Registration No. 333-34597
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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AGRITOPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 8731 93-0820945
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL IRS EMPLOYER IDENTIFI-
CLASSIFICATION CODE NUMBER) CATION NUMBER)
8505 S.W. Creekside Place, Beaverton, Oregon 97008
(503) 641-6115
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
Adolph J. Ferro, Ph.D., Chairman, President and Chief Executive Officer
Agritope, Inc.
8505 S.W. Creekside Place, Beaverton, Oregon 97008
(503) 641-6115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
Erich W. Merrill, Jr. Brian G. Booth
Miller, Nash, Wiener, Hager Tonkon Torp LLP
& Carlsen LLP Suite 1600
111 S.W. Fifth Avenue 888 S.W. Fifth Avenue
Portland, Oregon 97204-3699 Portland, Oregon 97204
(503) 224-5858 (503) 221-1440
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
DISTRIBUTION TO THE PUBLIC: As soon as practicable
after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |-|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |-| --------
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |-| --------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |-|
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
=================================================
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[Epitope letterhead]
[Date]
Dear Shareholder:
We are pleased to inform you that the Board of Directors has authorized
a spin-off of the Company's wholly owned subsidiary, Agritope, Inc. To effect
the spin-off, Epitope, Inc. is distributing the Agritope Common Stock it now
holds to Epitope shareholders as a dividend. After the distribution, Agritope
will operate as an independent public company.
You will receive one share of Agritope Common Stock for every five
shares of Epitope Common Stock that you owned on the record date of December
- ---, 1997. You will receive cash instead of fractional shares of Agritope Common
Stock. The Company has received an opinion of counsel that the spin-off will be
tax-free to most shareholders, except for cash received for any fractional
shares. You should consult your own tax advisor about the tax consequences of
the spin-off to you.
In connection with the spin-off, Agritope is raising working capital by
selling newly issued Agritope common and preferred stock to certain investors
and a strategic partner. Agritope could not operate as an independent company
without this additional working capital. Shares of preferred stock sold to the
strategic partner will be convertible into common stock on a share-for-share
basis, subject to adjustment in certain events.
The shares being distributed to Epitope shareholders as a dividend are
expected to represent between 53 percent and 63 percent of the Agritope voting
stock outstanding after the distribution and sales of common and preferred stock
are completed. The exact percentage will depend on the extent to which an option
to purchase additional shares of preferred stock is exercised, as more fully
described in the attached Information Statement/Prospectus.
You do not need to take any action for the spin-off to occur. You do
not have to pay for the shares of Agritope Common Stock that you will receive,
nor do you have to surrender or exchange shares of Epitope Common Stock in order
to receive shares of Agritope Common Stock. The number of shares of Epitope
Common Stock you own will not change as a result of the spin-off.
The attached Information Statement/Prospectus gives detailed
information about Agritope and the spin-off. We encourage you to read it
carefully.
Very truly yours,
Roger L. Pringle
Chairman
<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 DECEMBER 19, 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 wholly owned subsidiary, Agritope, Inc. ("Agritope" or the "Company").
The spin-off will be accomplished through a dividend distribution (the
"Distribution") to Epitope shareholders of all the Agritope common stock, par
value $.01 per share, including associated preferred stock purchase rights
("Agritope Common"), held by Epitope. As a result of the Distribution, Agritope
will cease to be a subsidiary of Epitope and will operate as an independent
public company. Neither Epitope nor Agritope will receive any cash or other
proceeds from the Distribution.
Epitope will make a distribution to holders of record of Epitope common
stock, no par value ("Epitope Stock"), on December ---, 1997 (the "Record Date")
of one share of Agritope Common, including one preferred stock purchase right,
for every five shares of Epitope Stock outstanding. On the Record Date, Epitope
had outstanding ------------ shares of Epitope Stock, its only outstanding class
of stock. Therefore, an aggregate of approximately 2.7 million shares of
Agritope Common will be issued in the Distribution.
In order to finance the operations of Agritope after the Distribution,
Agritope has entered into agreements for the sale of 1,343,704 shares of
Agritope Common to certain foreign investors (the "Regulation S Sale") pursuant
to the Regulation S exemption ("Regulation S") under the Securities Act of 1933,
as amended (the "Securities Act"). The shares will be sold at a price of $7 per
share for an aggregate price of $9.4 million. Agritope expects to receive
proceeds from the Regulation S Sale immediately following the Distribution.
In connection with a research and development collaboration, Agritope and
Vilmorin & Cie ("Vilmorin"), an affiliate of Groupe Limagrain, have entered into
an agreement for the sale under Regulation S of 214,285 shares of Agritope
Series A Preferred Stock ("Series A Convertible Preferred") at a price of $7 per
share for an aggregate purchase price of $1.5 million (the "Preferred Stock
Sale"). Agritope expects to receive proceeds of the Preferred Stock Sale three
business days following the Distribution Date. In addition, Agritope has granted
Vilmorin an option (the "Series A Option"), exercisable by Vilmorin or its
designees and expiring January 15, 1998, to purchase up to 785,715 additional
shares of Series A Convertible Preferred at a price of $7 per share. Vilmorin
will own 19.9 percent of the outstanding Agritope voting stock if it exercises
the Series A Option in full. Series A Convertible Preferred has preemptive
rights and the right to elect a director, but otherwise has rights substantially
equivalent to Agritope Common and is convertible at any time into shares of
Agritope Common on a share-for-share basis, subject to adjustment upon the
occurrence of certain events. Holders of Series A Convertible Preferred will
vote on an "as converted" basis with holders of Agritope Common. Vilmorin has
been exempted from triggering the Company's stockholder rights plan under
certain circumstances.
The Epitope board of directors (the "Epitope Board") believes that the
funds raised in the Regulation S Sale are sufficient to finance the operations
of Agritope as a separate business for a period of not less than two years
following the Distribution, although no assurance to that effect can be given.
Agritope could not operate as an independent entity without such financing.
Following the Regulation S Sale and the Preferred Stock Sale, the Agritope
Common to be issued in the Distribution will represent between 53 percent and 63
percent of outstanding Agritope voting stock, depending on the extent to which
the Series A Option is exercised. Shares sold in the Regulation S Sale will
represent between 27 percent and 32 percent of outstanding Agritope voting
stock, depending on the extent to which the Series A Option is exercised.
<PAGE>
Fractional shares of Agritope Common will not be issued in the
Distribution. If the aggregate number of shares due an Epitope shareholder of
record includes a fraction of a share, Epitope will pay the cash value of the
fractional share to the holder, based on a price of $7 per share of Agritope
Common. Shareholders who own their stock in "street name" through a broker or
other nominee listed as the holder of record will have their fractional shares
handled according to the practices of the broker or nominee.
Currently, no public market for Agritope Common exists. Agritope has
applied to have Agritope Common approved for quotation on The Nasdaq SmallCap
Market under the symbol "AGTO." Agritope Common received in the Distribution
will be freely tradeable by nonaffiliates of Agritope.
----------------------------
PERSONS RECEIVING THIS INFORMATION STATEMENT/PROSPECTUS SHOULD CAREFULLY
CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION "RISK FACTORS" ON PAGE .
----------------------------
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.
----------------------------
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
December ---, 1997.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
AVAILABLE INFORMATION......................................................................................... 1
NOTE REGARDING FORWARD-LOOKING STATEMENTS..................................................................... 1
SUMMARY....................................................................................................... 2
The Distribution......................................................................................... 2
Agritope ................................................................................................ 6
Summary of Risk Factors.................................................................................. 6
Summary Financial Data................................................................................... 8
RISK FACTORS.................................................................................................. 9
INTRODUCTION.................................................................................................. 14
THE DISTRIBUTION.............................................................................................. 15
Reasons for the Distribution............................................................................. 15
Manner of Effecting the Distribution..................................................................... 16
Trading of Agritope Common............................................................................... 16
Certain Federal Income Tax Consequences.................................................................. 17
REGULATION S SALE............................................................................................. 20
SALE OF SERIES A CONVERTIBLE PREFERRED........................................................................ 20
RELATIONSHIP BETWEEN AGRITOPE AND EPITOPE AFTER THE DISTRIBUTION.............................................. 21
Separation Agreement..................................................................................... 21
Employee Benefits Agreement.............................................................................. 22
Tax Allocation Agreement................................................................................. 24
Transition Services Agreement............................................................................ 24
SELECTED FINANCIAL DATA....................................................................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 26
Overview ................................................................................................ 26
Results of Operations.................................................................................... 27
Liquidity and Capital Resources.......................................................................... 28
DESCRIPTION OF BUSINESS....................................................................................... 30
General ................................................................................................ 30
Agritope Biotechnology Program........................................................................... 30
Commercialization Strategy............................................................................... 36
Grants and Contracts..................................................................................... 36
Vinifera ................................................................................................ 37
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Competition.............................................................................................. 37
Government Regulation.................................................................................... 37
Patents and Proprietary Information...................................................................... 39
Personnel................................................................................................ 39
Scientific Advisory Board................................................................................ 40
Properties............................................................................................... 40
Legal Proceedings........................................................................................ 40
DIVIDEND POLICY............................................................................................... 41
TRANSFER AGENT................................................................................................ 41
MANAGEMENT.................................................................................................... 42
Directors and Executive Officers......................................................................... 42
Committees of the Board.................................................................................. 44
Compensation of Directors................................................................................ 45
Executive Compensation................................................................................... 45
Grants of Options to Purchase Agritope Common............................................................ 46
Aggregated Option Exercises in Last Fiscal Year and Outstanding Options for Agritope
Common.......................................................................................... 47
Employment; Change in Control Agreements................................................................. 47
1997 STOCK AWARD PLAN......................................................................................... 48
General ................................................................................................ 48
Purpose ................................................................................................ 48
Awards and Eligibility................................................................................... 48
New Options.............................................................................................. 48
Description of Terms of Awards........................................................................... 49
Federal Income Tax Consequences.......................................................................... 50
1997 EMPLOYEE STOCK PURCHASE PLAN............................................................................. 52
General ................................................................................................ 52
Purpose ................................................................................................ 52
Subscriptions............................................................................................ 52
Federal Income Tax Consequences.......................................................................... 53
EMPLOYEE STOCK OWNERSHIP PLAN................................................................................. 53
401(K) PROFIT SHARING PLAN.................................................................................... 54
CERTAIN TRANSACTIONS.......................................................................................... 55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................ 55
SHARES ELIGIBLE FOR FUTURE SALE............................................................................... 57
DESCRIPTION OF AGRITOPE CAPITAL STOCK......................................................................... 58
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Agritope Common.......................................................................................... 58
Agritope Preferred....................................................................................... 58
Agritope Series A Convertible Preferred.................................................................. 59
Agritope Warrants........................................................................................ 60
Preemptive Rights........................................................................................ 60
Stockholder Rights Plan.................................................................................. 60
Other Anti-takeover Measures............................................................................. 61
Delaware Business Combinations Statute................................................................... 62
Indemnification of Directors and Officers; Limitation of Liability; Insurance............................ 62
LEGAL MATTERS................................................................................................. 63
EXPERTS....................................................................................................... 63
FINANCIAL STATEMENTS ........................................................................................ F-1
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</TABLE>
<PAGE>
AVAILABLE INFORMATION
After the Distribution of Agritope Common, Agritope will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Accordingly, Agritope will file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). You may read and copy the information
Agritope files without charge at the Commission's public reference rooms at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. You may also
obtain the information from commercial document retrieval services and at the
Internet web site maintained by the Commission at "http://www.sec.gov."
Agritope filed a Registration Statement on Form S-1 (together with all
amendments, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), to register Agritope Common with the Commission.
This Information Statement/Prospectus is part of the Registration Statement. As
allowed by Commission rules, this Information Statement/Prospectus omits some
information included in the Registration Statement. Statements contained in this
Information Statement/Prospectus about contracts or other exhibits to the
Registration Statement are not necessarily complete and are qualified by the
full text of the exhibits. You may read and copy the Registration Statement,
including the exhibits, as described above.
Agritope intends to distribute to shareholders annual reports containing
audited financial statements, but does not plan to furnish shareholders with
quarterly reports containing unaudited interim financial information for the
first three fiscal quarters of each fiscal year.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Information Statement/Prospectus about future events or
performance are "forward-looking statements." The forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results to be materially different from those expressed or implied by the
forward-looking statements. Certain of these factors are discussed in more
detail under the caption "Risk Factors" and elsewhere in this Information
Statement/Prospectus. Given these uncertainties, shareholders are cautioned not
to place undue reliance on the forward-looking statements. Agritope does not
intend to update any forward-looking statements.
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<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 9. Capitalized terms used but not defined in this
summary have the meanings given elsewhere in this Information
Statement/Prospectus.
<TABLE>
<CAPTION>
THE DISTRIBUTION
<S> <C>
DISTRIBUTING CORPORATION AND BUSINESS ....................... Epitope, Inc., an Oregon corporation. Epitope uses biotech-
nology to develop and market medical diagnostic products.
DISTRIBUTED CORPORATION AND
BUSINESS..................................................... Agritope, Inc., a Delaware corporation, currently a wholly
owned subsidiary of Epitope. Agritope is a biotechnology
company specializing in the development of new fruit and
vegetable plant varieties for sale to the fresh produce industry.
Agritope is also the majority owner of Vinifera, which
management believes offers one of the most technically
advanced grapevine plant propagation and disease screening
and elimination programs available to the wine and table grape
production industry. See "Summary--Agritope" and
"Description of Business."
FINANCING OF AGRITOPE ....................................... In order to finance the operations of Agritope after the
Distribution, Agritope has entered into agreements for the sale
of 1,343,704 shares of Agritope Common at a price of $7 per
share in the Regulation S Sale for an aggregate price of
$9.4 million. Agritope expects to receive proceeds of the
Regulation S Sale immediately following the Distribution. The
Epitope Board believes that the funds raised in the Regulation
S Sale are sufficient to finance the operations of Agritope as
a separate business for a period of not less than two years
following the Distribution, although no assurance to that effect
can be given. See "Risk Factors--Need for Additional Funds."
In connection with a research and development collaboration,
Agritope and Vilmorin, an affiliate of Groupe Limagrain, have
entered into an agreement for the sale under Regulation S of
214,285 shares of Series A Convertible Preferred at a price of
$7 per share for an aggregate purchase price of $1.5 million.
Agritope could not operate as an independent entity without the
financing to be raised in the Regulation S Sale. See
"Regulation S Sale" and "Sale of Series A Convertible
Preferred."
DISTRIBUTION RATIO........................................... Each Epitope shareholder will receive one share of Agritope
Common for every five shares of Epitope Stock held as of the
Record Date.
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<PAGE>
RECORD DATE.................................................. Close of business on December ---, 1997.
DISTRIBUTION DATE............................................ December 30, 1997.
DISTRIBUTION AGENT........................................... ChaseMellon Shareholder Services, L.L.C.
MAILING OF STOCK CERTIFICATES ............................... Certificates representing shares of Agritope Common issued in
the Distribution will be mailed as soon as practicable after the
Distribution Date.
SHARES TO BE DISTRIBUTED..................................... An aggregate of approximately 2.7 million shares of Agritope
Common will be issued in the Distribution. Following the
Distribution, the Regulation S Sale and the Preferred Stock
Sale, approximately 4.2 million shares of Agritope voting
stock will be outstanding, and shares distributed to Epitope
shareholders in the Distribution will represent between 53 and
63 percent of Agritope voting stock outstanding, depending on
the extent to which the Series A Option is exercised.
FRACTIONAL SHARE INTERESTS................................... Fractional shares of Agritope Common will not be issued in
the Distribution. If the number of shares of Agritope Common
to be issued to any record holder of Epitope Stock includes a
fraction of a share, Epitope will pay an amount in cash for the
fractional share. See "The Distribution--Manner of Effecting
the Distribution."
TRADING MARKET............................................... Agritope has applied to include Agritope Common for
quotation on The Nasdaq SmallCap Market under the symbol
"AGTO." There is currently no public market for Agritope
Common. There can be no assurance that an active trading
market in shares of Agritope Common will develop after the
Distribution. See "The Distribution--Trading of Agritope
Common" and "Risk Factors--No Assurance as to Market
Performance of Agritope Common."
PRIMARY PURPOSES OF THE DISTRIBUTION......................... The primary purpose of the Distribution is to enable Agritope
to raise immediately needed working capital through the sale
of its own equity securities. The Distribution also is intended
to permit Epitope and Agritope each to (i) adopt strategies and
pursue objectives appropriate to its specific business;
(ii) enable management to concentrate attention and financial
resources on its core business; (iii) make acquisitions and enter
into transactions with strategic partners by issuing its own
equity securities; (iv) implement incentive compensation
arrangements that are more directly based on results of
operations of its separate business; and (v) be recognized and
evaluated by the financial community as a separate and distinct
business. See "The Distribution--Reasons for the
Distribution."
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<PAGE>
TAX CONSEQUENCES............................................. Epitope has received an opinion of counsel that the
Distribution will be treated as a tax free transaction to
Epitope's shareholders, with the exception of shareholders who
received their shares of Epitope Stock as compensation, who
are not U.S. citizens or residents, or who are otherwise subject
to special tax treatment. Epitope has not applied, and does not
intend to apply, for a ruling from the Internal Revenue Service
to that effect. See "The Distribution--Certain Federal Income
Tax Consequences."
RELATIONSHIP WITH EPITOPE
AFTER THE DISTRIBUTION ...................................... Following the Distribution, Epitope will not own any shares of
Agritope's capital stock, and Epitope and Agritope will be
operated as independent public companies. Epitope will not
make financing of any kind available to Agritope after the
Distribution. Epitope and Agritope will, however, continue to
have a relationship as a result of agreements they have entered
into in connection with the Distribution, which include a
Separation Agreement, an Employee Benefits Agreement, a
Tax Allocation Agreement and a Transition Services and
Facilities Agreement (the "Transition Services Agreement").
In addition, two individuals will continue to serve as directors
of both Agritope and Epitope after the Distribution. Except as
set forth in the agreements listed above or as otherwise
described in this Information Statement/Prospectus, Epitope
and Agritope will cease to have any material relationship with
each other following the Distribution. See "Relationship
Between Agritope and Epitope After the Distribution" and
"Management--Directors and Executive Officers."
CERTAIN ANTI-TAKEOVER
CONSIDERATIONS............................................... Certain provisions of Agritope's Certificate of Incorporation
and Bylaws and of Delaware law could make it more difficult
for a party to acquire, or discourage a party from attempting
to acquire, control of Agritope without approval of the
Agritope board of directors (the "Agritope Board"). Agritope
has adopted a Stockholder Rights Plan (the "Rights
Agreement") designed to protect Agritope and its stockholders
from inequitable offers to acquire Agritope. In addition,
Agritope's Certificate of Incorporation and Bylaws contain
certain provisions designed to deter changes in the composition
of the Agritope Board, and to allow the Agritope Board to
issue Agritope Preferred and Agritope Common without
stockholder approval. Each of these provisions may
discourage tender offers or other bids for Agritope Common.
See "Risk Factors--Anti-takeover Considerations" and
"Description of Agritope Capital Stock."
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<PAGE>
DIVIDEND POLICY ............................................. Agritope does not anticipate paying dividends in the
foreseeable future.
REGULATION S SALE ........................................... Agritope has entered into agreements for the sale of 1,343,704
shares of Agritope Common in the Regulation S Sale at a price
of $7 per share for an aggregate price of $9.4 million,
expected to be received immediately following the
Distribution. Subscribers in the Regulation S Sale have
deposited the purchase price for their shares of Agritope
Common in an escrow account pending the completion of the
Distribution and the closing of the Regulation S Sale. Shares
sold in the Regulation S Sale will represent between 27 percent
and 32 percent of the Agritope voting stock outstanding
following the Distribution, depending upon the extent to which
the Series A Option is exercised. See "Regulation S Sale."
SALE OF SERIES A CONVERTIBLE PREFERRED....................... Agritope has designated 1 million shares of Agritope Preferred
as Series A Convertible Preferred. In connection with a
research and development collaboration, Agritope and
Vilmorin have entered into an agreement for the sale under
Regulation S of 214,285 shares of Series A Convertible
Preferred at a price of $7 per share for an aggregate purchase
price of $1.5 million. See "Risk Factors--Dependence on
Strategic Partners," "Sale of Series A Convertible Preferred,"
and "Description of Business--Agritope Biotechnology
Program--Vegetable and Flower Crops." Agritope expects to
receive the proceeds from the Preferred Stock Sale three
business days following the Distribution Date. In addition,
Agritope has granted Vilmorin the Series A Option,
exercisable by Vilmorin or its designees and expiring
January 15, 1998, to purchase up to 785,715 additional shares
of Series A Convertible Preferred at a price of $7 per share.
Vilmorin will own 5 percent of the outstanding Agritope voting
stock following the closing of the Preferred Stock Sale and will
own 19.9 percent of the outstanding Agritope voting stock if
it exercises the Series A Option in full. Series A Convertible
Preferred has preemptive rights and the right to elect a
director, but otherwise has rights substantially equivalent to
Agritope Common and is convertible at any time into shares of
Agritope Common on a share-for-share basis, subject to
adjustment upon the occurrence of certain events. Holders of
Series A Convertible Preferred will vote on an "as converted"
basis with holders of Agritope Common. See "Description of
Agritope Capital Stock--Agritope Series A Convertible
Preferred."
</TABLE>
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<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 what management believes to be one of the most technically
advanced grapevine plant propagation and disease screening and elimination
programs available to the wine and table grape production industry. Because
Agritope has not achieved commercialization of any of its products, the majority
of its revenues, to date, have resulted from operations of Vinifera.
Agritope has had a history of significant operating losses. Its
accumulated deficit was $41.2 million as of September 30, 1997.
Agritope was formed under Oregon law in 1987. On December 3, 1997,
Agritope was reincorporated under Delaware law by means of a merger of the
Oregon corporation into Agritope, Inc., a newly formed Delaware corporation,
with the Delaware corporation as the surviving entity.
Agritope's principal offices are located at 8505 S.W. Creekside Place,
Beaverton, Oregon 97008. Its telephone number is (503) 641-6115.
SUMMARY OF RISK FACTORS
The following is a summary of certain of the risk factors that Epitope
shareholders who will receive Agritope Common in the Distribution should
carefully consider, together with other information presented elsewhere in this
Information Statement/Prospectus. See "Risk Factors."
No Operating History as an Independent Company. Since 1987, Agritope
has operated as a wholly owned subsidiary of Epitope. Therefore, it does not
have a recent operating history as an independent company. After December 1,
1997, Epitope will not provide any additional operating capital to Agritope,
other than advances to be repaid by Agritope when the Distribution is completed,
and will provide only the limited administrative and other support provided for
in the Transition Services Agreement. Agritope is required to repay any amounts
advanced by Epitope to Agritope between December 1, 1997, and the Distribution.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of September
30, 1997, had an accumulated deficit of approximately $41.2 million. Agritope
may continue to experience significant operating losses as it continues its
research and development programs. Agritope's ability to increase revenues and
achieve profitability and positive cash flows from operations will depend in
part on successful completion of the development and commercialization of its
genetically engineered products, as to which there can be no assurance. Agritope
has not at this time achieved commercialization of any of its products.
- 6 -
<PAGE>
Need for Additional Funds. The Distribution was conditioned upon a
determination by the Epitope Board that funds from the Regulation S Sale to be
completed immediately following the Distribution will be sufficient to finance
the operations of Agritope as a separate business for at least two years. There
can be no assurance that the determination of Agritope's anticipated cash
requirements will prove to be accurate. The Company's actual capital
requirements will depend on numerous factors, many of which are difficult to
predict. The majority of Agritope's financial requirements to date have been met
by Epitope. Agritope had an accumulated intercompany balance due to Epitope of
approximately $49.0 million as of December 1, 1997, substantially all of which
will be canceled as part of the Distribution. Epitope will not provide
additional financial support following the Distribution, other than advances to
be reimbursed by Agritope when the Distribution is completed. Agritope is
required to repay any amounts advanced by Epitope to Agritope between December
1, 1997 and the Distribution. Agritope may seek or be required to raise
substantial additional funds through public or private financings, collaborative
relationships or other arrangements. There can be no assurance that financing
will be available on satisfactory terms, if at all. Additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve
significant interest expense and restrictive covenants.
Dependence on Strategic Partners. Agritope relies on strategic partners
for access to proprietary plant varieties. In addition, Agritope does not have
or plan to have the capability to grow and distribute genetically engineered
products in commercial quantities. Agritope expects some or all of the
development, manufacturing and marketing of certain of its products to be
performed or paid for by other parties, primarily agricultural companies,
through license agreements, joint ventures or other arrangements. There can be
no assurance that Agritope will be able to maintain its current strategic
relationships or establish additional relationships or that such relationships
will be successful.
Uncertainties Relating to Patents and Proprietary Information. Agritope
has obtained certain patents, has licensed rights under other patents, and has
filed a number of patent applications. Agritope anticipates filing patent
applications for protection of future products and technology. There can be no
assurance that patents applied for will be obtained, that existing patents to
which Agritope has rights will not be challenged, or that the issuance of a
patent will give Agritope any material advantage over its competitors in
connection with any of its products. Competitors may be able to produce products
competing with a patented Agritope product without infringing on Agritope's
patent rights.
Dependence on Key Personnel. Agritope depends to a large extent on the
abilities and continued participation of its principal executive officers and
scientific personnel. The loss of key personnel could have a material adverse
effect on Agritope's business and results of operations.
Technological Change and Competition. A number of companies are engaged
in research related to plant biotechnology, including other companies that rely
on the use of recombinant DNA as a principal scientific strategy. Technological
advances by others could render Agritope's technologies less competitive or
obsolete. Competition in the fresh produce market is intense and is expected to
increase as additional companies introduce products with longer shelf life and
improved quality. There can be no assurance that such competition will not have
an adverse effect on Agritope's business and results of operations.
Limited Marketability of Agritope Common. Agritope has applied to have
Agritope Common approved for quotation on The Nasdaq SmallCap Market, beginning
on or after the Record Date. Prior to the Distribution, there has been no public
market for Agritope Common. There can be no assurance that an active trading
market will develop upon completion of the Distribution or, if it does develop,
that the market will be sustained. The relatively small number of publicly
traded shares of Agritope Common may result in a market in such shares that
lacks liquidity. Also, the market price of Agritope Common could be vulnerable
to significant fluctuations in response to variations in actual and anticipated
operating results, lack of liquidity, failure by the Company to achieve its
growth plans and other events affecting the Company, its competitors or its
industry sector. The market for securities of small market capitalization
companies has been highly volatile in recent years, often as a result of factors
unrelated to their operations.
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<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
The following table presents summary financial data of Agritope and its
subsidiaries. The balance sheet data at September 30, 1997, and 1996 and the
operating results data for the years ended September 30, 1997, 1996, and 1995
have been derived from audited consolidated financial statements and notes
thereto included in this Information Statement/Prospectus. This information
should be read in conjunction with Agritope's consolidated financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1997 1996 1995(1)
CONSOLIDATED OPERATING RESULTS
<S> <C> <C> <C>
Revenues......................................... $ 1,551 $ 585 $2,110
Operating costs and expenses..................... 6,089 2,821 9,920
Other expense, net............................... (4,153)(2) (265) (235)
Net loss......................................... (8,691) (2,501) (8,045)
Pro forma net loss per share (3)................. (3.23) ( .93) (2.99)
Pro forma shares used in
per share calculations (3)..................... 2,691 2,691 2,691
SEPTEMBER 30
1997 1996
As adjusted(4)
pro forma Actual
(unaudited)
CONSOLIDATED BALANCE SHEET
Working capital (deficiency)..................... $11,740 $ 1,659 $(3,163)
Total assets..................................... 17,366 7,285 5,670
Long-term debt................................... 15 15 -
Convertible notes, due 1997...................... - - 3,620
Accumulated deficit.............................. (41,168) (41,168) (32,478)
Shareholder's equity............................. 14,844 4,763 1,008
</TABLE>
(1) Data for 1995 includes revenues of $2.0 million and operating losses of
$3.8 million, attributable to business units which were divested. See
Note 3 to consolidated financial statements.
(2) Includes non-cash charges of $2.3 million, reflecting the permanent
impairment in the value of Agritope's investment in affiliated
companies, and $1.2 million for the conversion of Agritope convertible
notes into Epitope Stock at a reduced price. See Notes 3 and 5 to
consolidated financial statements.
(3) Net loss per share is presented on a pro forma basis assuming that the
Distribution of Agritope Common pursuant to the Agritope spin-off had
occurred on October 1, 1994. Pro forma calculations exclude shares to
be issued in the Regulation S Sale, the Preferred Stock Sale, and upon
the exercise of the Series A Option. See Note 11 to Consolidated
Financial Statements.
(4) The capitalization of Agritope as adjusted reflects the effects of the
Regulation S Sale of 1,343,704 shares of Agritope Common and the sale
of 214,285 shares of Series A Convertible Preferred for aggregate
proceeds of $10.9 million, less issuance costs of $825,000.
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<PAGE>
RISK FACTORS
Epitope shareholders who will receive Agritope Common in the
Distribution should carefully consider the following risk factors, as well as
the other information provided elsewhere in this Information
Statement/Prospectus.
No Operating History as an Independent Company. Since 1987, Agritope
has operated as a wholly owned subsidiary of Epitope. Therefore, it does not
have a recent operating history as an independent company. After December 1,
1997, Epitope will not provide any additional operating capital to Agritope,
other than advances to be repaid by Agritope when the Distribution is completed,
and will provide only the limited administrative and other support provided for
in the Transition Services Agreement. Agritope is required to repay any amounts
advanced by Epitope to Agritope between December 1, 1997, and the Distribution.
