REGISTRATION NO. 333-34597
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------
AGRITOPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
Oregon 8731 93-0820945
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NUMBER)
CLASSIFICATION CODE NUMBER)
</TABLE>
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., 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, Galen, Marmaduke
& Carlsen LLP & Booth
111 S.W. Fifth Avenue Suite 1600
Portland, Oregon 97204-3699 888 S.W. Fifth Avenue
(503) 224-5858 Portland, Oregon 97204
(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. /-/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value (including
Preferred Stock Purchase Rights) to be
<S> <C> <C> <C> <C>
distributed to shareholders of Epitope, 5,000,000 $-------- $5,115,035(2) $1,550.00(3)
Inc.(1)
====================================================================================================================================
</TABLE>
(1) Prior to the occurrence of certain events, the Preferred Stock Purchase
Rights will not be evidenced separately from Agritope common stock.
(2) Based upon the book value of Agritope common stock as of June 30, 1997.
(3) Fee has been calculated in accordance with Rule 457(f)(2). Agritope has
previously paid $100 in filing fees. Accordingly, $1,450 has been paid in
connection with this filing.
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.
================================================================================
<PAGE>
[Epitope letterhead]
[Date]
Dear Shareholder:
We are pleased to inform you that the Board of Directors has authorized
a spin-off of 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.
In connection with the spin-off, Agritope is raising working capital by
selling newly issued Agritope Common Stock to certain investors in a private
placement. Agritope could not operate as an independent company without this
additional financing. The shares being distributed as a dividend to Epitope
shareholders are expected to represent approximately ---- percent of the
Agritope Common Stock outstanding after the Distribution and private placement
of common stock.
You will receive one share of Agritope Common Stock for every -----
shares of Epitope Common Stock that you owned on the record date of
- -------------, 1997. You will receive cash for any fractional share of Agritope
Common Stock that you would have received. The distribution should be tax-free
to you, except for cash received for any fractional shares. You should consult
your own tax advisor about the tax consequences of the distribution to you.
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,
<PAGE>
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 SEPTEMBER 10, 1997.
INFORMATION STATEMENT/PROSPECTUS
AGRITOPE, INC.
DISTRIBUTION OF UP TO -------- Shares of Common Stock
OF AGRITOPE, INC., TO SHAREHOLDERS OF EPITOPE, INC.
----------------------------
This Information Statement/Prospectus is being furnished to the
shareholders of Epitope, Inc.("Epitope"), in connection with the spin-off of
Epitope's 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, no par value, including
associated preferred stock purchase rights ("Agritope Stock"), 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 --------------, 1997 (the "Record
Date") of one share of Agritope Stock for every --- 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 --------------- shares of Agritope Stock will be issued in the
Distribution. Epitope expects that the Distribution will occur on or about
- ----------, 1997 (the "Distribution Date").
In order to finance the operations of Agritope after the Distribution,
Agritope will sell approximately 1,343,000 shares of Agritope Stock in a private
placement to certain investors (the "Private Placement") pursuant to Regulation
S under the Securities Act of 1933, as amended (the "Securities Act"), for an
aggregate price of $9.4 million, immediately following the Distribution. The
Epitope board of directors (the "Epitope Board") believes that these funds are
sufficient to support the operations of Agritope as a separate business for a
period of not less than two years following the Distribution. Agritope could not
operate as an independent entity without the financing to be raised in the
Private Placement. The shares of Agritope Stock sold in the Private Placement
will represent approximately 27 percent of the Agritope Stock outstanding
following the Distribution, diluting the percentage of Agritope owned by
Epitope's current shareholders as a result of the Distribution. Accordingly, the
shares of Agritope Stock distributed to Epitope shareholders in the Distribution
will represent approximately 73 percent of all Agritope Stock outstanding after
completion of the Distribution and the Private Placement.
Fractional shares of Agritope Stock 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 the trading price of Agritope Stock as
of the close of trading on the Distribution Date. 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 Stock exists. Agritope has
applied to have Agritope Stock approved for quotation on The Nasdaq SmallCap
Market under the symbol "AGTO." Agritope Stock received in the Distribution will
be freely tradeable by nonaffiliates of Agritope.
----------------------------
PERSONS RECEIVING THIS INFORMATION STATEMENT/PROSPECTUS SHOULD
CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION "RISK FACTORS" ON
PAGE 10.
----------------------------
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.
----------------------------
<PAGE>
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.
--------------------------
The date of this Information Statement/Prospectus is ---------, 1997.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION...................................................... 2
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................. 2
SUMMARY .................................................................. 3
The Distribution.................................................. 3
Agritope ......................................................... 6
Summary of Risk Factors........................................... 6
Summary Financial Data............................................ 8
RISK FACTORS............................................................... 10
INTRODUCTION............................................................... 14
THE DISTRIBUTION........................................................... 14
Reasons for the Distribution...................................... 14
Manner of Effecting the Distribution.............................. 15
Trading of Agritope Stock......................................... 16
Certain Federal Income Tax Consequences........................... 17
PRIVATE PLACEMENT.......................................................... 19
RELATIONSHIP BETWEEN AGRITOPE AND EPITOPE AFTER THE DISTRIBUTION........... 19
Separation Agreement.............................................. 20
Employee Benefits Agreement....................................... 20
Tax Allocation Agreement.......................................... 22
Transition Services Agreement..................................... 22
SELECTED FINANCIAL DATA.................................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 25
Overview ......................................................... 25
Results of Operations............................................. 26
Liquidity and Capital Resources................................... 27
DESCRIPTION OF BUSINESS.................................................... 28
General ......................................................... 28
Agritope Biotechnology Program.................................... 29
Commercialization Strategy........................................ 33
Grants and Contracts.............................................. 33
Vinifera ......................................................... 34
Competition....................................................... 35
Government Regulation............................................. 35
Patents and Proprietary Information............................... 36
Personnel......................................................... 37
Scientific Advisory Board......................................... 37
Properties........................................................ 37
Legal Proceedings................................................. 37
DIVIDEND POLICY............................................................ 37
TRANSFER AGENT............................................................. 38
- i -
<PAGE>
MANAGEMENT................................................................. 39
Directors and Executive Officers.................................. 39
Committees of the Board........................................... 41
Compensation of Directors......................................... 41
Executive Compensation............................................ 42
Grants of Options to Purchase Agritope Stock...................... 42
Aggregated Option Exercises in Last Fiscal Year and Outstanding
Options for Agritope Stock.......................................43
Employment; Change in Control Agreements.......................... 43
1997 STOCK AWARD PLAN...................................................... 44
General ......................................................... 44
Purpose ......................................................... 44
Awards and Eligibility............................................ 44
New Options....................................................... 44
Description of Terms of Awards.................................... 45
Federal Income Tax Consequences................................... 46
1997 EMPLOYEE STOCK PURCHASE PLAN.......................................... 48
General ......................................................... 48
Purpose ......................................................... 48
Subscriptions..................................................... 48
Federal Income Tax Consequences................................... 49
EMPLOYEE STOCK OWNERSHIP PLAN.............................................. 49
401(K) PROFIT SHARING PLAN................................................. 50
CERTAIN TRANSACTIONS....................................................... 51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 51
SHARES ELIGIBLE FOR FUTURE SALE............................................ 52
DESCRIPTION OF AGRITOPE CAPITAL STOCK...................................... 53
Agritope Common................................................... 53
Agritope Preferred................................................ 53
Agritope Warrants................................................. 53
Preemptive Rights................................................. 54
Shareholder Rights Plan........................................... 54
Other Anti-takeover Measures...................................... 55
Indemnification of Directors and Officers; Limitation of
Liability; Insurance............................................ 56
LEGAL MATTERS.............................................................. 57
EXPERTS .................................................................. 57
- ii -
<PAGE>
AVAILABLE INFORMATION
After the Distribution of Agritope Stock, 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 Stock 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.
- 2 -
<PAGE>
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 10. Capitalized terms used but not defined in this
summary have the meanings given elsewhere in this Information
Statement/Prospectus.
THE DISTRIBUTION
Distributing Corporation and Business ....Epitope, Inc., an Oregon corporation.
Epitope uses biotechnology to develop
and market medical diagnostic
products.
DISTRIBUTED CORPORATION AND
BUSINESS..................................Agritope, Inc., an Oregon 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 will sell approximately
1,343,000 shares of Agritope Stock at
a price of $7 per share in the Private
Placement for an aggregate price of
$9.4 million, immediately following
the Distribution. The Epitope board of
directors (the "Epitope Board")
believes that these funds are
sufficient to support the operations
of Agritope as a separate business for
a period of not less than two years
following the Distribution. Agritope
could not operate as an independent
entity without the financing to be
raised in the Private Placement. See
"Private Placement."
DISTRIBUTION RATIO........................Each Epitope shareholder will receive
one share of Agritope Stock for every
---- shares of Epitope Stock held as
of the Record Date.
RECORD DATE...............................Close of business on --------------,
1997.
DISTRIBUTION DATE.........................On or about -----------------------,
1997.
DISTRIBUTION AGENT........................ChaseMellon Shareholder Services,
L.L.C.
SHARES TO BE DISTRIBUTED..................An aggregate of approximately ---
million shares of Agritope Stock will
be issued in the Distribution.
Following the Distribution and the
Private Placement, approximately
------ million shares of Agritope
Stock will be outstanding. Shares
- 3 -
<PAGE>
distributed to Epitope shareholders in
the Distribution will represent
approximately 73 percent of all
Agritope Stock outstanding following
the Distribution.
FRACTIONAL SHARE INTERESTS................Fractional shares of Agritope Stock
will not be issued in the
Distribution. If the number of shares
of Agritope Stock 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 Stock for quotation on The
Nasdaq SmallCap Market under the
symbol "AGTO." There is currently no
public market for Agritope Stock.
There can be no assurance that an
active trading market in shares of
Agritope Stock will develop after the
Distribution. See "The
Distribution--Trading of Agritope
Stock" and "Risk Factors-- No
Assurance as to Market Performance of
Agritope Stock."
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."
TAX CONSEQUENCES..........................Epitope has received an opinion of
counsel that the Distribution will be
treated as a tax free transaction to
Epitope's shareholders. 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 Agritope 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
being entered into between Epitope and
Agritope in connection with the
Distribution, which include a
Separation Agreement, an
- 4 -
<PAGE>
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
restated articles of incorporation
("Articles") and restated bylaws
("Bylaws") and of Oregon 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 Shareholder Rights Plan (the
"Rights Agreement") designed to
protect Agritope and its shareholders
from inequitable offers to acquire
Agritope. In addition, Agritope's
Articles and Bylaws contain certain
provisions designed to deter changes
in the composition of the Agritope
Board, and to allow the Agritope Board
to issue preferred stock ("Agritope
Preferred") and common stock
("Agritope Common") without
shareholder approval. Each of these
provisions may discourage tender
offers or other bids for Agritope
Stock. See "Risk
Factors--Anti-takeover Considerations"
and "Description of Agritope Capital
Stock."
DIVIDEND POLICY ..........................Agritope does not anticipate paying
dividends in the foreseeable future.
PRIVATE PLACEMENT ........................Agritope will sell approximately
1,343,000 shares of Agritope Stock in
the Private Placement at a price of $7
per share for an aggregate price of
$9.4 million, immediately following
the Distribution. Subscribers in the
Private Placement have deposited the
purchase price for their shares of
Agritope Stock in an escrow account
pending the completion of the
Distribution and the closing of the
Private Placement. The shares of
Agritope Stock sold in the Private
Placement will represent approximately
27 percent of the Agritope Stock
outstanding following the Distribution
and the Private Placement. See
"Private Placement."
- 5 -
<PAGE>
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 one of the most technically advanced grapevine plan propagation
and disease screening and elimination programs available to the wine and table
grape production industry.
Agritope was incorporated under Oregon law in 1987. Agritope has had a
history of significant operating losses since its incorporation. Its accumulated
deficit was approximately $38.9 million as of June 30, 1997.
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
Epitope shareholders who will receive Agritope Stock in the
Distribution should carefully consider the following risk factors as well as
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 the
Distribution Date, Epitope will not provide any additional operating capital to
Agritope and will provide only the limited administrative and other support
provided for in the Transition Services Agreement. There can be no assurance
that Agritope will develop the financial, administrative, and managerial
structure necessary to operate as an independent public company.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of June 30,
1997, had an accumulated deficit of $38.9 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.
Need for Additional Funds. The Distribution was conditioned upon a
determination by the Epitope Board that funds from the Private Placement to be
completed immediately following the Distribution would 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 has an accumulated intercompany balance due to Epitope of
approximately $43.5 million as of June 30, 1997, all of which will be canceled
as part of the Distribution. Epitope will not provide additional financial
support following the Distribution. Agritope may
- 6 -
<PAGE>
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 shareholders, 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.
- 7 -
<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, 1996, and 1995 and the
operating results data for the years ended September 30, 1996, 1995, and 1994
have been derived from audited consolidated financial statements and notes
thereto included in this Information Statement/Prospectus. The balance sheet
data at June 30, 1997 and the operating results data for the nine months ended
June 30, 1997 and 1996 have been derived from unaudited interim condensed
consolidated financial statements and notes thereto included in this Information
Statement/Prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for the interim
periods. Results for the nine months ended June 30, 1997, may not be indicative
of full-year results. 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>
<CAPTION>
NINE MONTHS ENDED
JUNE 30 YEAR ENDED SEPTEMBER 30
1997 1996 1996 1995(1) 1994(1)
(UNAUDITED)
CONSOLIDATED OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 668 $ 514 $ 585 $2,110 $2,213
Operating costs and expenses..................... 4,063 2,055 2,821 9,920 11,703
Other expense, net............................... (3,060)(2) (192) (265) (235) (314)
Net loss......................................... (6,455) (1,733) (2,501) (8,045) (9,804)
Pro forma net loss per share (3)................. (3.22) (.86) (1.25) (4.02) (4.90)
Pro forma shares used in
per share calculations (3)..................... 2,000 2,000 2,000 2,000 2,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30
AS ADJUSTED(4) ACTUAL 1996 1995
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
<S> <C> <C> <C> <C>
Working capital (deficiency)..................... $10,565 $1,815 $(3,163) $846
Total assets..................................... 15,880 7,130 5,670 4,067
Long-term debt................................... 16 16 - 22
Convertible notes, due 1997...................... - - 3,620 3,620
Accumulated deficit.............................. (38,933) (38,933) (32,478) (29,976)
Shareholder's equity............................. 13,865 5,115 1,008 75
</TABLE>
(1) Data for 1995 and 1994 include revenues of $2.0 million and $2.2
million, and operating losses of $3.8 million and $6.4 million,
respectively, attributable to business units which were divested. See
Note 3 to consolidated financial statements.
(2) Includes non-cash charges of $1.9 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 Note 11 to
consolidated financial statements.
(3) Net income (loss) per share is presented on a pro forma basis assuming
that the Distribution of Agritope Stock pursuant to the Agritope
spin-off had occurred on October 1, 1993.
- 8 -
<PAGE>
(4) The capitalization of Agritope as adjusted reflects the effects of the
Private Placement of approximately 1,343,000 shares of Agritope Stock
for aggregate proceeds of $9.4 million, less issuance costs of
$650,000.
- 9 -
<PAGE>
RISK FACTORS
Epitope shareholders who will receive Agritope Stock 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 the
Distribution Date, Epitope will not provide any additional operating capital to
Agritope and will provide only the limited administrative and other support
provided for in the Transition Services Agreement. See "Relationship Between
Agritope and Epitope After the Distribution." There can be no assurance that
Agritope will be able to develop successfully the financial, administrative, and
managerial structure necessary to operate as an independent public company.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of June 30,
1997, had an accumulated deficit of $38.9 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. 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 Private Placement 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 Private Placement have agreed to purchase a total of $9.4
million of Agritope Stock and have deposited the purchase price in an escrow
account, pending the closing of the Private Placement. 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 $43.5 million as of June 30, 1997, all of which will
be canceled as part of the Distribution. Epitope will not provide any financial
support following the Distribution. 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 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
shareholders, 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 back, delay or eliminate certain of its programs and could 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."
- 10 -
<PAGE>
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.
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. There
can be no assurance that Agritope will be able to maintain its current strategic
relationships or establish such relationships or that such relationships will be
on terms sufficiently favorable to permit Agritope to operate profitably. Also,
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 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.
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.
- 11 -
<PAGE>
Technological Change and Competition. A number of companies are engaged
in research related to plant biotechnology, including companies that rely on the
use of recombinant DNA as a principal scientific strategy and companies that
rely on other technologies. 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 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.
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 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 Stock. There can be
no assurance that the combined market values of the Epitope Stock and the
Agritope Stock 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 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 Stock. In addition, the stock
market has experienced extreme price and volume fluctuations which have affected
the market price of many technology companies in particular and which have at
times been unrelated to the operating performance of the specific companies
whose stock is traded. Broad market fluctuations and general economic conditions
may adversely affect the market price of Agritope Stock. Prior to the
Distribution, there has been no public market for Agritope Stock. 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.
- 12 -
<PAGE>
Agritope has applied to include Agritope Stock for quotation on The
Nasdaq SmallCap Market. Assuming that Agritope's application is accepted, in
order to maintain such listing, Agritope will be required to comply with certain
Nasdaq SmallCap Market 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 Stock. Any sales of
substantial amounts of Agritope Stock 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 Stock.
See "The Distribution--Trading of Agritope Stock" and "Shares Eligible for
Future Sale."
Agreements with Epitope; Lack of Arm's-length Negotiations. In
contemplation of the Distribution, Agritope will enter into a number of
agreements with Epitope, including a Separation Agreement, an Employee Benefits
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 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 Articles 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 Articles and
Bylaws provide for a classified board, prohibit the removal of directors except
for "cause," limit the ability of the shareholders and directors to change the
size of the board, and require advance notice before shareholders are permitted
to nominate directors or submit other proposals at shareholder meetings. The
Agritope Board has also adopted the Rights Agreement. In addition, 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 40 million shares of Agritope Common, all without
any vote or action by Agritope's shareholders, except as may be required by law
or any stock exchange or automated securities interdealer quotation system on
which Agritope Stock may be listed or quoted. Agritope is also subject to Oregon
statutory provisions governing business combinations with persons deemed to be
"interested shareholders" or who acquire more than certain specified percentages
of outstanding Agritope Stock. See "Description of Agritope Capital Stock."
Finally, awards made under the 1997 Stock Award Plan will 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 Stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, Agritope Stock.
- 13 -
<PAGE>
INTRODUCTION
On --------------------, 1997, the Epitope Board authorized management
to proceed with the distribution to Epitope shareholders of all the Agritope
Stock 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 Stock for every ------ 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 Stock. After the
Distribution, Agritope will cease to be a subsidiary of Epitope and will operate
as an independent public company. The Distribution Date is expected to be on or
about --------------, 1997.
Agritope will sell approximately 1,343,000 shares of Agritope Stock in
the Private Placement for an aggregate price of $9.4 million immediately
following the Distribution. The Distribution was contingent upon, among other
things, Agritope receiving binding commitments for such financing. The Epitope
Board believes that this funding is sufficient to support 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 company without such financing. See "Risk Factors--Need for
Additional Financing."
After giving effect to the Private Placement, the shares of Agritope
Stock distributed to Epitope shareholders in the Distribution will represent
approximately 73 percent of all Agritope Stock outstanding immediately following
the Distribution.
Agritope will operate separately from Epitope 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 a 3-to-6 month period following the Distribution.
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 shareholders with questions about Agritope or
Agritope Stock should contact Agritope's corporate secretary at Agritope's
executive offices.
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
- 14 -
<PAGE>
Hepatitis A outbreak increased pressure on Epitope's available capital
and decreased the funds available for Agritope's operations. The Epitope Board
also 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 "Private Placement." 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 Private Placement 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 be no assurance that the
combined market values of Epitope Stock and Agritope Stock 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--No Assurance as to Market Performance of Agritope Stock."
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
- --------------, 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 Stock received in the Distribution
or to surrender or exchange certificates representing shares of Epitope Stock in
order to receive Agritope Stock in the Distribution.
Under the Separation Agreement, on or before the Distribution Date,
Epitope will deliver to the Distribution Agent a certificate or certificates
representing all of the then outstanding shares of Agritope Stock 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 Stock for every ------ shares of
Epitope Stock outstanding. Any shares not distributed, on account of the
arrangements made for paying cash
- 15 -
<PAGE>
in lieu of fractional shares as described below, will be returned to Agritope
for cancellation. A total of approximately ---- shares of Agritope Stock will be
issued in the Distribution.
Fractional shares of Agritope Stock 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 the trading price of Agritope Stock as
of the close of trading on the Distribution Date. 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 Stock will be mailed by
the Distribution Agent commencing on the first day following the Distribution
Date. The distributed shares of Agritope Stock 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--Shareholder Rights Plan."
TRADING OF AGRITOPE STOCK
After the Distribution, Epitope and Agritope will operate as
independent public companies. Immediately after the Distribution and the
consummation of the Private Placement, Agritope expects to have approximately
- ------ holders of record of Agritope Stock and ------ shares of Agritope Stock
outstanding, based on the number of holders of record of outstanding Epitope
Stock and the distribution ratio and the number of investors and amount of
shares involved in the Private Placement. The actual number of shares of
Agritope Stock to be distributed will be determined as of the Record Date.
Agritope has applied to include Agritope Stock for quotation on The
Nasdaq SmallCap Market under the symbol "AGTO." There can be no assurance,
however, that Agritope will meet the requirements for continued inclusion on The
Nasdaq SmallCap Market, or that an active trading market for shares of Agritope
Stock will develop after the Distribution.
A "when-issued" market in Agritope Stock is expected to develop on or
after the Record Date. Prices at which Agritope Stock 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 Stock 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 Stock."
The transfer agent and registrar for the Agritope Stock will be
ChaseMellon Shareholder Services, L.L.C.
Shares of Agritope Stock 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 shareholders of Agritope, if any.
Persons who are affiliates of Agritope will be permitted to sell their shares of
Agritope Stock 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. Agritope believes that persons who may be deemed to be affiliates of
Agritope after the Distribution will initially beneficially own in the aggregate
- ---- percent of the outstanding shares of Agritope Stock.
In general, under Rule 144, any affiliate of Agritope or any person
owning unregistered Agritope Stock (Agritope Stock held by any such affiliate or
person referred to as "Restricted Securities") who has beneficially
- 16 -
<PAGE>
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) one percent of the then outstanding shares of Agritope Stock
(approximately ----- shares immediately after the Distribution and Private
Placement), or (ii) the average weekly trading volume of Agritope Stock 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 Stock being sold in the Private Placement have
not been registered under the Securities Act. Pursuant to Regulation S of the
Securities Act, shares of Agritope Stock purchased in the Private Placement may
not be sold in the U.S. without registration under the Securities Act until 40
days following the closing of the Private Placement. Sale of a significant
number of shares by these holders could adversely affect the market price of
Agritope Stock. See "Shares Eligible for Future Sale."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Epitope has received an opinion from 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. The opinion of Miller Nash received by
Epitope 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, and does
not anticipate requesting, a ruling from the IRS with respect to the federal
income tax consequences of the Distribution. Under the provisions of a revenue
procedure issued by the IRS in 1996, the IRS has announced that it will not
issue advance private letter rulings for any spin-off transaction if there have
been negotiations related to the sale of stock of the distributed corporation.
Accordingly, due to the Private Placement, the IRS would not issue a ruling with
respect to the Distribution. The IRS's refusal to issue rulings with respect to
certain spin-off transactions does not mean that the Distribution does not
qualify as a tax-free transaction. However, 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 Stock 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 Stock is received will be apportioned between the
shareholder's Epitope shares and the shares of Agritope Stock received by the
shareholder (including any fractional shares of Agritope Stock deemed received)
in proportion to the relative aggregate fair market values of Epitope Stock and
Agritope Stock on the Distribution Date.
(3) An Epitope shareholder's holding period for Agritope Stock received
in the Distribution will include the period during which the shareholder held
the Epitope Stock with respect to which the Agritope Stock is distributed,
provided such Epitope shareholder held the Epitope Stock as a capital asset at
the time of the Distribution.
- 17 -
<PAGE>
(4) An Epitope shareholder who receives cash in lieu of a fractional
share of Agritope Stock in the Distribution will be treated as if the fractional
share of Agritope Stock 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 Stock. The gain or loss will be capital gain or
loss if the fractional share of Agritope Stock 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 Stock issued in the Private Placement (see "Private Placement"), 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 carry forwards to offset any such gain for regular tax purposes.
However, if any gain is recognized, Epitope would incur an immaterial amount of
Alternative Minimum Tax.
Current U.S. Treasury regulations require that each Epitope shareholder
who receives shares of Agritope Stock 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 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 Stock received by the shareholder plus the amount of any
cash received in lieu of fractional shares of Agritope Stock. 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 Stock 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 Stock
received in the Distribution would equal the fair market value of the Agritope
Stock on the Distribution Date, and the shareholder's holding period for the
shares of Agritope Stock 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
- 18 -
<PAGE>
non-taxable reduction in tax basis. Upon a subsequent sale of the shares of
Agritope Stock, 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 Stock 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.
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.
PRIVATE PLACEMENT
Immediately following the Distribution, Agritope will sell
approximately 1,343,000 shares of Agritope Stock at a price of $7 per share, for
an aggregate price of $9.4 million in the Private Placement. Subscribers in the
Private Placement have entered stock purchase agreements and have deposited the
purchase price of the shares in an escrow account, pending completion of the
Distribution and closing of the Private Placement. Immediately following the
Distribution, the funds held in escrow will be released to Agritope and shares
of Agritope Stock will be issued to investors in the Private Placement. Shares
sold in the Private Placement will not be registered under the Securities Act in
reliance upon the exemption from registration provided by Regulation S.
Subscribers in the Private Placement will own approximately 27 percent of the
Agritope Stock outstanding following the Distribution and the Private Placement.
The Distribution was contingent upon, among other things, Agritope
receiving binding commitments for such financing. The Epitope Board believes
that this funding is sufficient to support 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."
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 or will enter 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.
- 19 -
<PAGE>
Management believes that the administrative costs for Agritope as a
stand-alone company will not be materially different from the administrative
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, insurance matters, access to books and records, and confidentiality.
The Separation Agreement also provides for the cancellation of approximately
$43.5 million of Agritope's intercompany balances 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
support 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 Distribution 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 adopted Articles
increasing its authorized capital stock to 40 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.
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
- 20 -
<PAGE>
1991 Stock Award Plan (the "1991 Epitope Award Plan"), and the 1993 Employee
Stock Purchase Plan (the "Purchase Plan"). Pursuant to the Employee Benefits
Agreement, Agritope has agreed to amend the Agritope, Inc. 1992 Stock Award Plan
(the "1992 Agritope Award Plan") or options outstanding thereunder and adopt
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. As soon as practicable after
the Distribution Date, the Employee Benefits Agreement requires Epitope
to cause the trustees of the Epitope 401(k) Plan to transfer to the
trustee of the Agritope 401(k) Plan the amounts in cash, securities,
other property, plan loans, or a combination thereof acceptable to the
trustee of the Agritope 401(k) Plan representing the account balances
of all Agritope employees, former employees or their beneficiaries.
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 to
reflect the relative value of Epitope Stock and Agritope Stock. The
exercise price will be determined according to a formula provided in
the Employee Benefits Agreement that subtracts the value of Agritope
Stock from the exercise price. The value of Agritope Stock will be
based on the average of the reported closing prices of Agritope Stock
on The Nasdaq SmallCap Market during the five consecutive trading days
beginning on the Distribution 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 vested 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.
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 future awards will be
made to Agritope employees as of and following the Distribution. See
"1997 Stock Award Plan."
- 21 -
<PAGE>
Agritope Options Held by Epitope Employees. Agritope has granted
options to certain employees of Epitope and Agritope under the Agritope
1992 Agritope Award Plan. The options are denominated in shares of
Agritope Stock, but require conversion of any Agritope Stock purchased
upon exercise into Epitope Stock so long as Agritope is a wholly owned
subsidiary of Epitope. Agritope will amend the 1992 Agritope Award Plan
or options outstanding thereunder prior to the Distribution to provide
that outstanding options be treated as options to purchase Epitope
Stock, and that such options 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 Purchase Plan enables participating Epitope
employees to purchase, on the last day of each Offering Period (as
defined in the Purchase Plan), Epitope Stock at 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 Purchase
Plan) or (ii) 100 percent of the fair market value of Epitope Stock on
the last day of such Purchase Period or on any earlier date of purchase
provided for in the 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 Purchase Plan will
continue in full force and effect in accordance with its terms. The
Employee Benefits Agreement provides that participants under the
Purchase Plan will be eligible to participate in the Distribution and
receive shares of Agritope Stock only to the extent that, by operation
of the Purchase Plan or otherwise, they are shareholders of record on
the Record Date; provided, however, that participants who are entitled
to receive shares of Epitope Stock under the 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 Purchase Plan) during the Purchase
Period in which the Distribution 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."
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.
- 22 -
<PAGE>
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.
- 23 -
<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. The balance sheet data
at September 30, 1996 and 1995 and the operating results data for the years
ended September 30, 1996, 1995, and 1994 have been derived from audited
consolidated financial statements and notes thereto included in this Information
Statement/Prospectus. Balance sheet data at June 30, 1997 and operating results
data for the nine months ended June 30, 1997 and 1996 have been derived from
unaudited interim condensed consolidated financial statements and notes thereto
included in this Information Statement/Prospectus and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the interim periods. Results for the nine months ended
June 30, 1997, may not be indicative of full-year results. The balance sheet
data at September 30, 1994, 1993 and 1992 and operating results data for the
years ended September 30, 1993 and 1992 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. 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>
<CAPTION>
NINE MONTHS ENDED
JUNE 30 YEAR ENDED SEPTEMBER 30
1997 1996 1996 1995(1) 1994(1) 1993 1992
(UNAUDITED)
CONSOLIDATED OPERATING RESULTS
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................................... $ 668 $ 514 $ 585 $ 2,110 $ 2,213 $ 524 $ 58
Operating costs and expenses...................... 4,063 2,055 2,821 9,920 11,703 7,331 2,790
Other income (expense), net ...................... (3,060)(2) (192) (265) (235) (314) (151) (21)
Net loss.......................................... (6,455) (1,733) (2,501) (8,045) (9,804) (6,958) (2,753)
Pro forma net loss per share (3).................. (3.22) (.86) (1.25) (4.02) (4.90) (3.48) (1.38)
Pro forma shares used in per
share calculations (3).......................... 2,000 2,000 2,000 2,000 2,000 2,000 2,000
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA JUNE 30, 1997 SEPTEMBER 30
AS ADJUSTED(4) ACTUAL 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)................. $ 10,565 $1,815 $(3,163) $ 846 $ 418 $ 0 $ 4,113
Total assets................................. 15,880 7,130 5,670 4,067 4,081 2,091 5,922
Long-term debt............................... 16 16 - 22 38 57 -
Convertible notes, due 1997.................. - - 3,620 3,620 4,070 4,630 5,495
Accumulated deficit.......................... (38,933) (38,933) (32,478) (29,976) (21,931) (12,127) (5,169)
Shareholder's equity (deficit) .............. 13,865 5,115 1,008 75 (482) (2,983) 227
</TABLE>
(1) Data for 1995 and 1994 include revenues of $2.0 million and $2.2
million, and operating losses of $3.8 million and $6.4 million,
respectively, attributable to business units which were divested. See
Note 3 to 1996 consolidated financial statements.
(2) Includes non-cash charges of $1.9 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 Note 11 to 1996
consolidated financial statements.
(3) Net income (loss) per share is presented on a pro forma basis assuming
that the Distribution of Agritope Stock pursuant to the Agritope
spin-off had occurred on October 1, 1991.
(4) The capitalization of Agritope as adjusted reflects the effects of the
Private Placement of approximately 1,343,000 shares of Agritope stock
for aggregate proceeds of $9.4 million, less issuance costs of
$650,000.
- 24 -
<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 its 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.
The results of operations for the year ended September 30, 1994 and 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,
and a majority interest was reacquired in the fourth quarter of 1996 after the
purchaser failed to make certain required payments. 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. During 1994 and 1995, Vinifera was in the
development stage and generated minimal product sales. Vinifera commenced
commercial stage operations in 1996.
Agritope's results of operations for 1994 and the first three quarters
of 1995 also include the activity of Agrimax Floral Products, Inc. ("Agrimax"),
then 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.
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.
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.
The accompanying consolidated financial statements do not include the
operations of Andrew and Williamson Sales, Co. ("A&W"). A&W, a producer and
distributor of fruits and vegetables, was acquired by, and became a direct
wholly owned subsidiary of, Epitope in December 1996. 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
- 25 -
<PAGE>
sister corporation. Epitope rescinded the acquisition of A&W in May 1997. 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
Nine months ended June 30, 1997 and 1996
Revenues. Total revenues increased by $154,000 or 30 percent in the nine months
ended June 30, 1997, as compared to the nine months ended June 30, 1996. In
1997, Vinifera accounted for product sales of $566,000. Such sales are highly
seasonal and generally occur in the spring and summer planting seasons. Vinifera
commenced commercial stage operations in 1996 and continued its marketing
efforts and expansion of its customer base during 1997. Vinifera was re-acquired
by Agritope in August 1996 and therefore its results are not included in the
comparable period of 1996. As of June 30, 1997, Vinifera had firm orders
totaling $820,000 for delivery in the fourth quarter of 1997.
Grant and contract revenues decreased by $413,000 or 80 percent in the
nine months ended June 30, 1997, as compared to the nine months ended June 30,
1996. Grant and contract revenues in 1996 included $408,000 received from three
strategic partners for research projects. These research projects are directed
at developing superior new plants through genetic engineering. Revenue from such
projects can vary significantly from quarter to quarter and 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. As of June 30, 1997, Agritope was in the final stages
of concluding work under a $99,000 research grant and had just commenced work
under another research grant expected to total $55,000 over six months. In
October 1997, the Company was awarded a three-year grant totaling $1.0 million
from the U.S. Department of Commerce.
Gross margin. Gross margin on product sales was 3 percent of sales for the first
nine months of 1997. There were no comparable product sales for the prior year
period. Gross margin in 1997 was adversely affected by production start-up costs
incurred during the expansion of production capacity at Vinifera.
Research and development expenses. Research and development expenses increased
by $260,000 or 26 percent in the nine months ended June 30, 1997, as compared to
the nine months ended June 30, 1996. The higher research and development costs
in 1997 reflect increased efforts to develop and propagate crops containing
Agritope's patented ethylene control technology as well as research and
development efforts to improve grape plant propagation conducted by Vinifera.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.2 million or 113 percent in the nine
months ended June 30, 1997, as compared to the nine months ended June 30, 1996.
The increase is primarily attributable to $691,000 of expenses incurred by
Vinifera, which was not part of Agritope in the comparable period of 1996, and
to expenses of $424,000 related to the withdrawn proposal to create two classes
of common stock of Epitope. During 1996, 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. These expenses also include allocation of Shared Services
of $953,000 and $778,000 for the 1997 and 1996 nine-month periods, respectively.
Shared Services in 1997 include an allocation to Vinifera, which was not part of
Agritope in the comparable period of 1996. Shared Services costs also increased
in 1997 as a result of added administrative personnel.
Other income (expense), net. Other income (expense), net was affected by two
significant non-recurring charges totaling $3.1 million in the first quarter of
1997. Agritope recorded a non-cash charge to results of operations of $1.9
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 price resulted in a non-cash charge to results of operations of $1.2
million.
- 26 -
<PAGE>
Interest expense decreased by $167,000 or 87 percent in the nine months
ended June 30, 1997, as compared to the nine months ended June 30, 1996, due to
the conversion of $3.4 million principal amount of Agritope notes into Epitope
common stock in the first quarter of 1997.
Years Ended September 30, 1996, 1995, and 1994
Revenues. Total revenues declined to $585,000 in 1996 from $2.1 million in 1995
and $2.2 million in 1994. Product sales of $2.0 million in 1995 and $2.2 million
in 1994 consisted primarily of sales in Agrimax's unprofitable wholesale fresh
flower packaging and distribution operations, which was discontinued in the
third quarter of 1995.
A grant from the U.S. Department of Agriculture and grants from
strategic partners accounted for the increase in grant and contract revenues to
$585,000 in 1996 from $94,000 in 1995. These research projects were directed at
developing superior new plants through genetic engineering. Revenues 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.
Research and development expenses. Research and development expenses in 1996,
1995 and 1994 totaled $1.3 million, $2.2 million and $2.4 million, respectively.
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 1996, 1995, and 1994 were $1.5 million, $4.5 million
and $4.8 million, respectively. Costs in 1995 and 1994 included $2.8 million and
$4.1 million, respectively, of costs incurred in Agrimax and Vinifera. Selling,
general and administrative expenses include $1.1 million, $1.9 million and $1.7
million for the allocation of Shared Services in 1996, 1995 and 1994,
respectively. The amount of allocated Shared Services decreased in 1996 as a
result of the dispositions of the Agrimax and Vinifera businesses.
LIQUIDITY AND CAPITAL RESOURCES
JUNE 30, SEPTEMBER 30,
1997 1996
Cash and cash equivalents.....................$ 848,000 $ 477,000
Working capital (deficiency).................. 1,815,000 (3,163,000)
At June 30, 1997, Agritope had working capital of $1.8 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. Concurrent with the note conversion, Epitope made a $4.4 million capital
contribution to Agritope. Working capital also increased due to a $1.5 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 June 30, 1997, represents grapevine plants expected to be
sold in the summer of 1997 and in the spring of 1998.
Expenditures for property and equipment were $1.5 million during the
nine months ended June 30, 1997, largely as a result of expansion of greenhouse
capacity at Vinifera. During the first quarter of 1997, Agritope made a one-time
cash payment of $590,000 to a co-inventor of Agritope's ethylene control
technology who is an officer of Agritope in exchange for all rights to future
payments. Agritope has also acquired certain rights to certain proprietary genes
for which it made payments of $171,000 in the period. Such amounts are included
in "Patents and proprietary technology, net." Agritope's investment in
affiliated companies, obtained in connection with the
- 27 -
<PAGE>
divestiture of its fresh flower packaging and distribution business, was reduced
by a non-cash charge of $1.9 million in the first quarter of 1997 reflecting the
permanent impairment in the value of these investments.
Cash flows from operating activities improved significantly in 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 decreased in 1995 primarily due
to the divestiture of Agrimax and Vinifera and 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 payment for Agritope's ethylene control technology.
Historically, the primary sources of funds for meeting Agritope's
requirements for operations, working capital and business expansion have been
$43.5 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 receive
additional funds from the sale of equity securities.
Immediately following the spin-off and related financing, Agritope is
expected to have $--- 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 facilities to be leased.
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."
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.
- 28 -
<PAGE>
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-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 packers/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
- 29 -
<PAGE>
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.
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.
- 30 -
<PAGE>
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 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
- 31 -
<PAGE>
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.
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, lettuce, 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.
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 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
- 32 -
<PAGE>
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, 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.
COMMERCIALIZATION STRATEGY
Agritope is currently evaluating a number of commercialization strategies in
order to realize the value of its technology platform. 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.
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 period
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
- 33 -
<PAGE>
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 gemini virus 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 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. 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. The first vines
produced are expected to be sold in 1997. Vinifera is currently in the process
of establishing similar ventures in other countries with large grape and wine
production industries.
- 34 -
<PAGE>
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.
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
- 35 -
<PAGE>
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.
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.
- 36 -
<PAGE>
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.
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
Eugene W. Nester, Ph.D., Professor and Chair Department of Microbiology,
University of Washington; Peter R. Bristow, Ph.D., Associate Professor of Plant
Pathology, Washington State University; Roger Beachy, Ph.D., Scripps Family
Chair, Department of Cell Biology, Scripps Research Institute; and Christopher
J. Lamb, Ph.D., Professor, Director, Plant Biology Lab, Salk Institute for
Biological Studies. Drs. Nester and Beachy are members of the National Academy
of Sciences.
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. As soon as practicable after the spin-off, Agritope intends to
relocate its office and research and development operations to other leased
facilities, but no leasing arrangements have been concluded.
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 1997 and 1998
production requirements.
Agritope believes that its present facilities are adequate to meet
current requirements.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Agritope.
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."
- 37 -
<PAGE>
TRANSFER AGENT
The transfer agent and registrar for the Agritope Stock is ChaseMellon
Shareholder Services, L.L.C.
- 38 -
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Agritope Board consists of six directors. Because the Agritope
Board is a staggered board, the 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 shareholders 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.
NAME AGE POSITION
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 -- Class 3 Director
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 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
- 39 -
<PAGE>
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.
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. Prior to 1981, 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
- 40 -
<PAGE>
& Co. Mr. de Beaumont graduated from the University of Poitiers and Paris with
degrees in Advanced Maths, Physics and Chemistry and has earned a degree in
business administration from the University of Paris.
Nancy L. Buc, Esq., was elected a director of the Company in September
1997. She is a partner in the law firm of Buc & Beardsley in Washington, D.C.
Ms. Buc served as General Counsel for the FDA from 1980 to 1981. During an
earlier period of government service, 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. A member of the
Institute of Medicine's Committee on Contraceptive Research and Development and
its Committee on NIDA Medications Development, she was also a member of the
National Institutes of Health Recombinant DNA Advisory Committee. She served as
a member of the Office of Technology Assessment Advisory Committee on New
Developments in Biotechnology and its panel on Government Policies and
Pharmaceutical Research and Development. She was also a member of the American
Bar Association Antitrust Law Section's Special Committee to Study the Federal
Trade Commission. 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.
COMMITTEES OF THE BOARD
The Agritope Board has established an Executive Committee, an Audit
Committee, a Compensation Committee and a 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 Oregon Business Corporation Act. 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.
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), Mr. Armstrong, and Mr. de Beaumont 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 are expected to receive compensation
of $----- for each board meeting attended. In addition, all directors are
expected to be reimbursed for out-of-pocket expenses in connection with
attending board and committee meetings. Directors are also eligible to receive
options under Agritope's 1997 Stock Award Plan. See "1997 Stock Award Plan."
- 41 -
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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
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 (3)
Joseph A. Bouckaert 1997 160,000 - - -
President and Chief Executive 1996 160,000 33,600 - -
Officer--Vinifera, Inc.(4) 1995 115,592 40,000 - -
</TABLE>
(1) Represents the number of shares of Agritope Stock 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) Dr. Bestwick was not an executive officer of Agritope during fiscal
1995.
(4) 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 STOCK
No options to purchase Agritope Stock were granted to officers named in
the "Summary Compensation Table" during the fiscal year ended September 30,
1997, and none of such officers held any options for Agritope Stock at September
30, 1997.
- 42 -
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OUTSTANDING OPTIONS FOR
AGRITOPE STOCK
None of the officers named in the "Summary Compensation Table"
exercised options to purchase Agritope Stock during the fiscal year ended
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 as of May 31, 2000. The other agreements are
terminable by Agritope on 90 days' notice with cause or, subject to payment of
the salary amounts described above, without cause.
- 43 -
<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 shareholder in
October 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
Stock, 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.
PURPOSE
The purpose of the Award Plan is to promote and advance the interests
of Agritope and its shareholders 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 shareholders 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 Committee may delegate to
one or more officers of Agritope the authority to grant Awards to recipients who
are not executive officers or directors of Agritope and to determine the nature
of the Awards to be granted. The Committee is authorized to grant Awards to
non-employee directors from time to time in its discretion in accordance with
its fiduciary obligations to Agritope and its shareholders.
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
It is currently anticipated that options ("New Options") to purchase a
total of approximately ------- shares of Agritope Stock will be granted to
officers, employees and nonemployee directors of Agritope under the Award Plan
effective on the Distribution Date. Each New Option will: (i) have an exercise
price equal to the fair market value of Agritope Stock on the Distribution Date,
(ii) become exercisable as to 25 percent of the shares covered by such option on
each of the first four anniversaries of the Distribution Date, and (iii) have a
term of ten years.
The following table shows the New Options that are expected to be
granted under the Award Plan as of the Distribution Date.
- 44 -
<PAGE>
NEW PLAN BENEFITS
AGRITOPE, INC. 1997 STOCK AWARD PLAN
Number of
New
Name and Position Options
Adolph J. Ferro, Ph.D.
Chairman of the Board, President
and Chief Executive Officer
Gilbert N. Miller
Executive Vice President
and Chief Financial Officer
Richard K. Bestwick, Ph.D.
Senior Vice President--
Research and Development
Joseph A. Bouckaert
President and Chief Executive
Officer--Vinifera, Inc.
All executive officers as a group
All nonemployee directors as a group
All employees as a group, excluding
executive officers
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 Stock on the date the option is granted. The Award Plan authorizes the
Committee to issue nonqualified deferred compensation options with an option
price substantially less than the fair market value of a share of Agritope Stock
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, 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
Stock, the option holder shall automatically be granted a replacement ("reload")
option for a number of shares of Agritope Stock equal to the number of shares
delivered upon exercise with an option price equal to the fair market value of a
share of Agritope Stock on the date of exercise and subject to such other terms
as the Committee 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 period.
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
Stock between the date of grant and the date of exercise. Payment may be in
cash, in shares of Agritope Stock, in the form of a deferred compensation option
or in any other form approved by the Committee. SARs may be granted in
connection with options or other Awards granted under the Award Plan or may be
granted as independent Awards.
- 45 -
<PAGE>
Restricted Awards. Restricted Awards may take the form of restricted
shares or restricted units. Restricted shares are shares of Agritope Stock 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 shareholder 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 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 Stock, 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 Stock covered by the restricted units. Payment may
be in cash, unrestricted shares of Agritope Stock, or any other form approved by
the Committee.
Performance Awards. Performance Awards are designated in units
equivalent in value to a share of Agritope Stock. 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 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 Stock, or any other form
approved by the Committee.
Other Stock-Based Awards. The Committee may grant other Awards that
involve payments or grants of shares of Agritope Stock or are measured by or in
relation to shares of Agritope Stock. 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 shareholder
approval, other than amendments that would materially increase the aggregate
number of shares of Agritope Stock that may be issued under the Award Plan
(except for adjustments for changes in capitalization).
The foregoing is a summary description of certain terms and provisions
of the Award Plan and is subject to its terms and provisions.
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.
- 46 -
<PAGE>
If shares of Agritope Stock 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 Stock. 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 Stock 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 Stock or other property delivered to the
participant. However, a participant may elect to recognize compensation income
upon the grant of restricted shares, based on the fair market value of the
shares of Agritope Stock 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 shareholders. 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.
- 47 -
<PAGE>
1997 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Agritope, Inc. 1997 Employee Stock Purchase Plan (the "Purchase
Plan") was adopted by the Agritope Board and approved by Epitope as sole
shareholder of Agritope in October 1997. The Purchase Plan provides for the
issuance of up to 250,000 shares of Agritope Stock. The Compensation Committee
of the Agritope board (the "Committee) will administer the Purchase Plan. The
following summary of the Purchase Plan is subject to the detailed terms and
provisions of the Plan.
