept a rollover
contribution from any Agritope employee who elects to have his or her
distribution from the Epitope 401(k) Plan rolled over to the Agritope
401(k) Plan.
Existing Epitope Options. Pursuant to the Employee Benefits Agreement,
Epitope and Agritope have agreed that each unexercised option to
purchase Epitope Stock outstanding as of the Distribution Date
("Existing Epitope Options") will be adjusted as follows as of the
Distribution Date.
The exercise price of Existing Epitope Options will be adjusted
according to a formula provided in the Employee Benefits Agreement. The
formula provides for reduction of the exercise price by an amount equal
to the aggregate value of Agritope Common and Series A Convertible
Preferred issued in the Distribution, sold in the Regulation S Sale, or
sold in the Preferred Stock Sale, divided by the number of shares of
Epitope Stock outstanding at the Record Date. Epitope and Agritope
believe that the exercise price adjustments to Existing Epitope Options
should not result in the recognition of taxable income by Epitope or
Agritope or their respective optionees. However, there can be no
assurance that such recognition will not occur. Each holder of an
outstanding Existing Epitope Option is urged to consult with his or her
own tax advisor.
Also, for purposes of determining the period that Existing Epitope
Options remain exercisable, employment by Agritope shall be deemed
employment by Epitope. Employment by Agritope or any of its majority
owned subsidiaries after the Distribution will not be deemed employment
by Epitope for vesting and all other purposes relating to Existing
Epitope Options. Accordingly,
- 23 -
<PAGE>
Existing Epitope Options held by Agritope employees will continue to
vest after the Distribution in accordance with existing award
agreements which provide for continued vesting for periods ranging from
90 days to one year after the Distribution Date.
Certain Existing Epitope Options are currently intended to qualify as
"incentive stock options" ("ISOs") under the Code. However, continued
ISO status requires that the optionee be employed by the grantor (or a
parent or subsidiary of the grantor) and that the option generally be
exercised within three months after an optionee's termination. Because
the Distribution will terminate the affiliation between Epitope and
Agritope, employees of Agritope holding Existing Epitope Options will
lose any claim to ISO status for such options three months after the
Distribution Date. Such options will thereafter be treated as
nonqualified options.
Agritope has adopted the Agritope, Inc. 1997 Stock Award Plan (the
"Agritope 1997 Award Plan") pursuant to which awards will be made to
Agritope employees as of and following the Distribution. See "1997
Stock Award Plan."
Agritope Options Held by Epitope and Agritope Employees. Agritope has
granted options to certain employees of Epitope and Agritope under the
1992 Agritope Award Plan. The options are denominated in shares of
Agritope Common, but provide for issuance of Epitope Stock upon
exercise so long as Agritope is a wholly owned subsidiary of Epitope.
Agritope has amended the options outstanding under the 1992 Agritope
Award Plan to provide that Epitope Stock will be received upon the
exercise of the options and to provide that such options will be
subject to substantially the restrictions and adjustments provided
above for Existing Epitope Options. No further options will be granted
under the plan.
Purchase Plan. The Epitope Purchase Plan enables participating Epitope
employees to purchase Epitope Stock during offering periods selected by
the Epitope Board. The purchase price per share is the lesser of (i) 85
percent of the fair market value of Epitope Stock on the last trading
day prior to the related Offering Date (as defined in the Epitope
Purchase Plan) or (ii) 100 percent of the fair market value of Epitope
Stock on the last day of the purchase period or on any earlier date of
purchase provided for in the Epitope Purchase Plan. The purchase price
is collected by means of payroll deductions. An employee whose
employment is terminated for any reason other than retirement,
disability, or death may, at his or her election, (i) be refunded the
full amount withheld to date, plus interest at the rate of 6 percent
per year, or (ii) receive the whole number of shares that could be
purchased at the purchase price with that amount together with a cash
refund of any balance.
Pursuant to the Employee Benefits Agreement, the Epitope Purchase Plan
will continue in full force and effect in accordance with its terms.
The Employee Benefits Agreement provides that participants under the
Epitope Purchase Plan will be eligible to participate in the
Distribution and receive shares of Agritope Common only to the extent
that, by operation of the Epitope Purchase Plan or otherwise, they are
shareholders of record on the Record Date, except that participants who
are entitled to receive shares of Epitope Stock under the Epitope
Purchase Plan as of the Record Date but who have not yet been
mechanically recorded as shareholders of record as of the Record Date
will be treated as shareholders of record for purposes of the
Distribution. The Employee Benefits Agreement also provides for certain
adjustments to the Maximum Purchase Price (as defined in the Epitope
Purchase Plan) during the purchase period in which the Distribution
Date occurs in order to reflect the effect of the Distribution.
Agritope has established an Employee Stock Purchase Plan for Agritope
employees. See "1997 Employee Stock Purchase Plan."
- 24 -
<PAGE>
The Employee Benefits Agreement also provides for the continuation of
medical, dental and other welfare plans by Epitope and Agritope for the benefit
of their respective employees following the Distribution, and for the allocation
of liability for, and indemnity obligations related to, any employment-related
claims brought against Epitope or Agritope, or both companies jointly.
TAX ALLOCATION AGREEMENT
Epitope and Agritope have entered into a Tax Allocation Agreement
providing for their respective obligations concerning various tax liabilities
and related matters. The Tax Allocation Agreement provides that Epitope will
pay, and will indemnify Agritope with respect to, all federal, state, local and
foreign income, franchise and similar taxes relating to Epitope for all taxable
periods. Epitope has also generally agreed to pay all other taxes (other than
those which are imposed solely on Agritope) that are payable in connection with
the Distribution and transactions related to the Distribution, the liability for
which arises on or before the Distribution Date. The Tax Allocation Agreement
provides that Agritope will pay, and will indemnify Epitope with respect to, all
federal, state, local and foreign income, franchise and similar taxes relating
to Agritope for all taxable periods. Further, the Separation Agreement provides
for cooperation with respect to certain tax matters, including the preparation
of income tax returns, the exchange of information, the handling of tax
controversies, and the retention of records which may affect the income tax
liability of either party.
TRANSITION SERVICES AGREEMENT
Epitope and Agritope have entered into a Transition Services Agreement
pursuant to which Epitope has agreed to provide office and laboratory facilities
and accounting and human resources services to Agritope for a 3-to-6 month
period following the Distribution.
- 25 -
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following table sets forth selected historical consolidated income
and balance sheet data of Agritope and its subsidiaries. Additionally, operating
results data are presented for Vinifera for the period June 1, 1995 through
August 27, 1997, during which time Vinifera was not owned by Agritope. The
balance sheet data at September 30, 1997 and 1996 and the operating results data
(for Agritope and Vinifera) for the years ended September 30, 1997, 1996, and
1995 have been derived from audited consolidated financial statements and notes
thereto included in this Information Statement/Prospectus. The balance sheet
data at September 30, 1995 and operating results data for the year ended
September 30, 1994 are derived from audited consolidated financial statements
and notes thereto not included in this Information Statement/Prospectus. The
balance sheet data at September 30, 1994 and 1993 and operating results data for
the year ended September 30, 1993 are derived from unaudited consolidated
financial statements and notes thereto not included in this Information
Statement/Prospectus and, in the opinion of management, include all adjustments
necessary for fair presentation. Pro forma operating results data are presented
as if Vinifera and Agritope had been combined for the period June 1, 1995
through August 27, 1996, for information purposes, and include all adjustments
necessary for a fair presentation of the combined pro forma operating results
data. This information should be read in conjunction with the consolidated
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
YEAR ENDED SEPTEMBER 30
1997 1996 1995(1) 1994(1) 1993(1)
CONSOLIDATED OPERATING RESULTS (Agritope historical)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 1,551 $ 585 $ 2,110 $ 2,213 $ 524
Operating costs and expenses........................ 6,089 2,821 9,920 11,703 7,331
Other income (expense), net ........................ (4,153)(2) (265) (235) (314) (151)
Net loss............................................ (8,691) (2,501) (8,045) (9,804) (6,958)
Pro forma net loss per share (3).................... (3.23) ( .93) (2.99) (3.64) (2.59)
Pro forma shares used in per
share calculations (3)............................ 2,691 2,691 2,691 2,691 2,691
PERIOD ENDED SEPTEMBER 30
1996(4) 1995(4)
OPERATING RESULTS (Vinifera)
Revenues............................................ $ 834 $ 277
Operating costs and expenses........................ 2,296 714
Other income (expense), net ........................ (2) (23)
Net loss............................................ (1,464) (460)
Pro forma net loss per share (3).................... (.54) (.17)
Pro forma shares used in per
share calculations (3)............................ 2,691 2,691
</TABLE>
- 26 -
<PAGE>
<TABLE>
YEAR ENDED SEPTEMBER 30
1997 1996 1995(1)
CONSOLIDATED OPERATING RESULTS (Pro forma)
<S> <C> <C> <C>
Revenues............................................ $ 1,551 $ 1,419 $ 2,387
Operating costs and expenses........................ 6,089 5,117 10,634
Other income (expense), net ........................ (4,153)(2) (267) (258)
Net loss............................................ (8,691) (3,965) (8,505)
Pro forma net loss per share (3).................... (3.23) (1.47) (3.16)
Pro forma shares used in per
share calculations (3)............................ 2,691 2,691 2,691
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEET SEPTEMBER 30
1997 1996 1995 1994 1993
As adjusted(5) Actual
pro forma
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)................. $11,740 $ 1,659 $(3,163) $ 846 $ 418 $ 0
Total assets................................. 17,366 7,285 5,670 4,067 4,081 2,091
Long-term debt............................... 15 15 - 22 38 57
Convertible notes, due 1997.................. - - 3,620 3,620 4,070 4,630
Accumulated deficit.......................... (41,168) (41,168) (32,478) (29,976) (21,931) (12,127)
Shareholder's equity (deficit)............... 14,844 4,763 1,008 75 (482) (2,983)
</TABLE>
(1) Data for 1995, 1994, and 1993 include revenues of $2.0 million, $2.1
million, and $482,000, and operating losses of $3.8 million, $5.6
million, and $2.2 million, respectively, attributable to business units
which were divested. See Note 3 to 1997 consolidated financial
statements.
(2) Includes non-cash charges of $2.3 million, reflecting the permanent
impairment in the value of Agritope's investment in affiliated
companies, and $1.2 million for the conversion of Agritope convertible
notes into Epitope Stock at a reduced price. See Notes 3 and 5 to 1997
consolidated financial statements.
(3) Net loss per share is presented on a pro forma basis assuming that the
Distribution of Agritope Common pursuant to the Agritope spin-off had
occurred on October 1, 1994. Pro forma calculations exclude shares to
be issued in the Regulation S Sale, the Preferred Stock Sale, and upon
the exercise of the Series A Option. See Note 11 to Consolidated
Financial Statements.
(4) Represents Vinifera operating results data for the period June 1, 1995
through September 30, 1995, and October 1, 1995 through August 27,
1996, for the two columns 1995 and 1996, respectively.
(5) The capitalization of Agritope as adjusted reflects the effects of the
Regulation S Sale of 1,343,704 shares of Agritope Common and the sale
of 214,285 shares of the Series A Convertible Preferred for aggregate
proceeds of $10.9 million, less issuance costs of $825,000.
- 27 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Information Statement/Prospectus. Special Note:
Certain statements set forth below constitute "forward-looking statements." See
"Note Regarding Forward-Looking Statements."
OVERVIEW
Agritope, Inc. (the "Company" or "Agritope"), consists of two units:
Agritope Research and Development and Vinifera, Inc. ("Vinifera"). Agritope
Research and Development uses biotechnology in the development of new fruit and
vegetable plant varieties for sale to the fresh produce industry. To date,
Agritope has not completed commercialization of this technology. A portion of
the research and development efforts conducted by Agritope has been performed
under various research grants and contracts. Vinifera is engaged in the
grapevine propagation and distribution business. During 1995, Vinifera was in
the development stage and generated minimal product sales. Vinifera commenced
commercial stage operations in 1996.
The results of operations for the first three quarters of 1995 include
the activity of Vinifera, then a wholly owned subsidiary of Agritope. Vinifera
was sold in the third quarter of 1995. A majority interest in Vinifera was
reacquired in the fourth quarter of 1996. No gain was recognized upon the sale
of Vinifera in 1995. The 1996 purchase price of $916,000 was allocated to
tangible net assets. As a result of subsequent equity sales to private
investors, Agritope now holds a 61 percent equity interest in Vinifera.
Vinifera's operations are included in results of operations for the fourth
quarter of 1996, and for all of 1997.
Agritope's results of operations for the first three quarters of 1995
also include the activity of Agrimax Floral Products, Inc. ("Agrimax"), a wholly
owned subsidiary, which was engaged in the fresh flower packaging and
distribution business. Agrimax's business was discontinued in 1995. In 1995, a
portion of the operating assets of Agrimax were contributed to UAF Limited
Partnership ("UAF"), an unrelated company, in exchange for a minority equity
interest in UAF. A loss of $500,000 was recognized in 1995 on the discontinuance
of operations at Agrimax and the transaction with UAF. In 1996, the remainder of
the operating assets of Agrimax were contributed to Petals USA, Inc. ("Petals"),
an unrelated company, in exchange for a minority equity interest in Petals. No
gain or loss was recognized on the transaction with Petals and the investment in
Petals was recorded at the net book value of the contributed assets. There are
no operations of Agrimax included in 1996 or 1997 operating results.
The accompanying consolidated financial statements have been prepared
to reflect the operating results and financial condition of Agritope and its
subsidiaries. The operating statements include the cost of certain corporate
overhead services which are provided on a centralized basis for the benefit of
the medical products business conducted by Epitope and the agricultural
biotechnology business conducted by Agritope and its subsidiaries ("Shared
Services"). Such expenses have historically been allocated using activity
indicators which, in the opinion of management, represent a reasonable measure
of the respective business' utilization of or benefit from such Shared Services.
In July 1997, Epitope's board of directors approved a management
proposal to spin off Agritope, subject to obtaining financing for Agritope and
the satisfaction of certain other conditions. Agritope has agreed to sell
1,343,704 shares of Agritope common stock at a price of $7 per share in a
private placement to certain investors, for an aggregate price of $9.4 million,
immediately after the spin-off. In connection with a research and development
collaboration, Agritope has entered into an agreement with Vilmorin & Cie, an
affiliate of Groupe Limagrain, to sell 214,285 shares of the Series A
Convertible Preferred at a price of $7 per share for an aggregate price of $1.5
million. Agritope expects to receive the proceeds from the Preferred Stock Sale
three business days
- 28 -
<PAGE>
following the completion of the spin-off. The spin-off will be accomplished by a
distribution of Agritope common stock to Epitope's shareholders. Epitope will
not own or control any shares of Agritope stock following the spin-off, which is
expected to occur in December 1997.
In November 1996, the Epitope Board proposed creating two separate
classes of Epitope common stock, one to reflect the medical products business
and operations of Epitope and the other to reflect the business and operations
of Agritope (the "Targeted Stock Proposal"). In addition, in December 1996,
Epitope acquired Andrew and Williamson Sales, Co. ("A&W"), a producer and
distributor of fruits and vegetables, as a direct wholly owned subsidiary of
Epitope. Agritope and A&W thereby became sister companies, each a wholly owned
subsidiary of Epitope. Agritope had no relationship with A&W other than as a
sister corporation. In May 1997, prior to a shareholder vote on the Targeted
Stock Proposal, the Epitope Board rescinded its acquisition of A&W and withdrew
the Targeted Stock Proposal in light of events surrounding a Hepatitis A
outbreak allegedly associated with strawberries shipped by A&W prior to its
acquisition by Epitope. The accompanying consolidated financial statements do
not include the operations of A&W. The effects of Epitope's ownership of A&W are
reflected solely in Epitope's financial statements and have no impact on
Agritope's financial statements.
RESULTS OF OPERATIONS
Years ended September 30, 1997, 1996 and 1995
Revenues. Total revenues increased by $966,000 or 65 percent from 1996 to 1997,
and decreased by $1.5 million or 72 percent from 1995 to 1996. Revenues by
component are shown below:
<TABLE>
YEAR ENDED SEPTEMBER 30 (IN THOUSANDS) 1997 1996 1995
Product sales
<S> <C> <C> <C>
Grapevine plant sales.................................... $ 1,436 $ - $ 84
Wholesale fresh flower sales............................. - - 1,931
------- -------- --------
1,436 - 2,015
Grants and contracts
Government research grants.............................. 30 145 16
Research projects with strategic partners............... 53 326 40
Other................................................... 32 114 38
------- -------- --------
115 585 94
$ 1,551 $ 585 $ 2,110
</TABLE>
Grapevine plant sales pertain to Agritope's majority owned subsidiary,
Vinifera. Vinifera was sold in the third quarter of 1995, and a majority
interest was reacquired at the end of August 1996. Vinifera had no product sales
in September 1996. Vinifera was in the development stage in 1995, commenced
commercial stage operations in 1996 and continued its marketing efforts and
expansion of its customer base during 1997. Vinifera currently has confirmed
orders exceeding $1.4 million for delivery in the spring and summer of 1998.
Product sales in 1995 included $1.9 million of sales in Agrimax's
unprofitable wholesale fresh flower packaging and distribution operations, which
were discontinued in the third quarter of 1995.
Grant and contract revenues pertain to research projects directed at
developing superior new plants through genetic engineering. Revenue from such
projects can vary significantly from year to year as new projects are started
while other projects may be extended, completed, or terminated. In addition, not
all research projects conducted by Agritope receive grant or contract funding.
Grant and contract revenues in 1996 included three significant contracts with
strategic partners for joint research projects. Grant and contract revenue in
1996 also
- 29 -
<PAGE>
included SBIR government grants totaling $145,000 which declined to only $30,000
in 1997. In October 1997, the Company was awarded a three-year grant totaling
$1.0 million from the U.S. Department of Commerce to study the application of
Agritope's ripening technology to certain tree fruits and bananas.
Gross margin. Gross margin on product sales was 7.7 percent of sales for 1997.
Gross margin in 1997 was adversely affected by production start-up costs
incurred during the expansion of production capacity at Vinifera. There were no
comparable product sales in 1996. The Company's unprofitable wholesale fresh
flower packaging and distribution operations were primarily responsible for the
negative gross margin in 1995.
Research and development expenses. Research and development expenses in 1997,
1996 and 1995 totaled $1.7 million, $1.3 million and $2.2 million, respectively.
The increase of $343,000 or 26 percent from 1996 to 1997 reflects increased
efforts to develop and propagate crops containing Agritope's patented ethylene
control technology as well as research and development efforts to improve
grapevine plant propagation conducted by Vinifera. The decrease of $866,000 or
39 percent from 1995 to 1996 resulted from the divestitures of the Agrimax and
Vinifera businesses in the third quarter of 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses in 1997, 1996 and 1995 were $3.1 million, $1.5 million
and $4.5 million, respectively. Expenses in 1997 included $913,000 of costs
incurred by Vinifera, which was not part of Agritope during the first eleven
months of 1996. The increase in 1997 is also attributable to expenses of
$424,000 related to the withdrawn Targeted Stock Proposal to create two classes
of common stock of Epitope. During 1997, Vinifera expanded greenhouse capacity
and continued to establish marketing and administrative functions at its new
headquarters location in Petaluma, California. Such activities contributed to
relatively high selling, general and administrative expenses in comparison to
product sales levels. Expenses in 1995 included $2.8 million of costs incurred
by Agrimax and Vinifera before these businesses were divested.
Selling, general and administrative expenses include $1.4 million, $1.1
million and $1.9 million for the allocation of Shared Services in 1997, 1996 and
1995, respectively. The amount of allocated Shared Services increased by
$334,000 or 31 percent from 1996 to 1997 as a result of the reacquisition of
Vinifera in August 1996, as well as increased corporate costs at Epitope due to
increased administrative personnel. The amount of allocated Shared Services
decreased by $823,000 or 43 percent from 1995 to 1996 largely as a result of the
dispositions of the Agrimax and Vinifera businesses.
Other income (expense), net. Other income (expense), net was affected by three
significant non-recurring charges totaling $4.2 million in 1997. During 1997,
Agritope recorded a non-cash charge to results of operations of $2.3 million,
reflecting the permanent impairment in the value of its investment in affiliated
companies (UAF and Petals). Additionally, conversion of $3.4 million principal
amount of Agritope convertible notes into Epitope common stock at a reduced
conversion price resulted in a charge to results of operations of $1.2 million.
Also in 1997, a charge of $744,000 in recognition of the Company's contingent
liability as primary lessee on two leases pertaining to Agritope's discontinued
wholesale fresh flower packaging and distribution business was recognized.
Interest expense decreased by $240,000 or 90 percent from 1996 to 1997
due to the conversion of $3.4 million principal amount of Agritope notes into
Epitope common stock in the first quarter of 1997, and payment of the remaining
principal amount of $240,000 on June 30, 1997.
<TABLE>
LIQUIDITY AND CAPITAL RESOURCES SEPTEMBER 30
1997 1996
(in thousands)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 4 $ 477
Working capital (deficiency)........................................... 1,659 (3,163)
</TABLE>
- 30 -
<PAGE>
At September 30, 1997, Agritope had working capital of $1.7
million as compared to a working capital deficiency of $3.2 million at September
30, 1996. The increase in working capital was principally attributable to the
conversion of $3.4 million of convertible notes into 250,367 shares of Epitope
common stock in the first quarter of 1997. Concurrent with the note conversion,
Epitope made a $4.4 million capital contribution to Agritope. Working capital
also increased due to a $1.6 million buildup in Vinifera's inventory of growing
grapevine plants. The grapevine plants are grafted and then kept in greenhouses
for approximately 10 weeks before they are ready for sale. The plants can be
maintained in greenhouses or stored outside for several years during which time
they continue to grow. Inventory on hand at September 30, 1997 represents
grapevine plants expected to be sold in the spring of 1998.
Expenditures for property and equipment were $1.9 million during
1997, largely as a result of expansion of greenhouse capacity at Vinifera.
Expenditures for patents and proprietary technology in 1997 included a one-time
cash payment of $590,000 to a co-inventor of Agritope's ethylene control
technology who is an officer of Agritope. Agritope has also acquired certain
rights to certain proprietary genes for which it made payments of $171,000 in
1997. Such amounts are included in "Patents and proprietary technology, net."
Agritope's investment in affiliated companies, obtained in connection with the
divestiture of its fresh flower packaging and distribution business, was reduced
by a non-cash charge of $2.3 million in 1997 reflecting the permanent impairment
in the value of these investments.
Cash flows from operating activities improved significantly from
1995 to 1996 largely due to the divestiture of Agrimax and Vinifera. Year-end
inventories increased by $510,000 from 1995 to 1996 due to the reacquisition of
Vinifera in August 1996. Additions to property and equipment increased in 1996
as a result of expansion of greenhouse capacity at Vinifera, which was
reacquired in August 1996. Expenditures for patents and proprietary technology
increased in 1996 primarily due to a one-time cash payment of $365,000 to the
other co-inventor of Agritope's ethylene control technology.
Historically through September 30, 1997, the primary sources of
funds for meeting Agritope's requirements for operations, working capital and
business expansion have been $45.4 million in cash from Epitope, $5.4 million
principal amount of convertible notes, $1.6 million of investments in Vinifera
by minority shareholders, and $1.0 million in funding from strategic partners
and other research grants. Agritope expects to continue to require funds to
support its operations and research activities. Agritope intends to utilize cash
reserves, cash generated from sales of products, and research funding from
strategic partners and other research grants to provide the necessary funds.
Agritope may also rely on the sale of equity securities to generate additional
funds. Agritope has agreed to reimburse Epitope for amounts advanced by Epitope
on or after December 1, 1997.
Immediately following the spin-off and related financing, Agritope
is expected to have $9.1 million in cash and cash equivalents on hand to finance
its continued operations. Agritope presently anticipates that these funds will
be sufficient to finance operations as a separate business for at least two
years after the spin-off, based on currently estimated revenues and expenses.
Because this estimate is based on a number of factors, many of which are beyond
its control, Agritope cannot be certain that this estimate will prove to be
accurate, and to the extent that Agritope's operations do not progress as
anticipated, additional capital may be required. Agritope currently utilizes a
portion of Epitope's office and research and development facilities and is
allocated a charge representing the cost of such facilities. As soon as
practicable after the spin-off, Agritope intends to relocate its administrative
and research and development activities to separate leased facilities.
Management estimates that the cost to relocate, including leasehold
improvements, will not exceed $2.0 million and that the cash on hand following
the spin-off will be adequate to meet this need. Additional capital may not be
available on acceptable terms, if at all, and the failure to raise such capital
would have a material adverse effect on Agritope's business, financial
condition, and results of operations. See "Risk Factors--Need for Additional
Funds."
Agritope has completed a Year 2000 review of its systems and
procedures to determine the scope of costs or risks Agritope may face in
connection with potential computer problems associated with the Year 2000. The
Company believes that it will not incur material Year 2000 remedial costs and
that its operations will not be materially affected by any Year 2000 problems.