History of Losses; Uncertainty of Future Profitability. Agritope has
experienced significant operating losses since inception and, as of September
30, 1997, had an accumulated deficit of $41.2 million. Agritope may continue to
experience significant operating losses as it continues its research and
development programs. Agritope's ability to increase revenues and achieve
profitability and positive cash flows from operations will depend in part on
successful completion of the development and commercialization of its
genetically engineered products. See "Risk Factors--Dependence on Strategic
Partners." Agritope has not at this time achieved commercialization of any of
its products. There can be no assurance that Agritope's development efforts will
result in commercially viable genetically engineered products, that Agritope's
products will obtain required regulatory clearances or approvals or that any
such products will achieve a significant level of market acceptance. As such,
there can be no assurance that Agritope will ever achieve profitability.
Need for Additional Funds. The Distribution was conditioned upon a
determination by the Epitope Board that funds from the Regulation S Sale to be
completed immediately following the Distribution will be sufficient to finance
the operations of Agritope as a separate business for at least two years.
Subscribers in the Regulation S Sale have agreed to purchase a total of $9.4
million of Agritope Common and have deposited the purchase price in an escrow
account, pending the closing of the Regulation S Sale. The Preferred Stock Sale
will generate an additional $1.5 million in proceeds, excluding proceeds from
the exercise of the Series A Option, if any. There can be no assurance that the
determination of Agritope's anticipated cash requirements will prove to be
accurate. Historically, the majority of Agritope's financial requirements have
been met by Epitope. Agritope has also received funding from $5.4 million
principal amount of convertible notes, $1.6 million in investments in Vinifera
by minority shareholders, and $1.0 million of funding from strategic partners
and other research grants. Agritope had an accumulated intercompany balance due
to Epitope of approximately $49.0 million as of December 1, 1997, substantially
all of which will be canceled as part of the Distribution. After December 1,
1997, Epitope will not provide any financial support to Agritope, except
advances to be repaid by Agritope when the Distribution is completed. The actual
future liquidity and capital requirements of Agritope will depend on numerous
factors, including: the costs and success of development efforts; the costs and
timing of establishment of sales and marketing activities; the success of its
current strategic collaborations; the success of Agritope in securing additional
strategic partners; the extent to which existing and new products gain market
acceptance; competing technological and market developments; product sales and
royalties; the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights;
and the availability of third party funding for research projects. In any event,
Agritope may seek or be required to raise substantial additional funds through
public or private financings, collaborative relationships or other arrangements.
There can be no assurance that financing will be available on satisfactory
terms, if at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve significant interest
expense and restrictive covenants. In addition, subsequent changes in ownership
due to future equity sales could adversely affect Agritope's ability to utilize
existing net operating losses. See Note 7 to consolidated financial statements.
Collaborative arrangements, if necessary to raise additional funds, may require
that Agritope relinquish its rights to certain of its technologies, products or
marketing territories. The failure of Agritope to raise capital could require it
to scale
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<PAGE>
back, delay or eliminate certain of its programs and would have a material
adverse effect on its business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Strategic Partners. Agritope relies on strategic partners
for access to proprietary plant varieties. In addition, Agritope does not have
or plan to have the capability to grow and distribute genetically engineered
products in commercial quantities. Agritope expects some or all of the
development, manufacturing and marketing of certain of its products to be
performed or paid for by other parties, primarily agricultural companies,
through license agreements, joint ventures or other arrangements. Agritope has
entered into several such arrangements. Agritope and Vilmorin have entered into
a collaborative research and development arrangement. See "Sale of Series A
Preferred Stock" and "Description of Business--Agritope Biotechnology
Program--Vegetable and Flower Crops." The Company has also entered agreements
with Sweetbriar Development, Inc.; Harris Moran Seed Company, an affiliate
company of Groupe Limagrain; and Sunseeds Company. Commercialization of
Agritope's products will require the assistance of Agritope's current strategic
partners and may require that Agritope enter additional strategic partnerships
with businesses experienced in the breeding, developing, producing, marketing
and distributing of produce varieties. Agritope's future revenues will be
dependent on the success of products developed pursuant to such collaborative
relationships. There can be no assurance that Agritope will be able to establish
additional strategic relationships or maintain its current strategic
relationships or that such relationships will be on terms sufficiently favorable
to permit Agritope to operate profitably. Furthermore, conflicts may arise
between the Company and its partners or among these third parties that could
discourage them from working cooperatively with the Company. Agritope's
commercial success will be dependent in part upon the performance of its
strategic partners. See "Description of Business."
Uncertainties Relating to Patents and Proprietary Information. Agritope
has obtained certain patents, has license rights under other patents, and has
filed a number of patent applications. Agritope anticipates filing patent
applications for protection of future products and technology. There can be no
assurance that patents applied for will be obtained, that existing patents to
which Agritope has rights will not be challenged, or that the issuance of a
patent will give Agritope any material advantage over its competitors in
connection with any of its products. Competitors may be able to produce products
competing with a patented Agritope product without infringing on Agritope's
patent rights. The issuance of a patent to Agritope or to a licensor is not
conclusive as to validity or as to the enforceable scope of claims therein. The
validity and enforceability of a patent can be challenged by litigation after
its issuance and, if the outcome of the litigation is adverse to the owner of
the patent, the owner's rights could be diminished or withdrawn.
The patent laws of other countries may differ from those of the U.S. as
to the patentability of Agritope's products and processes. Moreover, the degree
of protection afforded by foreign patents may be different from that of U.S.
patents.
The technologies used by Agritope may infringe the patents or
proprietary technology of others. The cost of enforcing Agritope's patent rights
in lawsuits that Agritope may bring against infringers or of defending itself
against infringement charges by other patent holders may be high and could
interfere with Agritope's operations.
Trade secrets and confidential know-how are important to Agritope's
scientific and commercial success. Although Agritope seeks to protect its
proprietary information through confidentiality agreements and appropriate
contractual provisions, there can be no assurance that others will not develop
independently the same or similar information or gain access to proprietary
information of Agritope. See "Description of Business--Patents and Proprietary
Information."
Dependence on Key Personnel. Agritope depends to a large extent on the
abilities and continued participation of its principal executive officers and
scientific personnel. The loss of key personnel could have a material adverse
effect on Agritope's business and results of operations. Agritope's key
personnel include, among
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<PAGE>
others, the individuals identified under "Management." Competition for
management and scientific staff in the agricultural biotechnology field is
intense. No assurance can be given that Agritope will be able to continue to
attract and retain personnel with sufficient experience and expertise to satisfy
its needs.
Limited Marketability of Agritope Common. Agritope has applied to have
Agritope Common approved for quotation on The Nasdaq SmallCap Market, beginning
on or after the Record Date. Prior to the Distribution, there has been no public
market for Agritope Common. There can be no assurance that an active trading
market will develop upon completion of the Distribution or, if it does develop,
that the market will be sustained. The relatively small number of publicly
traded shares may result in a market in shares of Agritope Common that lacks
liquidity. Also, the market price of Agritope Common could be vulnerable to
significant fluctuations in response to variations in actual and anticipated
operating results, lack of liquidity, failure by the Company to achieve its
growth plans and other events affecting the Company, its competitors, or its
industry sector. The market for securities of small market capitalization
companies has been highly volatile in recent years, often as a result of factors
unrelated to their operations.
Uncertainty of Product Development. Agritope's genetically engineered
products are at various stages of development. There are difficult scientific
objectives to be achieved in certain product development programs before the
technological or commercial feasibility of the products can be demonstrated.
Even the more advanced programs could encounter technological problems that may
significantly delay or prevent product development or product introduction. See
"Description of Business." There can be no assurance that any of Agritope's
products under development, if and when fully developed and tested, will perform
in accordance with Agritope's expectations, that necessary regulatory approvals
will be obtained in a timely manner, if at all, or that these products can be
successfully and profitably produced, distributed and sold.
Terms for Commercialization of Certain Vegetable and Flower Crops.
Under the terms of the research and development agreement between Agritope and
Vilmorin (the "Vilmorin Research Agreement"), the terms of agreements for
commercializing any covered vegetable and flower crops resulting from Agritope
research funded by Vilmorin are to be determined by "baseball" style arbitration
if the parties are unable to reach agreement. In this style of arbitration, the
arbitrator must choose all terms proposed by one party or the other, without
modification or compromise. Although "baseball" style arbitration is intended to
encourage the parties to make reasonable offers and to compromise their
differences, there can be no assurance that it will do so. Accordingly, Agritope
may not control the terms on which some of its research will be commercialized,
and there can be no assurance that the terms selected by an arbitrator will be
favorable to Agritope or allow it to operate profitably.
Technological Change and Competition. A number of companies are engaged
in research related to plant biotechnology, including other companies that rely
on the use of recombinant DNA as a principal scientific strategy. Technological
advances by others could render Agritope's technologies less competitive or
obsolete. Agritope believes that, despite barriers to new competitors such as
patent positions and substantial research and development lead time, competition
will intensify, particularly from agricultural biotechnology firms and major
agrichemical, seed and food companies with biotechnology laboratories.
Competition in the fresh produce market is intense and is expected to increase
as additional companies introduce products with longer shelf life and improved
quality. Many of Agritope's competitors have substantially greater
financial, technical and marketing resources than Agritope. There can be no
assurance that such competition will not have an adverse effect on
Agritope's business, financial condition and results of operations. See
"Description of Business--Competition."
Need for Public Acceptance of Genetically Engineered Products. The
commercial success of Agritope's genetically engineered products will depend in
part on public acceptance of the cultivation and consumption of genetically
engineered plants and plant products. Public attitudes may be influenced by
claims that genetically engineered plant products are unsafe for consumption or
pose a danger to the environment. There can be no assurance that Agritope's
genetically engineered products will gain public acceptance.
- 11 -
<PAGE>
Product Liability and Recall Risk. Agritope could be subject to claims
for personal injury or other damages resulting from its products or services or
product recalls. Agritope carries liability insurance against the negligent acts
of certain of its employees and a general liability insurance policy that
includes coverage for product liability, but not for product recall. In
addition, Agritope may require increased product liability coverage as its
products are commercially developed. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. Also, no assurance
can be given that any product liability claim or product recall will not have a
material adverse effect on Agritope's business, financial condition and results
of operations.
Government Regulation. Many of Agritope's products and activities are
subject to regulation by various local, state, and federal regulatory
authorities in the U.S. and by governmental authorities in foreign countries
where its products may be marketed. Agritope is devoting substantial effort to
the development of genetically engineered plants, using recombinant DNA methods.
Many of Agritope's proposed agricultural products are subject to regulation by
both the U.S. Department of Agriculture ("USDA") and the Food and Drug
Administration ("FDA") and may be subject to regulation by the Environmental
Protection Agency ("EPA") and other federal, state, local and foreign
authorities. The extent of regulation depends on the intended uses of the
products, how they are derived, and how applicable statutes and regulations are
interpreted to apply to new genetic technologies and products thereof. The
regulatory approaches of the USDA, FDA, EPA and other agencies are still
evolving with respect to products of modern biotechnology, such as those derived
from the use of recombinant DNA methods. No assurance can be given that any
regulatory approvals, exemptions, permits or other clearances, if required, can
be obtained in a timely manner, if at all, either for research or commercial
activities. See "Description of Business--Government Regulation."
No Assurance as to Market Performance of Agritope Common. There can be
no assurance that the combined market values of the Epitope Stock and the
Agritope Common held by a shareholder after the Distribution will equal or
exceed the market value of the Epitope Stock held by the shareholder prior to
the Distribution Date. The trading price of Agritope Common may also be subject
to significant fluctuations. The market prices for securities of agricultural
biotechnology companies historically have been volatile. Many factors such as
announcements of technological innovations or new commercial products by
Agritope or its competitors, governmental regulation, patent or proprietary
rights developments, industry alliances, public concern as to the safety or
other implications of products, and market conditions in general may have a
significant impact on the market price of Agritope Common. In addition, broad
market fluctuations and general economic conditions may adversely affect the
market price of Agritope Common.
Agritope has applied to include Agritope Common for quotation on The
Nasdaq SmallCap Market. In order to maintain its listing on The Nasdaq SmallCap
Market, Agritope will be required to comply with certain Nasdaq listing
maintenance standards including minimum tangible asset value amounts, public
float requirements and minimum stock price amounts. There can be no assurance
that Agritope will be able to comply with the listing maintenance standards of
The Nasdaq SmallCap Market as in effect from time to time.
Possibility of Substantial Sales of Agritope Common. Any sales of
substantial amounts of Agritope Common in the public market, or the perception
that such sales might occur, whether as a result of the Distribution or
otherwise, could materially adversely affect the market price of Agritope
Common. See "The Distribution-- Trading of Agritope Common" and "Shares Eligible
for Future Sale."
Agreements with Epitope; Lack of Arm's-length Negotiations. In
contemplation of the Distribution, Agritope has entered into a number of
agreements with Epitope, including a Separation Agreement, an Employee Benefits
Agreement, a Tax Allocation Agreement, and a Transition Services Agreement, for
the purpose of defining its ongoing relationship with Epitope. Although these
agreements were not the result of arm's-length negotiations between independent
parties, Agritope believes such agreements contain terms comparable to those
that would have
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<PAGE>
resulted from negotiations between unaffiliated parties. There can be no
assurance, however, that the terms of the agreements are in fact comparable to
those that would have been negotiated on an arm's-length basis. See
"Relationship Between Agritope and Epitope After the Distribution."
Anti-takeover Considerations. Agritope's Certificate of Incorporation
and Bylaws may have the effect of making an acquisition of control of Agritope
in a transaction not approved by the Agritope Board more difficult. For example,
the Certificate of Incorporation and Bylaws provide for a classified board,
prohibit the removal of directors except for "cause," limit the ability of the
stockholders and directors to change the size of the board, and require advance
notice before stockholders are permitted to nominate directors or submit other
proposals at stockholder meetings. The Agritope Board has also adopted the
Rights Agreement. In addition, subject to limitations prescribed by Delaware
law, the Agritope Board has the authority to issue up to 10 million shares of
Agritope Preferred and to fix the rights, preferences, privileges and
restrictions of those shares, and to issue up to a total of 30 million shares of
Agritope Common, all without any vote or action by Agritope's stockholders,
except as may be required by law or any stock exchange or automated securities
interdealer quotation system on which Agritope Common may be listed or quoted.
Agritope is also subject to Delaware statutory provisions governing business
combinations with persons deemed to be "interested stockholders." See
"Description of Agritope Capital Stock." Finally, awards made under the 1997
Stock Award Plan may vest in full immediately in the event of a change in
control of Agritope or similar event. See "1997 Stock Award Plan." The potential
issuance of additional shares of Agritope capital stock and other considerations
referenced above may have the effect of delaying or preventing a change in
control of Agritope, may discourage offers for Agritope Common, and may
adversely affect the market price of, and the voting and other rights of the
holders of, Agritope Common.
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<PAGE>
INTRODUCTION
On --------------------, 1997, the Epitope Board authorized management
to proceed with the distribution to Epitope shareholders of all the Agritope
Common held by Epitope. The Distribution will be made to holders of record of
Epitope Stock at the close of business on the Record Date, in the ratio of one
share of Agritope Common for every five shares of Epitope Stock held.
Shareholders will receive cash in lieu of any fractional shares. Epitope
shareholders participating in the Distribution will not be required to surrender
or exchange shares or pay any consideration for the Agritope Common. After the
Distribution, Agritope will cease to be a subsidiary of Epitope and will operate
as an independent public company.
Agritope will sell 1,343,704 shares of Agritope Common in the
Regulation S Sale and 214,285 shares of the Series A Convertible Preferred in
the Preferred Stock Sale, for an aggregate price of $10.9 million, immediately
following the Distribution. The Epitope Board believes that the proceeds of the
Regulation S Sale are sufficient to finance the operations of Agritope as a
separate business for a period of not less than two years, although no assurance
to that effect can be given. Agritope could not operate as an independent entity
without the financing to be raised in the Regulation S Sale. See "Risk
Factors--Need for Additional Financing."
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred. See "Description of Agritope Capital
Stock--Series A Convertible Preferred Stock." In connection with a research and
development collaboration between Agritope and Vilmorin, Agritope has entered
into an agreement for the sale of 214,285 shares of the Series A Convertible
Preferred to Vilmorin, an affiliate of Groupe Limagrain, for an aggregate
purchase price of $1.5 million. See "Sale of Series A Convertible Preferred" and
"Description of Business--Agritope Biotechnology Program--Vegetable and Flower
Crops." In addition, Agritope has granted Vilmorin the Series A Option,
exercisable by Vilmorin or its designees and expiring January 15, 1998, to
purchase up to 785,715 additional shares of Series A Convertible Preferred at a
price of $7 per share. Series A Convertible Preferred has preemptive rights and
the right to elect a director, but otherwise has rights substantially equivalent
to Agritope Common and is convertible at any time into shares of Agritope Common
on a share-for-share basis, subject to adjustment upon occurrence of certain
events. Holders of Series A Convertible Preferred will vote on an "as converted"
basis with holders of Agritope Common.
After giving effect to the Regulation S Sale, the Preferred Stock Sale
and the Distribution, the shares of Agritope Common distributed to Epitope
shareholders in the Distribution will represent between 53 and 63 percent of all
Agritope voting stock outstanding following the Distribution, depending on the
extent to which the Series A Option is exercised. Shares issued in the
Regulation S Sale will represent between 27 percent and 32 percent of Agritope
voting stock outstanding, depending on the extent to which the Series A Option
is exercised.
Agritope will operate separately from Epitope after the Distribution,
but has entered into various agreements with Epitope, including a Separation
Agreement, an Employee Benefits Agreement, a Tax Allocation Agreement, and a
Transition Services Agreement, to facilitate Agritope's transition to
independent operation. In connection with the Transition Services Agreement,
Epitope has agreed to provide office and laboratory facilities and accounting
and human resources services to Agritope for approximately 3 months following
the Distribution. Agritope has leased new office and laboratory facilities under
a lease commencing March 1, 1998. See "Description of Business--Properties."
Epitope's and Agritope's executive offices are at 8505 S.W. Creekside
Place, Beaverton, Oregon 97008, telephone (503) 641-6115. Epitope shareholders
with questions about the Distribution should contact Mary W. Hagen, Investor
Relations Department, at the address or telephone number above. After the
Distribution Date, Agritope stockholders with questions about Agritope or
Agritope Common should contact Gilbert N. Miller, Secretary, at Agritope's
executive offices.
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<PAGE>
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
In July 1997, the Epitope Board approved a management proposal to spin
off Agritope, subject to obtaining financing for Agritope and satisfaction of
certain other considerations. The proposal resulted from the Epitope Board's
1996 decision to make changes in corporate structure to enable investors and
management to focus separately on the agricultural and medical products business
units of Epitope.
In November 1996, the Epitope Board proposed creating two separate
classes of Epitope common stock, one to reflect the business and operations of
Epitope and the other to reflect the business and operations of Agritope (the
"Targeted Stock Proposal"). In addition, in December 1996, Epitope acquired
Andrew and Williamson Sales, Co. ("A&W"), a producer and distributor of fruits
and vegetables, as a direct wholly owned subsidiary of Epitope. In May 1997,
prior to a shareholder vote on the Targeted Stock Proposal, the Epitope Board
rescinded its acquisition of A&W and withdrew the Targeted Stock Proposal in
light of events surrounding a Hepatitis A outbreak allegedly associated with
strawberries shipped by A&W prior to its acquisition by Epitope. The potential
liabilities arising out of the outbreak convinced the Epitope Board that a
targeted stock structure presented too great a risk that liabilities of one
business unit could affect the other. In addition, the rescission and events
related to the Hepatitis A outbreak increased pressure on Epitope's available
capital and decreased the funds available for Agritope's operations. The Epitope
Board believed that in light of uncertainties surrounding the outbreak and
subsequent rescission of the purchase of A&W, raising the funds necessary to
fund the operations of both Epitope and Agritope on terms acceptable to Epitope
was unlikely. The Epitope Board ultimately concluded that, in light of the
different risks, operating environments, stages of development and respective
financing requirements of the medical products and agricultural biotechnology
businesses and the current need to raise substantial capital for Agritope, a
complete separation of the two businesses was in the best interests of Epitope
and its shareholders.
The primary purpose of the Distribution is to allow Agritope to raise
immediately needed working capital through the sale of its own equity
securities. See "Regulation S Sale" and "Sale of Series A Preferred." Agritope's
history of operating losses is expected to continue, giving rise to a need for
additional capital that cannot be satisfied in Epitope's current corporate
structure. The Regulation S Sale and the sale of Series A Preferred can only be
accomplished if Agritope becomes an independent public company. The Epitope
Board considered certain disadvantages of a spin-off as compared to a targeted
stock structure, such as a loss of efficiencies gained by sharing a common
administrative framework and management team and a loss of synergies in the two
companies' research and development programs but determined that such
disadvantages were outweighed by the risks that the liability of one business
would affect the value of the other.
The Distribution will separate the businesses of Epitope and Agritope,
each having its own distinct operating, financial, and investment
characteristics, so that each company can adopt strategies and pursue objectives
more appropriate to its specific business than is possible with Agritope
operating as a wholly owned subsidiary of Epitope. The Epitope Board believes
that the Distribution will better enable management of each company to
concentrate attention and financial resources on research and development and
management of growth in each of its respective core businesses, without regard
to the corporate objectives, policies, challenges and investment criteria of the
other. The Distribution is also intended to afford Agritope increased
flexibility to make acquisitions and enter into strategic partnering
transactions, by issuing its own equity securities. Finally, as a separate
company, Agritope will be able to develop incentive-based compensation programs
that are keyed directly to its earnings and performance, enhancing Agritope's
ability to attract, motivate and retain key employees.
The Epitope Board has also been concerned that the investment community
has historically focused principally on the products and business of Epitope and
has not given sufficient recognition to the value of Agritope's business.
Agritope's status as a separate public company after the Distribution will allow
investors to better evaluate the performance and investment characteristics and
the future prospects of its business. There can
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be no assurance that the combined market values of Epitope Stock and Agritope
Common held by a shareholder after the Distribution Date will equal or exceed
the market value of the existing Epitope Stock held by the shareholder prior to
the Distribution Date. See "Risk Factors--Limited Marketability of Agritope
Common" and "--No Assurance as to Market Performance of Agritope Common."
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set
forth in a Separation Agreement between Agritope and Epitope dated December 1,
1997. See "Relationship Between Agritope and Epitope After the
Distribution--Separation Agreement."
Holders of Epitope Stock on the Record Date will not be required to pay
cash or other consideration for the Agritope Common received in the Distribution
or to surrender or exchange certificates representing shares of Epitope Stock in
order to receive Agritope Common in the Distribution.
Under the Separation Agreement, on or before the Record Date, Epitope
will deliver to the Distribution Agent a certificate or certificates
representing all of the then outstanding shares of Agritope Common held by
Epitope. Epitope will then instruct the Distribution Agent to distribute to each
holder of record of Epitope Stock on the Record Date a certificate or
certificates representing one share of Agritope Common for every five shares of
Epitope Stock outstanding. Any shares not distributed on account of the
arrangements made for paying cash in lieu of fractional shares as described
below, will be returned to Agritope for cancellation. A total of approximately
2.7 million shares of Agritope Common will be issued in the Distribution.
Fractional shares of Agritope Common will not be issued in the
Distribution. If the aggregate number of shares due an Epitope shareholder of
record includes a fraction of a share, Epitope will pay the cash value of the
fractional share to the holder, based on a price of $7 per share of Agritope
Common. Shareholders who own their stock in "street name" through a broker or
other nominee listed as the holder of record will have their fractional shares
handled according to the practices of the broker or nominee, which may result in
those shareholders receiving a price for their fractional share interests that
is higher or lower than the price paid by Agritope to shareholders of record.
Certificates representing shares of Agritope Common will be mailed by
the Distribution Agent as soon as practicable following the Distribution Date.
The distributed shares of Agritope Common will be fully paid and nonassessable
and will not be entitled to preemptive rights. Initially, the preferred stock
purchase rights associated with each share of Agritope Common will be
represented by the certificate for such share of Agritope Common.
See "Description of Agritope Capital Stock--Stockholder Rights Plan."
TRADING OF AGRITOPE COMMON
After the Distribution, Epitope and Agritope will operate as
independent public companies. Immediately after the Distribution and the
consummation of the Regulation S Sale, Agritope expects to have approximately
1,035 holders of record of Agritope Common and 4 million shares of Agritope
Common outstanding, based on the number of holders of record of outstanding
Epitope Stock, the distribution ratio, and the number of investors and amount of
shares involved in the Regulation S Sale. The actual number of shares of
Agritope Common to be distributed will be determined as of the Record Date.
Following the Preferred Stock Sale, Agritope expects to have
outstanding 214,285 shares of Series A Convertible Preferred, and up to 785,715
additional shares of Series A Convertible Preferred that may be issued upon
exercise of the Series A Option. Series A Convertible Preferred is convertible
at any time into shares of Agritope Common, on a share-for-share basis, subject
to adjustment upon the occurrence of certain events.
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Agritope has applied to include Agritope Common for quotation on The
Nasdaq SmallCap Market under the symbol "AGTO." There can be no assurance,
however, that, if accepted, Agritope will meet the requirements for continued
inclusion on The Nasdaq SmallCap Market, or that an active trading market for
shares of Agritope Common will develop after the Distribution.
A "when-issued" market in Agritope Common is expected to develop on or
after the Record Date. Prices at which Agritope Common may trade prior to the
Distribution on a "when-issued" basis or after the Distribution cannot be
predicted. The prices at which trading in Agritope Common occurs may be subject
to significant fluctuations, particularly in the period immediately preceding
and immediately after the Distribution and until an orderly trading market
develops, if at all. See "Risk Factors--No Assurance as to Market Performance of
Agritope Common."
The transfer agent and registrar for the Agritope Common will be
ChaseMellon Shareholder Services, L.L.C.
Shares of Agritope Common distributed to Epitope shareholders in the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of Agritope under the Securities Act.
Persons who may be deemed to be affiliates of Agritope after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, Agritope, and may include certain officers and
directors of Agritope as well as principal stockholders of Agritope, if any.
Persons who are affiliates of Agritope will be permitted to sell their shares of
Agritope Common only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Rule 144 under the Securities
Act.
In general, under Rule 144, any affiliate of Agritope or any person
owning unregistered Agritope Common (Agritope Common held by any such affiliate
or person referred to as "Restricted Securities") who has beneficially owned
Restricted Securities for at least one year (including the holding period of any
prior owner who is not an affiliate of Agritope) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1 percent of the then outstanding shares of Agritope Common
(approximately 40,000 shares immediately after the Distribution and Regulation S
Sale), or (ii) the average weekly trading volume of Agritope Common during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about
Agritope.
The shares of Agritope Common being sold in the Regulation S Sale and
the shares of Agritope Common issuable upon the conversion of the Series A
Convertible Preferred have not been registered under the Securities Act.
Pursuant to Regulation S of the Securities Act, shares of Agritope Common
purchased in the Regulation S Sale and the shares of Agritope Common issuable
upon the conversion of the Series A Convertible Preferred may not be sold in the
U.S. without registration under the Securities Act until 40 days following the
closing of the Regulation S Sale and the Preferred Stock Sale, respectively.
Sale of a significant number of shares by these holders could adversely affect
the market price of Agritope Common. See "Shares Eligible for Future Sale."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Epitope has received an opinion of Miller, Nash, Wiener, Hager &
Carlsen LLP ("Miller Nash") that (i) the Distribution will be treated as a
tax-free transaction to Epitope shareholders qualifying under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the following
discussion concerning the material tax consequences of the transaction, insofar
as it relates to statements of tax law or conclusions thereunder, is correct and
complete in all material respects. For a more complete description of the
limitations, analysis and assumptions underlying the opinion of Miller Nash,
refer to the complete opinion filed with the Registration Statement of which
this Information Statement/Prospectus is a part. The opinion of Miller Nash
received by Epitope
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represents only the best judgment of Miller Nash, and is not binding on the
Internal Revenue Service (the "IRS"). There can be no guarantee that the IRS
will agree with the opinion or that upon challenge by the IRS, a court will not
reach a conclusion contrary to the opinion. Epitope has not requested a ruling
from the IRS with respect to the federal income tax consequences of the
Distribution. Because no ruling will be received, there can be no assurance that
the Distribution will qualify as a tax-free transaction.
Consequences of Qualification as a Tax-Free Distribution. The discussion set
forth below may not be applicable to certain Epitope shareholders who, among
other limitations, received their shares of Epitope Stock as compensation, who
are not citizens or residents of the U.S. or who are otherwise subject to
special treatment under the Code. Subject to such special circumstances that may
apply to certain Epitope shareholders, in the opinion of Miller Nash, the
Distribution will have the following federal income tax consequences:
(1) An Epitope shareholder will not recognize any income, gain or loss
upon the receipt of Agritope Common which is received by the shareholder as a
result of the Distribution, although income and gain or loss will be recognized
in connection with any cash received in lieu of fractional shares, as described
below.
(2) An Epitope shareholder's tax basis in the Epitope Stock with
respect to which Agritope Common is received will be apportioned between the
shareholder's Epitope shares and the shares of Agritope Common received by the
shareholder (including any fractional shares of Agritope Common deemed received)
in proportion to the relative aggregate fair market values of Epitope Stock and
Agritope Common on the Distribution Date.