PURPOSE
The purpose of the Purchase Plan is to give employees of Agritope the
opportunity to subscribe for shares of Agritope Stock on an installment basis
through payroll deductions.
SUBSCRIPTIONS
The 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
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 Stock on the stock exchange or automated securities
interdealer quotation system on which the stock was traded on the day before the
offering period commenced (the "initial subscription price") and (ii) 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
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 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 Stock 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.
- 48 -
<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 Purchase Plan without
shareholder 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 Purchase Plan becomes effective upon consummation of the
Distribution, approximately --- employees are expected to be eligible to
participate in the Purchase Plan. Numbers of shares that may be subject to
future individual subscriptions under the Purchase Plan are not now
determinable.
FEDERAL INCOME TAX CONSEQUENCES
The 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
Purchase Plan.
If no disposition of shares purchased under the 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 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 Internal Revenue Code, designed to invest primarily in
Agritope Stock.
The employers' contribution to the ESOP each year is determined by
Agritope, and may be made either in Agritope Stock or in cash. Contributions are
allocated to participants in proportion to their compensation.
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
- 49 -
<PAGE>
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 Stock allocated to
the participant's account.
The participants' accounts are distributable at termination of
employment. Distribution must be in Agritope Stock 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 Internal Revenue
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 Agritope not to exceed 17%, subject to an annual maximum which
is adjusted for cost of living ($9,500 for 1997). However, only the first 5% 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 Agritope.
Matching contributions are invested in Agritope Stock. 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 Stock.
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
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
- 50 -
<PAGE>
termination of employment; matching contributions, and any employee
contributions which are invested in Agritope Stock at the participants'
election, are customarily distributed in Agritope Stock.
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" 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 Private Placement. 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 five percent of the gross proceeds of the Private
Placement. In addition, American Equities or its designees will receive warrants
to purchase an aggregate of 500,000 shares of Agritope Stock in consideration
for its services as placement agent. See "Shares Eligible for Future Sale."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the anticipated
beneficial ownership of Agritope Stock as of the Distribution Date after giving
effect to the Private Placement and the Distribution by (a) each person who is
expected by Agritope to be the beneficial owner of more than 5 percent of
Agritope Stock outstanding after the Distribution and the Private Placement, (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. Except in the case of subscribers in the Private Placement,
this information is based on the Epitope Stock beneficially owned by such
persons as of September 30, 1997.
Amount and Nature Percent
of Beneficial of
Name Ownership(1) Class
Greenacres Holdings - -
Groupe des Assurances Nationales - -
61 Rue Monceau
Paris 75008 France
W. Charles Armstrong - *
Michel de Beaumont
Richard K. Bestwick, Ph.D. - *
- 51 -
<PAGE>
Joseph A. Bouckaert - *
Nancy L. Buc
Adolph J. Ferro, Ph.D. - -
Gilbert N. Miller - -
Roger L. Pringle - *
All directors and executive
officers as a group
(9 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) Does not include 17,035 shares of Epitope Stock held in the Epitope
401(k) Plan, as to which Messrs. Ferro and Miller share voting power as
trustees of the Epitope 401(k) Plan. Messrs. Ferro and Miller disclaim
any economic beneficial interest in such shares other than the -----
and ----- shares, respectively, allocated to their individual accounts
under the Epitope 401(k) Plan, which are included in the table above.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Distribution, there has not been any public market for
Agritope Stock and there can be no assurance that a significant public market
for Agritope Stock will be developed or be sustained after the Distribution.
Sales of substantial amounts of Agritope Stock in the public market after the
Distribution, or the possibility of such sales occurring, could adversely affect
prevailing market prices for Agritope Stock or the future ability of Agritope to
raise capital through an offering of equity securities.
After the Distribution and the Private Placement, ----- shares of
Agritope Stock will be outstanding. 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 Stock." The Agritope Stock to be issued in the
Private Placement may not be sold in the U.S. without registration under the
Securities Act until 40 days following the closing of the Private Placement. See
"Private Placement" and "The Distribution--Trading of Agritope Stock."
As of the Record Date, options to purchase ---- shares of Agritope
Stock were outstanding. As of the Record Date, 2,000,000 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
Stock 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.
- 52 -
<PAGE>
Epitope has retained Vector Securities International, Inc. ("Vector
Securities") as Epitope's exclusive 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 500,000 shares of Agritope Stock
and 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. The ratio of the number of Agritope Stock warrants to the
number of Epitope Stock warrants to be received by Vector Securities will be the
same as the Distribution Ratio. Epitope and Agritope expect to 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 Private Placement. American Equities or its designees will
receive warrants to purchase an aggregate of 500,000 shares of Agritope Stock at
$7 per share in partial consideration for its services. Such warrants may be
exercised at any time within the three years following the closing of the
Private Placement. Agritope has granted American Equities certain registration
rights with respect to the warrants.
DESCRIPTION OF AGRITOPE CAPITAL STOCK
Agritope's Articles authorize the issuance of up to 40 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 Articles.
AGRITOPE COMMON
The holders of Agritope Common are entitled to one vote per share on
all matters on which shareholders 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
The Articles authorize the Agritope Board, without further shareholder
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 adopted a Shareholder Rights Plan, as described
below, which enables holders of Agritope Common, under certain circumstances, to
purchase fractional shares of a series of Agritope Preferred. See "--Shareholder
Rights Plan," below. No Agritope Preferred is currently outstanding, and
Agritope has no present plans to issue any shares of Agritope Preferred.
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
- 53 -
<PAGE>
receive warrants to purchase an aggregate of 500,000 shares of Agritope Stock
and 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. The ratio of Agritope Stock warrants to Epitope Stock
warrants to be received by Vector Securities will be the same as the
Distribution Ratio.
Agritope has also issued to American Equities or its designees warrants
to purchase an aggregate of 500,000 shares of Agritope Stock in partial
consideration for its services as placement agent in connection with the Private
Placement. Each warrant entitles the holder to purchase one share of Agritope
Stock at $7 per share at any time within three years of the closing of the
Private Placement.
PREEMPTIVE RIGHTS
The Articles provide that no holder of any of Agritope's shares is
entitled to any preferential or preemptive rights, except as such rights may be
provided for by contract or pursuant to the terms of any series of Agritope
Preferred.
SHAREHOLDER RIGHTS PLAN
In October 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 A Junior Participating Cumulative
Preferred Stock at an exercise price of $-----. 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.
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 $0.01
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 October 17, 2007. So long as the Rights are not
separately transferable, Agritope will issue one Right with each new share of
Agritope Common issued.
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 an Acquiring
Person.
- 54 -
<PAGE>
OTHER ANTI-TAKEOVER MEASURES
Agritope's Articles 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 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;
and (iv) no less than 60 days' advance notice with respect to nominations of
directors or other matters to be voted on by shareholders other than by or at
the direction of the Agritope Board.
Classified Board of Directors. The Articles provide that the Agritope
Board 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 shareholders, 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 shareholders.
Removal of Directors. Directors of Agritope may be removed only for
cause.
Changes in the Number of Directors. The Articles specify 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 Shareholders. The
Bylaws require that, generally, in addition to other applicable requirements, in
order for an Agritope shareholder to (i) nominate a person for election to the
Agritope Board at an annual meeting of shareholders or (ii) properly bring a
matter before an annual meeting of shareholders, such shareholder must notify
Agritope of his or her intentions not less than 60 days prior to such meeting
(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 Articles. The Articles require the approval of the holders
of at least two-thirds of Agritope Common to amend certain provisions of the
Articles including certain of the anti-takeover measures described above.
OREGON ANTI-TAKEOVER STATUTES
Agritope is subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that, if a person or entity acquires 15
percent or more of the voting stock of an Oregon corporation (an "Interested
Shareholder"), the corporation and the Interested Shareholder, or any affiliated
entity of the Interested Shareholder, may not engage in certain business
combination transactions for three years following the date the person became an
Interested Shareholder. Business combination transactions for this purpose
include: (a) a merger or plan of share exchange; (b) any sale, lease, mortgage
or other disposition of 10 percent or more of the assets of the corporation; and
(c) certain transactions that result in the issuance of capital stock to the
Interested Shareholder. These restrictions do not apply if: (i) the Interested
Shareholder, as a result of the transaction in which such person became an
Interested Shareholder, 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 benefit plans); (ii) the board of directors
approves the share acquisition or business
- 55 -
<PAGE>
combination before the Interested Shareholder acquires 15 percent or more of the
corporation's outstanding voting stock; or (iii) the board of directors and the
holders of at least two-thirds of the outstanding voting stock of the
corporation (disregarding shares owned by the Interested Shareholder) approve
the transaction after the Interested Shareholder acquires 15 percent or more of
the corporation's voting stock.
Agritope is also subject to the Oregon Control Share Act (the "Control
Share Act"). The Control Share Act generally provides that a person (the
"Acquiror") who acquires voting stock of an Oregon corporation in a transaction
which results in the Acquiror holding more than 20 percent, 33-1/3 percent or 50
percent of the total voting power of the corporation (a "Control Share
Acquisition") cannot vote the shares it acquires in the Control Share
Acquisition ("Control Shares") unless voting rights are accorded to the Control
Shares by: (a) a majority of each voting group entitled to vote; and (b) the
holders of a majority of the outstanding voting shares, excluding the Control
Shares held by the Acquiror and shares held by the corporation's officers and
inside directors. The term "Acquiror" is broadly defined to include persons
acting as a group.
The Acquiror may, but is not required to, submit to the corporation an
"Acquiring Person Statement" setting forth certain information about the
Acquiror and its plans with respect to the corporation. The Acquiror may also
request that the corporation call a special meeting of shareholders to determine
whether the voting rights will be restored to the Control Shares. If the
Acquiror does not request a special meeting of shareholders, the issue of voting
rights of Control Shares will be considered at the next annual or special
meeting of shareholders that is held more than 60 days after the date of the
Control Share Acquisition. If the Acquiror's Control Shares are accorded voting
rights and represent a majority or more of all voting power, shareholders who do
not vote in favor of the restoration of such voting rights will have the right
to receive the appraised "fair value" of their shares, which may not be less
than the highest price paid per share by the Acquiror for the Control Shares.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY; INSURANCE
As permitted by Oregon law, Agritope's Articles permit, 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 Oregon law, the Bylaws and indemnity agreements
Agritope intends to enter into with its directors and officers generally,
Agritope 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 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.
- 56 -
<PAGE>
As permitted by Oregon law, the Articles also provide that no director
will be liable to Agritope or its shareholders for monetary damages for his or
her conduct as a director, except that personal liability may exist for any: (i)
breach of the director's duty of loyalty to Agritope or its shareholders; (ii)
act or omission not in good faith or that involves intentional misconduct or a
knowing violation of the law; (iii) unlawful distribution to shareholders; (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 intends to enter into agreements to indemnify
its directors and officers. The agreements are intended to provide the maximum
indemnification permitted by Oregon 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 will also limit the
liability of Agritope's directors and officers in respect of their conduct in
serving Agritope to the extent permitted by Oregon 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 Stock will be passed upon by Tonkon, Torp,
Galen, Marmaduke & Booth, 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, 1996 and 1995 and for each
of the three years in the period ended September 30, 1996 included in this
Information Statement/Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
- 57 -
<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*........................... $ 50,000
Blue Sky Fees and Expenses*........................ $ 4,900
Printing, including Registration Statement, $ 50,000
Information Statement/Prospectus, etc.*..........
Miscellaneous Expenses*............................ $ 34,550
--------
TOTAL EXPENSES*.................. $166,000
- ------------
*Estimated
Item 14. Indemnification of Directors and Officers.
Indemnification. Generally, the Oregon Business Corporation Act (the
"Oregon Act") requires the indemnification of an individual made a party to a
proceeding because the individual is or was a director or officer of the
corporation against reasonable expenses incurred by the director or officer in
the proceeding if the individual is wholly successful on the merits or
otherwise. In addition, the Oregon Act 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;
(d) In the case of any proceeding by or in the right of the
corporation, the individual was not adjudged liable to the corporation;
and
(e) In connection with any proceeding (other than a proceeding
by or in the right of the corporation) charging improper personal
benefit to the individual, the individual was not adjudged liable on
the basis that he or she improperly received personal benefit.
Generally, when appropriate, the Oregon Act also authorizes a court to
order indemnification, whether or not the above standards of conduct have been
met, if the court determines that the officer or director is entitled to
mandatory indemnification under the Oregon Act or is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances. In
addition, the Oregon Act 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
II-1
<PAGE>
corporation's articles of incorporation or bylaws, or under any agreement,
action of its board of directors, vote of shareholders, or otherwise.
Article 6 of the restated articles 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 restated 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 Oregon Act, restated articles of incorporation, bylaws,
agreement, action of the shareholders 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 10.10 and 10.11 hereto. Each
indemnification agreement makes provisions of the Oregon Act 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 restated bylaws also set forth procedures for the defense of
claims by the Registrant.
Section 60.367 of the Oregon Revised Statutes (a part of the Oregon
Act) 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 shareholders who
accepted the dividend or distribution, knowing the dividend or distribution was
made in violation of the Oregon Act or the articles of incorporation. The
section also provides that any such director shall be entitled to contribution
from the other directors who voted for or assented to the dividend or
distribution without complying with the applicable standards of conduct
prescribed by the Oregon Act.
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 effects 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 approximately 1,343,000 shares of Agritope Stock at
a price of $7 per share, for an aggregate price of $9.4 million in the Private
Placement, immediately following the Distribution. Subscribers in the Private
Placement 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 Private Placement. The shares of Agritope Stock sold in the
Private Placement will represent 27 percent of the Agritope Stock outstanding
following the Distribution. Shares sold in the Private Placement will not be
registered under the Securities Act in reliance upon the exemption from
registration provided by Regulation S.
II-2
<PAGE>
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. 1 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 October 20, 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
Registration Statement has been signed on October 20, 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)
/s/ Gilbert N. Miller Executive Vice President,
Gilbert N. Miller Chief Financial Officer, Secretary and
Director
(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
*MICHAEL de BEAUMONT Director
Michael de Beaumont
*By /s/ Gilbert N. Miller
Gilbert N. Miller
(Attorney-in-Fact)
II-4
<PAGE>
EXHIBIT INDEX
Number Description
2.* Form of Separation Agreement between Epitope, Inc.
("Epitope"), and Agritope, Inc. ("Agritope").
3.1* Current Restated Articles of Incorporation of Agritope.
3.2* Proposed form of Restated Articles of Incorporation of
Agritope.
3.3* Current Restated Bylaws of Agritope.
3.4* Proposed form of Restated Bylaws of Agritope.
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 form of the Designation of Terms of the
Series A Participating Cumulative Preferred Stock and as
Exhibit B the form of Rights Certificate.
5.* Form of Opinion of Tonkon, Torp, Galen, Marmaduke & Booth.
8. Form of Opinion of Miller, Nash, Wiener, Hager & Carlsen LLP.
10.1** Form of Transition Services and Facilities Agreement between
Epitope and Agritope.
10.2 Form of Tax Allocation Agreement between Epitope and Agritope.
10.3** Form of Employee Benefits Agreement between Epitope and
Agritope.
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.
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.
II-5
<PAGE>
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.
10.16 Placement Agent Agreement between American Equities Overseas,
Inc., and Agritope, dated October 15, 1997.
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
Private Placement.
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, Galen, Marmaduke & Booth (included in
Exhibit 5).
23.3 Consent of Miller, Nash, Wiener, Hager & Carlsen LLP (included
in Exhibit 8).
24. Powers of attorney (some previously filed).
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-6
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
FULL YEAR FINANCIAL STATEMENTS
Report of Independent Accountants.......................................F-1
Consolidated Balance Sheets
at September 30, 1996 and September 30, 1995....................F-2
Consolidated Statements of Operations
for the years ended September 30, 1996, 1995, and 1994 .........F-3
Consolidated Statements of Changes in Shareholder's Equity
for the years ended September 30, 1996, 1995, and 1994 .........F-4
Consolidated Statements of Cash Flows
for the years ended September 30, 1996, 1995, and 1994 .........F-5
Notes to Consolidated Financial Statements..............................F-6
INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
at June 30, 1997 and September 30, 1996........................F-14
Condensed Consolidated Statements of Operations
for the nine months ended June 30, 1997 and 1996...............F-15
Condensed Consolidated Statements of Changes in Shareholder's Equity
for the nine months ended June 30, 1997........................F-16
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1997 and 1996...............F-17
Notes to Condensed Consolidated Financial Statements...................F-18
<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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1996, 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 28, 1996, except for Note 11 as to which the date is December 26, 1996
and the second paragraph of Note 1 as to which the date is July 26, 1997.
F-1
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2) ........................... $ 476,512 $ 10,103
Trade accounts receivable, net (Note 2) ...................... 264,986 135,866
Other accounts receivable .................................... 32,337 993,790
Inventories (Note 2) ......................................... 509,745 -
Prepaid expenses ............................................. 812 56,064
------------- -------------
Total current assets ......................................... 1,284,392 1,195,823
Property and equipment, net (Notes 2 and 4) .................. 1,286,197 555,004
Patents and proprietary technology, net (Note 2) ............. 510,244 140,757
Investment in affiliated companies (Note 3) .................. 2,448,623 1,974,833
Other assets and deposits (Note 5) ........................... 140,513 200,430
------------- -------------
$ 5,669,969 $ 4,066,847
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current portion of installment notes payable ................. $ - $ 17,758
Convertible notes (Notes 5 and 11)............................ 3,620,003 -
Accounts payable.............................................. 91,474 125,971
Salaries, benefits and other accrued liabilities.............. 735,478 206,349
------------- ------------
Total current liabilities..................................... 4,446,955 350,078
Long-term portion of installment notes payable................ - 21,749
Convertible notes (Notes 5 and 11)............................ - 3,620,003
Minority interest (Note 3).................................... 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..................... 33,485,214 30,051,356
Accumulated deficit .......................................... (32,477,607) (29,976,339)
------------- -------------
1,007,607 75,017
$ 5,669,969 $ 4,066,847
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30 1996 1995 1994
Revenues
<S> <C> <C> <C>
Product sales.............................................. $ - $ 2,015,318 $ 2,179,742
Grants and contracts (Note 8).............................. 585,485 94,370 33,642
------------- ------------ --------------
585,485 2,109,688 2,213,384
Costs and expenses
Product costs............................................. - 3,235,675 4,575,149
Research and development costs (Note 8)................... 1,338,703 2,204,993 2,368,880
Selling, general and administrative expenses
(Note 2)................................................ 1,482,694 4,479,498 4,759,219
------------- ------------ --------------
2,821,397 9,920,166 11,703,248
Loss from operations...................................... (2,235,912) (7,810,478) (9,489,864)
Other income (expense), net
Interest income........................................... - 7,535 -
Interest expense.......................................... (265,356) (241,775) (236,121)
Other, net................................................ - (500) (78,081)
------------- ------------- ---------------
(265,356) (234,740) (314,202)
Net loss................................................... $ (2,501,268) $ (8,045,218) $ (9,804,066)
Net loss per share ....................................... $ (1.25) $ (4.02) $ (4.90)
Weighted average number
of shares outstanding .................................. 2,000,000 2,000,000 2,000,000
</TABLE>
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>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1993 .............................. $ 9,143,694 $ (12,127,055) $ (2,983,361)
Compensation expense for stock awards (Note 6)............... 50,392 - 50,392
Compensation expense for stock option grants (Note 6)........ 343,922 - 343,922
Capital contributed by Epitope, Inc., upon exchange of
convertible notes (Note 5) ................................ 559,964 - 559,964
Equity issuance costs ....................................... (40,267) - (40,267)
Cash from Epitope, Inc. ..................................... 11,391,436 - 11,391,436
Net loss for the year ....................................... - (9,804,066) (9,804,066)
------------ -------------- --------------
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 ....................................... (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
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss................................................... $ (2,501,268) $ (8,045,218) $ (9,804,066)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............................. 294,045 663,379 505,135
Compensation expense for stock awards...................... 14,500 69,998 50,392
Compensation expense for stock option grants .............. 229,164 318,375 343,922
Loss on disposition of property............................ - 500 74,130
Decrease (increase) in receivables......................... 832,333 (945,501) (140,268)
Decrease (increase) in inventories......................... (509,745) 88,737 (385,928)
Decrease (increase) in prepaid expenses.................... 55,252 (55,639) 36,965
Decrease (increase) in other assets and deposits........... (36,219) 9,137 6,562
Increase (decrease) in accounts payable and
accrued liabilities...................................... 494,633 (104,680) 67,457
-------------- -------------- --------------
Net cash used in operating activities...................... (1,127,305) (8,000,912) (9,245,699)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment........................ (886,646) (238,558) (2,128,837)
Proceeds from sale of property............................. - 13,258 -
Expenditures for patents and proprietary
technology............................................... (411,943) (178,208) 135
Investment in affiliated companies......................... (473,790) 610,146 -
Minority interest in affiliated companies.................. 215,407 - -
-------------- -------------- --------------
Net cash (used in) provided by investing activities........ (1,556,972) 206,638 (2,128,702)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under installment purchase notes
and capital lease obligations ............................ (39,508) (16,137) (20,724)
Cash from Epitope, Inc..................................... 3,190,194 7,786,338 11,391,436
-------------- -------------- --------------
Net cash provided by financing activities.................. 3,150,686 7,770,201 11,370,712
Net increase in cash and cash equivalents.................. 466,409 (24,073) (3,689)
Cash and cash equivalents at beginning of year............. 10,103 34,176 37,865
-------------- -------------- --------------
Cash and cash equivalents at end of year................... $ 476,512 $ 10,103 $ 34,176
</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.
Agritope is a wholly owned subsidiary of Epitope, Inc. ("Epitope"), an Oregon
corporation engaged in the development and marketing of medical diagnostic
products. Through its 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 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 intends to
sell additional shares of Agritope common stock in a private placement to
certain investors immediately after the spin-off.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts 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
Form 10-K and Form 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 the contemplated targeted stock transaction. 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 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
$1,069,249, $1,892,370 and $1,735,688, respectively, for 1996, 1995 and 1994 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 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, consisting principally of growing grapevine plants
at Vinifera, is summarized as follows:
SEPTEMBER 30 1996
Work-in-process .............................................. $471,208
Finished goods ............................................... 38,537
---------
$509,745
F-6
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
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, 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 ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. See Note 11, Subsequent Events.
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 an agreement pursuant to which it acquired
its patented ethylene control technology in 1987. A co-inventor of the
technology relinquished all rights to future compensation under the agreement in
exchange for a one-time cash payment, a research grant and a limited
non-exclusive license to use the technology for one crop. The total
consideration paid of $365,000 is included under the caption "Patents and
proprietary technology" and is being amortized over 15 years, the remaining life
of the related patent. See Note 11, Subsequent Events.
Amortization and accumulated amortization are summarized as follows:
1996 1995 1994
Amortization for the year ended September 30,.... $ 42,456 $ 23,964 $ 13,487
Accumulated amortization ........................ 79,907 37,451 13,487
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 long-term debt 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 $19,571 as of September 30,
1996, and $65,172 as of September 30, 1995.
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 expenses 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
F-7
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
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 SFAS No. 123, Accounting for Stock-Based Compensation. 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, but with additional financial statement disclosure. The Company plans
to elect the disclosure-only alternative commencing in fiscal 1997 and therefore
does not anticipate that SFAS 123 will have a material impact on its financial
position or results of operations.
Supplemental Cash Flow Information. Non-cash financing and investing activities
not included in the consolidated statements of cash flows are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1996 1995 1994
<S> <C> <C> <C>
Conversion of notes to equity (Note 5).................... $ - $ 472,478 $ 600,231
Investment in affiliated companies........................ - 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.
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
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. (UAF) and 40 percent owned by the Company pursuant to an Operating and
Transition Agreement (Agreement). Pursuant to the Agreement, on October 27,
1995, the assets and liabilities of LLC and of UAF, together with the Company's
equipment and leasehold improvements located at the Charlotte facility, were
transferred to a newly formed entity, UAF, Limited Partnership (LP). LP also
assumed the liability for the lease of the Charlotte facility. In fiscal 1995,
the Company removed the assets transferred to LP 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 business. Until May 1995, the Company's investment in Agrimax
was consolidated. From May 1995 through October 27, 1995, the Company followed
the equity method in accordance with APB 18. Since October 27, 1995, the
investment 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.
See Note 11, Subsequent Events.
In 1996, Agrimax contributed the operating assets of its discontinued St. Paul,
Minnesota operations to Petals USA, Inc. ("Petals"), an 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.
See Note 11, Subsequent Events.
F-8
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
<S> <C> <C>
Investment in UAF............................................. $1,847,148 $1,821,602
Investment in Petals.......................................... 410,932 -
Net assets of St. Paul facility............................... - 348,231
Other......................................................... 190,543 -
Valuation adjustment.......................................... - (195,000)
------------- -------------
Investment in affiliated companies............................ $2,448,623 $1,974,833
</TABLE>
For the years ended September 30, 1995, and 1994, respectively, the accompanying
financial statements include revenues of $1,914,000 and $2,148,000, and
operating losses of $3,299,000 and $5,601,000, 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.
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 all 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 majority interest to Agritope in
August 1996. Additional minority investors in Vinifera reduced Agritope's
ownership to 76 percent as of September 30, 1996.
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 in 1994 and through May of 1995, and for
the month of September 1996. 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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995
Pro forma Pro forma
Historical adjustments Pro forma Historical adjustments Pro forma
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $ 585,485 $ 833,949 $ 1,419,434 $ 2,109,688 $ 276,588 $ 2,386,276
Net loss............... (2,501,268) (1,464,002) (3,965,270) (8,045,218) (460,296) (8,505,514)
Pro forma net
loss per share ...... (1.25) (.73) (1.98) (4.02) (.23) (4.25)
</TABLE>
F-9
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
<S> <C> <C>
Land ......................................................... $ 30,020 $ 30,020
Grapevine propagation blocks ................................. 313,463 -
Production equipment.......................................... 38,075 -
Buildings and improvements ................................... 717,508 717,508
Research and development laboratory equipment ................ 220,919 196,255
Office furniture and equipment ............................... 140,452 95,338
Leasehold improvements........................................ 23,962 23,962
Construction in progress ..................................... 499,980 34,650
----------- -----------
1,984,379 1,097,733
Less accumulated depreciation and amortization ............... (698,183) (542,730)
------------ ------------
$ 1,286,196 $ 555,003
</TABLE>
NOTE 5 LONG-TERM DEBT
On June 30, 1992, Agritope completed a private placement with several European
institutional investors pursuant to which $5,495,000 of convertible notes were
issued. The notes are unsecured, mature on June 30, 1997 and bear interest at
the rate of 4 percent per annum which is payable on each June 30 and December
31. The notes are convertible into common stock of Epitope at a conversion price
of $19.53 per share.
During the years ended September 30, 1995 and 1994, respectively, investors
exchanged $449,991 and $559,964 principal amount of convertible notes for
Epitope common stock at a price of $19.53 per share. Following these
conversions, Epitope made a capital contribution to Agritope equal to the amount
of Epitope stock issued. In conjunction with the exchanges, unamortized debt
issuance costs of $22,487 and $40,267 related to such notes were recognized as
equity issuance costs during 1995 and 1994, respectively. Debt issuance costs
are included in other assets and are being amortized over the five-year life of
the notes. Amortization expense of debt issuance costs for the years ended
September 30, 1996, 1995 and 1994, respectively, totaled $108,257, $96,136 and
$91,715, leaving an unamortized balance of $88,821 and $197,077 at September 30,
1996 and 1995, respectively. See Note 11, Subsequent Events.
NOTE 6 SHAREHOLDER'S EQUITY
Authorized Capital Stock. Agritope's current amended articles of incorporation
authorize 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, cash equivalents, and marketable securities provided and
allocated 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
F-10
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
Epitope stock grants and awards to Agritope employees totaling $244,000 in 1996,
$388,000 in 1995, and $394,000 in 1994, has been recognized as operating
expenses and common stock of Agritope.
NOTE 7 INCOME TAXES
As of September 30, 1996, Agritope had net operating loss carryforwards of
approximately $29.8 million and $16.9 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>
<CAPTION>
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
-------------- --------------
$ 29,775,000 $ 16,948,000
</TABLE>
Significant components of Agritope's deferred tax asset were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 1996 1995
<S> <C> <C>
Net operating loss carryforwards.......................... $ 11,588,000 $ 10,725,000
Deferred compensation..................................... 558,000 468,000
Research and experimentation credit carryforwards......... 339,000 331,000
Accrued expenses.......................................... 15,000 14,000
Other..................................................... 59,000 35,000
-------------- -------------
Gross deferred tax assets................................. 12,559,000 11,573,000
Valuation allowance....................................... (12,559,000) (11,573,000)
-------------- -------------
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 $986,000 in
1996. 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 common 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 $850,000 for the year ended
September 30, 1996 is increased by approximately $109,000 for the effect of
state and local taxes (net of federal impact), and decreased by approximately
$986,000 for the effect of the increase in valuation allowance.
F-11
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS
Agritope performed research work in 1996 and 1995 with respect to raspberries
which was partially funded by Sweetbriar Development, Inc. under a License
Agreement dated October 18, 1994 and with respect to grapevine disease
diagnostics funded by a grant from the U.S. Department of Agriculture under the
Small Business Innovation Research Program. 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>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1996 1995 1994
<S> <C> <C> <C>
Government research grants................................ $ 144,987 $ 16,358 $ 33,642
Research projects with strategic partners................. 326,462 40,000 -
Other..................................................... 114,036 38,012 -
------------ ----------- ---------
585,485 94,370 33,642
Project related expenses.................................. $ 461,460 $ 318,401 $ 35,728
</TABLE>
NOTE 9 COMMITMENTS AND CONTINGENCIES
Agritope leases office and greenhouse facilities under operating lease
agreements which require minimum annual payments as follows:
YEAR ENDING SEPTEMBER 30
1997...................................................... $ 189,551
1998 ..................................................... 185,394
1999 ..................................................... 150,000
2000 ..................................................... 150,000
2001 ..................................................... 50,000
----------
$ 724,945
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
$238,790, $374,862, and $311,623 for the years ended September 30, 1996, 1995
and 1994, 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
1997...................................................... $ 328,953
1998...................................................... 341,304
1999...................................................... 347,184
------------
$ 1,017,441
F-12
<PAGE>
Agritope, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
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 1996, 1995 and 1994,
respectively, Agritope was charged $14,500, $29,877, and $25,506 by Epitope for
its share of the matching contribution under the plan.
NOTE 11 SUBSEQUENT EVENTS
On October 25, 1996, Epitope received an offer from a representative of the
holders of the $3.6 million convertible notes due June 30, 1997, whereby the
holders proposed to convert such notes into common stock of Epitope at a reduced
exchange price. On November 14, 1996, Epitope agreed to exchange $3.4 million
principal amount of Agritope notes for 250,367 shares of Epitope common stock at
an exchange price of $13.50 per share. Accordingly, Agritope recognized a charge
to results of operations of $1.2 million in the first quarter of fiscal 1997
representing the conversion expense. Concurrent with the note conversion,
Epitope made a $4.4 million capital contribution to Agritope.
On November 11, 1996, the Company amended an agreement pursuant to which it
acquired its patented ethylene control technology in 1987. A co-inventor 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 will be included in Agritope's consolidated balance sheet
under the caption "Patents and proprietary technology" and will be amortized
over 15 years, the remaining life of the related patent.
Based on information available on December 26, 1996, and due 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 believes that the value of its
investment in affiliated companies has more than temporarily declined as both
companies are now expected to show operating losses in fiscal 1997. Accordingly,
Agritope recorded a non-cash charge to results of operations of $1.9 million
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.
F-13
<PAGE>
INTERIM FINANCIAL STATEMENTS
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/97 9/30/96
(Unaudited)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2)............................ $ 844,567 $ 476,512
Trade accounts receivable, net................................ 185,447 264,986
Other receivables............................................. 2,817 32,337
Inventories (Note 2).......................................... 1,987,506 509,745
Prepaid expenses.............................................. 23,913 812
----------- ----------
3,044,250 1,284,392
Property and equipment, net................................... 2,403,908 1,286,197
Patents and proprietary technology, net....................... 1,293,369 510,244
Investment in affiliated companies (Note 3)................... 358,080 2,448,623
Other assets and deposits..................................... 29,950 140,513
---------- ----------
$ 7,129,557 $ 5,669,969
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable.............................................. $ 237,079 $ 91,474
Current portion of installment notes payable.................. 4,186 -
Convertible notes (Note 4).................................... - 3,620,003
Salaries, benefits and other accrued liabilities.............. 987,776 735,478
---------- ----------
1,229,041 4,446,955
Long-term portion of installment notes payable................ 15,682 -
Minority interest in consolidated subsidiaries (Note 5)....... 769,799 215,407
Commitments and contingencies................................. - -
Shareholder's equity (Note 2)
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..................... 44,047,742 33,485,214
Accumulated deficit........................................... (38,932,707) (32,477,607)
------------ ------------
5,115,035 1,007,607
$ 7,129,557 $ 5,669,969
</TABLE>
F-14
<PAGE>
INTERIM FINANCIAL STATEMENTS
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
6/30/97 6/30/96
Revenues
<S> <C> <C>
Product sales.......................................................... $ 566,239 $ -
Grants and contracts................................................... 101,507 514,030
-------------- --------------
667,746 514,030
Costs and expenses
Product costs.......................................................... 548,343 -
Research and development costs......................................... 1,250,390 990,673
Selling, general and administrative expenses........................... 2,264,043 1,064,398
-------------- --------------
4,062,776 2,055,071
Loss from operations................................................... (3,395,030) (1,541,041)
Other income (expense), net
Interest expense....................................................... (25,010) (192,103)
Valuation loss (Note 3)................................................ (1,900,000) -
Cost of debt conversion (Note 4)....................................... (1,216,654) -
Other, net............................................................. 81,594 -
-------------- --------------
(3,060,070) (192,103)
Net loss............................................................... $ (6,455,100) $ (1,733,144)
Net loss per share .................................................... $ (3.22) $ (.86)
Weighted average number of shares outstanding ........................ 2,000,000 2,000,000
</TABLE>
F-15
<PAGE>
INTERIM FINANCIAL STATEMENTS
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1996............................... $ 33,485,214 $ (32,477,607) $ 1,007,607
Compensation expense for stock awards........................ 23,437 - 23,437
Compensation expense for stock option grants................. 20,832 - 20,832
Capital contributed by Epitope, Inc. upon exchange of
convertible notes (Note 4)................................ 4,442,875 - 4,442,875
Minority interest investment
in subsidiary (Note 5).................................... 742,752 - 742,752
Cash from Epitope, Inc....................................... 5,332,632 - 5,332,632
Net loss for the period...................................... - (6,455,100) (6,455,100)
------------- ------------- --------------
Balances at June 30, 1997.................................... $ 44,047,742 $ (38,932,707) $ 5,115,035
</TABLE>
F-16
<PAGE>
INTERIM FINANCIAL STATEMENTS
AGRITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
6/30/97 6/30/96
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss............................................................... $ (6,455,100) $ (1,733,144)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization.......................................... 383,302 188,885
Common stock issued as compensation for services....................... 23,437 4,029
Compensation expense for stock option grants........................... 20,832 171,873
Minority interest in subsidiary operating results...................... (208,310) -
Valuation loss......................................................... 1,900,000 -
Non-cash portion of cost of debt conversion............................ 1,149,054 -
Decrease (increase) in receivables..................................... 109,059 (82,338)
Increase in inventories................................................ (1,477,761) -
Decrease (increase) in prepaid expenses................................ (23,101) 55,284
Increase (decrease) in accounts payable and accrued liabilities........ 397,903 (203,821)
Other, net............................................................. 121,234 4,972
------------- -------------
Net cash used in operating activities.................................. (4,059,451) (1,594,260)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment.................................... (1,471,276) (40,114)
Expenditures for patents and proprietary technology.................... (853,718) (459)
Investment in affiliated companies..................................... - (327,550)
------------- -------------
Net cash used in investing activities.................................. (2,324,994) (368,123)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. 20,887 -
Principal payments on long-term debt................................... (241,019) (39,507)
Minority interest investment in subsidiary............................. 1,640,000 -
Cash from Epitope, Inc................................................. 5,332,632 1,991,787
------------- -------------
Net cash provided by financing activities.............................. 6,752,500 1,952,280
Net increase (decrease) in cash and cash equivalents................... 368,055 (10,103)
Cash and cash equivalents at beginning of period....................... 476,512 10,103
------------- -------------
Cash and cash equivalents at end of period............................. $ 844,567 $ -
</TABLE>
F-17
<PAGE>
INTERIM FINANCIAL STATEMENTS
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. Agritope is a wholly owned subsidiary of Epitope, Inc.
("Epitope"), an Oregon corporation engaged in the development and marketing of
medical diagnostic products.
The interim condensed financial statements included herein are unaudited;
however, in the opinion of management, the interim data include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for the interim
periods. These condensed financial statements should be read in conjunction with
the full year financial statements and notes thereto included elsewhere in this
Information Statement/Prospectus. Results of operations for the nine-month
period ended June 30, 1997 are not necessarily indicative of the results of
operations expected for the full fiscal year.
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 approximately 1,343,000 shares of Agritope common stock in a private
placement to certain investors for an aggregate price of $9.4 million,
immediately after the spin-off.
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 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 of
Agritope include the assets, liabilities, revenues and expenses of Agritope and
its majority owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Inventories. Inventories consisted principally of growing grapevine plants at
Vinifera. The components of inventory are summarized as follows:
6/30/97 9/30/96
(Unaudited)
Work-in-process........................ $ 1,321,299 $ 471,208
Finished goods......................... 666,207 38,537
------------ -----------
$ 1,987,506 $ 509,745
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 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.
F-18
<PAGE>
Interim Financial Statements
Agritope, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
Agritope's investment in affiliated companies includes its 9 percent interest in
UAF, Limited Partnership, a fresh flower distribution operation in Charlotte,
North Carolina, and its 19.5 percent interest in Petals USA, Inc. ("Petals"), an
affiliate of a Canadian fresh flower wholesaler. Based on information available
on December 26, 1996, and due 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 believes that the value of its investment in affiliated companies
has more than temporarily declined as both companies are now expected to show
operating losses in fiscal 1997. Accordingly, Agritope recorded a non-cash
charge to results of operations of $1.9 million 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. See Note 6, Subsequent Event
below.
6/30/97 9/30/96
Investment in UAF ...................... $ - $1,847,148
Investment in Petals.................... 358,080 410,932
Other................................... - 190,543
-------------- -------------
Investment in affiliated companies...... $ 358,080 $ 2,448,623
NOTE 4 CONVERTIBLE NOTES
In November 1996, Epitope exchanged $3.4 million 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 non-cash charge to
results of operations of $1.2 million in the first quarter of fiscal 1997
representing the conversion expense. Concurrent with the note conversion,
Epitope made a $4.4 million capital contribution to Agritope. On June 30, 1997,
Agritope paid in full the remaining $240,000 principal amount outstanding.
NOTE 5 SHAREHOLDER'S EQUITY
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 $1.5 million 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 the percentage
ownership by Agritope in Vinifera voting stock from 76 percent to 61 percent.
F-19
<PAGE>
Interim Financial Statements
Agritope, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
NOTE 6 SUBSEQUENT EVENT
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, intends to record
a charge to operations of $358,080 in the fourth quarter of 1997.
F-20
October --, 1997
Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Subject: Proposed Section 355 Spin-off of Agritope, Inc.
Ladies and Gentlemen:
You have requested our opinion regarding the material U. S. federal
income tax consequences of the proposed spin-off (the "Distribution") of
Agritope, Inc. ("Agritope") by Epitope, Inc. ("Epitope"). Capitalized terms not
otherwise defined in this letter have the meanings given to them in the
Information Statement/Prospectus of Agritope which constitutes a part of the
Registration Statement on Form S-1 (the "Registration Statement") filed in
respect of the shares of Agritope being distributed to Epitope shareholders in
connection with the Distribution. This opinion is delivered in accordance with
the requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Separation Agreement
(the "Agreement") and the Information Statement/Prospectus and such other
material as we have deemed necessary or appropriate as a basis for our opinion.
We have relied, with the consent of Epitope, upon certain representations
contained in the representation letter given us by Epitope (a copy of which is
attached to this opinion). We have also assumed that the transactions
contemplated by the Distribution will be consummated in accordance with the
Agreement and as described in the Information Statement/Prospectus. In addition,
we have considered the applicable provisions of the Internal Revenue Code of
1986, as amended, Treasury Regulations, pertinent judicial authorities, rulings
of the Internal Revenue Service, and such other authorities as we have
considered relevant.
Based upon the foregoing, it is our opinion that under presently
applicable law, for federal income tax purposes the Distribution will constitute
a distribution within the meaning of Section 355 of the Internal Revenue Code.
Accordingly, it is our opinion that the material federal income tax consequences
of the Distribution will be as follows:
<PAGE>
Epitope, Inc. - 2 - October --, 1997
1. No gain or loss will be recognized by Agritope as a result
of the Distribution.
2. No gain or loss will be recognized by Epitope shareholders
upon their receipt of Agritope Stock, except that an Epitope
shareholder who receives cash proceeds in lieu of a fractional share
interest in Agritope Stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to the
fractional share interest, and such gain or loss will constitute
capital gain or loss if such shareholder's Epitope Stock with respect
to which the shares of Agritope stock are received is held as a capital
asset on the date of the Distribution.
3. The aggregate basis of the shares (including any fractional
shares) of Epitope Stock and Agritope Stock in the hands of the Epitope
shareholders immediately after the Distribution will be the same as the
basis of the Epitope Stock held immediately before the Distribution,
allocated between the shares (including any fractional shares) in
proportion to the fair market values of each on the date of the
Distribution.
4. The holding period of the Agritope Stock (including any
fractional shares) received by the Epitope shareholders will include
the holding period of the Epitope Stock with respect to which the
Distribution was made, provided that the Epitope Stock is held as a
capital asset on the date of the Distribution.
We express no opinion concerning the income tax consequences
of the Distribution to Epitope.
We have reviewed the discussion in the Information
Statement/Prospectus under the caption "THE DISTRIBUTION--Certain Federal Income
Tax Consequences" (the "Tax Discussion") and in our opinion the Tax Discussion,
insofar as it relates to statements of tax law or conclusions thereunder, is
correct and complete in all material respects.
This opinion is being furnished in connection with the
Registration Statement. You may rely upon and refer to the foregoing opinion in
the Information Statement/Prospectus and the Registration Statement. Any
variation or difference in the facts from those set forth or assumed either in
this opinion or the Information Statement/Prospectus may affect the conclusions
stated in this opinion.
<PAGE>
Epitope, Inc. - 3 - October --, 1997
We hereby consent to the use of our name in the Information
Statement/Prospectus under the caption "THE DISTRIBUTION--Certain Federal Income
Tax Consequences" and "Legal Matters" and to the filing of this opinion as an
Exhibit to the Registration Statement. In giving this consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
Miller, Nash, Wiener, Hager & Carlsen LLP
<PAGE>
[EPITOPE LETTERHEAD]
[date]
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Subject: Proposed Section 355 Spin-off of Agritope, Inc.
Gentlemen:
In connection with the distribution (the "Distribution") of
the stock of Agritope, Inc. ("Agritope") to the shareholders of Epitope, Inc.
("Epitope") under Section 355 of the Internal Revenue Code (the "Code") and as
described in the Information Statement/Prospectus filed as part of the
Registration Statement on Form S-1 (Registration No. 333-34597) with the
Securities and Exchange Commission, Epitope has requested that its counsel,
Miller, Nash, Wiener, Hager & Carlsen LLP ("Miller Nash"), render an opinion as
the federal income tax consequences of the Distribution to Epitope and to
Epitope shareholders. Miller Nash would not render such opinion but for certain
factual representations from Epitope and Agritope. Capitalized terms not
otherwise defined in this letter have the meanings given to them in the
Information Statement/Prospectus.
This letter sets forth certain representations in connection
with your tax opinion in connection with the Distribution. Epitope, on its own
behalf and on behalf of Agritope, hereby makes the following representations to
Miller Nash with the intention that Miller Nash rely on such representations in
rendering its opinion as to the federal income tax consequences of the
Distribution. Epitope and Agritope represent that to the best knowledge and
belief of the management of Epitope and Agritope:
1. The facts that relate to the Distribution and the related
transactions pursuant to the Separation Agreement dated as of September
--, 1997 (the "Agreement"), described in the Information
Statement/Prospectus are true, correct, and complete in all material
respects.
2. The Distribution will be consummated in compliance with the
material terms of the Agreement and none of the material terms and
conditions of the Agreement have been waived or modified and Epitope
has no plan or intention to waive or modify any such material term or
condition.
3. Agritope has agreed to issue --- shares of Agritope stock
in a private placement to certain investors for between $6 and $7 per
share, or an aggregate price of $--- million (the "Private Placement")
subsequent to the Distribution, but as part
- 1 -
<PAGE>
of an overall plan. The Distribution is conditioned on Agritope
receiving payments in escrow prior to the Distribution for financing in
an amount the Epitope board of directors deems sufficient to support
the operations of Agritope as a separate business for a period of not
less than two years.
4. The primary purpose of the Distribution is to allow
Agritope to raise immediately needed working capital through the sale
of its own equity securities. Epitope believes that equity financing
for Agritope can only be accomplished if Agritope becomes an
independent public company.
5. Agritope is a majority owner of Vinifera, Inc.
("Vinifera"). Prior to the Distribution, Agritope offered to exchange
up to an aggregate of ---- shares of Agritope Stock for shares of
Vinifera preferred stock and Vinifera common stock (together "Vinifera
Stock") held by minority holders of Vinifera. The exchange of Agritope
Stock for Vinifera Stock will immediately follow the Distribution.
6. As a result of the Private Placement and the Vinifera Stock
exchange, the Agritope Stock distributed to Epitope's shareholders
in the Distribution will represent approximately percent of all the
Agritope Stock outstanding after completion of the Distribution and the
two subsequent transactions.
7. No property other than Agritope Stock will be distributed
in the Distribution.
8. The fair market value of the Agritope Stock to be
distributed is less than the income tax cost basis of the Agritope
Stock in the hands of Epitope.
9. All shares of Agritope Stock held by Epitope will be
distributed. Epitope will make a distribution to holders of record of
Epitope Stock, of one share of Agritope Stock for every shares of
Epitope Stock.
10. Epitope and Agritope have no accumulated earnings and
profits at the beginning of their respective tax year and expect to
have no current earnings and profits for the current tax year.
11. There is no plan or intention by any shareholder who owns
5 percent or more of the Epitope Stock, and the management of Epitope,
to the best of its knowledge, is not aware of any plan or intention on
the part of any particular remaining shareholder or security holder of
Epitope to sell, exchange, transfer by gift, or otherwise dispose of
any stock in, or securities of, either Epitope or Agritope after the
Distribution.