- 31 -
<PAGE>
VINIFERA, INC.
RESULTS OF OPERATIONS
Eleven months ended August 27, 1996 compared to four months ended September 30,
1995
As compared to the four months ended September 30, 1995, sales
volumes tripled in the 11 months ended August 27, 1996, resulting in sales of
$833,948 and product costs of $1,373,106. Research and development costs for the
1996 period increased to approximately $12,000 per month from about $2,500 per
month during the prior period due to higher levels of activity. Selling, general
and administrative costs increased in the same proportion as sales.
LIQUIDITY AND CAPITAL RESOURCES
Expansion of production facilities and grapevine propagation
blocks required cash of $1,088,760 during the 11 months ended August 27, 1996.
As a consequence depreciation increased approximately $360,000 as compared to
the previous four months. Inventory, accounts receivable, accounts payable and
deferred revenue relating to deposits on orders for future delivery also
increased due to higher levels of operations. The cash flow requirements for the
11 months ended August 27, 1996 were met through loans from Agritope, Inc.
secured by inventory and accounts receivable and by capital contributions from
VF Holding, Inc. ("VF"). During the four months ended September 30, 1995, VF
contributed $618,978 to cover all capital needs of Vinifera during that period.
On August 27, 1996, the Company sold 1,440,000 shares of preferred stock at a
price of $1.25 per share for aggregate proceeds of $1.8 million. See Note 4 to
Vinifera's financial statements included herein.
- 32 -
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
Agritope is a biotechnology company specializing in the development of
new fruit and vegetable plant varieties for sale to the fresh produce industry.
The Company is utilizing its patented ethylene control technology to produce a
wide variety of fruits and vegetables that are resistant to the decaying effects
of ethylene. The Company also recently acquired certain rights to certain
proprietary genes from the Salk Institute for Biological Studies. Agritope
believes that the Salk Genes may have the potential to confer disease
resistance, enhance crop yield, control flowering, and enhance gene expression
in plants. Agritope has an option to obtain a worldwide license to use the Salk
Genes in a wide range of fruit and vegetable species.
The Company consists of two units: Agritope Research and Development
and Vinifera. Agritope Research and Development contributes biotechnology and
product development to strategic partners and provides disease screening and
elimination programs to Vinifera. Through Vinifera, Agritope believes that it
offers one of the most technically advanced grapevine plant propagation and
disease screening and elimination programs available to the wine and table grape
production industry.
AGRITOPE BIOTECHNOLOGY PROGRAM
Historically, Agritope's biotechnology program focused on using the
tools and techniques of plant genetic engineering to regulate the synthesis of
ethylene in ripening fruits and vegetables. Recently, the Company has begun
research into genetically regulating other physiological processes in plants.
Ethylene is a gaseous plant hormone which in higher plant species is responsible
for fruit ripening and vegetable senescence as well as numerous other
physiological effects. The Company has identified and patented a single gene
that can be inserted into plants and expressed to regulate the plant's ability
to produce ethylene. In addition, Agritope is conducting research in the area of
disease control, including screening plants for the presence of disease and
creating genetically engineered plants with resistance to pathogens.
Ripening Control. The fresh produce industry is based largely upon rapid
harvesting, processing and distribution of fruits and vegetables in order to
prevent spoilage and ensure the arrival of product at retail outlets in
acceptable condition for consumer purchase and use. The post-harvest period for
most fruits and vegetables is one of continuous ripening and senescence, as
evidenced by rapid changes in color, texture, flavor, nutrient content, and
other quality attributes. Product losses due to perishability during harvesting,
processing, packing, shipping and distribution can reach substantial portions of
overall crop yield. Growers frequently incur losses resulting from the
abandonment of crops in the field or having shipments refused by receivers
because the produce is overripe. In addition, wholesalers and retailers may be
forced either to discard or sell overripe produce at reduced prices and
consumers often must use produce shortly after purchase to avoid spoilage.
Studies published in the USDA Marketing Research Report have estimated
post-harvest losses of 30 percent and 40 percent, respectively, for strawberries
shipped from Florida to the Chicago and New York markets. In the U.S. fruit and
vegetable markets, post-harvest losses are estimated to amount to several
billion dollars annually.
Post-harvest losses are largely attributable to the effects of
ethylene. Because ethylene is a gas, it not only affects the plant producing it,
but also surrounding plants as well. The physiological effects of ethylene
include initiation and enhancement of ripening, senescence, leaf abscission and
drooping, and flower fading and wilting. Common examples include the ripening
and subsequent rotting of tomatoes and apples, discoloration in lettuce and
broccoli, and the short bloom life of cut flowers.
The importance of controlling ethylene production in plants has been
recognized for decades, and has been addressed primarily through the use of
controlled atmosphere storage, chemical treatment, and special packaging.
Conventional techniques for controlling ethylene production have serious
disadvantages that include high cost, time-
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critical handling requirements and lack of consistent ripening. For example, the
majority of product sold in the fresh tomato market today is composed of
"gas-green" tomatoes. These tomatoes are picked and packed while still green and
firm. Prior to shipping to wholesale customers, green tomatoes are exposed to
ethylene gas in order to initiate ripening of the product. In general, gas-green
tomatoes are perceived by consumers to have less desirable taste and texture
than vine ripened tomatoes.
Agritope believes the ability to regulate ethylene and control ripening
through genetic engineering represents an opportunity to provide a superior
product to consumers while also improving profitability for growers and
distributors. Growers may achieve higher marketable yields due to fewer losses
to overripe product in the field and may lower labor costs by decreasing
frequency of harvest. For packer/shippers, better control of product
perishability may result in improved inventory flexibility and control, and more
uniform product quality.
Ethylene Control Technology. Agritope's ethylene control technology is focused
on the use of a patented gene known as SAMase. The expression of SAMase in
plants produces an enzyme that acts to degrade one of the important precursor
compounds (S-adenosylmethionine or "SAM") necessary for the production of
ethylene. Agritope has genetically engineered plants to express the SAMase gene
only when certain levels of rising ethylene concentrations are reached in the
tissues of the fruit or plant. This feature causes the production of greater
levels of the enzyme that degrades SAM in response to a correspondingly higher
level of ethylene. Agritope believes that this technology thus offers a major
advantage over other approaches to ripening control in that the production of
ethylene may be specifically reduced to levels that allow for the initiation of
ripening but that delay the spoiling effects of excess ethylene. Therefore, the
fruit can be maintained at an optimal level of ripeness for an extended period
of time. An additional benefit of Agritope's technology is that the reaction
catalyzed by the SAMase gene results in compounds normally found in plants.
Agritope believes its SAMase technology can be utilized for the control of
ethylene in any plant species where ethylene affects ripening or senescence.
Agritope's application of ethylene control technology to various fruit
and vegetable crops is at different stages, as described below. There are
difficult scientific objectives to be achieved with respect to application of
the technology to certain crops before the technical or commercial feasibility
of the modified crops can be demonstrated. There can be no assurance that the
technology can be successfully applied to particular crops or that the modified
crops can be successfully and profitably produced, distributed, and sold. See
"Risk Factors--Uncertainty of Product Development."
Agritope's ripening control technology is protected by a U.S. patent
covering the use of any gene that encodes S-adenosylmethionine hydrolase (the
enzyme expressed by the SAMase gene) in any plant species. In addition to the
patent on the SAMase gene, utility claims have been allowed on the promoter/gene
combination used by Agritope in applications currently under development as well
as potential applications in all other fruit-bearing plants. In the area of
regulated ripening control, Agritope has four additional U.S. and foreign
patents pending. In addition, Agritope has three U.S. and foreign patent
applications pending in related areas.
The Salk Genes. In addition to its ethylene control technology, Agritope also
recently acquired certain rights to certain proprietary genes discovered by
scientists at the Salk Institute for Biological Studies ("Salk"). The Company
believes that the Salk Genes may have the potential to confer disease
resistance, enhance yield, control flowering and enhance gene expression in
plants. Agritope believes these new technologies will allow Agritope to leverage
its ability to genetically engineer fruits and vegetables and enhance its
ability to broaden its pipeline of new genetically engineered products. U.S. and
international patent filings have been made with respect to each of these genes.
A patent covering one gene, LEAFY, recently issued in the U.S.
Under the terms of the Salk agreement, Agritope has an option to obtain
an exclusive or nonexclusive worldwide license to use the Salk Genes in a wide
range of fruit and vegetable crops. The agreement permits Agritope to use each
Salk Gene for research and evaluation purposes, for which Agritope will pay an
annual access fee until it elects to license the gene for commercial purposes.
Agritope will pay a license issue fee and royalty for
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each Salk Gene it elects to license. Agritope has also agreed to reimburse a
percentage of applicable Salk patent costs. Salk retains ownership of the Salk
Genes, subject to applicable U.S. government rights. Agritope will own any
modified plant species and fruit and vegetable crops it develops using the Salk
Genes, and will therefore have control of the marketing and distribution rights
to such products.
Agritope's work with the Salk Genes to produce desirable fruit and
vegetable crops is at an early stage. There are difficult scientific objectives
to be achieved before the technological or commercial feasibility of the
products can be demonstrated. There can be no assurance that any of Agritope's
products under development using the Salk Genes, if and when fully developed and
tested, will perform in accordance with Agritope's expectations, that necessary
regulatory approvals will be obtained in a timely manner, if at all, or that
these products can be successfully and profitably produced, distributed and
sold.
SAR-1 is a gene that confers systemic acquired resistance ("SAR"). SAR
is the ability of plants to develop a powerful disease resistance state. After
exposure to a non-lethal inoculum of a bacterial, viral or fungal pathogen, a
plant will possess a heightened ability to defend itself against a broad range
of new pathogenic challenges. The phenomenon of SAR has been studied for years
but only recently at the molecular level. Scientists at the Salk Institute for
Biological Studies, in collaboration with those at the Samuel Roberts Nobel
Foundation, have discovered a gene, SAR-1, that appears to play a key role in
the maintenance of SAR. Agritope intends to utilize SAR-1 in the development of
plant varieties that have increased disease resistance to a broad range of plant
pathogens.
DET2 is a gene that controls brassinosteroid synthesis in plants.
Brassinosteroids are compounds that are naturally produced in minute quantities
in plants and play a key role in plant growth and development. In addition to
being difficult to extract (due to their small quantity within the plant),
brassinosteroids are also exceedingly difficult to synthesize using organic
synthesis methods. Nevertheless, research has demonstrated that application of
purified brassinosteroids to crop plants can result in enhanced yields.
Scientists at the Salk Institute have identified the key enzymatic step that
limits brassinosteroid synthesis in plants and cloned the gene, DET2, that
encodes the enzyme. Expression of the gene in transgenic plants has produced
plants with enhanced growth properties due to increased synthesis of
brassinosteroid by the transgenic plant.
BIN1 is a gene that encodes the plant receptor for brassinosteroids.
The BIN1 gene encodes a receptor-like protein kinase involved in brassinosteroid
signaling and provides further opportunities for biotechnological applications
related to yield increase in transgenic plants. In principle, it is possible to
manipulate both hormone biosynthesis with DET2, as described above, as well as
the level of brassinosteroid receptor through BIN1. In addition, it is possible
to generate BIN1 derivatives that have been activated as if brassinosteroid were
bound. Both approaches, either separately or together, have the potential to
greatly stimulate plant growth and yield.
Cyclin is a gene that is involved in regulating cell division. Salk
Institute scientists have expressed the cyclin gene in transgenic plants and
believe it may play a role in accelerating root growth. Furthermore, transgenic
crop plants containing the cyclin gene are also expected to have enhanced
vegetative growth properties. Agritope intends to test the cyclin gene initially
in commercial tomato and carrot varieties.
LEAFY is a gene that is responsible for flower initiation in plants.
Scientists at the Salk Institute have demonstrated that transgenic aspen trees
expressing LEAFY develop flowers within months rather than the 8 to 10 years
that a non-transgenic aspen requires. Agritope intends to investigate uses of
the LEAFY gene for use in tree fruits and grapevines. Alternatively, inhibiting
LEAFY expression in plants may prevent plants from flowering, which could be of
value in some vegetable crops such as lettuce and celery.
Booster Element ("BE") is a genetic element (a small piece of DNA) that
can be added to plant gene promoters to enhance gene expression. The BE
technology is applicable to a range of plant genetic engineering strategies,
including the Company's SAMase ripening control technology, and to other Salk
genes. For example,
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certain crops may need a higher level of SAMase expression to produce a specific
level of ripening control. BE may facilitate manipulation of the promoters
controlling SAMase expression and thus improve the utility of the SAMase
technology.
Additional Technologies. Agritope is also conducting research on several
additional early-stage technologies. For example, Agritope scientists have
devised a genetic engineering strategy to confer seedlessness to fruit crops. In
addition, Agritope has recently been awarded a Phase I Small Business Innovation
Research ("SBIR") grant to develop a novel geminivirus resistance strategy and
to incorporate the approach into commercial tomato varieties. Geminiviruses are
a class of plant viruses that cause widespread damage in several crops including
tomato, pepper, melon and squash.
Existing Development Programs. Agritope's research and development programs are
directed toward several highly perishable fruit and vegetable crops described
below. The development program comprises five stages, including gene isolation,
transformation, product evaluation, seed/plant production and product launch,
defined below.
The following chart shows the approximate progress Agritope has made to
date with various crops, which are described in more detail below.
[Chart titled "Agritope Product Development Program" listing the stages
of development (gene isolation, transformation, product evaluation,
seed/plant production, and product launch). The chart shows that the
following products are in the stages indicated:
Melon Product Evaluation
Tomato Product Evaluation
Raspberry Product Evaluation
Additional Crops Gene Isolation]
Gene Isolation: The initial stage of genetic engineering. Gene
isolation involves the identification and characterization of genes and
gene promoters for use in Agritope's development programs. These
genetic elements are then combined for use in genetically engineered
plants.
Transformation: The stage at which the new genetic material is
introduced into the plant. The transgenic plants which result are then
available for product evaluation.
Product Evaluation: The analysis of transgenic plants in both
laboratory and field settings to determine commercial utility. This
stage also involves the plant breeding and selection process to develop
commercially competitive new varieties that incorporate the Agritope
technology. Regulatory data are also collected and submitted at this
stage.
Seed/Plant Production: Propagation of selected plant material (either
seed or plants) in quantities needed for commercial production.
Product Launch: Commercial production and sale, following regulatory
clearance.
Melon. The U.S. wholesale fresh melon market is estimated to exceed $350 million
annually. Perishability in melons results in substantial product losses during
the processes of production, harvesting, and distribution. Agritope believes
that melons represent a substantial market opportunity for implementation of its
ripening control technology. Recent scientific reports have demonstrated a
dramatic increase in shelf life for specialty type melons in which the ability
to produce ethylene has been impaired. Using proprietary seed varieties supplied
by two units of the French seed company Groupe Limagrain: Clause Semences and
its U.S. affiliate Harris Moran Seed
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Company ("Harris Moran"), Agritope is developing commercial melon varieties with
controlled ripening and increased post-harvest product life. Transgenic melons
containing Agritope's ethylene control gene are currently being evaluated
jointly by Harris Moran and Agritope technicians.
Tomato. The annual U.S. wholesale fresh market tomato business is estimated at
$1.7 billion. In order to facilitate the commercialization of its ethylene
control technology for this market, Agritope formed Superior Tomato Associates,
L.L.C. ("STA"), a joint venture with Sunseeds Company, the developer and
producer of several leading fresh market tomato varieties.
Agritope provides genetic engineering technology and regulatory
expertise, has responsibility for managing the joint venture, and owns a
two-thirds equity ownership interest in STA. Sunseeds provides elite tomato
germplasm and breeding expertise in the development of transgenic varieties. STA
owns rights to any fresh market cherry, roma and vine-ripened large fruited
tomato varieties developed for the joint venture using Agritope ethylene control
technology and Sunseeds germplasm. STA also owns any technology jointly
developed by Agritope and Sunseeds. The parties otherwise retain all rights to
their respective technologies.
STA is currently in the process of developing and testing transgenic
cherry, roma, and large fruited vine ripe tomato varieties. Agritope has
developed lines of elite tomato germplasm provided by Sunseeds. Recent field
trials have successfully demonstrated the transfer of Agritope's SAMase ripening
control technology to a number of Sunseeds' elite breeding lines. Sunseeds is
conducting further breeding and field trials of these transgenic lines. These
trials will be followed by production scale trials that, if successful, will
lead to regulatory submissions and, if regulatory clearances are received,
commercial-scale seed production. Seeds will then be sold to approved growers,
who will pay STA a royalty on net sales of tomatoes grown from the seed.
Prior to the formation of STA, Agritope submitted safety, nutritional,
and environmental information on a prototype transgenic tomato line to both the
USDA and the FDA. In March 1996, the USDA issued its finding that this line has
no significant environmental impact and would no longer be considered a
regulated article. During the same month the FDA determined that the variety did
not raise issues that would require pre-market review or approval by that
agency. In addition to receiving these U.S. regulatory clearances, Agritope also
conducted field evaluations of SAMase tomato lines in Mexico under permits
granted by the Mexican Ministry of Agriculture. In order to commence sale of
selected varieties, Agritope will be required to make supplemental submissions
to the USDA and FDA that establish that such varieties are comparable to the
previously cleared lines.
Raspberry. The wholesale raspberry market, estimated at $48 million annually in
the U.S., has experienced limited growth because of the extreme perishability of
the fruit. Agritope believes that the successful development of raspberries
containing its ethylene control technology could permit a significant expansion
of the fresh raspberry market.
In a collaboration with Sweetbriar Development, Inc. ("Sweetbriar"),
the largest fresh raspberry producer in the U.S., Agritope has engineered
several of Sweetbriar's proprietary commercial raspberry varieties to contain
the SAMase gene. Initial field trials of transgenic raspberries are currently
underway at Sweetbriar facilities in California and Agritope facilities in
Woodburn, Oregon. Agritope has already demonstrated the ability to reduce
ethylene synthesis in the fruit. Successful development of a commercial
transgenic raspberry, which would be owned by Sweetbriar, will require further
demonstration of improved shelf life as well as additional field trials to
obtain the appropriate regulatory clearances. If these conditions are met,
Sweetbriar would produce the new raspberries for distribution and marketing by
Driscoll Strawberry Associates ("Driscoll"), the largest distributor of fresh
raspberries and strawberries in the U.S. Agritope would receive royalties on
wholesale product sales. Separately, Agritope has integrated its ripening
control technology into several public domain varieties.
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Vegetable and Flower Crops. Agritope and Vilmorin have entered into the Vilmorin
Research Agreement covering certain vegetable and flower crops. See "Risk
Factors--Terms for Commercialization of Certain Vegetable and Flower Crops."
Under the terms of the Vilmorin Research Agreement, Vilmorin will provide
certain proprietary seed varieties and germplasm for use by Agritope in research
and development projects to be funded by Vilmorin, in which Agritope technology,
and possibly Vilmorin technology, may be applied to the various covered crops.
The specific research projects to be conducted will be determined by agreement
of the parties, taking into account recommendations of Agritope's Project
Advisory Committee, two of the four members of which are to be designated by
Vilmorin. Unless otherwise agreed, Vilmorin will pay, on a quarterly basis, all
Agritope's out-of-pocket expenses, including employee salaries and overhead, for
each selected research project. See "Risk Factors-- Dependence on Strategic
Partners."
Agritope and Vilmorin have agreed to negotiate in good faith the terms
of future commercialization agreements applicable to any commercial-stage
products that arise out of such research and development projects. It is the
intent of the parties that Agritope will receive royalties on revenues generated
through sales of modified crops or modified seeds resulting from the research
projects, or that Agritope will receive revenues through participation in
programs providing royalties to Agritope and Vilmorin based on savings realized
by farmers utilizing the modified products. If the parties are unable to agree
on the terms on which a modified crop or seed is to be commercialized, the terms
of commercialization will be determined by "baseball" style arbitration, in
which the arbitrator chooses all of the terms proposed by one party or the other
without modification or compromise. See "Risk Factors--Terms for
Commercialization of Certain Vegetable and Flower Crops."
Each of Agritope and Vilmorin will continue to own its existing
proprietary technology. Any new technology developed in the course of the
research, other than modified crops or seeds, will be jointly owned by the
parties. See "Description of Business--Patents and Proprietary Information."
Each will have a right to commercialize the new technology in designated fields
of use, subject to an obligation to pay royalties for such use to the other
party. See "Risk Factors--Dependence on Strategic Partners."
During the term of the agreement, Vilmorin will have a right of first
refusal to fund and participate in research projects proposed by Agritope
involving the genetic alteration of a covered crop. The agreement provides that
Agritope will deal with Vilmorin as a most favored customer in connection with
research and commercialization agreements. Unless terminated for default, the
agreement will remain in effect until the earlier of (i) expiration of all
patents (and absence of trade secrets) for technology used in modified crops and
seeds for which the parties have entered into commercialization agreements, and
(ii) the date on which Vilmorin ceases to own at least 214,285 shares of
Agritope capital stock.
In connection with the Vilmorin Research Agreement, Vilmorin has agreed
to purchase $1.5 million shares of Series A Convertible Preferred at a price of
$7 per share. See "Sale of Series A Convertible Preferred" and "Description of
Agritope Capital Stock--Agritope Series A Convertible Preferred." Vilmorin also
has an option, expiring on January 15, 1998, to acquire all or any portion of
the remaining 785,715 additional shares of Series A Convertible Preferred at $7
per share. Vilmorin has agreed to provide additional funding totaling $1 million
either by exercising its option to purchase Series A Convertible Preferred or
through the financing of research and development projects.
Vilmorin is majority owned by Groupe Limagrain Holding S.A.
("Limagrain"). Limagrain is in turn owned by Societe Cooperative Agricole de
Semences de Limague, a societe organized under the laws of France
("Cooperative"). Cooperative is a French agricultural cooperative and the third
largest seed company in the world. Its principal business is the production of
seeds for grains, corn, garden vegetables, and oil-producing plants.
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Other Crops. Agritope is also pursuing research and development programs to
incorporate its SAMase technology into other crops where perishability causes
significant losses in the production and distribution process. These include
strawberries, bananas, peaches, pears, and apples. The estimated U.S. wholesale
markets for these crops range from $325 million for pears to $2.4 billion for
bananas.
COMMERCIALIZATION STRATEGY
Agritope is currently evaluating a number of commercialization
strategies in order to realize the value of its technology. The Company intends
to generate revenues by licensing rights to its technology in exchange for
license fees, royalties and other payments. Agritope intends to focus its
development and licensing efforts primarily toward growers and distributors of
fruits and vegetables who are likely to derive the most benefit from the reduced
costs and spoilage losses that could potentially result from using the Company's
technologies.
As part of the Vilmorin Research Agreement, Agritope and Vilmorin have
agreed to negotiate in good faith the terms of future commercialization
agreements covering any products that reach commercial-stage development.
Agritope anticipates that it will receive royalties on the sale of any products,
including modified crops or seeds, that arise out of research and development
projects conducted by Agritope and funded by Vilmorin.
GRANTS AND CONTRACTS
U.S. Department of Commerce. In October 1997, Agritope was awarded a U.S.
Department of Commerce, National Institutes of Technology ("NIST"), Advanced
Technology Program ("ATP") grant. The award covers a three-year project and
totals $990,000. Agritope was awarded the grant for use in the application of
its proprietary ripening control technology to certain tree fruits and bananas.
The NIST/ATP grant provides cost shared funding for research and
development projects with potential for important broad based economic benefits
to the United States. Agritope will bear $1.8 million of the total costs of the
program, which are estimated at $2.8 million. The awards are made on the basis
of a rigorous competitive review which considers both scientific and technical
merit.
SBIR Programs. Agritope actively participates in the SBIR programs sponsored by
the USDA. The SBIR programs have two phases. Phase I covers a six-month project
period and a total award not to exceed $100,000. Phase II covers a two-year
project period and a total award not to exceed $750,000. Agritope was awarded a
Phase I grant of $50,000 in 1994 plus a Phase II grant of $198,000 in 1995 for
development of diagnostic tests for the detection of grapevine leafroll virus.
In 1997, Agritope received a $55,000 Phase I grant for work on geminivirus
resistance strategies in tomato.
Cooperative Research and Development Agreements. Agritope has entered into two
Cooperative Research and Development Agreements ("CRADAs") with the U.S.
Department of Agriculture /Agricultural Research Services ("USDA/ARS"). Under
the CRADAs, Agritope will collaborate with USDA/ARS laboratories by providing
research services or partial funding for research projects. In return, Agritope
has been granted a right of first refusal to obtain a license for any resulting
inventions. The first CRADA is to evaluate and confer raspberry bushy dwarf
virus resistance ("RBDVr") in raspberry. This research is a collaborative effort
with the Northwest Center for Small Fruit Research, located in Corvallis,
Oregon. The purpose of the second CRADA is for the evaluation of the ripening
physiology of SAMase transformed melon. This research will be carried out
through the USDA/ARS research station in Weslaco, Texas.