(3) An Epitope shareholder's holding period for Agritope Common
received in the Distribution will include the period during which the
shareholder held the Epitope Stock with respect to which the Agritope Common is
distributed, provided such Epitope shareholder held the Epitope Stock as a
capital asset at the time of the Distribution.
(4) An Epitope shareholder who receives cash in lieu of a fractional
share of Agritope Common in the Distribution will be treated as if the
fractional share of Agritope Common had been received by the shareholder as part
of the Distribution and then sold by the shareholder for cash. Accordingly, the
shareholder will recognize gain or loss equal to the difference between the cash
so received and the amount of tax basis allocable (as described above) to the
fractional share of Agritope Common. The gain or loss will be capital gain or
loss if the fractional share of Agritope Common would have been held by the
shareholder as a capital asset.
(5) Agritope will not recognize any income, gain or loss as a result of
the Distribution.
Miller Nash has not expressed any opinion concerning the tax
consequences to Epitope of the Distribution. Depending on the number of shares
of Agritope Common issued in the Regulation S Sale and the Preferred Stock Sale
(see "Regulation S Sale" and "Sale of Series A Convertible Preferred"), the
Distribution might result in recognition of taxable gain by Epitope. Epitope
believes that its tax basis in Agritope is greater than the fair market value of
Agritope. Thus, while the Distribution might be deemed to be a taxable
transaction for Epitope, Epitope believes it is more likely than not that the
Distribution will result in the realization of a loss rather than the
recognition of any taxable gain. Epitope will not be allowed to recognize for
income tax purposes any taxable loss realized as a result of the Distribution.
If any taxable gain is recognized, Epitope believes that it has sufficient net
operating loss carryforwards to offset any such gain for regular tax purposes.
However, if any gain is recognized, Epitope would incur an alternative minimum
tax, which amount management believes would be immaterial.
Current U.S. Treasury regulations require that each Epitope shareholder
who receives shares of Agritope Common pursuant to the Distribution attach a
statement to the shareholder's federal income tax return for the taxable year in
which the Distribution occurs, providing certain information with respect to the
applicability of
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Section 355 of the Code to the Distribution. In a Tax Allocation Agreement
between the parties (discussed below), Epitope has represented that it will
provide to each Epitope shareholder of record as of the Record Date information
necessary to comply with this requirement.
Consequences of Failure to Qualify as a Tax-Free Distribution. If the
Distribution ultimately were determined not to qualify as a tax-free transaction
to Epitope shareholders pursuant to Section 355 of the Code, the following
federal income tax consequences would result:
(1) Each Epitope shareholder would be considered to have received a
distribution in an amount equal to the fair market value, when distributed, of
the shares of Agritope Common received by the shareholder plus the amount of any
cash received in lieu of fractional shares of Agritope Common. Such a
distribution would be taxed as a dividend to the shareholder to the extent of
the shareholder's share of (i) Epitope's current earnings and profits for
federal income tax purposes for the fiscal year ending September 30, 1998 (which
current earnings and profits, if any, will be increased by any gain recognized
by Epitope as a result of the Distribution (which would equal the excess, if
any, of the fair market value of Agritope over Epitope's tax basis in Agritope))
or (ii) Epitope's accumulated earnings and profits through September 30, 1998
(including any gain recognized as a result of the Distribution). To the extent
that the aggregate fair market value of the shares of Agritope Common
distributed exceeds Epitope's earnings and profits, the excess would be treated
first as a non-taxable reduction in the tax basis of a shareholder's Epitope
Stock to the extent of the tax basis, and thereafter as short-term or long-term
capital gain, provided the Epitope Stock is held by the shareholder as a capital
asset. Under Epitope's best current estimates, Epitope will not have sufficient
earnings and profits by September 30, 1998, to treat any part of the
Distribution as a dividend. This estimate is, however, subject to change as
current assumptions may change and future events could materially impact
Epitope's earnings and profits.
(2) An Epitope shareholder's tax basis in the shares of Agritope Common
received in the Distribution would equal the fair market value of the Agritope
Common on the Distribution Date, and the shareholder's holding period for the
shares of Agritope Common would begin the day after that date. An Epitope
shareholder's tax basis in the Epitope Stock would not be affected by the
Distribution, unless, as described above, the amount of the Distribution
exceeded the current and accumulated earnings and profits of Epitope
attributable to the shareholder and was treated as a non-taxable reduction in
tax basis. Upon a subsequent sale of the shares of Agritope Common, a
shareholder would recognize gain or loss measured by the difference between the
amount realized on the sale and the shareholder's tax basis in the shares of
Agritope Common sold.
(3) In general, any amount received by a corporate shareholder that is
taxable as a dividend would be eligible for a 70 percent dividends-received
deduction. However, the 70 percent dividends-received deduction would not be
available with respect to stock unless, among other requirements, certain
holding period requirements were satisfied. In this regard, under Section 246(c)
of the Code, the length of time that a taxpayer is deemed to have held stock is
reduced for periods during which the taxpayer's risk of loss with respect to
such stock is diminished by reason of the existence of certain options to sell,
contracts to sell or other similar arrangements.
In addition, under Section 1059 of the Code, a corporate shareholder
whose holding period, as determined using rules similar to those contained in
Section 246(c) of the Code, is two years or less (as of the Distribution
announcement date) would be required to reduce the tax basis of such Epitope
Stock (but not below zero) by that portion of any "extraordinary dividend," as
defined in the Code, that is not taxed because of the dividends-received
deduction. If the portion exceeded the corporate shareholder's tax basis for its
Epitope Stock, any such excess would be treated as gain on the subsequent sale
or disposition of the stock for the taxable year in which the extraordinary
dividend is received.
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The summary of federal income tax consequences set forth above is for
general information only and may not be applicable to shareholders who received
their shares of Epitope Stock through the exercise of an option or otherwise as
compensation, who are not citizens or residents of the U.S. or who are otherwise
subject to special treatment under the Code. All shareholders should consult
their own tax advisors as to the particular tax consequences of the Distribution
to them, including the applicability and effect of state, local and foreign tax
laws.
REGULATION S SALE
Immediately following the Distribution, Agritope will sell 1,343,704
shares of Agritope Common at a price of $7 per share, for an aggregate price of
$9.4 million in the Regulation S Sale. Subscribers in the Regulation S Sale have
entered into stock purchase agreements and have deposited the purchase price for
the shares in an escrow account, pending completion of the Distribution and
closing of the Regulation S Sale. Immediately following the Distribution, the
funds held in escrow will be released to Agritope and shares of Agritope Common
will be issued to investors in the Regulation S Sale. Shares sold in the
Regulation S Sale will not be registered under the Securities Act. Such shares
will represent between 27 percent and 32 percent of the outstanding Agritope
voting stock, depending upon the extent to which the Series A Option is
exercised.
Prior to the Distribution, there was no public market for Agritope
Common. The price of securities to be issued pursuant to Regulation S was
determined by the boards of directors and management of the Company and Epitope
in consultation with Vector Securities International, Inc. ("Vector
Securities"), the Company's financial advisor, and with the placement agent. In
determining the price, the Company took into account, among other things, the
assets and liabilities of the Company, its recent historical financial
performance relative to competitors that are publicly traded, its future
prospects, prospects for the industry in which it competes, the status of the
Company's research programs, and the current state of the economy in the United
States and of the capital markets generally.
The Epitope Board believes that the proceeds of the Regulation S Sale
are sufficient to finance the operations of Agritope as a separate business for
a period of not less than two years. There can be no assurance that the
determination of Agritope's anticipated cash requirements will prove to be
accurate. See "Risk Factors-- Need for Additional Funds."
SALE OF SERIES A CONVERTIBLE PREFERRED
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred. In connection with the Vilmorin Research
Agreement, Agritope and Vilmorin have agreed to the Preferred Stock Sale
providing for the sale under Regulation S of 214,285 shares of Series A
Convertible Preferred at a price of $7 per share for an aggregate purchase price
of $1.5 million. See "Description of Business--Agritope Biotechnology
Program--Vegetable and Flower Crops." In addition, Agritope has granted Vilmorin
the Series A Option, exercisable by Vilmorin or its designees and expiring
January 15, 1998, to purchase up to 785,715 additional shares of Series A
Convertible Preferred at a price of $7 per share. Vilmorin will own 5 percent of
outstanding voting stock of Agritope following the closing of the Preferred
Stock Sale and will own 19.9 percent of outstanding Agritope voting stock if it
exercises the Series A Option in full. Series A Convertible Preferred has
preemptive rights and the right to elect a director, but otherwise has rights
substantially equivalent to Agritope Common, and is convertible at any time into
shares of Agritope Common on a share-for-share basis, subject to adjustment upon
the occurrence of certain events. Holders of Series A Convertible Preferred will
vote on an "as converted" basis with holders of Agritope Common. For a
description of the Series A Convertible Preferred, see "Description of Agritope
Capital Stock--Agritope Series A Convertible Preferred."
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RELATIONSHIP BETWEEN AGRITOPE AND EPITOPE AFTER THE DISTRIBUTION
For purposes of setting forth the conditions to and procedures for the
Distribution, governing the ongoing relationship between Epitope and Agritope
after the Distribution and providing for a more orderly transition of Agritope
to operation as an independent public company, Epitope and Agritope have entered
into various agreements. The agreements summarized in this section are included
as exhibits to the Registration Statement of which this Information
Statement/Prospectus forms a part. The following summary is qualified in its
entirety by reference to the agreements as filed.
Management believes that the administrative costs for Agritope as a
stand-alone company will not be materially different from the administrative
costs incurred and the shared services costs allocated in the historical
financial statements. Additionally, the amounts to be charged to Agritope under
the Transition Services Agreement described below are not expected to differ
materially from what Agritope would incur on a stand-alone basis.
SEPARATION AGREEMENT
Epitope and Agritope have entered into a Separation Agreement, which
provides for, among other things, certain pre-Distribution actions of the
parties, the manner of effecting the Distribution, indemnification rights and
procedures, allocation of expenses prior to and in connection with the
Distribution, insurance matters, access to books and records, and
confidentiality. Expenses to be borne by Agritope under the Separation Agreement
in connection with the Distribution will be approximately $200,000. The
Separation Agreement also provides for the cancellation of substantially all of
Agritope's $49.0 million intercompany balance due to Epitope, which has been
treated as a capital contribution in the consolidated financial statements
included herein. Because Epitope and Agritope have separately conducted their
respective businesses, the Separation Agreement does not otherwise contemplate
either entity transferring any significant assets or property to the other.
The Separation Agreement sets forth all of the material conditions
precedent to the Distribution, which are: (i) receipt by Agritope of binding
commitments for financing in an amount the Epitope Board deems sufficient to
finance Agritope's operation as an independent public company for a period of
not less than two years; (ii) receipt by Epitope of an opinion of its tax
advisors as to certain tax considerations in connection with the Distribution;
(iii) receipt of all material approvals and consents necessary to consummate the
Distribution and absence of any pending or threatened action with respect to the
Distribution; (iv) effectiveness of the Registration Statement; and (v)
occurrence of no other event or development that, in the judgment of the Epitope
Board, would have a material adverse effect on Epitope or its shareholders. The
Distribution is subject to satisfaction or waiver of each of these material
conditions and certain other conditions set forth in the Separation Agreement.
The Separation Agreement may be terminated, and the Distribution abandoned, at
any time prior to the Record Date by, and in the sole discretion of, the Epitope
Board.
In addition, the Separation Agreement provides for the allocation of
benefits under existing insurance policies between Epitope and Agritope, grants
each of Epitope and Agritope access to certain records and information in the
possession of the other, imposes certain confidentiality obligations on each,
and provides that, except as otherwise set forth therein or in any related
agreement, Epitope and Agritope will each pay its own costs and expenses in
connection with the Distribution.
Pursuant to the Separation Agreement, Agritope has increased its
authorized capital stock to 30 million shares of Agritope Common and 10 million
shares of Agritope Preferred, and taken other corporate actions in anticipation
of its transition to an independent public company.
Each of the parties has agreed to indemnify the other against claims
relating to or arising out of their respective businesses prior to the
Distribution and arising out of the Distribution. Agritope has agreed to assume
responsibility for certain expenses incurred prior to and in connection with the
Distribution.
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EMPLOYEE BENEFITS AGREEMENT
It is anticipated that each person who is an Epitope employee or an
Agritope employee immediately prior to the Distribution Date will continue to be
such immediately after the Distribution Date. To address certain employee and
employee benefits matters in connection with the Distribution, Epitope and
Agritope have entered into an Employee Benefits Agreement. Pursuant to the
Employee Benefits Agreement, Agritope will retain or assume, as the case may be,
sole responsibility as employer for all employees of Agritope as of the
Distribution Date, and will cause any Agritope employee who is then a party to
any employment-related agreement with Epitope to terminate such agreement
effective as of the Distribution Date, except as described below.
Epitope currently provides benefits to its employees and employees of
Agritope under the Epitope, Inc. 401-K Profit Sharing Plan (the "Epitope 401(k)
Plan"), the Incentive Stock Option Plan (the "Incentive Plan"), the 1991 Stock
Award Plan (the "1991 Epitope Award Plan"), and the 1993 Employee Stock Purchase
Plan (the "Epitope Purchase Plan"). Pursuant to the Employee Benefits Agreement,
Agritope has amended the Agritope, Inc. 1992 Stock Award Plan (the "1992
Agritope Award Plan") and outstanding options issued thereunder and adopted
other benefit plans to replace the employee benefits provided by Epitope.
Agritope employees will be eligible for the new Agritope plans following the
Distribution. To facilitate the transition, Epitope and Agritope have agreed to
adjust each existing Epitope employee benefit or award in the following manner:
401(k) Plan. The Employee Benefits Agreement provides that Agritope
will establish and administer a new plan named the Agritope 401(k)
Retirement Plan and Trust (the "Agritope 401(k) Plan"), under which
benefits will be provided to all Agritope employees including those who
were eligible for the Epitope 401(k) Plan immediately prior to the
Distribution Date. All Agritope employees who wish to participate in
the Agritope 401(k) Plan will be required to enroll in the Agritope
401(k) Plan in accordance with its terms. Under the Employee Benefits
Agreement, Agritope employees will become fully vested (if not already
fully vested) in their matching accounts under the Epitope 401(k) Plan
as of the Distribution Date, and will be entitled to a distribution
from the Epitope 401(k) Plan of all of their accounts within a
reasonable time after the Distribution Date. The Employee Benefits
Agreement requires the Agritope 401(k) Plan to accept a rollover
contribution from any Agritope employee who elects to have his or her
distribution from the Epitope 401(k) Plan rolled over to the Agritope
401(k) Plan.
Existing Epitope Options. Pursuant to the Employee Benefits Agreement,
Epitope and Agritope have agreed that each unexercised option to
purchase Epitope Stock outstanding as of the Distribution Date
("Existing Epitope Options") will be adjusted as follows as of the
Distribution Date.
The exercise price of Existing Epitope Options will be adjusted
according to a formula provided in the Employee Benefits Agreement. The
formula provides for reduction of the exercise price by an amount equal
to the aggregate value of Agritope Common and Series A Convertible
Preferred issued in the Distribution, sold in the Regulation S Sale, or
sold in the Preferred Stock Sale, divided by the number of shares of
Epitope Stock outstanding at the Record Date. Epitope and Agritope
believe that the exercise price adjustments to Existing Epitope Options
should not result in the recognition of taxable income by Epitope or
Agritope or their respective optionees. However, there can be no
assurance that such recognition will not occur. Each holder of an
outstanding Existing Epitope Option is urged to consult with his or her
own tax advisor.
Also, for purposes of determining the period that Existing Epitope
Options remain exercisable, employment by Agritope shall be deemed
employment by Epitope. Employment by Agritope or any of its majority
owned subsidiaries after the Distribution will not be deemed employment
by Epitope for vesting and all other purposes relating to Existing
Epitope Options. Accordingly,
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Existing Epitope Options held by Agritope employees will continue to
vest after the Distribution in accordance with existing award
agreements which provide for continued vesting for periods ranging from
90 days to one year after the Distribution Date.
Certain Existing Epitope Options are currently intended to qualify as
"incentive stock options" ("ISOs") under the Code. However, continued
ISO status requires that the optionee be employed by the grantor (or a
parent or subsidiary of the grantor) and that the option generally be
exercised within three months after an optionee's termination. Because
the Distribution will terminate the affiliation between Epitope and
Agritope, employees of Agritope holding Existing Epitope Options will
lose any claim to ISO status for such options three months after the
Distribution Date. Such options will thereafter be treated as
nonqualified options.
Agritope has adopted the Agritope, Inc. 1997 Stock Award Plan (the
"Agritope 1997 Award Plan") pursuant to which awards will be made to
Agritope employees as of and following the Distribution. See "1997
Stock Award Plan."
Agritope Options Held by Epitope and Agritope Employees. Agritope has
granted options to certain employees of Epitope and Agritope under the
1992 Agritope Award Plan. The options are denominated in shares of
Agritope Common, but provide for issuance of Epitope Stock upon
exercise so long as Agritope is a wholly owned subsidiary of Epitope.
Agritope has amended the options outstanding under the 1992 Agritope
Award Plan to provide that Epitope Stock will be received upon the
exercise of the options and to provide that such options will be
subject to substantially the restrictions and adjustments provided
above for Existing Epitope Options. No further options will be granted
under the plan.
Purchase Plan. The Epitope Purchase Plan enables participating Epitope
employees to purchase Epitope Stock during offering periods selected by
the Epitope Board. The purchase price per share is the lesser of (i) 85
percent of the fair market value of Epitope Stock on the last trading
day prior to the related Offering Date (as defined in the Epitope
Purchase Plan) or (ii) 100 percent of the fair market value of Epitope
Stock on the last day of the purchase period or on any earlier date of
purchase provided for in the Epitope Purchase Plan. The purchase price
is collected by means of payroll deductions. An employee whose
employment is terminated for any reason other than retirement,
disability, or death may, at his or her election, (i) be refunded the
full amount withheld to date, plus interest at the rate of 6 percent
per year, or (ii) receive the whole number of shares that could be
purchased at the purchase price with that amount together with a cash
refund of any balance.
Pursuant to the Employee Benefits Agreement, the Epitope Purchase Plan
will continue in full force and effect in accordance with its terms.
The Employee Benefits Agreement provides that participants under the
Epitope Purchase Plan will be eligible to participate in the
Distribution and receive shares of Agritope Common only to the extent
that, by operation of the Epitope Purchase Plan or otherwise, they are
shareholders of record on the Record Date, except that participants who
are entitled to receive shares of Epitope Stock under the Epitope
Purchase Plan as of the Record Date but who have not yet been
mechanically recorded as shareholders of record as of the Record Date
will be treated as shareholders of record for purposes of the
Distribution. The Employee Benefits Agreement also provides for certain
adjustments to the Maximum Purchase Price (as defined in the Epitope
Purchase Plan) during the purchase period in which the Distribution
Date occurs in order to reflect the effect of the Distribution.
Agritope has established an Employee Stock Purchase Plan for Agritope
employees. See "1997 Employee Stock Purchase Plan."
- 23 -
<PAGE>
The Employee Benefits Agreement also provides for the continuation of
medical, dental and other welfare plans by Epitope and Agritope for the benefit
of their respective employees following the Distribution, and for the allocation
of liability for, and indemnity obligations related to, any employment-related
claims brought against Epitope or Agritope, or both companies jointly.
TAX ALLOCATION AGREEMENT
Epitope and Agritope have entered into a Tax Allocation Agreement
providing for their respective obligations concerning various tax liabilities
and related matters. The Tax Allocation Agreement provides that Epitope will
pay, and will indemnify Agritope with respect to, all federal, state, local and
foreign income, franchise and similar taxes relating to Epitope for all taxable
periods. Epitope has also generally agreed to pay all other taxes (other than
those which are imposed solely on Agritope) that are payable in connection with
the Distribution and transactions related to the Distribution, the liability for
which arises on or before the Distribution Date. The Tax Allocation Agreement
provides that Agritope will pay, and will indemnify Epitope with respect to, all
federal, state, local and foreign income, franchise and similar taxes relating
to Agritope for all taxable periods. Further, the Separation Agreement provides
for cooperation with respect to certain tax matters, including the preparation
of income tax returns, the exchange of information, the handling of tax
controversies, and the retention of records which may affect the income tax
liability of either party.
TRANSITION SERVICES AGREEMENT
Epitope and Agritope have entered into a Transition Services Agreement
pursuant to which Epitope has agreed to provide office and laboratory facilities
and accounting and human resources services to Agritope for a 3-to-6 month
period following the Distribution.
- 24 -
<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, 1997 and 1996 and the operating results data for the years
ended September 30, 1997, 1996, and 1995 have been derived from audited
consolidated financial statements and notes thereto included in this Information
Statement/Prospectus. The balance sheet data at September 30, 1995, and
operating results data for the year ended September 30, 1994 are derived from
audited consolidated financial statements and notes thereto not included in this
Information Statement/Prospectus. The balance sheet data at September 30, 1994
and 1993 and operating results data for the year ended September 30, 1993 are
derived from unaudited consolidated financial statements, and notes thereto not
included in this Information Statement/Prospectus and, in the opinion of
management, include all adjustments necessary for fair presentation. 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>
YEAR ENDED SEPTEMBER 30
1997 1996 1995(1) 1994(1) 1993(1)
CONSOLIDATED OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 1,551 $ 585 $ 2,110 $ 2,213 $ 524
Operating costs and expenses........................ 6,089 2,821 9,920 11,703 7,331
Other income (expense), net ........................ (4,153)(2) (265) (235) (314) (151)
Net loss............................................ (8,691) (2,501) (8,045) (9,804) (6,958)
Pro forma net loss per share (3).................... (3.23) ( .93) (2.99) (3.64) (2.59)
Pro forma shares used in per
share calculations (3)............................ 2,691 2,691 2,691 2,691 2,691
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEET SEPTEMBER 30
<CAPTION>
1997 1996 1995 1994 1993
As adjusted(4) Actual
pro forma
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)................. $11,740 $ 1,659 $(3,163) $ 846 $ 418 $ 0
Total assets................................. 17,366 7,285 5,670 4,067 4,081 2,091
Long-term debt............................... 15 15 - 22 38 57
Convertible notes, due 1997.................. - - 3,620 3,620 4,070 4,630
Accumulated deficit.......................... (41,168) (41,168) (32,478) (29,976) (21,931) (12,127)
Shareholder's equity (deficit)............... 14,844 4,763 1,008 75 (482) (2,983)
</TABLE>
(1) Data for 1995, 1994, and 1993 include revenues of $2.0 million, $2.1
million, and $482,000, and operating losses of $3.8 million, $5.6
million, and $2.2 million, respectively, attributable to business units
which were divested. See Note 3 to 1997 consolidated financial
statements.
(2) Includes non-cash charges of $2.3 million, reflecting the permanent
impairment in the value of Agritope's investment in affiliated
companies, and $1.2 million for the conversion of Agritope convertible
notes into Epitope Stock at a reduced price. See Notes 3 and 5 to 1997
consolidated financial statements.
(3) Net loss per share is presented on a pro forma basis assuming that the
Distribution of Agritope Common pursuant to the Agritope spin-off had
occurred on October 1, 1994. Pro forma calculations exclude shares to
be issued in the Regulation S Sale, the Preferred Stock Sale, and upon
the exercise of the Series A Option. See Note 11 to Consolidated
Financial Statements.
(4) The capitalization of Agritope as adjusted reflects the effects of the
Regulation S Sale of 1,343,704 shares of Agritope Common and the sale
of 214,285 shares of the Series A Convertible Preferred for aggregate
proceeds of $10.9 million, less issuance costs of $825,000.
- 25 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Information Statement/Prospectus. Special Note:
Certain statements set forth below constitute "forward-looking statements." See
"Note Regarding Forward-Looking Statements."
OVERVIEW
Agritope, Inc. (the "Company" or "Agritope"), consists of two units:
Agritope Research and Development and Vinifera, Inc. ("Vinifera"). Agritope
Research and Development uses biotechnology in the development of new fruit and
vegetable plant varieties for sale to the fresh produce industry. To date,
Agritope has not completed commercialization of this technology. A portion of
the research and development efforts conducted by Agritope has been performed
under various research grants and contracts. Vinifera is engaged in the
grapevine propagation and distribution business. During 1995, Vinifera was in
the development stage and generated minimal product sales. Vinifera commenced
commercial stage operations in 1996.
The results of operations for the first three quarters of 1995 include
the activity of Vinifera, then a wholly owned subsidiary of Agritope. Vinifera
was sold in the third quarter of 1995. A majority interest in Vinifera was
reacquired in the fourth quarter of 1996. No gain was recognized upon the sale
of Vinifera in 1995. The 1996 purchase price of $916,000 was allocated to
tangible net assets. As a result of subsequent equity sales to private
investors, Agritope now holds a 61 percent equity interest in Vinifera.
Vinifera's operations are included in results of operations for the fourth
quarter of 1996, and for all of 1997.
Agritope's results of operations for the first three quarters of 1995
also include the activity of Agrimax Floral Products, Inc. ("Agrimax"), a wholly
owned subsidiary, which was engaged in the fresh flower packaging and
distribution business. Agrimax's business was discontinued in 1995. In 1995, a
portion of the operating assets of Agrimax were contributed to UAF Limited
Partnership ("UAF"), an unrelated company, in exchange for a minority equity
interest in UAF. A loss of $500,000 was recognized in 1995 on the discontinuance
of operations at Agrimax and the transaction with UAF. In 1996, the remainder of
the operating assets of Agrimax were contributed to Petals USA, Inc. ("Petals"),
an unrelated company, in exchange for a minority equity interest in Petals. No
gain or loss was recognized on the transaction with Petals and the investment in
Petals was recorded at the net book value of the contributed assets. There are
no operations of Agrimax included in 1996 or 1997 operating results.
The accompanying consolidated financial statements have been prepared
to reflect the operating results and financial condition of Agritope and its
subsidiaries. The operating statements include the cost of certain corporate
overhead services which are provided on a centralized basis for the benefit of
the medical products business conducted by Epitope and the agricultural
biotechnology business conducted by Agritope and its subsidiaries ("Shared
Services"). Such expenses have historically been allocated using activity
indicators which, in the opinion of management, represent a reasonable measure
of the respective business' utilization of or benefit from such Shared Services.
In July 1997, Epitope's board of directors approved a management
proposal to spin off Agritope, subject to obtaining financing for Agritope and
the satisfaction of certain other conditions. Agritope has agreed to sell
1,343,704 shares of Agritope common stock at a price of $7 per share in a
private placement to certain investors, for an aggregate price of $9.4 million,
immediately after the spin-off. In connection with a research and development
collaboration, Agritope has entered into an agreement with Vilmorin & Cie, an
affiliate of Groupe Limagrain, to sell 214,285 shares of the Series A
Convertible Preferred at a price of $7 per share for an aggregate price of $1.5
million. Agritope expects to receive the proceeds from the Preferred Stock Sale
three business days
- 26 -
<PAGE>
following the completion of the spin-off. The spin-off will be accomplished by a
distribution of Agritope common stock to Epitope's shareholders. Epitope will
not own or control any shares of Agritope stock following the spin-off, which is
expected to occur in December 1997.
In November 1996, the Epitope Board proposed creating two separate
classes of Epitope common stock, one to reflect the medical products business
and operations of Epitope and the other to reflect the business and operations
of Agritope (the "Targeted Stock Proposal"). In addition, in December 1996,
Epitope acquired Andrew and Williamson Sales, Co. ("A&W"), a producer and
distributor of fruits and vegetables, as a direct wholly owned subsidiary of
Epitope. Agritope and A&W thereby became sister companies, each a wholly owned
subsidiary of Epitope. Agritope had no relationship with A&W other than as a
sister corporation. In May 1997, prior to a shareholder vote on the Targeted
Stock Proposal, the Epitope Board rescinded its acquisition of A&W and withdrew
the Targeted Stock Proposal in light of events surrounding a Hepatitis A
outbreak allegedly associated with strawberries shipped by A&W prior to its
acquisition by Epitope. The accompanying consolidated financial statements do
not include the operations of A&W. The effects of Epitope's ownership of A&W are
reflected solely in Epitope's financial statements and have no impact on
Agritope's financial statements.
RESULTS OF OPERATIONS
Years ended September 30, 1997, 1996 and 1995
Revenues. Total revenues increased by $966,000 or 65 percent from 1996 to 1997,
and decreased by $1.5 million or 72 percent from 1995 to 1996. Revenues by
component are shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 (IN THOUSANDS) 1997 1996 1995
Product sales
<S> <C> <C> <C>
Grapevine plant sales.................................... $ 1,436 $ - $ 84
Wholesale fresh flower sales............................. - - 1,931
---------- ---------- --------
1,436 - 2,015
Grants and contracts
Government research grants.............................. 30 145 16
Research projects with strategic partners............... 53 326 40
Other................................................... 32 114 38
--------- -------- ---------
115 585 94
$ 1,551 $ 585 $ 2,110
</TABLE>
Grapevine plant sales pertain to Agritope's majority owned subsidiary,
Vinifera. Vinifera was sold in the third quarter of 1995, and a majority
interest was reacquired at the end of August 1996. Vinifera had no product sales
in September 1996. Vinifera was in the development stage in 1995, commenced
commercial stage operations in 1996 and continued its marketing efforts and
expansion of its customer base during 1997. Vinifera currently has confirmed
orders exceeding $1.4 million for delivery in the spring and summer of 1998.
Product sales in 1995 included $1.9 million of sales in Agrimax's
unprofitable wholesale fresh flower packaging and distribution operations, which
were discontinued in the third quarter of 1995.