12. At the time of the Distribution, all outstanding Agritope
Stock will be held by Epitope. Epitope will distribute all of the
Agritope Stock to its shareholders of record at the time of the
Distribution. Subsequently, Agritope will exchange newly issued
Agritope Stock for Vinifera shares, and will raise capital through the
Private
- 2 -
<PAGE>
Placement. Neither the exchange nor the Private Placement could occur
without the successful completion of the Distribution.
13. Both Epitope and Agritope have been actively engaged in a
separate trade or business for more than the five-year period ending
with the date of the Distribution and neither such active trade or
business was acquired within such five-year period in a taxable
transaction.
14. After the Distribution, both Agritope and Epitope will
continue to conduct their respective active businesses.
15. There is no intercorporate indebtedness existing between
Agritope and Epitope that was issued, acquired, or will be settled at a
discount.
16. Neither Agritope nor Epitope is an investment company as
defined in Internal Revenue Code sections 368(a)(2)(f)(iii) and (iv).
17. The payment of cash in lieu of fractional shares of
Agritope common stock is solely for the purpose of avoiding the expense
and inconvenience to Agritope of issuing fractional shares and does not
represent separately bargained-for consideration.
18. We will promptly and timely notify Miller Nash if, for any
reason, whatever, any of the above representations are not correct
immediately prior to the Distribution.
Insofar as any of the foregoing representations pertain to any
person other than Epitope or Agritope, the representations are only as to the
knowledge of the undersigned without specific inquiry. You are authorized to
rely on the foregoing representations in issuing your tax opinion in connection
with the Distribution.
Very truly yours,
EPITOPE, INC.
By:---------------------------------------
Its:--------------------------------------
- 3 -
TAX ALLOCATION AGREEMENT
This agreement (the "Agreement") dated as of October ----, 1997, is
being entered into in connection with a Separation Agreement (the "Separation
Agreement") dated as of October ----, 1997 by and between Epitope, Inc., an
Oregon corporation ("Epitope"), and Agritope, Inc., an Oregon corporation
("Agritope").
RECITALS
A. Agritope is currently a wholly owned subsidiary of Epitope, and, as
such, Epitope and Agritope have joined in filing consolidated federal Tax
Returns (as defined below) and certain consolidated, combined or unitary state,
local, or foreign Tax Returns;
B. Pursuant to the Separation Agreement, Epitope will, among other
things, distribute to holders of its common stock all the issued and outstanding
common stock of Agritope, together with associated preferred stock purchase
rights (the "Distribution");
C. Following the Distribution, Epitope and Agritope will be operated as
independent public companies, and Agritope will no longer be a wholly owned
subsidiary of Epitope; and
D. Epitope and Agritope want to provide for the allocation between the
Epitope Group and the Agritope Group (both defined below) of all
responsibilities, liabilities, and benefits relating to or affecting Taxes
(defined below) paid or payable by either of them for all taxable periods,
whether beginning before or after the Distribution Date (defined below) and to
provide for certain other matters.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, Epitope and Agritope agree as
follows:
1. ADDITIONAL DEFINITIONS; CERTAIN TAX PERIODS.
1.1 ADDITIONAL TAX DEFINITIONS. As used in this Agreement, capitalized terms
defined immediately after their use will have the respective meanings so
provided, and the following additional terms will have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
1
<PAGE>
"Agritope Group" means Agritope and all of its present and
future subsidiaries.
"Agritope Taxes" means, subject to Section 1.3, (i) all Taxes
imposed on, assessed against, collected with respect to, or measured by the net
or gross income, profits, receipts, assets, equity, or other basis related to
the Agritope Group or its respective assets or operations that arise in or are
attributable to any and all Pre-Closing Periods and Post-Closing Periods and
(ii) all Reserved Taxes.
"Agritope Tax Returns" means all Tax Returns filed or required
to be filed by or with respect to any member of the Agritope Group or its assets
or operations (including any consolidated, combined, or unitary Tax Returns).
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Distribution Date" means the date on which Epitope
distributes the stock of Agritope in accordance with the Separation Agreement.
"Epitope" means only Epitope, Inc., as a separate legal
entity, excluding all other affiliated corporations.
"Epitope Group" means Epitope and all of its present and
future subsidiaries (excluding members of the Agritope Group).
"Epitope Taxes" means, subject to Section 1.3, all Taxes
imposed on, assessed against, collected with respect to, or measured by the net
or gross income, profits, receipts, assets, equity, or other basis related to
the Epitope Group or its respective assets or operations that arise in or are
attributable to any and all Pre-Closing Periods, excluding any Reserved Tax and
excluding any Agritope Taxes.
"Pre-Closing Periods" means all taxable periods (i) ending on
or before the Distribution Date and (ii) the portion, to and including the
Distribution Date, of any taxable period that begins on or before the
Distribution Date and ends after the Distribution Date.
"Post-Closing Periods" means all taxable periods (i) beginning
after the Distribution Date and (ii) the portion after the Distribution Date of
any taxable period that begins on or before the Distribution Date and ends after
the Distribution Date.
"Reserved Tax" means a Tax liability separately accrued or
deferred on the balance sheet of any member of the Agritope Group as of the
Distribution Date. Taxes will be accrued on such balance sheet in a manner
consistent with past practices.
2
<PAGE>
"Tax" means any and all liability for any taxes imposed on the
income or assets of a corporation, including without limitation, any liability
under the Code and all federal, state, local, and foreign income, alternative
minimum, franchise, profits, gross receipts, and unitary taxes or similar taxes
or other fees or assessments imposed with respect to such items irrespective of
the basis on which such taxes are measured and any interest, penalties, or
additions in respect of such tax.
"Tax Return" means any return, report, information return, or
other documents (including any related supporting schedules, statements or
information) filed or required to be filed with any tax authority or
governmental entity in connection with the determination, assessment, or
collection of any Taxes of any party or the administration of any laws,
regulations, or administrative requirements relating to any such Taxes.
1.2 TAX PERIODS INCLUDING PRE-CLOSING PERIOD AND POST-CLOSING PERIOD
ACTIVITY. For purposes of determining Agritope Taxes, for Tax periods that begin
on or before the Distribution Date and end after the Distribution Date, such
Taxes will be determined on the basis of an interim "closing of the books"
computation as of the end of the Distribution Date, and any net operating losses
(or other tax attributes) will be subject to Section 1.3. With respect to the
Epitope federal consolidated income tax return for the taxable year including
the Distribution Date, appropriate allocation and cutoff of income or loss will
be made as required in the federal consolidated income tax return regulations.
Any subsequent adjustments occurring with respect to such period, including the
Distribution Date, will be appropriately allocated to the Pre-Closing Period and
the Post-Closing Period based on a simulated Tax Return for each period.
1.3 PRE-CLOSING PERIOD NET OPERATING LOSSES.
(a) In accordance with Treasury Regulations Section
1.1502-11(b), net operating losses of the Agritope Group will not be used to
offset gain or income recognized by Epitope in connection with the Distribution.
(b) Subject to the limitations of Section 1.3(a), any net
operating losses (or other tax attributes) of a member of the Agritope Group or
Epitope Group that arise in a Pre-Closing Period will be available to offset
taxable income of members of the other group for such Pre-Closing Period under
applicable federal or state law. The provisions of this Section 1.3(b) will
apply to any net operating losses (or other tax attributes) existing on the
Distribution Date and such net operating losses (or tax attributes) that may
arise subsequently on audit or examination of any Pre-Closing Period. No member
of a group will be liable to a member of the other group under Section 2 for
using net operating losses (or other tax attributes) generated by members of
such other group.
3
<PAGE>
2. INDEMNIFICATION AND PAYMENT
2.1 PAYMENT OF AND INDEMNIFICATION FOR TAXES.
(a) Epitope will pay when due, without setoff, and be
responsible for all Epitope Taxes assessed against it by any jurisdiction,
including any Taxes incurred by the Epitope Group in connection with the
Distribution. Epitope will indemnify and hold harmless the Agritope Group
against any and all such Taxes.
(b) Agritope will pay when due, without setoff, and be
responsible for all Agritope Taxes assessed against it by any jurisdiction,
including, without limitation, any liability imposed subsequently for Agritope
Taxes for Pre-Closing Periods. Agritope will indemnify and hold harmless the
Epitope Group against any such Taxes.
(c) No member of the Epitope Group will be obligated to
indemnify or hold harmless any member of the Agritope Group for any decrease to
any net operating loss carryovers or credit (or the carryovers of any other tax
attributes) available to any member of the Agritope Group resulting from
adjustments to any item of income, deduction, credit, or exclusion on Tax
Returns for which Epitope is responsible (including the Epitope Consolidated
Returns, as defined below).
(d) No member of the Agritope Group will be obligated to
indemnify or hold harmless any member of the Epitope Group for any increase to
any net operating loss carryovers or credit (or the carryovers of any other tax
attributes) available to any member of the Agritope Group.
3. REFUNDS
3.1 EPITOPE REFUNDS. Agritope will promptly assign and remit (or cause
to be promptly assigned and remitted) to Epitope an amount equal to any refunds
of or credits against any Taxes received and realized by Agritope (including
interest, if any) to the extent attributable to Epitope Taxes, other than a
refund or credit (or the right to a refund or credit) that is reflected on the
balance sheet of Agritope as of the Distribution Date (a "Balance Sheet
Refund").
3.2 AGRITOPE REFUNDS. Epitope will promptly assign and remit (or cause
to be promptly assigned and remitted) to Agritope an amount equal to all Balance
Sheet Refunds.
3.3 CARRYBACK FROM AN AGRITOPE POST-CLOSING PERIOD RETURN TO ANY
EPITOPE SEPARATE, CONSOLIDATED OR COMBINED FEDERAL OR STATE TAX RETURN. Unless:
(i) Epitope, in its sole and absolute discretion, consents to do so or (ii) such
carryback is specifically required by law, Agritope will not carry back any
losses or credits accruing after the Distribution Date in any Post-Closing
Period to any Epitope separate,
4
<PAGE>
consolidated, or combined federal or state Tax Return. Agritope will make any
elections and take all such actions necessary to avoid and relinquish any such
carryback pursuant to Code Section 172(b)(3) and, to the extent feasible, any
similar provision of any state, local, or foreign law. Even if such carryback is
required by law, the Epitope Group will make no payment to the Agritope Group,
and the Agritope Group will be entitled to no refund to the extent that the use
of such carryback prevents the Epitope Group or its affiliates from using a
credit or loss that it would otherwise use in the year or years to which the
Agritope credit or loss is carried back. To the extent that the Epitope Group's
utilization of such loss or credit does not have such effect, however, the
Epitope Group will pay to Agritope an amount equal to the reduction in its Tax
liability for such year that is attributable to the utilization of such Agritope
Group credit or loss.
4. TAX RETURNS
4.1 PREPARATION AND FILING.
(a) Epitope will file (upon execution of such Tax Return by an
authorized officer of Agritope, which authorization will not be unreasonably
withheld) all Agritope Group Tax Returns for Pre-Closing Periods ("Agritope
Group Pre-Closing Returns"), including, without limitation, all Agritope Group
Tax Returns that are (or are a part of) a consolidated or combined Tax Return
that includes entities other than members of the Agritope Group, even if the Tax
period with respect to such other entities ends after the Distribution Date
("Epitope Consolidated Returns").
(b) Epitope will prepare the Epitope Consolidated Returns (to
the extent they relate to the Agritope Group or its assets or operations) and
the Agritope Group Pre-Closing Returns in a manner that: (i) is consistent with
prior practice (including without limitation as to Tax and accounting methods,
conventions, and elections) and (ii) apportions items equitably from period to
period consistent with Section 1.2. Epitope will cause the Epitope Consolidated
Returns to include and reflect the activities, transactions, and operations of
the Agritope Group for all Pre-Closing Periods.
(c) Agritope will file all Agritope Group Tax Returns required
to be filed for all Post-Closing Periods other than Agritope Group Pre-Closing
Returns and Epitope Consolidated Returns (the "Agritope Group Post-Closing
Returns"). However, with respect to an Agritope Group Post-Closing Return that
is for (i) Taxes of Agritope and (ii) a Tax year with respect to the Agritope
Group that begins on or before the Distribution Date (an "Agritope Overlap
Return"), Agritope will (a) have a national "Big 6" accounting firm prepare the
Agritope Overlap Return consistent with prior practice, including, without
limitation, as to Tax and accounting methods, conventions, and elections and (b)
provide Epitope with an opportunity to review and comment on such Tax Return at
least four weeks before its due date, including extensions. The parties will use
all reasonable efforts to resolve any disagreements with respect to any such Tax
Return as soon as possible. If they cannot resolve the matter before the due
date for such Agritope Overlap Return, including extensions, Agritope may
nevertheless file such Tax Return.
5
<PAGE>
Subsequently, the parties will refer the matter to a mutually acceptable
accounting firm (other than the firm that prepared the returns) of nationally
recognized standing (an "Independent Firm") whose fees are to be borne by
Agritope and Epitope equally. The Independent Firm will seek to resolve the
matter as soon as practicable. Upon the Independent Firm's determination, an
amended Agritope Overlap Return will be filed in accordance with such
determination if it differs materially from the Tax Return filed originally.
(d) Agritope, upon its request, will be entitled to copies of
Agritope Group Pre-Closing Returns and Epitope Consolidated Returns following
the filing to the extent they relate to any member of the Agritope Group.
4.2 TAX RETURN PAYMENTS. Amounts shown due on any Agritope Group Tax
Returns will be timely paid by the party responsible for such Taxes as
determined in accordance with Section 2 of this Agreement (the "Responsible
Party") regardless of which party is obligated to prepare or file such Agritope
Group Tax Return under this Section 4. The party obligated to file a particular
Agritope Group Tax Return (the "Filing Party") has the right, but not the
obligation unless it is the Responsible Party, to pay the Tax shown due, in
which case the Responsible Party will immediately reimburse the Filing Party for
the payment of such Tax.
5. INFORMATION EXCHANGE AND CONFIDENTIALITY
5.1 COOPERATION. Upon the reasonable request of any party to this
Agreement, the other party will promptly provide the requesting party with such
cooperation and assistance, documents, and other information as may reasonably
be requested by such party in connection with: (i) the preparation and filing of
any original or amended Tax Return; (ii) the conduct of any audit or other
examination or any judicial or administrative proceeding involving to any extent
Taxes or Tax Returns within the scope of this Agreement; or (iii) the
verification by a party of an amount payable to or receivable from another party
under this Agreement (collectively, "Tax Data"). Such cooperation and assistance
will include, without limitation: (i) the provision on demand of books, records,
Tax Returns, documentation, or other information relating to any relevant Tax
Return; (ii) the execution of any document that may be necessary or reasonably
helpful in connection with the filing of any Tax Return or in connection with
any audit, proceeding, suit, or action of the type generally referred to in the
preceding sentence; (iii) the prompt and timely filing of appropriate claims for
refund; and (iv) the use of reasonable efforts to obtain any documentation from
a governmental authority or a third party that may be necessary or helpful in
connection with the foregoing (collectively, "Tax Documentation"). Each party
will make its employees and facilities available on a mutually convenient basis
to facilitate such cooperation.
6
<PAGE>
5.2 RETENTION. The Tax Data and the Tax Documentation will be retained
until the later of (i) 90 days after the expiration of the applicable statute of
limitations (including any waivers or extensions for any Taxes or net operating
loss carryovers available in any tax year); (ii) eight (8) years after the
Distribution Date; and (iii) any retention period required by law or pursuant to
any record retention agreement; provided, however, if an audit, examination,
investigation, or other proceeding is instituted before the expiration of the
applicable statute of limitations (or in the event of any claim under this
Agreement), such Tax Data and Tax Documentation will be retained until there is
a final determination and the time for any appeal has expired.
5.3 EXPENSES. Subject only to the provisions of Section 6, each party
will cooperate in the manner described in this Section 5 at its own expense.
5.4 NOTIFICATION OF CARRYOVERS. Epitope will undertake reasonable
efforts to notify Agritope of (i) any carryover of losses or credits that could
be partially or totally attributed to and carried over by Agritope pursuant to
Treasury Regulations Section 1.1502-79 or any similar law, rule or regulation
and (ii) any subsequent adjustment that could affect any such item.
5.5 NOTIFICATION TO SHAREHOLDERS. Epitope will undertake reasonable
efforts to provide each Epitope shareholder who receives Agritope Common Stock
pursuant to the Separation Agreement with the information necessary to permit
such shareholder to properly report the receipt of shares of Agritope stock in
the Distribution for federal income tax purposes.
5.6 CONFIDENTIALITY. Except as required by law or with the prior
written consent of the other party, all (i) Tax Returns, (ii) Tax Data, (iii)
Tax Documentation, (iv) similar documents, schedules, work papers and items, and
(v) all information contained in such items which are within the scope of this
Agreement will be kept confidential by the parties and their representatives,
will not be disclosed to any other person or entity, and will be used only for
the purposes provided in this Agreement.
6. CONTESTS AND AUDITS
6.1 NOTICE AND COOPERATION.
(a) If any claim, demand, assessment (including a notice of
proposed assessment), or other assertion, whether oral or written, is made for
Taxes ("Tax Claim") against a party entitled to indemnification with respect to
such Taxes pursuant to this Agreement (an "Indemnitee"), or if the Indemnitee
receives any notice, whether oral or written, from any jurisdiction with respect
to any current or future audit, examination, investigation or other proceeding
("Proceeding"), the Indemnitee will promptly notify the party obligated to so
indemnify the Indemnitee (the "Indemnitor") of such Tax Claim or
7
<PAGE>
notice of a Proceeding. If an Indemnitor receives notice of a Tax Claim or
notice of a Proceeding, whether oral or written, for which the Indemnitor is
responsible under this Agreement, such Indemnitor will promptly notify the
Indemnitee of such claim, demand, or assessment if such Tax Claim or Proceeding
could directly or indirectly affect (adversely or otherwise) any Indemnitee,
determined without regard to this Agreement.
(b) The party controlling the defense, settlement, or
compromise of any Proceeding or any Tax Claim with respect to a Tax Return or
any Tax (as determined pursuant to Section 6.2) will keep the other party duly
informed of the progress of such Proceeding or Tax Claim to the extent such
Proceeding or Tax Claim could directly or indirectly affect (adversely or
otherwise) such other party, determined without regard to this Agreement.
(c) If the Indemnitor controls the defense, settlement or
compromise of any Proceeding or Tax Claim for which it is responsible, the
Indemnitee will nevertheless cooperate in such defense, settlement, or
compromise as and to the extent reasonably requested by Indemnitor. Such
cooperation will be at Indemnitor's expense (on a current basis), including all
liabilities, costs, and expenses (including reasonable attorney fees and
accounting fees but excluding in-house legal or tax assistance) incurred in
connection with such cooperation and authorized by the Indemnitor.
(d) If the Indemnitor does not control the defense,
settlement, or compromise of any Proceeding or Tax Claim for which it is
responsible, it will nevertheless (i) cooperate at its own expense in such
defense, settlement, or compromise to the extent reasonably requested by
Indemnitee, and (ii) indemnify (on a current basis) the Indemnitee against any
reasonable liabilities, costs, and expenses (including reasonable attorney and
accounting fees but excluding in-house legal or tax assistance) arising out of
or incident to the Proceeding or Tax Claim, including without limitation, those
incurred in connection with the defense, settlement, or compromise of such
Proceeding or Tax Claim.
6.2 CONTROL.
(a) Except as otherwise provided in Section 6.2(b) or Section
6.3, the Indemnitor will have the right to control the defense, settlement, or
compromise of any Proceeding or Tax Claim to the extent that it may be liable
under Section 2 of this Agreement.
(b) Notwithstanding the provisions of Section 6.2(a) (and
subject to the provisions of Section 6.3):
(1) an Indemnitee (in lieu of the Indemnitor) will
have the right (but not the obligation) to control the defense, compromise, or
settlement of any Proceeding or Tax Claim if the Indemnitor fails to do so or
requests the Indemnitee to do so;
8
<PAGE>
(2) an Indemnitee (in lieu of the Indemnitor) will
have the right (but not the obligation) to control the defense, compromise, or
settlement of any Proceeding or Tax Claim if the Indemnitor is (a) the subject
of a voluntary bankruptcy, (b) an adjudicated bankrupt, or (c) the subject of an
involuntary petition in bankruptcy that has been filed and which has not been
discharged within 90 days;
(3) Epitope will control the defense, settlement, or
compromise of any Proceeding or Tax Claim with respect to any Epitope
Consolidated Return and any Agritope Group Pre-Closing Return; and
(4) Agritope will control the defense, settlement, or
compromise of any Proceeding or Tax Claim with respect to any Agritope Group
Post-Closing Return, including any Agritope Overlap Return (but exclusive of any
Agritope Group Pre-Closing Return). With respect to Agritope Overlap Returns,
Epitope may, at its own expense, attend meetings or conferences with the Tax
authorities and receive copies of all relevant correspondence.
6.3 APPROVAL.
(a) The Indemnitee will not settle or compromise any
Proceeding or Tax Claim without the prior consent of the Indemnitor (which
consent will not be unreasonably withheld) if such settlement or compromise will
result in an obligation of the Indemnitor pursuant to this Agreement.
(b) Agritope will not settle or compromise any Proceeding or
Tax Claim with respect to an Agritope Group Post-Closing Return (including an
Agritope Overlap Return) involving a Tax period beginning before the
Distribution Date without the prior consent of Epitope, which consent will not
be unreasonably withheld.
(c) A party receiving a request for consent pursuant to this
Section 6.3 will respond as soon as practicable and in no event after the tenth
day preceding the expiration of the period for appealing the assessment or
claim. The parties will seek to resolve any dispute with respect to such matter
as quickly as possible. However, if the parties are unable to resolve such
dispute promptly, the matter will be referred to an Independent Firm for
resolution.
7. MISCELLANEOUS
7.1 EFFECTIVENESS AND TERM. This Agreement will be effective from and
after the Distribution Date and will survive until the later of (i) 90 days
after the expiration of any applicable statute of limitations (including any
waivers or extensions) related to any Taxes or carryovers of net operating
losses or credits to any taxable year or (ii) the final conclusion of any
Proceeding, including any applicable litigation and appeals of any liability for
Taxes; provided, however, that this Agreement will terminate immediately upon a
termination of the Separation Agreement.
9
<PAGE>
7.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties with respect to the subject matter. This Agreement terminates
and supersedes, on a prospective basis only, all Tax agreements (other than this
Agreement) between the Epitope Group and the Agritope Group (or any other
predecessor). However, nothing in the preceding sentence will limit or reduce
(i) the obligation of Agritope for Reserved Taxes as separately accrued on the
balance sheet of the Agritope Group as of the Distribution Date or (ii) the
right of the Agritope Group to any Balance Sheet Refund.
7.3 GOVERNING LAW. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of Oregon (regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws) as to all matters, including, without limitation, matters of validity,
construction, effect, performance, and remedies.
7.4 JURISDICTION AND VENUE. Subject to the arbitration provisions of
the Separation Agreement, each party consents to the personal jurisdiction of
the state and federal courts located in the State of Oregon and waives any
argument that venue in any such forum is not convenient or proper.
7.5 NOTICES. Notices under this Agreement will be in writing, will
refer specifically to this Agreement, and will be personally delivered, sent by
electronic facsimile transmission promptly confirmed by mail, or sent by
registered or certified mail, return receipt requested, postage prepaid, in each
case to the respective address or facsimile number specified below (or such
other address or number as may be specified by notice to the other party):
If to Epitope:
Epitope, Inc.
8505 SW Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 641-8665
If to Agritope:
Agritope, Inc.
8505 SW Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 520-6196
Any notice or communication given in conformity with this
Section 7.5 will be deemed to be effective when received by the addressee if
delivered by hand or electronic facsimile transmission, or three days after
mailing if mailed.
10
<PAGE>
7.6 MODIFICATION OF AGREEMENT. No modification, amendment, or waiver of
any provision of this Agreement will be effective unless in writing and signed
by each of the parties and then such modification, amendment, or waiver will be
effective only in the specific instance and for the purpose for which given.
7.7 SUCCESSORS AND ASSIGNS. A party's rights and obligations under this
Agreement may not be assigned or transferred without the prior written consent
of the other party. Subject to the foregoing, this Agreement will be binding
upon and inure to the benefit of the parties, the Epitope Group, the Agritope
Group, and their respective successors and permitted assigns and will survive
any acquisition, disposition, or other corporate restructuring or transaction
involving either party.
7.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claim of action, or
other right in excess of those existing without this Agreement.
7.9 TITLES AND HEADINGS. The titles and headings to Sections are
inserted for convenience of reference only and are not intended to constitute a
part of or to affect the meaning or interpretation of this Agreement. Unless
otherwise indicated, Section references are to the relevant Sections in this
Agreement.
7.10 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal, or unenforceable, the
enforceability of the remaining provisions will in no way be affected or
impaired. If any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the parties will use their best efforts to find
and employ another means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant, or restriction.
7.11 NO WAIVER. Neither the failure nor any delay on the part of any
party to exercise any right under this Agreement will operate as a waiver, nor
will any single or partial exercise of any right preclude any other or further
exercise of the same or any other right, nor will any waiver of any right with
respect to any occurrence be construed as a waiver of such right with respect to
any other occurrence.
7.12 SURVIVAL OF OBLIGATIONS. Notwithstanding anything in this
Agreement or the Separation Agreement to the contrary, this Agreement will
survive the consummation of the transactions contemplated by the Separation
Agreement and will continue throughout the period ending on the later of (i) 90
days after the expiration of all applicable statutes of limitation (including
extensions) or (ii) the final determination of (and the expiration of the time
to appeal) any Proceeding relating to Taxes or Tax matters covered by (or any
claim under) this Agreement and the payment of any corresponding obligation.
11
<PAGE>
7.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement, and
will become a binding agreement when one or more counterparts have been signed
by each party and delivered to the other party.
As evidence of their agreement, the parties have caused this Agreement
to be executed and delivered as of the date first written above.
EPITOPE, INC. AGRITOPE, INC.
By: ----------------------- By: -----------------------
Its: ---------------------- Its: ----------------------
12
1997 STOCK AWARD PLAN
AGRITOPE, INC.
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment. Agritope, Inc. ("Corporation"), hereby
establishes the Agritope, Inc., 1997 Stock Award Plan (the "Plan"), effective as
of ----------------, 1997.
1.2 Purpose. The purpose of the Plan is to promote and advance
the interests of Corporation and its shareholders by enabling Corporation to
attract, retain, and reward key employees, outside advisors, and directors of
Corporation and its subsidiaries. It is also intended to strengthen the
mutuality of interests between such employees, advisers, and directors and
Corporation's shareholders. The Plan is designed to meet this intent by offering
stock options and other equity-based incentive awards, thereby providing a
proprietary interest in pursuing the long-term growth, profitability, and
financial success of Corporation.
ARTICLE 2
DEFINITIONS
2.1 Defined Terms. For purposes of the Plan, the following
terms shall have the meanings set forth below:
"ADVISOR" means a member of an Advisory Committee of
Corporation or a Subsidiary, or any other consultant selected by the Committee,
who is neither an employee of Corporation or a Subsidiary nor a Non-Employee
Director.
"ADVISORY COMMITTEE" means a scientific advisory committee to
Corporation or a Subsidiary.
"AWARD" means an award or grant made to a Participant of
Options, Stock Appreciation Rights, Restricted Awards, Performance Awards, or
Other Stock-Based Awards pursuant to the Plan.
"AWARD AGREEMENT" means an agreement as described in Section
6.4.
"BOARD" means the Board of Directors of Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, or any successor thereto, together with rules,
regulations, and interpretations promulgated thereunder. Where the context so
requires, any reference to a particular Code section shall be construed to refer
to the successor provision to such Code section.
"COMMITTEE" means the committee appointed by the Board to
administer the Plan as provided in Article of the Plan.
"COMMON STOCK" means the Common Stock, no par value, of
Corporation or any security of Corporation issued in substitution, exchange, or
in lieu of such stock.
"CONTINUING RESTRICTION" means a Restriction contained in
Sections 6.5(g), 16.4, 16.5, and 16.7 of the Plan and any other Restrictions
expressly designated by the Committee in an Award Agreement as a Continuing
Restriction.
- 1 -
<PAGE>
"CORPORATION" means Agritope, Inc., an Oregon corporation, or
any successor corporation.
"DEFERRED COMPENSATION OPTION" means a Nonqualified Option
granted with an option price less than Fair Market Value on the date of grant
pursuant to Section of the Plan.
"DISABILITY" means the condition of being "disabled" within
the meaning of Section 422(c)(7) of the Code. However, the Committee may change
the foregoing definition of "Disability" or may adopt a different definition for
purposes of specific Awards.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute. Where the
context so requires, any reference to a particular section of the Exchange Act,
or to any rule promulgated under the Exchange Act, shall be construed to refer
to successor provisions to such section or rule.
"FAIR MARKET VALUE" means the mean between the reported high
and low sale prices, or, if there is no sale on such day, the mean between the
reported bid and asked prices, for the Common Stock on that day or, if that day
is not a trading day, the last prior trading day, on the securities exchange or
automated securities interdealer quotation system on which such Common Stock
shall have been traded.
"INCENTIVE STOCK OPTION" or "ISO" means any Option granted
pursuant to the Plan that is intended to be and is specifically designated in
its Award Agreement as an "incentive stock option" within the meaning of Section
422 of the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not
an employee of Corporation or any Subsidiary.
"NONQUALIFIED OPTION" or "NQO" means any Option, including a
Deferred Compensation Option, granted pursuant to the Plan that is not an
Incentive Stock Option.
"OPTION" means an ISO, an NQO, or a Deferred Compensation
Option.
"OTHER STOCK-BASED AWARD" means an Award as defined in Section
.
"PARTICIPANT" means an employee of Corporation or a
Subsidiary, an Advisor, or a Non-Employee Director who is granted an Award under
the Plan.
"PERFORMANCE AWARD" means an Award granted pursuant to the
provisions of Article of the Plan, the Vesting of which is contingent on
performance attainment.
"PERFORMANCE CYCLE" means a designated performance period
pursuant to the provisions of Section of the Plan.
"PERFORMANCE GOAL" means a designated performance objective
pursuant to the provisions of Section of the Plan.
"PLAN" means this Agritope, Inc., 1997 Stock Award Plan as it
may be hereafter amended from time to time.
"REPORTING PERSON" means a Participant who is subject to the
reporting requirements of Section 16(a) of the Exchange Act.
- 2 -
<PAGE>
"RESTRICTED AWARD" means a Restricted Share or a Restricted
Unit granted pursuant to Article of the Plan.
"RESTRICTED SHARE" means an Award described in Section 9.1(a)
of the Plan.
"RESTRICTED UNIT" means an Award of units representing Shares
described in Section 9.1(b) of
the Plan.
"RESTRICTION" means a provision in the Plan or in an Award
Agreement which limits the exercisability or transferability, or which governs
the forfeiture, of an Award or the Shares, cash, or other property payable
pursuant to an Award.
"RETIREMENT" means:
(a) For Participants who are employees, retirement from active
employment with Corporation and its Subsidiaries at or after age 50, or
such earlier retirement date as approved by the Committee for purposes
of the Plan;
(b) For Participants who are Non-Employee Directors,
termination of membership on the Board after attaining age 50, or such
earlier retirement date as approved by the Committee for purposes of
the Plan; and
(c) For Participants who are Advisors, termination of service
as an Advisor after attaining age 50, or such earlier retirement date
as approved by the Committee for purposes of the Plan.
However, the Committee may change the foregoing definition of "Retirement" or
may adopt a different definition for purposes of specific Awards.
"SHARE" means a share of Common Stock.
"STOCK APPRECIATION RIGHT" or "SAR" means an Award to benefit
from the appreciation of Common Stock granted pursuant to the provisions of
Article 8 of the Plan.
"SUBSIDIARY" means a "subsidiary corporation" of Corporation
within the meaning of Section 424 of the Code, namely any corporation in which
Corporation directly or indirectly controls 50 percent or more of the total
combined voting power of all classes of stock having voting power.
"VEST" or "VESTED" means:
(a) In the case of an Award that requires exercise, to be or
to become immediately and fully exercisable and free of all
Restrictions (other than Continuing Restrictions);
(b) In the case of an Award that is subject to forfeiture, to
be or to become nonforfeitable, freely transferable, and free of all
Restrictions (other than Continuing Restrictions);
(c) In the case of an Award that is required to be earned by
attaining specified Performance Goals, to be or to become earned and
nonforfeitable, freely transferable, and free of all Restrictions
(other than Continuing Restrictions); or
(d) In the case of any other Award as to which payment is not
dependent solely upon the exercise of a right, election, exercise, or
option, to be or to become immediately payable and free of all
Restrictions (except Continuing Restrictions).
- 3 -
<PAGE>
2.2 Gender and Number. Except where otherwise indicated by the
context, any masculine or feminine terminology used in the Plan shall also
include the opposite gender; and the definition of any term in Section in the
singular shall also include the plural, and vice versa.
ARTICLE 3
ADMINISTRATION
3.1 General. Except as provided in Section 3.7, the Plan shall
be administered by a Committee composed as described in Section .
3.2 Composition of the Committee. The Committee shall be
appointed by the Board from among its members in a number and with such
qualifications as will meet the requirements for approval by a committee
pursuant to Rule 16b-3 under the Exchange Act. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board. The initial members of
the Committee shall be the members of Corporation's existing Executive
Compensation Committee. The Board may at any time replace the Executive
Compensation Committee with another Committee. In the event that the Executive
Compensation Committee shall cease to satisfy the requirements of Rule 16b-3,
the Board shall appoint another Committee satisfying such requirements.
3.3 Authority of the Committee. The Committee shall have full
power and authority (subject to such orders or resolutions as may be issued or
adopted from time to time by the Board) to administer the Plan in its sole
discretion, including the authority to:
(a) Construe and interpret the Plan and any Award Agreement;
(b) Promulgate, amend, and rescind rules and procedures
relating to the implementation of the Plan;
(c) With respect to employees and Advisors:
(i) Select the employees and Advisors who shall be
granted Awards;
(ii) Determine the number and types of Awards to be
granted to each such Participant;
(iii) Determine the number of Shares, or Share
equivalents, to be subject to each Award;
(iv) Determine the option price, purchase price, base
price, or similar feature for any Award; and
(v) Determine all the terms and conditions of all
Award Agreements, consistent with the requirements of the
Plan.
Decisions of the Committee, or any delegate as permitted by the Plan, shall be
final, conclusive, and binding on all Participants.
3.4 Action by the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business. Action
approved by a majority of the members present at any meeting at which a quorum
is present, or action in writing by all the members of the Committee, shall be
the valid acts of the Committee.
- 4 -
<PAGE>
3.5 Delegation. Notwithstanding the foregoing, the Committee
may delegate to one or more officers of Corporation the authority to determine
the recipients, types, amounts, and terms of Awards granted to Participants who
are not Reporting Persons.
3.6 Liability of Committee Members. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan, any Award, or any Participant.
3.7 Awards to Non-Employee Directors. The Board may grant
Awards from time to time to Non-Employee Directors. Awards to Non-Employee
Directors shall be governed by and shall be subject to the terms and conditions
set forth in an Award Agreement in a form approved by the Board.
3.8 Costs of Plan. The costs and expenses of administering the
Plan shall be borne by Corporation.
ARTICLE 4
DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN
4.1 Duration of the Plan. The Plan is effective ----------,
1997. The Plan shall remain in effect until Awards have been granted covering
all the available Shares or the Plan is otherwise terminated by the Board.
Termination of the Plan shall not affect outstanding Awards.
4.2 Shares Subject to the Plan.
4.2.1 General. The shares which may be made subject to Awards
under the Plan shall be shares of Common Stock, which may be either authorized
and unissued Shares or reacquired Shares. No fractional Shares shall be issued
under the Plan. If an Award under the Plan is canceled or expires for any reason
prior to having been fully Vested or exercised by a Participant or is settled in
cash in lieu of Shares or is exchanged for other Awards, all Shares covered by
such Awards shall be made available for future Awards under the Plan.
Furthermore, any Shares used as full or partial payment to Corporation by a
Participant of the option, purchase, or other exercise price of an Award and any
Shares covered by a Stock Appreciation Right which are not issued upon exercise
shall become available for future Awards.
4.2.2 Number of Shares. The maximum number of Shares for which
Awards may be granted under the Plan is 2,000,000 Shares, subject to adjustment
pursuant to Article 14.
4.2.3 Availability of Shares for Future Awards. If an Award
under the Plan is canceled or expires for any reason prior to having been fully
Vested or exercised by a Participant or is settled in cash in lieu of Shares or
is exchanged for other Awards, all Shares covered by such Awards shall be made
available for future Awards under the Plan. Furthermore, any Shares used as full
or partial payment to Corporation by a Participant of the option, purchase, or
other exercise price of an Award and any Shares covered by a Stock Appreciation
Right which are not issued upon exercise shall become available for future
Awards.
ARTICLE 5
ELIGIBILITY
5.1 Employees and Advisors. Officers and other key employees
of Corporation and its Subsidiaries (who may also be directors of Corporation or
a Subsidiary) and Advisors who, in the Committee's judgment, are or will be
contributors to the long-term success of Corporation shall be eligible to
receive Awards under the Plan.
- 5 -
<PAGE>
5.2 Non-Employee Directors. All Non-Employee Directors shall
be eligible to receive Awards as provided in Section 3.7 of the Plan.
ARTICLE 6
AWARDS
6.1 Types of Awards. The types of Awards that may be granted
under the Plan are:
(a) Options governed by Article of the Plan;
(b) Stock Appreciation Rights governed by Article of the Plan;
(c) Restricted Awards governed by Article of the Plan;
(d) Performance Awards governed by Article of the Plan; and
(e) Other Stock-Based Awards or combination awards governed by
Article of the Plan.
In the discretion of the Committee, any Award may be granted alone, in addition
to, or in tandem with other Awards under the Plan.
6.2 General. Subject to the limitations of the Plan, the
Committee may cause Corporation to grant Awards to such Participants, at such
times, of such types, in such amounts, for such periods, with such option
prices, purchase prices, or base prices, and subject to such terms, conditions,
limitations, and restrictions as the Committee, in its discretion, shall deem
appropriate. Awards may be granted as additional compensation to a Participant
or in lieu of other compensation to such Participant. A Participant may receive
more than one Award and more than one type of Award under the Plan.
6.3 Nonuniform Determinations. The Committee's determinations
under the Plan or under one or more Award Agreements, including without
limitation, (a) the selection of Participants to receive Awards, (b) the type,
form, amount, and timing of Awards, (c) the terms of specific Award Agreements,
and (d) elections and determinations made by the Committee with respect to
exercise or payments of Awards, need not be uniform and may be made by the
Committee selectively among Participants and Awards, whether or not Participants
are similarly situated.
6.4 Award Agreements. Each Award shall be evidenced by a
written Award Agreement between Corporation and the Participant. Award
Agreements may, subject to the provisions of the Plan, contain any provision
approved by the Committee.
6.5 Provisions Governing All Awards. All Awards shall be
subject to the following provisions:
(a) Alternative Awards. If any Awards are designated in their
Award Agreements as alternative to each other, the exercise of all or
part of one Award automatically shall cause an immediate equal (or pro
rata) corresponding termination of the other alternative Award or
Awards.
(b) Rights as Shareholders. No Participant shall have any
rights of a shareholder with respect to Shares subject to an Award
until such Shares are issued in the name of the Participant.
(c) Employment Rights. Neither the adoption of the Plan nor
the granting of any Award shall confer on any person the right to
continued employment with Corporation or any Subsidiary or the right to
remain as a director of Corporation or a member of any Advisory
Committee, as the case may
- 6 -
<PAGE>
be, nor shall it interfere in any way with the right of Corporation or
a Subsidiary to terminate such person's employment or to remove such
person as an Advisor or as a director at any time for any reason, with
or without cause.
(d) Termination Of Employment. The terms and conditions under
which an Award may be exercised, if at all, after a Participant's
termination of employment or service as an Advisor or as a Non-Employee
Director shall be determined by the Committee and specified in the
applicable Award Agreement.
(e) Change in Control. The Committee, in its discretion, may
provide in any Award Agreement that in the event of a change in control
of Corporation (as the Committee may define such term in the Award
Agreement), as of the date of such change in control:
(i) All, or a specified portion of, Awards requiring
exercise shall become fully and immediately exercisable,
notwithstanding any other limitations on exercise;
(ii) All, or a specified portion of, Awards subject
to Restrictions shall become fully Vested; and
(iii) All, or a specified portion of, Awards subject
to Performance Goals shall be deemed to have been fully
earned.
The Committee, in its discretion, may include change in control
provisions in some Award Agreements and not in others, may include
different change in control provisions in different Award Agreements,
and may include change in control provisions for some Awards or some
Participants and not for others.
(f) Reporting Persons. With respect to all Awards granted to
Reporting Persons, the Award Agreement shall provide that:
(i) Awards requiring exercise shall not be
exercisable until at least six months after the date the Award
was granted, except in the case of the death or Disability of
the Participant; and
(ii) Shares issued pursuant to any other Award may
not be sold by the Participant for at least six months after
acquisition, except in the case of the death or Disability of
the Participant;
provided, however, that (unless an Award Agreement provides otherwise)
the limitation of this Section (f) shall apply only if or to the extent
required by Rule 16b-3 under the Exchange Act or any applicable
successor provision. Award Agreements for Awards to Reporting Persons
shall also comply with any future restrictions imposed by such Rule
16b-3.
(g) Service Periods. At the time of granting Awards, the
Committee may specify, by resolution or in the Award Agreement, the
period or periods of service performed or to be performed by the
Participant in connection with the grant of the Award.
ARTICLE 7
OPTIONS
7.1 Types of Options. Options granted under the Plan may be in
the form of Incentive Stock Options or Nonqualified Options (including Deferred
Compensation Options). The grant of each Option and the Award Agreement
governing each Option shall identify the Option as an ISO or an NQO. In the
event the
- 7 -
<PAGE>
Code is amended to provide for tax-favored forms of stock options other than or
in addition to Incentive Stock Options, the Committee may grant Options under
the Plan meeting the requirements of such forms of options.
7.2 General. Options shall be subject to the terms and
conditions set forth in Article and this Article and shall contain such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
7.3 Option Price. Each Award Agreement for Options shall state
the option exercise price per Share of Common Stock purchasable under the
Option, which shall not be less than:
(a) $1 per share in the case of a Deferred Compensation
Option;
(b) 75 percent of the Fair Market Value of a Share on the date
of grant for all other Nonqualified Options; or
(c) 100 percent of the Fair Market Value of a Share on the
date of grant for all Incentive Stock Options.
7.4 Option Term. The Award Agreement for each Option shall
specify the term of each Option, which may be unlimited or may have a specified
period during which the Option may be exercised, as determined by the Committee.
7.5 Time of Exercise. The Award Agreement for each Option
shall specify, as determined by the Committee:
(a) The time or times when the Option shall become exercisable
and whether the Option shall become exercisable in full or in graduated
amounts over a period specified in the Award Agreement;
(b) Such other terms, conditions, and restrictions as to when
the Option may be exercised as shall be determined by the Committee;
and
(c) The extent, if any, to which the Option shall remain
exercisable after the Participant ceases to be an employee, Advisor, or
director of Corporation or a Subsidiary.
An Award Agreement for an Option may, in the discretion of the Committee,
provide whether, and to what extent, the Option will become immediately and
fully exercisable (i) in the event of the death, Disability, or Retirement of
the Participant, or (ii) upon the occurrence of a change in control of
Corporation.
7.6 Method of Exercise. The Award Agreement for each Option
shall specify the method or methods of payment acceptable upon exercise of an
Option. An Award Agreement may provide that the option price is payable in full
in cash or, at the discretion of the Committee:
(a) In installments on such terms and over such period as the
Committee shall determine;
(b) In previously acquired Shares (including Restricted
Shares);
(c) By surrendering outstanding Awards under the Plan
denominated in Shares or in Share-equivalent units;
(d) By delivery (in a form approved by the Committee) of an
irrevocable direction to a securities broker acceptable to the
Committee:
- 8 -
<PAGE>
(i) To sell Shares subject to the Option and to
deliver all or a part of the sales proceeds to Corporation in
payment of all or a part of the option price and withholding
taxes due; or
(ii) To pledge Shares subject to the Option to the
broker as security for a loan and to deliver all or a part of
the loan proceeds to Corporation in payment of all or a part
of the option price and withholding taxes due; or
(e) In any combination of the foregoing or in any other form
approved by the Committee.
If Restricted Shares are surrendered in full or partial payment of an Option
price, a corresponding number of the Shares issued upon exercise of the Option
shall be Restricted Shares subject to the same Restrictions as the surrendered
Restricted Shares.
7.7 Special Rules for Incentive Stock Options. In the case of
an Option designated as an Incentive Stock Option, the terms of the Option and
the Award Agreement shall be in conformance with the statutory and regulatory
requirements specified in Section 422 of the Code, as in effect on the date such
ISO is granted. ISOs may be granted only to employees of Corporation or a
Subsidiary. ISOs may not be granted under the Plan after ------------, 2007,
unless the ten-year limitation of Section 422(b)(2) of the Code is removed or
extended.
7.8 Restricted Shares. In the discretion of the Committee, the
Shares issuable upon exercise of an Option may be Restricted Shares if so
provided in the Award Agreement.
7.9 Deferred Compensation Options. The Committee may, in its
discretion, grant Deferred Compensation Options with an option price less than
Fair Market Value to provide a means for deferral of compensation to future
dates. The option price shall be determined by the Committee subject to Section
(a) of the Plan. The number of Shares subject to a Deferred Compensation Option
shall be determined by the Committee, in its discretion, by dividing the amount
of compensation to be deferred by the difference between the Fair Market Value
of a Share on the date of grant and the option price of the Deferred
Compensation Option. Amounts of compensation deferred with Deferred Compensation
Options may include amounts earned under Awards granted under the Plan or under
any other compensation program or arrangement of Corporation as permitted by the
Committee. The Committee shall grant Deferred Compensation Options only if it
reasonably determines that the recipient of such an Option is not likely to be
deemed to be in constructive receipt for income tax purposes of the income being
deferred.
7.10 Reload Options. The Committee, in its discretion, may
provide in an Award Agreement for an Option that in the event all or a portion
of the Option is exercised by the Participant using previously acquired Shares,
the Participant shall automatically be granted a replacement Option (with an
option price equal to the Fair Market Value of a Share on the date of such
exercise) for a number of Shares equal to (or equal to a portion of) the number
of shares surrendered upon exercise of the Option. Such reload Option features
may be subject to such terms and conditions as the Committee shall determine,
including without limitation, a condition that the Participant retain the Shares
issued upon exercise of the Option for a specified period of time.
7.11 Limitation on Number of Shares Subject to Options. In no
event may options for more than 500,000 Shares be granted to any individual
under the Plan during any fiscal year period.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 General. Stock Appreciation Rights shall be subject to the
terms and conditions set forth in Article and this Article and shall contain
such additional terms and conditions, not inconsistent with the
- 9 -
<PAGE>
express terms of the Plan, as the Committee (or the Board with respect to Awards
to Non-Employee Directors) shall deem desirable.