Other Grants and Contracts. Agritope has also been awarded grant support in the
past from the Oregon Strawberry Commission and Oregon Raspberry and Blueberry
Commission for antifungal biocontrol research. Agritope also receives funds for
research and development programs from its strategic partners. Agritope intends
to continue to
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participate in the SBIR program, similar grant programs and projects with
strategic partners, as it deems appropriate. Agritope regularly makes
application for new grants, but there is no assurance that grant support will be
continued.
VINIFERA
Vinifera, Inc. was incorporated in 1993 to participate in the grapevine
nursery business. Through proprietary processes, Vinifera propagates and grafts
grapevine plants for sale to vineyards and to growers of table grapes. All of
Agritope's current product sales are attributable to Vinifera. Industry sources
have estimated that 44 million grafted wine grapevine plants were produced in
California in 1996. This number is expected to increase to between 70 and 90
million by the year 2000.
Traditionally, grapevine plants for sale to vineyards are produced
seasonally using field grown, dormant cuttings that are grafted. In contrast,
Vinifera uses year-round greenhouse propagation and a herbaceous grafting method
that employs very young, actively growing cuttings. As a result of greenhouse
propagation, Vinifera is able to develop in two years a quantity of new plants
that is approximately ten times larger than can be produced with traditional
techniques. In addition, herbaceous grafting with green cuttings could allow a
vineyard to begin commercial production of grapes from a newly planted vineyard
a year sooner than would otherwise be possible. This grafting process also
produces sturdier unions than dormant grafting, resulting in significantly
higher yields of successful grafts, both at the propagation stage and in the
survival of actual plantings in the field. Agritope Research and Development
provides disease testing services for Vinifera.
Vinifera is headquartered in Petaluma, California, with propagation and
production facilities there and in Woodburn, Oregon. Its library of grapevine
plants includes 32 different phylloxera-resistant types of rootstock, 88
different wine varietal clones, and ten different table grape varietal clones.
In addition, several French and Italian varietals are currently passing through
quarantine and, when released, will be available to the U.S. market exclusively
through Vinifera. Vinifera believes that this collection of different grapevine
clones is one of the largest in the world. Vinifera's U.S. customer base
consists of over 80 vineyards in California, Washington and Oregon. In 1995,
Vinifera established a joint venture in Argentina (Vinifera Sudamericana S.A.)
to begin the propagation of plant material in that country. Vinifera is
currently in the process of establishing similar ventures in other countries
with large grape and wine production industries.
COMPETITION
The plant biotechnology industry is highly competitive. Competitors
include independent companies that specialize in biotechnology; chemical,
pharmaceutical and food companies that have biotechnology laboratories;
universities; and public and private research organizations. Agritope believes
that many companies including companies with significantly greater financial
resources, such as Monsanto Company, DNAP Holding and Zeneca Plant Sciences, are
engaged in the development of mechanisms to control the ripening and senescence
of fruit and vegetable products. Technological advances by others could render
Agritope's products less competitive. The Company believes that, despite
barriers to new competitors such as patent positions and substantial research
and development lead time, competition will intensify, particularly from
agricultural biotechnology firms and major agrichemical, seed and food companies
with biotechnology laboratories.
GOVERNMENT REGULATION
Regulation by federal, state and local government authorities in the
U.S. and by foreign governmental authorities will be a significant factor in the
future production and marketing of Agritope's genetically engineered fruit and
vegetable products.
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The federal government has implemented a coordinated policy for the
regulation of biotechnology research and products. The USDA has primary federal
authority for the regulation of specific research, product development and
commercial applications of certain genetically engineered plants and plant
products. The FDA has principal jurisdiction over plant products that are used
for human or animal food. The EPA has jurisdiction over the field testing and
commercial application of plants genetically engineered to contain pesticides.
Other federal agencies have jurisdiction over certain other classes of products
or laboratory research.
The USDA regulates the growing and transportation of most genetically
engineered plants and plant products. In March 1996 following a request from
Agritope, the USDA issued a determination that permits the growing and shipping
of Agritope's prototype variety of ripening-controlled cherry tomato anywhere in
the U.S. in the same manner as conventionally developed tomatoes.
In May 1992, the FDA announced its policy on foods developed through
genetic engineering (the "FDA Policy"). The FDA Policy provides that the FDA
will apply the same regulatory standards to foods developed through genetic
engineering as applied to foods developed through traditional plant breeding.
Under the FDA Policy, the FDA will not ordinarily require premarket review of
genetically engineered plant varieties of traditional foods unless their
characteristics raise significant safety questions, such as elevated levels of
toxicants, the presence of allergens, or they are deemed to contain a food
additive.
In March 1996, the FDA announced its determination, based on its review
of food safety data submitted by Agritope, that Agritope's prototype variety of
ripening controlled cherry tomato expressing the SAMase gene has not been
significantly altered with respect to food safety or nutritive value when
compared to conventional tomatoes.
Currently, the FDA Policy does not require that genetically engineered
products be labeled as such, provided that such products are as safe and have
the same nutritional characteristics as conventionally developed products.
However, there can be no assurance that the FDA will not reconsider its
position, or that local, state or international authorities will not enact
labeling requirements, any of which could have a material adverse effect on the
marketing of products derived using the tools and techniques of genetic
engineering.
The FDA is considering modifying its policy on foods developed through
genetic engineering to include a Premarket Notification ("PMN") procedure. This
policy modification could require a company that develops genetically engineered
foods to inform the FDA that its safety evaluation is complete and that the
company intends to commercialize the product. The objective of the PMN is to
make the FDA and the public aware of all new genetically engineered food
products entering the market. Agritope believes that any future requirement for
a PMN should not delay plans to commercialize its genetically engineered fruit
and vegetable products.
Agritope's complete range of agribusiness and plant biotechnology
activities are subject to general FDA food regulations and are, or may be,
subject to regulation under various other laws and regulations. These include
but are not limited to the Occupational Safety and Health Act, the Toxic
Substances Control Act, the National Environmental Policy Act, other federal
water, air and environmental quality statutes, import/export control
legislation, and other laws. At the present time most states are generally
deferring to federal agencies (USDA or EPA) for the approval of genetically
engineered plant field trials, although states are provided a review period
prior to the issuance of a field trial permit. Failure to comply with applicable
regulatory requirements could result in enforcement action, including withdrawal
of marketing approval, seizure or recall of products, injunction or criminal
prosecution.
- 41 -
<PAGE>
International regulatory policies for genetically engineered plants and
plant products are not complete. Consequently, it is possible that additional
data, labeling or other requirements will be required in countries where
Agritope intends to grow and/or commercialize its genetically engineered
products. Foreign regulatory agencies could require Agritope to conduct further
safety assessments and potentially delay product development programs or
commercialization of resulting products.
To date, to the best of its knowledge, Agritope has successfully
functioned within the scope of applicable laws and regulations, including rules
administered by the USDA, the FDA, the Mexican Ministry of Agriculture, and the
Chilean Ministry of Agriculture (Servicio Agricola y Ganadero Departemento
Proteccion Agricola de Chile). Agritope believes it is in substantial compliance
with all applicable laws and regulations pertaining to the development and
commercialization of its products.
PATENTS AND PROPRIETARY INFORMATION
In 1995, Agritope received a U.S. patent relating to its ethylene
control gene. Agritope has also applied for additional U.S. and foreign patent
protection for its ethylene control technology. Agritope's ability to
commercialize products depends in part on the ownership or right to use relevant
enabling technology as well as the ownership or right to use genes of interest.
Agritope anticipates filing patent applications for protection on future
products and technology. U.S. patents generally have a maximum term of 20 years
from the date an application is filed or 17 years from issuance, whichever is
longer.
Much of the technology developed by Agritope is subject to trade secret
protection. To reduce the risk of loss of trade secret protection through
disclosure, Agritope requires its employees and consultants to enter into
confidentiality agreements. Agritope believes that patent and trade secret
protection is important to its business. However, the issuance of a patent or
existence of trade secret protection does not in itself ensure Agritope's
success. Competitors may be able to produce products competing with a patented
Agritope product without infringing on Agritope's patent rights. Issuance of a
patent in one country generally does not prevent others from manufacturing or
selling the patented product in other countries. The issuance of a patent to
Agritope or to a licensor is not conclusive as to validity or as to the
enforceable scope of the patent. The validity or 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, the owner's rights could be
diminished or withdrawn. Trade secret protection does not prevent independent
discovery and exploitation of the secret product or technique.
Agritope recently acquired certain rights to five new proprietary genes
discovered by scientists at the Salk Institute for Biological Studies. Agritope
believes the Salk Genes may have the potential to confer disease resistance,
enhanced yield, controlled flowering, and enhanced gene expression in plants.
All of the Salk Gene technologies are covered by pending patent applications.
Agritope has an option to obtain an exclusive worldwide license to the Salk
Genes for a field of use that includes a variety of plant species and nearly all
fruit and vegetable crops.
Agritope and Vilmorin have entered into the Vilmorin Research
Agreement. Under the terms of the agreement, Agritope and Vilmorin will each
continue to own its existing proprietary technology. Any new technologies will
be owned jointly by the parties, with each party having a royalty-bearing right
to commercialize the new technology in the party's field of use.
PERSONNEL
At September 30, 1997, Agritope and its subsidiaries had 46 full-time
employees, including 19 in research and development and 23 at the Vinifera grape
plant nursery operation, which also employs seasonal part-time employees as
needed. Agritope considers its relations with its employees to be excellent.
None of its employees are represented by labor unions.
- 42 -
<PAGE>
Agritope employs five persons holding Ph.D. degrees with specialties in
the following disciplines: applied botany, bacteriology and public health,
biochemistry and biophysics, biological sciences, molecular biology, and plant
pathology and molecular virology. From time to time, Agritope also engages the
services of scientists as consultants to augment the skills of its scientific
staff.
SCIENTIFIC ADVISORY BOARD
Agritope utilizes the services of a Scientific Advisory Board. The
Scientific Advisory Board meets periodically to review Agritope's research and
development efforts and to apprise Agritope of scientific developments pertinent
to Agritope's business. The Agritope Scientific Advisory Board consists of chair
Eugene W. Nester, Ph.D., Professor and Chair, Department of Microbiology,
University of Washington; Richard K. Bestwick, Ph.D., Agritope Senior Vice
President--Research and Development; Peter R. Bristow, Ph.D., Associate
Professor of Plant Pathology, Washington State University; Roger N. Beachy,
Ph.D., Scripps Family Chair, Department of Cell Biology, Scripps Research
Institute; and Christopher J. Lamb, Ph.D., Professor, Director, Plant Biology
Laboratory, Salk Institute for Biological Studies. Drs. Nester and Beachy are
members of the National Academy of Sciences.
After the closing of the Vilmorin Research Agreement, Vilmorin will
have the right to designate a scientist to sit on the Scientific Advisory board.
PROPERTIES
Agritope currently uses a portion of Epitope's office space and
research and development facilities in Beaverton, Oregon, consisting of
approximately 35,600 square feet of office, manufacturing, and laboratory space.
Agritope is charged a monthly fee of $16,000 by Epitope for use of the
facilities.
Agritope has entered into a lease agreement for approximately 11,000
square feet of office and laboratory space in Portland, Oregon. The agreement
requires monthly rental payments on a triple net basis of $10,285 from
commencement of the lease term on March 1, 1998 through May 1, 2001, and
thereafter of $11,210 until expiration of the lease on February 28, 2003.
Agritope intends to relocate its office and research and development operations
to the leased facilities on March 1, 1998, or as soon thereafter as practicable.
Agritope owns a 15-acre farm in Woodburn, Oregon, which it leases to
Vinifera for use in connection with Vinifera's grapevine propagation operations.
Greenhouse capacity at the farm currently totals 60,000 square feet.
In addition to leasing Agritope's Oregon farm and greenhouse, Vinifera
leases 250,000 square feet of greenhouse space in Petaluma, California under a
lease that expires January 31, 2001. The lease provides an option to purchase
the leased premises, exercisable through January 31, 1999, for a price of $1.3
million. The California greenhouse is currently in the final stages of being
upgraded to provide the capacity necessary to meet anticipated 1998 production
requirements.
Agritope believes that its present and new leased facilities are
adequate to meet current requirements.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Agritope.
- 43 -
<PAGE>
DIVIDEND POLICY
Agritope has never declared or paid cash dividends on its common stock.
Agritope currently anticipates that it will retain all future earnings for use
in the operation and growth of its business and does not anticipate paying any
cash dividends in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
TRANSFER AGENT
The transfer agent and registrar for the Agritope Common is ChaseMellon
Shareholder Services, L.L.C.
- 44 -
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Agritope Board consists of seven directors. Under the terms of the
Series A Convertible Preferred, the holders of such shares will be entitled to
elect one director on an annual basis so long as at least 214,285 shares of
Series A Convertible Preferred are outstanding. That director was appointed to
the Agritope Board in December 1997. Because the Agritope Board is a staggered
board, the other six directors have been designated as Class 1, Class 2 and
Class 3 directors. Directors of each class will serve for a term expiring at the
annual meeting of Agritope stockholders in 1998, 1999 and 2000, respectively.
The table below presents the names, ages and positions of Agritope's
executive officers and directors as of the Distribution Date.
<TABLE>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Adolph J. Ferro, Ph.D. 55 Chairman of the Board, President,
Chief Executive Officer and
Class 1 Director.
Gilbert N. Miller 56 Executive Vice President,
Chief Financial Officer,
Secretary and Class 1 Director
Richard K. Bestwick, Ph.D. 43 Senior Vice President--Research
and Development
Matthew G. Kramer 40 Vice President--Product Development
Joseph A. Bouckaert 56 President and Chief Executive
Officer--Vinifera, Inc.
W. Charles Armstrong 52 Class 2 Director
Roger L. Pringle 56 Class 2 Director
Michel de Beaumont 55 Class 3 Director
Nancy L. Buc 53 Class 3 Director
Pierre Lefebvre (1) 46 Director
</TABLE>
(1) Mr. Lefebvre has been elected at the request of the holders of the Series A
Convertible Preferred Stock to be issued in connection with the Vilmorin
Research Agreement entered into between Agritope and Vilmorin.
Adolph J. Ferro, Ph.D., has been President and Chief Executive Officer
of Agritope since 1989, and a director since 1990. He is Chairman of the Board
of Agritope. He was President and Chief Executive Officer of Epitope from 1990
through May 1997, and has been a director of Epitope since 1990. Dr. Ferro was
Senior Vice President of Epitope from 1988 until 1990. From 1987 until 1988, he
was Vice President of Research and Development. He was a cofounder of
Agricultural Genetic Systems, Inc., which Epitope acquired and renamed Agritope
in 1987. Prior to joining Agritope, he was a Professor in the Department of
Microbiology at Oregon State University ("OSU"). From 1981 to 1986, he was an
Associate Professor at OSU, and from 1978 to 1981, he was
- 45 -
<PAGE>
an Assistant Professor at OSU. From 1975 to 1978, he was Assistant Professor at
the University of Illinois at Chicago in the Department of Biological Sciences.
Dr. Ferro received a B.A. degree from the University of Washington in 1965, an
M.S. degree in biology from Western Washington University in 1970, and a Ph.D.
in bacteriology and public health from Washington State University in 1973.
Gilbert N. Miller has been Chief Financial Officer of Agritope since
1991. He was also Senior Vice President of Agritope from 1992 until February
1996, when he became Executive Vice President. He has been a director of
Agritope since August 1997. He joined Epitope in 1989 as Executive Vice
President and Chief Financial Officer and has served as Epitope's Treasurer
since 1991. He will not serve as Executive Vice President and Chief Financial
Officer of Epitope after the Distribution. From 1987 to 1989, he was Executive
Vice President, Finance and Administration, of Northwest Marine Iron Works, a
privately held ship repair contractor located in Portland, Oregon. From 1986 to
1987, he was Vice President/Controller of the Manufacturing Group of Morgan
Products, Ltd., a manufacturer and distributor of specialty building products
based in Oshkosh, Wisconsin. He also held the position of Senior Vice
President/Finance of Nicolai Company, a Portland wood door manufacturing concern
which became a wholly owned subsidiary of Morgan Products, Ltd., in 1986. Mr.
Miller received a B.S. degree from Oregon State University and a Master of
Business Administration degree from University of Oregon. He is a certified
public accountant.
Richard K. Bestwick, Ph.D., has been a Senior Vice President of
Agritope since 1992. He became Chief Operating Officer--Research and Development
in October 1996 and was named Senior Vice President--Research and Development in
October 1997. He was employed by Epitope from 1987 to 1992. Prior to joining
Epitope, he was a Research Assistant Professor in the Department of Biochemistry
at the Oregon Health Sciences University, where he also completed his
postdoctoral training. Dr. Bestwick received a Ph.D. in Biochemistry and
Biophysics from Oregon State University and a B.S. degree from Evergreen State
College.
Matthew G. Kramer joined Agritope in 1994 as Vice President--Product
Development. From 1987 to 1994, he was Director of Production and Product
Development for Calgene Fresh, Inc., where he was involved in development and
commercialization of the FLAVR SAVR(TM) tomato. Mr. Kramer received an M.S.
degree in Agronomy and a B.S. degree at Montana State University.
Joseph A. Bouckaert joined Vinifera as its President and Chief
Executive Officer when Vinifera began operations in 1993. From 1988 to 1991, he
was Vice Chairman of DNA Plant Technology Corporation, a publicly held
agricultural biotechnology company with offices in Cinnaminson, New Jersey, and
Oakland, California. He also was a co-founder and member of the board of
directors of Florigene, B.V., an agricultural biotechnology company focused on
the flower business and located in the Netherlands. From 1985 to 1988, he served
as President and Chief Executive Officer of Advanced Genetic Sciences Inc. a
publicly held biotechnology company located in Oakland, California. In 1982, Mr.
Bouckaert co-founded Plant Genetic Systems, N.V., a privately held agricultural
biotechnology company located in Brussels, Belgium, and served as its first
Managing Director from 1982 through 1986. Mr. Bouckaert received a Juris Doctor
degree from the University of Leuven in Belgium and postgraduate degrees in
Business Administration from the University of Ghent in Belgium, and the
University of Kentucky in Lexington, Kentucky.
W. Charles Armstrong has been a director of Agritope since August 1997.
He has also been a director of Epitope since 1989 and a director of Pacificorp,
a public utility holding company, since 1996. He served as President and Chief
Executive Officer of Epitope from May 1997 to October 1997. He was Chairman and
Chief Executive Officer of Bank of America Oregon from September 1992 until
September 1996. From April to September 1992, he was Chairman and Chief
Executive Officer of Bank of America Idaho. Mr. Armstrong served as President
and Chief Operating Officer of Honolulu Federal Savings Bank from February 1989
to April 1992. Prior to February 1989, he was President and Chief Executive
Officer of West One Bank, Oregon.
- 46 -
<PAGE>
Roger L. Pringle has been a director of Agritope since 1990. He has
been a director of Epitope since 1989, and Chairman of the Board of Epitope
since 1990. He is President of The Pringle Company, a management consulting firm
in Portland, Oregon, which he founded in 1975.
Michel de Beaumont was elected a director of the Company in September
1997. Since 1981, Mr. de Beaumont has served as a co-founder and director of
American Equities Overseas (UK) Ltd. of London, England, a wholly owned
subsidiary of American Equities Overseas, Inc. ("American Equities"), a private
securities brokerage and corporate finance firm. Mr. de Beaumont was Vice
President in the London office of American Securities Corp. from 1978 to 1981.
He also served as Vice President, Institutional Sales in the London office of
Smith Barney Harris Upham, Inc. from 1975 to 1978 and as a Vice President at
Oppenheimer & Co. Mr. de Beaumont graduated from the University of Poitiers and
Paris with degrees in Advanced Math, Physics and Chemistry and has earned a
degree in business administration from the University of Paris.
Nancy L. Buc was elected a director of the Company in September 1997.
She has been a partner in the law firm of Buc & Beardsley in Washington, D.C.
since 1994. Prior to 1994, Ms. Buc was a partner at Weil, Gotshal & Manges from
1981 to 1994 and from 1977 to 1980. Ms. Buc served as General Counsel for the
FDA from 1980 to 1981. During an earlier period of government service
(1969-1972), she served successively as Attorney-Advisor to the Chairman of the
Federal Trade Commission and Assistant Director of that agency's Bureau of
Consumer Protection. She is a Director of the Virginia Law School Foundation and
the Women's Legal Defense Fund. Ms. Buc is a graduate of Brown University and
the University of Virginia School of Law. Ms. Buc holds an honorary Doctor of
Laws from Brown and is a fellow emerita of the Brown Corporation, that
university's governing board.
Pierre Lefebvre was elected a director of the Company in December 1997.
He has served as Deputy Chief Executive Officer of Groupe Limagrain Holding and
as chief executive officer of Vilmorin, a subsidiary of Groupe Limagrain
Holding, since 1990. He presently leads both Vilmorin and the Groupe Limagrain
Bio-Health Division. Prior to 1990, Mr. Lefebvre served as chief executive
officer at Harris Moran Seed Company (formerly Ferry-Morse Seed Company), a
California-based subsidiary of Limagrain, specializing in vegetable and flower
seeds, and as controller at Tezier, another subsidiary of Limagrain. Mr.
Lefebvre is a 1975 graduate of Groupe ESSEC School of Management, a French
business school.
COMMITTEES OF THE BOARD
The Agritope Board has established the following standing committees:
Executive Committee, Audit Committee, Compensation Committee and Nominating
Committee. Pursuant to the Bylaws, the Agritope Board may also establish other
committees from time to time in its discretion.
The Executive Committee consists of at least two directors and may
exercise all the authority and powers of the Agritope Board in the management of
the business and affairs of Agritope, except those reserved to the Agritope
Board by the Delaware General Corporation Law. Mr. Pringle (chair), Dr. Ferro
and Mr. Miller are the initial members of the Executive Committee.
The Audit Committee consists of at least two outside directors and,
among other things, recommends the appointment of independent public
accountants, reviews the scope of the annual audit and the engagement letter,
reviews the independence of the independent accountants and reviews the findings
and recommendations of the independent accountants and management's response.
The Audit Committee also reviews the internal audit and control functions of
Agritope and makes recommendations for changes in accounting systems, if
warranted. Mr. Armstrong (chair), Ms. Buc and Mr. Pringle are the initial
members of the Audit Committee.
- 47 -
<PAGE>
The Compensation Committee also consists of at least two outside
directors and determines compensation for the officers of Agritope, administers
stock-based compensation plans and other performance-based compensation plans
adopted by Agritope, and considers matters of director compensation and
benefits. Ms. Buc (chair) and Mr. Armstrong are the initial members of the
Compensation Committee.
The Nominating Committee which consists of at least two directors will
select and recommend candidates to serve on the Agritope Board, whose names will
be submitted for election at annual meetings of Agritope shareholders. The
Nominating Committee will also review and make recommendations to the Agritope
Board concerning the composition and size of the Agritope Board and its
committees. Mr. de Beaumont (chair), Ms. Buc, Dr. Ferro and Mr. Miller are the
initial members of the Nominating Committee.
COMPENSATION OF DIRECTORS
Nonemployee directors of Agritope will be reimbursed for out-of-pocket
expenses in connection with attending board and committee meetings. Each
nonemployee director, other than Mr. Lefebvre, is granted an option for 25,000
shares of Agritope Common upon his or her initial election or appointment to the
Agritope Board, plus an additional option for 5,000 shares of Agritope Common
for his or her initial year of service. Mr. Lefebvre is prohibited from
receiving options by policy of his employer. On December 1 of each subsequent
year on which each nonemployee director, other than Mr. Lefebvre, serves on the
Agritope Board, the director will receive an additional option for 5,000 shares
of Agritope Common. The options will be nonqualified stock options with an
exercise price equal to 75 percent of the price of Agritope Common on the date
of grant, with the discount being no more than $2 per share. The options will
vest ratably over four years and have an indefinite term. Directors are also
eligible to receive other options under Agritope's 1997 Stock Award Plan. See
"1997 Stock Award Plan."
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the last three
fiscal years of the Chief Executive Officer and the three other executive
officers of Agritope whose salary and bonus exceeded $100,000 during the 1997
fiscal year. Information set forth in the table reflects compensation paid for
services rendered for Epitope and/or Agritope.
- 48 -
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
Long-Term
Compensation
Awards
Annual Compensation Securities All Other
Underlying Compen-
Name and Principal Position Year Salary Bonus Options (1) sation(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adolph J. Ferro, Ph.D. 1997 $ 240,000 $ - $ 7,354
Chairman of the Board, 1996 214,183 50,000 - 4,237
President and Chief Executive 1995 200,769 113,245 5,390
Officer (3)
Gilbert N. Miller 1997 165,000 - - $ 7,125
Executive Vice President 1996 128,510 33,075 - 3,206
and Chief Financial Officer 1995 130,962 - 5,021
Richard K. Bestwick, Ph.D. 1997 150,000 - - -
Senior Vice President-- 1996 91,385 20,160 - 2,280
Research and Development (4)
Joseph A. Bouckaert 1997 160,000 - - -
President and Chief Executive 1996 160,000 33,600 - -
Officer--Vinifera, Inc. (5) 1995 115,592 40,000 - -
</TABLE>
(1) Represents the number of shares of Agritope Common for which options
were awarded. Excludes options for Epitope Stock received under the
Epitope Award Plan as follows: Dr. Ferro--74,000 options in 1995; Mr.