Grant and contract revenues pertain to research projects directed at
developing superior new plants through genetic engineering. Revenue from such
projects can vary significantly from year to year as new projects are started
while other projects may be extended, completed, or terminated. In addition, not
all research projects conducted by Agritope receive grant or contract funding.
Grant and contract revenues in 1996 included three significant contracts with
strategic partners for joint research projects. Grant and contract revenue in
1996 also
- 27 -
<PAGE>
included SBIR government grants totaling $145,000 which declined to only $30,000
in 1997. In October 1997, the Company was awarded a three-year grant totaling
$1.0 million from the U.S. Department of Commerce to study the application of
Agritope's ripening technology to certain tree fruits and bananas.
Gross margin. Gross margin on product sales was 7.7 percent of sales for 1997.
Gross margin in 1997 was adversely affected by production start-up costs
incurred during the expansion of production capacity at Vinifera. There were no
comparable product sales in 1996. The Company's unprofitable wholesale fresh
flower packaging and distribution operations were primarily responsible for the
negative gross margin in 1995.
Research and development expenses. Research and development expenses in 1997,
1996 and 1995 totaled $1.7 million, $1.3 million and $2.2 million, respectively.
The increase of $343,000 or 26 percent from 1996 to 1997 reflects increased
efforts to develop and propagate crops containing Agritope's patented ethylene
control technology as well as research and development efforts to improve
grapevine plant propagation conducted by Vinifera. The decrease of $866,000 or
39 percent from 1995 to 1996 resulted from the divestitures of the Agrimax and
Vinifera businesses in the third quarter of 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses in 1997, 1996 and 1995 were $3.1 million, $1.5 million
and $4.5 million, respectively. Expenses in 1997 included $913,000 of costs
incurred by Vinifera, which was not part of Agritope during the first eleven
months of 1996. The increase in 1997 is also attributable to expenses of
$424,000 related to the withdrawn Targeted Stock Proposal to create two classes
of common stock of Epitope. During 1997, Vinifera expanded greenhouse capacity
and continued to establish marketing and administrative functions at its new
headquarters location in Petaluma, California. Such activities contributed to
relatively high selling, general and administrative expenses in comparison to
product sales levels. Expenses in 1995 included $2.8 million of costs incurred
by Agrimax and Vinifera before these businesses were divested.
Selling, general and administrative expenses include $1.4 million, $1.1
million and $1.9 million for the allocation of Shared Services in 1997, 1996 and
1995, respectively. The amount of allocated Shared Services increased by
$334,000 or 31 percent from 1996 to 1997 as a result of the reacquisition of
Vinifera in August 1996, as well as increased corporate costs at Epitope due to
increased administrative personnel. The amount of allocated Shared Services
decreased by $823,000 or 43 percent from 1995 to 1996 largely as a result of the
dispositions of the Agrimax and Vinifera businesses.
Other income (expense), net. Other income (expense), net was affected by three
significant non-recurring charges totaling $4.2 million in 1997. During 1997,
Agritope recorded a non-cash charge to results of operations of $2.3 million,
reflecting the permanent impairment in the value of its investment in affiliated
companies (UAF and Petals). Additionally, conversion of $3.4 million principal
amount of Agritope convertible notes into Epitope common stock at a reduced
conversion price resulted in a charge to results of operations of $1.2 million.
Also in 1997, a charge of $744,000 in recognition of the Company's contingent
liability as primary lessee on two leases pertaining to Agritope's discontinued
wholesale fresh flower packaging and distribution business was recognized.
Interest expense decreased by $240,000 or 90 percent from 1996 to 1997
due to the conversion of $3.4 million principal amount of Agritope notes into
Epitope common stock in the first quarter of 1997, and payment of the remaining
principal amount of $240,000 on June 30, 1997.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES SEPTEMBER 30
1997 1996
(in thousands)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 4 $ 477
Working capital (deficiency)........................................... 1,659 (3,163)
</TABLE>
- 28 -
<PAGE>
At September 30, 1997, Agritope had working capital of $1.7
million as compared to a working capital deficiency of $3.2 million at September
30, 1996. The increase in working capital was principally attributable to the
conversion of $3.4 million of convertible notes into 250,367 shares of Epitope
common stock in the first quarter of 1997. Concurrent with the note conversion,
Epitope made a $4.4 million capital contribution to Agritope. Working capital
also increased due to a $1.6 million buildup in Vinifera's inventory of growing
grapevine plants. The grapevine plants are grafted and then kept in greenhouses
for approximately 10 weeks before they are ready for sale. The plants can be
maintained in greenhouses or stored outside for several years during which time
they continue to grow. Inventory on hand at September 30, 1997 represents
grapevine plants expected to be sold in the spring of 1998.
Expenditures for property and equipment were $1.9 million during
1997, largely as a result of expansion of greenhouse capacity at Vinifera.
Expenditures for patents and proprietary technology in 1997 included a one-time
cash payment of $590,000 to a co-inventor of Agritope's ethylene control
technology who is an officer of Agritope. Agritope has also acquired certain
rights to certain proprietary genes for which it made payments of $171,000 in
1997. Such amounts are included in "Patents and proprietary technology, net."
Agritope's investment in affiliated companies, obtained in connection with the
divestiture of its fresh flower packaging and distribution business, was reduced
by a non-cash charge of $2.3 million in 1997 reflecting the permanent impairment
in the value of these investments.
Cash flows from operating activities improved significantly from
1995 to 1996 largely due to the divestiture of Agrimax and Vinifera. Year-end
inventories increased by $510,000 from 1995 to 1996 due to the reacquisition of
Vinifera in August 1996. Additions to property and equipment increased in 1996
as a result of expansion of greenhouse capacity at Vinifera, which was
reacquired in August 1996. Expenditures for patents and proprietary technology
increased in 1996 primarily due to a one-time cash payment of $365,000 to the
other co-inventor of Agritope's ethylene control technology.
Historically through September 30, 1997, the primary sources of
funds for meeting Agritope's requirements for operations, working capital and
business expansion have been $45.4 million in cash from Epitope, $5.4 million
principal amount of convertible notes, $1.6 million of investments in Vinifera
by minority shareholders, and $1.0 million in funding from strategic partners
and other research grants. Agritope expects to continue to require funds to
support its operations and research activities. Agritope intends to utilize cash
reserves, cash generated from sales of products, and research funding from
strategic partners and other research grants to provide the necessary funds.
Agritope may also rely on the sale of equity securities to generate additional
funds. Agritope has agreed to reimburse Epitope for amounts advanced by Epitope
on or after December 1, 1997.
Immediately following the spin-off and related financing, Agritope
is expected to have $9.1 million in cash and cash equivalents on hand to finance
its continued operations. Agritope presently anticipates that these funds will
be sufficient to finance operations as a separate business for at least two
years after the spin-off, based on currently estimated revenues and expenses.
Because this estimate is based on a number of factors, many of which are beyond
its control, Agritope cannot be certain that this estimate will prove to be
accurate, and to the extent that Agritope's operations do not progress as
anticipated, additional capital may be required. Agritope currently utilizes a
portion of Epitope's office and research and development facilities and is
allocated a charge representing the cost of such facilities. As soon as
practicable after the spin-off, Agritope intends to relocate its administrative
and research and development activities to separate leased facilities.
Management estimates that the cost to relocate, including leasehold
improvements, will not exceed $2.0 million and that the cash on hand following
the spin-off will be adequate to meet this need. Additional capital may not be
available on acceptable terms, if at all, and the failure to raise such capital
would have a material adverse effect on Agritope's business, financial
condition, and results of operations. See "Risk Factors--Need for Additional
Funds."
Agritope has completed a Year 2000 review of its systems and
procedures to determine the scope of costs or risks Agritope may face in
connection with potential computer problems associated with the Year 2000. The
Company believes that it will not incur material Year 2000 remedial costs and
that its operations will not be materially affected by any Year 2000 problems.
- 29 -
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
Agritope is a biotechnology company specializing in the development of
new fruit and vegetable plant varieties for sale to the fresh produce industry.
The Company is utilizing its patented ethylene control technology to produce a
wide variety of fruits and vegetables that are resistant to the decaying effects
of ethylene. The Company also recently acquired certain rights to certain
proprietary genes from the Salk Institute for Biological Studies. Agritope
believes that the Salk Genes may have the potential to confer disease
resistance, enhance crop yield, control flowering, and enhance gene expression
in plants. Agritope has an option to obtain a worldwide license to use the Salk
Genes in a wide range of fruit and vegetable species.
The Company consists of two units: Agritope Research and Development
and Vinifera. Agritope Research and Development contributes biotechnology and
product development to strategic partners and provides disease screening and
elimination programs to Vinifera. Through Vinifera, Agritope believes that it
offers one of the most technically advanced grapevine plant propagation and
disease screening and elimination programs available to the wine and table grape
production industry.
AGRITOPE BIOTECHNOLOGY PROGRAM
Historically, Agritope's biotechnology program focused on using the
tools and techniques of plant genetic engineering to regulate the synthesis of
ethylene in ripening fruits and vegetables. Recently, the Company has begun
research into genetically regulating other physiological processes in plants.
Ethylene is a gaseous plant hormone which in higher plant species is responsible
for fruit ripening and vegetable senescence as well as numerous other
physiological effects. The Company has identified and patented a single gene
that can be inserted into plants and expressed to regulate the plant's ability
to produce ethylene. In addition, Agritope is conducting research in the area of
disease control, including screening plants for the presence of disease and
creating genetically engineered plants with resistance to pathogens.
Ripening Control. The fresh produce industry is based largely upon rapid
harvesting, processing and distribution of fruits and vegetables in order to
prevent spoilage and ensure the arrival of product at retail outlets in
acceptable condition for consumer purchase and use. The post-harvest period for
most fruits and vegetables is one of continuous ripening and senescence, as
evidenced by rapid changes in color, texture, flavor, nutrient content, and
other quality attributes. Product losses due to perishability during harvesting,
processing, packing, shipping and distribution can reach substantial portions of
overall crop yield. Growers frequently incur losses resulting from the
abandonment of crops in the field or having shipments refused by receivers
because the produce is overripe. In addition, wholesalers and retailers may be
forced either to discard or sell overripe produce at reduced prices and
consumers often must use produce shortly after purchase to avoid spoilage.
Studies published in the USDA Marketing Research Report have estimated
post-harvest losses of 30 percent and 40 percent, respectively, for strawberries
shipped from Florida to the Chicago and New York markets. In the U.S. fruit and
vegetable markets, post-harvest losses are estimated to amount to several
billion dollars annually.
Post-harvest losses are largely attributable to the effects of
ethylene. Because ethylene is a gas, it not only affects the plant producing it,
but also surrounding plants as well. The physiological effects of ethylene
include initiation and enhancement of ripening, senescence, leaf abscission and
drooping, and flower fading and wilting. Common examples include the ripening
and subsequent rotting of tomatoes and apples, discoloration in lettuce and
broccoli, and the short bloom life of cut flowers.
The importance of controlling ethylene production in plants has been
recognized for decades, and has been addressed primarily through the use of
controlled atmosphere storage, chemical treatment, and special packaging.
Conventional techniques for controlling ethylene production have serious
disadvantages that include high cost, time-
- 30 -
<PAGE>
critical handling requirements and lack of consistent ripening. For example, the
majority of product sold in the fresh tomato market today is composed of
"gas-green" tomatoes. These tomatoes are picked and packed while still green and
firm. Prior to shipping to wholesale customers, green tomatoes are exposed to
ethylene gas in order to initiate ripening of the product. In general, gas-green
tomatoes are perceived by consumers to have less desirable taste and texture
than vine ripened tomatoes.
Agritope believes the ability to regulate ethylene and control ripening
through genetic engineering represents an opportunity to provide a superior
product to consumers while also improving profitability for growers and
distributors. Growers may achieve higher marketable yields due to fewer losses
to overripe product in the field and may lower labor costs by decreasing
frequency of harvest. For packer/shippers, better control of product
perishability may result in improved inventory flexibility and control, and more
uniform product quality.
Ethylene Control Technology. Agritope's ethylene control technology is focused
on the use of a patented gene known as SAMase. The expression of SAMase in
plants produces an enzyme that acts to degrade one of the important precursor
compounds (S-adenosylmethionine or "SAM") necessary for the production of
ethylene. Agritope has genetically engineered plants to express the SAMase gene
only when certain levels of rising ethylene concentrations are reached in the
tissues of the fruit or plant. This feature causes the production of greater
levels of the enzyme that degrades SAM in response to a correspondingly higher
level of ethylene. Agritope believes that this technology thus offers a major
advantage over other approaches to ripening control in that the production of
ethylene may be specifically reduced to levels that allow for the initiation of
ripening but that delay the spoiling effects of excess ethylene. Therefore, the
fruit can be maintained at an optimal level of ripeness for an extended period
of time. An additional benefit of Agritope's technology is that the reaction
catalyzed by the SAMase gene results in compounds normally found in plants.
Agritope believes its SAMase technology can be utilized for the control of
ethylene in any plant species where ethylene affects ripening or senescence.
Agritope's application of ethylene control technology to various fruit
and vegetable crops is at different stages, as described below. There are
difficult scientific objectives to be achieved with respect to application of
the technology to certain crops before the technical or commercial feasibility
of the modified crops can be demonstrated. There can be no assurance that the
technology can be successfully applied to particular crops or that the modified
crops can be successfully and profitably produced, distributed, and sold. See
"Risk Factors--Uncertainty of Product Development."
Agritope's ripening control technology is protected by a U.S. patent
covering the use of any gene that encodes S-adenosylmethionine hydrolase (the
enzyme expressed by the SAMase gene) in any plant species. In addition to the
patent on the SAMase gene, utility claims have been allowed on the promoter/gene
combination used by Agritope in applications currently under development as well
as potential applications in all other fruit-bearing plants. In the area of
regulated ripening control, Agritope has four additional U.S. and foreign
patents pending. In addition, Agritope has three U.S. and foreign patent
applications pending in related areas.
The Salk Genes. In addition to its ethylene control technology, Agritope also
recently acquired certain rights to certain proprietary genes discovered by
scientists at the Salk Institute for Biological Studies ("Salk"). The Company
believes that the Salk Genes may have the potential to confer disease
resistance, enhance yield, control flowering and enhance gene expression in
plants. Agritope believes these new technologies will allow Agritope to leverage
its ability to genetically engineer fruits and vegetables and enhance its
ability to broaden its pipeline of new genetically engineered products. U.S. and
international patent filings have been made with respect to each of these genes.
A patent covering one gene, LEAFY, recently issued in the U.S.
Under the terms of the Salk agreement, Agritope has an option to obtain
an exclusive or nonexclusive worldwide license to use the Salk Genes in a wide
range of fruit and vegetable crops. The agreement permits Agritope to use each
Salk Gene for research and evaluation purposes, for which Agritope will pay an
annual access fee until it elects to license the gene for commercial purposes.
Agritope will pay a license issue fee and royalty for
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each Salk Gene it elects to license. Agritope has also agreed to reimburse a
percentage of applicable Salk patent costs. Salk retains ownership of the Salk
Genes, subject to applicable U.S. government rights. Agritope will own any
modified plant species and fruit and vegetable crops it develops using the Salk
Genes, and will therefore have control of the marketing and distribution rights
to such products.
Agritope's work with the Salk Genes to produce desirable fruit and
vegetable crops is at an early stage. There are difficult scientific objectives
to be achieved before the technological or commercial feasibility of the
products can be demonstrated. There can be no assurance that any of Agritope's
products under development using the Salk Genes, if and when fully developed and
tested, will perform in accordance with Agritope's expectations, that necessary
regulatory approvals will be obtained in a timely manner, if at all, or that
these products can be successfully and profitably produced, distributed and
sold.
SAR-1 is a gene that confers systemic acquired resistance ("SAR"). SAR
is the ability of plants to develop a powerful disease resistance state. After
exposure to a non-lethal inoculum of a bacterial, viral or fungal pathogen, a
plant will possess a heightened ability to defend itself against a broad range
of new pathogenic challenges. The phenomenon of SAR has been studied for years
but only recently at the molecular level. Scientists at the Salk Institute for
Biological Studies, in collaboration with those at the Samuel Roberts Nobel
Foundation, have discovered a gene, SAR-1, that appears to play a key role in
the maintenance of SAR. Agritope intends to utilize SAR-1 in the development of
plant varieties that have increased disease resistance to a broad range of plant
pathogens.
DET2 is a gene that controls brassinosteroid synthesis in plants.
Brassinosteroids are compounds that are naturally produced in minute quantities
in plants and play a key role in plant growth and development. In addition to
being difficult to extract (due to their small quantity within the plant),
brassinosteroids are also exceedingly difficult to synthesize using organic
synthesis methods. Nevertheless, research has demonstrated that application of
purified brassinosteroids to crop plants can result in enhanced yields.
Scientists at the Salk Institute have identified the key enzymatic step that
limits brassinosteroid synthesis in plants and cloned the gene, DET2, that
encodes the enzyme. Expression of the gene in transgenic plants has produced
plants with enhanced growth properties due to increased synthesis of
brassinosteroid by the transgenic plant.
BIN1 is a gene that encodes the plant receptor for brassinosteroids.
The BIN1 gene encodes a receptor-like protein kinase involved in brassinosteroid
signaling and provides further opportunities for biotechnological applications
related to yield increase in transgenic plants. In principle, it is possible to
manipulate both hormone biosynthesis with DET2, as described above, as well as
the level of brassinosteroid receptor through BIN1. In addition, it is possible
to generate BIN1 derivatives that have been activated as if brassinosteroid were
bound. Both approaches, either separately or together, have the potential to
greatly stimulate plant growth and yield.
Cyclin is a gene that is involved in regulating cell division. Salk
Institute scientists have expressed the cyclin gene in transgenic plants and
believe it may play a role in accelerating root growth. Furthermore, transgenic
crop plants containing the cyclin gene are also expected to have enhanced
vegetative growth properties. Agritope intends to test the cyclin gene initially
in commercial tomato and carrot varieties.
LEAFY is a gene that is responsible for flower initiation in plants.
Scientists at the Salk Institute have demonstrated that transgenic aspen trees
expressing LEAFY develop flowers within months rather than the 8 to 10 years
that a non-transgenic aspen requires. Agritope intends to investigate uses of
the LEAFY gene for use in tree fruits and grapevines. Alternatively, inhibiting
LEAFY expression in plants may prevent plants from flowering, which could be of
value in some vegetable crops such as lettuce and celery.
Booster Element ("BE") is a genetic element (a small piece of DNA) that
can be added to plant gene promoters to enhance gene expression. The BE
technology is applicable to a range of plant genetic engineering strategies,
including the Company's SAMase ripening control technology, and to other Salk
genes. For example,
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certain crops may need a higher level of SAMase expression to produce a specific
level of ripening control. BE may facilitate manipulation of the promoters
controlling SAMase expression and thus improve the utility of the SAMase
technology.
Additional Technologies. Agritope is also conducting research on several
additional early-stage technologies. For example, Agritope scientists have
devised a genetic engineering strategy to confer seedlessness to fruit crops. In
addition, Agritope has recently been awarded a Phase I Small Business Innovation
Research ("SBIR") grant to develop a novel geminivirus resistance strategy and
to incorporate the approach into commercial tomato varieties. Geminiviruses are
a class of plant viruses that cause widespread damage in several crops including
tomato, pepper, melon and squash.
Existing Development Programs. Agritope's research and development programs are
directed toward several highly perishable fruit and vegetable crops described
below. The development program comprises five stages, including gene isolation,
transformation, product evaluation, seed/plant production and product launch,
defined below.
The following chart shows the approximate progress Agritope has made to
date with various crops, which are described in more detail below.
[Chart titled "Agritope Product Development Program" listing the stages
of development (gene isolation, transformation, product evaluation,
seed/plant production, and product launch). The chart shows that the
following products are in the stages indicated:
Melon Product Evaluation
Tomato Product Evaluation
Raspberry Product Evaluation
Additional Crops Gene Isolation]
Gene Isolation: The initial stage of genetic engineering. Gene
isolation involves the identification and characterization of genes and
gene promoters for use in Agritope's development programs. These
genetic elements are then combined for use in genetically engineered
plants.
Transformation: The stage at which the new genetic material is
introduced into the plant. The transgenic plants which result are then
available for product evaluation.
Product Evaluation: The analysis of transgenic plants in both
laboratory and field settings to determine commercial utility. This
stage also involves the plant breeding and selection process to develop
commercially competitive new varieties that incorporate the Agritope
technology. Regulatory data are also collected and submitted at this
stage.
Seed/Plant Production: Propagation of selected plant material (either
seed or plants) in quantities needed for commercial production.
Product Launch: Commercial production and sale, following regulatory
clearance.
Melon. The U.S. wholesale fresh melon market is estimated to exceed $350 million
annually. Perishability in melons results in substantial product losses during
the processes of production, harvesting, and distribution. Agritope believes
that melons represent a substantial market opportunity for implementation of its
ripening control technology. Recent scientific reports have demonstrated a
dramatic increase in shelf life for specialty type melons in which the ability
to produce ethylene has been impaired. Using proprietary seed varieties supplied
by two units of the French seed company Groupe Limagrain: Clause Semences and
its U.S. affiliate Harris Moran Seed
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Company ("Harris Moran"), Agritope is developing commercial melon varieties with
controlled ripening and increased post-harvest product life. Transgenic melons
containing Agritope's ethylene control gene are currently being evaluated
jointly by Harris Moran and Agritope technicians.
Tomato. The annual U.S. wholesale fresh market tomato business is estimated at
$1.7 billion. In order to facilitate the commercialization of its ethylene
control technology for this market, Agritope formed Superior Tomato Associates,
L.L.C. ("STA"), a joint venture with Sunseeds Company, the developer and
producer of several leading fresh market tomato varieties.
Agritope provides genetic engineering technology and regulatory
expertise, has responsibility for managing the joint venture, and owns a
two-thirds equity ownership interest in STA. Sunseeds provides elite tomato
germplasm and breeding expertise in the development of transgenic varieties. STA
owns rights to any fresh market cherry, roma and vine-ripened large fruited
tomato varieties developed for the joint venture using Agritope ethylene control
technology and Sunseeds germplasm. STA also owns any technology jointly
developed by Agritope and Sunseeds. The parties otherwise retain all rights to
their respective technologies.
STA is currently in the process of developing and testing transgenic
cherry, roma, and large fruited vine ripe tomato varieties. Agritope has
developed lines of elite tomato germplasm provided by Sunseeds. Recent field
trials have successfully demonstrated the transfer of Agritope's SAMase ripening
control technology to a number of Sunseeds' elite breeding lines. Sunseeds is
conducting further breeding and field trials of these transgenic lines. These
trials will be followed by production scale trials that, if successful, will
lead to regulatory submissions and, if regulatory clearances are received,
commercial-scale seed production. Seeds will then be sold to approved growers,
who will pay STA a royalty on net sales of tomatoes grown from the seed.
Prior to the formation of STA, Agritope submitted safety, nutritional,
and environmental information on a prototype transgenic tomato line to both the
USDA and the FDA. In March 1996, the USDA issued its finding that this line has
no significant environmental impact and would no longer be considered a
regulated article. During the same month the FDA determined that the variety did
not raise issues that would require pre-market review or approval by that
agency. In addition to receiving these U.S. regulatory clearances, Agritope also
conducted field evaluations of SAMase tomato lines in Mexico under permits
granted by the Mexican Ministry of Agriculture. In order to commence sale of
selected varieties, Agritope will be required to make supplemental submissions
to the USDA and FDA that establish that such varieties are comparable to the
previously cleared lines.
Raspberry. The wholesale raspberry market, estimated at $48 million annually in
the U.S., has experienced limited growth because of the extreme perishability of
the fruit. Agritope believes that the successful development of raspberries
containing its ethylene control technology could permit a significant expansion
of the fresh raspberry market.
In a collaboration with Sweetbriar Development, Inc. ("Sweetbriar"),
the largest fresh raspberry producer in the U.S., Agritope has engineered
several of Sweetbriar's proprietary commercial raspberry varieties to contain
the SAMase gene. Initial field trials of transgenic raspberries are currently
underway at Sweetbriar facilities in California and Agritope facilities in
Woodburn, Oregon. Agritope has already demonstrated the ability to reduce
ethylene synthesis in the fruit. Successful development of a commercial
transgenic raspberry, which would be owned by Sweetbriar, will require further
demonstration of improved shelf life as well as additional field trials to
obtain the appropriate regulatory clearances. If these conditions are met,
Sweetbriar would produce the new raspberries for distribution and marketing by
Driscoll Strawberry Associates ("Driscoll"), the largest distributor of fresh
raspberries and strawberries in the U.S. Agritope would receive royalties on
wholesale product sales. Separately, Agritope has integrated its ripening
control technology into several public domain varieties.
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Vegetable and Flower Crops. Agritope and Vilmorin have entered into the Vilmorin
Research Agreement covering certain vegetable and flower crops. See "Risk
Factors--Terms for Commercialization of Certain Vegetable and Flower Crops."
Under the terms of the Vilmorin Research Agreement, Vilmorin will provide
certain proprietary seed varieties and germplasm for use by Agritope in research
and development projects to be funded by Vilmorin, in which Agritope technology,
and possibly Vilmorin technology, may be applied to the various covered crops.
The specific research projects to be conducted will be determined by agreement
of the parties, taking into account recommendations of Agritope's Project
Advisory Committee, two of the four members of which are to be designated by
Vilmorin. Unless otherwise agreed, Vilmorin will pay, on a quarterly basis, all
Agritope's out-of-pocket expenses, including employee salaries and overhead, for
each selected research project. See "Risk Factors--Dependence on Strategic
Partners."
Agritope and Vilmorin have agreed to negotiate in good faith the terms
of future commercialization agreements applicable to any commercial-stage
products that arise out of such research and development projects. It is the
intent of the parties that Agritope will receive royalties on revenues generated
through sales of modified crops or modified seeds resulting from the research
projects, or that Agritope will receive revenues through participation in
programs providing royalties to Agritope and Vilmorin based on savings realized
by farmers utilizing the modified products. If the parties are unable to agree
on the terms on which a modified crop or seed is to be commercialized, the terms
of commercialization will be determined by "baseball" style arbitration, in
which the arbitrator chooses all of the terms proposed by one party or the other
without modification or compromise. See "Risk Factors--Terms for
Commercialization of Certain Vegetable and Flower Crops."
Each of Agritope and Vilmorin will continue to own its existing
proprietary technology. Any new technology developed in the course of the
research, other than modified crops or seeds, will be jointly owned by the
parties. See "Description of Business--Patents and Proprietary Information."
Each will have a right to commercialize the new technology in designated fields
of use, subject to an obligation to pay royalties for such use to the other
party. See "Risk Factors--Dependence on Strategic Partners."
During the term of the agreement, Vilmorin will have a right of first
refusal to fund and participate in research projects proposed by Agritope
involving the genetic alteration of a covered crop. The agreement provides that
Agritope will deal with Vilmorin as a most favored customer in connection with
research and commercialization agreements. Unless terminated for default, the
agreement will remain in effect until the earlier of (i) expiration of all
patents (and absence of trade secrets) for technology used in modified crops and
seeds for which the parties have entered into commercialization agreements, and
(ii) the date on which Vilmorin ceases to own at least 214,285 shares of
Agritope capital stock.
In connection with the Vilmorin Research Agreement, Vilmorin has agreed
to purchase $1.5 million shares of Series A Convertible Preferred at a price of
$7 per share. See "Sale of Series A Convertible Preferred" and "Description of
Agritope Capital Stock--Agritope Series A Convertible Preferred." Vilmorin also
has an option, expiring on January 15, 1998, to acquire all or any portion of
the remaining 785,715 additional shares of Series A Convertible Preferred at $7
per share. Vilmorin has agreed to provide additional funding totaling $1 million
either by exercising its option to purchase Series A Convertible Preferred or
through the financing of research and development projects.
Vilmorin is majority owned by Groupe Limagrain Holding S.A.
("Limagrain"). Limagrain is in turn owned by Societe Cooperative Agricole de
Semences de Limague, a societe organized under the laws of France
("Cooperative"). Cooperative is a French agricultural cooperative and the third
largest seed company in the world. Its principal business is the production of
seeds for grains, corn, garden vegetables, and oil-producing plants.
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Other Crops. Agritope is also pursuing research and development programs to
incorporate its SAMase technology into other crops where perishability causes
significant losses in the production and distribution process. These include
strawberries, bananas, peaches, pears, and apples. The estimated U.S. wholesale
markets for these crops range from $325 million for pears to $2.4 billion for
bananas.
COMMERCIALIZATION STRATEGY
Agritope is currently evaluating a number of commercialization
strategies in order to realize the value of its technology. The Company intends
to generate revenues by licensing rights to its technology in exchange for
license fees, royalties and other payments. Agritope intends to focus its
development and licensing efforts primarily toward growers and distributors of
fruits and vegetables who are likely to derive the most benefit from the reduced
costs and spoilage losses that could potentially result from using the Company's
technologies.
As part of the Vilmorin Research Agreement, Agritope and Vilmorin have
agreed to negotiate in good faith the terms of future commercialization
agreements covering any products that reach commercial-stage development.
Agritope anticipates that it will receive royalties on the sale of any products,
including modified crops or seeds, that arise out of research and development
projects conducted by Agritope and funded by Vilmorin.
GRANTS AND CONTRACTS
U.S. Department of Commerce. In October 1997, Agritope was awarded a U.S.
Department of Commerce, National Institutes of Technology ("NIST"), Advanced
Technology Program ("ATP") grant. The award covers a three-year project and
totals $990,000. Agritope was awarded the grant for use in the application of
its proprietary ripening control technology to certain tree fruits and bananas.