8.2 Nature of Stock Appreciation Right. A Stock Appreciation
Right is an Award entitling a Participant to receive an amount equal to the
excess (or if the Committee shall determine at the time of grant, a portion of
the excess) of the Fair Market Value of a Share of Common Stock on the date of
exercise of the SAR over the base price, as described below, on the date of
grant of the SAR, multiplied by the number of Shares with respect to which the
SAR shall have been exercised. The base price shall be designated by the
Committee in the Award Agreement for the SAR and may be the Fair Market Value of
a Share on the grant date of the SAR or such other higher or lower price as the
Committee shall determine.
8.3 Exercise. A Stock Appreciation Right may be exercised by a
Participant in accordance with procedures established by the Committee. The
Committee may also provide that a SAR shall be automatically exercised on one or
more specified dates or upon the satisfaction of one or more specified
conditions. In the case of SARs granted to Reporting Persons, exercise of the
SAR shall be limited by the Committee to the extent required to comply with the
applicable requirements of Rule 16b-3 under the Exchange Act.
8.4 Form of Payment. Payment upon exercise of a Stock
Appreciation Right may be made in cash, in installments, in Shares, by issuance
of a Deferred Compensation Option, or in any combination of the foregoing, or in
any other form as the Committee shall determine.
8.5 Limitation on Number of Shares Subject to Stock
Appreciation Rights. In no event may SARs for more than 500,000 Shares be
granted to any individual under the Plan during any fiscal year period.
ARTICLE 9
RESTRICTED AWARDS
9.1 Types of Restricted Awards. Restricted Awards granted
under the Plan may be in the form of either Restricted Shares or Restricted
Units.
(a) Restricted Shares. A Restricted Share is an Award of
Shares transferred to a Participant subject to such terms and
conditions as the Committee deems appropriate, including, without
limitation, restrictions on the sale, assignment, transfer, or other
disposition of such Restricted Shares and may include a requirement
that the Participant forfeit such Restricted Shares back to Corporation
upon termination of Participant's employment (or service as an Advisor)
for specified reasons within a specified period of time or upon other
conditions, as set forth in the Award Agreement for such Restricted
Shares. Each Participant receiving a Restricted Share shall be issued a
stock certificate in respect of such Shares, registered in the name of
such Participant, and shall execute a stock power in blank with respect
to the Shares evidenced by such certificate. The certificate evidencing
such Restricted Shares and the stock power shall be held in custody by
Corporation until the Restrictions thereon shall have lapsed.
(b) Restricted Units. A Restricted Unit is an Award of units
(with each unit having a value equivalent to one Share) granted to a
Participant subject to such terms and conditions as the Committee deems
appropriate, and may include a requirement that the Participant forfeit
such Restricted Units upon termination of Participant's employment (or
service as an Advisor) for specified reasons within a specified period
of time or upon other conditions, as set forth in the Award Agreement
for such Restricted Units.
9.2 General. Restricted Awards shall be subject to the terms
and conditions of Article and this Article and shall contain such additional
terms and conditions, not inconsistent with the express provisions
- 10 -
<PAGE>
of the Plan, as the Committee (or the Board with respect to Awards to
Non-Employee Directors) shall deem desirable.
9.3 Restriction Period. Restricted Awards shall provide that
such Awards, and the Shares subject to such Awards, may not be transferred, and
may provide that, in order for a Participant to Vest in such Awards, the
Participant must remain in the employment (or remain as an Advisor) of
Corporation or its Subsidiaries, subject to relief for reasons specified in the
Award Agreement, for a period commencing on the date of the Award and ending on
such later date or dates as the Committee may designate at the time of the Award
(the "Restriction Period"). During the Restriction Period, a Participant may not
sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares
received under or governed by a Restricted Award grant. The Committee, in its
sole discretion, may provide for the lapse of restrictions in installments
during the Restriction Period. Upon expiration of the applicable Restriction
Period (or lapse of Restrictions during the Restriction Period where the
Restrictions lapse in installments) the Participant shall be entitled to
settlement of the Restricted Award or portion thereof, as the case may be.
Although Restricted Awards shall usually Vest based on continued employment (or
service as an Advisor) and Performance Awards under Article shall usually Vest
based on attainment of Performance Goals, the Committee, in its discretion, may
condition Vesting of Restricted Awards on attainment of Performance Goals as
well as continued employment (or service as an Advisor). In such case, the
Restriction Period for such a Restricted Award shall include the period prior to
satisfaction of the Performance Goals.
9.4 Forfeiture. If a Participant ceases to be an employee or
Advisor of Corporation or a Subsidiary during the Restriction Period for any
reason other than reasons which may be specified in an Award Agreement (such as
death, Disability, or Retirement) the Award Agreement may require that all
non-Vested Restricted Awards previously granted to the Participant be forfeited
and returned to Corporation.
9.5 Settlement of Restricted Awards.
(a) Restricted Shares. Upon Vesting of a Restricted Share
Award, the legend on such Shares will be removed and the Participant's stock
power will be returned and the Shares will no longer be Restricted Shares. The
Committee may also, in its discretion, permit a Participant to receive, in lieu
of unrestricted Shares at the conclusion of the Restriction Period, payment in
cash, installments, or by issuance of a Deferred Compensation Option equal to
the Fair Market Value of the Restricted Shares as of the date the Restrictions
lapse.
(b) Restricted Units. Upon Vesting of a Restricted Unit Award,
a Participant shall be entitled to receive payment for Restricted Units in an
amount equal to the aggregate Fair Market Value of the Shares covered by such
Restricted Units at the expiration of the applicable Restriction Period. Payment
in settlement of a Restricted Unit shall be made as soon as practicable
following the conclusion of the applicable Restriction Period in cash, in
installments, in Shares equal to the number of Restricted Units, by issuance of
a Deferred Compensation Option, or in any other manner or combination of such
methods as the Committee, in its sole discretion, shall determine.
9.6 Rights as a Shareholder. A Participant shall have, with
respect to unforfeited Shares received under a grant of Restricted Shares, all
the rights of a shareholder of Corporation, including the right to vote the
shares, and the right to receive any cash dividends. Stock dividends issued with
respect to Restricted Shares shall be treated as additional Shares covered by
the grant of Restricted Shares and shall be subject to the same Restrictions.
- 11 -
<PAGE>
ARTICLE 10
PERFORMANCE AWARDS
10.1 General. Performance Awards shall be subject to the terms
and conditions set forth in Article and this Article and shall contain such
other terms and conditions not inconsistent with the express provisions of the
Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
10.2 Nature of Performance Awards. A Performance Award is an
Award of units (with each unit having a value equivalent to one Share) granted
to a Participant subject to such terms and conditions as the Committee deems
appropriate, including, without limitation, the requirement that the Participant
forfeit such Performance Award or a portion thereof in the event specified
performance criteria are not met within a designated period of time.
10.3 Performance Cycles. For each Performance Award, the
Committee shall designate a performance period (the "Performance Cycle") with a
duration to be determined by the Committee in its discretion within which
specified Performance Goals are to be attained. There may be several Performance
Cycles in existence at any one time and the duration of Performance Cycles may
differ from each other.
10.4 Performance Goals. The Committee shall establish
Performance Goals for each Performance Cycle on the basis of such criteria and
to accomplish such objectives as the Committee may from time to time select.
Performance Goals may be based on performance criteria for Corporation, a
Subsidiary, or an operating group, or based on a Participant's individual
performance. Performance Goals may include objective and subjective criteria.
During any Performance Cycle, the Committee may adjust the Performance Goals for
such Performance Cycle as it deems equitable in recognition of unusual or
nonrecurring events affecting Corporation, changes in applicable tax laws or
accounting principles, or such other factors as the Committee may determine.
10.5 Determination of Awards. As soon as practicable after the
end of a Performance Cycle, the Committee shall determine the extent to which
Performance Awards have been earned on the basis of performance in relation to
the established Performance Goals.
10.6 Timing and Form of Payment. Settlement of earned
Performance Awards shall be made to the Participant as soon as practicable after
the expiration of the Performance Cycle and the Committee's determination under
Section , in the form of cash, installments, Shares, Deferred Compensation
Options, or any combination of the foregoing or in any other form as the
Committee shall determine.
ARTICLE 11
OTHER STOCK-BASED AND COMBINATION AWARDS
11.1 Other Stock-Based Awards. The Committee (or the Board
with respect to Awards to Non-Employee Directors) may grant other Awards under
the Plan pursuant to which Shares are or may in the future be acquired, or
Awards denominated in or measured by Share equivalent units, including Awards
valued using measures other than the market value of Shares. Such Other
Stock-Based Awards may be granted either alone, in addition to, or in tandem
with, any other type of Award granted under the Plan.
11.2 Combination Awards. The Committee may also grant Awards
under the Plan in tandem or combination with, in exchange for, or as
alternatives to, other Awards, or in tandem or combination with, in exchange
for, or as alternatives to, grants or rights under any other employee plan of
Corporation or any Subsidiary, including the plan of any acquired entity. No
action authorized by this section shall reduce the amount of any existing
benefits or change the terms and conditions thereof without the Participant's
consent.
- 12 -
<PAGE>
ARTICLE 12
DEFERRAL ELECTIONS
The Committee may permit a Participant to elect to defer
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise, earn-out, or Vesting of an
Award made under the Plan. If any such election is permitted, the Committee
shall establish rules and procedures for such payment deferrals, including, but
not limited to: (a) payment or crediting of reasonable interest on such deferred
amounts credited in cash, (b) the payment or crediting of dividend equivalents
in respect of deferrals credited in Share equivalent units, or (c) granting of
Deferred Compensation Options.
ARTICLE 13
DIVIDEND EQUIVALENTS
Any Awards may, at the discretion of the Committee, earn
dividend equivalents. In respect of any such Award which is outstanding on a
dividend record date for Common Stock, the Participant may be credited with an
amount equal to the amount of cash or stock dividends that would have been paid
on the Shares covered by such Award, had such covered Shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents, including
the timing, form of payment, and payment contingencies of such dividend
equivalents, as it deems are appropriate or necessary.
ARTICLE 14
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
14.1 Plan Does Not Restrict Corporation. The existence of the
Plan and the Awards granted hereunder shall not affect or restrict in any way
the right or power of the Board or the shareholders of Corporation to make or
authorize any adjustment, recapitalization, reorganization, or other change in
Corporation's capital structure or its business, any merger or consolidation of
the Corporation, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting Corporation's capital stock or the rights thereof,
the dissolution or liquidation of Corporation or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding.
14.2 Adjustments by the Committee. In the event of any change
in capitalization affecting the Common Stock of Corporation, such as a stock
dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Committee, in its sole discretion, may deem appropriate to reflect such
change, shall be made with respect to the aggregate number of Shares for which
Awards in respect thereof may be granted under the Plan, the maximum number of
Shares which may be sold or awarded to any Participant, the number of Shares
covered by each outstanding Award, and the price per Share in respect of
outstanding Awards. The Committee may also make such adjustments in the number
of Shares covered by, and price or other value of any outstanding Awards in the
event of a spin-off or other distribution (other than normal cash dividends), of
Corporation assets to shareholders.
ARTICLE 15
AMENDMENT AND TERMINATION
Without further approval of Corporation's shareholders, the
Board may at any time terminate the Plan, or may amend it from time to time in
such respects as the Board may deem advisable, except that the Board may not,
without approval of the shareholders, make any amendment that would materially
increase the aggregate number of shares of Common Stock that may be issued under
the Plan (except for adjustments pursuant to Article 14 of the Plan). Without
further shareholder approval, the Board may amend the Plan to
- 13 -
<PAGE>
take into account changes in applicable securities, federal income tax laws, and
other applicable laws. Further, should the provisions of Rule 16b-3, or any
successor rule, under the Exchange Act be amended, the Board, without further
shareholder approval, may amend the Plan as necessary to comply with any
modifications to such rule.
ARTICLE 16
MISCELLANEOUS
16.1 Tax Withholding.
16.1.1 General. Corporation shall have the right to deduct
from any settlement, including the delivery or vesting of Shares, made under the
Plan any federal, state, or local taxes of any kind required by law to be
withheld with respect to such payments or to take such other action as may be
necessary in the opinion of Corporation to satisfy all obligations for the
payment of such taxes. The recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to Corporation for the satisfaction of
any such withholding tax obligations. Corporation shall not be required to make
any such payment or distribution under the Plan until such obligations are
satisfied.
16.1.2 Stock Withholding. The Committee, in its sole
discretion, may permit a Participant to satisfy all or a part of the withholding
tax obligations incident to the settlement of an Award involving payment or
delivery of Shares to the Participant by having Corporation withhold a portion
of the Shares that would otherwise be issuable to the Participant. Such Shares
shall be valued based on their Fair Market Value on the date the tax withholding
is required to be made. Any stock withholding with respect to a Reporting Person
shall be subject to such limitations as the Committee may impose to comply with
the requirements of the Exchange Act.
16.2 Unfunded Plan. The Plan shall be unfunded and Corporation
shall not be required to segregate any assets that may at any time be
represented by Awards under the Plan. Any liability of Corporation to any person
with respect to any Award under the Plan shall be based solely upon any
contractual obligations that may be effected pursuant to the Plan. No such
obligation of Corporation shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of Corporation.
16.3 Payments to Trust. The Committee is authorized to cause
to be established a trust agreement or several trust agreements whereunder the
Committee may make payments of amounts due or to become due to Participants in
the Plan.
16.4 Annulment of Awards. Any Award Agreement may provide that
the grant of an Award payable in cash is provisional until cash is paid in
settlement thereof or that grant of an Award payable in Shares is provisional
until the Participant becomes entitled to the certificate in settlement thereof.
In the event the employment (or service as an Advisor or membership on the
Board) of a Participant is terminated for cause (as defined below), any Award
which is provisional shall be annulled as of the date of such termination for
cause. For the purpose of this Section 16.4, the term "for cause" shall have the
meaning set forth in the Participant's employment agreement, if any, or
otherwise means any discharge (or removal) for material or flagrant violation of
the policies and procedures of Corporation or for other job performance or
conduct which is materially detrimental to the best interests of Corporation, as
determined by the Committee.
16.5 Engaging in Competition With Corporation. Any Award
Agreement may provide that, if a Participant terminates employment with
Corporation or a Subsidiary for any reason whatsoever, and within 18 months
after the date thereof accepts employment with any competitor of (or otherwise
engages in competition with) Corporation, the Committee, in its sole discretion,
may require such Participant to return to Corporation the economic value of any
Award that is realized or obtained (measured at the date of exercise, Vesting,
or
- 14 -
<PAGE>
payment) by such Participant at any time during the period beginning on the date
that is six months prior to the date of such Participant's termination of
employment with Corporation.
16.6 Other Corporation Benefit and Compensation Programs.
Payments and other benefits received by a Participant under an Award made
pursuant to the Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination indemnity or severance
pay law of any state or country and shall not be included in, or have any effect
on, the determination of benefits under any other employee benefit plan or
similar arrangement provided by Corporation or a Subsidiary unless expressly so
provided by such other plan or arrangements, or except where the Committee
expressly determines that an Award or portion of an Award should be included to
accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of cash compensation. The Plan
notwithstanding, Corporation or any Subsidiary may adopt such other compensation
programs and additional compensation arrangements as it deems necessary to
attract, retain, and reward employees and directors for their service with
Corporation and its Subsidiaries.
16.7 Securities Law Restrictions. No Shares shall be issued
under the Plan unless counsel for Corporation shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Shares delivered under the Plan may be subject to such
stop-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable federal or state securities law. The Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
16.8 Governing Law. Except with respect to references to the
Code or federal securities laws, the Plan and all actions taken thereunder shall
be governed by and construed in accordance with the laws of the state of Oregon.
- 15 -
AGRITOPE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan. This plan, effective October 17, 1997 (the
"Plan"), shall be known as the "Agritope, Inc. 1997 Employee Stock Purchase
Plan." The purpose of the Plan is to permit employees of Agritope, Inc.
("Corporation"), and of its Subsidiaries (as hereinafter defined) to obtain or
increase a proprietary interest in Corporation by permitting them to make
installment purchases of shares of Corporation's Common Stock (as hereinafter
defined) through payroll deductions. The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Definitions.
"Board of Directors" means the Board of Directors of Corporation or a
committee thereof duly authorized for the purposes of administering this Plan.
"Common Stock" means Corporation's common stock, no par value, and any
security of Corporation issued in substitution, exchange, or in lieu of such
stock.
"Eligible Employees" means those persons who on the applicable Offering
Date are employees of Corporation or a Subsidiary except those who, immediately
prior to the applicable Offering Date, would be deemed under Section 423(b)(3)
of the Code to own stock possessing 5 percent or more of the total combined
voting power or value of all classes of stock of Corporation or any other
corporation that constitutes a parent or subsidiary corporation of Corporation
within the meaning of that section.
"Maximum Purchase Price" means 85 percent of the mean between the
reported high and low sale prices, or, if there is no sale on such day, the mean
between the reported bid and asked prices, of Common Stock on the securities
exchange or automated securities interdealer quotation system on which Common
Stock shall have been traded on the last trading day preceding the applicable
Offering Date.
"Monthly Compensation" means, for an Eligible Employee on the payroll
of Corporation or a Subsidiary for the entire calendar month preceding the
applicable Offering Date, the compensation paid or accrued to such Eligible
Employee for such month plus, in the case of such an Eligible Employee whose
compensation for such month was based wholly or partly on a bonus, commission,
profit
<PAGE>
sharing, or similar arrangement for which no accrual was made for such month, an
amount equal to the portion attributable to one month of the amount accrued to
such Eligible Employee as of the day preceding the applicable Offering Date, on
the books of Corporation or its Subsidiaries in accordance with such
arrangement. For all other Eligible Employees, Monthly Compensation shall be the
monthly rate of compensation in effect immediately prior to the applicable
Offering Date. For all purposes of the Plan, Monthly Compensation shall include
any amount which is contributed by Corporation or a Subsidiary pursuant to a
salary reduction agreement and which is not includable in the gross income of an
Eligible Employee under Code Sections 125 (relating to "cafeteria plans") or
402(a)(8) (relating to elective contributions under a "401(k)" plan).
"Offering Dates" means such dates as may be set by the Board of
Directors, provided that no more than three Offering Dates (other than Special
Offering Dates for purposes of Special Offerings pursuant to Section 6 of this
Plan) may be set during each fiscal year. The first day of each calendar month,
commencing November 1, 1997, shall be a Special Offering Date. Except as
otherwise expressly provided in this Plan, all references to Offering Dates
shall include Special Offering Dates.
"Offering Periods" means such periods as may be set by the Board of
Directors for the offering of Common Stock pursuant to this Plan.
"Participant" means an Eligible Employee who subscribes for the
purchase of shares of Common Stock under the Plan in accordance with the Plan
(including an Eligible Employee who participates in a Special Offering pursuant
to Section 6 of this Plan.
"Purchase Dates" means such dates as may be set by the Board of
Directors for the purchase of Common Stock, provided that (i) Purchase Dates
shall be no less than six months and no more than 24 months after the
termination of the applicable Offering Period and (ii) Purchase Dates may be any
earlier date of purchase pursuant to the terms of this Plan, including Sections
11 (termination of employment), 12 (retirement or disability), and 13 (death).
"Purchase Periods" means the period beginning on the termination of an
Offering Period and ending on the applicable Purchase Date.
"Purchase Price" means the lesser of (i) the Maximum Purchase Price or
(ii) the mean between the
2
<PAGE>
reported high and low sale prices, or, if there is no sale on such day, the mean
between the reported bid and asked prices, of Common Stock on the securities
exchange or automated securities interdealer quotation system on which Common
Stock shall have been traded on the applicable Purchase Date or, if the Purchase
Date is not a trading day, on the last trading day preceding such date. The
Purchase Price per share shall be subject to adjustment in accordance with the
provisions of Section 17 of this Plan.
"Special Offering" means an offering pursuant to Section 6 of this
Plan.
"Subsidiary" means a domestic corporation of which, on the applicable
Offering Date, Corporation or a Subsidiary of Corporation owns at least 50
percent of the total combined voting power of all classes of stock and whose
employees are authorized to participate in the Plan by the Board of Directors of
Corporation.
3. The Offering. The number of shares of Common Stock subject to the
Plan shall be 250,000 shares, subject to adjustment as provided in Section 17 of
this Plan. During each Offering Period, Corporation may offer, at the applicable
Purchase Price, for subscription by Eligible Employees in accordance with the
terms of the Plan, such number of authorized and unissued shares of its Common
Stock subject to the Plan as may be determined by the Board of Directors.
4. Subscriptions.
a. Shares Subject to Subscription. Except as provided in Section 6 of
this Plan with respect to Special Offerings, during each Offering Period, each
Eligible Employee shall be entitled to subscribe for the number of whole shares
of Common Stock offered during such Offering Period designated by him or her in
accordance with the terms of the Plan; provided, however, that for any Offering
Period, the Board of Directors may set a minimum, a maximum, or both a minimum
and a maximum number of shares that may be subscribed for during such Offering
Period. In no event may any employee subscribe for shares (under any one or more
Offering Periods which have Offering Dates within any calendar year) which would
have a total value (computed as the number of shares subscribed for during each
such Offering Period multiplied by the Maximum Purchase Price for each such
Offering Period) in excess of $21,250.
b. Further Limitation on Subscriptions. Notwithstanding Section 4.a of
this Plan, the maximum number of shares that may be subscribed for by an
Eligible Employee shall be further limited and reduced to the extent that the
number of shares owned by such Eligible Employee immediately after any
3
<PAGE>
Offering Date for purposes of Section 423(b)(3) of the Code plus the maximum
number of shares set forth in Section 4.a of this Plan would exceed 5 percent of
the total combined voting power or value of all classes of stock of Corporation
or a parent or subsidiary corporation of Corporation within the meaning set
forth in Section 423(b)(3) of the Code.
c. Subscription Agreements. Subscriptions pursuant to the Plan shall be
evidenced by the completion and execution of subscription agreements in the form
provided by Corporation and delivery of such agreements to Corporation, at the
place designated by Corporation, prior to the expiration of each Offering
Period. No subscription agreement shall be subject to termination or reduction
during the Offering Period to which it relates without written consent of
Corporation.
d. Over-Subscription. In the event that the aggregate number of shares
of Common Stock subscribed for pursuant to the Plan as of any Purchase Date
shall exceed the number of shares of Common Stock offered for sale during the
Offering Period related to such Purchase Date, then each subscription for such
Offering Period pursuant to which a purchase is effected shall be reduced to the
number of shares of Common Stock that such subscription would cover in the event
of a proportionate reduction of all subscriptions for such Offering Period
outstanding on such Purchase Date so that the aggregate number of shares subject
to all such subscriptions would not exceed the number of shares offered for sale
during such Offering Period. In making such reductions, fractions of shares
shall be disregarded and each subscription shall be for a whole number of
shares.
5. Payment of Purchase Price. Except as otherwise specifically provided
in the Plan, the Purchase Price of all shares purchased hereunder shall be paid
in equal installments through payroll deduction from the Participant's
compensation during the applicable Purchase Period, without the right of
prepayment. The Maximum Purchase Price multiplied by the number of shares
subscribed for shall be withheld in substantially equal installments on each pay
period during the applicable Purchase Period.
6. Special Offers.
a. Definitions. For purposes of this Section 6, the following terms
shall have the following meanings:
"Annual Increase" means the gross annual amount (before any applicable
withholding) by which an employee's compensation would otherwise be increased
during the one-year period following an Annual Review Date for such
4
<PAGE>
employee had the employee not been subject to a Special Offering Subscription
pursuant to this Section 6.
"Annual Review Date" means the effective date, which may be an
employee's anniversary date, of an increase in compensation on account of the
employee's annual compensation review by Corporation.
"Special Offering Date" means the first day of each calendar month
commencing November 1, 1997.
"Special Offering Subscription" means a subscription pursuant to this
Section 6 for the number of whole shares of Common Stock equal to an Eligible
Employee's Annual Increase as of an Annual Review Date divided by the Maximum
Purchase Price for the Special Offering Date which falls on or immediately
follows the Annual Review Date.
"Special Purchase Date" means for each Participant with a Special
Offering Subscription, the one-year anniversary of the Annual Review Date
corresponding to the subscription.
"Special Purchase Period" means the period from a Participant's Annual
Review date preceding a Special Offering Date through the corresponding Special
Purchase Date.
b. Subscription. As of each Annual Review Date for each Eligible
Employee:
i. Corporation may, in its discretion, provide the Eligible Employee a
Special Offering Subscription in lieu of any increase in cash compensation
during the following year; or
ii. The Eligible Employee may make an irrevocable election to receive a
Special Offering Subscription in lieu of any increase in cash compensation
during the following year.
c. Subscription Agreement. Each Special Offering Subscription shall be
evidenced by the completion of a Special Offering Subscription Agreement in the
form provided by Corporation.
d. Payment of Purchase Price. For each Special Offering Subscription,
Corporation shall credit to an account for the Participant an amount equal to
the Annual Increase in equal installments as of each payment date for the
Participant during the Special Purchase Period.
5
<PAGE>
e. Right to Terminate Election or Reduce Number of Shares.
Notwithstanding Sections 9 and 10 of this Plan, a Participant subject to a
Special Offering Subscription may terminate the Special Offering Subscription or
reduce the number of shares covered by the Special Offering Subscription only as
of the Special Purchase Date (or an earlier Purchase Date upon the occurrence of
one or more of the events described in Sections 11, 12, or 13). Such a
termination or reduction must be made by written notice to Corporation and must
be received by Corporation no later than the last business day before the
Special Purchase Date (or such earlier Purchase Date).
f. Withholding. Participants shall be subject to applicable state and
federal tax withholding and employment taxes on the shares purchased pursuant to
a Special Offering Subscription or upon payment of the amounts credited to the
Participant's account. Corporation's obligation to issue shares shall be
conditioned on the payment by the Participant (or other arrangement satisfactory
to Corporation) of all applicable withholding taxes.
7. Application of Funds; Participants' Accounts. All amounts withheld
from and paid by Participants hereunder shall be deposited in Corporation's
general corporate account to be used for any corporate purposes; provided,
however, that Corporation shall maintain a separate bookkeeping account for each
Participant hereunder reflecting all amounts withheld from and paid by such
Participant with respect to each Purchase Period under the Plan. No interest
shall be credited to such separate accounts.
8. Issuance of Shares. Shares purchased under the Plan shall, for all
purposes, be considered to have been issued, sold, and purchased at the close of
business on the applicable Purchase Date. Prior to each applicable Purchase
Date, no Participant shall have any rights as a holder of any shares covered by
a subscription agreement. Promptly after each Purchase Date, Corporation shall
issue and deliver to the Participant a stock certificate or certificates
representing the whole number of shares purchased by the Participant during the
Purchase Period ending with such Purchase Date and refund to the Participant in
cash any excess amount in his or her account relating to such Purchase Period.
No adjustment shall be made for dividends or for the other rights for which the
record date is prior to the applicable Purchase Date, except as may otherwise be
provided in Section 17.
9. Right to Terminate Subscription. Except as provided in Section 6 of
this Plan, each Participant shall have the right, at any time after the
expiration of each Offering Period and prior to the applicable Purchase Date, to
terminate
6
<PAGE>
his or her subscription relating to such Offering Period by written notice to
Corporation and receive a prompt refund in cash of the total amount in his or
her account with respect to the applicable Purchase Period.
10. Right to Reduce Number of Shares. Except as provided in Section 6
of this Plan, each Participant shall have the right, at any time after the
expiration of each Offering Period and prior to the applicable Purchase Date, to
make, by written notice to Corporation, a one-time-only reduction in the number
of shares covered by his or her subscription agreement relating to such Offering
Period, provided that such right shall only apply to Purchase Periods of 12
months or more. Upon such reduction of shares, an appropriate reduction shall be
made in the Participant's future payroll deductions during the applicable
Purchase Period and the excess amount in the Participant's account with respect
to such Purchase Period resulting from such reduction shall be promptly refunded
to the Participant in cash or, at the option of the Participant, shall be
applied in equal amounts against all future installment payments of the Maximum
Purchase Price of the reduced number of shares to be purchased during the
applicable Purchase Period.
11. Termination of Employment. Upon termination of employment of a
Participant for any reason other than retirement, disability or death, including
by reason of the sale of the Subsidiary by which the Participant is employed
such that Corporation or a Subsidiary of Corporation no longer owns at least 50
percent of the total combined voting power of all classes of stock of the
Subsidiary, a Participant shall have, during the period of three months
following his or her termination date, but prior to the applicable Purchase
Date, the right with respect to each Purchase Period for which he or she has an
account under the Plan to elect to receive either a refund in cash of the total
amount of his or her account relating to such Purchase Period or the whole
number of shares that can be purchased at the applicable Purchase Price with
such amount together with any remaining cash in his or her account relating to
such Purchase Period. Each election must be in writing and delivered to
Corporation within the aforementioned period. If the Participant elects to
receive shares, the Purchase Date shall be the date the Participant's election
is delivered to Corporation. In the event the Participant does not make a timely
election with respect to any Purchase Period for which he or she has an account
under the Plan, he or she shall be deemed to have elected to receive a cash
refund of the amount of his or her account relating to such Purchase Period.
12. Retirement; Disability. A participant who retires or whose
employment is terminated by reason of any injury or illness of such a serious
nature as to disable the Participant from resuming employment with Corporation
shall have
7
<PAGE>
all of the rights described in Section 11 above and shall have the additional
right to elect, in the manner described in Section 11, to prepay in cash in a
lump sum the entire unpaid balance of the Purchase Price of the shares covered
by his or her subscription agreement relating to each Purchase Period and to
receive such shares. The Purchase Date for this purpose shall be the date on
which both the Participant's election and the lump-sum cash payment shall have
been delivered to Corporation. For purposes of the Plan, a termination of
employment at or after age 50 for any reason shall be considered retirement.
13. Death. In the event of the death of a Participant while in the
employ of Corporation or a Subsidiary and prior to full payment of the Maximum
Purchase Price for the shares covered by his or her subscription with respect to
each Purchase Period, or the death of a retired or disabled Participant prior to
the exercise of his or her rights described in Section 12 above, his or her
personal representative shall have, during the period of three months following
the Participant's death, but prior to the applicable Purchase Date, the rights
described in Section 12. In the event of the death of a Participant who
previously terminated employment by reason other than retirement or disability
prior to full payment of the Maximum Purchase Price for the shares covered by
his or her subscription with respect to each Purchase Period and prior to the
exercise of his or her rights described in Section 11, his or her personal
representative shall have the rights described in Section 11.
14. Temporary Layoff; Leaves of Absence. A Participant's installment
payments with respect to each Purchase Period shall be suspended during any
period of absence from work due to temporary layoff or leave of absence without
pay. If such Participant returns to active employment within the applicable
Purchase Period, installment payments shall resume and, except as provided below
with respect to Special Offering Subscriptions, the Participant shall be
entitled to elect either to make up the deficiency in his or her account with
respect to such Purchase Period immediately with a lump-sum cash payment, or to
have future installments with respect to such Purchase Period uniformly
increased to make up the deficiency, or to have an appropriate reduction made in
the number of shares covered by his or her subscription agreement with respect
to such Purchase Period to eliminate the deficiency. The election (together with
the lump-sum cash payment, if applicable) must be delivered to Corporation
within ten days of the Participant's return to active employment but prior to
the applicable Purchase Date. If the Participant fails to make a timely
election, the appropriate reduction of shares shall be made in accordance with
the above. If the Participant does not return to active employment within the
applicable Purchase Period, he or she shall have the right
8
<PAGE>
to elect to receive either a refund in cash of the total amount of his or her
account with respect to such Purchase Period or the whole number of shares which
can be purchased at the applicable Purchase Price with such amount together with
any remaining cash in his or her account with respect to the Purchase Period.
The election must be in writing and delivered to Corporation prior to, and shall
be effective as of, the applicable Purchase Date. In the event the Participant
does not make a timely election with respect to any Purchase Period, he or she
shall be deemed to have elected to receive the cash refund with respect to that
Purchase Period. For Special Offering Subscriptions under Section 6 of the Plan,
no amounts with respect to Annual Increase will be credited during a period of
absence from work due to temporary layoff or leave of absence without pay and
such amounts will not be made up after return to active employment.
15. Insufficiency of Compensation. In the event that for any payroll
period, for reasons other than termination of employment for any reason,
temporary layoff, or leave of absence without pay, a Participant's compensation
(after all other proper deductions from his or her compensation) becomes
insufficient to permit the full withholding of his or her installment payment,
the Participant may pay the deficiency in cash when it becomes due. In the event
that, in a subsequent payroll period, the Participant's compensation becomes
sufficient to make the full installment payment and there still remains a
deficiency in his or her account, the deficiency must then be eliminated through
the election of one of the alternatives described in Section 14. The Participant
must deliver his or her election to Corporation within ten days of the end of
such subsequent payroll period but prior to the applicable Purchase Date. In the
event that on the applicable Purchase Date there remains a deficiency in such a
Participant's account or, in the event a Participant described above fails to
make a timely election, the appropriate reduction of shares shall be made in
accordance with Section 14.
16. Interest. Any person who becomes entitled to receive any amount of
cash refund from any account maintained for him or her pursuant to any provision
of the Plan shall be entitled to receive in cash, at the same time, simple
interest on the amount of such refund at the rate of 6 percent per annum. Any
refund shall be deemed to be made from the most recent payment or payments made
by the Participant pursuant to the Plan.
17. Effect of Certain Stock Transactions. If at any time after the day
preceding the Offering Date for each Purchase Period, and prior to the issue and
sale by Corporation of all the shares of Common Stock covered by Participants'
subscription agreements with respect to each Purchase Period for which the
9
<PAGE>
Offering Date has occurred, Corporation shall effect a subdivision of shares of
Common Stock or other increase (by stock dividend or otherwise) of the number of
shares of Common Stock outstanding, without the receipt of consideration by
Corporation or another corporation in which it is financially interested and
otherwise than in discharge of Corporation's obligation to make further payment
for assets theretofore acquired by it or such other corporation or upon
conversion of stock or other securities issued for consideration, or shall
reduce the number of shares of Common Stock outstanding by a consolidation of
shares, then (a) in the event of such an increase in the number of such shares
outstanding, the number of shares of Common Stock then subject to Participants'
subscription agreements with respect to such Purchase Period shall be
proportionately increased and the Maximum Purchase Price and the Purchase Price
per share for such Purchase Period shall be proportionately reduced, and (b) in
the event of such a reduction in the number of such shares outstanding, the
number of shares of Common Stock then subject to subscription agreements with
respect to such Purchase Period shall be proportionately reduced and the Maximum
Purchase Price and the Purchase Price per share for such Purchase Period shall
be proportionately increased. Except as provided in this Section 17, no
adjustment shall be made under this Plan or any subscription agreement by reason
of any dividend or other distribution declared or paid by Corporation.
18. Merger, Consolidation, Liquidation or Dissolution. In the event of
any merger or consolidation of which Corporation is not to be the survivor (or
in which Corporation is the survivor, but becomes a subsidiary of another
corporation), or the liquidation or dissolution of Corporation, each Participant
shall have the right immediately prior to such event to elect to receive the
number of whole shares that can be purchased at the Purchase Price applicable to
each Purchase Period with respect to which such Participant has subscribed for
purchase of Common Stock with the full amount that has been withheld from and
paid by him or her pursuant to the subscription agreement relating to such
Purchase Period, together with any remaining excess cash in his or her account
relating to such Purchase Period. If such election is not made with respect to
the amount in a Participant's account for any Purchase Period, the Participant's
subscription agreement shall terminate and he or she shall receive a prompt
refund in cash of the total amount in such account.
19. Limitation on Right to Purchase. Notwithstanding any provision of
the Plan to the contrary, if at any time a Participant is entitled to purchase
shares of Common Stock on a Purchase Date, taking into account such
Participant's rights, if any, to purchase Common Stock under the Plan and all
other stock purchase plans of Corporation and of other corporations that
10
<PAGE>
constitute parent or subsidiary corporations of Corporation within the meaning
of Sections 424(e) and (f) of the Code, the result would be that, during the
then current calendar year, such Participant would have first become entitled to
purchase under the Plan and all such other plans a number of shares of Common
Stock of Corporation that would exceed the maximum number of shares permitted by
the provisions of Section 423(b)(8) of the Code, then the number of shares that
such Participant shall be entitled to purchase pursuant to the Plan on such
Purchase Date shall be reduced by the number that is one more than the number of
shares that represents the excess, and any excess amount in his or her account
resulting from such reduction shall be promptly refunded to him or her in cash.
20. Non-Assignability. None of the rights of an Eligible Employee under
the Plan or any subscription agreement entered into pursuant hereto shall be
transferable by such Eligible Employee otherwise than by will or the laws of
descent and distribution, and during the lifetime of an Eligible Employee such
rights shall be exercisable only by him or her.
21. Shares Not Purchased. Shares of Common Stock subject to the Plan
that are not subscribed for during each successive Offering Period and shares
subscribed for pursuant to such Offering Period that thereafter cease to be
subject to any subscription agreement hereunder shall remain subject to and
reserved for use in connection with a later Offering Period established by the
Board of Directors.
22. Construction; Administration. All questions with respect to the
construction and application of the Plan and subscription agreements thereunder
and the administration of the Plan shall be settled by the determination of the
Board of Directors or of one or more other persons designated by it, which
determinations shall be final, binding and conclusive on Corporation and all
employees and other persons. All Eligible Employees shall have the same rights
and privileges under the Plan.
23. Termination or Amendment. Without further approval of Corporation's
shareholders, the Board of Directors may at any time terminate the Plan or may
amend the Plan from time to time in such respects as the Board of Directors may
deem advisable, except that the Board of Directors may not, without the approval
of Corporation's shareholders, make any amendment that would materially increase
the aggregate number of Shares that may be issued under the Plan or decrease the
price per Share (except for adjustments pursuant to Section 17 of the Plan.)
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is made as of this 31st day of May, 1995 by and between
Vinifera, Inc., an Oregon corporation (the "Company"), and Joseph A. Bouckaert
("Bouckaert").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the business of propagating
superior varieties of grape vines in commercial quantities (the "Business"); and
WHEREAS, Bouckaert is employed by the Company as its President and
possesses expertise in technology and know-how in areas relevant to the
Business; and
WHEREAS, the Company and Bouckaert mutually desire that the Company
continue to employ Bouckaert as its President following a change of control of
the Company on the effective date hereof.
NOW, THEREFORE, in consideration of the covenants and agreements of
the parties herein contained, the parties hereto agree as follows:
1. Employment and Duties. The Company hereby agrees to employ
Bouckaert as the President and Chief Executive Officer of the Company on the
terms and conditions set forth herein, and Bouckaert hereby agrees to remain in
the employ of the Company on such terms and conditions. Bouckaert shall serve
without additional compensation as a director or in such additional offices of
the Company or any of its affiliates to which Bouckaert may be duly appointed or
elected. Bouckaert shall perform such duties as shall be reasonably assigned to
him from time to time by the Board of Directors of the Company. Bouckaert agrees
to devote substantially all of his business' time and effort to the diligent and
faithful performance of such duties. Before engaging in any outside business
activity, Bouckaert will obtain the consent of the Board of Directors, which
shall not be unreasonably withheld.
2. Term. The term of Bouckaert's employment hereunder shall commence
on the date hereof and shall continue until the fifth anniversary of the date
hereof. Such term may be extended as the parties subsequently may agree.
3. Compensation. As compensation for his performance of services as an
employee hereunder, Bouckaert shall be entitled to receive:
a. a salary at the annual rate of One Hundred Sixty Thousand
Dollars ($160,000.00) ("Salary") payable in substantially equal
monthly installments, Bouckaert's salary may be adjusted after the
completion of his first year of service and each year thereafter under
this Agreement at the discretion of the Company's board of directors;
b. a one-time signing bonus of Forty Thousand Dollars
($40,000.00) payable upon execution of this Agreement; and
<PAGE>
c. incentive stock options to purchase 400,000 shares of the
Company's common stock if and as approved (which approval will not be
unreasonably withheld) by the Board of Directors in connection with
the adoption of an employee stock option plan for the Company. Such
stock options shall vest annually in four (4) equal amounts,
commencing upon the completion of Bouckaert's second year of service
under this Agreement, dependent on continued employment. The exercise
price for each stock option shall be equal to the fair market value of
one share of the Company's common stock at the time such stock option
is granted.
Bouckaert shall also be entitled to receive the benefits set forth on
Schedule A hereto.
4. Commissions. Bouckaert shall be entitled to receive commissions
equal to one percent (1%) of all equity investment capital Bouckaert is directly
responsible for raising for the Company, payable in each case within thirty (30)
days of the Company's receipt of each said investment; provided, however, that
the Company shall be under no obligation to accept any particular offer of
investment at any time, and the terms and conditions of any proposed investment
(whether or not introduced by Bouckaert) shall at all times be in the sole
discretion of and determined solely by the Board of Directors of the Company;
and, further provided that in the determination of whether Bouckaert is in any
case "directly responsible" for an equity investment shall be in the sole
discretion of the board of directors of the Company to be determined reasonably
and in good faith. For purposes of this Agreement, Bouckaert shall be deemed
"directly responsible" for those accepted investments in which he both initiated
the contact and actively participated in securing the investments.
5. Waiver of Acceleration. As a condition to this Agreement and the
Stock Purchase Agreement, Bouckaert hereby forever waives any right of
acceleration of vesting of stock options for shares of the Company's stock based
on a "Change in Control," as that term is defined in that certain Award
Agreement under the Vinifera, Inc. 1993 Award Plan dated March 9, 1993, between
Bouckaert and the Company (the "Plan").
6. Confidential Information; Inventions.
a. In the course of his employment by the Company, Bouckaert has
acquired and will continue to acquire information and knowledge
respecting the proprietary and confidential affairs of the Company and
the Business, including without limitation confidential information
with respect to the Company's products, technology, know-how,
processes, customer lists and distribution methods ("Confidential
Information"). Accordingly, Bouckaert agrees that he shall not during
the period of his employment hereunder of thereafter use for his own
or any other person's or entity's benefit any such Confidential
Information acquired during the term of his employment with the
Company. Further, during the period of his employment hereunder and
2
<PAGE>
thereafter, Bouckaert shall not, without the written consent of the
Board of Directors of the Company or a person duly authorized thereby,
disclose to any person, other than an employee of the Company or a
person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Bouckaert of his duties hereunder,
any Confidential Information obtained by him while in the employ of
the Company.
b. Bouckaert agrees that all memoranda, notes, records, papers
or other documents and all copies thereof containing Confidential
Information, some of which may be prepared by him, and all objects
associated therewith in any way obtained by him shall be the Company's
property. Bouckaert shall not, except for the Company's use, copy or
duplicate any of the aforementioned documents or objects, nor remove
them from the Company's facilities, nor use any information concerning
them except for the Company's benefit, either during his employment or
thereafter. Bouckaert agrees that he will deliver the original and all
copies of all of the aforementioned documents, including, but not
limited to, computer files and objects, if any, that may be in his
possession to the Company on termination of his employment, or at any
other time upon the Company's request.
c. Bouckaert agrees to disclose to Company and to assign to
Company all of Bouckaert's rights in any designs, discoveries,
improvements and ideas, whether or not patentable, including,
without limitation upon the generality of the foregoing, novel or
improved products, processes, technology and know-how, which either
(a) relate to (i) the Business or (ii) bouckaert's actual or
demonstrably anticipated research or development, or (b) result from
any work performed by Bouckaert for the Company (hereinafter
collectively "Inventions"), conceived or reduced to practice at any
time during Bouckaert's employment by the Company, either solely or
jointly with others and whether or not developed on Bouckaert's own
time or with the resources of the Company. Bouckaert agrees that
Inventions first reduced to practice within one (1) year after
termination of Bouckaert's employment by Bouckaert shall be presumed
to have been conceived during such employment unless Bouckaert can
establish specific events giving rise to the conception which occurred
after such employment. Further, except as otherwise expressly set
forth herein, Bouckaert disclaims and will not assert any rights in
Inventions actually made or as having been made, conceived or acquired
prior to employment by the Company.
7. No Competition. Subject to Section 8(a)(iv), Bouckaert agrees that
during his employment by the Company and during a period ending three (3) years
after termination of such employment, he will not, directly or indirectly, own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be connected as an officer, employee, partner, director or
otherwise with, or have any financial interest in, or aid or assist anyone else
in the conduct of, the business of the type conducted by the Company or that
competes with the Company or the Business in any geographic area where the
Business is being conducted, at the time of termination of Bouckaert's
employment with the
3
<PAGE>
Company hereunder; provided, however, that the foregoing agreement shall not
preclude the passive ownership for investment purposes only of not more than 5%
of the equity securities of a corporation which has such securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended. Bouckaert
further agrees that during his employment with the Company he shall not make
preparations to engage in any activity which would be prohibited by the
foregoing provisions of this Paragraph 7.
8. Termination of Employment.
a. Bouckaert's employment shall terminate, or be subject to
termination, prior to the term specified in Paragraph 2 hereof, as
follows:
(i) Death. Bouckaert's employment hereunder shall
terminate upon his death.
(ii) Disability. Except as prohibited by applicable law,
in the event Bouckaert becomes physically or mentally disabled
so as to become unable, for a period of more than ninety (90)
consecutive working days or for more than ninety (90) working
days in the aggregate during any twelve-month period, to perform
his duties hereunder or substantially a full-time basis, the
Company may, at its option, terminate Bouckaert's employment
hereunder upon not less than ten (10) days' written notice.
(iii) Cause. The Company may, at any time, terminate
Bouckaert's employment hereunder for Cause. For the purposes of
this Agreement, the Company shall have "Cause" to terminate
Bouckaert's employment under upon (A) Bouckaert's engaging in
misconduct which is injurious to the Company or its affiliates,
(B) the material breach by Bouckaert of any of the provisions of
this Agreement, which violation continues for a period of ten
(10) days following notice from the Company to Bouckaert
stating, with reasonable specificity, the nature of such alleged
breach, or (C) Bouckaert's conviction of a felony or a plea by
Bouckaert of nolo contendere to a felony.
(iv) Without Cause. The Company may, at any time,
terminate Bouckaert's employment hereunder without cause and
without the requirement of any reason or justification. In the
event Bouckaert is terminated without cause, he will be bound by
the provisions of Section 7 only for the period during which he
receives severance payments in accordance with Section 8(b).
b. Cessation of Salary and Benefits After Termination. In the
event of the termination of Bouckaert's employment all payments of
salary and benefits under Paragraph 3 hereof shall cease, and
Bouckaert shall not be entitled to receive any compensation or payment
on account of such
4
<PAGE>
including, but not limited to, those rights set forth in the Plan. In
the event of the termination of Bouckaert's employment pursuant to
Paragraph 8(a)(iv) hereof, Bouckaert shall be entitled to receive, in
lieu of any other compensation or payment as a result of such
termination, and as liquidated damages therefor, severance payments
equal to the payments of his Salary under Paragraph 3(a), at the time
such payment would have been made, and the continuation of medical
benefits for twelve (12) months following the date of such
termination. In the event the Board of Directors elect not to renew
this Agreement, Bouckaert shall receive such severance payments for
eight (8) months following the date Bouckaert receives notice of the
Board's intent not to renew or the expiration of this Agreement,
whichever comes first.