Miller--34,000 options in 1995; Mr. Bouckaert--50,000 options in 1996.
(2) Represents amounts contributed to Epitope's 401(k) Plan as employer
matching contributions in the form of Epitope Stock.
(3) The information in the above table does not include approximately
$440,000 payable by Epitope to Dr. Ferro, pursuant to his employment
agreement with Epitope, in connection with the termination of Dr.
Ferro's position as President and Chief Executive Officer of Epitope in
May 1997.
(4) Dr. Bestwick was not an executive officer of Agritope during fiscal
1995.
(5) Information for Mr. Bouckaert for 1996 and 1995 includes compensation
paid for periods during which Vinifera was not a subsidiary of
Agritope.
GRANTS OF OPTIONS TO PURCHASE AGRITOPE COMMON
No options to purchase Agritope Common were granted to officers named
in the "Summary Compensation Table" during the fiscal year ended September 30,
1997.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OUTSTANDING OPTIONS FOR
AGRITOPE COMMON
None of the officers named in the "Summary Compensation Table"
exercised options to purchase Agritope Common during the fiscal year ended
September 30, 1997, and none of such officers held any options exercisable for
Agritope Common at September 30, 1997.
EMPLOYMENT; CHANGE IN CONTROL AGREEMENTS
Pursuant to written employment agreements with Agritope, each of the
executive officers named in the Summary Compensation Table above is entitled to
receive one year of salary in the event of termination without cause (two years
in the case of Dr. Ferro and Mr. Miller) or two years of salary (three years in
the case of Dr. Ferro and Mr. Miller) if terminated without cause within 12
months following a change in control (within the meaning of the Exchange Act) or
sale of substantially all the assets of Agritope, except that Mr. Bouckaert's
agreement does not include a change-of-control provision. The agreements in each
case prohibit the officer from competing with Agritope for one year unless the
officer elects to waive the right to amounts otherwise payable. Mr. Bouckaert's
agreement prohibits him from competing with Vinifera for three years after
termination. The agreements do not expire by their terms, except that Mr.
Bouckaert's agreement terminates on May 31, 2000. The other agreements are
terminable by Agritope on 30 days' notice with cause or, subject to payment of
the salary amounts described above, on 90 days' notice without cause, and may be
terminated by the executive officer on 90 days' notice.
- 50 -
<PAGE>
1997 STOCK AWARD PLAN
GENERAL
The Agritope, Inc. 1997 Stock Award Plan (the "Award Plan") was adopted
by the Agritope Board and approved by Epitope as Agritope's sole stockholder in
November 1997. The Award Plan will continue in effect until awards have been
granted covering all shares available for issuance under the Award Plan or the
Award Plan is otherwise terminated by the Agritope Board. The Award Plan
provides for the issuance of a total of up to 2,000,000 shares of Agritope
Common, subject to adjustment for changes in capitalization. A summary
description of certain terms and provisions of the Award Plan and options
proposed to be granted thereunder follows. The following summary of the Award
Plan is subject to the detailed terms and provisions of the Plan.
PURPOSE
The purpose of the Award Plan is to promote and advance the interests
of Agritope and its stockholders by enabling Agritope to attract, retain, and
reward key employees, outside advisors, and directors. The Award Plan is
intended to strengthen the mutuality of interests between such employees,
advisors, and directors and Agritope's stockholders by offering equity-based
incentive awards to promote a proprietary interest in pursuing the long-term
growth, profitability, and financial success of Agritope.
AWARDS AND ELIGIBILITY
The Award Plan provides for stock-based awards to (i) employees of
Agritope and its subsidiaries (including individuals who may also be officers or
directors of Agritope or a subsidiary), (ii) members of scientific advisory
committees or other consultants to Agritope or its subsidiaries ("Advisors"),
and (iii) nonemployee directors of Agritope or its subsidiaries. Awards that may
be granted under the Award Plan include stock options, stock appreciation
rights, restricted awards, performance awards, and other stock-based awards
(collectively, " Awards"). The Compensation Committee of the Agritope Board (the
"Committee") will administer the Award Plan and determine the key employees and
Advisors of Agritope and its subsidiaries who are to receive Awards under the
plan and the types, amounts, and terms of Awards. The Award Plan authorizes the
Agritope Board to grant Awards to non-employee directors from time to time in
its discretion in accordance with its fiduciary obligations to Agritope and its
stockholders.
All employees are eligible to receive Awards under the Award Plan,
including each of Agritope's nonemployee directors and executive officers. No
options, stock appreciation rights ("SARs"), restricted awards, performance
awards, or other stock-based awards have been granted under the Award Plan.
NEW OPTIONS
Options ("New Options") to purchase a total of 1,305,164 shares of
Agritope Common have been granted to officers, employees and nonemployee
directors of Agritope under the Award Plan. New Options granted to executive
officers and nonemployee directors have an exercise price of $5.25 per share,
representing 75 percent of the fair market value of Agritope Common at the date
of grant. New Options granted to other employees have an exercise price of $7
per share, representing the fair market value of Agritope Common on the date of
grant. Each New Option becomes exercisable as to 25 percent of the shares
covered by such option on each of the first four anniversaries of the dates of
grant.
The following table shows the New Options that have been granted under
the Award Plan:
- 51 -
<PAGE>
NEW PLAN BENEFITS
AGRITOPE, INC. 1997 STOCK AWARD PLAN
<TABLE>
Number of
New
Name and Position Options
----------------- -------
<S> <C>
Adolph J. Ferro, Ph.D. 407,529
Chairman of the Board, President and Chief Executive Officer
Gilbert N. Miller 211,593
Executive Vice President and Chief Financial Officer
Richard K. Bestwick, Ph.D. 143,900
Senior Vice President--Research and Development
Joseph A. Bouckaert 102,071
President and Chief Executive Officer--Vinifera, Inc.
Matthew G. Kramer,
Vice President--Product Development 102,071
All executive officers as a group 967,164
All nonemployee directors as a group 120,000
All employees as a group, excluding executive officers 218,000
</TABLE>
DESCRIPTION OF TERMS OF AWARDS
Following is a brief summary of the various types of Awards that may be
granted under the Award Plan.
Options. Options granted under the Award Plan may be either incentive
stock options, a tax-favored form of stock option meeting the requirements of
Section 422 of the Code, or nonqualified options, which are not entitled to
favorable income tax treatment. ISOs must expire not more than ten years from
the date of grant. The Award Plan does not limit the maximum term for
nonqualified options. The exercise price per share for options granted under the
Award Plan generally must be at least 100 percent (for incentive stock options)
or 75 percent (for nonqualified options) of the fair market value of a share of
Agritope Common on the date the option is granted. The Award Plan authorizes the
Committee (or the Agritope Board, with respect to Awards to nonemployee
directors) to issue nonqualified deferred compensation options with an option
price substantially less than the fair market value of a share of Agritope
Common on the date of grant (but not less than $1 per share) for the purpose of
deferring a specified amount of income for a recipient. The Committee (or the
Agritope Board), in its discretion, may provide in the agreement evidencing an
option that, to the extent that the option is exercised using previously
acquired shares of Agritope Common, the option holder shall automatically be
granted a replacement ("reload") option for a number of shares of Agritope
Common equal to the number of shares delivered upon exercise with an option
price equal to the fair market value of a share of Agritope Common on the date
of exercise and subject to such other terms as the Committee (or the Agritope
Board) determines. The aggregate fair market value of shares for which any
participant may be granted ISOs which are exercisable for the first time during
any calendar year may not exceed $100,000. In addition, no individual
participant may be granted options for more than 500,000 shares during any
fiscal year.
Stock Appreciation Rights. A recipient of SARs will receive, upon
exercise, a payment based on the increase in the price of a share of Agritope
Common between the date of grant and the date of exercise. Payment may be in
cash, in shares of Agritope Common, in the form of a deferred compensation
option or in any other form approved by the Committee (or the Agritope Board).
SARs may be granted in connection with options or other Awards granted under the
Award Plan or may be granted as independent Awards.
- 52 -
<PAGE>
Restricted Awards. Restricted Awards may take the form of restricted
shares or restricted units. Restricted shares are shares of Agritope Common that
may be subject to forfeiture if the recipient terminates employment or service
as a nonemployee director or Advisor during a specified period (the "Restriction
Period"). Stock certificates representing restricted shares are issued in the
name of the recipient, but are held by Agritope until the expiration of the
Restriction Period. From the date of issuance of restricted shares until any
forfeiture, the recipient is entitled to the rights of a stockholder with
respect to the shares, including voting and dividend rights. Upon expiration of
the Restriction Period and satisfaction of any other applicable conditions,
restricted shares vest and are delivered to the recipient. The Committee (or the
Agritope Board) may permit payment to be in cash, in installments or in the form
of a deferred compensation option.
Restricted units are Awards of units equivalent in value to a share of
Agritope Common, which similarly may be subject to forfeiture if the recipient
terminates employment or service as a nonemployee director or Advisor during a
Restriction Period. At the expiration of the Restriction Period, payment with
respect to restricted units is made in an amount equal to the value of the
number of shares of Agritope Common covered by the restricted units. Payment may
be in cash, unrestricted shares of Agritope Common, or any other form approved
by the Committee (or the Agritope Board).
Performance Awards. Performance Awards are designated in units
equivalent in value to a share of Agritope Common. A performance Award is
subject to forfeiture if or to the extent that Agritope, a subsidiary, an
operating group, or the recipient, as specified by the Committee (or the
Agritope Board) in the Award, fails to meet performance goals established for a
designated performance cycle. Performance Awards earned by attaining performance
goals are paid at the end of a performance cycle in cash, shares of Agritope
Common, or any other form approved by the Committee (or the Agritope Board).
Other Stock-Based Awards. The Committee (or the Agritope Board) may
grant other Awards that involve payments or grants of shares of Agritope Common
or are measured by or in relation to shares of Agritope Common. The Award Plan
thus provides needed flexibility to design future types of stock-based or
stock-related Awards to attract and retain employees, Advisors and directors in
a competitive environment.
The Board may amend or terminate the Award Plan without stockholder
approval, other than amendments that would materially increase the aggregate
number of shares of Agritope Common that may be issued under the Award Plan
(except for adjustments for changes in capitalization).
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal anticipated federal
income tax consequences of Awards granted under the Award Plan to participants
and to Agritope.
Incentive Stock Options. An optionee does not realize taxable income
upon the grant or exercise of an ISO under the Award Plan.
If no disposition of shares issued to an optionee pursuant to the
exercise of an ISO is made by the optionee within two years from the date of
grant or within one year from the date of exercise, then (a) upon the sale of
the shares, any amount realized in excess of the option price (the amount paid
for the shares) is taxed to the optionee as mid-term (if the disposition is
within 18 months from the date of exercise) or long-term capital gain (if the
disposition is more than 18 months after the date of exercise) and any loss
sustained will be a mid-term or long-term capital loss, and (b) no deduction is
allowed to Agritope for federal income tax purposes. For purposes of computing
alternative minimum taxable income, an ISO is treated as a nonqualified option.
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<PAGE>
If shares of Agritope Common acquired upon the exercise of an ISO are
disposed of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), then (a) the optionee realizes
compensation taxable at ordinary income tax rates in the year of disposition in
an amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on sale of the shares) over the
exercise price thereof and (b) Agritope is entitled to deduct such amount. Any
further appreciation or reduction in value is treated as a short-term, mid-term
or long-term capital gain or loss, as applicable, to the optionee, and does not
result in any deduction to Agritope. A disqualifying disposition in the year of
exercise will generally avoid the alternative minimum tax consequences of the
exercise of an ISO.
Nonqualified Options. No income is realized by the optionee at the time
a nonqualified option is granted. Upon exercise, (a) an optionee will generally
realize ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the date of exercise
and (b) Agritope will receive a tax deduction for the same amount. The
optionee's cost basis in the acquired shares is the fair market value of the
shares on the exercise date. Upon sale of the shares thereafter, any
appreciation or reduction in value is treated as a short-term, mid-term, or
long-term capital gain or loss, as applicable, to the optionee, and will not
result in any deduction to Agritope.
Payment of Exercise Price in Shares. The Committee may permit
participants to pay all or a portion of the exercise price using previously
acquired shares of Agritope Common. If an option is exercised and payment is
made in previously held shares, there is no taxable gain or loss to the
participant other than any gain recognized as a result of exercise of the
option, as described above.
Stock Appreciation Rights. The grant of a SAR to a participant will not
cause the recognition of income by the participant. Upon exercise of a SAR, the
participant will realize ordinary income equal to the amount of cash payable to
the participant plus the fair market value of any shares of Agritope Common or
other property delivered to the participant. Agritope will be entitled to a
deduction equal to the amount of ordinary income realized by the participant in
connection with the exercise of a SAR.
Restricted Awards and Performance Awards. Generally, a participant will
not recognize any income upon issuance of a restricted Award or performance
Award that is subject to forfeiture during a Restriction Period or performance
cycle. Dividends paid with respect to Awards during a Restriction Period or
performance cycle prior to the vesting of the Awards will be taxable as ordinary
income to the participant. Generally, a participant will recognize ordinary
income upon the vesting of restricted Awards or performance Awards in an amount
equal to the amount of cash payable to the participant plus the fair market
value of shares of Agritope Common or other property delivered to the
participant. However, a participant may elect to recognize ordinary income upon
the grant of restricted shares, based on the fair market value of the shares of
Agritope Common subject to the Award at the date of grant. If a participant
makes such an election, dividends paid with respect to the restricted shares
will not be treated as ordinary income, but rather as dividend income, and the
participant will not recognize additional income when the restricted shares
vest. Agritope will be entitled to a deduction equal to the amount of ordinary
income recognized by the participant. If a participant who receives an Award of
restricted shares makes the special election described above, Agritope will not
be entitled to deduct dividends paid with respect to the restricted shares.
Limitation on Deductibility of Certain Compensation. Section 162(m) of
the Code generally makes nondeductible to Agritope taxable compensation paid to
a single individual in excess of $1 million in any calendar year if the
individual is the Chief Executive Officer or one of the next four highest-paid
executive officers, unless the excess compensation is considered to be
"performance based." Awards of options that are granted with an option price
equal to fair market value on the date of grant are considered performance based
for this purpose. Among other requirements contained in Section 162(m), the
material terms of a compensation plan must be approved by stockholders. Agritope
may in the future consider structuring other Awards to attempt to meet the
requirements of Section 162(m) if it determines the action to be advisable.
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<PAGE>
1997 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Agritope, Inc. 1997 Employee Stock Purchase Plan (the "Agritope
Purchase Plan") was adopted by the Agritope Board and approved by Epitope as
sole stockholder of Agritope in November 1997. The Agritope Purchase Plan
provides for the issuance of up to 250,000 shares of Agritope Common. The
Compensation Committee of the Agritope Board (the "Committee") will administer
the Agritope Purchase Plan. The following summary of the Agritope Purchase Plan
is subject to the detailed terms and provisions of the plan.
PURPOSE
The purpose of the Agritope Purchase Plan is to give employees of
Agritope the opportunity to subscribe for shares of Agritope Common on an
installment basis through payroll deductions.
SUBSCRIPTIONS
The Agritope Purchase Plan provides for offering and purchase periods
to be set by the Committee, but no more than three regular offering periods may
be set during each fiscal year. The number of offering periods, the number of
shares offered, and the length of each period will be set by the Committee. The
Agritope Purchase Plan also provides for special offerings as described below.
Shares not subscribed for in any offering period and shares subscribed for that
cease to be subject to a subscription agreement will be available for
subscription in connection with a later offering period established by the
Committee.
The subscription price per share for each purchase period will be the
lesser of (i) 85 percent of the mean between the reported high and low sales
prices of shares of Agritope Common on the stock exchange or automated
securities interdealer quotation system on which the stock was traded on the
last trading day before the Offering Date (as defined in the Agritope Purchase
Plan) for the offering period (the "initial subscription price") and (ii) 85
percent of the mean between the reported high and low sales prices for the
shares on the date the purchase period ends, or on any earlier date of purchase
provided for in the Agritope Purchase Plan.
The total value of shares that may be subscribed for by an individual
in one or more regular offering periods within any calendar year is limited to
$21,250. Subject to this limitation, the Committee may set a minimum, a maximum,
or both a minimum and a maximum number of shares that may be subscribed for
during any offering period.
The Agritope Purchase Plan also provides for monthly special offering
dates pursuant to which any employee of Agritope may receive a one-year
subscription for a number of shares of Agritope Common equal to the amount by
which the employee's annual compensation would otherwise be increased during the
one-year period following the employee's annual compensation review divided by
the initial subscription price for the special offering date that occurs on or
immediately following the effective date of the increase in compensation. The
subscription may be provided to the employee at Agritope's discretion or
pursuant to the employee's irrevocable election in lieu of any increase in cash
compensation for the ensuing year.
An employee may terminate his or her subscription at any time before
the full purchase price for the subscribed shares has been paid and be refunded
the full amount withheld, plus interest at the rate of 6 percent per year. An
employee may also reduce the number of subscribed shares and (i) receive a
refund of the amount withheld that is in excess of the amount that would have
been withheld if his or her subscription had been for the reduced number of
shares, plus interest on the refund at the rate of 6 percent per year, or (ii)
have the excess applied to reduce the amount of future installments of the
purchase price.
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<PAGE>
An employee whose employment is terminated for any reason other than
retirement, disability or death (or the personal representative of an employee
who dies after such termination) may, at his or her election, (i) be refunded
the full amount withheld, plus interest at the rate of 6 percent per year or
(ii) receive the whole number of shares that could be purchased at the purchase
price with that amount together with a cash refund of any balance. An employee
who retires or is permanently disabled (or the personal representative of an
employee who dies while employed, retired or disabled) at any time before the
full purchase price of the subscribed shares has been paid has the rights
described above and in addition may prepay the entire unpaid balance for the
subscribed shares in a lump sum of cash and receive the shares. Any such
election must be made within three months following any termination of
employment and prior to the end of the respective purchase period.
The Agritope Board may amend or terminate the Agritope Purchase Plan
without stockholder approval, other than amendments that materially increase the
number of shares that may be issued under the plan or decrease the purchase
price of shares under the plan (except for adjustments for changes in
capitalization).
When the Agritope Purchase Plan becomes effective upon consummation of
the Distribution, approximately 50 employees are expected to be eligible to
participate in the Agritope Purchase Plan. Numbers of shares that may be subject
to future individual subscriptions under the Agritope Purchase Plan are not now
determinable.
FEDERAL INCOME TAX CONSEQUENCES
The Agritope Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. Participants do not realize
taxable income at the commencement of an offering or at the time shares are
purchased under the Agritope Purchase Plan.
If no disposition of shares purchased under the Agritope Purchase Plan
is made by the participant within two years from the offering commencement date
or within one year from the purchase date, then (a) upon sale of the shares, 15
percent of the fair market value of the shares at the commencement of the
offering period (or, if less, the amount of gain realized on sale of the shares)
is taxed to the participant as ordinary income, with any additional gain taxed
as a mid-term or long-term capital gain, as applicable, and any loss sustained
treated as a mid-term or long-term capital loss, as applicable, to the
participant, and (b) no deduction is allowed to Agritope for federal income tax
purposes.
If shares purchased under the Agritope Purchase Plan are disposed of
prior to the expiration of the two-year and one-year holding periods described
above, then (a) the participant realizes ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of the shares on the date of purchase (or, if less, the amount realized on sale
of the shares) over the purchase price thereof, and (b) Agritope is entitled to
deduct that amount. Any further gain realized is taxed as a short-term,
mid-term, or long-term capital gain to the participant and will not result in
any deduction to Agritope.
EMPLOYEE STOCK OWNERSHIP PLAN
The Agritope, Inc. Employee Stock Ownership Plan ("ESOP"), which covers
Agritope and those of its affiliates which elect to participate (the
"employers"), provides that all employees (including officers), other than
excluded classes (leased, union, nonresident alien, temporary and seasonal
employees) are eligible to participate immediately upon commencement of
employment. The ESOP is an "employee stock ownership plan" under Section
4975(e)(7) of the Code, designed to invest primarily in Agritope Common.
The employers' contribution to the ESOP each year is determined by the
Agritope Board, and may be made either in Agritope Common or in cash.
Contributions are allocated to participants in proportion to their compensation.
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<PAGE>
Each participant has a separate account attributable to employer
contributions. Participants will become fully vested in their accounts if they
attain age 65, die or become disabled prior to termination of employment. If
termination of employment occurs before age 65, death or disability, the vesting
in the accounts is based on the number of years of service (and the nonvested
portion is forfeited):
Years of Service Percentage Vested
---------------- -----------------
Less than 2 years 0
At least 2 years, but less than 3 years 20
At least 3 years, but less than 4 years 40
At least 4 years, but less than 5 years 60
At least 5 years, but less than 6 years 80
At least 6 years 100
Each participant may direct the voting of Agritope Common allocated to
the participant's account.
The participants' accounts are distributable at termination of
employment. Distribution must be in Agritope Common unless both the participant
and the trustees elect cash distribution.
401(K) PROFIT SHARING PLAN
The Agritope, Inc. 401(k) Profit Sharing Plan ("401(k) Plan") which
covers Agritope and those of its affiliates which elect to participate, provides
that all employees (including officers), other than excluded classes (leased,
union, nonresident alien, temporary and seasonal employees) are eligible to
participate immediately upon commencement of employment. The 401(k) Plan
includes a salary reduction feature under Section 401(k) of the Code.
All participants in the 401(k) Plan may contribute on a before-tax
basis a whole number percentage of their cash compensation each year up to a
maximum fixed by the Agritope Board not to exceed 17 percent, subject to an
annual maximum which is adjusted for the cost of living ($9,500 for 1997).
However, only the first 5 percent of a participant's compensation is eligible
for a pro-rata matching contribution by the employers. The aggregate amount of
the annual matching contribution is determined by the Agritope Board.
Matching contributions are invested in Agritope Common. Employee
contributions are pooled for investment at the direction of the employee in one
or more of the various investment funds established by Agritope, one of which
may provide for investment in Agritope Common.
Participants are at all times fully vested in their employee
contributions. Participants will become fully vested in their matching
contributions if they attain age 65, die or become disabled prior to termination
of employment. If termination of employment occurs before age 65, death or
disability, the vesting of matching contributions is based on the number of
years of service (and the nonvested portion is forfeited):
Years of Service Percentage Vested
---------------- -----------------
Less than 2 years 0
At least 2 years, but less than 3 years 20
At least 3 years, but less than 4 years 40
At least 4 years, but less than 5 years 60
At least 5 years, but less than 6 years 80
At least 6 years 100
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<PAGE>
Withdrawals of employee contributions are permitted prior to
termination of employment in the case of hardship. Matching contributions and
any remaining amounts of employee contributions are distributable at termination
of employment; matching contributions, and any employee contributions which are
invested in Agritope Common at the participants' election, are customarily
distributed in Agritope Common.
CERTAIN TRANSACTIONS
On November 11, 1996, the Company amended an agreement pursuant to
which it acquired its patented ethylene control technology in 1987. Dr. Ferro, a
co-inventor of the technology, relinquished all rights to future payments under
the agreement in exchange for a one-time cash payment of $590,000. The amount is
included in Agritope's consolidated balance sheet under the caption "Patents and
proprietary technology (net)" and will be amortized over 15 years, the remaining
life of the related patent.
In November 1996, Agritope agreed to exchange $3.4 million principal
amount of Agritope 4 percent Convertible Notes Due 1997 for 250,367 shares of
Epitope Stock at a reduced exchange price of $13.50 per share. The original
terms of the notes permitted the holders to exchange them for Epitope Stock at
an exchange price of $19.53 per share. Holders exchanging their notes at the
reduced exchange price included Groupe des Assurances Nationales, the beneficial
owner of more than 5 percent of the outstanding Epitope Stock, which exchanged
$2,500,000 principal amount of notes for 185,185 shares of Epitope Stock.
American Equities has been engaged by the Company to act as placement
agent in connection with the Regulation S Sale and the Preferred Stock Sale.
Michel de Beaumont is a co-founder and director of American Equities. Mr. de
Beaumont was elected to serve as a director of Agritope in September 1997.
American Equities will receive commissions equal to 5 percent of the gross
proceeds of the Regulation S Sale and the sale of Series A Convertible
Preferred. In addition, American Equities and its designees will receive
warrants to purchase an aggregate of 500,000 shares of Agritope Common in
consideration for its services as placement agent. See "Shares Eligible for
Future Sale."