The NIST/ATP grant provides cost shared funding for research and
development projects with potential for important broad based economic benefits
to the United States. Agritope will bear $1.8 million of the total costs of the
program, which are estimated at $2.8 million. The awards are made on the basis
of a rigorous competitive review which considers both scientific and technical
merit.
SBIR Programs. Agritope actively participates in the SBIR programs sponsored by
the USDA. The SBIR programs have two phases. Phase I covers a six-month project
period and a total award not to exceed $100,000. Phase II covers a two-year
project period and a total award not to exceed $750,000. Agritope was awarded a
Phase I grant of $50,000 in 1994 plus a Phase II grant of $198,000 in 1995 for
development of diagnostic tests for the detection of grapevine leafroll virus.
In 1997, Agritope received a $55,000 Phase I grant for work on geminivirus
resistance strategies in tomato.
Cooperative Research and Development Agreements. Agritope has entered into two
Cooperative Research and Development Agreements ("CRADAs") with the U.S.
Department of Agriculture /Agricultural Research Services ("USDA/ARS"). Under
the CRADAs, Agritope will collaborate with USDA/ARS laboratories by providing
research services or partial funding for research projects. In return, Agritope
has been granted a right of first refusal to obtain a license for any resulting
inventions. The first CRADA is to evaluate and confer raspberry bushy dwarf
virus resistance ("RBDVr") in raspberry. This research is a collaborative effort
with the Northwest Center for Small Fruit Research, located in Corvallis,
Oregon. The purpose of the second CRADA is for the evaluation of the ripening
physiology of SAMase transformed melon. This research will be carried out
through the USDA/ARS research station in Weslaco, Texas.
Other Grants and Contracts. Agritope has also been awarded grant support in the
past from the Oregon Strawberry Commission and Oregon Raspberry and Blueberry
Commission for antifungal biocontrol research. Agritope also receives funds for
research and development programs from its strategic partners. Agritope intends
to continue to
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<PAGE>
participate in the SBIR program, similar grant programs and projects with
strategic partners, as it deems appropriate. Agritope regularly makes
application for new grants, but there is no assurance that grant support will be
continued.
VINIFERA
Vinifera, Inc. was incorporated in 1993 to participate in the grapevine
nursery business. Through proprietary processes, Vinifera propagates and grafts
grapevine plants for sale to vineyards and to growers of table grapes. All of
Agritope's current product sales are attributable to Vinifera. Industry
sources have estimated that 44 million grafted wine grapevine plants were
produced in California in 1996. This number is expected to increase to between
70 and 90 million by the year 2000.
Traditionally, grapevine plants for sale to vineyards are produced
seasonally using field grown, dormant cuttings that are grafted. In contrast,
Vinifera uses year-round greenhouse propagation and a herbaceous grafting method
that employs very young, actively growing cuttings. As a result of greenhouse
propagation, Vinifera is able to develop in two years a quantity of new plants
that is approximately ten times larger than can be produced with traditional
techniques. In addition, herbaceous grafting with green cuttings could allow a
vineyard to begin commercial production of grapes from a newly planted vineyard
a year sooner than would otherwise be possible. This grafting process also
produces sturdier unions than dormant grafting, resulting in significantly
higher yields of successful grafts, both at the propagation stage and in the
survival of actual plantings in the field. Agritope Research and Development
provides disease testing services for Vinifera.
Vinifera is headquartered in Petaluma, California, with propagation and
production facilities there and in Woodburn, Oregon. Its library of grapevine
plants includes 32 different phylloxera-resistant types of rootstock, 88
different wine varietal clones, and ten different table grape varietal clones.
In addition, several French and Italian varietals are currently passing through
quarantine and, when released, will be available to the U.S. market exclusively
through Vinifera. Vinifera believes that this collection of different grapevine
clones is one of the largest in the world. Vinifera's U.S. customer base
consists of over 80 vineyards in California, Washington and Oregon. In 1995,
Vinifera established a joint venture in Argentina (Vinifera Sudamericana S.A.)
to begin the propagation of plant material in that country. Vinifera is
currently in the process of establishing similar ventures in other countries
with large grape and wine production industries.
COMPETITION
The plant biotechnology industry is highly competitive. Competitors
include independent companies that specialize in biotechnology; chemical,
pharmaceutical and food companies that have biotechnology laboratories;
universities; and public and private research organizations. Agritope believes
that many companies including companies with significantly greater financial
resources, such as Monsanto Company, DNAP Holding and Zeneca Plant Sciences, are
engaged in the development of mechanisms to control the ripening and senescence
of fruit and vegetable products. Technological advances by others could render
Agritope's products less competitive. The Company believes that, despite
barriers to new competitors such as patent positions and substantial research
and development lead time, competition will intensify, particularly from
agricultural biotechnology firms and major agrichemical, seed and food companies
with biotechnology laboratories.
GOVERNMENT REGULATION
Regulation by federal, state and local government authorities in the
U.S. and by foreign governmental authorities will be a significant factor in the
future production and marketing of Agritope's genetically engineered fruit and
vegetable products.
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The federal government has implemented a coordinated policy for the
regulation of biotechnology research and products. The USDA has primary federal
authority for the regulation of specific research, product development and
commercial applications of certain genetically engineered plants and plant
products. The FDA has principal jurisdiction over plant products that are used
for human or animal food. The EPA has jurisdiction over the field testing and
commercial application of plants genetically engineered to contain pesticides.
Other federal agencies have jurisdiction over certain other classes of products
or laboratory research.
The USDA regulates the growing and transportation of most genetically
engineered plants and plant products. In March 1996 following a request from
Agritope, the USDA issued a determination that permits the growing and shipping
of Agritope's prototype variety of ripening-controlled cherry tomato anywhere in
the U.S. in the same manner as conventionally developed tomatoes.
In May 1992, the FDA announced its policy on foods developed through
genetic engineering (the "FDA Policy"). The FDA Policy provides that the FDA
will apply the same regulatory standards to foods developed through genetic
engineering as applied to foods developed through traditional plant breeding.
Under the FDA Policy, the FDA will not ordinarily require premarket review of
genetically engineered plant varieties of traditional foods unless their
characteristics raise significant safety questions, such as elevated levels of
toxicants, the presence of allergens, or they are deemed to contain a food
additive.
In March 1996, the FDA announced its determination, based on its review
of food safety data submitted by Agritope, that Agritope's prototype variety of
ripening controlled cherry tomato expressing the SAMase gene has not been
significantly altered with respect to food safety or nutritive value when
compared to conventional tomatoes.
Currently, the FDA Policy does not require that genetically engineered
products be labeled as such, provided that such products are as safe and have
the same nutritional characteristics as conventionally developed products.
However, there can be no assurance that the FDA will not reconsider its
position, or that local, state or international authorities will not enact
labeling requirements, any of which could have a material adverse effect on the
marketing of products derived using the tools and techniques of genetic
engineering.
The FDA is considering modifying its policy on foods developed through
genetic engineering to include a Premarket Notification ("PMN") procedure. This
policy modification could require a company that develops genetically engineered
foods to inform the FDA that its safety evaluation is complete and that the
company intends to commercialize the product. The objective of the PMN is to
make the FDA and the public aware of all new genetically engineered food
products entering the market. Agritope believes that any future requirement for
a PMN should not delay plans to commercialize its genetically engineered fruit
and vegetable products.
Agritope's complete range of agribusiness and plant biotechnology
activities are subject to general FDA food regulations and are, or may be,
subject to regulation under various other laws and regulations. These include
but are not limited to the Occupational Safety and Health Act, the Toxic
Substances Control Act, the National Environmental Policy Act, other federal
water, air and environmental quality statutes, import/export control
legislation, and other laws. At the present time most states are generally
deferring to federal agencies (USDA or EPA) for the approval of genetically
engineered plant field trials, although states are provided a review period
prior to the issuance of a field trial permit. Failure to comply with applicable
regulatory requirements could result in enforcement action, including withdrawal
of marketing approval, seizure or recall of products, injunction or criminal
prosecution.
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International regulatory policies for genetically engineered plants and
plant products are not complete. Consequently, it is possible that additional
data, labeling or other requirements will be required in countries where
Agritope intends to grow and/or commercialize its genetically engineered
products. Foreign regulatory agencies could require Agritope to conduct further
safety assessments and potentially delay product development programs or
commercialization of resulting products.
To date, to the best of its knowledge, Agritope has successfully
functioned within the scope of applicable laws and regulations, including rules
administered by the USDA, the FDA, the Mexican Ministry of Agriculture, and the
Chilean Ministry of Agriculture (Servicio Agricola y Ganadero Departemento
Proteccion Agricola de Chile). Agritope believes it is in substantial compliance
with all applicable laws and regulations pertaining to the development and
commercialization of its products.
PATENTS AND PROPRIETARY INFORMATION
In 1995, Agritope received a U.S. patent relating to its ethylene
control gene. Agritope has also applied for additional U.S. and foreign patent
protection for its ethylene control technology. Agritope's ability to
commercialize products depends in part on the ownership or right to use relevant
enabling technology as well as the ownership or right to use genes of interest.
Agritope anticipates filing patent applications for protection on future
products and technology. U.S. patents generally have a maximum term of 20 years
from the date an application is filed or 17 years from issuance, whichever is
longer.
Much of the technology developed by Agritope is subject to trade secret
protection. To reduce the risk of loss of trade secret protection through
disclosure, Agritope requires its employees and consultants to enter into
confidentiality agreements. Agritope believes that patent and trade secret
protection is important to its business. However, the issuance of a patent or
existence of trade secret protection does not in itself ensure Agritope's
success. Competitors may be able to produce products competing with a patented
Agritope product without infringing on Agritope's patent rights. Issuance of a
patent in one country generally does not prevent others from manufacturing or
selling the patented product in other countries. The issuance of a patent to
Agritope or to a licensor is not conclusive as to validity or as to the
enforceable scope of the patent. The validity or enforceability of a patent can
be challenged by litigation after its issuance, and, if the outcome of such
litigation is adverse to the owner of the patent, the owner's rights could be
diminished or withdrawn. Trade secret protection does not prevent independent
discovery and exploitation of the secret product or technique.
Agritope recently acquired certain rights to five new proprietary genes
discovered by scientists at the Salk Institute for Biological Studies. Agritope
believes the Salk Genes may have the potential to confer disease resistance,
enhanced yield, controlled flowering, and enhanced gene expression in plants.
All of the Salk Gene technologies are covered by pending patent applications.
Agritope has an option to obtain an exclusive worldwide license to the Salk
Genes for a field of use that includes a variety of plant species and nearly all
fruit and vegetable crops.
Agritope and Vilmorin have entered into the Vilmorin Research
Agreement. Under the terms of the agreement, Agritope and Vilmorin will each
continue to own its existing proprietary technology. Any new technologies will
be owned jointly by the parties, with each party having a royalty-bearing right
to commercialize the new technology in the party's field of use.
PERSONNEL
At September 30, 1997, Agritope and its subsidiaries had 46 full-time
employees, including 19 in research and development and 23 at the Vinifera grape
plant nursery operation, which also employs seasonal part-time employees as
needed. Agritope considers its relations with its employees to be excellent.
None of its employees are represented by labor unions.
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Agritope employs five persons holding Ph.D. degrees with specialties in
the following disciplines: applied botany, bacteriology and public health,
biochemistry and biophysics, biological sciences, molecular biology, and plant
pathology and molecular virology. From time to time, Agritope also engages the
services of scientists as consultants to augment the skills of its scientific
staff.
SCIENTIFIC ADVISORY BOARD
Agritope utilizes the services of a Scientific Advisory Board. The
Scientific Advisory Board meets periodically to review Agritope's research and
development efforts and to apprise Agritope of scientific developments pertinent
to Agritope's business. The Agritope Scientific Advisory Board consists of chair
Eugene W. Nester, Ph.D., Professor and Chair, Department of Microbiology,
University of Washington; Richard K. Bestwick, Ph.D., Agritope Senior Vice
President--Research and Development; Peter R. Bristow, Ph.D., Associate
Professor of Plant Pathology, Washington State University; Roger N. Beachy,
Ph.D., Scripps Family Chair, Department of Cell Biology, Scripps Research
Institute; and Christopher J. Lamb, Ph.D., Professor, Director, Plant Biology
Laboratory, Salk Institute for Biological Studies. Drs. Nester and Beachy are
members of the National Academy of Sciences.
After the closing of the Vilmorin Research Agreement, Vilmorin will
have the right to designate a scientist to sit on the Scientific Advisory board.
PROPERTIES
Agritope currently uses a portion of Epitope's office space and
research and development facilities in Beaverton, Oregon, consisting of
approximately 35,600 square feet of office, manufacturing, and laboratory space.
Agritope is charged a monthly fee of $16,000 by Epitope for use of the
facilities.
Agritope has entered into a lease agreement for approximately 11,000
square feet of office and laboratory space in Portland, Oregon. The agreement
requires monthly rental payments on a triple net basis of $10,285 from
commencement of the lease term on March 1, 1998 through May 1, 2001, and
thereafter of $11,210 until expiration of the lease on February 28, 2003.
Agritope intends to relocate its office and research and development operations
to the leased facilities on March 1, 1998, or as soon thereafter as practicable.
Agritope owns a 15-acre farm in Woodburn, Oregon, which it leases to
Vinifera for use in connection with Vinifera's grapevine propagation operations.
Greenhouse capacity at the farm currently totals 60,000 square feet.
In addition to leasing Agritope's Oregon farm and greenhouse, Vinifera
leases 250,000 square feet of greenhouse space in Petaluma, California under a
lease that expires January 31, 2001. The lease provides an option to purchase
the leased premises, exercisable through January 31, 1999, for a price of $1.3
million. The California greenhouse is currently in the final stages of being
upgraded to provide the capacity necessary to meet anticipated 1998 production
requirements.
Agritope believes that its present and new leased facilities are
adequate to meet current requirements.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Agritope.
- 40 -
<PAGE>
DIVIDEND POLICY
Agritope has never declared or paid cash dividends on its common stock.
Agritope currently anticipates that it will retain all future earnings for use
in the operation and growth of its business and does not anticipate paying any
cash dividends in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
TRANSFER AGENT
The transfer agent and registrar for the Agritope Common is ChaseMellon
Shareholder Services, L.L.C.
- 41 -
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Agritope Board consists of seven directors. Under the terms of the
Series A Convertible Preferred, the holders of such shares will be entitled to
elect one director on an annual basis so long as at least 214,285 shares of
Series A Convertible Preferred are outstanding. That director was appointed to
the Agritope Board in December 1997. Because the Agritope Board is a staggered
board, the other six directors have been designated as Class 1, Class 2 and
Class 3 directors. Directors of each class will serve for a term expiring at the
annual meeting of Agritope stockholders in 1998, 1999 and 2000, respectively.
The table below presents the names, ages and positions of Agritope's
executive officers and directors as of the Distribution Date.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Adolph J. Ferro, Ph.D. 55 Chairman of the Board, President,
Chief Executive Officer and
Class 1 Director.
Gilbert N. Miller 56 Executive Vice President,
Chief Financial Officer,
Secretary and Class 1 Director
Richard K. Bestwick, Ph.D. 43 Senior Vice President--Research
and Development
Matthew G. Kramer 40 Vice President--Product Development
Joseph A. Bouckaert 56 President and Chief Executive
Officer--Vinifera, Inc.
W. Charles Armstrong 52 Class 2 Director
Roger L. Pringle 56 Class 2 Director
Michel de Beaumont 55 Class 3 Director
Nancy L. Buc 53 Class 3 Director
Pierre Lefebvre (1) 46 Director
</TABLE>
(1) Mr. Lefebvre has been elected at the request of the holders of the Series A
Convertible Preferred Stock to be issued in connection with the Vilmorin
Research Agreement entered into between Agritope and Vilmorin.
Adolph J. Ferro, Ph.D., has been President and Chief Executive Officer
of Agritope since 1989, and a director since 1990. He is Chairman of the Board
of Agritope. He was President and Chief Executive Officer of Epitope from 1990
through May 1997, and has been a director of Epitope since 1990. Dr. Ferro was
Senior Vice President of Epitope from 1988 until 1990. From 1987 until 1988, he
was Vice President of Research and Development. He was a cofounder of
Agricultural Genetic Systems, Inc., which Epitope acquired and renamed Agritope
in 1987. Prior to joining Agritope, he was a Professor in the Department of
Microbiology at Oregon State University ("OSU"). From 1981 to 1986, he was an
Associate Professor at OSU, and from 1978 to 1981, he was
- 42 -
<PAGE>
an Assistant Professor at OSU. From 1975 to 1978, he was Assistant Professor at
the University of Illinois at Chicago in the Department of Biological Sciences.
Dr. Ferro received a B.A. degree from the University of Washington in 1965, an
M.S. degree in biology from Western Washington University in 1970, and a Ph.D.
in bacteriology and public health from Washington State University in 1973.
Gilbert N. Miller has been Chief Financial Officer of Agritope since
1991. He was also Senior Vice President of Agritope from 1992 until February
1996, when he became Executive Vice President. He has been a director of
Agritope since August 1997. He joined Epitope in 1989 as Executive Vice
President and Chief Financial Officer and has served as Epitope's Treasurer
since 1991. He will not serve as Executive Vice President and Chief Financial
Officer of Epitope after the Distribution. From 1987 to 1989, he was Executive
Vice President, Finance and Administration, of Northwest Marine Iron Works, a
privately held ship repair contractor located in Portland, Oregon. From 1986 to
1987, he was Vice President/Controller of the Manufacturing Group of Morgan
Products, Ltd., a manufacturer and distributor of specialty building products
based in Oshkosh, Wisconsin. He also held the position of Senior Vice
President/Finance of Nicolai Company, a Portland wood door manufacturing concern
which became a wholly owned subsidiary of Morgan Products, Ltd., in 1986. Mr.
Miller received a B.S. degree from Oregon State University and a Master of
Business Administration degree from University of Oregon. He is a certified
public accountant.
Richard K. Bestwick, Ph.D., has been a Senior Vice President of
Agritope since 1992. He became Chief Operating Officer--Research and Development
in October 1996 and was named Senior Vice President--Research and Development in
October 1997. He was employed by Epitope from 1987 to 1992. Prior to joining
Epitope, he was a Research Assistant Professor in the Department of Biochemistry
at the Oregon Health Sciences University, where he also completed his
postdoctoral training. Dr. Bestwick received a Ph.D. in Biochemistry and
Biophysics from Oregon State University and a B.S. degree from Evergreen State
College.
Matthew G. Kramer joined Agritope in 1994 as Vice President--Product
Development. From 1987 to 1994, he was Director of Production and Product
Development for Calgene Fresh, Inc., where he was involved in development and
commercialization of the FLAVR SAVR(TM) tomato. Mr. Kramer received an M.S.
degree in Agronomy and a B.S. degree at Montana State University.
Joseph A. Bouckaert joined Vinifera as its President and Chief
Executive Officer when Vinifera began operations in 1993. From 1988 to 1991, he
was Vice Chairman of DNA Plant Technology Corporation, a publicly held
agricultural biotechnology company with offices in Cinnaminson, New Jersey, and
Oakland, California. He also was a co-founder and member of the board of
directors of Florigene, B.V., an agricultural biotechnology company focused on
the flower business and located in the Netherlands. From 1985 to 1988, he served
as President and Chief Executive Officer of Advanced Genetic Sciences Inc. a
publicly held biotechnology company located in Oakland, California. In 1982, Mr.
Bouckaert co-founded Plant Genetic Systems, N.V., a privately held agricultural
biotechnology company located in Brussels, Belgium, and served as its first
Managing Director from 1982 through 1986. Mr. Bouckaert received a Juris Doctor
degree from the University of Leuven in Belgium and postgraduate degrees in
Business Administration from the University of Ghent in Belgium, and the
University of Kentucky in Lexington, Kentucky.
W. Charles Armstrong has been a director of Agritope since August 1997.
He has also been a director of Epitope since 1989 and a director of Pacificorp,
a public utility holding company, since 1996. He served as President and Chief
Executive Officer of Epitope from May 1997 to October 1997. He was Chairman and
Chief Executive Officer of Bank of America Oregon from September 1992 until
September 1996. From April to September 1992, he was Chairman and Chief
Executive Officer of Bank of America Idaho. Mr. Armstrong served as President
and Chief Operating Officer of Honolulu Federal Savings Bank from February 1989
to April 1992. Prior to February 1989, he was President and Chief Executive
Officer of West One Bank, Oregon.
- 43 -
<PAGE>
Roger L. Pringle has been a director of Agritope since 1990. He has
been a director of Epitope since 1989, and Chairman of the Board of Epitope
since 1990. He is President of The Pringle Company, a management consulting firm
in Portland, Oregon, which he founded in 1975.
Michel de Beaumont was elected a director of the Company in September
1997. Since 1981, Mr. de Beaumont has served as a co-founder and director of
American Equities Overseas (UK) Ltd. of London, England, a wholly owned
subsidiary of American Equities Overseas, Inc. ("American Equities"), a private
securities brokerage and corporate finance firm. Mr. de Beaumont was Vice
President in the London office of American Securities Corp. from 1978 to 1981.
He also served as Vice President, Institutional Sales in the London office of
Smith Barney Harris Upham, Inc. from 1975 to 1978 and as a Vice President at
Oppenheimer & Co. Mr. de Beaumont graduated from the University of Poitiers and
Paris with degrees in Advanced Math, Physics and Chemistry and has earned a
degree in business administration from the University of Paris.
Nancy L. Buc was elected a director of the Company in September 1997.
She has been a partner in the law firm of Buc & Beardsley in Washington, D.C.
since 1994. Prior to 1994, Ms. Buc was a partner at Weil, Gotshal & Manges from
1981 to 1994 and from 1977 to 1980. Ms. Buc served as General Counsel for the
FDA from 1980 to 1981. During an earlier period of government service
(1969-1972), she served successively as Attorney-Advisor to the Chairman of the
Federal Trade Commission and Assistant Director of that agency's Bureau of
Consumer Protection. She is a Director of the Virginia Law School Foundation and
the Women's Legal Defense Fund. Ms. Buc is a graduate of Brown University and
the University of Virginia School of Law. Ms. Buc holds an honorary Doctor of
Laws from Brown and is a fellow emerita of the Brown Corporation, that
university's governing board.
Pierre Lefebvre was elected a director of the Company in December 1997.
He has served as Deputy Chief Executive Officer of Groupe Limagrain Holding and
as chief executive officer of Vilmorin, a subsidiary of Groupe Limagrain
Holding, since 1990. He presently leads both Vilmorin and the Groupe Limagrain
Bio-Health Division. Prior to 1990, Mr. Lefebvre served as chief executive
officer at Harris Moran Seed Company (formerly Ferry-Morse Seed Company), a
California-based subsidiary of Limagrain, specializing in vegetable and flower
seeds, and as controller at Tezier, another subsidiary of Limagrain. Mr.
Lefebvre is a 1975 graduate of Groupe ESSEC School of Management, a French
business school.
COMMITTEES OF THE BOARD
The Agritope Board has established the following standing committees:
Executive Committee, Audit Committee, Compensation Committee and Nominating
Committee. Pursuant to the Bylaws, the Agritope Board may also establish other
committees from time to time in its discretion.
The Executive Committee consists of at least two directors and may
exercise all the authority and powers of the Agritope Board in the management of
the business and affairs of Agritope, except those reserved to the Agritope
Board by the Delaware General Corporation Law. Mr. Pringle (chair), Dr. Ferro
and Mr. Miller are the initial members of the Executive Committee.
The Audit Committee consists of at least two outside directors and,
among other things, recommends the appointment of independent public
accountants, reviews the scope of the annual audit and the engagement letter,
reviews the independence of the independent accountants and reviews the findings
and recommendations of the independent accountants and management's response.
The Audit Committee also reviews the internal audit and control functions of
Agritope and makes recommendations for changes in accounting systems, if
warranted. Mr. Armstrong (chair), Ms. Buc and Mr. Pringle are the initial
members of the Audit Committee.
- 44 -
<PAGE>
The Compensation Committee also consists of at least two outside
directors and determines compensation for the officers of Agritope, administers
stock-based compensation plans and other performance-based compensation plans
adopted by Agritope, and considers matters of director compensation and
benefits. Ms. Buc (chair) and Mr. Armstrong are the initial members of the
Compensation Committee.
The Nominating Committee which consists of at least two directors will
select and recommend candidates to serve on the Agritope Board, whose names will
be submitted for election at annual meetings of Agritope shareholders. The
Nominating Committee will also review and make recommendations to the Agritope
Board concerning the composition and size of the Agritope Board and its
committees. Mr. de Beaumont (chair), Ms. Buc, Dr. Ferro and Mr. Miller are the
initial members of the Nominating Committee.
COMPENSATION OF DIRECTORS
Nonemployee directors of Agritope will be reimbursed for out-of-pocket
expenses in connection with attending board and committee meetings. Each
nonemployee director, other than Mr. Lefebvre, is granted an option for 25,000
shares of Agritope Common upon his or her initial election or appointment to the
Agritope Board, plus an additional option for 5,000 shares of Agritope Common
for his or her initial year of service. Mr. Lefebvre is prohibited from
receiving options by policy of his employer. On December 1 of each subsequent
year on which each nonemployee director, other than Mr. Lefebvre, serves on the
Agritope Board, the director will receive an additional option for 5,000 shares
of Agritope Common. The options will be nonqualified stock options with an
exercise price equal to 75 percent of the price of Agritope Common on the date
of grant, with the discount being no more than $2 per share. The options will
vest ratably over four years and have an indefinite term. Directors are also
eligible to receive other options under Agritope's 1997 Stock Award Plan. See
"1997 Stock Award Plan."
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the last three
fiscal years of the Chief Executive Officer and the three other executive
officers of Agritope whose salary and bonus exceeded $100,000 during the 1997
fiscal year. Information set forth in the table reflects compensation paid for
services rendered for Epitope and/or Agritope.
- 45 -
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Compensation Securities All Other
Underlying Compen-
Name and Principal Position Year Salary Bonus Options (1) sation(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adolph J. Ferro, Ph.D. 1997 $ 240,000 $ - $ 7,354
Chairman of the Board, 1996 214,183 50,000 - 4,237
President and Chief Executive 1995 200,769 113,245 5,390
Officer (3)
Gilbert N. Miller 1997 165,000 - - $ 7,125
Executive Vice President 1996 128,510 33,075 - 3,206
and Chief Financial Officer 1995 130,962 - 5,021
Richard K. Bestwick, Ph.D. 1997 150,000 - - -
Senior Vice President-- 1996 91,385 20,160 - 2,280
Research and Development (4)
Joseph A. Bouckaert 1997 160,000 - - -
President and Chief Executive 1996 160,000 33,600 - -
Officer--Vinifera, Inc. (5) 1995 115,592 40,000 - -
</TABLE>
(1) Represents the number of shares of Agritope Common for which options
were awarded. Excludes options for Epitope Stock received under the
Epitope Award Plan as follows: Dr. Ferro--74,000 options in 1995; Mr.
Miller--34,000 options in 1995; Mr. Bouckaert--50,000 options in 1996.
(2) Represents amounts contributed to Epitope's 401(k) Plan as employer
matching contributions in the form of Epitope Stock.
(3) The information in the above table does not include approximately
$440,000 payable by Epitope to Dr. Ferro, pursuant to his employment
agreement with Epitope, in connection with the termination of Dr.
Ferro's position as President and Chief Executive Officer of Epitope in
May 1997.
(4) Dr. Bestwick was not an executive officer of Agritope during fiscal
1995.
(5) Information for Mr. Bouckaert for 1996 and 1995 includes compensation
paid for periods during which Vinifera was not a subsidiary of
Agritope.
GRANTS OF OPTIONS TO PURCHASE AGRITOPE COMMON
No options to purchase Agritope Common were granted to officers named
in the "Summary Compensation Table" during the fiscal year ended September 30,
1997.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OUTSTANDING OPTIONS FOR
AGRITOPE COMMON
None of the officers named in the "Summary Compensation Table"
exercised options to purchase Agritope Common during the fiscal year ended
September 30, 1997, and none of such officers held any options exercisable for
Agritope Common at September 30, 1997.
EMPLOYMENT; CHANGE IN CONTROL AGREEMENTS
Pursuant to written employment agreements with Agritope, each of the
executive officers named in the Summary Compensation Table above is entitled to
receive one year of salary in the event of termination without cause (two years
in the case of Dr. Ferro and Mr. Miller) or two years of salary (three years in
the case of Dr. Ferro and Mr. Miller) if terminated without cause within 12
months following a change in control (within the meaning of the Exchange Act) or
sale of substantially all the assets of Agritope, except that Mr. Bouckaert's
agreement does not include a change-of-control provision. The agreements in each
case prohibit the officer from competing with Agritope for one year unless the
officer elects to waive the right to amounts otherwise payable. Mr. Bouckaert's
agreement prohibits him from competing with Vinifera for three years after
termination. The agreements do not expire by their terms, except that Mr.
Bouckaert's agreement terminates on May 31, 2000. The other agreements are
terminable by Agritope on 30 days' notice with cause or, subject to payment of
the salary amounts described above, on 90 days' notice without cause, and may be
terminated by the executive officer on 90 days' notice.