9. Notices. For the purposes of this Agreement, notices and all other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as follows
or by facsimile transmission:
If to Bouckaert:
Joseph A. Bouckaert
22 Dolphin Isle
Novato, California 94949
Facsimile: (415) 883-4981
With a copy to:
Simpson, Aherne & Garrity
1900 South Norfolk Street
Suite 260
San Mateo, California 94403
Attn: Ronald F. Garrity
Facsimile: (415) 358-6991
If to the Company:
Vinifera, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97028
Attention: President
Facsimile: 502-641-8665
5
<PAGE>
With a copies to:
Foley & Lardner
One IBM Plaza
330 North Wabash Avenue
Suite 3300
Chicago, Illinois 60611-3608
Attention: Stephen M. Slavin
Facsimile: 312-755-1925
Cooley & Godward
One Maritime Plaza
20th Floor
San Francisco, California 94111
Attention: Howard Irvin
Facsimile: 415-951-3699
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Miscellaneous.
a. No provisions of this Agreement may be amended unless such
amendment, modification or discharge is agreed to in writing signed by
the parties hereto.
b. No waiver by any party hereto of any breach of, or compliance
with, any condition or provision of this Agreement by the other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No such
waiver shall be enforceable unless expressed in a written instrument
executed by the party against whom enforcement is sought.
c. This Agreement constitutes the entire agreement of the
parties on the subject matter hereof and no agreements or
representations, oral or otherwise, expressed or implied, with respect
to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. This Agreement expressly
supersedes the employment agreement between Bouckaert and the Company
dated February 1, 1993, which prior agreement is hereby terminated.
d. If a court of competent jurisdiction should decide that any
of the provisions of Paragraphs 6, 7 or 8 are not enforceable, in
whole or in part, the parties declare it is their intention that such
unenforceable provisions be deemed reformed so that they apply only to
the maximum extent to which they can be enforced. Bouckaert
acknowledges that his violation, or threatened violation, of the
provisions of Paragraph 6, 7 or 8 would cause the Company
6
<PAGE>
irreparable injury and, in addition to any other remedies to which the
Company may be entitled, the Company shall be entitled to injunctive
relief.
e. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns, and Bouckaert and his
heirs, executors, administrators and legal representatives.
f. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Oregon
applicable to contracts made and to be performed therein between
residents thereof.
g. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
h. This Agreement has been jointly drafted by the respective
representatives of the Company and Bouckaert and no party shall be
considered as being responsible for such drafting for the purpose of
applying any rule construing ambiguities against the drafter or
otherwise. No draft of this Agreement shall be taken into account in
construing this Agreement.
BOUCKAERT ACKNOWLEDGES HAVING READ AND SIGNED THIS AGREEMENT AND
HAVING RECEIVED A COPY THEREOF, INCLUDING THE FOLLOWING NOTICE:
This Agreement does not apply to an Invention for which no equipment,
supplies, facility, trade secret information or other property of the Company
was used and which was developed entirely on Bouckaert's own time, unless (a)
the Invention relates (i) to the Business or (ii) to the Company's actual or
demonstrably anticipated research or development, or (b) the Invention results
from any work performed by Bouckaert for the Company or any current or prior
affiliate of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
/s/ Joseph A. Bouckaert
Joseph A. Bouckaert
VINIFERA, INC.
By: /s/ Robert Chanson
Robert Chanson
Title: President
7
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
<PAGE>
THIS LEASE ("Lease"), dated as of February 1, 1996, is made and entered
into by and between Gianni Neve and Maria Neve (hereafter "Landlord" without
regard to number or gender) and Vinifera Inc. ("Tenant") upon the following
terms and conditions.
ARTICLE 1
DEFINITIONS
Unless the context otherwise specifies or requires, the following terms
shall have the following meaning:
1.1 Landlord. "Landlord" means Gianni Neve and Maria Neve, except as
otherwise noted.
1.2 Tenant. "Tenant" means Vinifera Inc.
1.3 Leased Premises. "Premises" means the land, consisting of
approximately 8.8 acres, four Greenhouse Buildings (as defined below), two cold
boxes, two packing sheds, two wells, and all other improvements currently
located on the Premises or hereafter installed at the Premises by Tenant,
commonly known as 4288 Bodega Avenue, Petaluma, California 94953, all as
depicted on EXHIBIT "A", attached hereto, but excluding any and all underground
and aboveground storage tanks, rental housing, and those areas that are
cross-hatched in red on EXHIBIT "A". The Leased Premises shall also include
certain personal property (i.e., conveyors, sprayers, carts) as set forth on
EXHIBIT "B" attached hereto.
1.4 Greenhouse Buildings. The term "Greenhouse Buildings" shall mean
the four Greenhouses situated on the Leased Premises consisting in the aggregate
of approximately 250,000 square feet, as follows: Range 1 consisting of 13 bays
covered with glass and including approximately 50,000 square feet; Range 2
consisting of 13 bays covered with glass and including approximately 50,000
square feet; Range 3 consisting of 8 bays covered with fiberglass and including
approximately 75,000 square feet; and Range 4 consisting of 8 bays covered with
fiberglass and including approximately 75,000 square feet, as depicted on
EXHIBIT "A".
1.5 Lease. The term "Lease" shall mean this Lease document and any
exhibits and addenda attached hereto or attached in the future if duly executed
by Landlord and Tenant.
1.6 Lease Term. The "Lease Term" shall mean the period between the
Commencement Date and the Expiration Date (as such terms are hereinafter
defined), unless sooner terminated or renewed or otherwise provided in this
Lease. The Lease Term is for five (5) years.
1.7 Commencement Date. Subject to adjustment as provided in Article 3,
the Scheduled Term Commencement Date shall mean February l, 1996.
1.8 Expiration Date. The term "Expiration Date" shall mean January 31,
2001.
1.9 Base Rent. Subject to Article 4, the term "Base Rent" shall mean:
$12,500 per month throughout the term of this Lease for the Leased Premises.
1.10 Buildings. "Buildings" means the buildings, cold boxes, sheds, and
other improvements situated on the Property.
1.11 Tenant's Permitted Use. The term "Tenant's Permitted Use" shall
mean general agricultural purposes including, without limitation, the planting
and growing of various grape rootstock, scionwood, grafted grape vines, and
other plants in accordance with the farming practices of the community in which
the Leased Premises are situated.
- 1 -
<PAGE>
1.12 Landlord's Address for Rent and Notices. The term "Landlord's
Address for Rent and Notices" shall ---------------------------------------
mean:
(a) For Gianni Neve: 4288 Bodega Avenue
Petaluma, CA 94952
- with copy to -
(b) For Maria Neve: 1109 Lorhman Lane
Petaluma, CA 94952
- with copy to -
1.13 Tenant's Address for Notices. The term "Tenant's Address for
Notices" shall mean:
Vinifera, Inc.
5 Financial Plaza, Suite 206
Napa, CA 94558
Attn: Joseph Bouckaert, President and CEO
- with copy to -
Haas & Najarian
456 Montgomery St., 16th Floor
San Francisco, CA 94104
Attn: Robert C. Nicholas, Esq.
1.14 Security Deposit. The term "Security Deposit" shall refer to the
payment by Tenant to Landlord of $12,500 pursuant to paragraph 4.4 of this
Lease.
ARTICLE 2
PREMISES
2.1 Lease of Premises. Landlord hereby leases the Leased Premises
("Premises") to Tenant, and Tenant hereby leases the Premises from Landlord,
upon all of the terms, covenants and conditions contained in this Lease. On the
Commencement Date described herein, Landlord shall deliver the Premises to
Tenant and warrants and represents to Tenant that the Premises are fit and zoned
for Tenant's Permitted Use.
ARTICLE 3
TERM
3.1 Lease Term. Except as otherwise provided in this Lease, the Lease
Term shall be for the period described in Paragraph 1.6 of this Lease,
commencing on the Commencement Date described in Paragraph 1.7 of this Lease and
ending on the Expiration Date described in Paragraph 1.8 of this Lease:
- 2 -
<PAGE>
ARTICLE 4
RENTAL
4.1 Definitions. As used herein,
(A) "Base Year" shall mean the calendar year 1996.
(B) "Property Taxes" shall mean all payments and related
expenses paid or incurred by Landlord with respect to taxes or assessments
affecting the Greenhouse Buildings or the Premises, including without
limitation, any form of real property tax, assessment, business or license fee
or tax, commercial rental tax, and any tax or similar imposition in substitution
for any of the foregoing imposed by any governmental or quasi-governmental
authority.
4.2 Base Rent. During the Lease Term, Tenant shall pay to Landlord as
rental for the Premises the Base Rent described in Section 1.9 above, subject to
the following provisions:
(A) Tenant shall pay to Landlord $12,500 per month in Base
Rent throughout the Lease Term on the first of each month for the Premises
(B) Payment. All Base Rent payable to Landlord by Tenant
pursuant to the provisions of this Lease, shall be paid one-half to Gianni Neve
and one-half to Maria Neve without notice, demand, abatement, deduction or
offset, except as otherwise permitted herein, in lawful money of the United
States to Landlord's address in Paragraph 1.12 or to such other person or at
such other place as Landlord may designate from time to time by written notice
given to Tenant. No payment by Tenant or receipt by Landlord of a lesser amount
than the correct Rent due hereunder shall be deemed to be other than a payment
on account; nor shall any endorsement or statement on any check or any letter
accompanying any check or payment to be deemed to effect or evidence an accord
or satisfaction; and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance or pursue any other remedy in this
Lease or at law or in equity provided.
(C) Late Charge; Interest. Other remedies for non-payment of
Rent notwithstanding, if any Monthly Base Rent payment is not received by
Landlord on or before the 15th day of any month in which the Rent is due, a late
charge of ten percent (10%) of such past due amount shall become due and payable
in addition to such amounts owed under this Lease.
(D) Additional Rental. For purposes of this Lease, all amounts
payable by Tenant to Landlord pursuant to this Lease, whether or not denominated
as such, shall constitute additional rental hereunder. Such additional rental
together with the Base Rent shall sometimes be referred to in this Lease as
"Rent."
4.3 Property Taxes. In addition to the Base Rent and other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
increase in Property Taxes over the real Property Taxes billed in the Base Year
payable or imposed upon Landlord with respect to: any improvements made by
Tenant to the Premises. Tenant shall have no responsibility for any increase in
Property Taxes over the Property Taxes for the Base Year due to any sale or
other transfer of Landlord's interest in the Premises.
4.4 Security Deposit. Upon the execution of this Lease, Tenant shall
deposit with Landlord the Security Deposit described in Paragraph 1.14 above.
The Security Deposit is made by Tenant to secure the faithful performance of all
the terms, covenants and conditions of this Lease to be performed by Tenant. If
Tenant shall default with respect to any covenant or provision hereof, Landlord
may use, apply or retain all or any portion of the Security Deposit to cure such
default or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall immediately upon written demand deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to the full
amount hereinabove stated. Landlord shall not be required to keep the Security
Deposit separate from its general accounts and Tenant shall not be entitled to
interest on the Security Deposit. Within thirty (30) days after the expiration
of the Lease Term and the vacation of the Premises by Tenant, the Security
Deposit, or such part as has not been applied to cure the default, shall be
returned to Tenant.
- 3 -
<PAGE>
ARTICLE 5
USE OF PREMISES
5.1 Tenant's Permitted Use. Tenant shall use the Premises only for
Tenant's Permitted Use as set forth in Paragraph 1.11 above and shall not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord, which consent shall not be unreasonably withheld. TENANT
SHALL, AT ITS SOLE COST AND EXPENSE, OBTAIN ALL GOVERNMENTAL LICENSES AND
PERMITS REQUIRED TO ALLOW TENANT TO CONDUCT TENANT'S PERMITTED USE, INCLUDING
QUALIFICATION FOR THE STATE'S CERTIFICATION PROGRAM, ALL OF WHICH ARE EXPRESS
CONDITIONS PRECEDENT TO THE VALIDITY OF THIS LEASE.
5.2 Compliance With Laws and Other Requirements.
(A) Tenant shall not use the Premises, or permit the Premises
to be used, in any manner which: (a) violates any law, ordinance, regulation or
directive of any governmental authority having jurisdiction, including without
limitation any Certificate of Occupancy, or any covenant, condition or
restriction affecting the Premises; (b) causes or is reasonably likely to cause
damage to the Premises; (c) violates a requirement or condition of any fire and
extended insurance policy covering the Building and/or the Premises, or
increases the cost of such policy; (d) impairs or is reasonably likely to impair
the proper maintenance or repair of the Premises.
5.3 Landlord's Hazardous Materials.
(A) Definition of "Hazardous Materials". "Hazardous Materials"
shall be interpreted broadly to include, but not be limited to, any material or
substance that is so defined or classified under federal, state or local laws
including, without limitation, hazardous wastes, hazardous substances, hazardous
constituents, toxic substances or related materials, whether solids, liquids or
gases, including but not limited to substances defined as "hazardous wastes",
"hazardous substances", "toxic substances", "pollutants", "contaminants",
"chemicals known to the State to cause cancer or reproductive toxicity",
"radioactive materials", or other similar designations in, or otherwise subject
to regulation under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA"), 42 U.S.C. ss. 9601 et seq; the Hazardous
Substances Account Act ("HSAA), California Health and Safety Code ss. 25300 et
seq.; the Toxic Substance Control Act ("TSCA"), 15 U.S.C. ss. 2601 et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1802 et seq.; the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss. 9601 et seq.; the
Hazardous Waste Control Law ("HWCL"), California Health and Safety Code ss.
25100 et seq.; the Safe Drinking Water and Toxic Enforcement Act of 1986,
California Health and Safety Code Section 25249.5: et seq.; the Porter-Cologne
Water Quality Control Act ("Porter-Cologne"), California Water Code Section
13000, et seq.; the Clean Water Act ("CWA"), 33 U.S.C. ss. 1251 et seq.; the
Safe Drinking Water Act, 42 U.S.C. ss. 300 (f) et seq; the Clean Air Act
("CAA"), 42 U.S.C. ss. 7401 et seq.; the California Air Pollution Control Law,
California Health and Safety Code Section 2900O, et seq.; and in the plans,
rules regulations or ordinances adopted, or other criteria and guidelines
promulgated pursuant to the preceding laws or other similar laws, regulations,
rule or ordinance now or hereafter in effect (collectively the "Environmental
Laws"); and any other substances, constituents or wastes subject to
environmental regulations under any applicable federal, state or local law,
regulation or ordinance now or hereafter in effect.
(B) Environmental Representations and Warranties. Landlord
represents and warrants to Tenant that (a) Landlord has the full right, power
and authority to execute this Lease and to lease the Premises as provided in the
Lease and to carry out all obligations hereunder; (b) Landlord is financially
capable of performing and satisfying, or has obtained sufficient financial
assurance to satisfy, in full its obligations pursuant to this Lease; (c)
neither Landlord nor any tenant of Landlord's who has occupied the Premises is
in violation or subject to any existing, pending, or threat of investigation by
any governmental authority under any applicable federal, state or local law,
Environmental Laws and any and all zoning and land use laws and regulations; (d)
any handling, transportation, storage, treatment or use of Hazardous Materials
that has occurred on the Premises to date has been in compliance with all
applicable federal, state and local laws, regulations and ordinances, (e) To
Landlord's knowledge no leak, spill, release, discharge, emission, or disposal
of Hazardous Materials has occurred on the Premises to date and the soil,
groundwater, and soil vapor on or under the Premises is free of Hazardous
Materials as of the date of the Lease Commencement
- 4 -
<PAGE>
Date; and (f) Landlord has complied with all Environmental Laws with respect to
the underground and above ground storage tanks.
(C) Environmental Indemnity. Landlord agrees to indemnify and
defend (with counsel satisfactory to tenant) and hold Tenant and its officers,
employees, contractors, and agents harmless from any claims, judgment, damages,
penalties, fines, expenses, liabilities, losses arising during or after the
Lease Term out of or in any way relating to the presence, release or discharge
of Hazardous Materials on or from the Premises, or from a breach of any of the
Environmental Warranties and Representations made by Landlord above, unless the
Hazardous Materials are present solely as a result of the actions of Tenant, its
officers, employees, contractors, invitees, licensees, or agents. That indemnity
shall include, without limitation, costs incurred in connection with:
a. Hazardous Materials present or suspected to be
present in the soil, ground water, or soil vapor on or under the Premises before
Tenant occupies the Premises or the Lease Term commences; or
b. Hazardous Materials present or suspected to be
present in the soil, ground water, or soil vapor on or under the Premises after
Lease Term commences resulting from actions by Landlord made at any time; or
c. Hazardous Materials that migrate, flow, percolate,
diffuse, or in any way move onto or under the Premises, during Tenant's
occupancy of the Premises after Lease Term commences; or
d. Hazardous Materials present on or under the
Premises as the result of any discharge, dumping, or spilling (accidental or
otherwise) on the Premises during Tenant's occupancy of the Premises or after
the Lease Term commences by any person, corporation, partnership or entity other
than Tenant, its officers, employees, contractors, or agents unless such person,
corporation, partnership, or entity is an invitee or licensee of Tenant, in
which event there shall be no indemnification by Landlord.
The indemnification provided by this Paragraph shall also specifically
cover, without limitation, costs incurred in connection with any investigation
of site conditions (except any conducted in conjunction with the due diligence
period under the Option Agreement between the parties) or any cleanup, remedial,
removal, or restoration work required by any federal, state, or local
governmental agency or political subdivision or other third party because of the
presence or suspected presence of Hazardous Materials in the soil, ground water
or soil vapor on or under the Premises unless the Hazardous Materials are
present solely as the result of the actions of Tenant, its officers, employees,
contractors, agents, invitees or licensees. These costs may include, but are not
limited to, diminution of the value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises, sums paid in settlement of claims, attorneys' fees, consultant fees,
and expert fees.
The foregoing environmental indemnity shall survive the expiration or
termination of this Lease and/or any transfer of all or any portion of the
Premises to Tenant or to any third party. It shall be governed by the laws of
the State of California. Notwithstanding any provision of this Lease, Landlord
shall be personally liable without limitation on recourse, for performance of
its obligations under this Section.
(D) Environmental Release. Landlord, on behalf of themselves
and any corporation in which Landlord owns or owned shares hereby releases
Tenant and its officers, directors, trustees, agents, employees, and its
successors and assigns, from any and all manner of action or actions, causes of
action (at law or in equity), obligations, claims, covenants, demands,
liabilities, and losses of any nature whatsoever, known or unknown, fixed or
contingent, arising out of or related to the present or future physical
condition of the Premises or the present or future presence of Hazardous
Materials on or about the Premises or which arise out or are related to any
Environmental Laws, for which Landlord is indemnifying Tenant hereunder ("the
Release"). Landlord agrees never to commence, aid in any way or prosecute
against the Tenant, its officers, directors, trustees, agents and employees and
its and their respective successors, any action or other proceeding based on any
claims, demands, causes of action, obligations, damages, or liabilities covered
by this Release. Landlord further acknowledges and waives any rights or benefits
available to them with respect to the Release under the provisions of Section
1542 of the California Civil Code, which provides:
- 5 -
<PAGE>
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
(E) Corrective Action. If any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work (the "Remedial
Work") of any kind is necessary under Environmental Laws, or as required by any
governmental entity or other third person because of or in connection with the
presence or suspected presence of Hazardous Materials on or under the Premises,
Landlord shall assume full responsibility for all such Remedial Work and all
costs and expenses of such Remedial Work shall be paid by Landlord, unless the
Hazardous Materials are present solely as a result of the actions of Tenant or
its officers, directors, employees, licensees, invitees, contractors, or agents.
In the event Hazardous Materials are present as the result of actions by both
Landlord and Tenant, the parties shall determine the percentage of
responsibility of each party, and if unable to agree, then they shall submit the
issue to arbitration in accordance with the rules of the American Arbitration
Association.
(F) Environmental Default Provision. Any reasonable
interference with Tenant's operations resulting from the presence of Hazardous
Materials on, under, in, or adjacent to the Premises or from the Remedial Work
not caused by Tenant shall be a material default for which Tenant may exercise
any remedy set forth in this Lease including, but not limited to: (a) abating
Rent, or (b) terminating this Lease. Tenant's right to abate Rent hereunder
shall be based on the extent to which the Environmental Default interferes with
Tenant's use of the Premises.
5.4 Tenant's Hazardous Materials.
(A) No Hazardous Materials, as defined herein, shall be
Handled, as also defined herein, upon, about, above or beneath the Premises by
or on behalf of Tenant, its subtenants or its assignees, or their respective
contractors, clients, officers, directors, employees, agents, invitees, or
licensees except those quantities of those Hazardous Materials customarily used
for Tenant's Permitted Use, provided Tenant complies with applicable
Environmental Laws.
(B) "Handle," "Handled," or "Handling" shall mean any
installation, handling, generation, storage, treatment, use, disposal,
discharge, release, manufacture, refinement, presence, migration, emission,
abatement, removal, transportation, or any other activity of any type in
connection with or involving Hazardous Materials.
(C) Tenant's Indemnity. Tenant shall indemnify Landlord for
the handling of any Hazardous Materials in accordance with Article 9.
ARTICLE 6
UTILITIES AND SERVICES
6.1 Utilities. Tenant shall be responsible for all utility costs
incurred and used by Tenant at the Premises including, without limitation,
water, electricity, and garbage.
ARTICLE 7
MAINTENANCE AND REPAIRS
7.1 Landlord Repairs. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Premises
during the Term of this Lease except as are set forth in this Section. Landlord
shall repair and maintain all underground and aboveground storage tanks, septic
tank(s) and waste disposal facilities.
7.2 Tenant Repairs. Tenant, at its own cost and expense, shall maintain
the Premises (except for the items that are the responsibility of Landlord under
Paragraph 7.1 and Article 5). Without limiting the generality of the foregoing,
Tenant shall maintain and keep in good repair (including replacement when
necessary): (a) the interior of the Premises, including walls, floors and
ceilings; (b) all windows and doors, including frames, glass and fiberglass
coverings, and hardware; (c) all wires and plumbing within the Greenhouse
Buildings, (d) all signs, air conditioning, heating equipment, and other
mechanical equipment situated on or in the Greenhouse Buildings. Tenant shall
- 6 -
<PAGE>
further make all other repairs to the Premises made necessary by Tenant's
failure to comply with its obligations under this Section.
Notwithstanding the foregoing, Tenant shall not be required to make any
structural repair to, structural modification of, or structural addition to any
of the Greenhouse Buildings or the Premises as may be required by any federal,
state or local governmental laws, ordinances and regulations, except and to the
extent required because of Tenant's use of the Premises. Otherwise, any and all
repairs, maintenance or alterations to the Premises required by any governmental
authorities shall be the responsibility of Landlord, including the abatement of
any asbestos, if any, located at the Premises.
7.3 Request for Repairs. All requests for repairs or maintenance that
are the responsibility of the Landlord pursuant to any provision of this Lease
must be made in writing to Landlord at the address in Paragraph 1.12.
7.4 Tenant Damages. Tenant shall not allow any damage to be committed
on any portion of the Premises, and at the termination of this Lease, by lapse
of time or otherwise, Tenant shall deliver the Premises to Landlord in as good
condition as existed at the Commencement Date of this Lease, ordinary wear and
tear excepted. The cost and expense of any repairs necessary to restore the
condition of the Premises shall be borne by Tenant. Notwithstanding anything to
the contrary contained herein, Tenant shall leave all electrical systems,
lighting fixtures, space heaters, air conditioning, plumbing and other
irrigation systems upon the Premises in good operating condition, except as
otherwise permitted in Paragraph 8.1. In the event Tenant fails to perform
Tenant's repair and maintenance obligations under this Section, Landlord may at
its option, but shall not be required to, enter upon the Premises after ten (10)
days prior written notice to Tenant (except in case of an emergency, in which
case no notice shall be required), to perform such obligations on Tenant's
behalf and to place the Premises in good order, condition and repair, and Tenant
shall pay the cost thereof as Additional Rent to Landlord.
7.5 Landlord's Rights. Landlord and its contractors shall have the
right, at all reasonable times, to enter upon the Premises to make any repairs
to the Premises reasonably required or deemed reasonably necessary by Landlord
and to erect such equipment, including scaffolding, as is reasonably necessary
to effect such repairs.
ARTICLE 8
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
8.1 Landlord's Consent; Conditions. Tenant shall not make or permit to
be made any alterations, additions, or improvements in or to the Premises
("Alterations") without the prior written consent of Landlord. Landlord may
impose as a condition to such consent such requirements as Landlord in its sole
discretion deems necessary or desirable including without limitation: Tenant's
submission to Landlord, for Landlord's prior written approval, of all plans and
specifications relating to the Alterations; Landlord's prior written approval of
the time or times when the Alterations are to be performed; Landlord's prior
written approval of the contractors and subcontractors performing work in
connection with the Alterations; Tenant's receipt of all necessary permits and
approvals from all governmental authorities having jurisdiction prior to the
construction of the Alterations; Tenant's written notice of whether the
Alterations include the Handling of any Hazardous Materials, pursuant to
Paragraph 5.4; Tenant's delivery to Landlord of such bonds and insurance as
Landlord shall reasonably require; and Tenant's payment to Landlord of all costs
and expenses incurred by Landlord because of Tenant's Alterations, including but
not limited to costs incurred in reviewing the plans and specifications for, and
the progress of, the Alterations. Notwithstanding the foregoing to the contrary,
Landlord preconsents to Tenant making certain alterations to the Greenhouse
Buildings including, without limitation, the following: cleaning the Greenhouse
Buildings; removal of the sideboards to the beds in the Greenhouse Buildings,
soil sterilization in the Greenhouse Buildings; power washing the Greenhouse
Buildings' bays; sterilization of structures within the Greenhouse Buildings;
recovering the Greenhouse Buildings; and painting. Moreover, Landlord shall
allow Tenant to install weed barriers, gravel and benches in the Greenhouses and
to install certain equipment therein including, without limitation, circulation
fans, grow lights, modification to the heating system, modification to the
irrigation system, modification to the cooling system, and installation of
bottom heat moist and fog systems. Landlord agrees that Tenant, upon the
expiration or sooner termination of this Lease, shall be allowed to remove from
the Premises the benches,
- 7 -
<PAGE>
bottom heat, moist and fog systems, grow lights, and such other personal
property moved into the Premises by Tenant which can be removed without causing
damage to the Premises.
8.2 Performance of Alterations Work. All work relating to the
Alterations shall be performed in compliance with the plans and specifications
approved by Landlord, and all applicable laws, ordinances, rules, regulations
and directives of all governmental authorities having jurisdiction.
8.3 Liens. Tenant shall pay when due all costs for work performed and
materials supplied to the Premises. Tenant shall keep Landlord, the Premises and
the Building free from all liens, stop notices and violation notices relating to
the Alterations or any other work performed for, materials furnished to or
obligations incurred by Tenant and Tenant shall protect, indemnify, hold
harmless and defend Landlord, the Premises and the Building of and from any and
all loss, cost, damage, liability and expense, including attorneys' fees,
arising out of or related to any such liens or notices. Further, Tenant shall
give Landlord not less than seven (7) business days prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of nonresponsibility. Tenant shall secure, at Tenant's sole
expense, a completion and lien indemnity bond satisfactory to Landlord for such
work, and during the progress of such work, Tenant shall, upon Landlord's
request, furnish Landlord with sworn contractor's statements and lien waivers
covering all work theretofore performed. Tenant shall satisfy or otherwise
discharge all liens, stop notices or other claims or encumbrances within ten
(10) days after Landlord notifies Tenant in writing that any such lien, stop
notice, claim or encumbrance has been filed. If Tenant fails to pay and remove
such lien, claim or encumbrance within such ten (10) days, Landlord, at its
election, may pay and satisfy the same and in such event the sums so paid by
Landlord, with interest from the date of payment at the rate set forth in
Paragraph 4.2 hereof for amounts owed Landlord by Tenant shall be deemed to be
additional rent due and payable by Tenant at once without notice or demand.
8.4 Lease Termination. Except as provided in this section, upon
termination of this Lease Tenant shall surrender the Premises to Landlord in the
same condition as when received, subject to reasonable wear and tear. Except as
otherwise provided in Paragraph 8.1, all Alterations shall become a part of the
Premises and shall become the property of Landlord upon the expiration or
earlier termination of this Lease, unless Landlord shall, by written notice
given to Tenant, require Tenant to remove some or all of Tenant's Alterations,
in which event Tenant shall promptly remove the designated Alterations and shall
promptly repair any resulting damage, all at Tenant's sole expense. All business
and trade fixtures, machinery and equipment, furniture, movable partitions and
items of personal property owned by Tenant or installed by Tenant at its expense
in the Premises shall be and remain the property of Tenant; upon the expiration
or sooner termination of this Lease, Tenant shall, at its sole expense, remove
all such items and repair any damage to the Premises or the Building caused by
such removal. If Tenant fails to remove any such items or repair such damage
promptly after the expiration or sooner termination of the Lease, Landlord may,
but need not, do so with no liability to Tenant, and Tenant shall pay Landlord
the cost thereof upon demand.
ARTICLE 9
INDEMNIFICATION AND INSURANCE
9.1 Indemnification. Tenant and Tenant's officers and directors agree
to protect, indemnify, hold harmless and defend Landlord (with counsel
satisfactory to Landlord) and any mortgagee or ground lessor, and each of their
respective partners, directors, officers, agents and employees, successors and
assigns, regardless of any negligence imputed to Landlord as owner of the real
property involved in an injury, from and against:
(A) Any and all loss, cost, damage, liability or expense as incurred
(including but not limited to attorneys' fees and legal costs) arising out of or
related to any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury,
including death, or property damage sustained by such person or persons which
arises out of, is occasioned by or is in any way attributable to the use or
occupancy of the Premises by Tenant or the acts or omissions of Tenant or its
agents, employees, contractors, clients, invitees or subtenants except that
caused by the sole active negligence of Landlord or its agents or employees.
Such loss or damage shall include, but not be limited to, any injury or damage
to, or death of, Landlord's employees or agents or damage to the Premises or any
portion of the Building.
(B) Any and all environmental damages which arise from: (i) the
Handling of any Tenant's Hazardous Materials, as defined pursuant to Section 5.4
or (ii) the breach of any of the
- 8 -
<PAGE>
provisions in this Lease. For the purpose of this Lease, "environmental damages"
shall mean (a) all claims, judgments, damages, penalties, fines, costs,
liabilities, and losses (including without limitation, diminution in the value
of the Premises or any portion of the Building, damages for the loss of or
restriction on use of rentable or usable space or of any amenity of the Premises
or any portion of the Building, and from any adverse impact of Landlord's
marketing of space; (b) all reasonable sums paid for settlement of claims,
attorneys' fees, consultants' fees and experts' fees; and (c) all costs incurred
by Landlord in connection with investigation or remediation relating to the
Handling of Tenant's Hazardous Materials, whether or not required by
Environmental Laws, necessary for Landlord to make full economic use of the
Premises or any portion of the Building, or otherwise required under this Lease.
To the extent that Landlord is strictly liable under any Environmental Laws,
Tenant's obligation to Landlord and the other indemnities under the foregoing
indemnification shall likewise be without regard to fault on Tenant's part with
respect to the violation of any Environmental Law which results in liability to
the indemnitee. Tenant's obligations and liabilities pursuant to this Section
9.1 shall survive the expiration or earlier termination of this Lease.
9.2 Property Insurance.
(A) At all times during the Lease Term, Tenant shall procure
and maintain, at its sole expense, "all-risk" property insurance, in an amount
not less than one hundred percent (100%) of the replacement cost covering (a)
all leasehold improvements in and to the Premises which are made at the expense
of Tenant; and (b) Tenant's trade fixtures, equipment, plants (product), and
other personal property from time to time situated in the Premises. The proceeds
of such insurance shall be used for the repair or replacement of the property so
insured, except that if not so applied or if this Lease is terminated following
a casualty, the proceeds applicable to the leasehold improvements shall be paid
to Landlord and the proceeds applicable to Tenant's personal property shall be
paid to Tenant.
(B) At all times during the Lease Term, Tenant shall procure
and maintain business interruption insurance in such amount as will reimburse
Tenant as Tenant deems necessary.
9.3 Liability Insurance.
(A) At all times during the Lease Term, Tenant shall procure
and maintain, at its sole expense, general liability insurance applying to the
use and occupancy of the Premises and the business operated by Tenant. Such
insurance shall have a minimum combined single limit of liability of at least
$1,000,000 per occurrence and a general aggregate limit of $2,000,000. All such
policies shall be written to apply to all bodily injury, property damage,
personal injury losses and shall be endorsed to include Landlord and its agents,
beneficiaries, partners, employees, and any deed of trust holder or mortgagee of
Landlord or any ground lessor as additional insureds. Such liability insurance
shall be primary and not excess or contributing to any other insurance as may be
available to the additional insureds.
9.4 Workers' Compensation Insurance. At all times during the Lease
Term, Tenant shall procure and maintain Workers' Compensation Insurance in
accordance with the laws of the State of California, and Employer's Liability
insurance with a limit not less than $1,000,000 Bodily Injury Each Accident;
$1,000,000 Bodily Injury By Disease - Each Person; and $1,000,000 Bodily Injury
to Disease - Policy Limit.
9.5 Policy Requirements. All insurance required to be maintained by
Tenant shall be issued by insurance companies authorized to do insurance
business in the State of California and rated not less than A-VII in Best's
Insurance Guide. A certificate of insurance (or, at Landlord's option, copies of
the applicable policies) evidencing the insurance required under this Article
shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date. No such policy shall be subject to cancellation or
modification without thirty (30) days prior written notice to Landlord and to
any deed of trust holder, mortgagee or ground lessor designated by Landlord to
Tenant. Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy.
9.6 Waiver of Subrogation. Each party hereby waives any right of
recovery against the other for injury or loss due to hazards covered by
insurance, to the extent of the injury or loss covered thereby. Any policy of
insurance to be provided by Tenant pursuant to this Article shall contain a
clause denying the insurer any right of subrogation against Landlord.
- 9 -
<PAGE>
9.7 Failure to Insure. If Tenant fails to maintain any insurance which
Tenant is required to maintain pursuant to this Article, Tenant shall be liable
to Landlord for any loss or cost resulting from such failure to maintain.
Landlord shall have the right, in its sole discretion, to procure and maintain
such insurance which Tenant is required to maintain hereunder and the cost
thereof shall be deemed additional rent due and payable by Tenant. Tenant may
not self-insure against any risks required to be covered by insurance without
Landlord's prior written consent.
9.8 Landlord's Insurance. Landlord, at its sole cost shall maintain on
the Leased Premises a policy of standard fire and extended coverage insurance,
with vandalism and malicious mischief, boiler and machinery insurance, to the
extent of at least full replacement value of the Greenhouse Buildings and other
structures located on the Leased Premises.
The insurance policy shall be issued in the names of Landlord, Tenant,
and Landlord's Lender, if any, as their interests appear. The insurance policy
shall provide that any proceeds shall be payable as provided herein.
Landlord shall pay the premiums for maintaining the insurance required
by this paragraph.
The "full replacement value" of the Greenhouse Buildings and other
structures located on the Leased Premises to be insured hereunder shall be
determined by the company issuing the insurance policy at the time the policy is
initially obtained. Not more frequently than once every two years, either party
shall have the right to notify the other party if it elects to have the
replacement value redetermined by an insurance company. The redetermination
shall be made promptly and in accordance with the rules and practices of the
Board of Fire Underwriters, or a like board recognized and generally accepted by
the insurance company, and each party shall be promptly notified of the results
by the company. The insurance policy shall be adjusted according to the
redetermination.
ARTICLE 10
DAMAGE OR DESTRUCTION
10.1 Damage. In the event of a casualty to the Premises, the following
shall apply:
10.2 Reconstruction. If the Leased Premises are damaged or destroyed
during the term, Landlord shall, to the extent that insurance proceeds are
available therefor and are not applied by any lender against payment of any
existing loan on the Premises, except as hereinafter provided, diligently repair
or rebuild them to substantially the same condition in which they existed
immediately prior to such damage or destruction; provided, however, that any
damage which is estimated in good faith by the Landlord to be $1,000 or less
shall be repaired by Tenant, and Landlord shall reimburse Tenant upon demand for
expenses incurred in such repair work;
10.3 Rent Abatement. The Base Rent shall be abated from the date of the
damage or destruction in the same proportion that the rentable area of the
portion of the Premises which is usable by Tenant bears to the total rentable
area of the Premises.
10.4 Excessive Damage or Destruction. Notwithstanding whether the
Leased Premises have been damaged or destroyed, if any of the Greenhouse
Buildings are damaged or destroyed to the extent that Landlord determines that
they cannot, with reasonable diligence, be fully repaired or restored by
Landlord within one hundred eighty (180) days after the date of the damage or
destruction, Landlord or Tenant may terminate this Lease. Notwithstanding
whether the Lease Premises have been damaged or destroyed, Landlord shall
determine whether any of the other Buildings on the Premises damaged or
destroyed can be fully repaired or restored within ninety (90) days, and
Landlord's reasonable determination shall be binding upon Tenant. Landlord shall
notify Tenant of its determination, in writing, within twenty (20) days after
the date of the damage or destruction. If Landlord reasonably determines that
any of the Buildings damaged or destroyed can be fully repaired or restored
within the ninety (90) days, this Lease shall remain in force and effect and
Landlord shall diligently repair and restore the damage as soon as reasonably
possible.
- 10 -
<PAGE>
ARTICLE 11
CONDEMNATION
11.1 Taking. If the entire Premises or so much of the Premises as to
render the balance unusable by Tenant shall be taken by condemnation, sale in
lieu of condemnation or in any other manner for any public or quasi-public
purpose (collectively "Condemnation"), this Lease shall terminate on the date
that title or possession to the Premises is taken by the condemning authority,
whichever is earlier.
11.2 Award. In the event of any Condemnation, the entire award for such
taking shall belong to Landlord, except that Tenant shall be entitled to
independently pursue a separate award relating to the loss of, or damage to,
Tenant's personal property and trade fixtures and Tenant's moving costs directly
associated with the taking. Tenant shall have no claim against Landlord or the
award for the value of any unexpired term of this Lease or otherwise.
11.3 Temporary Taking. No temporary taking of the Premises shall
terminate this Lease or entitle Tenant to any abatement of the Rent payable to
Landlord under this Lease; provided, further, that any award for such temporary
taking shall belong to Tenant to the extent that the award applies to any time
period during the Lease Term and to Landlord to the extent that the award
applies to any time period outside the Lease Term.
ARTICLE 12
ASSIGNMENT AND SUBLETTING
12.1 Restriction. Without the prior written consent of Landlord, Tenant
shall not, either voluntarily or by operation of law, assign, encumber, or
otherwise transfer this Lease or any interest herein, or sublet the Premises or
any part thereof, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees. An assignment, subletting or other action in
violation of the foregoing shall be void and, at Landlord's option, shall
constitute a material breach of this Lease. For purposes of this Section, an
assignment shall include any transfer of any interest in this Lease or the
Premises by Tenant pursuant to a merger, division, consolidation or liquidation,
or pursuant to a change in ownership of Tenant involving a transfer of voting
control in Tenant (whether by transfer of partnership interests, corporate stock
or otherwise). Notwithstanding anything contained in this Article to the
contrary, Tenant expressly covenants and agrees not to enter into any lease,
sublease, license, concession or other agreement for use, occupancy or
utilization of the Premises which provides for rental or other payment for such
use, occupancy or utilization based in whole or in part on the net income or
profits derived by any person from the property leased, used, occupied or
utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and that any such purported lease, sublease, license,
concession or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
12.2 Notice to Landlord. If Tenant desires to assign this Lease or any
interest herein, or to sublet all or any part of the Premises, then at least
twenty (20) business days prior to the effective date of the proposed assignment
or subletting, Tenant shall submit to Landlord in connection with Tenant's
request for Landlord's consent:
(A) A statement containing (i) the name and address of the
proposed assignee or subtenant; (ii) such financial information with respect to
the proposed assignee or subtenant as Landlord shall reasonably require; (iii)
the type of use proposed for the Premises; and (iv) all of the principal terms
of the proposed assignment or subletting; and
(B) Four (4) originals of the assignment or sublease on a form
approved by Landlord and four (4) originals of the Landlord's Consent to
Sublease or Assignment and Assumption of Lease and Consent.
12.3 Landlord's Recapture Rights. At any time within twenty (20)
business days after Landlord's receipt of all (but not less than all) of the
information and documents described in Paragraph 12.2 above, Landlord may, at
its option by written notice to Tenant, elect to: (a) sublease the Premises or
the portion thereof proposed to be sublet by Tenant upon the same terms as those
offered to the proposed subtenant; (b) take an assignment of the Lease upon the
same terms as those
- 11 -
<PAGE>
offered to the proposed assignee; or (c) terminate the Lease in its entirety or
as to the portion of the Premises proposed to be assigned or sublet, with a
proportionate adjustment in the Rent payable hereunder if the Lease is
terminated as to less than all of the Premises. If Landlord does not exercise
any of the options described in the preceding sentence, then, during the
above-described twenty (20) business day period, Landlord shall either consent
or deny its consent to the proposed assignment or subletting.
12.4 Landlord's Consent: Standards. Landlord's consent shall not be
unreasonably withheld; but, in addition to any other grounds for denial,
Landlord's consent shall be deemed reasonably withheld if, in Landlord's good
faith judgment: (i) the proposed assignee or subtenant does not have the
financial strength to perform its obligations under this Lease or any Proposed
sublease; (ii) the business and operations of the proposed assignee or subtenant
are not of comparable quality to the business and operations being conducted by
Tenant; (iii) the proposed assignee or subtenant intends to use any part of the
Premises for a purpose not permitted under this Lease; or (iv) the proposed
assignee or subtenant is disreputable.
12.5 Continuing Liability of Tenant. Notwithstanding any assignment or
sublease, Tenant shall remain as fully and primarily liable for the payment of
Rent and for the performance of all other obligations of Tenant contained in
this Lease to the same extent as if the assignment or sublease had not occurred;
provided, however, that any act or omission of any assignee or subtenant, other
than Landlord, that violates the terms of this Lease shall be deemed a violation
of this Lease by Tenant.
12.6 Non-Waiver. The consent by Landlord to any assignment or
subletting shall not relieve Tenant, or any person claiming through or by
Tenant, of the obligation to obtain the consent of Landlord, pursuant to this
Article, to any further assignment or subletting. In the event of an assignment
or subletting, Landlord may collect rent from the assignee or the subtenant
without waiving any rights hereunder and collection of the rent from a person
other than Tenant shall not be deemed a waiver of any of Landlord's rights under
this Article, an acceptance of assignee or subtenant as Tenant, or a release of
Tenant from the performance of Tenant's obligations under this Lease.
ARTICLE 13
DEFAULT AND REMEDIES
13.1 Events of Default by Tenant. The occurrence of any of the
following shall constitute a material default and breach of this Lease by
Tenant:
(A) The failure by Tenant to pay Base Rent or make any other
payment required to be made by Tenant hereunder as and when due.
(B) The abandonment of the Premises by Tenant or the vacation
of the Premises by Tenant for fourteen (14) consecutive days (with or without
the payment of Rent).
(C) The failure by Tenant to observe or perform any other
provision of this Lease to be observed or performed by Tenant, other than those
described in Article 13 above, if such failure continues for ten (10) days after
written notice thereof by Landlord to Tenant: provided, however, that if the
nature of the default is such that it cannot be cured within the ten (10) day
period, no default shall exist if Tenant commences the curing of the default
within the ten (10) day period and thereafter diligently prosecutes the same to
completion. The ten (10) day notice described herein shall be in lieu of, and
not in addition to, any notice required under Section 1161 of the California
Code of Civil Procedure or any other law now or hereafter in effect requiring
that notice of default be given prior to the commencement of an unlawful
detainer or other legal proceeding.
(D) The making by Tenant of any general assignment for the
benefit of creditors, the filing by or against Tenant of a petition under any
federal or state bankruptcy or insolvency laws (unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days
after filing); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets at the Premises or Tenant's interest in
this Lease or the Premises, when possession is not restored to Tenant within
thirty (30) days; or the attachment, execution or other seizure of substantially
all of Tenant's assets located at the Premises or Tenant's interest in this
Lease or the Premises, if such seizure is not discharged within thirty (30)
days.
- 12 -
<PAGE>
13.2 Landlord's Right to Terminate Upon Tenant Default. In the event of
any default by Tenant as provided in Paragraph 13.1 above, Landlord shall have
the right to terminate this Lease and recover possession of the Premises by
giving written notice to Tenant of Landlord's election to terminate this Lease,
in which event Landlord shall be entitled to receive from Tenant:
(A) The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(C) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom; and
(E) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subparagraphs (A) and (B) above, "worth at the time of
award" shall be computed by allowing interest at the then highest lawful rate,
but in no event to exceed one percent (1%) per annum plus the rate established
by the Federal Reserve Bank of San Francisco on advances made to member banks
under Sections 13 and 13a of the Federal Reserve Act ("discount rate")
prevailing on the date of execution of this Lease by Landlord. As used in
paragraph (C) above, "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
13.3 Landlord's Right To Continue Lease Upon Tenant Default. In the
event of a breach of this Lease and abandonment of the Premises by Tenant, if
Landlord does not elect to terminate this Lease as provided in Paragraph 13.2
above, Landlord may from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations). To the fullest extent
permitted by law, the proceeds of any reletting shall be applied first to pay to
Landlord all costs and expenses of such reletting (including without limitation,
costs and expenses of retaking or repossessing the Premises, removing persons
and property therefrom, securing new tenants, including expenses for
redecoration, alterations and other costs in connection with preparing the
Premises for new tenant, and if Landlord shall maintain and operate the
Premises, the costs thereof) and receivers' fees incurred in connection with the
appointment of and performance by a receiver to protect the Premises and
Landlord's interest under this Lease and any necessary or reasonable
alterations; second, to the payment of any indebtedness of Tenant to Landlord
other than Rent due and unpaid hereunder; third, to the payment of Rent due and
unpaid hereunder; and the residue, if any, shall be held by Landlord and applied
in payment of other or future obligations of Tenant to Landlord as the same may
become due and payable, and Tenant shall not be entitled to receive any portion
of such revenue.
13.4 Right of Landlord to Perform. All covenants and agreements to be
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense. If Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to perform any other act
on its part to be performed hereunder, Landlord may, but shall not be obligated
to, make any payment or perform any such other act on Tenant's part to be made
or performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the lesser of the maximum rate permitted by law if any
or twelve percent (12%) per annum from the date of such payment, shall be
payable to Landlord as additional rent on demand and Landlord shall have the
same rights and remedies in the event of nonpayment as in the case of default by
Tenant in the payment of Rent.