Pierre Lefebvre, a director of Agritope, is chief executive officer of
Vilmorin. Agritope and Vilmorin have entered into the Vilmorin Research
Agreement, under which Vilmorin will fund certain research and development
projects of Agritope and receive certain rights in resulting technology.
Vilmorin has agreed to purchase 214,285 shares of Series A Convertible Preferred
for $7 per share in the Preferred Stock Sale, and has been granted the Series A
Option, to purchase up to an additional 785,715 shares of Series A Convertible
Preferred at that price. Holders of Series A Convertible Preferred will have the
right to elect one director to the Agritope Board so long as at least 214,285
shares of Series A Convertible Preferred remain outstanding. See "Description of
Business--Agritope Biotechnology Program--Vegetable and Flower Crops" and
"Description of Agritope Capital Stock--Agritope Series A Convertible
Preferred."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the anticipated
beneficial ownership of Agritope Common as of the Distribution Date after giving
effect to the Regulation S Sale, the Preferred Stock Sale and the Distribution
by (a) each person who is expected by Agritope to be the beneficial owner of
more than 5 percent of Agritope Common outstanding after the Distribution, the
Regulation S Sale and the Preferred Stock Sale, (b) each director of Agritope,
(c) each executive officer of Agritope named in the Summary Compensation table
above and (d) the executive officers and directors of Agritope as a group. The
table gives pro forma effect to the conversion of Series A Convertible Preferred
issued in the Preferred Stock Sale. Except in the case of subscribers in the
Regulation S Sale and the Preferred Stock Sale, this information is based on the
Epitope Stock beneficially owned by such persons as of December 1, 1997.
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<PAGE>
<TABLE>
BENEFICIAL OWNERSHIP
-----------------------------
NAME NUMBER (1) PERCENT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greenacres Enterprises, Inc. 398,572 9.4%
74 Aeulestrasse
9490 Vaduz
Liechtenstein
Vilmorin & Cie 1,000,000(2) 19.9%
71 Rue de Beaubourg
Paris 75003
France
W. Charles Armstrong 908 *
Michel de Beaumont - *
Richard K. Bestwick, Ph.D. 233(4)(5) *
Joseph A. Bouckaert - *
Nancy L. Buc - *
Adolph J. Ferro, Ph.D. 421(5) -
Pierre Lefebvre -(6) -
Gilbert N. Miller 566(5) -
Roger L. Pringle 3,525(7) *
All directors and executive 5,653(3)(4)(5)(7) *
</TABLE>
officers as a group
(10 persons)
- ---------------
*Less than 1 percent
(1) Subject to community property laws where applicable, beneficial
ownership consists of sole voting and investment power except as
otherwise indicated. Information is based on Epitope's records and a
review of statements filed with the Commission under Sections 13(d) and
13(g) of the Exchange Act with respect to Epitope Stock.
(2) Includes 214,285 shares of Series A Convertible Preferred that Vilmorin
has agreed to purchase plus 785,715 shares issuable pursuant to the
Series A Option. Series A Convertible Preferred is initially
convertible into Agritope Common on a share-for-share basis, subject to
adjustment on the occurrence of certain events. Shares of Series A
Convertible Preferred subject to the option have been included for
purposes of calculating the percent of capital stock beneficially owned
by Vilmorin but have been excluded for purposes of calculating the
percent of capital stock beneficially owned by other persons.
(3) Includes 33 shares of Agritope Common held by Mr. Armstrong's spouse.
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<PAGE>
(4) Includes 60 shares of Agritope Common allocated to Dr. Bestwick's
spouse under the Epitope 401(k) plan.
(5) Includes the following shares allocated to each person's individual
accounts under the Epitope 401(k) plan: Dr. Bestwick - 173 shares, Dr.
Ferro - 253 shares, and Mr. Miller - 233 shares.
(6) Mr. Lefebvre is chief executive officer of Vilmorin and may have voting
power with respect to Agritope capital stock of which Vilmorin is the
beneficial owner. If Mr. Lefebvre is deemed to have such voting power,
he would be deemed the owner of the 1 million shares of Series A
Convertible Preferred beneficially owned by Vilmorin, constituting 19.9
percent of the Agritope capital stock, and all directors and executive
officers as a group would be deemed the beneficial owners of 1,005,653
shares, constituting 20 percent of Agritope capital stock.
(7) Includes 600 shares of Agritope Common held by Mr. Pringle's spouse.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Distribution, there has not been any public market for
Agritope Common and there can be no assurance that a significant public market
for Agritope Common will be developed or be sustained after the Distribution.
Sales of substantial amounts of Agritope Common in the public market after the
Distribution, or the possibility of such sales occurring, could adversely affect
prevailing market prices for Agritope Common or the future ability of Agritope
to raise capital through an offering of equity securities.
After the Distribution, the Regulation S Sale and the Preferred Stock
Sale, approximately 4.0 million shares of Agritope Common and 214,285 shares of
Series A Convertible Preferred will be outstanding. Pursuant to the Series A
Option, an additional 785,715 shares of Series A Convertible Preferred will be
subject to issuance and sale upon exercise. Shares distributed in the
Distribution will be freely tradeable in the public market without restriction
under the Securities Act, unless the shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act. See "The
Distribution--Trading of Agritope Common." The Agritope Common to be issued in
the Regulation S Sale may not be sold in the U.S. without registration under the
Securities Act until 40 days following the closing of the Regulation S Sale. The
Agritope Common issuable upon conversion of the Series A Convertible Preferred
may not be sold without registration under the Securities Act until 40 days
after issuance of the Series A Convertible Preferred Stock. See "Regulation S
Sale" and "The Distribution--Trading of Agritope Common." Agritope has granted
purchasers in the Regulation S Sale certain registration rights with respect to
their shares. Purchasers of the Series A Preferred will also be granted certain
registration rights effective upon conversion of their shares into Agritope
Common. Series A Convertible Preferred is initially convertible into Agritope
Common on a share-for-share basis, subject to adjustment on the occurrence of
certain events.
As of the Record Date, options to purchase 1,253,394 shares of Agritope
Common were outstanding. As of the Record Date, 746,606 shares were available
for future grants of awards under Agritope's Award Plan, and 250,000 shares were
available for future issuance under Agritope's Purchase Plan.
Agritope intends to file after the Distribution Date Registration
Statements on Form S-8 to register an aggregate of 2,250,000 shares of Agritope
Common reserved for issuance under its Award Plan and Purchase Plan. The
Registration Statements will become effective automatically upon filing. Shares
issued under the foregoing plans, after the filing of the Registration
Statements on Form S-8, may be sold in the open market, subject, in the case of
certain holders, to the Rule 144 limitations applicable to affiliates and
vesting restrictions imposed by Agritope.
Epitope has retained Vector Securities as Epitope's financial advisor.
In partial consideration for services rendered in connection with the
Distribution and the Epitope Targeted Stock Proposal as well as strategic
advice, Vector Securities will receive warrants to purchase an aggregate of
83,333 shares of Agritope Common and 416,667
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<PAGE>
shares of Epitope Stock, exercisable at a price equal to 110 percent of the
average closing price of the respective shares on the five consecutive trading
days beginning on the ex dividend date for Epitope Stock. Epitope and Agritope
will grant Vector Securities certain registration rights with respect to the
warrants.
Agritope has engaged American Equities to serve as placement agent in
connection with the Regulation S Sale and sale of Series A Convertible
Preferred. American Equities will receive warrants to purchase an aggregate of
118,250 shares of Agritope Common at $7 per share in partial consideration for
its services. In addition, warrants to purchase 381,750 shares of Agritope
Common at $7 per share will be issued to 8 unaffiliated designees of American
Equities, none of whom are U.S. persons. Such warrants may be exercised at any
time within the three years following the closing of the Regulation S Sale.
Agritope has granted certain registration rights with respect to the warrants.
DESCRIPTION OF AGRITOPE CAPITAL STOCK
Agritope's Certificate of Incorporation authorizes the issuance of up
to 30 million shares of Agritope Common and 10 million shares of Agritope
Preferred issuable in series. The following description of Agritope's capital
stock is qualified in all respects by reference to the Certificate of
Incorporation.
AGRITOPE COMMON
The holders of Agritope Common are entitled to one vote per share on
all matters on which stockholders are entitled to vote. Holders of Agritope
Common are entitled to receive dividends when and as declared by the Agritope
Board out of any funds lawfully available therefor and, in the event of
liquidation or distribution of assets, are entitled to participate ratably in
the distribution of such assets remaining after payment of liabilities, in each
case subject to any preferential rights granted to any series of Agritope
Preferred that may then be outstanding. Holders of Agritope Common do not have
cumulative voting rights with respect to any matter.
AGRITOPE PREFERRED
Subject to limitations prescribed by Delaware law, the Certificate of
Incorporation authorizes the Agritope Board, without further stockholder
authorization, to issue Agritope Preferred in one or more series and to fix the
terms and provisions of each series, including dividend rights and preferences,
conversion rights, voting rights, redemption rights, and rights on liquidation,
including preferences over Agritope Common, all of which could adversely affect
the rights of holders of Agritope Common. The issuance of a series of Agritope
Preferred under certain circumstances could have the effect of delaying or
preventing a change of control of Agritope, could adversely affect the rights of
the holders of Agritope Common, may discourage offers for the Agritope Common at
a premium over market price and may adversely affect the market price of, and
the voting and other rights of the holders of, the Agritope Common.
The Agritope Board has designated 1 million shares of Agritope
Preferred as Series A Convertible Preferred. Vilmorin has agreed to purchase
214,285 shares of Series A Convertible Preferred immediately after the
Distribution Date, and also has acquired the Series A Option. For a description
of the terms of the Series A Convertible Preferred, see "--Agritope Series A
Convertible Preferred," below.
The Agritope Board has adopted a Stockholder Rights Plan, which enables
holders of Agritope Common, under certain circumstances, to purchase fractional
shares of a series of Agritope Preferred. See "--Stockholder Rights Plan,"
below. No Agritope Preferred is currently outstanding, and Agritope has no
present plans to issue any shares of Agritope Preferred other than Series A
Convertible Preferred.
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<PAGE>
AGRITOPE SERIES A CONVERTIBLE PREFERRED
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred, which are being offered for sale at a price of
$7 per share. See "Sale of Series A Convertible Preferred" and "Description of
Business--Agritope Biotechnology Program--Vegetable and Flower Crops." The
following description of the Series A Convertible Preferred is qualified by
reference to the Certificate of Designation, Preferences and Rights of the
Series A Convertible Preferred (the "Certificate of Designation").
Each share of Series A Convertible Preferred is convertible into
Agritope Common at any time at the election of the holder of the Series A
Convertible Preferred. Each share of Series A Convertible Preferred is initially
convertible into one share of Agritope Common. The conversion ratio will change
in the event of stock splits, reverse stock splits, or stock dividends involving
the Agritope Common. If Agritope issues a dividend or other distribution payable
in securities of Agritope other than Agritope Common, then holders of Series A
Convertible Preferred will receive on conversion, in addition to the Agritope
Common issuable upon conversion of the amount of Agritope securities that the
holders would have received had their shares of Series A Convertible Preferred
been converted into Agritope Common on the date of the dividend or other
distribution.
In addition, if Agritope consolidates or merges with or into another
corporation, or sells all or substantially all of its assets to another
corporation, each share of Series A Convertible Preferred will thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which the holder of the number of shares of Agritope Common
deliverable upon conversion of the Series A Convertible Preferred would have
been entitled upon such consolidation, merger or sale.
The Certificate of Designation prohibits Agritope from declaring,
setting aside or paying dividends or other distributions on Agritope Common
unless Agritope declares, sets aside or pays a dividend or other distribution
with respect to each outstanding share of Series A Convertible Preferred at
least equal to the amount the holders would have received if their shares of
Series A Convertible Preferred had then been converted into Agritope Common.
In the event of a liquidation, dissolution or winding up of Agritope,
the holders of outstanding shares of Series A Convertible Preferred would be
entitled to be paid, out of Agritope's distributable assets, an amount
equivalent to the amount they would have received if their Series A Convertible
Preferred had then been converted into Agritope Common.
So long as not less than 214,285 shares of Series A Convertible
Preferred are outstanding, the holders of Series A Convertible Preferred are
entitled to elect one director to the Agritope Board annually. Pierre Lefebvre
has been elected as the initial director representing the holders of Series A
Convertible Preferred. In addition, the holders of Series A Convertible
Preferred have equal voting rights with the holders of Agritope Common, with the
Series A Convertible Preferred having the number of votes equal to the number of
shares of Agritope Common into which the Series A Convertible Preferred is then
convertible. The holders of Series A Convertible Preferred and Agritope Common
will vote together as one class, except as otherwise required by law.
Subject to certain exceptions, the holders of Series A Convertible
Preferred have preemptive rights to acquire their pro rata share of any equity
security proposed to be issued by Agritope, at the same price and on the same
terms as other parties. Exceptions to these preemptive rights include, but are
not limited to: securities issued in mergers and other acquisition transactions;
securities issued upon exercise of warrants currently authorized for issuance to
Vector Securities and to American Equities and its designees; securities issued
to Agritope employees, directors or consultants pursuant to plans approved by
Agritope stockholders; securities issued in connection with a registered public
offering; securities issued to underwriters, brokers and financial institutions
in connection with certain Agritope financings; and securities issued in
connection with the Stockholder Rights Plan.
- 62 -
<PAGE>
AGRITOPE WARRANTS
Vector Securities has provided advisory services to Epitope with
respect to the Distribution as well as strategic and advisory services in
connection with Epitope's Targeted Stock Proposal. In partial consideration for
services rendered in connection with the Distribution and the Epitope Targeted
Stock Proposal, Vector Securities will receive warrants to purchase 83,333
shares of Agritope Common and 416,667 shares of Epitope Stock, exercisable at a
price equal to 110 percent of the average closing price of the respective shares
on the five trading days beginning on the Distribution Date. These warrants
expire on December 31, 2000.
Agritope has also agreed to issue to American Equities or its designees
warrants to purchase an aggregate of 500,000 shares of Agritope Common in
partial consideration for its services as placement agent in connection with the
Regulation S Sale and the sale of Series A Convertible Preferred. Each warrant
entitles the holder to purchase one share of Agritope Common at $7 per share at
any time within three years of the closing of the Regulation S Sale.
PREEMPTIVE RIGHTS
The Certificate of Incorporation provides that no holder of any of
Agritope's shares is entitled to any preferential or preemptive rights to
acquire any securities of Agritope, except as such rights may be provided for by
contract or pursuant to the terms of any series of Agritope Preferred. Holders
of Series A Convertible Preferred have certain preemptive rights. See
"--Agritope Series A Convertible Preferred," above.
STOCKHOLDER RIGHTS PLAN
In November 1997, Agritope adopted the Rights Agreement. Accordingly,
each share of Agritope Common distributed in the Distribution will be issued
with one preferred stock purchase right ("Right").
Each Right represents the right to purchase, if and when the Rights are
exercisable, 1/1,000 of a share of Series B Junior Participating Preferred Stock
at an exercise price of $25. The exercise price and the number of shares
issuable upon exercise of the Rights are subject to adjustment in certain cases
to prevent dilution. The Rights are evidenced by the Agritope Common
certificates and are not exercisable, or transferable apart from the Agritope
Common, until 10 business days after (i) a person acquires 15 percent or more of
the Agritope Common; (ii) a person commences a tender offer which would result
in the ownership of 15 percent or more of the Agritope Common; or (iii) the
Agritope Board declares a person beneficially owning at least 10 percent of the
Agritope Common to be an Adverse Person (the "Rights Distribution Date"). In the
event any person becomes the beneficial owner of 15 percent or more of the
Agritope Common or the Agritope Board determines that a person is an Adverse
Person, each of the Rights (other than Rights held by the party triggering the
Rights and certain of their transferees, all of which will be voided) becomes a
discount right entitling the holder to acquire Agritope Common having a value
equal to twice the Right's exercise price. Vilmorin may exercise the Series A
Option in full without triggering the Stockholder Rights Plan and also will not
trigger the Stockholder Rights Plan if it acquires other Agritope securities
directly from Agritope or with the prior approval of the Agritope Board.
In the event Agritope is acquired in a merger or other business
combination transaction (including one in which Agritope is the surviving
corporation), each Right will entitle its holder to purchase, at the then
current exercise price of the Right, that number of shares of common stock of
the surviving company which at the time of such transaction would have a market
value of two times the exercise price of the Right. The Rights do not have any
voting rights and are redeemable, at the option of Agritope, at a price of $.01
per Right at any time until 10 business days after a person acquires beneficial
ownership of at least 15 percent of the Agritope Common.
The Rights expire on November 14, 2007. So long as the Rights are not
separately transferable, Agritope will issue one Right with each new share of
Agritope Common issued.
- 63 -
<PAGE>
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Agritope on
terms not approved by the Agritope Board. The Rights should not interfere with
any merger or other business combination approved by the Agritope Board because
the Rights may be redeemed by Agritope until the tenth business day following
the first public announcement that a person or group has become the beneficial
owner of 15 percent or more of the outstanding Agritope Common.
OTHER ANTI-TAKEOVER MEASURES
Agritope's Certificate of Incorporation and Bylaws contain certain
provisions that may have the effect of delaying, deferring or preventing a
change in control of Agritope. Such provisions include requirements for: (i) a
classified Board of Directors, with each class containing as nearly as possible
one-third of the total number of directors elected by the Agritope Common and
the members of each class serving for staggered three-year terms; (ii) removal
of directors only for cause; (iii) changing the size of the Agritope Board only
with supermajority approval of the directors then in office; (iv) notice not
less than 60 days prior to the anniversary date of the preceding annual meeting
of stockholders with respect to nominations of directors or other matters to be
voted on by stockholders other than by or at the direction of the Agritope
Board; and (v) approval of the holders of at least two-thirds of the outstanding
Agritope Common to approve certain provisions of the Certificate of
Incorporation.
Classified Board of Directors. The Certificate of Incorporation
provides that those members of the Agritope Board that are elected by the
Agritope Common will be divided into three classes (Class 1, Class 2 and Class
3) with each class containing as nearly as possible one-third of the total
number of directors and the members of each class serving for staggered
three-year terms. The initial designation of directors to each of the three
classes has been made. See "Management." At each annual meeting of Agritope
stockholders, the number of directors equal to the number of the class whose
term expires at the time of such meeting will be elected to hold office until
the third succeeding annual meeting of Agritope stockholders.
Removal of Directors. Directors of Agritope may be removed only for
cause.
Changes in the Number of Directors. The Certificate of Incorporation
specifies that the Agritope Board will consist of no less than six nor more than
thirteen members, with the exact number to be set from time to time by the
Board. The Agritope Board is authorized to increase or decrease the size of the
Board (within the specified range) by the affirmative vote of two-thirds of the
directors then in office. Without the consent of all the directors then in
office: (i) no more than two additional directors may be added to the Agritope
Board within any 12-month period; and (ii) no person who is affiliated as an
owner, director, officer or employee of a company or business deemed by the
Board of Directors to be competitive with that of Agritope is eligible to serve
on the Agritope Board.
Nominations of Directors and Other Matters Brought by Stockholders. The
Bylaws require that, generally, in addition to other applicable requirements, in
order for an Agritope stockholder to (i) nominate a person for election to the
Agritope Board at an annual meeting of stockholders or (ii) properly bring a
matter before an annual meeting of stockholders, such stockholder must notify
Agritope of his or her intentions not less than 60 days prior to the anniversary
date of the preceding annual meeting of stockholders (with respect to the 1998
meeting of shareholders, not later than December 15, 1997). Moreover, in order
to be valid, any such notice must be in proper written form as more specifically
described in the Bylaws.
Amendment of Certificate of Incorporation. The Certificate of
Incorporation requires the approval of the holders of at least two-thirds of the
outstanding Agritope Common to amend certain provisions of the Certificate of
Incorporation, including certain of the anti-takeover measures described above.
- 64 -
<PAGE>
DELAWARE BUSINESS COMBINATIONS STATUTE
Agritope is subject to certain provisions of the Delaware General
Corporation Law that govern business combinations between corporations and
interested stockholders (the "Business Combinations Statute"). The Business
Combinations Statute generally provides that, if a person or entity acquires 15
percent or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder"), the corporation and the Interested Stockholder, or
any affiliated entity of the Interested Stockholder, may not engage in certain
business combination transactions for three years following the date the person
became an Interested Stockholder. Business combination transactions for this
purpose include: (a) certain mergers and consolidations; (b) certain
transactions involving the sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 10 percent or more of the assets of the corporation; (c)
certain transactions which result in the issuance or transfer of stock to the
Interested Stockholder; (d) certain transactions which result in an increase in
the proportionate share of stock of the corporation which is owned by the
Interested Stockholder; and (e) certain transactions which result in the receipt
by the Interested Stockholder of the benefit of any loans, advances, guarantees,
pledges or financial benefits provided by or through the corporation.
These restrictions do not apply if: (a) the board of directors approves
the business combination or share acquisition before the Interested Stockholder
acquires 15 percent or more of the corporation's outstanding voting stock (as
has been the case with Vilmorin); (b) the Interested Stockholder, as a result of
the transaction in which such person became an Interested Stockholder, owns at
least 85 percent of the outstanding voting stock of the corporation
(disregarding shares owned by directors who are also officers and shares owned
by certain employee stock plans); or (c) the board of directors and, at a
meeting of stockholders, the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Stockholder) approve the transaction at the time or after the Interested
Stockholder acquires 15 percent or more of the corporation's outstanding voting
stock. The Agritope Board has exempted Vilmorin from the application of the
Business Combinations Statute with respect to the following actions: the
exercise of the Series A Option, the exercise of preemptive rights attached to
the Series A Convertible Preferred, the conversion of the Series A Convertible
Preferred into Agritope Common, and Vilmorin's acquisition of a license,
ownership interest, patent or other property relating to, or based upon,
Agritope's technology and research results under the terms of the Vilmorin
Research Agreement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY; INSURANCE
As permitted by Delaware law, Agritope's Certificate of Incorporation
permits, and its Bylaws require, the indemnification of a director or officer
made or threatened to be made a party to a proceeding (other than a proceeding
by or in the right of Agritope to procure a judgment in its favor) because such
person is or was a director or officer of Agritope or one of its subsidiaries
against certain liabilities and expenses, if the director or officer acted in
good faith and in a manner he or she reasonably believed was in or not opposed
to the best interests of Agritope, and, with respect to any criminal action or
proceeding, the director or officer, in addition, had no reasonable cause to
believe his or her conduct was unlawful. In the case of any proceeding by or in
the right of Agritope, a director or officer is entitled to indemnification of
certain expenses if he or she acted in good faith and in a manner he or she
reasonably believed was in or not opposed to the best interests of Agritope.
However, pursuant to Delaware law, the Bylaws and indemnity agreements
Agritope has entered into with its directors and officers, Agritope generally
will not indemnify its directors and officers: (i) in connection with a
proceeding by or in the right of Agritope in which the director or officer is
adjudged liable to Agritope; (ii) in connection with any other proceeding
charging improper personal benefit to the director or officer in which the
director or officer is adjudged liable on the basis that personal benefit was
improperly received by him or her; (iii) in connection with any claim made
against any director or officer for which payment is required to be made to or
on behalf of the director or officer under any insurance policy; (iv) in
connection with any claim made against any director or officer if a court having
jurisdiction in the matter determines that indemnification is not lawful under
any applicable statute or public policy; (v) in connection with any proceeding
(or part of any proceeding) initiated
- 65 -
<PAGE>
by the director or officer or any proceeding by the director or officer against
Agritope or its directors, officers, employees or other agents; and (vi) for an
accounting of profits made from the purchase and sale by the director or officer
of securities of Agritope within the meaning of Section 16(b) of the Exchange
Act or similar provision of any state statutory law or common law. Agritope may
also provide indemnification to persons other than its directors or officers
under certain circumstances.
As permitted by Delaware law, the Certificate of Incorporation also
provides that no director will be liable to Agritope or its stockholders for
monetary damages for breach of fiduciary duty as a director, except that
personal liability may exist for any: (i) breach of the director's duty of
loyalty to Agritope or its stockholders; (ii) act or omission not in good faith
or that involves intentional misconduct or a knowing violation of the law; (iii)
unlawful distribution to stockholders; (iv) transaction from which the director
derives an improper personal benefit; or (v) profits made from the purchase and
sale by the director of securities of Agritope within the meaning of Section
16(b) of the Exchange Act or similar provision of any state statutory law or
common law.
As stated above, Agritope has entered into agreements to indemnify its
directors and officers. The agreements are generally intended to provide the
maximum indemnification permitted by Delaware law. The agreements, among other
provisions, will indemnify each of Agritope's directors and officers in any
action or proceeding for certain expenses (including attorney fees) and (other
than in an action or proceeding by or in the right of Agritope) judgments, fines
and settlement amounts incurred on account of such person's services as a
director or officer of Agritope or, at Agritope's request, as a director,
officer, employee or agent of another enterprise. The agreements also limit the
liability of Agritope's directors and officers in respect of their conduct in
serving Agritope to the extent permitted by Delaware law, as described above.