- 47 -
<PAGE>
1997 STOCK AWARD PLAN
GENERAL
The Agritope, Inc. 1997 Stock Award Plan (the "Award Plan") was adopted
by the Agritope Board and approved by Epitope as Agritope's sole stockholder in
November 1997. The Award Plan will continue in effect until awards have been
granted covering all shares available for issuance under the Award Plan or the
Award Plan is otherwise terminated by the Agritope Board. The Award Plan
provides for the issuance of a total of up to 2,000,000 shares of Agritope
Common, subject to adjustment for changes in capitalization. A summary
description of certain terms and provisions of the Award Plan and options
proposed to be granted thereunder follows. The following summary of the Award
Plan is subject to the detailed terms and provisions of the Plan.
PURPOSE
The purpose of the Award Plan is to promote and advance the interests
of Agritope and its stockholders by enabling Agritope to attract, retain, and
reward key employees, outside advisors, and directors. The Award Plan is
intended to strengthen the mutuality of interests between such employees,
advisors, and directors and Agritope's stockholders by offering equity-based
incentive awards to promote a proprietary interest in pursuing the long-term
growth, profitability, and financial success of Agritope.
AWARDS AND ELIGIBILITY
The Award Plan provides for stock-based awards to (i) employees of
Agritope and its subsidiaries (including individuals who may also be officers or
directors of Agritope or a subsidiary), (ii) members of scientific advisory
committees or other consultants to Agritope or its subsidiaries ("Advisors"),
and (iii) nonemployee directors of Agritope or its subsidiaries. Awards that may
be granted under the Award Plan include stock options, stock appreciation
rights, restricted awards, performance awards, and other stock-based awards
(collectively, "Awards"). The Compensation Committee of the Agritope Board (the
"Committee") will administer the Award Plan and determine the key employees and
Advisors of Agritope and its subsidiaries who are to receive Awards under the
plan and the types, amounts, and terms of Awards. The Award Plan authorizes the
Agritope Board to grant Awards to non-employee directors from time to time in
its discretion in accordance with its fiduciary obligations to Agritope and its
stockholders.
All employees are eligible to receive Awards under the Award Plan,
including each of Agritope's nonemployee directors and executive officers. No
options, stock appreciation rights ("SARs"), restricted awards, performance
awards, or other stock-based awards have been granted under the Award Plan.
NEW OPTIONS
Options ("New Options") to purchase a total of 1,304,894 shares of
Agritope Common have been granted to officers, employees and nonemployee
directors of Agritope under the Award Plan. New Options granted to executive
officers and nonemployee directors have an exercise price of $5.25 per share,
representing 75 percent of the fair market value of Agritope Common at the date
of grant. New Options granted to other employees have an exercise price of $7
per share, representing the fair market value of Agritope Common on the date of
grant. Each New Option becomes exercisable as to 25 percent of the shares
covered by such option on each of the first four anniversaries of the dates of
grant.
The following table shows the New Options that have been granted under
the Award Plan:
- 48 -
<PAGE>
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
AGRITOPE, INC. 1997 STOCK AWARD PLAN
Number of
New
Name and Position Options
<S> <C>
Adolph J. Ferro, Ph.D. 407,759
Chairman of the Board, President and Chief Executive Officer
Gilbert N. Miller 211,593
Executive Vice President and Chief Financial Officer
Richard K. Bestwick, Ph.D. 143,900
Senior Vice President--Research and Development
Joseph A. Bouckaert 102,071
President and Chief Executive Officer--Vinifera, Inc.
Matthew G. Kramer,
Vice President--Product Development 102,071
All executive officers as a group 967,394
All nonemployee directors as a group 120,000
All employees as a group, excluding executive officers 217,500
</TABLE>
DESCRIPTION OF TERMS OF AWARDS
Following is a brief summary of the various types of Awards that may be
granted under the Award Plan.
Options. Options granted under the Award Plan may be either incentive
stock options, a tax-favored form of stock option meeting the requirements of
Section 422 of the Code, or nonqualified options, which are not entitled to
favorable income tax treatment. ISOs must expire not more than ten years from
the date of grant. The Award Plan does not limit the maximum term for
nonqualified options. The exercise price per share for options granted under the
Award Plan generally must be at least 100 percent (for incentive stock options)
or 75 percent (for nonqualified options) of the fair market value of a share of
Agritope Common on the date the option is granted. The Award Plan authorizes the
Committee (or the Agritope Board, with respect to Awards to nonemployee
directors) to issue nonqualified deferred compensation options with an option
price substantially less than the fair market value of a share of Agritope
Common on the date of grant (but not less than $1 per share) for the purpose of
deferring a specified amount of income for a recipient. The Committee (or the
Agritope Board), in its discretion, may provide in the agreement evidencing an
option that, to the extent that the option is exercised using previously
acquired shares of Agritope Common, the option holder shall automatically be
granted a replacement ("reload") option for a number of shares of Agritope
Common equal to the number of shares delivered upon exercise with an option
price equal to the fair market value of a share of Agritope Common on the date
of exercise and subject to such other terms as the Committee (or the Agritope
Board) determines. The aggregate fair market value of shares for which any
participant may be granted ISOs which are exercisable for the first time during
any calendar year may not exceed $100,000. In addition, no individual
participant may be granted options for more than 500,000 shares during any
fiscal year.
Stock Appreciation Rights. A recipient of SARs will receive, upon
exercise, a payment based on the increase in the price of a share of Agritope
Common between the date of grant and the date of exercise. Payment may be in
cash, in shares of Agritope Common, in the form of a deferred compensation
option or in any other form approved by the Committee (or the Agritope Board).
SARs may be granted in connection with options or other Awards granted under the
Award Plan or may be granted as independent Awards.
- 49 -
<PAGE>
Restricted Awards. Restricted Awards may take the form of restricted
shares or restricted units. Restricted shares are shares of Agritope Common that
may be subject to forfeiture if the recipient terminates employment or service
as a nonemployee director or Advisor during a specified period (the "Restriction
Period"). Stock certificates representing restricted shares are issued in the
name of the recipient, but are held by Agritope until the expiration of the
Restriction Period. From the date of issuance of restricted shares until any
forfeiture, the recipient is entitled to the rights of a stockholder with
respect to the shares, including voting and dividend rights. Upon expiration of
the Restriction Period and satisfaction of any other applicable conditions,
restricted shares vest and are delivered to the recipient. The Committee (or the
Agritope Board) may permit payment to be in cash, in installments or in the form
of a deferred compensation option.
Restricted units are Awards of units equivalent in value to a share of
Agritope Common, which similarly may be subject to forfeiture if the recipient
terminates employment or service as a nonemployee director or Advisor during a
Restriction Period. At the expiration of the Restriction Period, payment with
respect to restricted units is made in an amount equal to the value of the
number of shares of Agritope Common covered by the restricted units. Payment may
be in cash, unrestricted shares of Agritope Common, or any other form approved
by the Committee (or the Agritope Board).
Performance Awards. Performance Awards are designated in units
equivalent in value to a share of Agritope Common. A performance Award is
subject to forfeiture if or to the extent that Agritope, a subsidiary, an
operating group, or the recipient, as specified by the Committee (or the
Agritope Board) in the Award, fails to meet performance goals established for a
designated performance cycle. Performance Awards earned by attaining performance
goals are paid at the end of a performance cycle in cash, shares of Agritope
Common, or any other form approved by the Committee (or the Agritope Board).
Other Stock-Based Awards. The Committee (or the Agritope Board) may
grant other Awards that involve payments or grants of shares of Agritope Common
or are measured by or in relation to shares of Agritope Common. The Award Plan
thus provides needed flexibility to design future types of stock-based or
stock-related Awards to attract and retain employees, Advisors and directors in
a competitive environment.
The Board may amend or terminate the Award Plan without stockholder
approval, other than amendments that would materially increase the aggregate
number of shares of Agritope Common that may be issued under the Award Plan
(except for adjustments for changes in capitalization).
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal anticipated federal
income tax consequences of Awards granted under the Award Plan to participants
and to Agritope.
Incentive Stock Options. An optionee does not realize taxable income
upon the grant or exercise of an ISO under the Award Plan.
If no disposition of shares issued to an optionee pursuant to the
exercise of an ISO is made by the optionee within two years from the date of
grant or within one year from the date of exercise, then (a) upon the sale of
the shares, any amount realized in excess of the option price (the amount paid
for the shares) is taxed to the optionee as mid-term (if the disposition is
within 18 months from the date of exercise) or long-term capital gain (if the
disposition is more than 18 months after the date of exercise) and any loss
sustained will be a mid-term or long-term capital loss, and (b) no deduction is
allowed to Agritope for federal income tax purposes. For purposes of computing
alternative minimum taxable income, an ISO is treated as a nonqualified option.
- 50 -
<PAGE>
If shares of Agritope Common acquired upon the exercise of an ISO are
disposed of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), then (a) the optionee realizes
compensation taxable at ordinary income tax rates in the year of disposition in
an amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on sale of the shares) over the
exercise price thereof and (b) Agritope is entitled to deduct such amount. Any
further appreciation or reduction in value is treated as a short-term, mid-term
or long-term capital gain or loss, as applicable, to the optionee, and does not
result in any deduction to Agritope. A disqualifying disposition in the year of
exercise will generally avoid the alternative minimum tax consequences of the
exercise of an ISO.
Nonqualified Options. No income is realized by the optionee at the time
a nonqualified option is granted. Upon exercise, (a) an optionee will generally
realize ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the date of exercise
and (b) Agritope will receive a tax deduction for the same amount. The
optionee's cost basis in the acquired shares is the fair market value of the
shares on the exercise date. Upon sale of the shares thereafter, any
appreciation or reduction in value is treated as a short-term, mid-term, or
long-term capital gain or loss, as applicable, to the optionee, and will not
result in any deduction to Agritope.
Payment of Exercise Price in Shares. The Committee may permit
participants to pay all or a portion of the exercise price using previously
acquired shares of Agritope Common. If an option is exercised and payment is
made in previously held shares, there is no taxable gain or loss to the
participant other than any gain recognized as a result of exercise of the
option, as described above.
Stock Appreciation Rights. The grant of a SAR to a participant will not
cause the recognition of income by the participant. Upon exercise of a SAR, the
participant will realize ordinary income equal to the amount of cash payable to
the participant plus the fair market value of any shares of Agritope Common or
other property delivered to the participant. Agritope will be entitled to a
deduction equal to the amount of ordinary income realized by the participant in
connection with the exercise of a SAR.
Restricted Awards and Performance Awards. Generally, a participant will
not recognize any income upon issuance of a restricted Award or performance
Award that is subject to forfeiture during a Restriction Period or performance
cycle. Dividends paid with respect to Awards during a Restriction Period or
performance cycle prior to the vesting of the Awards will be taxable as ordinary
income to the participant. Generally, a participant will recognize ordinary
income upon the vesting of restricted Awards or performance Awards in an amount
equal to the amount of cash payable to the participant plus the fair market
value of shares of Agritope Common or other property delivered to the
participant. However, a participant may elect to recognize ordinary income upon
the grant of restricted shares, based on the fair market value of the shares of
Agritope Common subject to the Award at the date of grant. If a participant
makes such an election, dividends paid with respect to the restricted shares
will not be treated as ordinary income, but rather as dividend income, and the
participant will not recognize additional income when the restricted shares
vest. Agritope will be entitled to a deduction equal to the amount of ordinary
income recognized by the participant. If a participant who receives an Award of
restricted shares makes the special election described above, Agritope will not
be entitled to deduct dividends paid with respect to the restricted shares.
Limitation on Deductibility of Certain Compensation. Section 162(m) of
the Code generally makes nondeductible to Agritope taxable compensation paid to
a single individual in excess of $1 million in any calendar year if the
individual is the Chief Executive Officer or one of the next four highest-paid
executive officers, unless the excess compensation is considered to be
"performance based." Awards of options that are granted with an option price
equal to fair market value on the date of grant are considered performance based
for this purpose. Among other requirements contained in Section 162(m), the
material terms of a compensation plan must be approved by stockholders. Agritope
may in the future consider structuring other Awards to attempt to meet the
requirements of Section 162(m) if it determines the action to be advisable.
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<PAGE>
1997 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Agritope, Inc. 1997 Employee Stock Purchase Plan (the "Agritope
Purchase Plan") was adopted by the Agritope Board and approved by Epitope as
sole stockholder of Agritope in November 1997. The Agritope Purchase Plan
provides for the issuance of up to 250,000 shares of Agritope Common. The
Compensation Committee of the Agritope Board (the "Committee") will administer
the Agritope Purchase Plan. The following summary of the Agritope Purchase Plan
is subject to the detailed terms and provisions of the plan.
PURPOSE
The purpose of the Agritope Purchase Plan is to give employees of
Agritope the opportunity to subscribe for shares of Agritope Common on an
installment basis through payroll deductions.
SUBSCRIPTIONS
The Agritope Purchase Plan provides for offering and purchase periods
to be set by the Committee, but no more than three regular offering periods may
be set during each fiscal year. The number of offering periods, the number of
shares offered, and the length of each period will be set by the Committee. The
Agritope Purchase Plan also provides for special offerings as described below.
Shares not subscribed for in any offering period and shares subscribed for that
cease to be subject to a subscription agreement will be available for
subscription in connection with a later offering period established by the
Committee.
The subscription price per share for each purchase period will be the
lesser of (i) 85 percent of the mean between the reported high and low sales
prices of shares of Agritope Common on the stock exchange or automated
securities interdealer quotation system on which the stock was traded on the
last trading day before the Offering Date (as defined in the Agritope Purchase
Plan) for the offering period (the "initial subscription price") and (ii) 85
percent of the mean between the reported high and low sales prices for the
shares on the date the purchase period ends, or on any earlier date of purchase
provided for in the Agritope Purchase Plan.
The total value of shares that may be subscribed for by an individual
in one or more regular offering periods within any calendar year is limited to
$21,250. Subject to this limitation, the Committee may set a minimum, a maximum,
or both a minimum and a maximum number of shares that may be subscribed for
during any offering period.
The Agritope Purchase Plan also provides for monthly special offering
dates pursuant to which any employee of Agritope may receive a one-year
subscription for a number of shares of Agritope Common equal to the amount by
which the employee's annual compensation would otherwise be increased during the
one-year period following the employee's annual compensation review divided by
the initial subscription price for the special offering date that occurs on or
immediately following the effective date of the increase in compensation. The
subscription may be provided to the employee at Agritope's discretion or
pursuant to the employee's irrevocable election in lieu of any increase in cash
compensation for the ensuing year.
An employee may terminate his or her subscription at any time before
the full purchase price for the subscribed shares has been paid and be refunded
the full amount withheld, plus interest at the rate of 6 percent per year. An
employee may also reduce the number of subscribed shares and (i) receive a
refund of the amount withheld that is in excess of the amount that would have
been withheld if his or her subscription had been for the reduced number of
shares, plus interest on the refund at the rate of 6 percent per year, or (ii)
have the excess applied to reduce the amount of future installments of the
purchase price.
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<PAGE>
An employee whose employment is terminated for any reason other than
retirement, disability or death (or the personal representative of an employee
who dies after such termination) may, at his or her election, (i) be refunded
the full amount withheld, plus interest at the rate of 6 percent per year or
(ii) receive the whole number of shares that could be purchased at the purchase
price with that amount together with a cash refund of any balance. An employee
who retires or is permanently disabled (or the personal representative of an
employee who dies while employed, retired or disabled) at any time before the
full purchase price of the subscribed shares has been paid has the rights
described above and in addition may prepay the entire unpaid balance for the
subscribed shares in a lump sum of cash and receive the shares. Any such
election must be made within three months following any termination of
employment and prior to the end of the respective purchase period.
The Agritope Board may amend or terminate the Agritope Purchase Plan
without stockholder approval, other than amendments that materially increase the
number of shares that may be issued under the plan or decrease the purchase
price of shares under the plan (except for adjustments for changes in
capitalization).
When the Agritope Purchase Plan becomes effective upon consummation of
the Distribution, approximately 50 employees are expected to be eligible to
participate in the Agritope Purchase Plan. Numbers of shares that may be subject
to future individual subscriptions under the Agritope Purchase Plan are not now
determinable.
FEDERAL INCOME TAX CONSEQUENCES
The Agritope Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. Participants do not realize
taxable income at the commencement of an offering or at the time shares are
purchased under the Agritope Purchase Plan.
If no disposition of shares purchased under the Agritope Purchase Plan
is made by the participant within two years from the offering commencement date
or within one year from the purchase date, then (a) upon sale of the shares, 15
percent of the fair market value of the shares at the commencement of the
offering period (or, if less, the amount of gain realized on sale of the shares)
is taxed to the participant as ordinary income, with any additional gain taxed
as a mid-term or long-term capital gain, as applicable, and any loss sustained
treated as a mid-term or long-term capital loss, as applicable, to the
participant, and (b) no deduction is allowed to Agritope for federal income tax
purposes.
If shares purchased under the Agritope Purchase Plan are disposed of
prior to the expiration of the two-year and one-year holding periods described
above, then (a) the participant realizes ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of the shares on the date of purchase (or, if less, the amount realized on sale
of the shares) over the purchase price thereof, and (b) Agritope is entitled to
deduct that amount. Any further gain realized is taxed as a short-term,
mid-term, or long-term capital gain to the participant and will not result in
any deduction to Agritope.
EMPLOYEE STOCK OWNERSHIP PLAN
The Agritope, Inc. Employee Stock Ownership Plan ("ESOP"), which covers
Agritope and those of its affiliates which elect to participate (the
"employers"), provides that all employees (including officers), other than
excluded classes (leased, union, nonresident alien, temporary and seasonal
employees) are eligible to participate immediately upon commencement of
employment. The ESOP is an "employee stock ownership plan" under Section
4975(e)(7) of the Code, designed to invest primarily in Agritope Common.
The employers' contribution to the ESOP each year is determined by
the Agritope Board, and may be made either in Agritope Common or in cash.
Contributions are allocated to participants in proportion to their compensation.
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<PAGE>
Each participant has a separate account attributable to employer
contributions. Participants will become fully vested in their accounts if they
attain age 65, die or become disabled prior to termination of employment. If
termination of employment occurs before age 65, death or disability, the vesting
in the accounts is based on the number of years of service (and the nonvested
portion is forfeited):
Years of Service Percentage Vested
Less than 2 years 0
At least 2 years, but less than 3 years 20
At least 3 years, but less than 4 years 40
At least 4 years, but less than 5 years 60
At least 5 years, but less than 6 years 80
At least 6 years 100
Each participant may direct the voting of Agritope Common allocated to
the participant's account.
The participants' accounts are distributable at termination of
employment. Distribution must be in Agritope Common unless both the participant
and the trustees elect cash distribution.
401(K) PROFIT SHARING PLAN
The Agritope, Inc. 401(k) Profit Sharing Plan ("401(k) Plan") which
covers Agritope and those of its affiliates which elect to participate, provides
that all employees (including officers), other than excluded classes (leased,
union, nonresident alien, temporary and seasonal employees) are eligible to
participate immediately upon commencement of employment. The 401(k) Plan
includes a salary reduction feature under Section 401(k) of the Code.
All participants in the 401(k) Plan may contribute on a before-tax
basis a whole number percentage of their cash compensation each year up to a
maximum fixed by the Agritope Board not to exceed 17 percent, subject to an
annual maximum which is adjusted for the cost of living ($9,500 for 1997).
However, only the first 5 percent of a participant's compensation is
eligible for a pro-rata matching contribution by the employers. The aggregate
amount of the annual matching contribution is determined by the Agritope Board.
Matching contributions are invested in Agritope Common. Employee
contributions are pooled for investment at the direction of the employee in one
or more of the various investment funds established by Agritope, one of which
may provide for investment in Agritope Common.
Participants are at all times fully vested in their employee
contributions. Participants will become fully vested in their matching
contributions if they attain age 65, die or become disabled prior to termination
of employment. If termination of employment occurs before age 65, death or
disability, the vesting of matching contributions is based on the number of
years of service (and the nonvested portion is forfeited):
Years of Service Percentage Vested
Less than 2 years 0
At least 2 years, but less than 3 years 20
At least 3 years, but less than 4 years 40
At least 4 years, but less than 5 years 60
At least 5 years, but less than 6 years 80
At least 6 years 100
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<PAGE>
Withdrawals of employee contributions are permitted prior to
termination of employment in the case of hardship. Matching contributions and
any remaining amounts of employee contributions are distributable at termination
of employment; matching contributions, and any employee contributions which are
invested in Agritope Common at the participants' election, are customarily
distributed in Agritope Common.
CERTAIN TRANSACTIONS
On November 11, 1996, the Company amended an agreement pursuant to
which it acquired its patented ethylene control technology in 1987. Dr. Ferro, a
co-inventor of the technology, relinquished all rights to future payments under
the agreement in exchange for a one-time cash payment of $590,000. The amount is
included in Agritope's consolidated balance sheet under the caption "Patents and
proprietary technology (net)" and will be amortized over 15 years, the remaining
life of the related patent.
In November 1996, Agritope agreed to exchange $3.4 million principal
amount of Agritope 4 percent Convertible Notes Due 1997 for 250,367 shares of
Epitope Stock at a reduced exchange price of $13.50 per share. The original
terms of the notes permitted the holders to exchange them for Epitope Stock at
an exchange price of $19.53 per share. Holders exchanging their notes at the
reduced exchange price included Groupe des Assurances Nationales, the beneficial
owner of more than 5 percent of the outstanding Epitope Stock, which exchanged
$2,500,000 principal amount of notes for 185,185 shares of Epitope Stock.
American Equities has been engaged by the Company to act as placement
agent in connection with the Regulation S Sale and the Preferred Stock Sale.
Michel de Beaumont is a co-founder and director of American Equities. Mr. de
Beaumont was elected to serve as a director of Agritope in September 1997.
American Equities will receive commissions equal to 5 percent of the gross
proceeds of the Regulation S Sale and the sale of Series A Convertible
Preferred. In addition, American Equities and its designees will receive
warrants to purchase an aggregate of 500,000 shares of Agritope Common in
consideration for its services as placement agent. See "Shares Eligible for
Future Sale."
Pierre Lefebvre, a director of Agritope, is chief executive officer of
Vilmorin. Agritope and Vilmorin have entered into the Vilmorin Research
Agreement, under which Vilmorin will fund certain research and development
projects of Agritope and receive certain rights in resulting technology.
Vilmorin has agreed to purchase 214,285 shares of Series A Convertible Preferred
for $7 per share in the Preferred Stock Sale, and has been granted the Series A
Option, to purchase up to an additional 785,715 shares of Series A Convertible
Preferred at that price. Holders of Series A Convertible Preferred will have the
right to elect one director to the Agritope Board so long as at least 214,285
shares of Series A Convertible Preferred remain outstanding. See "Description of
Business--Agritope Biotechnology Program--Vegetable and Flower Crops" and
"Description of Agritope Capital Stock--Agritope Series A Convertible
Preferred."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the anticipated
beneficial ownership of Agritope Common as of the Distribution Date after giving
effect to the Regulation S Sale, the Preferred Stock Sale and the Distribution
by (a) each person who is expected by Agritope to be the beneficial owner of
more than 5 percent of Agritope Common outstanding after the Distribution, the
Regulation S Sale and the Preferred Stock Sale, (b) each director of Agritope,
(c) each executive officer of Agritope named in the Summary Compensation table
above and (d) the executive officers and directors of Agritope as a group. The
table gives pro forma effect to the conversion of all Series A Convertible
Preferred. Except in the case of subscribers in the Regulation S Sale and the
Preferred Stock Sale, this information is based on the Epitope Stock
beneficially owned by such persons as of December 1, 1997.
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<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NAME NUMBER (1) PERCENT
<S> <C> <C>
Greenacres Enterprises, Inc. 578,572(2) 13.2%
74 Aeulestrasse
9490 Vaduz
Liechtenstein
Vilmorin & Cie 1,000,000(3) 19.9%
71 Rue de Beaubourg
Paris 75003
France
W. Charles Armstrong 908 *
Michel de Beaumont - *
Richard K. Bestwick, Ph.D. 233(5)(6) *
Joseph A. Bouckaert - *
Nancy L. Buc - *
Adolph J. Ferro, Ph.D. 421(6) -
Pierre Lefebvre -(7) -
Gilbert N. Miller 566(6) -
Roger L. Pringle 3,525(8) *
All directors and executive 5,653(4)(5)(6)(8) *
officers as a group
(10 persons)
- ---------------
*Less than 1 percent
</TABLE>
(1) Subject to community property laws where applicable, beneficial
ownership consists of sole voting and investment power except as
otherwise indicated. Information is based on Epitope's records and a
review of statements filed with the Commission under Sections 13(d) and
13(g) of the Exchange Act with respect to Epitope Stock.
(2) Includes 150,000 shares of Agritope Common issuable upon the exercise
of warrants.
(3) Includes 214,285 shares of Series A Convertible Preferred that Vilmorin
has agreed to purchase plus 785,715 shares issuable pursuant to the
Series A Option. Series A Convertible Preferred is initially
convertible into Agritope Common on a share-for-share basis, subject to
adjustment on the occurrence of certain events. Shares of Series A
Convertible Preferred subject to the option have been included for
purposes of calculating the percent of capital stock beneficially owned
by Vilmorin but have been excluded for purposes of calculating the
percent of capital stock beneficially owned by other persons.
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<PAGE>
(4) Includes 33 shares of Agritope Common held by Mr. Armstrong's spouse.
(5) Includes 60 shares of Agritope Common allocated to Dr. Bestwick's
spouse under the Epitope 401(k) plan.
(6) Includes the following shares allocated to each person's individual
accounts under the Epitope 401(k) plan: Dr. Bestwick - 173 shares, Dr.
Ferro - 253 shares, and Mr. Miller - 233 shares.
(7) Mr. Lefebvre is chief executive officer of Vilmorin and may have voting
power with respect to Agritope capital stock of which Vilmorin is the
beneficial owner. If Mr. Lefebvre is deemed to have such voting power,
he would be deemed the owner of the 1 million shares of Series A
Convertible Preferred beneficially owned by Vilmorin, constituting 19.9
percent of the Agritope capital stock, and all directors and executive
officers as a group would be deemed the beneficial owners of 1,005,653
shares, constituting 20 percent of Agritope capital stock.
(8) Includes 600 shares of Agritope Common held by Mr. Pringle's spouse.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Distribution, there has not been any public market for
Agritope Common and there can be no assurance that a significant public market
for Agritope Common will be developed or be sustained after the Distribution.
Sales of substantial amounts of Agritope Common in the public market after the
Distribution, or the possibility of such sales occurring, could adversely affect
prevailing market prices for Agritope Common or the future ability of Agritope
to raise capital through an offering of equity securities.
After the Distribution, the Regulation S Sale and the Preferred Stock
Sale, approximately 4.0 million shares of Agritope Common and 214,285 shares of
Series A Convertible Preferred will be outstanding. Pursuant to the Series A
Option, an additional 785,715 shares of Series A Convertible Preferred will be
subject to issuance and sale upon exercise. Shares distributed in the
Distribution will be freely tradeable in the public market without restriction
under the Securities Act, unless the shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act. See "The
Distribution--Trading of Agritope Common." The Agritope Common to be issued in
the Regulation S Sale may not be sold in the U.S. without registration under the
Securities Act until 40 days following the closing of the Regulation S Sale. The
Agritope Common issuable upon conversion of the Series A Convertible Preferred
may not be sold without registration under the Securities Act until 40 days
after issuance of the Series A Convertible Preferred Stock. See "Regulation S
Sale" and "The Distribution--Trading of Agritope Common." Agritope has granted
purchasers in the Regulation S Sale certain registration rights with respect to
their shares. Purchasers of the Series A Preferred will also be granted certain
registration rights effective upon conversion of their shares into Agritope
Common. Series A Convertible Preferred is initially convertible into Agritope
Common on a share-for-share basis, subject to adjustment on the occurrence of
certain events.
As of the Record Date, options to purchase 1,253,394 shares of Agritope
Common were outstanding. As of the Record Date, 746,606 shares were available
for future grants of awards under Agritope's Award Plan, and 250,000 shares were
available for future issuance under Agritope's Purchase Plan.
Agritope intends to file after the Distribution Date Registration
Statements on Form S-8 to register an aggregate of 2,250,000 shares of Agritope
Common reserved for issuance under its Award Plan and Purchase Plan. The
Registration Statements will become effective automatically upon filing. Shares
issued under the foregoing plans, after the filing of the Registration
Statements on Form S-8, may be sold in the open market, subject, in the case of
certain holders, to the Rule 144 limitations applicable to affiliates and
vesting restrictions imposed by Agritope.
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<PAGE>
Epitope has retained Vector Securities as Epitope's financial advisor.
In partial consideration for services rendered in connection with the
Distribution and the Epitope Targeted Stock Proposal as well as strategic
advice, Vector Securities will receive warrants to purchase an aggregate of
83,333 shares of Agritope Common and 416,667 shares of Epitope Stock,
exercisable at a price equal to 110 percent of the average closing price of the
respective shares on the five consecutive trading days beginning on the ex
dividend date for Epitope Stock. Epitope and Agritope will grant Vector
Securities certain registration rights with respect to the warrants.
Agritope has engaged American Equities to serve as placement agent in
connection with the Regulation S Sale and sale of Series A Convertible
Preferred. American Equities will receive warrants to purchase an aggregate of
118,250 shares of Agritope Common at $7 per share in partial consideration for
its services. In addition, warrants to purchase 381,750 shares of Agritope
Common at $7 per share will be issued to 8 unaffiliated designees of American
Equities, none of whom are U.S. persons. Such warrants may be exercised at any
time within the three years following the closing of the Regulation S Sale.
Agritope has granted certain registration rights with respect to the warrants.