- 13 -
<PAGE>
13.5 Non-Waiver. Nothing in this Article shall be deemed to affect
Landlord's rights to indemnification for liability or liabilities arising prior
to termination of this Lease for personal injury or property damages under the
indemnification clause or clauses contained in this Lease. No acceptance by
Landlord of a lesser sum than the Rent then due shall be deemed to be other than
on account of the earliest installment of such rent due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or pursue any other remedy in the Lease provided.
The delivery of keys to any employee of Landlord or to Landlord's agent or any
employee thereof shall not operate as a termination of this Lease or a surrender
of the Premises.
13.6 Cumulative Remedies. The specific remedies to which Landlord may
resort under the terms of the Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of the Lease. In addition to the other remedies provided in the Lease, Landlord
shall be entitled to a restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
13.7 Default by Landlord. Landlord's failure to perform or observe any
of its obligations under this Lease shall constitute a default by Landlord under
this Lease only if such failure shall continue for a period of thirty (30) days
(or the additional time, if any, that is reasonably necessary promptly and
diligently to cure the failure) after Landlord receives written notice from
Tenant specifying the default. The notice shall give in reasonable detail the
nature and extent of the failure and shall identify the Lease provision(s)
containing the obligation(s). Landlord's breach of any of its warranties and
representations shall also constitute a default by the Landlord entitling Tenant
to all remedies and damages available at law or in equity.
ARTICLE 14
ATTORNEYS' FEES: COSTS OF SUIT
14.1 Attorneys' Fees. If either Landlord or Tenant shall commence any
action or other proceeding against the other arising out of, or relating to,
this Lease or the Premises, the prevailing party shall be entitled to recover
from the losing party, in addition to any other relief, its actual attorneys
fees irrespective of whether or not the action or other proceeding is prosecuted
to judgment and irrespective of any court schedule of reasonable attorneys'
fees. In addition, Tenant shall reimburse Landlord, upon demand, for all
reasonable attorneys' fees incurred in collecting Rent or otherwise seeking
enforcement against Tenant, its sublessees and assigns, of Tenant's obligations
under this Lease.
14.2 Indemnification. Should Landlord be made a party to any litigation
instituted by Tenant against a party other than Landlord, or by a third party
against Tenant, Tenant shall indemnify, hold harmless and defend Landlord from
any and all loss, cost, liability, damage or expense incurred by Landlord,
including attorneys' fees, in connection with the litigation.
ARTICLE 15
SUBORDINATION AND ATTORNMENT
15.1 Subordination. This Lease, and the rights of Tenant hereunder, are
and shall be subordinate to the interests of (i) all present and future ground
leases and master leases of all or any part of the Buildings; (ii) present and
future mortgages and deeds of trust encumbering all or any part of the
Buildings; (iii) all past and future advances made under any such mortgages or
deeds of trust; and (iv) all renewals, modifications, replacements and
extensions of any such ground leases, master leases, mortgages and deeds of
trust; provided, however, that any lessor under any such ground lease or master
lease or any mortgagee or beneficiary under any such mortgage or deed of trust
shall have the right to elect, by written notice given to Tenant, to have this
Lease made superior in whole or in part to any such ground lease, master lease,
mortgage or deed of trust. Upon demand, Tenant shall execute, acknowledge and
deliver any instruments reasonably requested by Landlord or any such lessor,
mortgagee or beneficiary to effect the purposes of this Paragraph 15.1. Such
instruments may contain, among other things, provisions to the effect that such
lessor, mortgagee or beneficiary (hereafter, for the purposes of this Paragraph
15.1, a "Successor Landlord") shall (i) not be liable for
- 14 -
<PAGE>
any act or omission of Landlord or its predecessors, if any, prior to the date
of such Successor Landlord's succession to Landlord's interest under this Lease;
(ii) not be subject to any offsets or defenses which Tenant might have been able
to assert against Landlord or its predecessors, if any, prior to the date of
such Successor Landlord's succession to Landlord's interest under this Lease,
(iii) not be liable for the return of any security deposit under the Lease
unless the same shall have actually been deposited with such Successor Landlord;
and (iv) be entitled to receive notice of any Landlord default under this Lease
plus a reasonable opportunity to cure such default prior to Tenant having any
right or ability to terminate this Lease as a result of such Landlord default.
15.2 Attornment. If requested to do so, Tenant shall attorn to and
recognize as Tenant's landlord under this Lease any superior lessor, superior
mortgagee or other purchaser or person taking title to the Building by reason of
the termination of any superior lease or the foreclosure of any superior
mortgage or deed of trust, and Tenant shall, upon demand, execute any documents
reasonably requested by any such person to evidence the attornment described in
this Section.
15.3 Mortgage and Ground Lessor Protection. Tenant agrees to give any
holder of any mortgage and any ground lessor, by registered or certified mail, a
copy of any notice of default served upon the Landlord by Tenant, provided that
prior to such notice Tenant has been notified in writing (by way of service on
Tenant of a copy of Assignment of Rents and Leases, or otherwise) of the address
of such mortgage holder or ground lessor (hereafter the "Notified Party").
Tenant further agrees that if Landlord shall have failed to cure such default
within thirty (30) days after such notice to Landlord (or if such default cannot
be cured or corrected within that time, then such additional time as may be
necessary if Landlord has commenced within such thirty (30) days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Notified Party shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
the Notified Party has commenced within such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or correct such default). Until
the time allowed, as aforesaid, for the Notified Party to cure such default has
expired without cure, Tenant shall have no right to, and shall not, terminate
this Lease on account of Landlord's default.
ARTICLE 16
QUIET ENJOYMENT
Provided that Tenant performs all of its obligations hereunder, Tenant
shall have and peaceably enjoy the Premises during the Lease Term, subject to
all of the terms and conditions contained in this Lease.
ARTICLE 17
ENTRY BY LANDLORD
Landlord may enter the Premises at all reasonable times after 24 hours
advance notice to Tenant to: inspect the same; exhibit the same to prospective
purchasers, lenders or tenants; determine whether Tenant is complying with all
of its obligations under this Lease; post notices of nonresponsibility; and make
repairs or improvements in or to the Building or the Premises; provided,
however, that all such work shall be done as promptly as reasonably possible and
so as to cause as little interference to Tenant as reasonably possible.
ARTICLE 18
HOLDOVER TENANCY
If Tenant holds possession of the Premises after the expiration or
termination of the Lease Term, by lapse of time or otherwise, Tenant shall
become a tenant at sufferance upon all of the terms contained herein, except as
to Lease Term and Rent. During such holdover period, Tenant shall pay to
Landlord a monthly rental equivalent to one hundred fifty percent (150%) of the
Rent payable by Tenant to Landlord with respect to the last month of the Lease
Term. The monthly rent payable for such holdover period shall in no event be
construed as a penalty or as liquidated damages for such retention of
possession. Without limiting the foregoing, Tenant hereby agrees to indemnify,
defend and hold harmless Landlord, its beneficiary, and their respective agents,
contractors and employees, from and against any and all claims, liabilities,
actions, losses, damages (including without
- 15 -
<PAGE>
limitation, direct, indirect, incidental and consequential) and expenses
(including, without limitation, court costs and reasonable attorneys' fees)
asserted against or sustained by any such party and arising from or by reason of
such retention of possession, which obligations shall survive the expiration of
termination of the Lease Term.
ARTICLE 19
NOTICES
All notices which Landlord or Tenant may be required, or may desire, to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed to
the Landlord at the address for Landlord set forth in Paragraph 1.12 above and
to Tenant at the address for Tenant set forth in Paragraph 1.13 above, or, from
and after the Commencement Date, to the Tenant at the Premises whether or not
Tenant has departed from, abandoned or vacated the Premises, or addressed to
such other address or addresses as either Landlord or Tenant may from time to
time designate to the other in writing. Any notice shall be deemed to have been
served at the time the same was posted.
ARTICLE 20
OPTION TO EXTEND
Landlord hereby grants Tenant two five-year options to extend the term
of this Lease on all of the terms, conditions and provisions contained in this
Lease (except for the Base Rent as hereinafter provided) following expiration of
the Initial Term, by giving notice of exercise of the option ("First Option
Notice") to Landlord at least 180 days prior to the expiration of the Initial
Term, and similar notice 180 days prior to the expiration of the First Option
Period (in the event Tenant wishes to exercise the second five-year option). The
options granted herein shall be ineffective if Tenant is in default of this
Lease on the date of giving the Option Notice, or if Tenant is in default of
this Lease on the date the Extended Term is to commence.
The Base Rent for the first Extended Term shall be equal to the greater
of: l ) the Base Rent in effect immediately prior to the commencement of the
first Extended Term, or 2) the then-prevailing fair market rental value of the
Property. The Base Rent for the second Extended Term shall be equal to the
greater of: 1) the Base Rent in effect for the first Extended Term, or 2) the
then-prevailing fair market rental value of the Property. In no event shall the
Base Rent for the first and second Extended Terms be greater than the
then-prevailing fair market value of the Property plus five percent (5%). For
example, if the Base Rent in effect immediately prior to the start of the first
Extended Term is $12,500 per month, and the then-prevailing fair market rental
value of the Property is $11,500, the Base Rent shall not exceed $11,500 x 5% or
$12,075.
The term "fair market rental value" shall mean the then-prevailing
monthly base rent for similarly sized spaces in similar quality buildings for a
duration of five (5) years.
In the event the parties are unable to agree on a fair market rental
value for the Property for either Extended Term within thirty (30) days of
Tenant giving notice of its exercise of the option to extend the term of the
Lease, such fair market rental value shall be determined by the below appraisal
procedure.
Landlord and Tenant shall each immediately select and pay the appraiser
of their choice (each appraiser to have at least fifteen (15) years' experience
in appraising commercial agricultural land in the Petaluma area) to establish a
fair market rental value of the Property within thirty (30) days. If, for any
reason, either one of the appraisals is not completed within such 30 day period,
as stipulated, then the appraisal that is completed at that time shall
automatically become the new Base Rent for such Extended Term. If both
appraisals are completed and the two appraisers cannot agree on a reasonable
average fair market rental value, then they shall immediately select a third
mutually acceptable appraiser (with 15 years' experience in commercial
agricultural land in the Petaluma area) to establish a third fair market rental
value within the next 30 days. The average of all three appraisals shall then
become the new Base Rent for such Extended Term. The costs of the third
appraisal will be split equally between the parties.
- 16 -
<PAGE>
ARTICLE 21
EARLY TERMINATION
Tenant shall have the right, at its option, to terminate this Lease at
any time after the expiration of the first two years; provided, however, that
upon the termination of this Lease as provided herein, Tenant shall pay to
Landlord (i) any rental and other charges due hereunder through the date of
termination, and (ii) the sum of SEVENTY-FIVE THOUSAND DOLLARS ($75,000) as
consideration for the early termination of this Lease.
ARTICLE 22
OPTION TO PURCHASE
Landlord grants to Tenant the option to purchase the Premises in
accordance with the provisions of the Option Agreement and Purchase and Sale
Agreement attached hereto as EXHIBITS "C" AND "D", respectively. The option to
purchase shall be exercisable by Tenant during the period February 1, 1996
through January 31, 1999.
ARTICLE 23
MISCELLANEOUS
23.1 Entire Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein. This Lease supersedes any and all prior agreements and
understandings between Landlord and Tenant and alone expresses the agreement of
the parties.
23.2 Amendments. This Lease shall not be amended, changed or modified
in any way unless in writing executed by Landlord and Tenant. Landlord shall not
have waived or released any of its rights hereunder unless in writing and
executed by the Landlord.
23.3 Successors. Except as expressly provided herein, this Lease and
the obligations of Landlord and Tenant contained herein shall bind and benefit
the successors and assigns of the parties hereto.
23.4 Force Majeure. Landlord shall incur no liability to Tenant with
respect to, and shall not be responsible for any failure to perform, any of
Landlord's obligations hereunder if such failure is caused by reason of strike,
other labor trouble, governmental rule, regulations, ordinance, statute or
interpretation, or by fire, earthquake, civil commotion, or failure or
disruption of utility services, or any and all other causes reasonably beyond
control of Landlord. The amount of time for Landlord to perform any of
Landlord's obligations shall be extended by the amount of time Landlord is
delayed in performing such obligation by reason of such force majeure
occurrence.
23.5 Survival of Obligations. Any obligations of Tenant accruing prior
to the expiration of the Lease shall survive the termination of the Lease, and
Tenant shall promptly perform all such obligations whether or not this Lease has
expired.
23.6 Light and Air. No diminution or shutting off of any light, air or
view by any structure now or hereafter erected shall in any manner affect this
Lease or the obligations of Tenant hereunder, or increase any of the obligations
of Landlord hereunder.
23.7 Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
23.8 Severability. In the event any provision of this Lease is found to
be unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
- 17 -
<PAGE>
23.9 Captions. All captions, headings, titles, numerical references and
computer highlighting are for convenience only and shall have no effect on the
interpretation of this Lease.
23.10 Interpretation. Tenant acknowledges that it has read and reviewed
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the meaning of its terms and the intent of the
parties.
23.11 Independent Covenants. Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant are separate and
independent covenants of Tenant, and not dependent on any other provision of the
Lease.
23.12 Number and Gender. All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
23.13 Time is of the Essence. Time is of the essence of this Lease and
the performance of all obligations hereunder.
23.14 Joint and Several Liability. If Tenant comprises more than one
person or entity, or if this Lease is guaranteed by any party, all such persons
shall be jointly and severally liable for payment of rents and the performance
of Tenant's obligations hereunder.
23.15 Exhibits. EXHIBIT "A" (Outline of Premises)
EXHIBIT "B" (List of Personal Property)
EXHIBIT "C" (Option Agreement)
EXHIBIT "D" (Purchase and Sale Agreement)
are incorporated into this Lease by reference and made a part hereof.
23.16 Offer to Lease. This Lease shall have no force and effect until
it is executed and delivered by Tenant to Landlord and executed by Landlord;
provided, however, that, upon execution of this Lease by Tenant and delivery to
Landlord, such execution and delivery by Tenant shall, in consideration of the
time and expense incurred by Landlord in reviewing the Lease and Tenant's
credit, constitute an offer to Lease the Premises upon the terms and conditions
set forth herein (which offer to Lease shall be irrevocable for five (5)
business days following the date of delivery).
23.17 Boilers. Landlord shall provide Tenant prior to the commencement
of the Term a State Boiler Inspection Report. Landlord's failure to provide a
State Boiler Inspection Report to Tenant shall entitle Tenant to terminate this
Lease.
23.18 Landlord's Bankruptcy. Landlord hereby discloses to Tenant the
bankruptcy action filed in the U.S. Bankruptcy Court for the Northern District
of California, Case No. 94-11324, filed on behalf of Neve Roses, Inc., a former
tenant of the Premises. As an express condition precedent to the validity of
this Lease, Landlord must provide evidence to Tenant, satisfactory to Tenant,
that the bankruptcy action has no, and will have no, effect on the validity of
this Lease or on Tenant's rights hereunder.
23.19 Enforcement and Dispute Resolution. Any and all disputes, claims,
issues and disagreements (collectively referred to in this Paragraph as
"Disputes" and, in the singular, as a "Dispute") arising out of or relating to
this Agreement or the breach of this Agreement shall be resolved exclusively in
the manner set forth in this Paragraph, except that Landlord may seek possession
of the Premises and certain rents and damages by litigation as permitted by
California Code of Civil Procedure Sections 1161, et seq.
A. Mediation. All Disputes shall first be submitted before
commencing litigation or arbitration to non-binding mediation in accordance with
the mediation procedures of the American Arbitration Association ("AAA"). The
parties agree to participate in at least ten (10) hours of mediation to occur
within the City of Napa and to occur within thirty (30) days of such submission.
The mediator will be appointed in accordance with the rules of AAA, but the
mediator must have experience in the area involving the Dispute and must not
have any conflict of interest. The mediation proceedings will be completely
confidential and not discoverable. The mediation procedure as set forth in this
subparagraph is deemed to be completed with respect to a Dispute if:
- 18 -
<PAGE>
(1) the mediation is completed and an agreement to resolve the Dispute is
entered into between the parties, or (2) mediation is completed and the Dispute
is not resolved within five (5) days thereafter. If a party submits a Dispute to
mediation and the other party fails to appear or participate in good faith in
the mediation within (30) days after having received written notice of the
submission of the Dispute, then the party submitting the Dispute may consider
the mediation procedure to be completed.
B. Arbitration. If any Dispute remains between the parties
after completion of the mediation process set forth in Subparagraph (A) above,
then the parties shall promptly submit the Dispute to final and binding
arbitration (without appeal or review) in Napa, administered by and in
accordance with the rules of AAA. The judgment and any award rendered by the
arbitrator may be enforced under applicable judicial procedures, including
procedures for entry and enforcement of arbitration awards by any state court
having jurisdiction over such matters.
C. Compensation of Mediator or Arbitrator. The parties agree
to share equally the costs, including fees, of any mediator or arbitrator
selected or appointed hereunder. As soon as practicable after selection of the
mediator or arbitrator, the mediator or arbitrator or his or her designated
representative shall determine a reasonable estimate of anticipated fees and
costs, and render a statement to each party setting forth that party's equal
share of the fees and costs. Thereafter, each party shall, within ten (10) days
after receipt of such statement, deposit the required sum with the mediator or
arbitrator. Failure of a party to make such a deposit shall result in a
forfeiture by that party to the right to prosecute or defend the claim that is
the subject of the proceeding, and the other party may prosecute any arbitration
proceeding to judgment and execution.
D. Expenses. The prevailing party in any arbitration, suit or
other action arising out of or related to this Lease is entitled to recover its
reasonable fees, costs and expenses relating to the action or the Dispute,
including reasonable, judicial, and extra-judicial attorneys' fees, expenses and
disbursements, and fees, costs and expenses relating to any mediation or
arbitration.
E. Survival. The provisions of this Paragraph shall survive
the termination of this Lease for any reason, regardless of whether a Dispute
arises before or after termination of this Agreement, and regardless of whether
the related arbitration proceedings occur before or after termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of
the date first above written.
LANDLORD: TENANT:
VINIFERA INC.
/s/ Gianni Neve
GIANNI NEVE
By: /s/ J. Bouckaert
J. Bouckaert
/s/ Maria Neve Its: President
MARIA NEVE
- 19 -
<PAGE>
OUTLINE
OF
PREMISES
Exhibit "A"
<PAGE>
[Exhibit A - map of property]
<PAGE>
LIST OF
PERSONAL PROPERTY
Exhibit "B
<PAGE>
EXHIBIT B
1 - COMPRESSOR - 8-HP - FRONT BUILDING - SERIAL #95F14449
1 - UTILITY SHED - 10x16
2 - FANS - ICE BOX - FRONT - D1L2099
2 - 200 GALLON GAS TANKS
1 - 500 GALLON FUEL TANK
1 - FERTILIZER INJECTOR PROMINENT HM-10-5ac AND CONTROL EQUIPMENT
2 - 300 HP BOILERS
1 - 1000 GALLON RETURN WATER TANK
1 - RIGID 535 PIPE THREAD MACHINE
1 - AUTO ARC WELDER - APC 3026
1 - DRILL PRESS
1 - TOOL RACK
2 - BINS FOR FITTINGS, NUTS AND BOLTS
2 - GRADING MACHINES
1 - 80' X 2' CONVEYER BELT
7 - TABLES 10' X 4'
1 - UTILITY CART
1 - UTILITY CART - 12 X 4
2 - COMPRESSORS - BACK ICE BOX
2 - FANS - BACK ICE BOX
<PAGE>
OPTION AGREEMENT
Exhibit "C"
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of February 1, 1996,
by and between Gianni Neve and Maria Neve (hereinafter "Optionor" without regard
to number or gender) and Vinifera Inc. ("Optionee").
ARTICLE I
RECITALS
This Agreement is entered into with reference to the following facts:
A. Optionor is the owner of all that certain real property commonly
known as 4288 Bodega Avenue, Petaluma, California 94952 (the "Property"), as
depicted in EXHIBIT "1" attached hereto and incorporated herein by this
reference.
B. Optionee is currently in possession of the Property under a
month-to-month lease agreement dated November 30, 1995 and desires to obtain a
lease for a five (5) year term ("the Lease") with an option to purchase the
Property from Optionor on the terms and conditions set forth herein, and
Optionor is willing to grant such lease and option to Optionee.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES
OF THE PARTIES HERETO, AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT
AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1.1 GRANT OF OPTION TO PURCHASE. Optionor grants to Optionee an option
to purchase (the "Option") the Property from Optionor upon all of the terms,
covenants and conditions hereinafter set forth.
1.2 OPTION CONSIDERATION. As consideration for this Option, Optionee
has entered into the Lease of the Property. In the event the Option is not
exercised, all sums paid and services rendered to Optionor by Optionee under the
Lease shall be retained by Optionor in consideration of the granting of this
Option. Further, as additional consideration for this Option, in the event the
Option is not exercised, all inspection and environmental reports, studies,
drawings, and other documents generated during the due diligence period as
hereinafter provided shall be given to Optionor at the expiration of this Option
at no cost to Optionor.
1.3 MEMORANDUM OF OPTION TO PURCHASE. Optionor has duly executed,
acknowledged and delivered to Optionee a Memorandum of Option to Purchase in the
form attached hereto as EXHIBIT "2" and agrees that Optionee may cause such
Memorandum of Option to Purchase to be recorded. Optionee agrees to execute,
acknowledge and deliver to Optionor a
- 1 -
<PAGE>
Quitclaim Deed to the Property promptly at the request of Optionor if Optionee
does not exercise the Option hereunder if such is necessary to clear Optionor's
title. Optionor shall bear any expense of recording such instrument.
1.4 TERM OF OPTION AND EXERCISE. The term of this Option shall commence
upon February 1, 1996, and expire at midnight on January 31, 1999. If not
exercised during the term of this Option, this Option shall automatically and
without further notice, act or documentation by any party expire on the
aforementioned date. Optionee may exercise this Option at any time during the
time of this Option by giving Optionor written notice, as set forth in Paragraph
3.1 below, of its intention to exercise the Option. As soon as reasonably
practicable after exercise of the Option, the parties hereto shall execute and
cause to be recorded in the Sonoma County Recorder's Office a Notice of Exercise
of Option, in the form attached hereto as EXHIBIT "3."
1.5 PURCHASE PRICE. The purchase price (the "Price") which Optionee
agrees to pay for the Property upon the exercise of the Option is the sum of One
Million, Three Hundred Thousand and No/100 Dollars ($1,300,000.00). Said Price
payable as follows:
(a) The Price will be paid pursuant to the Purchase and Sale
Agreement and Escrow Instructions (the "Purchase and Sale
Agreement") attached hereto as EXHIBIT "4" and incorporated
herein.
1.6 ESCROW. See the Purchase and Sale Agreement attached hereto as
EXHIBIT "4" at Paragraphs 1.2 and 1.3.
1.7 CONDITION OF TITLE UPON CLOSING DATE. See the Purchase and Sale
Agreement attached hereto as EXHIBIT "4" at Paragraphs 2.2 and 2.3.
1.8 DAMAGE OR DESTRUCTION. Except for any damage or destruction
attributable to the activities of Optionee or Optionee's agents, employees, or
contractors, in the event that prior to the Closing Date, as set forth in the
Purchase and Sale Agreement attached hereto as EXHIBIT "4" at Paragraph 7.2, the
Property or any improvements thereon are destroyed or materially damaged,
Optionor shall bear the risk of loss therefor, and Optionee may elect to cancel
this Agreement or may purchase the Property at the Price set forth herein less
the amount by which such damage or destruction has decreased the fair market
value of the Property.
1.9 CONDEMNATION. If, before the Closing Date, as set forth in the
Purchase and Sale Agreement attached hereto as EXHIBIT "4" at Paragraph 1.3,
either Optionor or Optionee receives notice of any condemnation or eminent
domain proceeding, the party receiving the notice shall promptly notify the
other party of that fact. Optionee may elect either to proceed with the purchase
contemplated by the Option or to terminate the Option within ten (10) days after
the date such notice is received. If Optionee proceeds with the Purchase in
accordance with all the
- 2 -
<PAGE>
terms of the Option, all condemnation proceedings shall be paid to Optionee (or
assigned to Optionee if not then yet collected).
1.10 TIME OF ESSENCE; FAILURE TO EXERCISE OPTION. Time is of the
essence with regard to the Agreement. If the Option is not exercised in the
manner as set forth in Paragraph 1.4 above, Optionee shall have no interest
whatsoever in the Property and the Option may not be revived by any subsequent
payment or any further action by Optionee.
1.11 OPTIONOR'S ADDRESS FOR NOTICE. The term "Optionor's Address for
Notice" shall mean:
(a) For Gianni Neve: 4288 Bodega Avenue
Petaluma, CA 94952
(b) For Maria Neve: 1109 Lohrman Lane
Petaluma, CA 94952
ARTICLE II
DUE DILIGENCE BY OPTIONEE
2.1 INSPECTION OF PROPERTY. At any time prior to the earlier of the
exercise of the Option or termination of the Option, Optionee is hereby granted
the right, but not the obligation, at Optionee's expense, to inspect the
physical condition of the Property, to conduct such examinations, investigations
and analyses as Optionee deems reasonable or necessary, and to prepare or have
prepared any reports Optionee deems reasonable or necessary relating to, among
other things, the following:
(a) PHYSICAL INSPECTION. Optionee shall have the right to
retain, at its expense, licensed experts including but not limited to engineers,
geologists, architects, contractors, and specialty contractors, including
structural pest control operators, to inspect the property for any structural
and nonstructural conditions, including but not limited to matters concerning
roofing, electrical, plumbing, heating, cooling, electrical appliances, well,
sewer, septic system, pool, survey geological and environmental hazards, toxic
substances including but not limited to asbestos, formaldehyde, radon gas, and
lead-based paint. Optionee shall furnish Optionor, at no cost, copies of all
written inspection reports obtained. Optionee shall approve or disapprove in
writing all inspection reports obtained within 15 days of receipt of each such
report. In the event of Optionee's disapproval, Optionee may elect to not
exercise the Option. Optionee shall pay for all such tests and studies, keep the
Property free and clear of any liens, repair all damage to the Property and
indemnify and hold Optionor harmless from and against all liability, claims,
demands, damages, or costs of any kind whatsoever arising from or connected with
the inspections, tests, surveys or studies, except that Optionee shall have no
liability or
- 3 -
<PAGE>
obligation to indemnify Optionor for any remediation or clean-up required by any
governmental authority.
(b) SURVEY. Optionee shall have the right to survey the Property at its
cost and expense, such survey to be satisfactory to the Title Company as a basis
for an ALTA Policy. In the event Optionee does not exercise the Option, any
survey obtained by Optionee shall be given to Optionor. Optionor will provide
Optionee with any survey of the Property that Optionor may have.
(c) ZONING. Optionee shall determine at its sole cost that the present
zoning of the Property and any other governmentally or quasi-governmentally
imposed restriction relating to the ownership or use of the Property would not
prohibit or adversely impact upon or restrict the use of the Property by
Optionee for any of its intended purposes.
(d) HAZARDOUS AND/OR TOXIC WASTES. Optionee shall have the right to
have the Property inspected to determine whether there are hazardous or toxic
wastes, underground storage tanks, substances, chemicals, solvents, asbestos,
PCB's or any environmental conditions on or under the Property of any type,
quantity or nature whatsoever which violate or may violate in any way any local,
state or federal law, ordinance, rule or regulation for the protection of the
environment or otherwise, or which would require further environmental testing
or remediation by Optionor. Such inspection shall be limited to one (1) Phase I
environmental site assessment of the Property in order to determine whether or
not any toxic materials or hazardous wastes are present on or about the
Property, and that any additional environmental testing or any testing which may
exceed the scope of a Phase I assessment shall be subject to Optionor's prior
written consent, which consent shall not be unreasonably withheld. Optionee
shall rely on advice of its environmental consultants and counsel for such
determination.
(e) SPECIAL STUDIES ZONE. Optionee shall determine whether the Property
is situated in a Special Studies Zone as designated under Sections 2621-2625,
inclusive, of the California Public Resources Code and, as such, construction or
development of any structure for human occupancy may require the submission of a
favorable geological report by a registered geologist, unless such report is
waived by the City or County under the terms of the act. No representatives on
the subject are made by Optionor. Optionee may make further independent
inquiries at appropriate governmental agencies concerning the use of the
Property under the terms of the Special Studies Zone Act. Optionee shall notify
Optionor in writing of satisfaction of said inquiries prior to exercise of the
Option.
2.2 OTHER CONTRACTS. Prior to the earlier of the exercise or
termination of the Option, Optionor, at Optionee's request, shall provide
Optionee with all license agreements, contracts to provide goods or services for
the Property, maintenance agreements, equipment and furniture leases, and copies
of all warranties relating to the building fixtures and personal property, if
any. Optionee shall approve of same in writing prior to exercise of the Option.
- 4 -
<PAGE>
ARTICLE III
ATTORNEYS' FEES; COSTS OF SUIT
3.1 ATTORNEYS' FEES. If either Optionor or Optionee shall commence any
action or other proceeding against the other arising out of, or relating to,
this Agreement, the prevailing party shall be entitled to recover from the
losing party, in addition to any other relief, its actual Attorneys' Fees
irrespective of whether or not the action or other proceeding is prosecuted to
judgment and irrespective of any court schedule of reasonable attorneys' fees.
3.2 INDEMNIFICATION.. Should Optionor be made a party to any litigation
instituted by Optionee against a party other than Optionor, or by a third party
against Optionee, Optionee shall indemnify, hold harmless and defend Optionor
against any and all loss, cost, liability, damage or expense incurred by
Optionor, including attorneys' fees, in connection with the litigation.
ARTICLE IV
NOTICE
4.1 NOTICE OF EXERCISE OF OPTION. Notice to Optionor of exercise of
Option by Optionee may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed to
Optionor at the address for Optionor as set forth in Paragraph 1.11 above, or
addressed to such other address or addresses as Optionor may from time to time
designate to Optionee in writing. ANY NOTICE SHALL BE DEEMED TO HAVE BEEN SERVED
AT THE TIME THE SAME WAS POSTED.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement contains all of the agreements and
understandings relating to the exercise of the Option and the obligations of the
Optionor and Optionee in connection with such exercise. Optionor has not made,
and Optionee is not relying upon, any warranties, or representations, promises
or statements made by Optionor or any agent of Optionor, except as expressly set
forth in the Agreement. This Agreement supersedes any and all prior agreements
and understandings between Optionor and Optionee and alone expresses the
agreement of the parties.
5.2 AMENDMENTS. This Agreement shall not be amended, changed or
modified in any way unless in writing executed by Optionor and Optionee.
Optionor shall not have waived or released any of its rights hereunder unless in
writing and executed by Optionor.
- 5 -
<PAGE>
5.3 SUCCESSORS. Except as expressly provided herein, this Agreement and
the obligations of Optionor and Optionee contained herein shall bind and benefit
the successors and assigns of the parties hereto.
5.4 FORCE MAJEURE. Optionor shall incur no liability to Optionee with
respect to, and shall not be responsible for any failure to perform, any of
Optionor's obligations hereunder if such failure is caused by reason of strike,
other labor trouble, detrimental rule, regulations, ordinance, statute, or
interpretation, or by fire, earthquake, civil commotion, or failure or
disruption of utility services, or any and all other causes reasonably beyond
control of Optionor. The amount of time for Optionor to perform any of
Optionor's obligations shall be extended by the amount of time Optionor is
delayed in performing such obligation by reason of such force majeure
occurrence.
5.5 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
5.6 CAPTIONS. All captions, headings, titles, numerical references and
computer highlighting are for convenience only and shall have no effect on the
interpretation of this Agreement.
5.7 INTERPRETATION. Optionor and Optionee acknowledge that they have
read and reviewed this Agreement and that they have had the opportunity to
confer with counsel in negotiation of this Agreement. Accordingly, this
Agreement shall be construed neither for nor against Optionor or Optionee, but
shall be given a fair and reasonable interpretation in accordance with the
meaning of its terms and intent of the parties.
5.8 NUMBER AND GENDER. All terms and words used in this Agreement,
regardless of the number and gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
5.9 EXHIBITS. EXHIBIT "1" (Property Description)
EXHIBIT "2" (Memorandum of Option to Purchase)
EXHIBIT "3" (Notice of Exercise of Option)
EXHIBIT "4" (Purchase and Sale Agreement)
are incorporated in this Agreement by reference and made a part hereof.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
OPTIONOR: OPTIONEE:
VINIFERA INC.
/s/ Gianni Neve
GIANNI NEVE
By: /s/ J. Bouckaert
/s/ Maria Neve
MARIA NEVE Its: President
- 7 -
<PAGE>
PARCEL ONE:
COMMENCING AT A POINT ON THE COUNTY HIGHWAY LEADING FROM PETALUMA TO BLOOMFIELD,
SAID POINT BEING THE MOST SOUTHEASTERLY CORNER OF THE LANDS DESCRIBED IN VOLUME
232 OF DEEDS AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE DUE NORTH 800.43
FEET TO THE POINT OF COMMENCEMENT; THENCE RUNNING FROM SAID POINT OF
COMMENCEMENT DUE NORTH 452 FEET; THENCE RUNNING NORTH 89o 26' 10" WEST 385 FEET;
THENCE RUNNING SOUTH 0o 3' 30" EAST 452 FEET; THENCE RUNNING SOUTH 89o 26' 10"
EAST 384 FEET TO THE POINT OF COMMENCEMENT.
PARCEL TWO:
COMMENCING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE EASTERLY BOUNDARY OF SAID LANDS NORTH 800.43 FEET; THENCE NORTH 89o
26' 10" WEST 192.13 FEET; THENCE SOUTH 690.21 FEET AND THENCE SOUTH 59o 42' 20"
EAST 222.25 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL:
BEGINNING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. FROM SAID POINT OF BEGINNING RUNNING NORTH
326.23 FEET; THENCE NORTH 89o 26' 10" WEST 192.13 FEET; THENCE SOUTH 216.01
FEET; THENCE SOUTH 59o 42' 20" EAST 222.25 FEET TO THE POINT OF BEGINNING.
PARCEL THREE:
COMMENCING AT THE SOUTHWEST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE WEST BOUNDARY OF SAID LANDS NORTH 0o 03' 30" WEST 580 FEET; THENCE
SOUTH 89o 26' 10" EAST 192.13 FEET; THENCE SOUTH 690.21 FEET; THENCE NORTH 59o
42' 20" WEST 222.25 FEET TO THE POINT OF BEGINNING.
EXHIBIT "1"
<PAGE>
RECORDING REQUESTED BY:
HAAS & NAJARIAN
WHEN RECORDED RETURN TO:
ROBERT C. NICHOLAS
HAAS & NAJARIAN
456 Montgomery St, 16th Floor
San Francisco, CA 94104
MAIL TAX STATEMENTS TO:
Vinifera Inc.
5 Financial Plaza, Suite 206
Napa, CA 94558
Attn: Joseph Bouckaert
- --------------------------------------------------------------------------------
SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE
MEMORANDUM OF OPTION TO PURCHASE
This Memorandum of Option ("Memorandum") is made as of February 1,
1996, by and between Gianni Neve and Maria Neve (hereinafter "Optionor" without
regard to number or gender) and Vinifera Inc. ("Optionee").
1. Optionor hereby grants to Optionee an option to purchase (the
"Option") all of that certain real property commonly known as 4288 Bodega
Avenue, Petaluma, California 94952 (the "Property"), as depicted in EXHIBIT "A"
attached hereto and incorporated herein.
2. The specific terms and conditions of Optionee's Option are set forth
in the Option Agreement (The "Agreement") dated December 1, 1995. All of the
terms and conditions of the Agreement are incorporated herein by this reference.
3. The term of the Option expires at midnight on January 31, 1999.
4. Any party who is interested in acquiring an interest in the Property
should contact the Optionor and Optionee. Optionor's address is:
EXHIBIT "2"
<PAGE>
a. For Gianni Neve: 4288 Bodega Avenue
Petaluma, CA 94952
b. For Maria Neve: 1109 Lohrman Lane
Petaluma, CA 94952
Optionee's address is:
Vinifera Inc., 5 Financial Plaza, Suite 206, Napa, CA 94558.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as
of the date first above written.
OPTIONOR: OPTIONEE:
/s/ Gianni Neve By: /s/ J. Bouckaert
GIANNI NEVE
/s/ Maria Neve Its: President
MARIA NEVE
STATE OF CALIFORNIA )
) ss
COUNTY OF )
On this ---- day of ------------, ------, before me, a Notary Public,
State of California, duly commissioned and sworn, personally appeared:
- ------------------------ known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument, and acknowledged that he/she executed the same.
Official Seal: ------------------------------------
Notary Public
My Commission Expires:--------------
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of Sonoma
On April 24, 1996 before me, William W. Cretcher, Notary Public,
DATE NAME, TITLE OF OFFICER - E.G.,
"JANE DOE, NOTARY PUBLIC"
personally appeared Joseph Bouckaert
NAME(S) OF SIGNER(S)
[ ] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person whose name is
subscribed to the within instrument and
acknowledged to me that he executed the
same in his authorized capacity, and that
by his signature on the instrument the
person, or the entity upon behalf of
which the person acted, executed the
instrument.
OFFICIAL SEAL - 1011744
WILLIAM W. CRETCHER NOTARY PUBLIC - CALIF
COUNTY OF SONOMA
My Comm. Exp. Dec. 26, 1997
WITNESS my hand and official seal.
/s/ William W. Cretcher
SIGNATURE OF NOTARY
-------------------------------OPTIONAL------------------------------
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
[ ] INDIVIDUAL
[X] CORPORATE OFFICER
President
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:----------------------
----------------------------
----------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
Vinifera, Inc.
- --------------------------------
DESCRIPTION OF ATTACHED DOCUMENT
Option Agreement
TITLE OR TYPE OF DOCUMENT
10
NUMBER OF PAGES
2/1/96
DATE OF DOCUMENT
yes
SIGNER(S) OTHER THAN NAMED ABOVE
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of Sonoma
On April 24, 1996 before me, William W. Cretcher, Notary Public,
DATE NAME, TITLE OF OFFICER - E.G.,
"JANE DOE, NOTARY PUBLIC"
personally appeared Gianni Neve
NAME(S) OF SIGNERS
[ ] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person whose name is
subscribed to the within instrument and
acknowledged to me that he executed the
same in his authorized capacity, and that
by his signature on the instrument the
person, or the entity upon behalf of
which the person acted, executed the
instrument.
OFFICIAL SEAL - 1011744
WILLIAM W. CRETCHER
NOTARY PUBLIC - CALIF
COUNTY OF SONOMA
My Comm. Exp. Dec. 26, 1997
WITNESS my hand and official seal.
/s/ William W. Cretcher
SIGNATURE OF NOTARY
-------------------------------OPTIONAL------------------------------
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
[X] INDIVIDUAL
[ ] CORPORATE OFFICER
----------------------------
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:----------------------
----------------------------
----------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- --------------------------------
DESCRIPTION OF ATTACHED DOCUMENT
Option Agreement
TITLE OR TYPE OF DOCUMENT
10
NUMBER OF PAGES
2/1/96
DATE OF DOCUMENT
yes
SIGNER(S) OTHER THAN NAMED ABOVE
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of Sonoma
On 4/24/96 before me, William W. Cretcher, Notary Public,
DATE NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared Maria Neve
NAME(S) OF SIGNERS
[ ] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person whose name is
subscribed to the within instrument and
acknowledged to me that she executed the
same in her authorized capacity, and that
by her signature on the instrument the
person, or the entity upon behalf of
which the person acted, executed the
instrument.
OFFICIAL SEAL - 1011744
WILLIAM W. CRETCHER
NOTARY PUBLIC - CALIF
COUNTY OF SONOMA
My Comm. Exp. Dec. 26, 1997
WITNESS my hand and official seal.
/s/ William W. Cretcher
SIGNATURE OF NOTARY
-------------------------------OPTIONAL------------------------------
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER
[X] INDIVIDUAL
[ ] CORPORATE OFFICER
- --------------------------------
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:----------------------
----------------------------
----------------------------
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- --------------------------------
- --------------------------------
DESCRIPTION OF ATTACHED DOCUMENT
Option Agreement
TITLE OR TYPE OF DOCUMENT
10
NUMBER OF PAGES
2/1/96
DATE OF DOCUMENT
yes
SIGNER(S) OTHER THAN NAMED ABOVE
<PAGE>
PARCEL ONE:
COMMENCING AT A POINT ON THE COUNTY HIGHWAY LEADING FROM PETALUMA TO BLOOMFIELD,
SAID POINT BEING THE MOST SOUTHEASTERLY CORNER OF THE LANDS DESCRIBED IN VOLUME
232 OF DEEDS AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE DUE NORTH 800.43
FEET TO THE POINT OF COMMENCEMENT; THENCE RUNNING FROM SAID POINT OF
COMMENCEMENT DUE NORTH 452 FEET; THENCE RUNNING NORTH 89o 26' 10" WEST 385 FEET;
THENCE RUNNING SOUTH 0o 3' 30" EAST 452 FEET; THENCE RUNNING SOUTH 89o 26' 10"
EAST 384 FEET TO THE POINT OF COMMENCEMENT.
PARCEL TWO:
COMMENCING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE EASTERLY BOUNDARY OF SAID LANDS NORTH 800.43 FEET; THENCE NORTH 89o
26' 10" WEST 192.13 FEET; THENCE SOUTH 690.21 FEET AND THENCE SOUTH 59o 42' 20"
EAST 222.25 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL:
BEGINNING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. FROM SAID POINT OF BEGINNING RUNNING NORTH
326.23 FEET; THENCE NORTH 89o 26' 10" WEST 192.13 FEET; THENCE SOUTH 216.01
FEET; THENCE SOUTH 59o 42' 20" EAST 222.25 FEET TO THE POINT OF BEGINNING.
PARCEL THREE:
COMMENCING AT THE SOUTHWEST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE WEST BOUNDARY OF SAID LANDS NORTH 0o 03' 30" WEST 580 FEET; THENCE
SOUTH 89o 26' 10" EAST 192.13 FEET; THENCE SOUTH 690.21 FEET; THENCE NORTH 59o
42' 20" WEST 222.25 FEET TO THE POINT OF BEGINNING.
EXHIBIT "A"
<PAGE>
NOTICE OF EXERCISE OF OPTION
THIS NOTICE OF EXERCISE OF OPTION (the "Notice") serves to notify
Gianni Neve and Maria Neve (hereinafter "Optionor" without regard to number or
gender) of Vinifera Inc.'s ("Optionee") exercise of the option to purchase (the
"Option") all that certain real property commonly known as 4288 Bodega Avenue,
Petalum, California (94952) (the "Property"), as depicted in EXHIBIT "A"
attached hereto and incorporated herein.
1. The specific terms and conditons of Optionee's Option are set forth
in the Option Agreement (the "Agreement") dated February 1, 1996. All of the
terms and conditions of the Agreement are incorporated herein by this reference.
2. This Notice may be served by Optionee as set forth in Paragraph 3.1
of the Agreement.
DATED:--------------------------
VINIFERA INC.
By:-----------------------------
Its:----------------------------
EXHIBIT "3"
<PAGE>
PARCEL ONE:
COMMENCING AT A POINT ON THE COUNTY HIGHWAY LEADING FROM PETALUMA TO BLOOMFIELD,
SAID POINT BEING THE MOST SOUTHEASTERLY CORNER OF THE LANDS DESCRIBED IN VOLUME
232 OF DEEDS AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE DUE NORTH 800.43
FEET TO THE POINT OF COMMENCEMENT; THENCE RUNNING FROM SAID POINT OF
COMMENCEMENT DUE NORTH 452 FEET; THENCE RUNNING NORTH 89o 26' 10" WEST 385 FEET;
THENCE RUNNING SOUTH 0o 3' 30" EAST 452 FEET; THENCE RUNNING SOUTH 89o 26' 10"
EAST 384 FEET TO THE POINT OF COMMENCEMENT.
PARCEL TWO:
COMMENCING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE EASTERLY BOUNDARY OF SAID LANDS NORTH 800.43 FEET; THENCE NORTH 89o
26' 10" WEST 192.13 FEET; THENCE SOUTH 690.21 FEET AND THENCE SOUTH 59o 42' 20"
EAST 222.25 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL:
BEGINNING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. FROM SAID POINT OF BEGINNING RUNNING NORTH
326.23 FEET; THENCE NORTH 89o 26' 10" WEST 192.13 FEET; THENCE SOUTH 216.01
FEET; THENCE SOUTH 59o 42' 20" EAST 222.25 FEET TO THE POINT OF BEGINNING.
PARCEL THREE:
COMMENCING AT THE SOUTHWEST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE WEST BOUNDARY OF SAID LANDS NORTH 0o 03' 30" WEST 580 FEET; THENCE
SOUTH 89o 26' 10" EAST 192.13 FEET; THENCE SOUTH 690.21 FEET; THENCE NORTH 59o
42' 20" WEST 222.25 FEET TO THE POINT OF BEGINNING.
EXHIBIT "A"
<PAGE>
PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS (the
"Agreement") is made as of February 1, 1996, by and between Gianni Neve and
Maria Neve (hereinafter "Seller" without regard to number or gender) and
Vinifera Inc. ("Buyer").
ARTICLE I
RECITALS
This Agreement is entered into with reference to facts as follows:
A. Buyer agrees to purchase from Seller and Seller agrees to sell to
Buyer that certain real property commonly known as 4288 Bodega Avenue, Petaluma,
California 94952, as described in EXHIBIT "A" attached hereto and incorporated
herein, including all tangible and intangible personal property now or hereafter
located on or about the property or used in connection with the property,
including, without limitation, all governmental permits, approvals,
authorizations, declarations and applications therefor obtained or filed in
connection with the property, all agreements, understandings, reports, plans,
maps, bonds, deposits, fees, studies, notices and other materials prepared,
given, filed, or used, or to be used in connection with the property and all
contracts, if any, entered into by Seller and approved by Buyer, which shall
affect directly or indirectly the property (the "Property").
B. This Agreement is entered into as a result of the exercise by Buyer
of an option to purchase the Property as provided in the Option Agreement dated
February 1, 1996, between Seller and Buyer ("the Option").
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES
OF THE PARTIES HERETO, AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT
AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1.1 PURCHASE PRICE. The purchase price (the "Price") for the
Property is One Million, Three Hundred Thousand and No/100 Dollars
($1,300,000.00) payable by Buyer at the close of escrow.
1.2 ESCROW. Within five (5) business days after the exercise of
the Option, an escrow (the" Escrow") shall be opened with Chicago Title Company,
1101 College Avenue, Santa Rosa, CA 95404 ("Chicago Title") (the "Escrow
Holder"). This Agreement shall
EXHIBIT "4"
<PAGE>
constitute escrow instructions to the Escrow Holder. Seller and Buyer shall
execute such additional escrow instructions as may be reasonably required by
Escrow Holder.