Agritope understands that the current position of the Commission is
that any indemnification of liabilities arising under the Securities Act is
against public policy and is, therefore, unenforceable.
Agritope intends to obtain insurance insuring its directors and
officers against certain liabilities, including liabilities under federal and
state securities laws.
LEGAL MATTERS
The validity of the Agritope Common will be passed upon by Tonkon Torp
LLP, Portland, Oregon. Miller, Nash, Wiener, Hager & Carlsen LLP has provided
the tax opinion in connection with the Distribution.
EXPERTS
The financial statements as of September 30, 1997 and 1996 and for each
of the three years in the period ended September 30, 1997 included in this
Information Statement/Prospectus have been so included in reliance on the report
of Price Waterhouse LLP ("Price Waterhouse"), independent accountants, given on
the authority of said firm as experts in auditing and accounting. Additionally,
the statement of operations and the statement of cash flows of Vinifera for the
period June 1, 1995 through September 30, 1995, and October 1, 1995 through
August 27, 1996, included in this Information Statement/Prospectus have been so
included in reliance on the report of Price Waterhouse, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
- 66 -
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Accountants...............................................................................F-1
Consolidated Balance Sheets
at September 30, 1997 and September 30, 1996............................................................F-2
Consolidated Statements of Operations
for the years ended September 30, 1997, 1996, and 1995 .................................................F-3
Consolidated Statements of Changes in Shareholder's Equity
for the years ended September 30, 1997, 1996, and 1995 .................................................F-4
Consolidated Statements of Cash Flows
for the years ended September 30, 1997, 1996, and 1995..................................................F-5
Notes to Consolidated Financial Statements......................................................................F-6
VINIFERA, INC.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Report of Independent Accountants...............................................................................F-18
Statements of Operations
for the periods October 1, 1995 through August 27, 1996 and
June 1, 1995 through September 30, 1995 ................................................................F-19
Statements of Cash Flows
for the periods October 1, 1995 through August 27, 1996 and
June 1, 1995 through September 30, 1995.................................................................F-20
Notes to Financial Statements...................................................................................F-21
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Epitope, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Agritope, Inc. (as described in Note 1 to these financial statements) and its
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Note 2, the basis of presentation of these financial statements
differs from previously issued Agritope Group financial statements in that
certain cash and cash equivalents and the related interest income that were
previously allocated to Agritope have not been allocated to Agritope in these
financial statements.
PRICE WATERHOUSE LLP
Portland, Oregon
October 31, 1997, except for Note 11, as to which the date is December 5, 1997
F-1
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
SEPTEMBER 30 1997 1996
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2)............................ $ 4,384 $ 476,512
Trade accounts receivable, net (Note 2)....................... 617,359 264,986
Other accounts receivable..................................... 5,554 32,337
Inventories (Note 2).......................................... 2,081,295 509,745
Prepaid expenses.............................................. 276,224 812
-------------- ---------------
Total current assets.......................................... 2,984,816 1,284,392
Property and equipment, net (Notes 2 and 4)................... 2,749,788 1,286,197
Patents and proprietary technology, net (Note 2).............. 1,276,692 510,244
Investment in affiliated companies (Note 3)................... 246,962 2,448,623
Other assets and deposits (Note 5)............................ 26,797 140,513
-------------- ---------------
$ 7,285,055 $ 5,669,969
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable............................................... $ 100,945 $ 91,474
Current portion of installment notes payable................... 4,255 -
Convertible notes (Note 5)..................................... - 3,620,003
Current portion of lease liability (Note 9).................... 341,304 -
Salaries, benefits and other accrued liabilities............... 879,504 735,478
-------------- ---------------
Total current liabilities...................................... 1,326,008 4,446,955
Long-term portion of installment notes payable................. 14,569 -
Long-term portion of lease liability (Note 9).................. 450,805 -
Minority interest (Note 3)..................................... 730,947 215,407
Commitments and contingencies (Note 9)......................... - -
Shareholder's equity (Note 6)
Preferred stock, no par value
1,000,000 shares authorized;
no shares issued and outstanding............................. - -
Common stock, no par value
20,000,000 shares authorized;
2,000,000 shares issued and outstanding...................... 45,930,932 33,485,214
Accumulated deficit............................................ (41,168,206) (32,477,607)
-------------- ---------------
4,762,726 1,007,607
$ 7,285,055 $ 5,669,969
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 1997 1996 1995
(1) (1)
Revenues
<S> <C> <C> <C>
Product sales.............................................. $ 1,436,498 $ - $ 2,015,318
Grants and contracts (Note 8).............................. 114,692 585,485 94,370
---------- ---------- ---------
1,551,190 585,485 2,109,688
Costs and expenses
Product costs.............................................. 1,326,163 - 3,235,675
Research and development costs (Note 8).................... 1,681,646 1,338,703 2,204,993
Selling, general and administrative expenses
(Note 2)................................................. 3,081,074 1,482,694 4,479,498
--------- --------- ---------
6,088,883 2,821,397 9,920,166
Loss from operations.................................. (4,537,693) (2,235,912) (7,810,478)
----------- ----------- -----------
Other income (expense), net
Interest income....................................... - - 7,535
Interest expense...................................... (25,307) (265,356) (241,775)
Valuation loss........................................ (2,258,080) - -
Debt conversion ...................................... (1,216,654) - -
Other, net (Note 9)................................... (927,234) - (500)
--------- ------------ ------------
(4,427,275) (265,356) (234,740)
Minority interest in subsidiary net loss.............. 274,369 - -
----------- ------------ -------------
Net loss.............................................. $ (8,690,599) $ (2,501,268) $ (8,045,218)
Net loss per share.................................... $ (4.35) $ (1.25) $ (4.02)
Weighted average number
of shares outstanding .............................. 2,000,000 2,000,000 2,000,000
</TABLE>
(1) See note 3 to the consolidated financial statements for pro forma
results of operations including Vinifera for all periods presented.
Also see separate audited financial statements of Vinifera beginning on
page F-20 of this Registration Statement.
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1994 ............................... $ 21,449,141 $ (21,931,121) $ (481,980)
Compensation expense for stock awards (Note 6)................ 69,998 - 69,998
Compensation expense for stock option grants
(Note 6).................................................... 318,375 - 318,375
Capital contributed by Epitope, Inc., upon exchange of
convertible notes (Note 5) ................................. 449,991 - 449,991
Equity issuance costs (Note 5) ............................... (22,487) - (22,487)
Cash from Epitope, Inc. ...................................... 7,786,338 - 7,786,338
Net loss for the year ........................................ - (8,045,218) (8,045,218)
------------ ----------- ----------
Balances at September 30, 1995 ............................... 30,051,356 (29,976,339) 75,017
Compensation expense for stock awards (Note 6)................ 14,500 - 14,500
Compensation expense for stock option grants (Note 6) ........ 229,164 - 229,164
Cash from Epitope, Inc. ...................................... 3,190,194 - 3,190,194
Net loss for the year ........................................ - (2,501,268) (2,501,268)
------------ ----------- -----------
Balances at September 30, 1996 ............................... 33,485,214 (32,477,607) 1,007,607
Compensation expense for stock awards (Note 6)................ 33,063 - 33,063
Compensation expense for stock option grants (Note 6)......... 20,832 - 20,832
Capital contributed by Epitope, Inc., upon exchange of
convertible notes (Note 5) ................................. 4,529,009 - 4,529,009
Equity issuance costs (Note 5)................................ (86,134) - (86,134)
Minority interest investment in subsidiary (Note 6)........... 742,752 - 742,752
Cash from Epitope, Inc. ...................................... 7,206,196 - 7,206,196
Net loss for the year ........................................ - (8,690,599) (8,690,599)
------------ ----------- -----------
Balances at September 30, 1997 ............................... $ 45,930,932 $ (41,168,206) $ 4,762,726
Note: There were 2,000,000 shares of common stock outstanding during all periods presented.
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss......................................................$ (8,690,599) $ (2,501,268) $ (8,045,218)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................. 566,813 294,045 663,379
Compensation expense for stock awards......................... 33,063 14,500 69,998
Compensation expense for stock option grants ................. 20,832 229,164 318,375
Minority interest in subsidiary operating results............. (274,369) - -
Valuation loss................................................ 2,258,080 - -
Non-cash portion of cost of debt conversion................... 1,149,054 - -
Decrease (increase) in receivables............................ (325,590) 832,333 (945,501)
Decrease (increase) in inventories............................ (1,571,550) (509,745) 88,737
Decrease (increase) in prepaid expenses....................... (275,412) 55,252 (55,639)
Decrease (increase) in other assets and deposits.............. 21,462 (36,219) 9,137
Increase (decrease) in accounts payable and
accrued liabilities......................................... 945,606 494,633 (104,680)
Other......................................................... - - 500
--------- --------- ----------
Net cash used in operating activities (6,142,610) (1,127,305) (8,000,912)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment........................... (1,927,209) (886,646) (238,558)
Proceeds from sale of property................................ - - 13,258
Expenditures for patents and proprietary
technology.................................................. (870,910) (411,943) (178,208)
Investment in affiliated companies............................ (56,419) (473,790) 610,146
---------- ---------- ----------
Net cash (used in) provided by investing activities (2,854,538) (1,772,379) 206,638
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt.................................... 20,887 - -
Principal payments on long-term debt ......................... (242,063) (39,508) (16,137)
Minority interest investment in subsidiary (Note 6)........... 1,540,000 215,407 -
Cash from Epitope, Inc........................................ 7,206,196 3,190,194 7,786,338
--------- --------- ---------
Net cash provided by financing activities 8,525,020 3,366,093 7,770,201
Net increase (decrease) in cash and cash equivalents.......... (472,128) 466,409 (24,073)
Cash and cash equivalents at beginning of year................ 476,512 10,103 34,176
---------- --------- -----------
Cash and cash equivalents at end of year $ 4,384 $ 476,512 $ 10,103
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Agritope, Inc. (the "Company" or "Agritope") is an Oregon corporation utilizing
biotechnology to develop and market superior new plants and related products.
Through its 61 percent owned subsidiary, Vinifera, Inc. ("Vinifera"), Agritope
is also engaged in the business of propagation, growing, and distribution of
grapevine plants. Agrimax Floral Products, Inc. ("Agrimax") is an inactive
subsidiary that holds minority interests in two flower distribution businesses.
See Note 3, Investment in Affiliated Companies. Agritope is a wholly owned
subsidiary of Epitope, Inc. ("Epitope"), an Oregon corporation engaged in the
development and marketing of medical diagnostic products.
Agritope Spin-off. In July 1997, Epitope's board of directors approved a
management proposal to spin off Agritope, subject to obtaining financing for
Agritope and the satisfaction of certain other conditions. Agritope has agreed
to sell 1,343,704 shares of Agritope common stock in a private placement to
certain investors for an aggregate price of $9,406,000, immediately after the
spin-off. The spin-off will be accomplished by a distribution of Agritope common
stock to Epitope's shareholders. Epitope will not own or control any shares of
Agritope stock following the spin-off, which is expected to occur in December
1997.
Agritope and Epitope will enter into certain agreements governing the ongoing
relationship between the companies after the spin-off, including a Separation
Agreement, a Tax Allocation Agreement, a Transition Services and Facilities
Agreement and an Employee Benefits Agreement. Pursuant to the Employee Benefits
Agreement, Agritope has agreed to establish replacement plans that effectively
continue to provide benefits available under current Epitope benefit plans.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the assets, liabilities, revenues and expenses of Agritope and its
majority owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Minority-owned investments and
joint ventures are accounted for using the equity method. Investments of less
than 20 percent are carried at cost or estimated net realizable value, whichever
is lower. Intercompany balances with Epitope have been reflected as capital
contributions (common stock) in the accompanying consolidated financial
statements because they will be converted into a permanent capital contribution
in conjunction with the spin-off.
The basis of presentation of these financial statements differs from the
previously issued Agritope Group financial statements contained in Epitope's
most recent Form 10-K and 10-Q filings. In the previously issued financial
statements, cash and cash equivalents and the related interest income were
allocated to Agritope in connection with a contemplated targeted stock
transaction. The targeted stock proposal was subsequently withdrawn by the
Epitope board of directors. With respect to the spin-off, these items will not
be transferred to Agritope and therefore have not been allocated to Agritope in
these financial statements.
Certain corporate overhead services such as accounting, annual meeting costs,
annual report preparation, audit, executive management, facilities, finance,
general management, human resources, information systems, investor relations,
legal services, payroll and SEC filings are provided by Epitope on a centralized
basis for the benefit of Agritope ("Shared Services"). Such expenses have been
allocated to Agritope in the accompanying financial
F-6
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements using activity indicators which, in the opinion of management,
represent a reasonable measure of Agritope's utilization of such Shared
Services. These activity indicators, which are reviewed periodically and
adjusted to reflect changes in utilization, include number of employees, number
of computers, and level of expenditures. Management believes that the amount
allocated for these Shared Services is not materially different from the amount
which would be incurred by Agritope for such services provided on a stand-alone
basis. Allocated Shared Services of $1,402,895, $1,069,249 and $1,892,370,
respectively, for 1997, 1996 and 1995 are included under the caption "Selling,
general and administrative expenses."
Cash and Cash Equivalents. For purposes of the consolidated balance sheets and
statements of cash flows, all highly liquid investments with maturities at time
of purchase of three months or less are considered to be cash equivalents.
Inventories. Inventories, consisting principally of growing grapevine plants at
Vinifera, are recorded at the lower of average cost or market. Average cost
includes all direct and indirect costs attributable to the growing grapevine
plants. Inventory is summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Work-in-process ................................................................ $ 1,387,706 $ 471,208
Finished goods ................................................................. 693,589 38,537
----------- ---------
$ 2,081,295 $ 509,745
</TABLE>
Depreciation and Capitalization Policies. Property and equipment are stated at
cost less accumulated depreciation. Expenditures for repairs and maintenance are
charged to operating expense as incurred. Expenditures for renewals and
betterments are capitalized. Depreciation and amortization of property and
equipment are calculated primarily under the straight-line method over the
estimated useful lives of the related assets (three to seven years). Leasehold
improvements are amortized over the shorter of estimated useful lives or the
terms of the related leases. When assets are sold or otherwise disposed of, cost
and related accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is included in operations.
Accounting for Long-Lived Assets. The Company reviews its long-lived assets for
impairment periodically or as events or circumstances indicate that the carrying
amount of long-lived assets may not be recoverable. If the estimated net cash
flows are less than the carrying amount of the long-lived assets, the Company
recognizes an impairment loss in an amount necessary to write down long-lived
assets to fair value as determined from expected discounted future cash flows.
This accounting policy is consistent with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." See Note 3, Investment in Affiliated
Companies.
Patents and Proprietary Technology. Direct costs associated with patent
submissions and acquired technology are capitalized and amortized over their
minimum estimated economic useful lives, generally five years.
In August 1996, the Company amended the 1987 agreement pursuant to which it
acquired its patented ethylene control technology. A co-inventor of the
technology relinquished all rights to future compensation under the agreement in
exchange for a one-time cash payment of $365,000, a research grant and a limited
non-exclusive license to use the technology for one crop. The amount is included
under the caption "Patents and proprietary technology" and is being amortized
over 15 years, the remaining life of the related patent.
On November 11, 1996, the Company further amended the ethylene control
technology agreement. A co-inventor
F-7
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the technology who is an officer of the Company relinquished all rights to
future payments under the agreement in exchange for a one-time cash payment of
$590,000. The amount is included under the caption "Patents and proprietary
technology" and is being amortized over 15 years, the remaining life of the
related patent.
Amortization and accumulated amortization are summarized as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Amortization for the year ended September 30,............. $ 63,489 $ 42,456 $ 23,964
Accumulated amortization ................................. 143,396 79,907 37,451
</TABLE>
Fair Value of Financial Instruments. The carrying amounts for cash equivalents,
accounts receivable, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amount for installment notes payable and convertible notes approximates fair
value because the related interest rates are comparable to rates currently
available to the Company for debt with similar terms and maturities.
Revenue Recognition. Product sales are recognized when the related products are
shipped. Grant and contract revenues include funds received under research and
development agreements with various entities. These grants and contracts
generally provide for progress payments as expenses are incurred and certain
research milestones are achieved. Revenue related to such grants and contracts
is recognized as research milestones are achieved. Accounts receivable are
stated net of an allowance for doubtful accounts of $57 as of September 30, 1997
and $19,571 as of September 30, 1996.
Research and Development. Research and development expenditures are comprised of
those costs associated with Agritope's ongoing research and development
activities to develop superior new plants. Expenditures for research and
development also include costs incurred under contracts to develop certain
products, including those contracts resulting in grant and contract revenues.
All research and development costs are expensed as incurred.
Income taxes. The Company accounts for certain revenue and expense items
differently for income tax purposes than for financial reporting purposes. These
differences arise principally from methods used in accounting for stock options
and depreciation rates. Deferred tax assets and liabilities are recognized based
on temporary differences between the financial statement and the tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse.
Stock-based Compensation. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies which have
stock-based compensation arrangements with employees to adopt a fair-value basis
of accounting for stock options and other equity instruments or to continue to
apply the existing accounting rules under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), but with additional
financial statement disclosure. In November 1997, the Company adopted two
stock-based compensation plans for employees. When options or other securities
are issued under these plans, the Company expects to continue to apply the
existing accounting rules under APB 25.
Net Loss Per Share. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). This new standard is effective for interim and annual periods
ending after December 15, 1997. SFAS 128 will require the reporting of "basic"
and "diluted" earnings per share ("EPS") instead of "primary" and "fully
diluted" EPS as required under current accounting principles. Basic EPS
eliminates the common stock equivalents considered in calculating primary EPS.
Diluted
F-8
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EPS is similar to fully diluted EPS. Since Agritope had no common stock
equivalents during the periods presented, basic EPS would have been the same as
primary EPS and there would be no diluted EPS calculation.
Supplemental Cash Flow Information. Non-cash financing and investing activities
not included in the consolidated statements of cash flows are summarized as
follows:
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
<S> <C> <C> <C>
Conversion of notes to equity (Note 5)............... $ 3,380,000 $ - $ 472,478
Minority interest contribution of capital (Note 6)... 742,752 - -
Investment in affiliated companies (Note 3) ......... - - 2,584,979
</TABLE>
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates.
Reclassifications. Certain reclassifications have been made to prior years' data
to conform with the current year's presentation. These reclassifications had no
impact on previously reported results of operations or shareholders' equity.
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
Agrimax. Agritope's investment in affiliated companies includes two investments
owned by Agrimax; a 9 percent interest in UAF, Limited Partnership ("UAF"), a
fresh flower distribution operation in Charlotte, North Carolina, and a 19.5
percent interest in Petals USA, Inc. ("Petals"), an affiliate of a Canadian
fresh flower wholesaler.
In May 1995, Agritope's wholly owned subsidiary, Agrimax, ceased operations as
an independent entity. Agrimax had been engaged in the fresh flower packaging
and distribution business. Also in May 1995, the Company surrendered control of
its Charlotte facility and contributed inventory and operating supplies to a
limited liability company ("LLC") 60 percent owned by Universal American
Flowers, Inc. and 40 percent owned by the Company pursuant to an Operating and
Transition Agreement (the "Agreement"). Pursuant to the Agreement, on October
27, 1995, the assets and liabilities of LLC and of Universal American Flowers,
Inc., together with the Company's equipment and leasehold improvements located
at the Charlotte facility, were transferred to a newly formed entity, UAF. UAF
also assumed the liability for the lease of the Charlotte facility. In fiscal
1995, the Company removed the assets transferred to LLC from its books and
recorded the cost of such assets as "Investment in affiliated companies," less a
charge of $500,000, representing the Company's share in the losses of LLC during
the intervening period in which a 40 percent interest was held, and estimated
costs to discontinue the Agrimax business. Until May 1995, the Agrimax business
was included in the Company's financial statements. From May 1995 through
October 27, 1995, the Company followed the equity method of accounting for its
investment in UAF in accordance with Accounting Principles Board Opinion No. 18
("APB 18"). Since October 27, 1995, the investment in UAF has been accounted for
under the cost method in accordance with APB 18. In 1996, the equity interest of
Agrimax in UAF was reduced to 9 percent as the result of a recapitalization of
UAF.
In 1996, Agrimax contributed the operating assets of its discontinued St. Paul,
Minnesota operations to Petals, an
F-9
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unrelated company, in exchange for a 19.5 percent equity interest in Petals. No
gain or loss was recognized on the transaction with Petals and the investment in
Petals was recorded at the net book value of the contributed assets.
Based on information that became available on December 26, 1996, including
information related to continued operating losses at UAF in the four months
ended October 31, 1996, coupled with a shortfall in sales and larger operating
loss than expected at Petals in the fourth quarter of calendar 1996, the Company
recorded a non-cash charge to results of operations of $1,900,000 during the
first quarter of fiscal 1997, reflecting the permanent impairment in the value
of its investment in affiliated companies, and reducing the carrying value of
the assets to management's estimate of the net realizable value.
In October 1997, the majority owner of Petals informed the Company that it had
entered into negotiations to sell Petals to an unrelated third party. Under the
proposed terms of sale, the Company's interest in Petals would be reduced to
less than 10 percent. The Company was further informed that the majority owner
did not intend to advance additional funds to Petals and that if a sale could
not be consummated, intended that Petals would cease operations and liquidate
its assets. Based on this information, the Company believes that its investment
in Petals has more than temporarily declined and, accordingly, recorded an
additional charge to operations of $358,080 in the fourth quarter of 1997.
The Company's investment in affiliated companies is summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Investment in UAF...................................................... $ - $ 1,847,148
Investment in Petals................................................... - 410,932
Vinifera Sud Americana................................................. 200,000 -
Other investments...................................................... 46,962 190,543
--------- -----------
Investment in affiliated companies..................................... $ 246,962 $ 2,448,623
</TABLE>
For the year ended September 30, 1995, the accompanying financial statements
include revenue of $1,914,000 and an operating losses of $3,299,000 attributable
to Agrimax. The accompanying statement of operations for the year ended
September 30, 1995 includes the results of operations of Agrimax through May
1995 and also includes a charge of $500,000 to selling, general and
administrative expenses attributable to the disposition of Agrimax's business.
Vinifera. In June 1995, Agritope agreed to sell its wholly owned grapevine plant
propagation subsidiary, Vinifera, to VF Holdings, Inc. ("VF"), an affiliate of a
Swiss investment group, pursuant to a stock purchase agreement. VF subsequently
failed to make the payments required under the VF Agreement. As part of a
settlement of claims based on VF's default, VF retained a 4 percent minority
interest in Vinifera and relinquished the remaining interest to Agritope in
August 1996. Additional minority investors in Vinifera reduced Agritope's
ownership to 76 percent as of September 30, 1996, and to 61 percent as of
September 30, 1997.
The reacquisition of Vinifera in August 1996 has been accounted for under the
purchase method. The net purchase price of $916,000 has been allocated to
tangible net assets. Vinifera's results of operations are included in the
consolidated statements of operations from October of 1994 through May of 1995,
for the month of September 1996 and for all of 1997. The following summarized,
unaudited pro forma results of operations are presented as if the reacquisition
had occurred on the first day of each period shown.
F-10
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
YEAR ENDED SEPTEMBER 30
1997 1996 1995
-------------------------------------------- ---------------------------------------------
Agritope Agritope Pro forma Pro forma Agritope Pro forma Pro forma
Historical Historical Vinifera Historical Vinifera
Adjustment Adjustments
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Product Sales............ $1,436,498 - 833,948 833,948 2,015,318 276,588 2,291,906
Grants and Contracts..... 114,692 585,485 - 585,485 94,370 - 94,370
----------- ---------- ---------- --------- ------------ --------- ---------
1,551,190 585,485 833,948 1,419,433 2,109,688 276,588 2,386,276
Costs and expenses
Product costs............ 1,326,163 - 1,373,106 1,373,106 3,235,675 434,651 3,670,326
Research and development
costs.................... 1,681,646 1,338,703 85,085 1,423,788 2,204,993 10,153 2,215,146
Selling general and
administrative expenses.. 3,081,074 1,482,694 837,395 2,320,089 4,479,498 269,580 4,749,078
6,088,883 2,821,397 2,295,586 5,116,983 9,920,166 714,384 10,634,550
Loss from operations..... (4,537,693) (2,235,912) (1,461,638) (3,697,550) (7,810,478) (437,796) (8,248,274)
----------- ---------- ---------- --------- ------------ --------- ----------
Other income (expense) net (4,152,906) (265,356) (2,364) (267,720) (234,740) (22,500) (257,240)
----------- ---------- ---------- --------- ------------ --------- ----------
Net loss................. $(8,690,599) $(2,501,268) (1,464,002) (3,965,270) $ (8,045,218) (460,296) (8,505,514)
--------- ----------
Net loss per share....... $ (4.35) $ (1.25) (.73) (1.98) $ (4.02) (.23) (4.25)
</TABLE>
The pro forma Vinifera adjustments include the results of operations of Vinifera
for the periods when Vinifera's accounts were not included in Agritope's
consolidated statement of operations. See separate audited financial statements
of Vinifera for these periods beginning on page F-19 of this Registration
Statement.