DESCRIPTION OF AGRITOPE CAPITAL STOCK
Agritope's Certificate of Incorporation authorizes the issuance of up
to 30 million shares of Agritope Common and 10 million shares of Agritope
Preferred issuable in series. The following description of Agritope's capital
stock is qualified in all respects by reference to the Certificate of
Incorporation.
AGRITOPE COMMON
The holders of Agritope Common are entitled to one vote per share on
all matters on which stockholders are entitled to vote. Holders of Agritope
Common are entitled to receive dividends when and as declared by the Agritope
Board out of any funds lawfully available therefor and, in the event of
liquidation or distribution of assets, are entitled to participate ratably in
the distribution of such assets remaining after payment of liabilities, in each
case subject to any preferential rights granted to any series of Agritope
Preferred that may then be outstanding. Holders of Agritope Common do not have
cumulative voting rights with respect to any matter.
AGRITOPE PREFERRED
Subject to limitations prescribed by Delaware law, the Certificate of
Incorporation authorizes the Agritope Board, without further stockholder
authorization, to issue Agritope Preferred in one or more series and to fix the
terms and provisions of each series, including dividend rights and preferences,
conversion rights, voting rights, redemption rights, and rights on liquidation,
including preferences over Agritope Common, all of which could adversely affect
the rights of holders of Agritope Common. The issuance of a series of Agritope
Preferred under certain circumstances could have the effect of delaying or
preventing a change of control of Agritope, could adversely affect the rights of
the holders of Agritope Common, may discourage offers for the Agritope Common at
a premium over market price and may adversely affect the market price of, and
the voting and other rights of the holders of, the Agritope Common.
The Agritope Board has designated 1 million shares of Agritope
Preferred as Series A Convertible Preferred. Vilmorin has agreed to purchase
214,285 shares of Series A Convertible Preferred immediately after the
Distribution Date, and also has acquired the Series A Option. For a description
of the terms of the Series A Convertible Preferred, see "--Agritope Series A
Convertible Preferred," below.
The Agritope Board has adopted a Stockholder Rights Plan, which enables
holders of Agritope Common, under certain circumstances, to purchase fractional
shares of a series of Agritope Preferred. See "--Stockholder Rights Plan,"
below. No Agritope Preferred is currently outstanding, and Agritope has no
present plans to issue any shares of Agritope Preferred other than Series A
Convertible Preferred.
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<PAGE>
AGRITOPE SERIES A CONVERTIBLE PREFERRED
Agritope has designated 1 million shares of Agritope Preferred as
Series A Convertible Preferred, which are being offered for sale at a price of
$7 per share. See "Sale of Series A Convertible Preferred" and "Description of
Business--Agritope Biotechnology Program--Vegetable and Flower Crops." The
following description of the Series A Convertible Preferred is qualified by
reference to the Certificate of Designation, Preferences and Rights of the
Series A Convertible Preferred (the "Certificate of Designation").
Each share of Series A Convertible Preferred is convertible into
Agritope Common at any time at the election of the holder of the Series A
Convertible Preferred. Each share of Series A Convertible Preferred is initially
convertible into one share of Agritope Common. The conversion ratio will change
in the event of stock splits, reverse stock splits, or stock dividends involving
the Agritope Common. If Agritope issues a dividend or other distribution payable
in securities of Agritope other than Agritope Common, then holders of Series A
Convertible Preferred will receive on conversion, in addition to the Agritope
Common issuable upon conversion of the amount of Agritope securities that the
holders would have received had their shares of Series A Convertible Preferred
been converted into Agritope Common on the date of the dividend or other
distribution.
In addition, if Agritope consolidates or merges with or into another
corporation, or sells all or substantially all of its assets to another
corporation, each share of Series A Convertible Preferred will thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which the holder of the number of shares of Agritope Common
deliverable upon conversion of the Series A Convertible Preferred would have
been entitled upon such consolidation, merger or sale.
The Certificate of Designation prohibits Agritope from declaring,
setting aside or paying dividends or other distributions on Agritope Common
unless Agritope declares, sets aside or pays a dividend or other distribution
with respect to each outstanding share of Series A Convertible Preferred at
least equal to the amount the holders would have received if their shares of
Series A Convertible Preferred had then been converted into Agritope Common.
In the event of a liquidation, dissolution or winding up of Agritope,
the holders of outstanding shares of Series A Convertible Preferred would be
entitled to be paid, out of Agritope's distributable assets, an amount
equivalent to the amount they would have received if their Series A Convertible
Preferred had then been converted into Agritope Common.
So long as not less than 214,285 shares of Series A Convertible
Preferred are outstanding, the holders of Series A Convertible Preferred are
entitled to elect one director to the Agritope Board annually. Pierre Lefebvre
has been elected as the initial director representing the holders of Series A
Convertible Preferred. In addition, the holders of Series A Convertible
Preferred have equal voting rights with the holders of Agritope Common, with the
Series A Convertible Preferred having the number of votes equal to the number of
shares of Agritope Common into which the Series A Convertible Preferred is then
convertible. The holders of Series A Convertible Preferred and Agritope Common
will vote together as one class, except as otherwise required by law.
Subject to certain exceptions, the holders of Series A Convertible
Preferred have preemptive rights to acquire their pro rata share of any equity
security proposed to be issued by Agritope, at the same price and on the same
terms as other parties. Exceptions to these preemptive rights include, but are
not limited to: securities issued in mergers and other acquisition transactions;
securities issued upon exercise of warrants currently authorized for issuance to
Vector Securities and to American Equities and its designees; securities issued
to Agritope employees, directors or consultants pursuant to plans approved by
Agritope stockholders; securities issued in connection with a registered public
offering; securities issued to underwriters, brokers and financial institutions
in connection with certain Agritope financings; and securities issued in
connection with the Stockholder Rights Plan.
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<PAGE>
AGRITOPE WARRANTS
Vector Securities has provided advisory services to Epitope with
respect to the Distribution as well as strategic and advisory services in
connection with Epitope's Targeted Stock Proposal. In partial consideration for
services rendered in connection with the Distribution and the Epitope Targeted
Stock Proposal, Vector Securities will receive warrants to purchase 83,333
shares of Agritope Common and 416,667 shares of Epitope Stock, exercisable at a
price equal to 110 percent of the average closing price of the respective shares
on the five trading days beginning on the Distribution Date. These warrants
expire on December 31, 2000.
Agritope has also agreed to issue to American Equities or its designees
warrants to purchase an aggregate of 500,000 shares of Agritope Common in
partial consideration for its services as placement agent in connection with the
Regulation S Sale and the sale of Series A Convertible Preferred. Each warrant
entitles the holder to purchase one share of Agritope Common at $7 per share at
any time within three years of the closing of the Regulation S Sale.
PREEMPTIVE RIGHTS
The Certificate of Incorporation provides that no holder of any of
Agritope's shares is entitled to any preferential or preemptive rights to
acquire any securities of Agritope, except as such rights may be provided for by
contract or pursuant to the terms of any series of Agritope Preferred. Holders
of Series A Convertible Preferred have certain preemptive rights. See
"--Agritope Series A Convertible Preferred," above.
STOCKHOLDER RIGHTS PLAN
In November 1997, Agritope adopted the Rights Agreement. Accordingly,
each share of Agritope Common distributed in the Distribution will be issued
with one preferred stock purchase right ("Right").
Each Right represents the right to purchase, if and when the Rights are
exercisable, 1/1,000 of a share of Series B Junior Participating Preferred Stock
at an exercise price of $25. The exercise price and the number of shares
issuable upon exercise of the Rights are subject to adjustment in certain cases
to prevent dilution. The Rights are evidenced by the Agritope Common
certificates and are not exercisable, or transferable apart from the Agritope
Common, until 10 business days after (i) a person acquires 15 percent or more of
the Agritope Common; (ii) a person commences a tender offer which would result
in the ownership of 15 percent or more of the Agritope Common; or (iii) the
Agritope Board declares a person beneficially owning at least 10 percent of the
Agritope Common to be an Adverse Person (the "Rights Distribution Date"). In the
event any person becomes the beneficial owner of 15 percent or more of the
Agritope Common or the Agritope Board determines that a person is an Adverse
Person, each of the Rights (other than Rights held by the party triggering the
Rights and certain of their transferees, all of which will be voided) becomes a
discount right entitling the holder to acquire Agritope Common having a value
equal to twice the Right's exercise price. Vilmorin may exercise the Series A
Option in full without triggering the Stockholder Rights Plan and also will not
trigger the Stockholder Rights Plan if it acquires other Agritope securities
directly from Agritope or with the prior approval of the Agritope Board.
In the event Agritope is acquired in a merger or other business
combination transaction (including one in which Agritope is the surviving
corporation), each Right will entitle its holder to purchase, at the then
current exercise price of the Right, that number of shares of common stock of
the surviving company which at the time of such transaction would have a market
value of two times the exercise price of the Right. The Rights do not have any
voting rights and are redeemable, at the option of Agritope, at a price of $.01
per Right at any time until 10 business days after a person acquires beneficial
ownership of at least 15 percent of the Agritope Common.
The Rights expire on November 14, 2007. So long as the Rights are not
separately transferable, Agritope will issue one Right with each new share of
Agritope Common issued.
- 60 -
<PAGE>
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Agritope on
terms not approved by the Agritope Board. The Rights should not interfere with
any merger or other business combination approved by the Agritope Board because
the Rights may be redeemed by Agritope until the tenth business day following
the first public announcement that a person or group has become the beneficial
owner of 15 percent or more of the outstanding Agritope Common.
OTHER ANTI-TAKEOVER MEASURES
Agritope's Certificate of Incorporation and Bylaws contain certain
provisions that may have the effect of delaying, deferring or preventing a
change in control of Agritope. Such provisions include requirements for: (i) a
classified Board of Directors, with each class containing as nearly as possible
one-third of the total number of directors elected by the Agritope Common and
the members of each class serving for staggered three-year terms; (ii) removal
of directors only for cause; (iii) changing the size of the Agritope Board only
with supermajority approval of the directors then in office; (iv) notice not
less than 60 days prior to the anniversary date of the preceding annual meeting
of stockholders with respect to nominations of directors or other matters to be
voted on by stockholders other than by or at the direction of the Agritope
Board; and (v) approval of the holders of at least two-thirds of the outstanding
Agritope Common to approve certain provisions of the Certificate of
Incorporation.
Classified Board of Directors. The Certificate of Incorporation
provides that those members of the Agritope Board that are elected by the
Agritope Common will be divided into three classes (Class 1, Class 2 and Class
3) with each class containing as nearly as possible one-third of the total
number of directors and the members of each class serving for staggered
three-year terms. The initial designation of directors to each of the three
classes has been made. See "Management." At each annual meeting of Agritope
stockholders, the number of directors equal to the number of the class whose
term expires at the time of such meeting will be elected to hold office until
the third succeeding annual meeting of Agritope stockholders.
Removal of Directors. Directors of Agritope may be removed only for
cause.
Changes in the Number of Directors. The Certificate of Incorporation
specifies that the Agritope Board will consist of no less than six nor more than
thirteen members, with the exact number to be set from time to time by the
Board. The Agritope Board is authorized to increase or decrease the size of the
Board (within the specified range) by the affirmative vote of two-thirds of the
directors then in office. Without the consent of all the directors then in
office: (i) no more than two additional directors may be added to the Agritope
Board within any 12-month period; and (ii) no person who is affiliated as an
owner, director, officer or employee of a company or business deemed by the
Board of Directors to be competitive with that of Agritope is eligible to serve
on the Agritope Board.
Nominations of Directors and Other Matters Brought by Stockholders. The
Bylaws require that, generally, in addition to other applicable requirements, in
order for an Agritope stockholder to (i) nominate a person for election to the
Agritope Board at an annual meeting of stockholders or (ii) properly bring a
matter before an annual meeting of stockholders, such stockholder must notify
Agritope of his or her intentions not less than 60 days prior to the anniversary
date of the preceding annual meeting of stockholders (with respect to the 1998
meeting of shareholders, not later than December 15, 1997). Moreover, in order
to be valid, any such notice must be in proper written form as more specifically
described in the Bylaws.
Amendment of Certificate of Incorporation. The Certificate of
Incorporation requires the approval of the holders of at least two-thirds of the
outstanding Agritope Common to amend certain provisions of the Certificate of
Incorporation, including certain of the anti-takeover measures described above.
- 61 -
<PAGE>
DELAWARE BUSINESS COMBINATIONS STATUTE
Agritope is subject to certain provisions of the Delaware General
Corporation Law that govern business combinations between corporations and
interested stockholders (the "Business Combinations Statute"). The Business
Combinations Statute generally provides that, if a person or entity acquires 15
percent or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder"), the corporation and the Interested Stockholder, or
any affiliated entity of the Interested Stockholder, may not engage in certain
business combination transactions for three years following the date the person
became an Interested Stockholder. Business combination transactions for this
purpose include: (a) certain mergers and consolidations; (b) certain
transactions involving the sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 10 percent or more of the assets of the corporation; (c)
certain transactions which result in the issuance or transfer of stock to the
Interested Stockholder; (d) certain transactions which result in an increase in
the proportionate share of stock of the corporation which is owned by the
Interested Stockholder; and (e) certain transactions which result in the receipt
by the Interested Stockholder of the benefit of any loans, advances, guarantees,
pledges or financial benefits provided by or through the corporation.
These restrictions do not apply if: (a) the board of directors approves
the business combination or share acquisition before the Interested Stockholder
acquires 15 percent or more of the corporation's outstanding voting stock (as
has been the case with Vilmorin); (b) the Interested Stockholder, as a result of
the transaction in which such person became an Interested Stockholder, owns at
least 85 percent of the outstanding voting stock of the corporation
(disregarding shares owned by directors who are also officers and shares owned
by certain employee stock plans); or (c) the board of directors and, at a
meeting of stockholders, the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Stockholder) approve the transaction at the time or after the Interested
Stockholder acquires 15 percent or more of the corporation's outstanding voting
stock. The Agritope Board has exempted Vilmorin from the application of the
Business Combinations Statute with respect to the following actions: the
exercise of the Series A Option, the exercise of preemptive rights attached to
the Series A Convertible Preferred, the conversion of the Series A Convertible
Preferred into Agritope Common, and Vilmorin's acquisition of a license,
ownership interest, patent or other property relating to, or based upon,
Agritope's technology and research results under the terms of the Vilmorin
Research Agreement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY; INSURANCE
As permitted by Delaware law, Agritope's Certificate of Incorporation
permits, and its Bylaws require, the indemnification of a director or officer
made or threatened to be made a party to a proceeding (other than a proceeding
by or in the right of Agritope to procure a judgment in its favor) because such
person is or was a director or officer of Agritope or one of its subsidiaries
against certain liabilities and expenses, if the director or officer acted in
good faith and in a manner he or she reasonably believed was in or not opposed
to the best interests of Agritope, and, with respect to any criminal action or
proceeding, the director or officer, in addition, had no reasonable cause to
believe his or her conduct was unlawful. In the case of any proceeding by or in
the right of Agritope, a director or officer is entitled to indemnification of
certain expenses if he or she acted in good faith and in a manner he or she
reasonably believed was in or not opposed to the best interests of Agritope.
However, pursuant to Delaware law, the Bylaws and indemnity agreements
Agritope has entered into with its directors and officers, Agritope generally
will not indemnify its directors and officers: (i) in connection with a
proceeding by or in the right of Agritope in which the director or officer is
adjudged liable to Agritope; (ii) in connection with any other proceeding
charging improper personal benefit to the director or officer in which the
director or officer is adjudged liable on the basis that personal benefit was
improperly received by him or her; (iii) in connection with any claim made
against any director or officer for which payment is required to be made to or
on behalf of the director or officer under any insurance policy; (iv) in
connection with any claim made against any director or officer if a court having
jurisdiction in the matter determines that indemnification is not lawful under
any applicable statute or public policy; (v) in connection with any proceeding
(or part of any proceeding) initiated
- 62 -
<PAGE>
by the director or officer or any proceeding by the director or officer against
Agritope or its directors, officers, employees or other agents; and (vi) for an
accounting of profits made from the purchase and sale by the director or officer
of securities of Agritope within the meaning of Section 16(b) of the Exchange
Act or similar provision of any state statutory law or common law. Agritope may
also provide indemnification to persons other than its directors or officers
under certain circumstances.
As permitted by Delaware law, the Certificate of Incorporation also
provides that no director will be liable to Agritope or its stockholders for
monetary damages for breach of fiduciary duty as a director, except that
personal liability may exist for any: (i) breach of the director's duty of
loyalty to Agritope or its stockholders; (ii) act or omission not in good faith
or that involves intentional misconduct or a knowing violation of the law; (iii)
unlawful distribution to stockholders; (iv) transaction from which the director
derives an improper personal benefit; or (v) profits made from the purchase and
sale by the director of securities of Agritope within the meaning of Section
16(b) of the Exchange Act or similar provision of any state statutory law or
common law.
As stated above, Agritope has entered into agreements to indemnify its
directors and officers. The agreements are generally intended to provide the
maximum indemnification permitted by Delaware law. The agreements, among other
provisions, will indemnify each of Agritope's directors and officers in any
action or proceeding for certain expenses (including attorney fees) and (other
than in an action or proceeding by or in the right of Agritope) judgments, fines
and settlement amounts incurred on account of such person's services as a
director or officer of Agritope or, at Agritope's request, as a director,
officer, employee or agent of another enterprise. The agreements also limit the
liability of Agritope's directors and officers in respect of their conduct in
serving Agritope to the extent permitted by Delaware law, as described above.
Agritope understands that the current position of the Commission is
that any indemnification of liabilities arising under the Securities Act is
against public policy and is, therefore, unenforceable.
Agritope intends to obtain insurance insuring its directors and
officers against certain liabilities, including liabilities under federal and
state securities laws.
LEGAL MATTERS
The validity of the Agritope Common will be passed upon by Tonkon Torp
LLP, Portland, Oregon. Miller, Nash, Wiener, Hager & Carlsen LLP has provided
the tax opinion in connection with the Distribution.
EXPERTS
The financial statements as of September 30, 1997 and 1996 and for each
of the three years in the period ended September 30, 1997 included in this
Information Statement/Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
- 63 -
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Accountants...............................................................................F-1
Consolidated Balance Sheets
at September 30, 1997 and September 30, 1996............................................................F-2
Consolidated Statements of Operations
for the years ended September 30, 1997, 1996, and 1995 .................................................F-3
Consolidated Statements of Changes in Shareholder's Equity
for the years ended September 30, 1997, 1996, and 1995 .................................................F-4
Consolidated Statements of Cash Flows
for the years ended September 30, 1997, 1996, and 1995..................................................F-5
Notes to Consolidated Financial Statements......................................................................F-6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Epitope, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Agritope, Inc. (as described in Note 1 to these financial statements) and its
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Note 2, the basis of presentation of these financial statements
differs from previously issued Agritope Group financial statements in that
certain cash and cash equivalents and the related interest income that were
previously allocated to Agritope have not been allocated to Agritope in these
financial statements.
PRICE WATERHOUSE LLP
Portland, Oregon
October 31, 1997, except for Note 11, as to which the date is December 5, 1997
F-1
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
SEPTEMBER 30 1997 1996
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2)............................ $ 4,384 $ 476,512
Trade accounts receivable, net (Note 2)....................... 617,359 264,986
Other accounts receivable..................................... 5,554 32,337
Inventories (Note 2).......................................... 2,081,295 509,745
Prepaid expenses.............................................. 276,224 812
-------------- ---------------
Total current assets.......................................... 2,984,816 1,284,392
Property and equipment, net (Notes 2 and 4)................... 2,749,788 1,286,197
Patents and proprietary technology, net (Note 2).............. 1,276,692 510,244
Investment in affiliated companies (Note 3)................... 246,962 2,448,623
Other assets and deposits (Note 5)............................ 26,797 140,513
-------------- ---------------
$ 7,285,055 $ 5,669,969
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable............................................... $ 100,945 $ 91,474
Current portion of installment notes payable................... 4,255 -
Convertible notes (Note 5)..................................... - 3,620,003
Current portion of lease liability (Note 9).................... 341,304 -
Salaries, benefits and other accrued liabilities............... 879,504 735,478
-------------- ---------------
Total current liabilities...................................... 1,326,008 4,446,955
Long-term portion of installment notes payable................. 14,569 -
Long-term portion of lease liability (Note 9).................. 450,805 -
Minority interest (Note 3)..................................... 730,947 215,407
Commitments and contingencies (Note 9)......................... - -
Shareholder's equity (Note 6)
Preferred stock, no par value
1,000,000 shares authorized;
no shares issued and outstanding............................. - -
Common stock, no par value
20,000,000 shares authorized;
2,000,000 shares issued and outstanding...................... 45,930,932 33,485,214
Accumulated deficit............................................ (41,168,206) (32,477,607)
-------------- ---------------
4,762,726 1,007,607
$ 7,285,055 $ 5,669,969
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 1997 1996 1995
Revenues
<S> <C> <C> <C>
Product sales.............................................. $ 1,436,498 $ - $ 2,015,318
Grants and contracts (Note 8).............................. 114,692 585,485 94,370
---------- ---------- ---------
1,551,190 585,485 2,109,688
Costs and expenses
Product costs.............................................. 1,326,163 - 3,235,675
Research and development costs (Note 8).................... 1,681,646 1,338,703 2,204,993
Selling, general and administrative expenses
(Note 2)................................................. 3,081,074 1,482,694 4,479,498
--------- --------- ---------
6,088,883 2,821,397 9,920,166
Loss from operations.................................. (4,537,693) (2,235,912) (7,810,478)
---------- ---------- ----------
Other income (expense), net
Interest income....................................... - - 7,535
Interest expense...................................... (25,307) (265,356) (241,775)
Valuation loss........................................ (2,258,080) - -
Debt conversion ...................................... (1,216,654) - -
Other, net (Note 9)................................... (927,234) - (500)
---------- ---------- ----------
(4,427,275) (265,356) (234,740)
Minority interest in subsidiary net loss.............. 274,369 - -
---------- ---------- ----------
Net loss.............................................. $ (8,690,599) $ (2,501,268) $ (8,045,218)
Net loss per share.................................... $ (4.35) $ (1.25) $ (4.02)
Weighted average number
of shares outstanding .............................. 2,000,000 2,000,000 2,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1994 ............................... $ 21,449,141 $ (21,931,121) $ (481,980)
Compensation expense for stock awards (Note 6)................ 69,998 - 69,998
Compensation expense for stock option grants
(Note 6).................................................... 318,375 - 318,375
Capital contributed by Epitope, Inc., upon exchange of
convertible notes (Note 5) ................................. 449,991 - 449,991
Equity issuance costs (Note 5) ............................... (22,487) - (22,487)
Cash from Epitope, Inc. ...................................... 7,786,338 - 7,786,338
Net loss for the year ........................................ - (8,045,218) (8,045,218)
------------ ----------- ----------
Balances at September 30, 1995 ............................... 30,051,356 (29,976,339) 75,017
Compensation expense for stock awards (Note 6)................ 14,500 - 14,500
Compensation expense for stock option grants (Note 6) ........ 229,164 - 229,164
Cash from Epitope, Inc. ...................................... 3,190,194 - 3,190,194
Net loss for the year ........................................ - (2,501,268) (2,501,268)
------------ ----------- -----------
Balances at September 30, 1996 ............................... 33,485,214 (32,477,607) 1,007,607
Compensation expense for stock awards (Note 6)................ 33,063 - 33,063
Compensation expense for stock option grants (Note 6)......... 20,832 - 20,832
Capital contributed by Epitope, Inc., upon exchange of
convertible notes (Note 5) ................................. 4,529,009 - 4,529,009
Equity issuance costs (Note 5)................................ (86,134) - (86,134)
Minority interest investment in subsidiary (Note 6)........... 742,752 - 742,752
Cash from Epitope, Inc. ...................................... 7,206,196 - 7,206,196
Net loss for the year ........................................ - (8,690,599) (8,690,599)
------------ ----------- -----------
Balances at September 30, 1997 ............................... $ 45,930,932 $ (41,168,206) $ 4,762,726
Note: There were 2,000,000 shares of common stock outstanding during all periods presented.
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss......................................................$ (8,690,599) $ (2,501,268) $ (8,045,218)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................. 566,813 294,045 663,379
Compensation expense for stock awards......................... 33,063 14,500 69,998
Compensation expense for stock option grants ................. 20,832 229,164 318,375
Minority interest in subsidiary operating results............. (274,369) - -
Valuation loss................................................ 2,258,080 - -
Non-cash portion of cost of debt conversion................... 1,149,054 - -
Decrease (increase) in receivables............................ (325,590) 832,333 (945,501)
Decrease (increase) in inventories............................ (1,571,550) (509,745) 88,737
Decrease (increase) in prepaid expenses....................... (275,412) 55,252 (55,639)
Decrease (increase) in other assets and deposits.............. 21,462 (36,219) 9,137
Increase (decrease) in accounts payable and
accrued liabilities......................................... 945,606 494,633 (104,680)
Other......................................................... - - 500
--------- --------- ----------
Net cash used in operating activities (6,142,610) (1,127,305) (8,000,912)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment........................... (1,927,209) (886,646) (238,558)
Proceeds from sale of property................................ - - 13,258
Expenditures for patents and proprietary
technology.................................................. (870,910) (411,943) (178,208)
Investment in affiliated companies............................ (56,419) (473,790) 610,146
---------- ---------- ----------
Net cash (used in) provided by investing activities (2,854,538) (1,772,379) 206,638
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt.................................... 20,887 - -
Principal payments on long-term debt ......................... (242,063) (39,508) (16,137)
Minority interest investment in subsidiary (Note 6)........... 1,540,000 215,407 -
Cash from Epitope, Inc........................................ 7,206,196 3,190,194 7,786,338
--------- --------- ---------
Net cash provided by financing activities 8,525,020 3,366,093 7,770,201
Net increase (decrease) in cash and cash equivalents.......... (472,128) 466,409 (24,073)
Cash and cash equivalents at beginning of year................ 476,512 10,103 34,176
---------- --------- -----------
Cash and cash equivalents at end of year $ 4,384 $ 476,512 $ 10,103
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Agritope, Inc. (the "Company" or "Agritope") is an Oregon corporation utilizing
biotechnology to develop and market superior new plants and related products.
Through its 61 percent owned subsidiary, Vinifera, Inc. ("Vinifera"), Agritope
is also engaged in the business of propagation, growing, and distribution of
grapevine plants. Agrimax Floral Products, Inc. ("Agrimax") is an inactive
subsidiary that holds minority interests in two flower distribution businesses.
See Note 3, Investment in Affiliated Companies. Agritope is a wholly owned
subsidiary of Epitope, Inc. ("Epitope"), an Oregon corporation engaged in the
development and marketing of medical diagnostic products.
Agritope Spin-off. In July 1997, Epitope's board of directors approved a
management proposal to spin off Agritope, subject to obtaining financing for
Agritope and the satisfaction of certain other conditions. Agritope has agreed
to sell 1,343,704 shares of Agritope common stock in a private placement to
certain investors for an aggregate price of $9,406,000, immediately after the
spin-off. The spin-off will be accomplished by a distribution of Agritope common
stock to Epitope's shareholders. Epitope will not own or control any shares of
Agritope stock following the spin-off, which is expected to occur in December
1997.
Agritope and Epitope will enter into certain agreements governing the ongoing
relationship between the companies after the spin-off, including a Separation
Agreement, a Tax Allocation Agreement, a Transition Services and Facilities
Agreement and an Employee Benefits Agreement. Pursuant to the Employee Benefits
Agreement, Agritope has agreed to establish replacement plans that effectively
continue to provide benefits available under current Epitope benefit plans.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the assets, liabilities, revenues and expenses of Agritope and its
majority owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Minority-owned investments and
joint ventures are accounted for using the equity method. Investments of less
than 20 percent are carried at cost or estimated net realizable value, whichever
is lower. Intercompany balances with Epitope have been reflected as capital
contributions (common stock) in the accompanying consolidated financial
statements because they will be converted into a permanent capital contribution
in conjunction with the spin-off.
The basis of presentation of these financial statements differs from the
previously issued Agritope Group financial statements contained in Epitope's
most recent Form 10-K and 10-Q filings. In the previously issued financial
statements, cash and cash equivalents and the related interest income were
allocated to Agritope in connection with a contemplated targeted stock
transaction. The targeted stock proposal was subsequently withdrawn by the
Epitope board of directors. With respect to the spin-off, these items will not
be transferred to Agritope and therefore have not been allocated to Agritope in
these financial statements.
Certain corporate overhead services such as accounting, annual meeting costs,
annual report preparation, audit, executive management, facilities, finance,
general management, human resources, information systems, investor relations,
legal services, payroll and SEC filings are provided by Epitope on a centralized
basis for the benefit of Agritope ("Shared Services"). Such expenses have been
allocated to Agritope in the accompanying financial
F-6
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements using activity indicators which, in the opinion of management,
represent a reasonable measure of Agritope's utilization of such Shared
Services. These activity indicators, which are reviewed periodically and
adjusted to reflect changes in utilization, include number of employees, number
of computers, and level of expenditures. Management believes that the amount
allocated for these Shared Services is not materially different from the amount
which would be incurred by Agritope for such services provided on a stand-alone
basis. Allocated Shared Services of $1,402,895, $1,069,249 and $1,892,370,
respectively, for 1997, 1996 and 1995 are included under the caption "Selling,
general and administrative expenses."
Cash and Cash Equivalents. For purposes of the consolidated balance sheets and
statements of cash flows, all highly liquid investments with maturities at time
of purchase of three months or less are considered to be cash equivalents.