1.3 TERM OF ESCROW. Escrow shall close within ninety (90) days of
the exercise of the Option. The close of Escrow ("Close of Escrow") shall mean
the date upon which the grant deed from Seller to Buyer is recorded in the
Sonoma County Recorder's Office.
ARTICLE II
CONDITIONS TO BUYER'S OBLIGATION
Buyer's obligations hereunder shall be contingent upon satisfaction of
all of the matters listed as follows:
2.1 TITLE. Chicago Title's issuance of an ALTA Extended Owner's
Coverage Form Policy of Title Insurance with endorsements selected by Buyer (the
"ALTA Policy"), with liability in the amount of the Price, showing title to the
Property vested in Buyer, subject only to those exceptions approved by Buyer
within thirty (30) days after the delivery to Buyer through Escrow of the
Preliminary Report and legible copies of the exceptions of record; and also
subject to those exceptions approved by Buyer within ten (10) days after Buyer's
receipt of any ALTA supplemental title report. Escrow Holder is instructed to
order immediately the Preliminary Report together with legible copies of all
documents referred to therein. Seller agrees to convey title to the Property to
the Buyer at close of Escrow free and clear of all monetary liens and
encumbrances, excluding those items approved by Buyer. If Seller does not remove
one or more such monetary encumbrances, liens or claims, in addition to all
other remedies Buyer may have at law or in equity, Buyer may close Escrow on the
scheduled closing date and offset dollar for dollar against the Price an amount
equal to such monetary encumbrances, liens or claims. Seller shall convey title
to the Property subject only to: 1) real estate taxes not yet due, and 2)
covenants, conditions, restrictions, rights of way, and easements of record, if
any, which do not materially affect the value or intended use of the Property.
2.2. HAZARDOUS AND/OR TOXIC WASTES. Buyer shall have during the
due diligence period provided in the Option the right, but not the obligation,
to determine at its sole cost that there are no hazardous or toxic wastes,
underground storage tanks, substances, chemicals, solvents, asbestos, PCB's or
any environmental conditions on or under the Property of any type, quantity or
nature whatsoever which violate or may violate in any way any local, state or
federal law, ordinance, rule or regulation for the protection of the environment
or otherwise, or which would require further environmental testing or
remediation by Seller. These provisions shall be liberally construed for the
benefit of Buyer, and Buyer may rely on advice of its environmental consultants
and counsel to determine whether or not it can satisfy this environmental
contingency and condition of Close of Escrow. If Buyer determines that the
2
<PAGE>
foregoing environmental contingency and condition of Close of Escrow requires
remediation, Buyer shall provide written notice thereof to Seller and Seller
shall, at its sole cost up to and including the sum of One Hundred Thousand and
No/100 Dollars ($100,000), so remediate. If the cost of said remediation exceeds
One Hundred Thousand and No/100 Dollars ($100,000), then Seller has no
obligation to so remediate, and Buyer may, at Buyer's sole election: (1)
continue with the purchase of the Property and receive a credit from Seller
against the Purchase Price in the amount of One Hundred Thousand and No/100
Dollars ($100,000); or (2) terminate this Agreement without any further
liability on the part of Buyer. If any remediation is undertaken pursuant to
this Paragraph 2.2, Close of Escrow shall be delayed until certificates of
compliance regarding such remediation have been issued from all appropriate
government agency(ies).
2.3 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller's
representations and warranties as set forth in Article 5 herein shall be true
and correct as of the Close of Escrow. All conditions to the Close of Escrow, or
to Buyer's obligations hereunder, are for Buyer's benefit only, and Buyer may
waive all or any part of such rights by written notice to Seller and Escrow
Holder.
ARTICLE III
CLOSING
3.1 DOCUMENTS TO BE DELIVERED. At the Close of Escrow, Seller
shall deliver to Buyer through Escrow original documents, which shall be in a
form satisfactory to Buyer's counsel, as follows:
(A) A grant deed (the "Grant Deed") conveying the Property to
Buyer;
(B) An assignment of all guaranties and warranties relating
to the Property, and a bill of sale (the "Bill of Sale") of the equipment and
fixtures therein, if any; and
(C) All contracts affecting the Property, if any.
At the Close of Escrow, the Escrow Holder shall cause the Grant
Deed to be recorded in the Official Records of the Sonoma County Recorder's
Office, and shall cause the Bill of Sale and the ALTA Policy to be delivered to
Buyer.
3.2 CLOSING COSTS AND PRORATIONS. Buyer shall be credited and
Seller charged with security deposits or advance rentals made by tenant under
the lease, dated as of February 1, 1996, by and between Gianni Neve and Maria
Neve, of the one hand, and Vinifera Inc., on the other hand (the "Lease").
Escrow holder shall prorate the following between the
<PAGE>
parties as of the Close of Escrow: (a) real estate taxes and personal property
taxes for the year in which the sale closes; (b) rent payments under the Lease;
(c) charges and fees paid or payable under service contracts which are assigned
to Buyer; (d) premiums payable under insurance assigned to Buyer at Buyer's
request.; (e) and all other items which are customarily prorated. All prorations
shall be based on a thirty (30) day month. Escrow Holder is to assume that all
rents have been collected unless otherwise advised by Seller. Rent under the
Lease which is more than thirty (30) days in arrears shall not be prorated.
3.3 UTILITIES. Seller shall have all meters read and final bills
rendered for all utilities servicing the Property, including, without
limitation, water, sewer, gas and electricity, for the period to and including
the day preceding the Close of Escrow, and Seller shall pay such bills. Buyer
shall arrange for utility service to the Property after the Close of Escrow.
3.4 POSSESSION. Possession of the Property shall be given to Buyer
at Close of Escrow.
ARTICLE IV
EXPENSES
4.1 EXPENSES OF SELLER. Seller shall pay: (a) the documentary
transfer tax applicable to this transaction; (b) the premium for a CLTA owner's
title insurance policy; (c) one-half the Escrow fees; (d) expenses of clearing
title; and (e) other costs or expenses not expressly provided for herein which
are customarily paid by the seller in similar transactions.
4.2 EXPENSES OF BUYER. Buyer shall pay: (a) all recording charges
on any document recorded pursuant to this Agreement; (b) the difference between
the premium for the ALTA Policy and the premium for a CLTA owner's title
insurance policy; (c) the cost of any title endorsements requested by Buyer; (d)
any costs associated with obtaining the consent of the holder of the existing
loan to the transfer of the Property without accelerating or modifying the loan
or the costs of obtaining a new loan and (e) one-half the Escrow fees.
ARTICLE V
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents, warrants and covenants, each of which shall be
true in all respects as of the date of this Agreement and as of the date of
Close of Escrow and shall survive the Close of Escrow and shall not merge with
any deed, as follows:
4
<PAGE>
5.1 FIXTURES AND PERSONAL PROPERTY. Seller shall not remove any
fixtures or personal property from the Property.
5.2 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. To the best of
Seller's knowledge:
(A) Throughout the period of ownership of the Property by
Seller, there have been no notices, directives, violation reports or actions by
any local, state or federal department or agency concerning environmental law or
regulations, and the Property is in compliance with all California and federal
environmental laws;
(B) All underground storage tanks (the "USTs") will be removed
from the Property prior to Close of Escrow by Seller at Seller's sole cost and
expense and certificates of compliance as to removal of all the USTs from the
appropriate governmental agency(ies) will be issued to Buyer;
(C) There are no soil or geological conditions which might
impair or adversely affect the current use or future plans for use of the
Property;
(D) None of the Property is located in an area identified by
an agency or department of federal, state or local governments, or identified by
Seller, as having special flood or mudslide hazards or wetlands;
(E) The business and operations of Seller have at all times
been conducted in compliance in all material respects with all applicable local,
state, federal and/or foreign laws, ordinances, regulations, orders and other
requirements of governmental authorities in matters relating to the environment;
(F) There has been no spill, discharge, release, cleanup or
contamination of or by any hazardous or toxic waste or substance used,
generated, treated, stored, disposed of or handled by the Seller at the
Property;
(G) No hazardous or toxic substances or wastes are located at,
or have been removed from the Property; and
(H) There are no writs, injunctions, decrees, orders or
judgments outstanding, or any actions, suits, claims, proceedings or
investigations pending or, to Seller's knowledge, threatened, relating to
compliance with or liability under any Environmental Law affecting the Property.
<PAGE>
5.3 DOCUMENTS. Seller shall deliver true, accurate and complete
copies of contracts, surveys, drawings, plans and specifications describing the
Property and known by Seller to exist. No documents supplied to Buyer by Seller
contains any untrue statement of material fact or fails to state any fact, which
would be necessary, considering the circumstances, to make the documents
supplied not misleading.
5.4 EXPENSES. At Close of Escrow, there will be no outstanding
expenses not fully paid, except those expenses previously approved by Buyer in
writing.
5.5 CLAIM AGAINST THE PROPERTY. Seller has no knowledge of any
pending or threatened claim or litigation against the Property and Seller has
not received any notice from any governmental authority of defects in the
Property or noncompliance with any applicable law, code or regulation.
5.6 AUTHORIZATION FOR EXECUTION OF THE AGREEMENT. The persons
executing this Agreement are authorized by the Seller to enter into the
transaction described herein.
5.7 EXECUTION OF FURTHER CONTRACTS. During the Escrow period,
Seller shall not enter into any new lease, option to lease or extension of an
existing lease or any other contract or agreement pertaining to the Property
unless Seller shall first send to Buyer for approval a copy of the document it
proposes to sign. Buyer shall have three (3) business days after receipt of the
document to object in writing to Seller's signing of the document. Any such
objection shall, in the case of any lease, lease option or lease extension, not
be unreasonable. Buyer's failure to respond shall be deemed approval.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION. Seller and Seller's officers and directors
agree to protect, indemnify, hold harmless and defend Buyer and any mortgagee,
and each of their respective partners, directors, officers, agents and
employees, successors and assigns, from and against:
(A) Any and all loss, cost, damage, liability or expense as
incurred (including but not limited to attorneys' fees and legal costs) arising
out of or related to any claim, suit or judgment brought by or in favor of any
person or persons for damage, loss or expense due to, but not limited to, bodily
injury, including death, or property damage sustained by such person or persons
which arises out of, is occasioned by or is in any way attributable to the use
or occupancy of the Property by Seller or the acts or omissions of Seller or its
agents, employees, contractors, clients, invitees or subtenants except that
caused by the sole active negligence of Buyer or its agents or employees. Such
loss or damage shall include,
<PAGE>
but not be limited to, any injury or damage to, or death of, Buyer's employees
or agents or damage to the Property.
(B) Any and all environmental damages which arise from: (i)
the handling of any hazardous and/or toxic wastes by Seller, as referred to in
Paragraph 2.2 herein, or (ii) the breach of any of the provisions in this
Agreement. For the purpose of this Agreement, "environmental damages" shall mean
(a) all claims, judgments, damages, penalties, fines, costs, liabilities, and
losses (including without limitation, diminution in the value of the Property,
damages for the loss of or restriction on use of rentable or usable space or of
any amenity of the Property; (b) all reasonable sums paid for settlement of
claims, attorneys' fees, consultants' fees and experts' fees; and (c) all costs
incurred by Buyer in connection with investigation or remediation relating to
the handling of any hazardous and/or toxic wastes by Seller, as referred to in
Paragraph 2.2 herein, whether or not required by any environmental laws,
necessary for Buyer to make full economic use of the Property, or otherwise
required under this Agreement. To the extent that Buyer is strictly liable under
any environmental laws, Seller's obligation to Buyer and the other indemnities
under the foregoing indemnification shall likewise be without regard to fault on
Seller's part with respect to the violation of any environmental law which
results in liability to the indemnitee. Seller's obligations and liabilities
pursuant to this Section 6.1 shall survive the expiration or earlier termination
of this Agreement and the Close of Escrow.
ARTICLE VII
MISCELLANEOUS
7.1 BROKER'S COMMISSION. Buyer and Seller acknowledge that, except
as set forth herein, no broker's commission or finder's fee is payable in
connection with this transaction; and each ("indemnitor") agrees to indemnify
and hold the other harmless from and against all liability, claims, demands,
damages or costs of any kind whatsoever arising from or connected with any
broker's or finder's fee, commission or charge claimed to be due any person
arising from the indemnitor's conduct with respect to this transaction, other
than the commissions authorized as set forth in Paragraph 6.1 herein.
7.2 DAMAGE OR DESTRUCTION. If the Property is damaged before Close
of Escrow by an insured casualty which would cost Seven Hundred Fifty Thousand
Dollars ($750,000) or more to repair, Buyer may terminate this Agreement by
written notice to Seller, given within twenty (20) days after Seller notifies
Buyer of such event, or at Close of Escrow, whichever is earlier. If Buyer does
not terminate, or if the damage would cost less than Seven Hundred Fifty
Thousand Dollars ($750,000) to repair, the Close of Escrow shall take place as
provided herein, and Seller shall assign to Buyer at Close of Escrow Seller's
insurance proceeds payable on account of such damage and shall pay to Buyer the
amount of any deductible under
<PAGE>
Seller's insurance. If an uninsured casualty occurs which would cost more than
Fifty Thousand Dollars ($50,000) to repair, either party may terminate this
Agreement at any time before Close of Escrow. If this Agreement is not
terminated, Buyer shall receive a credit against the Price in an amount equal to
the cost of repairing the damage in question up to the sum of Fifty Thousand
Dollars ($50,000). If Seller elects to terminate this Agreement, Buyer may
override such termination by choosing to bear the cost of repairing the damage
and receive a credit at Close of Escrow of Fifty Thousand Dollars ($50,000).
Seller shall bear the risk and expense of any uninsured loss of Fifty Thousand
Dollars ($50,000) or less.
7.3 ASSIGNMENT. Buyer may assign its rights under this Agreement,
to any other person, firm or entity.
7.4 NOTICES. All notices, demands and requests which may be given
by either party to the other, or to Escrow Holder, shall be in writing and shall
be deemed served upon personal delivery or, alternatively, by mailing the same
by registered or certified mail, postage prepaid, addressed to the party to be
notified at the address as set forth in Paragraphs7.25 and 7.26 herein, or
addressed to such other address or addresses as either party may from time to
time designate to the other in writing or, if addressed to Escrow Holder, at the
address in Paragraph 1.2 herein. All notices to Escrow Holder shall make
specific reference to the escrow number of the Escrow. ANY NOTICE SHALL BE
DEEMED TO HAVE BEEN SERVED AT THE TIME THE SAME WAS POSTED.
7.5 INTENTIONALLY OMITTED.
7.6 ARBITRATION OF DISPUTES. ANY CONTROVERSY ARISING FROM THIS
AGREEMENT OR ITS BREACH SHALL BE DETERMINED BY ONE (1) ARBITRATOR APPOINTED AS
SET FORTH AS FOLLOWS:
WITHIN TEN (10) DAYS AFTER A NOTICE BY EITHER PARTY TO THE OTHER
REQUESTING ARBITRATION AND STATING THE BASIS OF THE PARTY'S CLAIM, THE
REQUESTING PARTY SHALL COMMENCE AN ARBITRATION PROCEEDING EITHER UNDER THE
AUSPICES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA) OR JUDICIAL ARBITRATION &
MEDIATION SERVICES, INC. (JAMS). THE ARBITRATION SHALL BE CONDUCTED UNDER THE
RULES OF THE ORGANIZATION SELECTED AND CODE OF CIVIL PROCEDURE SECTIONS 1280
THROUGH 1294.2, INCLUDING THE RIGHT TO DISCOVERY. ALL NOTICES, INCLUDING NOTICES
UNDER CODE OF CIVIL PROCEDURE SECTION 1290.4, SHALL BE GIVEN AS PROVIDED IN
PARAGRAPH 6.4 HEREIN.
NOTICE: BY INITIALING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE
<PAGE>
"ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED
BY CALIFORNIA LAW, AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE
THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE
BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS
SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
SELLER'S INITIALS BUYER'S INITIALS
-------- --------
7.7 FEDERAL REPORTING REQUIREMENTS. Buyer and Seller acknowledge
that IRC Section 6045(e) requires that the amount of gross proceeds from a real
estate transaction be reported to the IRS. Buyer and Seller hereby instruct
Escrow Holder to comply with IRC Section 6045(e) and make said report. Seller
hereby instructs Escrow Holder to report the gross proceeds of this sale to the
IRS on Form 1099-B or W-9 or any subsequently approved IRS form.
7.8 FEDERAL WITHHOLDING. So that Buyer may comply with the Foreign
Investment in Real Property Tax Act ("FIRPTA"), Seller hereby declares under
penalty of perjury that he/she is not a foreign person or non-resident alien as
defined in FIRPTA. Seller shall provide Buyer with such additional information
and affidavits as may be necessary for Buyer to comply with FIRPTA.
7.9 STATE WITHHOLDING. California Revenue and Taxation Code
Sections 18805 and 26131 require a buyer of real property to withhold California
income taxes from escrow funds if all of the following conditions are met:
(a) The buyer has received a standard notification of the
withholding requirements established by the Act;
(b) The selling price is greater than One Hundred Thousand and
No/100 Dollars ($100,000.00);
<PAGE>
(c) The seller has not received a California Homeowner's
Property Tax Exemption during the year of the sale; and
(d) The funds from the transaction are to be disbursed to
either:
(i) A seller with a last known street address outside
of California, or
(ii) A financial intermediary of the seller if the
seller is a nonresident of California.
The withholding rate is three and one-half percent (3 1/2%) of the
selling price. Seller may request a waiver by contacting:
Franchise Tax Board
Withholding at Source Unit
P.O. Box 651
Sacramento, CA 95812-0651
(916) 369-4900
7.10 PRELIMINARY CHANGE OF OWNERSHIP REPORT. Buyer is aware that
any person acquiring an interest in real property must file a Preliminary Change
of Ownership Report with the County Recorder or Tax Assessor upon recording any
documents effecting a change of ownership unless the document is accompanied by
an affidavit that the transferee is not a resident of California. Failure to
file may result in an additional recording fee for the Buyer.
7.11 REASSESSMENT. Property will be reassessed upon a change of
ownership. This will affect the taxes to be paid. A supplemental tax bill may be
issued, which shall be paid as follows: (a) for periods after the Close of
Escrow, by Buyer, and (b) for periods before the Close of Escrow by Seller. Tax
bills issued after the Close of Escrow shall be handled directly between Buyer
and Seller.
7.12 WAIVER. The waiver of any provision of this Agreement shall
be invalid unless evidenced by a writing signed by the party to be charged
therewith. The waiver of, or failure to enforce, any provision of this Agreement
shall not be a waiver of any further breach of such provision or of any other
provision hereof. The waiver by either or both parties of the time for
performing an act shall not be a waiver of the time for performing any other act
or acts required hereunder.
7.13 MODIFICATIONS. No change or addition to this Agreement or any
part hereof shall be valid unless in writing and signed by each of the parties
hereto.
10
<PAGE>
7.14 SUCCESSORS AND ASSIGNS. Except as expressly provided herein,
this Agreement and the obligations of Seller and Buyer contained herein shall
bind and benefit the successors and assigns of the parties hereto.
7.15 GOVERNING LAW. This Agreement shall be governed by California
law.
7.16 HEADINGS. The headings in this Agreement are for convenience
only and shall not be used to interpret this Agreement.
7.17 FURTHER ACTS. Each party agrees to take such further action
and to execute and deliver such further documents as may be necessary to carry
out the purposes of this Agreement.
7.18 ATTORNEYS' FEES AND COSTS. If either party incurs attorneys'
fees and/or costs to enforce this Agreement or because of a breach of this
Agreement by the other party, the prevailing party shall be entitled to recover
from the losing party, in addition to any other relief, its actual attorneys'
fees and costs irrespective of whether or not the action or other proceeding is
prosecuted to judgment and irrespective of any court schedule of reasonable
attorneys' fees.
7.19 TIME. Time is of the essence of this Agreement.
7.20 EXCHANGE TRANSACTION. Seller agrees upon the request of Buyer
to cooperate with Buyer in closing this transaction as an exchange pursuant to
IRC Section 1031, provided Seller shall incur no additional expense or liability
in connection therewith and is not required to take title to any property in
connection with such exchange.
7.21 ENTIRE AGREEMENT. This Agreement contains all of the
agreement and understandings relating to the purchase of the Property and the
obligations of Seller and Buyer in connection therewith. Seller has not made,
and Buyer is not relying upon, any warranties, representations, promises or
statements made by Seller, or any agent of Seller, except as expressly set forth
herein. This Agreement supersedes any and all prior agreements and
understandings between Seller and Buyer and alone expresses the agreement of the
parties.
7.22 FORCE MAJEURE. The parties shall incur no liability to the
other with respect to, and shall not be responsible for, any failure to perform
any of the obligations hereunder if such failure is caused by reason of strike,
other labor trouble, governmental rule, regulations, ordinance, statute or
interpretation, or by fire, earthquake, civil commotion, or failure or
disruption of utility services, or any and all other causes reasonably beyond
control of the parties. The amount of time for the parties to perform any of the
obligations hereunder shall be extended by the amount of time the party is
delayed in performing such obligation by reason of such force majeure
occurrence.
11
<PAGE>
7.23 INTERPRETATION. Seller and Buyer acknowledge that they have
read and reviewed this Agreement and that they have had the opportunity to
confer with counsel in negotiation of this Agreement. Accordingly, this
Agreement shall be construed neither for nor against Seller or Buyer, but shall
be given a fair and reasonable interpretation in accordance with the meaning of
its terms and intent of the parties.
7.24 NUMBER AND GENDER. All terms and words used in this
Agreement, regardless of the number and gender in which they are used, shall be
deemed to include the appropriate number and gender, as the contacts may
require.
7.25 SELLER'S ADDRESS FOR NOTICES. The term "Seller's Address for
Notice" shall mean:
(a) For Gianni Neve: 4288 Bodega Avenue
Petaluma, CA 94952
(b) For Maria Neve: 1109 Lohrman Lane
Petaluma, CA 94952
7.26 BUYER'S ADDRESS FOR NOTICES. The term "Buyer's Address for
Notices" shall mean:
7.27 EXHIBITS. EXHIBIT "A" (Property Description) are incorporated
in this Agreement by reference and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SELLER: BUYER:
VINIFERA INC.
- -------------------------------- BY:---------------------------------
GIANNI NEVE
- -------------------------------- ITS:--------------------------------
MARIA NEVE
<PAGE>
PARCEL ONE.
COMMENCING AT A POINT ON THE COUNTY HIGHWAY LEADING FROM PETALUMA TO BLOOMFIELD,
SAID POINT BEING THE MOST SOUTHEASTERLY CORNER OF THE LANDS DESCRIBED IN VOLUME
232 OF DEEDS AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE DUE NORTH 800.43
FEET TO THE POINT OF COMMENCEMENT; THENCE RUNNING FROM SAID POINT OF
COMMENCEMENT DUE NORTH 452 FEET; THENCE RUNNING NORTH 89o 26' 10" WEST 385 FEET;
THENCE RUNNING SOUTH 0o 3' 30" EAST 452 FEET; THENCE RUNNING SOUTH 89o 26' 10"
EAST 384 FEET TO THE POINT OF COMMENCEMENT.
PARCEL TWO:
COMMENCING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE EASTERLY BOUNDARY OF SAID LANDS NORTH 800.43 FEET; THENCE NORTH 89o
26' 10" WEST 192.13 FEET; THENCE SOUTH 690.21 FEET AND THENCE SOUTH 59o 42' 20"
EAST 222.25 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL:
BEGINNING AT THE SOUTHEAST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS. FROM SAID POINT OF BEGINNING RUNNING NORTH
326.23 FEET; THENCE NORTH 89o 26' 10" WEST 192.13 FEET; THENCE SOUTH 216.01
FEET; THENCE SOUTH 59o 42' 20" EAST 222.25 FEET TO THE POINT OF BEGINNING.
PARCEL THREE:
COMMENCING AT THE SOUTHWEST CORNER OF THE LANDS DESCRIBED IN VOLUME 232 OF DEEDS
AT PAGE 56, SONOMA COUNTY RECORDS; RUNNING THENCE FROM SAID POINT OF BEGINNING
ALONG THE WEST BOUNDARY OF SAID LANDS NORTH 0o 03' 30" WEST 580 FEET; THENCE
SOUTH 89o 26' 10" EAST 192.13 FEET; THENCE SOUTH 690.21 FEET; THENCE NORTH 59o
42' 20" WEST 222.25 FEET TO THE POINT OF BEGINNING.
EXHIBIT "A"
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
DATED FEBRUARY 25, 1997
<PAGE>
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
1. DEFINITIONS 1
2. GRANT OF OPTION RIGHTS LICENSE 2
3. PAYMENTS 3
4. EXERCISE OF THE OPTION 3
5. TERMS OF PROPOSED LICENSE 4
6. OWNERSHIP OF INTELLECTUAL PROPERTY 5
7. DISCLAIMERS 5
8. INDEMNIFICATION 6
9. PROSECUTION AND MAINTENANCE OF PATENT RIGHTS 6
10. TERM AND TERMINATION 8
11. CONFIDENTIAL INFORMATION 9
12. CHOICE OF LAW; DISPUTE RESOLUTION 9
13. DUE DILIGENCE 10
14. NOTICES 10
15. RESEARCH AND SHARING OF INFORMATION 10
16. MISCELLANEOUS 11
<PAGE>
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
This Option to License and Research Support Agreement (the
"Agreement") is made and entered into as of Feb. 25, 1997, by and between The
Salk Institute for Biological Studies, a nonprofit public benefit corporation
organized under the laws of the State of California ("Salk"), and EPITOPE, INC.,
a corporation organized under the laws of the State of Oregon ("Epitope").
BACKGROUND
Salk is the owner or co-owner of certain Patent Rights
(defined below) and of the Technical Information (defined below) relating to the
Patent Rights. The development of certain inventions included within the Patent
Rights was sponsored in part by agencies of the Federal Government and, as a
consequence, this Agreement is subject to overriding obligations to the Federal
Government as set forth in 35 U.S.C. Section 200 et seq. Salk desires that the
Patent Rights be developed and utilized to the fullest extent possible so that
products resulting from them may be available for public use and benefit. Salk
has determined that the best method for disseminating the Patent Rights is
through the grant of licenses to entities willing to evaluate and develop
products and services covered by the Patent Rights. Epitope has, or has access
to, the scientific talent, know-how and facilities to further evaluate, develop
and potentially market products which may result from the use of the Patent
Rights. Epitope wishes to obtain and Salk is willing to grant to Epitope an
option to license the Technical Information so that Epitope can further evaluate
and develop the technology for commercial application in plants.
NOW, THEREFORE, IN CONSIDERATION OF THE ABOVE PREMISES, AND
THE MUTUAL COVENANTS CONTAINED HEREIN, THE PARTIES HEREBY AGREE AS FOLLOWS:
TERMS AND CONDITIONS
1. DEFINITIONS.
1.1 The term "AFFILIATE" shall mean any entity which controls,
is controlled by or is under common control with Epitope, where "control" means
beneficial ownership of more than fifty percent (50%) of the outstanding shares
or securities or the ability otherwise to elect a majority of the board of
directors or other managing authority.
1.2 The term "PLANT BIOLOGY LABORATORY" shall mean
collectively the research laboratories at Salk devoted to plant biology
research, including, but not limited to, those under the direction of Dr.
Christopher Lamb, Dr. Joanne Chory, and Dr. Detlef Weigel.
1.3 The term "FIELD OF USE" shall mean certain fruit and
vegetable crops and certain horticultural plants, as spelled out in Schedule A,
attached hereto and incorporated by reference herein, but in no event shall
include, without limitation, corn, canola, sunflower, safflower, soybeans,
cotton, cereals, sorghum, forestry trees, all fruitwood or hardwood species
grown primarily for wood or as ornamental trees, plants of any species grown as
ornamentals, and other plants not specifically listed in Schedule A.
1.4 The term "LICENSED TECHNOLOGY" shall mean collectively the
Patent Rights and the Technical Information (defined below).
1.5 The term "PATENT RIGHTS" shall mean all information,
inventions or discoveries covered by the patent applications listed on Schedule
A, attached hereto and
1
<PAGE>
incorporated by reference herein, which Schedule may be modified from time to
time by the parties as specified herein, and any and all patents issuing
thereon, owned by or licensed to Salk with the right to sublicense. The term
"patents" as used in this Agreement shall include, without limitation, all
provisional and utility applications, substitutions, continuations,
continuations-in-part, divisions, reissues, extensions and foreign counterparts
of the aforementioned.
1.6 The term "TECHNICAL INFORMATION" shall mean all know-how,
trade secrets, data, processes, procedures, methods, formulas, protocols and
information which are not covered by the Patent Rights or any other patent
rights of Salk, but which are necessary or useful for the commercial
exploitation of the Patent Rights, and which are known or become known during
the Term (as hereinafter defined) in the Plant Biology Laboratory and which Salk
has the lawful right to license and disclose without accounting to any third
party.
1.7 The term "TERM" shall be as defined in Section 10.1.
1.8 The term "TERRITORY" shall mean the territory listed with
respect to each entry in Schedule A.
2. GRANT OF OPTION RIGHTS LICENSE.
2.1 PATENT RIGHTS AND TECHNICAL INFORMATION. Subject to the
limitations set forth in this Agreement, Salk hereby grants to Epitope and its
Affiliates an option (the "Option") (exclusive or nonexclusive as stipulated on
the attached Schedule A), for the Term to acquire (1) an exclusive with the
right to sublicense, or nonexclusive without the right to sublicense, worldwide
commercial license under the Patent Rights in the Field of Use and in the
Territory as stipulated for each entry in the attached Schedule A; and (2) a
non-exclusive commercial license in and to the Technical Information in the
Field of Use and in the Territory as stipulated for each entry in the attached
Schedule A, with the right to grant sublicenses to such Technical Information in
conjunction with sublicenses of Patent Rights pursuant to an exclusive license
under this Section 2.1; which licenses under (1) and (2) are to make, have made,
use and sell in the Field of Use and in the Territory products which are
composed of or incorporate the Licensed Technology or the production, use or
sale of which products is within the scope of any claim in a pending patent
application or an issued patent included in the Patent Rights.
For the duration of the Term of this Agreement, Salk grants to
Epitope a non-exclusive license under the Licensed Technology, to use the
Licensed Technology for research and evaluation purposes in each specified Field
of Use to determine Epitope's interest in exercising the Option; provided
further that Epitope may also be granted the right to contract with third party
independent contractors to use the Licensed Technology for research and
evaluation purposes in one or more of the respective Fields of Use upon
notification in writing to Salk so long as necessary to help Epitope determine
its interest in exercising the option and so long as such contracts are made
under conditions at least as protective to Salk as those under this Agreement.
2.2 GOVERNMENT RIGHTS. Epitope acknowledges that certain of
the Licensed Technology was developed in part with funds furnished by the
Government of the United States of America and that the Government has certain
rights relative thereto. This Agreement is explicitly made subject to the
Government's rights under any applicable law or regulation. To the extent that
there is a conflict between any such applicable law or regulation and this
Agreement, the terms of such applicable law or regulation shall prevail.
2.3 SUBLICENSES. Epitope shall have the right to grant
sublicenses to third party independent contractors contracted with under Section
2.1 above, which sublicenses shall be limited in duration to the Term and shall
include, without limitation, a provision binding
2
<PAGE>
sublicensees to all terms hereof intended for the protection of Salk and other
indemnified parties against liability or loss. Epitope further agrees to deliver
to Salk for informational purposes (and under an obligation of confidentiality)
a true and correct copy of each sublicense under the Option granted by Epitope,
and any modification or termination thereof, within thirty (30) days after
execution, modification, or termination.
2.4 RIGHT OF FIRST NEGOTIATION FOR NEW TECHNOLOGY. For the
term of this Agreement, prior to granting any rights to third parties in any of
the Fields of Use and any of the Territories as stipulated in the attached
Schedule A (collectively referred to as the "Area of Rights") with respect to
any new technology not within the definition of Licensed Technology developed in
the Plant Biology Laboratory with the access fees paid by Epitope under this
Agreement (the "New Technology"), Salk shall first offer rights in such New
Technology in the Area of Rights to Epitope. Any such offer shall include an
identification of the New Technology and initial data regarding such technology
for review by Epitope. Epitope shall have [ ]* days from the date it
receives such offer to determine whether or not it wishes to purchase an option
to such New Technology at that time and to so notify Salk. Salk shall not
negotiate with any third parties regarding such New Technology in the Area of
Rights within such [ ]* day period or until Epitope has notified Salk that
it does not wish to obtain rights in such New Technology, whichever occurs
first. If Epitope desires to obtain rights in such New Technology, such rights
may be added to this Agreement or become subject to a new agreement as desired
by the parties. If Epitope decides not to obtain rights to such New Technology
at that time or if Salk and Epitope cannot negotiate an agreement within [
]* months following the [ ]* day period after such offer, then Salk may
offer the New Technology to one or more third parties in the Area of Rights (as
well as continuing to offer the New Technology to third parties outside the Area
of Rights).
3. PAYMENTS.
3.1 ACCESS FEE. As consideration for the rights granted to
Epitope under this Agreement, Epitope agrees to pay to Salk the Access Fees each
year specified in the attached Schedule A for each Technology referred to there.
Such fees will be due and payable in four equal installments on the first day of
each quarter, i.e., January 1, April 1, July 1 and October 1 for the term of the
Agreement except as limited in Section 4. [ ]*
Epitope represents that the execution and delivery of this Agreement and the
payment of the Access Fees have been duly and validly authorized by all
necessary corporate action by Epitope.
3.2 OTHER PAYMENTS. Epitope shall pay Salk amounts received by
Epitope in consideration of any sublicense to this Agreement and under this
Agreement with any third party (other than an Affiliate of Epitope) in an amount
equal to [ ]* of the actual amount received by Epitope under such sublicense;
with the understanding that this Section 3.2 applies to sublicenses under the
option provided herein.
4. EXERCISE OF THE OPTION.
If Epitope elects to exercise its option rights to enter into
a license agreement, Epitope shall notify Salk in writing pursuant to Section 14
(Notices) prior to the expiration of this Agreement.
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
3
<PAGE>
When Epitope exercises its option hereunder with respect to a
given Schedule A entry in the particular Field of Use and Territory specified in
said Schedule A, and the parties shall accordingly diligently work to execute a
license agreement within the guidelines provided herein. Once such license
agreement has been executed by the parties, the terms therein shall replace and
supersede the terms of this Agreement as to the Schedule A entry covered by the
license agreement and Epitope shall not be liable to Salk for any additional
Access Fees in regard thereto under this Agreement.
Epitope may notify Salk in writing during the Term of this
Agreement, that it no longer has any interest in pursuing commercial development
of a particular Schedule A entry (the "Rejected Technology"). In such event, the
option for a license of such Rejected Technology shall be terminated as to that
technology, such technology shall be deemed to be removed from this Agreement
and Epitope shall not be obligated for any future Patent Costs related to such
Rejected Technology. [ ]*
5. TERMS OF PROPOSED LICENSE.
If and when Epitope exercises its Option under this Agreement
for any of the Schedule A entries, then Epitope and Salk shall thereupon
negotiate in good faith to arrive at mutually agreeable, reasonable terms and
conditions for the license agreement. The terms of the license agreement shall
include, but not be limited to, the following provisions:
(A) a right to sublicense the rights being licensed
if the license is exclusive.
(B) a license issue fee equivalent to [ ]*
for the Schedule A entry being licensed.
(C) a royalty rate to be based on the added value of
the technology to the product, taking into consideration
additional third party technology licenses needed to market
the products covered, but in any event not to exceed [ ]*
from the sale of products incorporating the Licensed
Technology, with the royalty rates being determined with
regard to each Schedule A entry such that if more than one
Schedule A entry is incorporated into the products, the
royalty rates will be additive [ ]*
(D) fees paid to Salk on sublicenses at a rate of [
]* of amounts actually received by Epitope from
sublicensees.
(E) diligence terms requiring Epitope to use
reasonable efforts based on reasonably prudent business
judgment in evaluating the Licensed Technology and producing
products for sale that incorporate the Schedule A entry to be
licensed.
(F) disclaimer and indemnification terms similar to
those set out in Sections 7 and 8.
(G) patent cost obligations similar to those in
Section 9.
(H) termination provisions similar to those in
Section 10.
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
4
<PAGE>
5.2 The license agreement contemplated in Section 5.1 shall be
subject to all the applicable provisions pertaining to the rights of the
Government of the United States as specified in Section 2.2.
6. OWNERSHIP OF INTELLECTUAL PROPERTY.
6.1 Epitope (for itself, its Affiliates and sublicensees)
acknowledges and agrees that Salk is and shall remain (as to Epitope) the sole
owner of the Patent Rights, subject to the rights of the Federal Government as
set forth in 35 U.S.C. Section 200 et seq., and that Epitope (including its
Affiliates and sublicensees) has no rights in or to the Patent Rights other than
the rights specifically granted herein.
6.2 Salk warrants to Epitope that it has the lawful right to
enter into this Agreement and grant the option contained herein. Epitope is
aware that certain technology listed in Schedule A is owned in part by The
Samuel Roberts Noble Foundation.
7. DISCLAIMERS.
7.1 WARRANTY DISCLAIMER. Nothing in this Agreement is or shall
be construed as:
(A) a warranty or representation by Salk as to the
validity or scope of any Patent Rights;
(B) a warranty or representation that anything made,
used, sold or otherwise disposed of under any license granted
pursuant to this Agreement is or will be free from
infringement of patents, copyrights and other rights of third
parties;
(C) an obligation to bring or prosecute actions or
suits against third parties for infringement, except to the
extent and in the circumstances described in Section 9.3; or
(D) a grant by implication, estoppel, or otherwise of
any licenses under patent applications or patents of Salk or
other persons other than as provided in Section 2 hereof.
7.2 NO WARRANTY. Except as expressly set forth in this
agreement, Salk makes no representation and extends no warranty of any kind,
either express or implied, including, without limitation, the condition,
originality or accuracy of the research or any invention or product, whether
tangible or intangible, conceived, discovered or developed under this Agreement;
or the merchantability or fitness for a particular purpose of the research or
any such invention or product. Salk shall not be liable for any direct,
consequential, or other damages suffered by Epitope, any licensee, or any other
resulting from the use of the research or any such invention or product.
5
<PAGE>
8. INDEMNIFICATION.
8.1 INDEMNIFICATION BY EPITOPE. Except to the extent of the
limited waiver and indemnity by Salk set forth in Section 8.2, Epitope hereby
waives any claims it may have, and agrees to indemnify, defend and hold harmless
Salk and its present and former officers, trustees, employees, agents and
co-owners of technology from any claim, loss, cost, expense, or liability of any
kind including reasonable attorneys' fees and expenses arising out of or related
to (a) use by Epitope, its Affiliates or its sublicensees of the Licensed
Technology or the results of any work performed pursuant to this Agreement or
(b) any manufacture, use, sale or other disposition by Epitope, its Affiliates
or its licensees of products made by use of such Licensed Technology or the
results of any work performed pursuant to this Agreement. Salk shall promptly
notify Epitope of any such claim and shall cooperate with Epitope and its
insurance carrier in defense of the claim at Epitope's expense.
8.2 INDEMNIFICATION BY SALK. Salk hereby waives any claims it
may have, and agrees to indemnify, defend and hold harmless Epitope and its
present and former officers, directors, employees and agents from any claims,
loss, cost, expense, or liability of any kind including reasonable attorneys'
fees and expenses resulting from the injury or death of an employee or agent of
Salk engaged in conducting the research contemplated by or performed under this
Agreement, working in the facility in which such research is conducted, or
damage to or loss of the property of Salk, caused by the negligence or willful
misconduct of Salk in conducting such research.
9. PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.
9.1 PROSECUTION AND MAINTENANCE. As between Salk and Epitope,
Salk shall have full control over prosecution and maintenance of the patent
applications and patents contained in the Patent Rights. Salk shall diligently
prosecute and maintain or use its best efforts to cause a co-owner to prosecute
and maintain the United States and foreign patent applications and patents in
the Patent Rights. Salk will keep Epitope advised of the status of such
prosecution and maintenance by providing Epitope in confidence with prompt and
complete copies of all official communications with respect to the patent
applications and patents contained in the Patent Rights. Salk agrees to consider
carefully adding claims reasonably requested by Epitope to any patent
application in the Patent Rights which Epitope believes are necessary to protect
products contemplated to be sold under a potential License Agreement.
9.2 PATENT COSTS.
(A) Upon execution of this Agreement, Epitope shall
pay to Salk [ ]*
as reimbursement for the percentages of Patent Costs incurred
through 1996 specified in Schedule A. Epitope shall reimburse
Salk for said percentages of Patent Costs thereafter incurred
during the term of this Agreement with respect to the Patent
Rights; provided that each percentage of Patent Costs to be
borne by Epitope is to be based on and shared with other
licensees and options under the Patent Rights on a pro rata
basis, with the number of licensees. If Epitope exercises its
option rights under this Agreement, Epitope's pro rata share
of the Patent Costs shall be determined based upon the number
of licenses then existing and the extent of the Field of Use
and Territory on a Schedule A entry by entry basis. If Salk
subsequently obtains additional licensees, then Epitope's pro
rata share of the Patent Costs shall be reduced by Salk
accordingly. Conversely, if one or more licensees terminate
their interest then Epitope's share of the Patent Costs shall
increase. "Patent Costs" as used in this Agreement shall mean
only out-of-pocket
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
6
<PAGE>
expenses incurred in connection with the preparation, filing,
prosecution up to and through appeal from a final rejection by
an Examiner of the United States Patent Office and maintenance
of United States patent applications and patents, including
the fees and expenses of attorneys and patent agents, filing
fees and maintenance fees, and the filing of an application
under the Patent Cooperation Treaty, but excluding costs
associated with any patent infringement actions. Salk will
provide an invoice to Epitope for Epitope's pro rata share of
any such Patent Costs on a semiannual basis, and Epitope shall
reimburse Salk for its share of Patent Costs within thirty
(30) days after delivery of any such invoice. Notwithstanding
anything above to the contrary:
(i) Epitope will not pay Patent Costs
associated with [ ]*
without Epitope's agreement in advance [ ]*
(ii) Epitope will not pay extension fees and
will not pay more than [ ]*
of Patent Costs associated with an application,
including continuations from an initial parent
application without Epitope's agreement in advance
that such expenses are desirable and reasonably
necessary business expenses; and
(iii) Epitope will not pay for fees in
connection with an interference in the United States
Patent Office or in a court of law, without Epitope's
agreement in advance that such expenses are desirable
and reasonably necessary business expenses.
(B) Except with regard to any patent rights that
result from applications for which Epitope did not pay fees
and costs in accordance with Section 9.2(a) (ii) and (iii)
above, in the event Epitope elects to discontinue payment for
the filing, prosecution and/or maintenance of any patent
application and/or patent contained in the Patent Rights, any
such patent application or patent shall be excluded from the
definition of the Patent Rights and from the scope of the
license granted under this Agreement, and all rights relating
thereto shall revert to Salk and may be freely licensed by
Salk.
(C) Salk shall provide notice to Epitope at least 4
months before the deadline for any patent application of the
Patent Rights to be filed in a country other than the United
States and Epitope shall, using reasonable business judgment
and with consultation with Salk, determine and notify Salk
before one month from the foreign filing deadline which
countries Epitope elects to pay for the filing, prosecution
and maintenance of such patents. If Epitope elects not to
support in a given country a patent application or patent
included in the Patent Rights and Salk, acting in reliance
thereon, ceases to prosecute such patent application or
maintain such patent, Epitope warrants that it will not sell a
product covered by the claims of any such patent as issued or,
in the case of an application, covered in the claims as
written at the time Epitope notified Salk of its decision not
to support the application, unless Epitope is obligated to pay
royalties and/or other payments under this Agreement on sales
in said country because such product is covered by another
patent or patent application licensed hereunder. If Epitope
elects not to support in a given country a patent application
or patent included in the Patent Rights and subsequently Salk
or another licensee of Salk elects to support such a patent
application or patent, then Salk shall so inform Epitope and
Epitope shall be entitled to another opportunity to elect to
share in the costs of such support on a pro
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
7
<PAGE>
rata basis with Salk and/or such licensee and shall have
rights according to this Agreement under such patent or patent
application. All costs relating to patent applications or
patents Epitope elects to support shall be deemed to be
included in the definition of Patent Costs and Epitope shall
be responsible for its pro rata share as set out in Section
9.2(a).
9.3 DEFENSE AGAINST INFRINGEMENT. In the event Epitope or Salk
becomes aware of any actual or threatened infringement of any Patent Rights,
that party shall promptly notify the other and the parties shall discuss the
most appropriate action to take. Both parties shall use their best efforts in
cooperating with each other to terminate such infringement without litigation.
If, within one hundred twenty (120) days after the date of notification of
infringement, attempts to abate such infringement are unsuccessful, then Epitope
and other optionees and/or licensees similarly situated may bring such action at
their own expense, in which event Salk shall cooperate with Epitope as
reasonably requested, at Epitope's expense. Salk may, on its own initiative,
join in such suit. All recoveries, damages and awards in such suit, after
reimbursement of any litigation expenses of Salk not previously reimbursed,
shall belong to Epitope and any other optionees and/or licensees, but to the
extent in excess of the litigation expenses of Epitope and any other such
optionees and/or licensees shall be considered income subject to royalty payable
to Salk hereunder. In the event that Epitope elects not to institute or
prosecute any suit to enjoin or recover damages from any infringer, then Salk
alone may, in its sole discretion and at its expense, initiate and conduct an
infringement action and keep any settlement or award which may be obtained.
Epitope and Salk agree that neither will settle any action commenced by it in a
manner that is prejudicial to any Patent Rights without the other party's prior
written approval.
10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall become effective as of the
date of this Agreement set forth above and continue for a period of three years,
unless earlier terminated as permitted herein. The Term may be renewed upon
written agreement by both parties.
10.2 TERMINATION BY EITHER PARTY. This Agreement may be
terminated by either party, if the other party substantially fails to perform or
otherwise materially breaches any of the material terms, covenants or provisions
of this Agreement, such termination to be effected by giving written notice of
intent to terminate to the breaching party stating the grounds therefor. The
party receiving the notice shall have thirty (30) days thereafter to correct
such breach. If such breach is not corrected within said thirty (30) days after
notice as aforesaid, then this Agreement shall automatically terminate.
10.3 TERMINATION BASED ON THIRD PARTY CONFLICTS. Epitope may
terminate this Agreement as to any Patent Rights effective upon notice to Salk,
at its sole discretion if a patent or patent application of the Patent Rights is
subjected to an interference in the United States Patent Office or in a court of
law or if Salk or Epitope is sued or threatened with suit by a third party for
infringement or other exercise of the Patent Rights and the technologies
associated with them.
10.4 TERMINATION BASED ON EMPLOYMENT OF KEY INDIVIDUALS. The
parties recognize that [ ]*
contemplated under this Agreement is crucial to the success of that research,
and therefore agree that, [ ]*
Salk will so notify Epitope [ ]*
and Epitope may then terminate this Agreement by written notice to Salk, which
termination shall be effective [ ]* days after [ ]*.