In 1997, Vinifera made a $200,000 investment in Vinifera Sudamericana, S.A.
("VSA"), an Argentina joint venture established to propagate and market
grapevine plants to the growing South American wine industry. Vinifera owns a 20
percent interest in VSA and accounts for this investment under the cost method.
F-11
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1996, Epitope exchanged $3,380,000 principal amount of Agritope
convertible notes for 250,367 shares of common stock of Epitope at a reduced
exchange price of $13.50 per share. The exchange price had previously been fixed
at $19.53 per share. Accordingly, Agritope recognized a charge to results of
operations of $1,216,654 in the first quarter of fiscal 1997 representing the
conversion expense. In conjunction with the exchange, unamortized debt issuance
costs of $86,134 related to such notes were recognized as equity issuance costs
during 1997. Concurrent with the note conversion, Epitope made a $4,529,009
capital contribution to Agritope. On June 30, 1997, Agritope paid in full the
remaining $240,000 principal amount outstanding.
Debt issuance costs were included in other assets and were being amortized over
the five-year life of the notes. Amortization expense of debt issuance costs for
the years ended September 30, 1997, 1996 and 1995, respectively, totaled $2,687,
$108,257 and $96,136.
NOTE 6 SHAREHOLDER'S EQUITY
Authorized Capital Stock. At September 30, 1997, Agritope's amended articles of
incorporation authorized 1,000,000 shares of preferred stock and 20,000,000
shares of common stock. The Company's board of directors has authority to
determine preferences, limitations and relative rights of the preferred stock.
Common Stock. Cash and cash equivalents provided to Agritope by Epitope have
been reflected in common stock. Also reflected in common stock are certain
transactions in Epitope common stock. The exchange of shares of Epitope common
stock for Agritope convertible debt and the related write-off of debt issuance
costs have been reflected as Agritope common stock.
As employees of a wholly owned subsidiary of Epitope, the employees of Agritope
and its subsidiaries have participated in stock award, employee stock purchase
and other benefit plans of Epitope. Compensation expense recognized for Epitope
stock grants and awards to Agritope employees totaling $53,895 in 1997, $243,664
in 1996 and $388,373 in 1995, has been recognized as operating expenses and
common stock of Agritope.
In the first quarter of fiscal 1997, a minority shareholder in Vinifera
contributed $100,000 to Vinifera in satisfaction of a stock subscription
agreement. In the third quarter of fiscal 1997, Agritope sold 770,000 shares of
common stock of Vinifera to outside parties for $1,540,000 in cash. In
accordance with the terms of the related stock purchase agreements, Agritope
contributed the proceeds of these stock sales to Vinifera's capital. These sales
of previously issued shares of Vinifera common stock reduced percentage
ownership of Vinifera voting stock from 76 percent to 61 percent.
F-12
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 INCOME TAXES
As of September 30, 1997, Agritope had net operating loss carryforwards of
approximately $34.1 million and $21.2 million, respectively, to offset federal
and Oregon state taxable income. These net operating loss carryforwards will
expire if not used by Agritope, as follows:
<TABLE>
YEAR OF EXPIRATION FEDERAL OREGON
<S> <C> <C>
2004................................................................... $ 111,000 $ 111,000
2005................................................................... 317,000 317,000
2006................................................................... 941,000 941,000
2007................................................................... 2,620,000 2,620,000
2008................................................................... 6,733,000 4,847,000
2009................................................................... 8,327,000 2,179,000
2010................................................................... 8,477,000 3,765,000
2011................................................................... 2,249,000 2,168,000
2012................................................................... 4,279,000 4,279,000
------------- --------------
$ 34,054,000 $ 21,227,000
Significant components of Agritope's deferred tax asset were as follows:
SEPTEMBER 30 1997 1996
Net operating loss carryforwards....................................... $ 12,215,000 $ 10,862,000
Deferred compensation.................................................. 513,000 493,000
Research and experimentation credit carryforwards...................... 418,000 339,000
Accrued expenses....................................................... 805,000 15,000
Other.................................................................. 622,000 59,000
------------- --------------
Gross deferred tax assets.............................................. 14,573,000 11,768,000
Valuation allowance.................................................... (14,573,000) (11,768,000)
------------- -------------
Net deferred tax asset................................................. $ - $ -
</TABLE>
No benefit for Agritope's deferred tax assets has been recognized in the
accompanying financial statements as they do not satisfy the recognition
criteria set forth in SFAS 109. The valuation allowance increased by $2.8
million in 1997. The research and experimentation tax credit carryforwards will
generally expire from 2004 through 2011 if not used by Agritope. Net operating
loss and tax credit carryforwards incurred by Agritope through the date of the
spin-off (see Note 1, The Company--Agritope Spin-off) will continue as
carryforwards of Agritope after the date of distribution. The issuance of voting
stock in future years may result in a change of ownership under federal tax
rules and regulations. Upon occurrence of such a change in ownership,
utilization of existing tax loss and tax credit carryforwards would be subject
to cumulative annual limitations.
The expected federal statutory tax benefit of $3.0 million for the year ended
September 30, 1997 is increased by approximately $323,000 for the effect of
state and local taxes (net of federal impact), and decreased by approximately
$2.8 million for the effect of the increase in valuation allowance, and by
$433,000 for permanent differences consisting primarily of debt to equity
conversion costs.
The 1997 consolidated financial statements include the financial results of
Vinifera, a 61 percent owned subsidiary
F-13
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(see Note 3). However, the tax disclosures above do not include the deferred tax
assets and related valuation allowance for Vinifera's carryforwards since
Vinifera is not included in the consolidated group for tax purposes. Vinifera
files its tax return separately on a stand-alone basis.
NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS
Agritope performed research work in 1997, 1996 and 1995 with respect to
grapevine disease diagnostics funded by a grant from the U.S. Department of
Agriculture under the Small Business Innovation Research Program and in 1996 and
1995 with respect to raspberries which was partially funded by Sweetbriar
Development, Inc. under a License Agreement dated October 18, 1994. Agritope has
also received grant support from the U.S. Department of Agriculture, Oregon
Strawberry Commission, and Oregon Raspberry & Blackberry Commission for
antifungal biocontrol research and from several strategic partners.
Revenues from research and development arrangements are included in the
accompanying consolidated statements of operations under the caption "Grants and
contracts." Expenses related to such arrangements are included under the caption
"Research and development costs." The activity related to these arrangements is
summarized as follows:
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
<S> <C> <C> <C>
Government research grants................................ $ 30,228 $ 144,987 $ 16,358
Research projects with strategic partners................. 52,770 326,462 40,000
Other..................................................... 31,694 114,036 38,012
----------- ----------- -----------
$ 114,692 $ 585,485 $ 94,370
Project related expenses.................................. $ 272,309 $ 461,460 $ 318,401
</TABLE>
In October 1997, Agritope was awarded a U.S. Department of Commerce grant
totaling $990,000 and covering a three-year period. Agritope was awarded the
grant for use in the application of its proprietary ripening control technology
to certain tree fruits and bananas.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Vinifera leases office and greenhouse facilities under operating lease
agreements which require minimum annual payments as follows:
YEAR ENDING SEPTEMBER 30
<TABLE>
<S> <C>
1998 ..................................................... $ 153,000
1999 ..................................................... 153,000
2000 ..................................................... 153,000
2001 ..................................................... 53,000
--------------
$ 512,000
</TABLE>
F-14
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agritope also occupies office, greenhouse and laboratory facilities which are
leased by Epitope. The occupancy costs associated with these facilities are
allocated to Agritope on the basis of square footage utilized. Rent expense
incurred by Agritope, including amounts allocated by Epitope, aggregated
$326,388, $218,100 and $353,816 for the years ended September 30, 1997, 1996 and
1995, respectively.
Agritope is also contingently liable for a lease which has been assigned to UAF
and the lease of property which has been subleased to Petals in the following
amounts:
YEAR ENDING SEPTEMBER 30
<TABLE>
<S> <C>
1998...................................................... $ 341,304
1999...................................................... 347,104
1999...................................................... 55,701
--------------
$ 744,109
</TABLE>
During 1997, the Company accrued its contingent obligation under these leases as
both UAF and Petals have defaulted on the related subleases. A charge of
$744,109 is reflected in other expense in 1997.
NOTE 10 PROFIT SHARING AND SAVINGS PLAN
Epitope established a profit sharing and deferred salary savings plan in 1986
and restated the plan in 1991. All Agritope employees are eligible to
participate in the plan. In addition, the plan permits certain voluntary
employee contributions to be excluded from the employees' current taxable income
under the provisions of Internal Revenue Code Section 401(k) and the regulations
thereunder. Effective October 1, 1991, Epitope replaced a discretionary profit
sharing provision with a matching contribution (either in cash, shares of
Epitope common stock, or partly in both forms) equal to 50 percent of an
employee's basic contribution, not to exceed 2.5 percent of an employee's
compensation. The board of directors of Epitope has the authority to increase or
decrease the 50 percent match at any time. During 1997, 1996 and 1995,
respectively, Agritope was charged $33,063, $14,500 and $29,877 by Epitope for
its share of the matching contribution under the plan.
NOTE 11 SUBSEQUENT EVENTS
Delaware Reincorporation; Recapitalization. In November 1997, in connection with
the spin-off of Agritope by Epitope, Agritope agreed to merge with Agritope,
Inc., a newly formed Delaware corporation. The purpose of the merger is to
change the Company's domicile from Oregon to Delaware and increase the Company's
authorized capital stock to 30 million shares of common stock, par value $.01
per share, and 10 million shares of preferred stock, par value $.01 per share.
On November 25, 1997, the Agritope board of directors declared a stock dividend
of approximately 690,866 shares of Agritope common stock to the sole Agritope
stockholder, with the exact number of shares to be issued as a dividend to be
the number needed to effect the spin-off based on a distribution ratio of one
share of Agritope common stock for each five shares of Epitope common stock
outstanding on the record date for the spin-off. Thus, approximately 2,690,866
shares of Agritope common stock will be distributed to the shareholders of
Epitope in the spin-off.
F-15
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Award Plan. In November 1997, the Agritope, Inc. 1997 Stock Award Plan
(the "Award Plan") was adopted by Agritope's board of directors and approved by
Epitope as Agritope's sole stockholder. The Award Plan provides for stock-based
awards to employees, outside directors, members of scientific advisory
committees and other consultants. Awards which may be granted under the Award
Plan include incentive stock options, nonqualified stock options, stock
appreciation rights, restricted awards, performance awards and other stock-based
awards.
The Award Plan provides for the issuance of a total of up to 2,000,000 shares of
Agritope common stock, subject to adjustment for changes in capitalization.
Options to purchase a total of 1,253,394 shares, having exercise prices of $5.25
to $7.00 per share, have been granted to officers, employees and nonemployee
directors of Agritope under the Award Plan. In connection with the grants,
Agritope will incur compensation expense of $1,995,440, which will be amortized
over the four-year vesting period of the options.
Employee Stock Purchase Plan. Also in November 1997, Agritope's board of
directors and Epitope, as Agritope's sole stockholder, approved the Agritope,
Inc. 1997 Employee Stock Purchase Plan (the "Purchase Plan"), covering up to
250,000 shares of Agritope common stock which Agritope employees may subscribe
to purchase during offering periods to be established from time to time. The
Compensation Committee of Agritope's board of directors was granted authority to
determine the number of offering periods, the number of shares offered, and the
length of each period. No more than three offering periods (other than Special
Offering Subscriptions as defined in the Purchase Plan) may be set during each
fiscal year. The purchase price for stock purchased under the Purchase Plan is
the lesser of 85 percent of the fair market value of a share on the last trading
day before the offering date established for the offering period and 85 percent
of the fair market value of a share on the date the purchase period ends (or any
earlier purchase date provided for in the Purchase Plan).
Employee Stock Ownership Plan. Agritope's board of directors adopted the
Agritope, Inc. Employee Stock Ownership Plan ("ESOP") in November 1997. After
the spin-off, all employees, except excluded classes, of Agritope and those of
its affiliates which elect to participate will be eligible to participate in the
ESOP. The employers' contribution to the ESOP each year will be determined by
the Agritope board of directors, and may be made either in Agritope common stock
or in cash. Contributions are allocated to participants in proportion to their
compensation. Contributions vest over a six -year period, or upon the
participant's earlier death, disability, or attainment of age 65.
401(k) Profit Sharing Plan. Agritope established the Agritope, Inc. 401(k)
Profit Sharing Plan (the "401(k) Plan") in November 1997. After the spin-off,
all employees (including officers), other than excluded classes, will be
eligible to participate. Participants may contribute up to 17 percent of their
cash compensation on a before-tax basis, subject to an annual maximum amount
which is adjusted for the cost of living ($9,500 for 1997). The first 5 percent
of a participant's compensation is eligible for a discretionary, pro-rata
employer matching contribution which will be invested in Agritope common stock.
Agritope has not yet made any contributions to the 401(k) Plan and the plan does
not hold any shares of Agritope common stock.
Research and Development Agreement. As of December 5, 1997, Agritope and
Vilmorin & Cie ("Vilmorin") had entered into a research and development
agreement covering certain vegetable and flower crops. Under the terms of the
research agreement, Vilmorin will provide certain proprietary seed varieties and
germplasm for use by Agritope in research and development projects to be funded
by Vilmorin, in which Agritope technology, and possibly Vilmorin technology,
will be applied to the various covered crops. The specific research projects to
be conducted will be determined by agreement of the parties. Unless otherwise
agreed, Vilmorin will pay, on a quarterly basis, all Agritope's out-of-pocket
expenses, including employee salaries and overhead, for each selected
F-16
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
research project.
Agritope and Vilmorin have agreed to negotiate in good faith the terms of future
commercialization agreements applicable to any commercial-stage products that
arise out of Vilmorin-funded research. If the parties are unable to agree,
commercialization terms will be determined by binding arbitration.
Agritope's board of directors has designated 1 million shares of Agritope
preferred stock, par value $.01 per share, as Series A Preferred Stock ("Series
A Convertible Preferred"). Series A Convertible Preferred has preemptive rights
and the right to elect a director, but otherwise has rights substantially
equivalent to Agritope common stock and is convertible at any time into shares
of Agritope common stock, initially on a share-for-share basis. In connection
with the research agreement, Vilmorin has agreed to purchase 214,285 shares of
Series A Convertible Preferred at a price of $7 per share. Agritope has also
agreed to grant Vilmorin an option, expiring on January 15, 1998, to acquire all
or any portion of the remaining 785,714 shares of Series A Convertible Preferred
at $7 per share. Vilmorin has agreed to provide additional funding totaling $1
million either by exercising its option to purchase Series A Convertible
Preferred or through the financing of research and development projects.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Epitope, Inc.
In our opinion, the accompanying statements of operations and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of Vinifera, Inc. for the periods from October 1, 1995 through August 27,
1996 and June 1, 1995 through September 30, 1995, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
December 22, 1997
F-18
<PAGE>
VINIFERA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
FOR THE PERIOD
OCTOBER 1, 1995 JUNE 1, 1995
THROUGH THROUGH
AUGUST 27, 1996 SEPTEMBER 30, 1995
Revenues
<S> <C> <C>
Product sales.............................................. $ 833,948 $ 276,588
Costs and expenses
Product costs.............................................. 1,373,106 434,651
Research and development costs............................. 85,085 10,153
Selling, general and administrative expenses (Note 2)..... 837,395 269,580
------------ --------------
2,295,586 714,384
Loss from operations....................................... (1,461,638) (437,796)
Other income (expense), net
Interest expense........................................... (2,000) -
Other, net................................................. (364) (22,500)
------------ --------------
(84,343) (22,500)
Net loss................................................... $ (1,464,002) $ (460,296)
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
VINIFERA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE PERIOD
OCTOBER 1, 1995 JUNE 1, 1995
THROUGH THROUGH
AUGUST 27, 1996 SEPTEMBER 30, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss................................................... $ (1,464,002) $ (460,296)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............................. 442,386 362
Increase in receivables.................................... (200,730) (19,810)
Increase in inventories.................................... (294,753) -
Increase in prepaid expenses............................... (915) -
Increase in other assets and deposits...................... (9,842) (3,217)
Increase in accounts payable............................... 217,487 4,866
Increase (decrease) in deferred revenue.................... 323,686 (29,175)
Increase in other liabilities.............................. 182,350 59,144
------------ --------------
Net cash used in operating activities...................... (804,333) (448,125)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment........................ (1,088,760) (49,064)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable.................................. - (85,797)
Proceeds from note payable to Agritope..................... 1,523,628 -
Capital contributed by owners.............................. 329,953 618,978
------------ --------------
Net cash provided by financing activities.................. 1,853,581 533,181
Net increase (decrease) in cash and cash equivalents....... (39,512) 35,992
Cash at beginning of period................................ 39,512 3,520
------------ --------------
Cash at end of period...................................... $ 0 $ 39,512
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
VINIFERA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Vinifera, Inc. ("Vinifera" or the "Company") is engaged in the business of
propagation, growing, and distribution of superior grapevine plants in
commercial quantities. Vinifera was formed in 1993 as a wholly owned subsidiary
of Agritope, Inc. (a wholly owned subsidiary of Epitope, Inc.) and is
headquartered in Petaluma, California with additional greenhouse facilities in
Woodburn, Oregon. In June 1995, Agritope agreed to sell Vinifera to VF Holdings,
Inc. (VF) an affiliate of a Swiss investment group. The purchaser subsequently
failed to make scheduled payments of the purchase price. As part of a settlement
of claims based on the purchaser's default, the purchaser retained a four
percent minority interest in Vinifera and relinquished the remaining majority
interest to Agritope, Inc. in August 1996.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements include the
revenues and expenses of the Company. Certain general and administrative
services such as accounting, annual meeting costs, audit, executive management,
facilities, finance, general management, human resources, information systems,
and payroll are provided by Epitope on a centralized basis for the benefit of
Vinifera ("Shared Services"). Such expenses have been allocated to Vinifera in
the accompanying financial statements at the rate of $5,000 per month, which, in
the opinion of management, represent a reasonable measure of Vinifera's
utilization of such Shared Services.
Depreciation and Capitalization Policies. Expenditures for repairs and
maintenance are charged to operating expense as incurred. Expenditures for
renewals and betterments are capitalized. Depreciation and amortization of
property and equipment are calculated primarily under the straight-line method
over the estimated useful lives of the related assets (three to seven years).
Leasehold improvements are amortized over the shorter of estimated useful lives
or the terms of the related leases. When assets are sold or otherwise disposed
of, cost and related accumulated depreciation or amortization are removed from
the accounts and any resulting gain or loss is included in operations.
Revenue Recognition. Product sales are recognized when the related products are
shipped.
Research and Development. Research and development expenditures are comprised of
those costs associated with Vinifera's ongoing research and development
activities to develop improved propagation methods. All research and development
costs are expensed as incurred.
Income taxes. The Company accounts for certain revenue and expense items
differently for income tax purposes than for financial reporting purposes. These
differences arise principally from methods used in accounting for stock options
and depreciation rates.
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates.
Cash flows. For purposes of the cash flow statement the company considers all
highly liquid debt instruments with a maturity of 90 days or less to be cash
equivalents.
F-21
<PAGE>
NOTE 3 INCOME TAXES
No benefit for Vinifera's deferred tax assets has been recognized in the
accompanying financial statements as they do not satisfy the recognition
criteria set forth in SFAS 109 due to continued losses of the Company.
As of August 31, 1997, Vinifera had net operating loss carryforwards of
approximately $ 5,286,573 respectively, to offset future taxable income.
NOTE 4 SUBSEQUENT EVENT
Subsequent to August 27, 1996 additional capital was contributed to the Company.
A group of minority shareholders provided $1,225,000 and Agritope, Inc. invested
an additional $575,000.
F-22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN INFORMATION STATEMENT/PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Amount
SEC Registration Fee............................... $ 1,550
Accounting Fees and Expenses*...................... $ 25,000
Legal Fees and Expenses*........................... $ 150,000
Blue Sky Fees and Expenses*........................ $ 4,900
Printing, including Registration Statement, $ 50,000
Information Statement/Prospectus, etc.*..........
Miscellaneous Expenses*............................ $ 34,550
--------
TOTAL EXPENSES*.................. $266,000
- ------------
*Estimated
Item 14. Indemnification of Directors and Officers.
Indemnification. Generally, the Delaware General Corporation Law (the
"DGCL") requires the indemnification of an individual made a party to a
proceeding because the individual is or was a director, officer, employee or
agent of the corporation against reasonable expenses incurred by the director,
officer, employee or agent in the proceeding if the individual is wholly
successful on the merits or otherwise. In addition, the DGCL allows a
corporation to indemnify a director, officer, employee or agent of the
corporation if:
(a) The conduct of the individual was in good faith;
(b) The individual reasonably believed that the individual's
conduct was in the best interests of the corporation, or at least not
opposed to its best interests;
(c) In the case of any criminal proceeding, the individual had
no reasonable cause to believe that the individual's conduct was
unlawful; and
(d) In the case of any proceeding by or in the right of the
corporation, the individual was not adjudged liable to the corporation.
The DGCL provides that the indemnification described above is not
exclusive of any other rights to which directors, officers, employees or agents
may be entitled under the corporation's bylaws, or under any agreement, vote of
stockholders or disinterested directors or otherwise.
II-1
<PAGE>
Article 8 of the certificate of incorporation of the Registrant permits
the Registrant to indemnify its directors, officers, employees, and agents to
the fullest extent permitted by law. Article 8 of the bylaws of the Registrant
requires such indemnification as to directors and officers, against expenses and
liability (other than in a proceeding by or in the right of the Registrant),
including attorney fees, actually and reasonably incurred by such individual in
connection with any threatened, pending, or completed action, suit, or
proceeding to which the individual is a party because of service to the
Registrant. Article 8 of the bylaws further provides that the foregoing right of
indemnification is not exclusive of any other rights to which the individual may
be entitled under the DGCL, certificate of incorporation, bylaws, agreement,
vote of stockholders or disinterested directors or otherwise. The Registrant
may, but is not required to, offer the same rights of indemnification, on a
case-by-case basis, to its employees and agents.
In addition to the foregoing right of indemnity, the Registrant will
enter into indemnification agreements with all of its officers and directors,
the forms of which are filed as Exhibits 10.11 and 10.12 hereto. Each
indemnification agreement makes provisions of the DGCL relating to permissive
indemnification mandatory and therefore restates the Registrant's obligation as
set forth in the bylaws, as discussed above. In addition, each indemnification
agreement sets forth the Registrant's obligation to indemnify the party to the
agreement in the event that the indemnitee is entitled to indemnification of
some but not all liability and expenses. The indemnification agreements and the
bylaws also set forth procedures for the defense of claims by the Registrant.
Section 174 of the DGCL provides in substance that any director held
liable pursuant to that section for the unlawful payment of a dividend or other
distribution of assets of a corporation shall be entitled to contribution from
the stockholders who accepted the dividend or distribution, knowing the dividend
or distribution was made in violation of the DGCL. The section also provides
that any such director shall be entitled to contribution from the other
directors who voted for or concurred in the unlawful dividend, stock purchase or
stock redemption.
The Registrant understands that the current position of the Securities
and Exchange Commission is that any indemnification of liabilities arising under
the Securities Act of 1933, as amended, is against public policy and is,
therefore, unenforceable.
The general effect of these provisions is to indemnify directors and
officers of the Registrant against all costs and expenses of liability incurred
by them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with the Registrant, to the fullest
extent permitted by law.
Insurance. The Registrant intends to carry insurance protecting
officers and directors against certain liabilities that they may incur in their
capacities as such.
Item 15. Recent Sales of Unregistered Securities.
Agritope will sell 1,343,704 shares of Agritope Common at a price of $7
per share in the Regulation S Sale to certain foreign investors for an aggregate
price of $9.4 million. Agritope expects that proceeds from the Regulation S Sale
will be received immediately following the Distribution. Agritope and Vilmorin
have also agreed to the Preferred Stock Sale for the sale of 214,285 shares of
Agritope Series A Convertible Preferred at a price of $7 per share for an
aggregate purchase price of $1.5 million. In addition, Agritope has granted
Vilmorin the Series A Option, exercisable by Vilmorin or its designees and
expiring January 15, 1998, to purchase up to 785,715 additional shares of Series
A Convertible Preferred at a price of $7 per share. Subscribers in the
Regulation S Sale have entered stock purchase agreements and have deposited the
purchase price in an escrow account, pending completion of the Distribution and
the closing of the Regulation S Sale. Shares sold in the Regulation S Sale and
the sale of Series A Convertible Preferred will not be registered under the
Securities Act in reliance upon the exemption from registration provided by
Regulation S.
II-2
<PAGE>
To facilitate the December 1997 merger (the "Merger") of Agritope,
Inc., an Oregon corporation, with and into the Registrant, on November 14, 1997,
the Registrant issued one share of its common stock, par value $.01 per share,
to Epitope, Inc., an Oregon corporation, in consideration for Epitope's payment
to the Registrant of $100. The share was canceled when the Merger took effect.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits to the Registration Statement required by Item 601 to
Regulation S-K are listed in the accompanying index to exhibits.
(b) No financial statement schedules have been filed because the
requested information is not applicable or is provided as part of the
consolidated financial statements in the Information Statement/Prospectus
included in this Registration Statement.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 7 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Beaverton, state of Oregon, on December 24, 1997.
AGRITOPE, INC.
By /s/ Gilbert N. Miller
Gilbert N. Miller, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 7 to the Registration Statement has been signed on December 24,
1997, by the following persons in the capacities indicated.
Signature Title
* ADOLPH J. FERRO, PH.D. Chairman of the Board, President, Chief
Adolph J. Ferro, Ph.D. Executive Officer and Director
(Principal Executive Officer)
Executive Vice President,
<TABLE>
<S> <C>
/s/ Gilbert N. Miller
Gilbert N. Miller Chief Financial Officer, Secretary and Director
</TABLE>
(Principal Financial Officer and
Principal Accounting Officer)
*W. CHARLES ARMSTRONG Director
W. Charles Armstrong
*ROGER L. PRINGLE Director
Roger L. Pringle
*NANCY L. BUC Director
Nancy L. Buc
*MICHEL de BEAUMONT Director
Michel de Beaumont
*By /s/ Gilbert N. Miller
Gilbert N. Miller
(Attorney-in-Fact)
II-4
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
2.* Separation Agreement between Epitope, Inc. ("Epitope"), and
Agritope, Inc. ("Agritope"), dated as of December 1, 1997.
3.1* Certificate of Incorporation of Agritope.
3.2* Bylaws of Agritope.
3.3* Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock.
4.1* Form of Common Stock Certificate.
4.2* Form of Rights Agreement between Agritope and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, which includes
as Exhibit A the Designation of Terms of the Series B Junior
Participating Preferred Stock and as Exhibit B the form of
Rights Certificate, as amended.
4.3* Form of stock purchase agreement in connection with the
Regulation S Sale.
4.4* Preferred Stock Purchase Agreement between Agritope and
Vilmorin dated December 5, 1997.
5.* Opinion of Tonkon Torp LLP.
8.* Opinion of Miller, Nash, Wiener, Hager & Carlsen LLP.
10.1* Transition Services and Facilities Agreement between Epitope
and Agritope, dated as of December 1, 1997.
10.2* Tax Allocation Agreement between Epitope and Agritope, dated
as of December 1, 1997.
10.3* Amended and Restated Employee Benefits Agreement between
Epitope and Agritope, dated as of December 19, 1997.
10.4* Agritope, Inc. 1997 Stock Award Plan.
10.5* Agritope, Inc. 1997 Employee Stock Purchase Plan.
10.6* Form of Employment Agreement between Agritope and Adolph J.
Ferro, Ph.D.
10.7* Form of Employment Agreement between Agritope and Gilbert N.
Miller.
10.8* Form of Employment Agreement between Agritope and Richard K.
Bestwick, Ph.D.
II-5
<PAGE>
10.9* Form of Employment Agreement between Agritope and Matthew G.
Kramer.
10.10* Employment Agreement between Vinifera, Inc. and Joseph A.
Bouckaert.
10.11* Form of Indemnification Agreement for directors.
10.12* Form of Indemnification Agreement for officers.
10.13* Lease of Land and Certain Improvements located at 4288 Bodega
Avenue entered into by and between Gianni Neve and Maria Neve,
Landlord, and Vinifera, Inc., Tenant, dated as of February 1,
1996.
10.14* Option to License and Research Support Agreement between the
Salk Institute for Biological Studies and Epitope dated
February 25, 1997, including Amendment dated July 25, 1997,
and Assignment between Agritope and Epitope. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.
10.15* Superior Tomato Associates, L.L.C. Operating Agreement dated
February 19, 1996, including Assignment and Assumption
Agreement between the Company and Andrew and Williamson Sales,
Co.
10.16* Form of Restated Placement Agent Agreement between American
Equities Overseas Inc., and Agritope.
10.17 Form of Warrant Agreement to be issued to Vector Securities in
partial consideration for services in connection with the
Distribution.
10.18* Form of Warrant Agreement to be issued in connection with the
Regulation S Sale.
10.19* Research and Development Agreement between Agritope and
Vilmorin & Cie, dated as of December 5, 1997. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.
10.20* Assignment and Modification of Lease dated November 7, 1997
among Pacific Realty Associates, L.P. ("Pacific"), American
Show Management, Inc. ("ASM"), and Agritope, Lease Amendment
dated June 3, 1996, between Pacific and ASM, and Lease dated
October 4, 1995, between Pacific and ASM.
21. The subsidiaries of Agritope are Vinifera, Inc., an Oregon
corporation, and Agrimax Floral Products, Inc., a Minnesota
corporation. Agritope owns a 662/3 percent interest in
Superior Tomato Associates, L.L.C.
23.1 Consent of Price Waterhouse LLP.
23.2* Consent of Tonkon Torp LLP (included in Exhibit 5).
23.3* Consent of Miller, Nash, Wiener, Hager & Carlsen LLP (included
in Exhibit 8).
II-6
<PAGE>
24.* Powers of attorney
27.* Financial Data Schedule.
- --------------
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
* Previously filed
** To be filed by amendment
II-7
THESE WARRANTS AND THE SHARES OF COMMON STOCK UNDERLYING THESE WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, OR OTHERWISE
DISPOSED OF, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, UNLESS (i) THE
TRANSACTION IS REGISTERED UNDER THE 1933 ACT AND ANY APPLICABLE SECURITIES LAWS
OF ANY STATE, TERRITORY OR POSSESSION OF THE UNITED STATES OR THE DISTRICT OF
COLUMBIA ("STATE ACT"), AND/OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
1933 ACT OR ANY APPLICABLE STATE ACT IS AVAILABLE AND THE ISSUER HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT REASONABLY SATISFACTORY TO IT.
VOID AFTER 5 P.M., UNITED STATES PACIFIC TIME,
ON DECEMBER 31, 2000
OR SUCH EARLIER DATE AS SPECIFIED HEREIN
WARRANTS TO PURCHASE COMMON STOCK
(and associated Preferred Stock Purchase Rights)
Warrant No. 97--- 83,333 Warrants
AGRITOPE, INC.
THIS CERTIFIES THAT
VECTOR SECURITIES INTERNATIONAL, INC. ("Vector Securities")
is the registered holder of the number of Warrants (each, a "Warrant," and
collectively, the "Warrants") set forth above. Each Warrant represented by this
certificate for Warrants ("Warrant Agreement") entitles the registered holder
thereof (the "Warrantholder") to purchase from Agritope, Inc., a corporation
incorporated under the laws of the state of Delaware (the "Company" or
"Agritope"), one fully paid and nonassessable share of common stock, par value
$.01 per share, of the Company, including associated preferred stock purchase
rights (collectively, the "Common Stock"), upon presentation and surrender of
this Warrant Agreement with the accompanying Election to Exercise Warrants duly
completed, at any time (except as provided below) after the Common Stock
issuable upon exercise of these Warrants has been approved for trading on The
Nasdaq Stock Market and prior to 5 p.m., U.S. Pacific time, on the Expiration
Date (as defined in Section 2 hereof), at the corporate offices of the Company
at 8505 S.W. Creekside Place, Beaverton, Oregon 97008, or at such other address
as may be specified by the Company pursuant to Section 9 hereof, accompanied by
payment of the Exercise Price (as defined herein) and any applicable taxes,
either in cash in U.S. funds or by certified or official bank check in U.S.
funds payable to
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the order of the Company. These Warrants are issued as compensation for Vector
Securities' services in connection with the spin-off of the Company from
Epitope, Inc.
Section 1. Exercise Price. Each Warrant entitles the Warrantholder to
purchase one share of Common Stock for $------ (the "Exercise Price"), which
amount is equal to 110 percent of the average closing price of shares of the
Common Stock as quoted on the Nasdaq SmallCap Market on the five consecutive
trading days beginning on the Distribution Date (as defined in the Company's
registration statement on Form S-1 in connection with its spin off from Epitope,
Inc.), subject to adjustment as provided herein.
Section 2. Expiration. All Warrants not theretofore exercised shall
expire at 5 p.m., U.S. Pacific time, on December 31, 2000 (the "Expiration
Date").
Section 3. Adjustments of Number and Kind of Shares Purchasable and
Exercise Price. The number and kind of securities or other property purchasable
upon exercise of a Warrant shall be subject to adjustment from time to time upon
the occurrence, after the date hereof, of the following events:
3.1 If the outstanding shares of the Company's Common Stock
are divided into a greater number of shares or a dividend in Common
Stock is paid on the Common Stock, the number of shares of Common Stock
issuable on exercise of the Warrants shall be proportionately increased
and the Exercise Price in effect immediately prior to such subdivision
or at the record date of such dividend shall, simultaneously with the
effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately reduced; and, conversely, if the
outstanding shares of Common Stock are combined into a smaller number
of shares of Common Stock, the number of shares of Common Stock
issuable upon exercise of the Warrants shall be proportionately reduced
and the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. The increases and reductions provided for in
this subsection 3.1 shall be made with the intent and, as nearly as
practicable, the effect that neither the percentage of the total equity
of the Company issuable on exercise of the Warrants nor the price
payable for such percentage upon such exercise shall be affected by any
event described in this subsection 3.1.
3.2 No adjustment of the Exercise Price will be made if the
amount of the adjustment is less than $.01 per share, but in that case
any adjustment that would otherwise be required to be made will be
carried forward and will be made at the time of and together with the
next adjustment of the Exercise Price which, together with any
adjustment carried forward, amounts to $.01 per share or more.
3.3 In case of any change in the Common Stock of the Company
through merger, consolidation, reclassification, reorganization,
partial or complete liquidation, or other change in the capital
structure of the Company (not including a combination of shares or the
issuance of additional shares of Common Stock by the Company by
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stock split or stock dividend), then, as a condition of the change in
the capital structure of the Company, provision shall be made so that
the holder of this Warrant Agreement will have the right thereafter to
receive upon the exercise of the Warrants the kind and amount of shares
of stock or other securities or property to which such holder would
have been entitled if, immediately prior to such merger, consolidation,
reclassification, reorganization, recapitalization, or other change in
the capital structure, such holder had held the number of shares of
Common Stock issuable upon the exercise of the Warrant. In any such
case, appropriate adjustment shall be made in the application of the
provisions set forth herein with respect to the rights and interest
thereafter of the Warrantholder, to the end that the provisions set
forth herein shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the exercise of the Warrants.
3.4 When any adjustment is required to be made in the number
of shares of Common Stock, other securities, or property purchasable
upon exercise of the Warrants, the Company shall promptly determine the
new number of shares or other securities or property purchasable upon
exercise of the Warrants and (a) prepare and retain on file a statement
describing in reasonable detail the method used in arriving at the new
number of shares or other securities or property purchasable upon
exercise of the Warrants and (b) cause a copy of such statement to be
mailed to the Warrantholder within 30 days after the date when the
event giving rise to the adjustment occurred.
3.5 No fractional shares of Common Stock or other securities
shall be issued in connection with the exercise of any Warrants, but
the Company shall pay, in lieu of fractional shares, a cash payment
therefor on the basis of the fair market value of the Common Stock or
other securities on the business day immediately prior to the exercise.
"Fair market value" of the Common Stock or other securities means the
average of the reported high and low sale prices, or, if there is no
sale on such day, the average of the reported bid and asked prices, for
the Common Stock or other securities on that day on the securities
exchange or automated securities interdealer quotation system on which
such Common Stock or other securities are then traded or listed, or, if
the Common Stock or other securities are not traded or listed on a
national securities exchange or interdealer quotation system on such
day, on the basis of the fair market value thereof as determined by the
Board of Directors of the Company, which determination shall be
conclusive.
3.6 Notwithstanding anything herein to the contrary, there
shall be no adjustment made hereunder on account of the sale and
issuance of the shares of Common Stock or other securities purchasable
upon exercise of the Warrants.
Section 4. Rights of Warrantholder as Stockholder. No holder of this
Warrant Agreement shall, as such, be entitled to vote, receive dividends, or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on
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the exercise hereof for any purpose whatever, nor shall anything contained
herein be construed to confer upon the holder of this Warrant Agreement, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof or give or withhold consent to any corporate action (whether
upon any matter submitted to stockholders at any meeting thereof or otherwise)
including, without limitation, giving or withholding consent to any merger,
recapitalization, issuance of stock, reclassification of stock, exchange of
stock, consolidation or conveyance, or to receive notice of meetings or other
actions affecting stockholders or to receive dividends or subscription rights or
other distributions.
Section 5. Payment of Certain Taxes and Charges. The Company shall not
be required to issue or deliver any certificate for shares of Common Stock or
other securities upon the exercise of Warrants evidenced by this Warrant
Agreement until any applicable transfer tax and any other taxes or governmental
charges that the Company may be required by law to collect in respect of such
exercise shall have been paid, such tax being payable by the holder of this
Warrant Agreement at the time of surrender for exercise.
Section 6. Registration Rights.
6.1 Demand Registration Rights. Commencing one year after the
original issue date of this Warrant and continuing until the third
anniversary of the issue date (the "Exercise Period"), upon the
reasonable request of the Warrantholder or holder of the Warrant Shares
issued upon exercise of the Warrants, the Company shall as
expeditiously as possible use its best efforts to file a Registration
Statement on Form S-3 or a successor form ("Form S-3") under the 1933
Act with respect to the resale of Warrant Shares. The Company shall
have an obligation to file a Registration Statement under this Section
6.1 only if it is eligible to use Form S-3 or a successor form at the
time of the request and only once during the Exercise Period.
6.2 Registration Procedure. If obligated to file a
Registration Statement under Section 6.1, the Company shall follow the
registration procedures set forth in this Section 6.2. The Company
shall use its best efforts to cause the Registration Statement to
become effective under the 1933 Act and to maintain the effectiveness
of the Registration Statement for a period of 90 days. If required by
applicable law, the Company shall furnish to the holder of the
registered Warrant Shares such reasonable number of copies of a
prospectus, in conformity with the requirements of the 1933 Act, and
any amendments or supplements thereto and such other documents as the
holder of the registered Warrant Shares may reasonably request in order
to facilitate the disposition of the registered Warrant Shares after
the Registration Statement has been declared effective. The Company
shall use reasonable efforts to notify the holder of the registered
Warrant Shares of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, to file as promptly as may be
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practicable under the circumstances such amendments and supplements as
may be required on account of such event, and to use its best efforts
to cause each such amendment to become effective. The holder of the
registered Warrant Shares shall not effect sales of Warrant Shares
after receipt of notice from the Company that any such amendment or
supplement is required on account of any such event, until the
amendment becomes effective or the supplement has been filed. The
Company's obligations under this Section 6.2 shall expire at such time
as the Company is no longer required to maintain the effectiveness of
the Registration Statement as provided for above.
6.3 Limit on Registration Rights. Notwithstanding any other
provision of this Article , the Company shall not be obligated to
register any Warrant Shares if it furnishes the Warrantholder a written
opinion of counsel to the Company that such Warrantholder will be able
to sell all the Warrant Shares that such Warrantholder in good faith
wishes to sell in a three-month period pursuant to Rule 144 (or a
comparable successor rule adopted by the Securities and Exchange
Commission).
6.4 Deferral for Material Events. If, because of a proposed
material acquisition or any other material event, the Agritope board of
directors reasonably determines that the filing or effectiveness of a
Registration Statement or of a supplement or amendment to the
prospectus pursuant to this Article 6 would be detrimental to the
Company, Agritope may defer such filing or effectiveness for a period
of up to 120 days after such filing or effectiveness would otherwise
ordinarily have occurred. For the purposes of the preceding sentence,
it shall be presumed that a Registration Statement would ordinarily be
filed 45 days after request under Section , that a supplement or
amendment to the prospectus would ordinarily be filed 10 days after
notice referred to in Section and that the Registration Statement or
any amendment to the prospectus would ordinarily become effective five
business days after filing an acceleration request.
6.5 Furnish Information; Expenses. It shall be a condition
precedent to the obligations of Agritope in regard to the Warrant
Shares to be registered pursuant to Section that the holder of such
shares shall furnish to Agritope such information regarding itself, the
Warrant Shares held by it, and the intended method of disposition of
its Warrant Shares as shall be required to effect the registration of
its Warrant Shares.
6.6 Expenses of Registration. All expenses relating to
registration of the Warrant Shares (other than underwriting discounts
and commissions, transfer taxes, if any, and fees and disbursements of
counsel to the holder of the Warrant Shares) incurred in connection
with the registration or filings pursuant to Section 6.1 above,
including without limitation all registration and filing fees, printing
and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
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6.7 Indemnification.
(a) Indemnification by Agritope. To the extent
permitted by law, the Company shall indemnify and hold
harmless the Warrantholder and its officers, directors,
partners, agents, and employees or any underwriter (as defined
in the 1933 Act) of such Warrant Shares, and each person, if
any, who controls the Warrantholder against any losses,
claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or other
federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or
violations (a "Violation"):
(i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by Agritope
of the 1933 Act, the 1934 Act, any state securities law, or
any rule or regulation promulgated under the 1933 Act, the
1934 Act, or any state securities law.
Agritope shall reimburse the Warrantholder and each such
holder, officer, director, partner, agent, employee,
underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability, or action. This indemnity agreement shall not apply
to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without
the consent of Agritope (which consent shall not be
unreasonably withheld), nor shall Agritope be liable to the
Warrantholder or such other holder in any case for any loss,
claim, damage, liability, or action (A) to the extent that it
arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information
furnished expressly for use in connection with such
registration by or on behalf of the Warrantholder, such other
holder, or such underwriter or controlling person or (B) in
the case of a sale directly by the Warrantholder or holder of
the Warrant Shares (including a sale of such Warrant Shares
through any underwriter retained by the Warrantholder or such
other holder to engage in a distribution solely on behalf of
the Warrantholder or such other holder), if such untrue
statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and
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corrected in a final or amended prospectus, and the
Warrantholder or such other holder failed to deliver a copy of
the final or amended prospectus at or prior to the
confirmation of the sale of the Warrant Shares to the person
asserting any such loss, claim, damage or liability in any
case where such delivery is required by the 1933 Act.
(b) Indemnification by Holder of the Warrant Shares.
To the extent permitted by law, the Warrantholder shall
indemnify and hold harmless Agritope, each of its directors,
each of its officers, each person, if any, who controls
Agritope within the meaning of the 1933 Act, each agent and
underwriter for Agritope, each other holder of shares selling
securities covered by the Registration Statement, each
director, officer, partner, agent, and employee of such other
holder or underwriter, and each person, if any, who controls
such other holder or underwriter, against any losses, claims,
damages, or liabilities (joint or several) to which Agritope
or any such director, officer, partner, agent, employee,
controlling person, underwriter, or other holder may become
subject, under the 1933 Act, the 1934 Act, or other federal or
state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by
or on behalf of such Warrantholder expressly for use in
connection with such registration; and such Warrantholder
shall reimburse any legal or other expenses reasonably
incurred by Agritope or any such director, officer, partner,
agent, employee, controlling person, underwriter, or other
holder, in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement
is effected without the consent of such Warrantholder, which
consent shall not be unreasonably withheld; and provided,
further, that the indemnification obligation of such
Warrantholder shall be limited to the aggregate public
offering price of the Warrant Shares sold by the Warrantholder
pursuant to such registration.
(c) Notice, Defense and Counsel. Promptly after
receipt by an indemnified party under this Section of notice
of the commencement of any action (including any governmental
action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under
this Section , deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires to assume and control the
defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel
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retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such
indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this
Section to the extent of such prejudice, but the omission so
to deliver written notice to the indemnifying party shall not
relieve it of any liability that it may have to any
indemnified party otherwise than under this Section .
6.8 Survival of Rights and Obligations. The obligations of
Agritope and the Warrantholder under Section shall survive the
completion of any offering of the Warrant Shares covered by the
Registration Statement.
Section 7. Securities Act of 1933. The Warrantholder, by acceptance
hereof, agrees that this Warrant Agreement and the shares of Common Stock issued
or issuable upon exercise of this Warrant Agreement may not be offered or sold
except in compliance with the 1933 Act and applicable state securities laws. The
Warrantholder consents to the Company making a notation on its records and on
the certificates for any shares of Common Stock issued upon exercise hereof in
order to implement such restriction on transferability.
Section 8. Holdback Agreement. The Warrantholder, if requested by the
Company and an underwriter of the Company's securities, shall agree not to sell
or otherwise transfer or dispose of any Warrants or Warrant Shares for a
specified period of time not to exceed 180 days following the effective date of
a registration statement pursuant to which the Company proposes to sell its
securities to the public generally; provided, however, that all executive
officers and directors of the Company enter into similar agreements.
Section 9. Notices. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally, by facsimile, by courier service, or by
registered mail, airmail postage prepaid, return receipt requested, to: (a) the
Company at 16160 S.W. Upper Boones Ferry Road, Portland, Oregon 97224 (effective
March 15, 1998), or before March 15, 1998, at 8505 S.W. Creekside Place,
Beaverton, Oregon 97008, Attn: Chief Financial Officer, with a copy to Tonkon
Torp LLP, Suite 1600, 888 S.W. Fifth Avenue, Portland, Oregon 97204, Attn: Brian
G. Booth or at such other addresses as may be specified by the Company by notice
given to the Warrantholder in accordance with this Section 9, and (b) to the
Warrantholder at Vector Securities International, Inc., 1751 Lake Cook Road,
Suite 350, Deerfield, Illinois 60015, with a copy to Rodd M. Schreiber, 2642 N.
Burling Street, Chicago, Illinois 60614, or such other addresses as may be
specified by the Warrantholder by notice given to the Company in accordance with
this Section 9. Any notice, request or other communication (other than an
Election to Exercise Warrants) given by registered airmail shall be deemed given
five days after the mailing date; notices, requests or other
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communications given in any other manner and any Election to Exercise Warrants
shall be deemed given when received.
Section 10. Amendment. This Warrant Agreement may be amended or its
provisions waived only by an instrument in writing signed by the Company and the
Warrantholder.
Section 11. Law Governing. This Warrant Agreement shall be governed by
and construed in accordance with the laws of the state of Delaware, without
giving effect to choice of laws principles thereof.
Dated: ---------------------, 1998.
AGRITOPE, INC.
By
Title
The undersigned Warrantholder agrees to be bound by the terms
hereof.
VECTOR SECURITIES INTERNATIONAL,
INC.
By
Title
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ELECTION TO EXERCISE WARRANTS
To: Agritope, Inc.
16160 S.W. Upper Boones Ferry Road
Portland, Oregon 97224
The undersigned hereby exercises Warrants represented by the attached
Warrant Agreement for --------- shares of the Common Stock, including associated
preferred stock purchase rights, of Agritope, Inc. (collectively, the "Warrant
Shares"), and tenders payment herewith in the amount of $---------- in
accordance with the terms thereof.
The undersigned hereby certifies that the transaction in which the
Warrant Shares will be delivered upon exercise of the Warrant has been
registered under the 1933 Act or is exempt from registration thereunder and
Agritope, Inc. has been provided with a written opinion of counsel to that
effect. A legal opinion regarding the registration of the transaction will be
obtained at the expense of Agritope, Inc. by its designated legal counsel upon
notice of exercise of the Warrant Agreement by the Warrantholder at any time
during the effective period of a registration statement covering the
transaction; any other legal opinion shall be the responsibility of the
Warrantholder.
Please deliver the certificate and a new Warrant Agreement for the
unexercised Warrants, if any, to:
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
Warrantholder:
By
Title
[Name of Warrantholder must be identical to
name shown in the registry books of the
Company; signature must be guaranteed.]
Dated:---------------------
Warrantholder: ----------------------------------
Address: ----------------------------------
----------------------------------
----------------------------------
PRICE WATERHOUSE LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Information Statement/Prospectus
constituting part of this Registration Statement on Form S-1 of our report dated
October 31, 1997, except for Note 11, as to which the date is December 5, 1997,
relating to the financial statements of Agritope, Inc., which appears in such
Information Statement/Prospectus. We also consent to the use in the Information
Statement/Prospectus constituting part of this Registration Statement on Form
S-1 of our report dated December 22, 1997 relating to the financial statements
of Vinifera, Inc., which appears in such Information Statement/Prospectus. We
also consent to the references to us under the heading "Experts" in such
Information Statement/Prospectus.
/s/ PRICE WATERHOUSE LLP
Portland, Oregon
December 24, 1997