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
8
<PAGE>
10.5 CONSEQUENCES OF TERMINATION. In the event of expiration
of this Agreement or termination of the Agreement for any reason whatsoever:
(A) Epitope shall not thereby be discharged from any
liability or obligation to Salk which became due or payable
prior to the effective date of such expiration or termination;
and
(B) The rights and obligations of the parties under
Sections 7, 8, 10.5 and 11 shall survive any termination of
this Agreement.
11. CONFIDENTIAL INFORMATION.
All confidential scientific and technical information
communicated by one party hereunder (the "Provider") to the other party, its
affiliates or sublicensees (the "Recipient"), including, without limitation,
information contained in patent applications, shall be received in strict
confidence by the Recipient, used only for the purposes of this Agreement and
not disclosed by the Recipient or their respective agents or employees without
the prior written consent of the Provider, unless such information (i) was in
the public domain at the time of disclosure, (ii) later became part of the
public domain through no act or omission of the recipient party, its employees,
agents, successors, or assigns, (iii) was lawfully disclosed to the recipient by
a third party having the right to disclose it, (iv) was already known by the
recipient at the time of disclosure and recipient can so demonstrate by
competent written proof or (v) is required to be disclosed to a governmental
agency pursuant to such agency's rule and regulations in order to secure
regulatory approval, provided that Recipient shall first give notice to Provider
of such disclosure and shall have made a reasonable effort to maintain the
confidentiality of such information. Nothing contained herein shall prevent
Epitope or its Affiliates from disclosing information to sublicensees or Salk
disclosing information to its other optionees and/or licensees so long as such
sublicensees, licensees and optionees agree to be bound by these confidentiality
provisions. Notwithstanding the above, there shall be no restrictions on the
right of Salk and or Epitope to publish the results of the work hereunder.
12. CHOICE OF LAW; DISPUTE RESOLUTION.
12.1 GOVERNING LAW. This Agreement is made in accordance with
and shall be governed and construed in accordance with the laws of the State of
California, as applied to contracts executed and performed entirely within the
State of California, without regard to conflicts of laws rules.
12.2 ARBITRATION. If a dispute arises between the parties
relating to the interpretation or performance of this Agreement or the grounds
for the termination thereof, the parties agree to hold a meeting, attended by
individuals with decision-making authority regarding the dispute, to attempt in
good faith to negotiate a resolution of the dispute prior to pursuing other
available remedies. If, within thirty (30) days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to final and binding arbitration under the then current
Licensing Agreement Arbitration Rules of the American Arbitration Association
("AAA"), with a panel of three (3) arbitrators in Oregon if the arbitration is
called for by Salk and in San Diego, California if the arbitration is called for
by Epitope. Such arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The parties shall bear the costs of arbitration equally unless the
arbitrators, pursuant to their right, but not their obligation, require the
non-prevailing party to bear all or any unequal portion of the prevailing
party's costs. The decision of the arbitrator shall be final and may be sued on
or enforced by the party in whose favor it runs in
9
<PAGE>
any court of competent jurisdiction at the option of the successful party. The
arbitrators will be instructed to prepare and deliver a written, reasoned
opinion conferring their decision. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement or the grounds for the termination thereof shall survive the
expiration or termination of this Agreement for any reason.
13. DUE DILIGENCE.
Epitope shall diligently undertake the requisite research and
testing of the Licensed Technology necessary to evaluate its interest in
exercising the option. Epitope shall be entitled to exercise prudent and
reasonable business judgment in meeting its due diligence obligations hereunder.
14. NOTICES.
The payments to be made hereunder to Salk shall be made by
wiring the required amount to Salk's bank in accordance with Salk's instructions
or by mailing or sending by commercial courier checks for the required amount to
Salk's address. Notices provided for herein shall effectively be given by
mailing the same by certified or registered mail or by delivery by commercial
courier, in each case properly addressed with charges prepaid. For the purposes
of making payments and giving notices, the addresses of the parties hereto are
as follows:
The Salk Institute for Biological Studies
10010 North Torrey Pines Road
La Jolla, CA 92037
Attn: Director, Legal Services & Technology Transfer
Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008-7108
Attn: President
or to such subsequent addresses as either party may furnish the other by giving
notice thereof as provided in this Section 14.
15. RESEARCH AND SHARING OF INFORMATION.
15.1 It is expected that the two parties will work together to
further develop the technologies set out on Schedule A. The role each party will
play will depend upon how advanced the underlying technology of interest is,
with Salk providing primarily the necessary basic research and Epitope
evaluating the technology for commercial utility and expansion to numerous plant
products. Each party will report to each other at least quarterly at a mutually
convenient time the findings of their respective research and will share ideas
regarding future projects. Epitope would expect to continue research with the
relevant technology, gene etc. in multiple plant varieties or crops.
15.2 DISCLOSURE OF INFORMATION. Salk agrees to provide Epitope
with research data or other information which bears upon the practice and use of
the Licensed Technology so that Epitope can be apprised as timely as possible
regarding both positive and negative features of the technology which may assist
Epitope in evaluating the commercial application of the technologies covered
under this Agreement. Salk agrees to promptly provide
10
<PAGE>
written correspondence which henceforth is addressed to or otherwise received by
the Technology Transfer Department of Salk from sources other than patent
offices (see Section 9.1) which is known by Salk to be materially relevant to
the patentability of any of the Patent Rights, including such correspondence
about potential interferences. There will be frequent communications, written
oral or both, between scientists from both parties, at least once quarterly at
the mutual convenience of the parties. Salk agrees to send to Epitope at least
once quarterly a written report drafted under the direction of Dr. Lamb that
specifies which research projects are funded hereunder by title, the amounts
from Epitope allocated to each project, the names of the personnel involved in
the project and a brief description of the research status for each of the
projects funded by the fees provided to Salk under this Agreement. Salk will
promptly provide Epitope copies of all publications and manuscripts of Salk
emanating from the Plant Biology Laboratory accepted for publication which
relate to the Licensed Technology. Salk further agrees to provide Epitope
promptly with copies of all United States and, upon request and to the extent
not duplicative, foreign patent applications which Salk files and patents which
may issue thereon, in each case which are included in the Patent Rights.
15.3 EPITOPE TECHNOLOGY. Rights to inventions, improvements
and/or discoveries, whether patentable or not, relating to the work out of this
Agreement conceived or made solely by employees of Epitope or its agents shall
belong to Epitope. Such inventions, improvements, and/or discoveries shall not
be subject to the terms and conditions of this Agreement.
15.4 COLLABORATION. It is understood that the Salk
investigators shall be free to discuss the research with other investigators and
to collaborate with them. Notwithstanding Salk's commitments under this
Agreement, in the event any inventions, discoveries, biological material, or
software result from such collaboration, Salk shall grant to Epitope the rights
outlined in this Agreement to the extent these are not in conflict with
obligations to another party as a result of the involvement of the other
investigator(s). In this latter case, Salk shall exert its good faith efforts to
enable Epitope to obtain rights.
16. MISCELLANEOUS.
16.1 ASSIGNMENT. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by either party without the prior
written consent of the other party (such consent not to be unreasonably withheld
with respect to an assignment in the event of a sale of all or substantially all
of a party's assets). This Agreement shall be binding upon and inure to the
benefit of Salk, Epitope and their respective assigns and successors in
interest.
16.2 HEADINGS. The headings used in this Agreement are for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
16.3 AMENDMENT. No amendment or modification hereof shall be
valid or binding upon the parties unless made in writing and signed by both
parties.
16.4 FORCE MAJEURE. Any delays in performance by any party
under this Agreement (other than the payment of monies due) shall not be
considered a breach of this Agreement if and to the extent caused by occurrences
beyond the reasonable control of the party affected, including but not limited
to, acts of God, embargoes, governmental restrictions, strikes or other
concerted acts of workers, fire, flood, explosion, riots, wars, civil disorder,
rebellion or sabotage. The party suffering such occurrence shall immediately
notify the other party and any time for performance hereunder shall be extended
by the actual time of delay caused by the occurrence.
11
<PAGE>
16.5 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, Salk and Epitope act and shall act at all times as independent
contractors and nothing contained in this Agreement shall be construed or
implied to create an agency, partnership or employer and employee relationship
between Salk and Epitope. At no time shall one party make commitments or incur
any charges or expenses for or in the name of the other party except as
specifically provided herein.
16.6 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
16.7 WAIVER. None of the terms, covenants, and conditions of
this Agreement can be waived except by the written consent of the party waiving
compliance.
16.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to the subject
matter hereof, and merges all prior discussions, representations and
negotiations with respect to the subject matter of this Agreement.
16.9 USE OF SALK'S NAME. Epitope shall have no right to
publicize this Agreement or its relationship with Salk without Salk's prior
written approval, except as provided in this Section 16.9 and as may be required
to obtain sublicensees and to comply with federal or state laws and regulations.
Salk agrees that Epitope may make known in promotional and technical literature
that the Licensed Technology was developed by scientists at Salk and that
products are offered under license from Salk; provided, however, that such use
shall not state or imply that Salk has any relationship with Epitope other than
as licensor.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers or representatives.
ATTEST: THE SALK INSTITUTE
FOR BIOLOGICAL STUDIES
By: /s/ D. D. Busch By: /s/ Thomas D. Pollard
Title: Assistant Secretary Title: President
ATTEST: EPITOPE, INC.
By: /s/ Richard K. Bestwick By: /s/ Adolph J. Ferro
Richard K. Bestwick, Ph.D. Adolf J. Ferro, Ph.D.
Title: Sr. Vice President, COO Title: President, CEO
12
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: The gene SAR-1 or DIR-1, including any modified or
mutant forms and related research developed jointly
in Dr. Christopher Lamb's laboratory and at the
Ardmore Laboratories of The Samuel Roberts Noble
Foundation which confers constitutive Systemic
Acquired Resistance (SAR) in transgenic plants and
any technology developed through studies of SAR-1
relating thereto that results in or enables or
improves the function of Systemic Acquired
Resistance.
Patent Rights: U.S. Serial No., [ ]* by
the Samuel Roberts Noble Foundation, entitled [ ]*
Access Fee: [ ]* per year; provided that such fees shall
increase to [ ]* if Salk obtains ownership rights
in the technology held by The Samuel Roberts Noble
Foundation before July 1, 1997. The first two
quarterly payments shall be [ ]*.
Field of Use: Fruit, vegetable and horticultural crops as defined
by the following list of plant genera and species. In
those cases where the genus name is followed by
"sp.", all species of that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
13
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [ ]*
which shall be non-exclusive; and [ ]*
which shall be exclusive for all [ ]* varieties, and
non-exclusive for all [ ]* varieties.
Initial Share of Patent Costs: [ ]*
INITIALED:
Epitope, Inc.
2/25/97 Date /s/ RKB
Salk Institute
2/27/97 Date /s/ DDB
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
14
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: LEAFY gene (Dr. Detlef Weigel, lead researcher)
Patent Rights: LEAFY Salk File Nos. S94047 & S95098
U.S. Serial No. [ ]*
entitled [ ]*
U.S. Serial No. [ ]*
entitled [ ]*
Foreign: PCT Appln. [ ]*
designating [ ]*
Access Fee: [ ]* per year
Field of Use: Fruit, vegetable and horticultural crops as defined
by the following list of plant genera and species. In
those cases where the genus name is followed by
"sp.", all species of that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
15
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive, except for [ ]*, which shall be exclusive for all
[ ]* varieties, and non-exclusive for all [ ]* varieties.
Initial Share of Patent Costs: [ ]*
INITIALED:
Epitope, Inc.
2/25/97 Date /s/ RKB
Salk Institute
2/27/97 Date /s/ DDB
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
16
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: DET2 gene (Dr. Joanne Chory, lead researcher). DET2
encodes a steroid 5a hydroxylase and is a key enzyme
in the synthesis of brassinosteroid hormones in
plants. Ectopic expression of DET2 in transgenic
Arabidopsis leads to enhanced growth.
Patent Rights: det2 Salk File No. S96011
U.S. Serial No. [ ]*
entitled [ ]*
Access Fee: [ ]* per year
Field of Use: Fruit, vegetable, and horticultural crops
as defined by the following list of plant genera and
species. In those cases where the genus name is
followed by "sp.", all species of that genus are
included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
17
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [
]*, which shall be non-exclusive; and [ ]*
which shall be exclusive for all [ ]* varieties, and non-exclusive
for all [ ]* varieties.
Initial Share of Patent Costs: [ ]*
INITIALED:
Epitope, Inc.
2/25/97 Date /s/ RKB
Salk Institute
2/27/97 Date /s/ DDB
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
18
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: Booster Element (BE) (Dr. Christopher Lamb, lead
researcher). A booster element, comprising
essentially [ ]* when placed in the TATA proximal
region of various plant promoters, markedly
stimulates transcription without altering the
promoter's intrinsic pattern of expression
specificity. The booster cis element interacts with a
novel trans factor comprising domains related to
histone H1 and the high mobility group protein I/Y
respectively, between which is a glutamine-rich
domain.
Patent Rights: Booster Element Salk File No. S96005
U.S. Serial No. [ ]*
entitled [ ]*
Access Fee: [ ]* per year
Field of Use: The Field of Use includes all plant species for this
Technology.
Territory: Worldwide
Exclusivity of License: Non-exclusive
Initial Share of Patent Costs: [ ]*
INITIALED:
Epitope, Inc.
2/25/97 Date /s/ RKB
Salk Institute
2/27/97 Date /s/ DDB
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
19
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: Cyclin gene (Dr. Peter Doerner, lead researcher).
Ectopic expression of a cdc2::cyc1 transgene enhances
plant growth without altering morphogenesis or
causing neoplasms, leading to accelerated vegetative
development and more rapid generation of biomass.
Patent Rights: Cyclin Salk File No. S96006
U.S. Serial No. [ ]*
entitled. [ ]*
Access Fee: [ ]* per annum
Field of Use: Fruit, vegetable and horticultural crops as defined
by the following list of plant genera and species. In
those cases where the genus name is followed by
"sp.", all species of that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
20
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [
]*, which shall be non-exclusive; and
[ ]*, which shall be exclusive for all [ ]*
varieties, and non-exclusive for all [ ]* varieties.
Initial Share of Patent Costs: [ ]*
INITIALED:
Epitope, Inc.
2/25/97 Date /s/ RKB
Salk Institute
2/27/97 Date /s/ DDB
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
21
<PAGE>
AMENDMENT
TO
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
This Amendment to the Option To License And Research Support Agreement
("Agreement") is made and entered into this 25th day of July, 1997 (the
"Effective Date"), by and between The Salk Institute for Biological Studies, a
nonprofit public benefit corporation organized under the laws of the State of
California ("Salk"), and Epitope, Inc., a corporation organized under the laws
of the State of Oregon ("Epitope").
WHEREAS, Dr. Joanne Chory has been identified as a candidate for a
position as an associate investigator of the Howard Hughes Medical Institute
("HHMI");
WHEREAS, HHMI policy does not allow HHMI investigators to be subject to
an option of the type granted under the Agreement, nor to receive research funds
from commercial companies;
WHEREAS, the appointment of Dr. Joanne Chory as an HHMI investigator is
being delayed pending resolution of this matter;
WHEREAS, Epitope has agreed to modify the Agreement to remove reference
to the research of Dr. Joanne Chory past the Effective Date;
WHEREAS, Epitope will have had the benefit of this research prior to
the Effective Date in accordance with the terms of the Agreement;
WHEREAS, The total amount of access fees paid to Salk by Epitope will
remain unchanged and Salk will allocate the fees to other research;
WHEREAS, Certain technology developed prior to the Effective Date by
Dr. Chory outside of the Agreement will now be included by Salk within the
Agreement to the benefit of Epitope; and
WHEREAS, Salk has agreed to include Epitope among those notified of any
licensable inventions arising in the future from the work of Dr. Chory as an
HHMI Investigator.
THEREFORE, in consideration of the mutual covenants contained herein,
the Agreement between Salk and Epitope is hereby amended as follows:
I. Section 1.2 is hereby revised to read in its entirety as
follows:
1.2 The term "PLANT BIOLOGY LABORATORY" shall mean
collectively the research laboratories at Salk devoted to
plant biology research, including, but not limited to, those
under the
<PAGE>
direction of Dr. Christopher Lamb and Dr. Detlef Weigel.
Notwithstanding the foregoing, after the Effective Date, the
term Plant Biology Laboratory shall not include the laboratory
under the direction of Dr. Joanne Chory.
II. Schedule A, pages 17 and 18, referring to the research of Dr.
Joanne Chory concerning the DET2 gene, is hereby modified as attached hereto.
Such research shall cease being
subject to this Agreement as of the Effective Date. Such research prior to the
Effective Date shall remain subject to the Agreement.
III. Schedule A, pages 22 and 23 is hereby added to and made part of
the Agreement effective as of February 25, 1997 and ending as of the Effective
Date. The research described therein conducted prior to the Effective Date shall
remain subject to the Agreement.
IV. The access fee of [ ]* per year called for in the original
Schedule A, pages 17 and 18 shall be prorated for the first year (five months of
twelve) so that the access fee obligation of Epitope under the Agreement with
regard to that research of Dr. Joanne Chory shall be [ ]*. The remaining
[ ]* for the first year and [ ]* per year thereafter shall be
allocated to other research within the Plant Biology Laboratory of Salk as
further delineated in Schedule A, pages 24 and 25, possibly including, but not
limited to, research already listed in Schedule A.
V. Notwithstanding anything to the contrary in the Agreement or herein,
the parties agree that Epitope shall not have a right of first negotiation with
respect to technology developed after the Effective Date in the laboratory under
the direction of Dr. Joanne Chory.
Except as expressly amended above, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date and year first written above.
ATTEST: THE SALK INSTITUTE
FOR BIOLOGICAL STUDIES
By: /s/ D. D. Busch By: /s/ Delbert E. Glanz
Title: Assistant Secretary Title: Executive Vice President
ATTEST: EPITOPE, INC.
By: /s/ Richard K. Bestwick, Ph.D. By: /s/ Adolph J. Ferro, Ph.D
Title: Sr. Vice President, R&D Title: President, CEO
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: DET2 gene (Dr. Joanne Chory, lead researcher) up to July 25,
1997. DET2 encodes a steroid 5a hydroxylase and is a key
enzyme in the synthesis of brassinosteriod hormones in
plants. Ectopic expression of DET2 in transgenic Arabidopsis
leads to enhanced growth.
Patent Rights: det2 Salk File No. S96011
U.S. Serial No. [ ]*, entitled
[ ]*
Access Fee: [ ]*
Field of Use: Fruit, vegetable, and horticultural crops as defined by the
following list of plant genera and species. In those cases
where the genus name is followed by "sp.", all species of
that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 17 -
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [
]*, which shall be non-exclusive; and [ ]*, which shall
be exclusive for all [ ]* varieties, and non-exclusive for all [ ]*
varieties.
Initial Share of Patent Costs: [ ]
Initialed:
Epitope, Inc.
/s/ RKB Date 7/24/97
Salk Institute
/s/ DEG Date 7/24/97
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 18 -
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: BIN1 receptor (Dr. Joanne Chory, lead researcher) up to July
25, 1997. BIN1 encodes a putative leucine-rich-repeat
receptor kinase that acts in brassinosteroid signal
transduction. Ectopic expression of BIN1 or activated
derivatives of BIN1 is expected to enhance growth and yield
and cause an increased resistance to disease.
Patent Rights: BIN1, Salk File No. S97020
U.S. Serial No. ------------ filed June 24, 1997, entitled
[ ]*
Access Fee: As consideration for this technology, an access fee for this
(retroactively) or other research as allocated from time to
time by Dr. Chris Lamb shall be provided by Epitope as
provided in Schedule A, pages 24 and 25.
Field of Use: Fruit, vegetable, and horticultural crops as defined by the
following list of plant genera and species. In those cases
where the genus name is followed by "sp.", all species of
that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 22 -
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [
]*, which shall be non-exclusive; and [ ]*, which shall
be exclusive for all [ ]* varieties, and non-exclusive for all [ ]*
varieties.
Initial Share of Patent Costs: [ ]*
Initialed:
Epitope, Inc.
/s/ RKB Date 7/24/97
Salk Institute
/s/ DEG Date 7/24/97
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 23 -
<PAGE>
SCHEDULE A
OPTION TO LICENSE AND RESEARCH SUPPORT AGREEMENT
BETWEEN
THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
AND
EPITOPE, INC.
Technology: That developed from research projects, in the Plant Biology
Laboratory, to which funds are specifically allocated from
time to time by Dr. Chris Lamb.
Patent Rights: None at present, except to the extent funds are used to
support research described elsewhere in this Schedule A.
Access Fee: [ ]* for the first year, [ ]*/year thereafter.
Field of Use: As specified in the appropriate Schedule A; provided,
however, that licensed technology resulting from new work
not currently listed in Schedule A shall be subject to the
following Field of Use: Fruit, vegetable, and horticultural
crops as defined by the following list of plant genera and
species. In those cases where the genus name is followed by
"sp.", all species of that genus are included.
[ ]*
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 24 -
<PAGE>
[ ]*
Territory: Worldwide
Exclusivity in the field of use and in the territory of option and license:
Exclusive except for [
]*, which shall be non-exclusive; and [ ]*, which shall
be exclusive for all [ ]* varieties, and non-exclusive for all [ ]*
varieties.
Initial Share of Patent Costs: [ ]*
Initialed:
Epitope, Inc.
/s/ RKB Date 7/24/97
Salk Institute
/s/ DEG Date 7/24/97
* Bracketed material has been omitted and filed separately with the Commission
pursuant to a request for confidential treatment.
- 25 -
<PAGE>
ASSIGNMENT OF AGREEMENT
This Assignment relates to a certain OPTION TO LICENSE AND RESEARCH SUPPORT
AGREEMENT between The Salk Institute for Biological Studies and Epitope, Inc.,
effective February 25, 1997, as amended to date, including the amendment dated
July 25, 1997 ("Agreement"). Agritope, Inc., an Oregon corporation has rights
under the Agreement as an affiliate of Epitope, Inc. As of Sept. 23, 1997,
Agritope, Inc. will no longer be an affiliate of Epitope, Inc. and, accordingly,
the parties wish to allocate the rights under the Agreement by this Assignment.
Accordingly, based on the background provided above, Epitope, Inc., and
Agritope, Inc. agree as follows:
Epitope, Inc. hereby assigns all of its rights and obligations under the
Agreement to Agritope, Inc.
IN WITNESS WHEREOF, the parties have executed this Assignment on the date and
year first written above.
ATTEST: EPITOPE, INC.
By: /s/ Trang Jewell By: /s/ C. Bergeron
Title: Executive Assistant Title: VP Operations
ASSIGNMENT ACCEPTED BY
ATTEST: AGRITOPE, INC.
By: /s/ Trang Jewell By: /s/ Adolph J. Ferro
Title: Executive Assistant Title: President/CEO
THE ABOVE ASSIGNMENT IS SPECIFICALLY AGREED TO BY THE SALK INSTITUTE OF
BIOLOGICAL STUDIES
ATTEST: THE SALK INSTITUTE
FOR BIOLOGICAL STUDIES
By: /s/ D. D. Busch By: Delbert E. Glanz
Title: Assistant Secretary Title: Exec. Vice President
AMERICAN EQUITIES OVERSEAS, INC.
Acting Through American Equities Overseas (UK), Ltd.
16 Old Bond Street
London, England W1X 3DB
October ---, 1997
Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attention:
Adolph J. Ferro, Ph.D.
President and Chief Executive Officer
Re: Placement Agent Agreement for 1997
Private Placement of Common Stock
-----------------------------------------
Gentlemen:
This will confirm the terms on which American Equities Overseas,
Inc. acting through American Equities Overseas (UK) Ltd. ("American Equities"),
will serve as placement agent in connection with a proposed offering of common
stock, no par value, together with associated preferred stock purchase rights
(collectively, the "Common Stock"), of Agritope, Inc. ("Agritope"). The Common
Stock will be issued pursuant to Stock Purchase Agreements substantially in the
form you have provided to us (the "Stock Purchase Agreements").
American Equities will place with financial investors ("Financial
Investors") a minimum of U.S. $9,000,000 of Common Stock and will use its best
efforts to place up to a maximum of U.S. $10,000,000 of Common Stock (or such
greater amount as Agritope may approve) with Financial Investors. In addition to
the required minimum placement with Financial Investors, American Equities will
use its best efforts to place additional shares of Common Stock with parties
that have a product development relationship with Agritope ("Strategic
Partners"). The Financial Investors, including American Equities, if it
purchases shares in this offering, and the Strategic Partners are referred to
herein, collectively, as the "Regulation S Investors." All sales to Regulation S
Investors will be made substantially on the terms set forth in this letter and
pursuant to the Stock Purchase Agreements.
All proceeds of this offering will be placed in an account with
Republic New York Securities Corp. ("Republic"), which American Equities will
open for the benefit of Agritope (the "Proceeds Account"). To satisfy the
required minimum placement, American Equities will purchase, on or before
October 15, 1997, any of such shares of Common Stock that it does not place with
other Financial Investors and will deposit the
<PAGE>
purchase price of the shares it purchases in the Proceeds Account. If the
purchase price paid for any Common Stock purchased by any other Financial
Investor is returned to such Financial Investor prior to the closing of this
offering ("Closing") and such return results in the balance of the Proceeds
Account attributable to Financial Investors falling below U.S. $9,000,000, then
American Equities will purchase additional shares of Common Stock to satisfy the
required minimum placement.
American Equities will purchase any shares it purchases hereunder
pursuant to a Stock Purchase Agreement, which will be substantially the same as
the Stock Purchase Agreements that the other Regulation S Investors sign, except
that: (i) American Equities will not be required to hold the shares for
investment, but will be permitted to resell the shares to other Regulation S
Investors and the applicable provisions of the Stock Purchase Agreement will be
revised accordingly; (ii) American Equities will have the right to assign its
registration rights under Article 5 of the Stock Purchase Agreement to
Regulation S Investors to whom it sells the Common Stock that American Equities
has purchased; (iii) Section 7.3 of the Stock Purchase Agreement will be
deleted; (iv) Section 10.3 of the Stock Purchase Agreement will be revised to
reflect the payment by Agritope of certain American Equities' expenses, as
specified below.
If American Equities purchases any shares from Agritope hereunder,
American Equities may sell such shares to Regulation S Investors pursuant to a
Stock Purchase Agreement that contains representations from each such investor
establishing that the investor is a Regulation S Investor and that contains such
other terms as shall be mutually agreeable to American Equities and Agritope.
American Equities and Agritope agree to draft such resale agreement, if it is
needed, prior to the Closing Date (as defined below).
Compensation and Expenses
- -------------------------
American Equities will act as placement agent in connection with the
proposed offering and in consideration therefor will receive a fee equal to 5
percent of the gross proceeds from the sale of Common Stock to the Regulation S
Investors. In addition, Agritope will pay the out-of-pocket expenses incurred by
American Equities in connection with the "road show" for this offering and will
pay American Equities' reasonable attorney fees related to this offering.
<PAGE>
As consideration for American Equities' firm commitment to place a
minimum of U.S. $9,000,000 of Common Stock with Financial Investors, Agritope
agrees to issue at the Closing: (i) to American Equities, a warrant to purchase
50,000 shares of Common Stock at a price of U.S. $7 per share, which will be
exercisable for a period of three years from the date of the Closing; and (ii)
to American Equities or its designees, warrants on the foregoing terms to
purchase an aggregate of 450,000 shares of Common Stock. The warrants will be
substantially in the form attached hereto as Exhibit A.
Regulation S
- ------------
American Equities understands that Common Stock is being offered
outside the United States in reliance on Regulation S promulgated under the
United States Securities Act of 1933, as amended ("1933 Act"). This will confirm
American Equities' agreement that all offers and sales of Common Stock prior to
the expiration of the restricted period specified in Regulation S shall be made
only: (i) in accordance with the provisions of Rule 903 or Rule 904 of
Regulation S; (ii) pursuant to registration of the Common Stock under the 1933
Act; or (iii) pursuant to an available exemption from the registration
requirements of the 1933 Act. It is American Equities' understanding that the
restricted period will begin to run no earlier than the date of Closing.
American Equities agrees that under Rule 903 of Regulation S: Common
Stock may be offered and sold only in offshore transactions, as defined in
Regulation S; no directed selling efforts, as defined in Regulation S, may be
made in the United States; prior to the expiration of the restricted period
specified in Regulation S, Common Stock may not be offered or sold to or for the
account or benefit of a U.S. person, as defined in Regulation S; each Common
Stock purchaser must certify that it is not a U.S. person and is not acquiring
the Common Stock for the account or benefit of a U.S. person; each Common Stock
purchaser must agree to resell the Common Stock only in accordance with the
provisions of Regulation S, pursuant to registration under the 1933 Act, or
pursuant to an available exemption from registration; certificates representing
the Common Stock must contain a legend to the effect that transfer is prohibited
except in accordance with the provisions of Regulation S; and, if Common Stock
is sold to a distributor, dealer, or person receiving compensation for selling
the Common Stock, a confirmation must be sent to the purchaser stating that
<PAGE>
the purchaser is subject to the foregoing restrictions and others stated in
Regulation S.
This will also confirm that no Common Stock will be sold to a
distributor, dealer, or person receiving compensation for selling the Common
Stock, other than American Equities. American Equities confirms and agrees that,
if it is a Common Stock purchaser, it will be subject to the restrictions
contained in the preceding two paragraphs and others contained in Regulation S
in connection with any offer or sale by it of any Common Stock it has purchased.
United Kingdom Legal Matters
- ----------------------------
American Equities represents and agrees that:
1. It has not offered or sold and will not offer to sell in the
United Kingdom, by means of any document, any Common Stock other than to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
2. It has complied and will comply with all applicable provisions of
the Financial Services Act 1986 ("FSA") with respect to anything done by it in
relation to the Common Stock in, from or otherwise involving the United Kingdom;
3. It has only issued or passed on and will only issue or pass on to
any person in the United Kingdom any document received by it in connection with
the issue of the Common Stock if that person is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on; and
4. American Equities Overseas (UK) Ltd. is an authorized person
("Authorized Person") under the FSA and is not an overseas person ("Overseas
Person") under the FSA, but is a person of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996. American Equities Overseas Inc. is not an Authorized Person, but is an
Overseas Person.
<PAGE>
French Legal Matters
- --------------------
American Equities hereby represents and warrants that it has not
offered or sold, and will not offer or sell, to any person in France, by means
of any document, oral presentation or other medium, any Common Stock otherwise
than (i) in strict compliance with the following laws and regulations of the
French Republic, namely Article 72 of Law No. 66-537 of 24 July 1966, Law No.
72-6 of 3 January 1972, Regulations No. 88-04 and 92-02 of the Commission des
Operations de Bourse and Decree No. 89-938 of 29 December 1989 (collectively,
the "Regulations"), and (ii) in circumstances which do not constitute an offer
to the public ("appel public a l'epargne") or financial canvassing ("demarchage
financier") within the meaning of the Regulations.
Other Countries
- ---------------
American Equities hereby represents and warrants that it has not
offered or sold, and will not offer or sell, Common Stock to any person in any
other country other than in compliance with applicable law regulating the offer
or sale of securities.
Indemnification
- ---------------
American Equities will indemnify Agritope against all losses,
liabilities, costs, or demands which it may incur or which may be made against
it in relation to any breach or alleged breach of the obligations of American
Equities described above.
Purchase Price Disbursement; Stock Certificates
- -----------------------------------------------
American Equities agrees to deposit in the Proceeds Account the
purchase price of all shares of Common Stock purchased by the Regulation S
Investors. American Equities will obtain from Republic a letter stating that
Republic will permit withdrawals from the Proceeds Account only upon joint
written instructions of Agritope and American Equities.
Subject to the last sentence in this paragraph, on or before
Closing, Agritope will deliver to American Equities a single omnibus stock
certificate issued in the name of Republic New York Securities Corporation f/b/o
Non-U.S. Investors representing all shares sold by Agritope in this offering.
Following the expiration of the restricted period specified in Regulation S,
Agritope will replace the omnibus certificate with separate certificates
representing each purchaser's shares, which American Equities will then deliver
to the applicable purchaser
<PAGE>
of Common Stock. Notwithstanding the foregoing, at American Equities' request,
Agritope will issue separate stock certificates for the shares purchased by
specified purchasers and deliver such certificates as directed by American
Equities at Closing, for delivery to such purchasers after Closing.
At Closing, American Equities and Agritope will notify Republic to
distribute the entire balance of the Proceeds Account as follows: (i) to
American Equities, the American Equities' fee stated above and all interest paid
on the Proceeds Account (with American Equities to disburse the interest to the
appropriate Regulation S Investors); and (ii) to Agritope, the remaining balance
of the Proceeds Account. American Equities understands that Agritope will
specify the date of Closing by notice to American Equities and Republic.
If Closing does not occur by December 31, 1997, Agritope and
American Equities will instruct Republic to distribute the entire balance of the
Proceeds Account to the appropriate subscribers, together with interest. If
American Equities receives a request from a purchaser prior to Closing for the
return of all or part of the purchase price, American Equities will promptly
notify Agritope. Any determination to disburse the purchase price from the
Proceeds Account will be made jointly by Agritope and American Equities.
American Equities' obligations and duties in connection with this
Agreement are confined to those specifically enumerated in this agreement.
American Equities shall not be in any manner liable or responsible for the
sufficiency, correctness, genuineness or validity of any instruments deposited
with or notices provided to American Equities. American Equities shall not be
liable for any loss that may occur by reason of forgeries or false
representations by others, due to the exercise of American Equities' discretion,
or for any other reason except American Equities' gross negligence or willful
misconduct. If American Equities at any time has any doubt as to its duties
hereunder, it may refrain from any action pending receipt of an order from a
court of competent jurisdiction directing American Equities to act.
If American Equities renders any requested service not provided for
in this agreement with respect to holding or disbursing the Common Stock
purchase price, if any controversy arises under this agreement, or if American
Equities is made a party to or intervenes in any litigation pertaining to this
agreement, American Equities shall be reasonably compensated for
<PAGE>
the additional services and reimbursed for all costs and expenses arising from
such controversy or litigation.
Please confirm our understanding and agreement by signing and
returning the enclosed copy of this letter.
Very truly yours,
AMERICAN EQUITIES OVERSEAS, INC.
By /s/ illegible
Title---------------------------------------
Acknowledged and agreed.
AGRITOPE, INC.
By: /s/ Adolph J. Ferro
Adolph J. Ferro, Ph.D.
President and Chief
Executive Officer
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, IN THE UNITED STATES
OR TO A U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE 1933
ACT), NOR MAY THESE WARRANTS BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF A U.S. PERSON, 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"), 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 -----------------, 2000
OR SUCH EARLIER DATE AS SPECIFIED HEREIN
WARRANTS TO PURCHASE COMMON STOCK
(and associated Preferred Stock Purchase Rights)
Warrant No. 97--- ------- Warrants
AGRITOPE, INC.
THIS CERTIFIES THAT
------------------------------
or registered assigns, 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 Oregon (the
"Company"), United States of America ("U.S."), one fully paid and nonassessable
share of common stock, no par value, 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 this Warrant has been
approved for trading on the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq") upon official notice of issuance, 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
1
<PAGE>
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 the order of the Company. These Warrants are issued pursuant to
a Placement Agent Agreement between the Company and American Equities Overseas
Inc. dated as of October ----, 1997 (the "Placement Agent Agreement").
Section 1. Exercise Price. Each Warrant entitles the Warrantholder to
purchase one share of Common Stock for U.S. $7.00 (the "Exercise Price"),
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 ------------------, 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 U.S. $.0l 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 U.S. $.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
2
<PAGE>
the issuance of additional shares of Common Stock by the Company by
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. The Company will not
permit any change in its capital structure to occur unless the issuer
of the shares of stock or other securities to be received by the holder
of this Warrant Agreement, if not the Company, agrees to be bound by
and comply with the provisions of this Warrant Agreement.
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 is 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 Shareholder. No holder of this
Warrant Agreement shall, as such, be entitled to vote, receive dividends, or be
deemed the holder of
3
<PAGE>
Common Stock or any other securities of the Company that may at any time be
issuable on 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 shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to shareholders 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 shareholders 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 or to register the transfer of the Warrants evidenced hereby 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 or
transfer shall have been paid, such tax being payable by the holder of this
Warrant Agreement at the time of surrender for exercise or transfer.
Section 6. Registration Rights.
6.1 Piggyback Registration Rights. The Company has granted
demand registration rights to the holders of shares of Common Stock
sold pursuant to the Placement Agent Agreement. If, pursuant to such
registration rights, the Company is obligated to prepare a registration
statement covering such shares, the Company will give written notice of
such proposed registration to all holders of Warrants issued in
connection with the Placement Agent Agreement. If one or more of such
Warrantholders notifies the Company within 20 days after the effective
date of the notice sent by the Company to the Warrantholders that they
would like all or any of the shares of Common Stock issued or issuable
upon exercise of these Warrants (the "Warrant Shares") to be included
in the proposed registration, the Company will include such Warrant
Shares in the registration.
6.2 Demand Registration Rights. Commencing one year after the
first anniversary of the original issue date of this Warrant, upon the
request of the holders of at least 50 percent of the Warrant Shares
issued or issuable upon exercise of all Warrants issued in connection
with the Placement Agent Agreement, the Company will promptly give
written notice of such proposed registration to all holders of Warrant
Shares or Warrants issued pursuant to the Placement Agent Agreement.
Upon such a request, the Company shall as expeditiously as possible use
its best efforts to file a registration statement on Form S-3 or
successor Form (the "Form S-3") under the 1933 Act with respect to the
resale of such Warrant Shares which the Company has been requested to
register (a) in such request, and (b) in any response to such notice
received by the Company within 20 days after the effective date of such
notice. The Company shall have
4
<PAGE>
an obligation to file a registration statement under this Section 6.2
only if it is eligible to use Form S-3 or successor form at the time of
the request.
6.3 Application of Registration Rights Provisions. The
provisions of Section 5.1 and Sections 5.2 through 5.7 of the Stock
Purchase Agreements entered into by persons purchasing Common Stock
pursuant to the Placement Agent Agreement shall govern any registration
of shares pursuant to Sections 6.1 or 6.2 hereof, and the signature of
the Warrantholder hereto signifies its agreement to be bound by such
provisions.
Section 7. Transfer and Exchange.
7.1 Transfer. This Warrant Agreement is transferable on the
registry books of the Company subject to the restrictions on the first
page hereof and in Sections 7.3 and 7.4 hereof. The Company may deem
and treat the person or entity in whose name this Warrant Agreement is
registered as the absolute owner hereof (notwithstanding any notation
of ownership or other writing thereon made by anyone other than the
Company) for all purposes whatever, and the Company shall not be
affected by any notice to the contrary.
7.2 Exchange. Subject to the provisions of Sections 7.3 and
7.4 hereof and the restrictions on the first page hereof, this Warrant
Agreement is exchangeable at the principal office of the Company for
Warrant Agreements to purchase the same aggregate number of shares of
Common Stock as are purchasable hereunder, each new Warrant Agreement
to represent the right to purchase such number of shares as the
Warrantholder shall designate at the time of such exchange.
7.3 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. 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.
7.4 Minimum Warrant Agreement Amount. Notwithstanding the
provisions of Sections 7.1 and 7.2 hereof, the Company shall not be
required to issue a Warrant Agreement for Warrants covering less than
25,000 shares of Common Stock, except in the case of a partial exercise
by the Warrantholder of this Warrant Agreement that leaves Warrants
exercisable to purchase less than such number of shares that are to
remain registered in the name of the exercising Warrantholder, and any
subsequent partial exercise, transfer or exchange of such Warrant
Agreement.
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
5
<PAGE>
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 international courier service,
or by registered mail, airmail postage prepaid, return receipt requested, to:
(a) the Company at 8505 S.W. Creekside Place, Beaverton, Oregon 97005, U.S.A.,
Attn: Secretary, with a copy to Tonkon, Torp, Galen, Marmaduke & Booth, 1600
Pioneer Tower, 888 S.W. Fifth Avenue, Portland, Oregon 97204-2099, U.S.A., Attn:
Brian G. Booth., or at such other addresses as may be specified by the Company
by notice given to the Warrantholders in accordance with this Section 9, and (b)
to the Warrantholders at the addresses set forth in the registry books of the
Company referred to in Section 7.1 hereof, with copies to Michel de Beaumont,
American Equities Overseas (U.K.) Ltd., 16 Old Bond Street, London WlX 3DB,
United Kingdom, and Jack H. Halperin, Esq., 317 Madison Avenue, Suite 1421, New
York, New York 10017, U.S.A., or such other addresses as may be specified by the
Warrantholders 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 10 days after the
mailing date; notices, requests or other 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. Certain Definitions. Rules 9.02(o) and 9.02(p) of
Regulation S promulgated under the 1933 Act defining "U.S. person" and "United
States," respectively, are set forth in Appendix 1.
Section 12. Law Governing. This Warrant Agreement shall be governed by
and construed in accordance with the laws of the state of Oregon, without giving
effect to choice of laws principles thereof.
Dated:-----------------, 1997.
AGRITOPE, INC.
By---------------------------------------
Title------------------------------------
6
<PAGE>
The undersigned Warrantholder agrees to be bound by the terms
hereof.
-----------------------------------------
By---------------------------------------
Title------------------------------------
7
<PAGE>
APPENDIX 1
to
Warrant Agreement
Set forth below is the text of Rule 902(o) promulgated under
the 1933 Act, which defines "U.S. person" as follows:
(o) U.S. Person.
(1) "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is
a U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in
the United States;
(vi) Any non-discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary organized,
incorporated, or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed
by a U.S. person principally for the purpose of investing in securities
not registered under the 1933 Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule
501(a)) who are not natural persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1) of this section, any
discretionary account or similar account (other than an estate or trust) held
for the benefit or account of a non-U.S. person by a dealer or other
professional fiduciary organized, incorporated, or (if an individual) resident
in the United States shall not be deemed a "U.S. person."
1
<PAGE>
(3) Notwithstanding paragraph (o)(1) of this section, any
estate of which any professional fiduciary acting as executor or administrator
is a U.S. person shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not
a U.S. person has sole or shared investment discretion with respect to
the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1) of this section, any
trust of which any professional fiduciary acting as trustee is a U.S. person
shall not be deemed a U.S. person if a trustee who is not a U.S. person has sole
or shared investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable) is a. U.S.
person.
(5) Notwithstanding paragraph (o)(l) of this section, an
employee benefit plan established and administered in accordance with the law of
a country other than the United States and customary practices and documentation
of such country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1) of this section, any
agency or branch of a U.S. person located outside the United States shall not be
deemed a "U.S. person" if:
(i) The agency or branch operates for valid business
reasons; and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
(7) The International Monetary Fund, the International
Bank for Reconstruction and Development, the Inter-American Development Bank,
the Asian Development Bank, the African Development Bank, the United Nations,
and their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans shall
not be deemed "U.S. persons."
Set forth below is the text of Rule 9.02(p) promulgated under
the 1933 Act, which defines "United States" as follows:
(p) "United States" means the United States of America,
its territories and possessions, any State of the United States, and the
District of Columbia.
2
<PAGE>
ELECTION TO EXERCISE WARRANTS
[NOTE: Unless the transaction has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), or is exempt from
registration thereunder, this Election to Exercise Warrants must be
executed, and the Warrant Shares must be delivered, outside of the
U.S., its territories and possessions.]
To: Agritope, Inc.
8505 S. W. Creekside Place
Beaverton, Oregon 97005
U.S.A.
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 U.S. $---------- in
accordance with the terms thereof.
The undersigned hereby certifies that (mark one of the two responses
below):
--- (i) It is the sole beneficial owner of the Warrants being
exercised, (ii) it is not a U.S. person, as defined in
Appendix l to the attached Warrant Agreement and within the
meaning of Regulation S promulgated by the U.S. Securities and
Exchange Commission pursuant to the 1933 Act, and (iii) it is
not exercising Warrants for the benefit of any U.S. person.
--- 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 after the effective date 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 by a
bank or brokerage firm doing business in the
U.S.]
Dated:---------------------
Warrantholder: ----------------------------------
Address: ----------------------------------
----------------------------------
----------------------------------
<PAGE>
FORM OF ASSIGNMENT
[NOTE: Unless the transaction has been registered under the
1933 Act or is exempt from registration thereunder, this
Assignment must be executed, and the re-issued Warrants must
be delivered, outside of the U.S., its territories and
possessions.]
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant Agreement hereby sells, assigns and transfers to the Assignee(s) named
below all of the rights of the undersigned under the attached Warrant Agreement,
with respect to Warrants for the number of shares of Common Stock set forth
below:
Name of Assignee Address No of Shares*
- ---------------- ------- ------------
*Please note that the minimum denomination in which Warrant
Agreements may be issued is 50,000 shares of Common Stock.
Dated: ----------------.
Warrantholder:------------------------------
By------------------------------------------
Title---------------------------------------
[Name of Warrantholder must be identical to
name shown in the registry books of the
Company; signature must be guaranteed by a
bank or brokerage firm doing business in the
U.S.]
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 28, 1996, except for Note 11 as to which the date is December 26, 1996
and Note 1, paragraph two, as to which the date is July 26, 1997, relating to
the financial statements of Agritope, Inc., which appears in such Information
Statement/Prospectus. We also consent to the reference to us under the heading
"Experts" in such Information Statement/Prospectus.
/s/ PRICE WATERHOUSE LLP
Portland, Oregon
October 21, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints ADOLPH J. FERRO, Ph.D., GILBERT N. MILLER, and
each of them, such person's true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for such person and in his or her
name, place, and stead, in any and all capacities, to sign a registration
statement on Form S-1 of Agritope, Inc., relating to a distribution of shares of
common stock, no par value per share, and related preferred stock purchase
rights, and any and all amendments (including post-effective amendments) to the
registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or each of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this power of attorney has been signed by each of
the undersigned as of October 13, 1997.
Name Title
/s/ Michel de Beaumont Director
Michel de Beaumont
/s/ Nancy L. Buc Director
Nancy L. Buc
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included herein and is qualified in
its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 844,567
<SECURITIES> 0
<RECEIVABLES> 185,504
<ALLOWANCES> (57)
<INVENTORY> 1,987,506
<CURRENT-ASSETS> 3,044,250
<PP&E> 3,342,630
<DEPRECIATION> (991,574)
<TOTAL-ASSETS> 7,129,557
<CURRENT-LIABILITIES> 1,229,041
<BONDS> 0
0
0
<COMMON> 44,047,742
<OTHER-SE> (38,932,707)
<TOTAL-LIABILITY-AND-EQUITY> 7,129,557
<SALES> 566,239
<TOTAL-REVENUES> 667,746
<CGS> 548,343
<TOTAL-COSTS> 4,062,776
<OTHER-EXPENSES> (1,160,070)
<LOSS-PROVISION> (1,900,000)
<INTEREST-EXPENSE> (25,010)
<INCOME-PRETAX> (6,455,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,455,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,455,100)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