Inventories. Inventories, consisting principally of growing grapevine plants at
Vinifera, are recorded at the lower of average cost or market. Average cost
includes all direct and indirect costs attributable to the growing grapevine
plants. Inventory is summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Work-in-process ................................................................ $ 1,387,706 $ 471,208
Finished goods ................................................................. 693,589 38,537
----------- ---------
$ 2,081,295 $ 509,745
</TABLE>
Depreciation and Capitalization Policies. Property and equipment are stated at
cost less accumulated depreciation. Expenditures for repairs and maintenance are
charged to operating expense as incurred. Expenditures for renewals and
betterments are capitalized. Depreciation and amortization of property and
equipment are calculated primarily under the straight-line method over the
estimated useful lives of the related assets (three to seven years). Leasehold
improvements are amortized over the shorter of estimated useful lives or the
terms of the related leases. When assets are sold or otherwise disposed of, cost
and related accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is included in operations.
Accounting for Long-Lived Assets. The Company reviews its long-lived assets for
impairment periodically or as events or circumstances indicate that the carrying
amount of long-lived assets may not be recoverable. If the estimated net cash
flows are less than the carrying amount of the long-lived assets, the Company
recognizes an impairment loss in an amount necessary to write down long-lived
assets to fair value as determined from expected discounted future cash flows.
This accounting policy is consistent with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." See Note 3, Investment in Affiliated
Companies.
Patents and Proprietary Technology. Direct costs associated with patent
submissions and acquired technology are capitalized and amortized over their
minimum estimated economic useful lives, generally five years.
In August 1996, the Company amended the 1987 agreement pursuant to which it
acquired its patented ethylene control technology. A co-inventor of the
technology relinquished all rights to future compensation under the agreement in
exchange for a one-time cash payment of $365,000, a research grant and a limited
non-exclusive license to use the technology for one crop. The amount is included
under the caption "Patents and proprietary technology" and is being amortized
over 15 years, the remaining life of the related patent.
On November 11, 1996, the Company further amended the ethylene control
technology agreement. A co-inventor
F-7
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the technology who is an officer of the Company relinquished all rights to
future payments under the agreement in exchange for a one-time cash payment of
$590,000. The amount is included under the caption "Patents and proprietary
technology" and is being amortized over 15 years, the remaining life of the
related patent.
Amortization and accumulated amortization are summarized as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Amortization for the year ended September 30,............. $ 63,489 $ 42,456 $ 23,964
Accumulated amortization ................................. 143,396 79,907 37,451
</TABLE>
Fair Value of Financial Instruments. The carrying amounts for cash equivalents,
accounts receivable, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amount for installment notes payable and convertible notes approximates fair
value because the related interest rates are comparable to rates currently
available to the Company for debt with similar terms and maturities.
Revenue Recognition. Product sales are recognized when the related products are
shipped. Grant and contract revenues include funds received under research and
development agreements with various entities. These grants and contracts
generally provide for progress payments as expenses are incurred and certain
research milestones are achieved. Revenue related to such grants and contracts
is recognized as research milestones are achieved. Accounts receivable are
stated net of an allowance for doubtful accounts of $57 as of September 30, 1997
and $19,571 as of September 30, 1996.
Research and Development. Research and development expenditures are comprised of
those costs associated with Agritope's ongoing research and development
activities to develop superior new plants. Expenditures for research and
development also include costs incurred under contracts to develop certain
products, including those contracts resulting in grant and contract revenues.
All research and development costs are expensed as incurred.
Income taxes. The Company accounts for certain revenue and expense items
differently for income tax purposes than for financial reporting purposes. These
differences arise principally from methods used in accounting for stock options
and depreciation rates. Deferred tax assets and liabilities are recognized based
on temporary differences between the financial statement and the tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse.
Stock-based Compensation. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies which have
stock-based compensation arrangements with employees to adopt a fair-value basis
of accounting for stock options and other equity instruments or to continue to
apply the existing accounting rules under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), but with additional
financial statement disclosure. In November 1997, the Company adopted two
stock-based compensation plans for employees. When options or other securities
are issued under these plans, the Company expects to continue to apply the
existing accounting rules under APB 25.
Net Loss Per Share. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). This new standard is effective for interim and annual periods
ending after December 15, 1997. SFAS 128 will require the reporting of "basic"
and "diluted" earnings per share ("EPS") instead of "primary" and "fully
diluted" EPS as required under current accounting principles. Basic EPS
eliminates the common stock equivalents considered in calculating primary EPS.
Diluted
F-8
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EPS is similar to fully diluted EPS. Since Agritope had no common stock
equivalents during the periods presented, basic EPS would have been the same as
primary EPS and there would be no diluted EPS calculation.
Supplemental Cash Flow Information. Non-cash financing and investing activities
not included in the consolidated statements of cash flows are summarized as
follows:
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
<S> <C> <C> <C>
Conversion of notes to equity (Note 5)............... $ 3,380,000 $ - $ 472,478
Minority interest contribution of capital (Note 6)... 742,752 - -
Investment in affiliated companies (Note 3) ......... - - 2,584,979
</TABLE>
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates.
Reclassifications. Certain reclassifications have been made to prior years' data
to conform with the current year's presentation. These reclassifications had no
impact on previously reported results of operations or shareholders' equity.
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
Agrimax. Agritope's investment in affiliated companies includes two investments
owned by Agrimax; a 9 percent interest in UAF, Limited Partnership ("UAF"), a
fresh flower distribution operation in Charlotte, North Carolina, and a 19.5
percent interest in Petals USA, Inc. ("Petals"), an affiliate of a Canadian
fresh flower wholesaler.
In May 1995, Agritope's wholly owned subsidiary, Agrimax, ceased operations as
an independent entity. Agrimax had been engaged in the fresh flower packaging
and distribution business. Also in May 1995, the Company surrendered control of
its Charlotte facility and contributed inventory and operating supplies to a
limited liability company ("LLC") 60 percent owned by Universal American
Flowers, Inc. and 40 percent owned by the Company pursuant to an Operating and
Transition Agreement (the "Agreement"). Pursuant to the Agreement, on October
27, 1995, the assets and liabilities of LLC and of Universal American Flowers,
Inc., together with the Company's equipment and leasehold improvements located
at the Charlotte facility, were transferred to a newly formed entity, UAF. UAF
also assumed the liability for the lease of the Charlotte facility. In fiscal
1995, the Company removed the assets transferred to LLC from its books and
recorded the cost of such assets as "Investment in affiliated companies," less a
charge of $500,000, representing the Company's share in the losses of LLC during
the intervening period in which a 40 percent interest was held, and estimated
costs to discontinue the Agrimax business. Until May 1995, the Agrimax business
was included in the Company's financial statements. From May 1995 through
October 27, 1995, the Company followed the equity method of accounting for its
investment in UAF in accordance with Accounting Principles Board Opinion No. 18
("APB 18"). Since October 27, 1995, the investment in UAF has been accounted for
under the cost method in accordance with APB 18. In 1996, the equity interest of
Agrimax in UAF was reduced to 9 percent as the result of a recapitalization of
UAF.
In 1996, Agrimax contributed the operating assets of its discontinued St. Paul,
Minnesota operations to Petals, an
F-9
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unrelated company, in exchange for a 19.5 percent equity interest in Petals. No
gain or loss was recognized on the transaction with Petals and the investment in
Petals was recorded at the net book value of the contributed assets.
Based on information that became available on December 26, 1996, including
information related to continued operating losses at UAF in the four months
ended October 31, 1996, coupled with a shortfall in sales and larger operating
loss than expected at Petals in the fourth quarter of calendar 1996, the Company
recorded a non-cash charge to results of operations of $1,900,000 during the
first quarter of fiscal 1997, reflecting the permanent impairment in the value
of its investment in affiliated companies, and reducing the carrying value of
the assets to management's estimate of the net realizable value.
In October 1997, the majority owner of Petals informed the Company that it had
entered into negotiations to sell Petals to an unrelated third party. Under the
proposed terms of sale, the Company's interest in Petals would be reduced to
less than 10 percent. The Company was further informed that the majority owner
did not intend to advance additional funds to Petals and that if a sale could
not be consummated, intended that Petals would cease operations and liquidate
its assets. Based on this information, the Company believes that its investment
in Petals has more than temporarily declined and, accordingly, recorded an
additional charge to operations of $358,080 in the fourth quarter of 1997.
The Company's investment in affiliated companies is summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Investment in UAF...................................................... $ - $ 1,847,148
Investment in Petals................................................... - 410,932
Vinifera Sud Americana................................................. 200,000 -
Other investments...................................................... 46,962 190,543
--------- -----------
Investment in affiliated companies..................................... $ 246,962 $ 2,448,623
</TABLE>
For the year ended September 30, 1995, the accompanying financial statements
include revenue of $1,914,000 and an operating losses of $3,299,000 attributable
to Agrimax. The accompanying statement of operations for the year ended
September 30, 1995 includes the results of operations of Agrimax through May
1995 and also includes a charge of $500,000 to selling, general and
administrative expenses attributable to the disposition of Agrimax's business.
Vinifera. In June 1995, Agritope agreed to sell its wholly owned grapevine plant
propagation subsidiary, Vinifera, to VF Holdings, Inc. ("VF"), an affiliate of a
Swiss investment group, pursuant to a stock purchase agreement. VF subsequently
failed to make the payments required under the VF Agreement. As part of a
settlement of claims based on VF's default, VF retained a 4 percent minority
interest in Vinifera and relinquished the remaining interest to Agritope in
August 1996. Additional minority investors in Vinifera reduced Agritope's
ownership to 76 percent as of September 30, 1996, and to 61 percent as of
September 30, 1997.
The reacquisition of Vinifera in August 1996 has been accounted for under the
purchase method. The net purchase price of $916,000 has been allocated to
tangible net assets. Vinifera's results of operations are included in the
consolidated statements of operations from October of 1994 through May of 1995,
for the month of September 1996 and for all of 1997. The following summarized,
unaudited pro forma results of operations are presented as if the reacquisition
had occurred on the first day of each period shown.
F-10
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
YEAR ENDED SEPTEMBER 30
1996 1995
Pro forma Pro forma
Historical adjustments Pro forma Historical adjustments Pro forma
<S> <C> <C> <C> <C> <C> <C>
Revenues...................$ 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)
Net loss per share (1.25) (.73) (1.98) (4.02) (.23) (4.25)
</TABLE>
In 1997, Vinifera made a $200,000 investment in Vinifera Sudamericana, S.A.
("VSA"), an Argentina joint venture established to propagate and market
grapevine plants to the growing South American wine industry. Vinifera owns a 20
percent interest in VSA and accounts for this investment under the cost method.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Land .................................................................. $ 30,020 $ 30,020
Grapevine propagation blocks .......................................... 1,160,430 384,063
Production equipment................................................... 79,289 38,075
Buildings and improvements ............................................ 2,127,237 717,508
Research and development laboratory equipment ......................... 353,380 220,919
Office furniture and equipment ........................................ 191,290 140,452
Leasehold improvements................................................. 23,962 23,962
Construction in progress .............................................. 10,000 499,981
------------- ------------
3,975,608 2,054,980
Less accumulated depreciation and amortization ........................ (1,225,820) (768,783)
------------- ------------
$ 2,749,788 $ 1,286,197
</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 were unsecured, matured on June 30, 1997 and bore interest at
the rate of 4 percent per annum which was payable on each June 30 and December
31. The notes were convertible into common stock of Epitope at a conversion
price of $19.53 per share.
During the year ended September 30, 1995, investors exchanged $449,991 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
exchange, unamortized debt issuance costs of $22,487 related to such notes were
recognized as equity issuance costs during 1995.
F-11
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1996, Epitope exchanged $3,380,000 principal amount of Agritope
convertible notes for 250,367 shares of common stock of Epitope at a reduced
exchange price of $13.50 per share. The exchange price had previously been fixed
at $19.53 per share. Accordingly, Agritope recognized a charge to results of
operations of $1,216,654 in the first quarter of fiscal 1997 representing the
conversion expense. In conjunction with the exchange, unamortized debt issuance
costs of $86,134 related to such notes were recognized as equity issuance costs
during 1997. Concurrent with the note conversion, Epitope made a $4,529,009
capital contribution to Agritope. On June 30, 1997, Agritope paid in full the
remaining $240,000 principal amount outstanding.
Debt issuance costs were included in other assets and were being amortized over
the five-year life of the notes. Amortization expense of debt issuance costs for
the years ended September 30, 1997, 1996 and 1995, respectively, totaled $2,687,
$108,257 and $96,136.
NOTE 6 SHAREHOLDER'S EQUITY
Authorized Capital Stock. At September 30, 1997, Agritope's amended articles of
incorporation authorized 1,000,000 shares of preferred stock and 20,000,000
shares of common stock. The Company's board of directors has authority to
determine preferences, limitations and relative rights of the preferred stock.
Common Stock. Cash and cash equivalents provided to Agritope by Epitope have
been reflected in common stock. Also reflected in common stock are certain
transactions in Epitope common stock. The exchange of shares of Epitope common
stock for Agritope convertible debt and the related write-off of debt issuance
costs have been reflected as Agritope common stock.
As employees of a wholly owned subsidiary of Epitope, the employees of Agritope
and its subsidiaries have participated in stock award, employee stock purchase
and other benefit plans of Epitope. Compensation expense recognized for Epitope
stock grants and awards to Agritope employees totaling $53,895 in 1997, $243,664
in 1996 and $388,373 in 1995, has been recognized as operating expenses and
common stock of Agritope.
In the first quarter of fiscal 1997, a minority shareholder in Vinifera
contributed $100,000 to Vinifera in satisfaction of a stock subscription
agreement. In the third quarter of fiscal 1997, Agritope sold 770,000 shares of
common stock of Vinifera to outside parties for $1,540,000 in cash. In
accordance with the terms of the related stock purchase agreements, Agritope
contributed the proceeds of these stock sales to Vinifera's capital. These sales
of previously issued shares of Vinifera common stock reduced percentage
ownership of Vinifera voting stock from 76 percent to 61 percent.
F-12
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 INCOME TAXES
As of September 30, 1997, Agritope had net operating loss carryforwards of
approximately $34.1 million and $21.2 million, respectively, to offset federal
and Oregon state taxable income. These net operating loss carryforwards will
expire if not used by Agritope, as follows:
<TABLE>
YEAR OF EXPIRATION FEDERAL OREGON
<S> <C> <C>
2004................................................................... $ 111,000 $ 111,000
2005................................................................... 317,000 317,000
2006................................................................... 941,000 941,000
2007................................................................... 2,620,000 2,620,000
2008................................................................... 6,733,000 4,847,000
2009................................................................... 8,327,000 2,179,000
2010................................................................... 8,477,000 3,765,000
2011................................................................... 2,249,000 2,168,000
2012................................................................... 4,279,000 4,279,000
------------- --------------
$ 34,054,000 $ 21,227,000
Significant components of Agritope's deferred tax asset were as follows:
SEPTEMBER 30 1997 1996
Net operating loss carryforwards....................................... $ 12,215,000 $ 10,862,000
Deferred compensation.................................................. 513,000 493,000
Research and experimentation credit carryforwards...................... 418,000 339,000
Accrued expenses....................................................... 805,000 15,000
Other.................................................................. 622,000 59,000
------------- --------------
Gross deferred tax assets.............................................. 14,573,000 11,768,000
Valuation allowance.................................................... (14,573,000) (11,768,000)
------------- -------------
Net deferred tax asset................................................. $ - $ -
</TABLE>
No benefit for Agritope's deferred tax assets has been recognized in the
accompanying financial statements as they do not satisfy the recognition
criteria set forth in SFAS 109. The valuation allowance increased by $2.8
million in 1997. The research and experimentation tax credit carryforwards will
generally expire from 2004 through 2011 if not used by Agritope. Net operating
loss and tax credit carryforwards incurred by Agritope through the date of the
spin-off (see Note 1, The Company--Agritope Spin-off) will continue as
carryforwards of Agritope after the date of distribution. The issuance of voting
stock in future years may result in a change of ownership under federal tax
rules and regulations. Upon occurrence of such a change in ownership,
utilization of existing tax loss and tax credit carryforwards would be subject
to cumulative annual limitations.
The expected federal statutory tax benefit of $3.0 million for the year ended
September 30, 1997 is increased by approximately $323,000 for the effect of
state and local taxes (net of federal impact), and decreased by approximately
$2.8 million for the effect of the increase in valuation allowance, and by
$433,000 for permanent differences consisting primarily of debt to equity
conversion costs.
The 1997 consolidated financial statements include the financial results of
Vinifera, a 61 percent owned subsidiary
F-13
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(see Note 3). However, the tax disclosures above do not include the deferred tax
assets and related valuation allowance for Vinifera's carryforwards since
Vinifera is not included in the consolidated group for tax purposes. Vinifera
files its tax return separately on a stand-alone basis.
NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS
Agritope performed research work in 1997, 1996 and 1995 with respect to
grapevine disease diagnostics funded by a grant from the U.S. Department of
Agriculture under the Small Business Innovation Research Program and in 1996 and
1995 with respect to raspberries which was partially funded by Sweetbriar
Development, Inc. under a License Agreement dated October 18, 1994. Agritope has
also received grant support from the U.S. Department of Agriculture, Oregon
Strawberry Commission, and Oregon Raspberry & Blackberry Commission for
antifungal biocontrol research and from several strategic partners.
Revenues from research and development arrangements are included in the
accompanying consolidated statements of operations under the caption "Grants and
contracts." Expenses related to such arrangements are included under the caption
"Research and development costs." The activity related to these arrangements is
summarized as follows:
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
<S> <C> <C> <C>
Government research grants................................ $ 30,228 $ 144,987 $ 16,358
Research projects with strategic partners................. 52,770 326,462 40,000
Other..................................................... 31,694 114,036 38,012
----------- ----------- -----------
$ 114,692 $ 585,485 $ 94,370
Project related expenses.................................. $ 272,309 $ 461,460 $ 318,401
</TABLE>
In October 1997, Agritope was awarded a U.S. Department of Commerce grant
totaling $990,000 and covering a three-year period. Agritope was awarded the
grant for use in the application of its proprietary ripening control technology
to certain tree fruits and bananas.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Vinifera leases office and greenhouse facilities under operating lease
agreements which require minimum annual payments as follows:
YEAR ENDING SEPTEMBER 30
<TABLE>
<S> <C>
1998 ..................................................... $ 153,000
1999 ..................................................... 153,000
2000 ..................................................... 153,000
2001 ..................................................... 53,000
--------------
$ 512,000
</TABLE>
F-14
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agritope also occupies office, greenhouse and laboratory facilities which are
leased by Epitope. The occupancy costs associated with these facilities are
allocated to Agritope on the basis of square footage utilized. Rent expense
incurred by Agritope, including amounts allocated by Epitope, aggregated
$326,388, $218,100 and $353,816 for the years ended September 30, 1997, 1996 and
1995, respectively.
Agritope is also contingently liable for a lease which has been assigned to UAF
and the lease of property which has been subleased to Petals in the following
amounts:
YEAR ENDING SEPTEMBER 30
<TABLE>
<S> <C>
1998...................................................... $ 341,304
1999...................................................... 347,104
1999...................................................... 55,701
--------------
$ 744,109
</TABLE>
During 1997, the Company accrued its contingent obligation under these leases as
both UAF and Petals have defaulted on the related subleases. A charge of
$744,109 is reflected in other expense in 1997.
NOTE 10 PROFIT SHARING AND SAVINGS PLAN
Epitope established a profit sharing and deferred salary savings plan in 1986
and restated the plan in 1991. All Agritope employees are eligible to
participate in the plan. In addition, the plan permits certain voluntary
employee contributions to be excluded from the employees' current taxable income
under the provisions of Internal Revenue Code Section 401(k) and the regulations
thereunder. Effective October 1, 1991, Epitope replaced a discretionary profit
sharing provision with a matching contribution (either in cash, shares of
Epitope common stock, or partly in both forms) equal to 50 percent of an
employee's basic contribution, not to exceed 2.5 percent of an employee's
compensation. The board of directors of Epitope has the authority to increase or
decrease the 50 percent match at any time. During 1997, 1996 and 1995,
respectively, Agritope was charged $33,063, $14,500 and $29,877 by Epitope for
its share of the matching contribution under the plan.
NOTE 11 SUBSEQUENT EVENTS
Delaware Reincorporation; Recapitalization. In November 1997, in connection with
the spin-off of Agritope by Epitope, Agritope agreed to merge with Agritope,
Inc., a newly formed Delaware corporation. The purpose of the merger is to
change the Company's domicile from Oregon to Delaware and increase the Company's
authorized capital stock to 30 million shares of common stock, par value $.01
per share, and 10 million shares of preferred stock, par value $.01 per share.
On November 25, 1997, the Agritope board of directors declared a stock dividend
of approximately 690,866 shares of Agritope common stock to the sole Agritope
stockholder, with the exact number of shares to be issued as a dividend to be
the number needed to effect the spin-off based on a distribution ratio of one
share of Agritope common stock for each five shares of Epitope common stock
outstanding on the record date for the spin-off. Thus, approximately 2,690,866
shares of Agritope common stock will be distributed to the shareholders of
Epitope in the spin-off.
F-15
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Award Plan. In November 1997, the Agritope, Inc. 1997 Stock Award Plan
(the "Award Plan") was adopted by Agritope's board of directors and approved by
Epitope as Agritope's sole stockholder. The Award Plan provides for stock-based
awards to employees, outside directors, members of scientific advisory
committees and other consultants. Awards which may be granted under the Award
Plan include incentive stock options, nonqualified stock options, stock
appreciation rights, restricted awards, performance awards and other stock-based
awards.
The Award Plan provides for the issuance of a total of up to 2,000,000 shares of
Agritope common stock, subject to adjustment for changes in capitalization.
Options to purchase a total of 1,253,394 shares, having exercise prices of $5.25
to $7.00 per share, have been granted to officers, employees and nonemployee
directors of Agritope under the Award Plan. In connection with the grants,
Agritope will incur compensation expense of $1,995,440, which will be amortized
over the four-year vesting period of the options.
Employee Stock Purchase Plan. Also in November 1997, Agritope's board of
directors and Epitope, as Agritope's sole stockholder, approved the Agritope,
Inc. 1997 Employee Stock Purchase Plan (the "Purchase Plan"), covering up to
250,000 shares of Agritope common stock which Agritope employees may subscribe
to purchase during offering periods to be established from time to time. The
Compensation Committee of Agritope's board of directors was granted authority to
determine the number of offering periods, the number of shares offered, and the
length of each period. No more than three offering periods (other than Special
Offering Subscriptions as defined in the Purchase Plan) may be set during each
fiscal year. The purchase price for stock purchased under the Purchase Plan is
the lesser of 85 percent of the fair market value of a share on the last trading
day before the offering date established for the offering period and 85 percent
of the fair market value of a share on the date the purchase period ends (or any
earlier purchase date provided for in the Purchase Plan).
Employee Stock Ownership Plan. Agritope's board of directors adopted the
Agritope, Inc. Employee Stock Ownership Plan ("ESOP") in November 1997. After
the spin-off, all employees, except excluded classes, of Agritope and those of
its affiliates which elect to participate will be eligible to participate in the
ESOP. The employers' contribution to the ESOP each year will be determined by
the Agritope board of directors, and may be made either in Agritope common stock
or in cash. Contributions are allocated to participants in proportion to their
compensation. Contributions vest over a six -year period, or upon the
participant's earlier death, disability, or attainment of age 65.
401(k) Profit Sharing Plan. Agritope established the Agritope, Inc. 401(k)
Profit Sharing Plan (the "401(k) Plan") in November 1997. After the spin-off,
all employees (including officers), other than excluded classes, will be
eligible to participate. Participants may contribute up to 17 percent of their
cash compensation on a before-tax basis, subject to an annual maximum amount
which is adjusted for the cost of living ($9,500 for 1997). The first 5 percent
of a participant's compensation is eligible for a discretionary, pro-rata
employer matching contribution which will be invested in Agritope common stock.
Agritope has not yet made any contributions to the 401(k) Plan and the plan does
not hold any shares of Agritope common stock.
Research and Development Agreement. As of December 5, 1997, Agritope and
Vilmorin & Cie ("Vilmorin") had entered into a research and development
agreement covering certain vegetable and flower crops. Under the terms of the
research agreement, Vilmorin will provide certain proprietary seed varieties and
germplasm for use by Agritope in research and development projects to be funded
by Vilmorin, in which Agritope technology, and possibly Vilmorin technology,
will be applied to the various covered crops. The specific research projects to
be conducted will be determined by agreement of the parties. Unless otherwise
agreed, Vilmorin will pay, on a quarterly basis, all Agritope's out-of-pocket
expenses, including employee salaries and overhead, for each selected
F-16
<PAGE>
AGRITOPE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
research project.
Agritope and Vilmorin have agreed to negotiate in good faith the terms of future
commercialization agreements applicable to any commercial-stage products that
arise out of Vilmorin-funded research. If the parties are unable to agree,
commercialization terms will be determined by binding arbitration.
Agritope's board of directors has designated 1 million shares of Agritope
preferred stock, par value $.01 per share, as Series A Preferred Stock ("Series
A Convertible Preferred"). Series A Convertible Preferred has preemptive rights
and the right to elect a director, but otherwise has rights substantially
equivalent to Agritope common stock and is convertible at any time into shares
of Agritope common stock, initially on a share-for-share basis. In connection
with the research agreement, Vilmorin has agreed to purchase 214,285 shares of
Series A Convertible Preferred at a price of $7 per share. Agritope has also
agreed to grant Vilmorin an option, expiring on January 15, 1998, to acquire all
or any portion of the remaining 785,714 shares of Series A Convertible Preferred
at $7 per share. Vilmorin has agreed to provide additional funding totaling $1
million either by exercising its option to purchase Series A Convertible
Preferred or through the financing of research and development projects.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN INFORMATION STATEMENT/PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Amount
SEC Registration Fee............................... $ 1,550
Accounting Fees and Expenses*...................... $ 25,000
Legal Fees and Expenses*........................... $150,000
Blue Sky Fees and Expenses*........................ $ 4,900
Printing, including Registration Statement, $ 50,000
Information Statement/Prospectus, etc.*..........
Miscellaneous Expenses*............................ $ 34,550
--------
TOTAL EXPENSES*.................. $266,000
- ------------
*Estimated
Item 14. Indemnification of Directors and Officers.
Indemnification. Generally, the Delaware General Corporation Law (the
"DGCL") requires the indemnification of an individual made a party to a
proceeding because the individual is or was a director, officer, employee or
agent of the corporation against reasonable expenses incurred by the director,
officer, employee or agent in the proceeding if the individual is wholly
successful on the merits or otherwise. In addition, the DGCL allows a
corporation to indemnify a director, officer, employee or agent of the
corporation if:
(a) The conduct of the individual was in good faith;
(b) The individual reasonably believed that the individual's
conduct was in the best interests of the corporation, or at least not
opposed to its best interests;
(c) In the case of any criminal proceeding, the individual had
no reasonable cause to believe that the individual's conduct was
unlawful; and
(d) In the case of any proceeding by or in the right of the
corporation, the individual was not adjudged liable to the corporation.
The DGCL provides that the indemnification described above is not
exclusive of any other rights to which directors, officers, employees or agents
may be entitled under the corporation's bylaws, or under any agreement, vote of
stockholders or disinterested directors or otherwise.
II-1
<PAGE>
Article 8 of the certificate of incorporation of the Registrant permits
the Registrant to indemnify its directors, officers, employees, and agents to
the fullest extent permitted by law. Article 8 of the bylaws of the Registrant
requires such indemnification as to directors and officers, against expenses and
liability (other than in a proceeding by or in the right of the Registrant),
including attorney fees, actually and reasonably incurred by such individual in
connection with any threatened, pending, or completed action, suit, or
proceeding to which the individual is a party because of service to the
Registrant. Article 8 of the bylaws further provides that the foregoing right of
indemnification is not exclusive of any other rights to which the individual may
be entitled under the DGCL, certificate of incorporation, bylaws, agreement,
vote of stockholders or disinterested directors or otherwise. The Registrant
may, but is not required to, offer the same rights of indemnification, on a
case-by-case basis, to its employees and agents.
In addition to the foregoing right of indemnity, the Registrant will
enter into indemnification agreements with all of its officers and directors,
the forms of which are filed as Exhibits 10.11 and 10.12 hereto. Each
indemnification agreement makes provisions of the DGCL relating to permissive
indemnification mandatory and therefore restates the Registrant's obligation as
set forth in the bylaws, as discussed above. In addition, each indemnification
agreement sets forth the Registrant's obligation to indemnify the party to the
agreement in the event that the indemnitee is entitled to indemnification of
some but not all liability and expenses. The indemnification agreements and the
bylaws also set forth procedures for the defense of claims by the Registrant.
Section 174 of the DGCL provides in substance that any director held
liable pursuant to that section for the unlawful payment of a dividend or other
distribution of assets of a corporation shall be entitled to contribution from
the stockholders who accepted the dividend or distribution, knowing the dividend
or distribution was made in violation of the DGCL. The section also provides
that any such director shall be entitled to contribution from the other
directors who voted for or concurred in the unlawful dividend, stock purchase or
stock redemption.
The Registrant understands that the current position of the Securities
and Exchange Commission is that any indemnification of liabilities arising under
the Securities Act of 1933, as amended, is against public policy and is,
therefore, unenforceable.
The general effect of these provisions is to indemnify directors and
officers of the Registrant against all costs and expenses of liability incurred
by them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with the Registrant, to the fullest
extent permitted by law.
Insurance. The Registrant intends to carry insurance protecting
officers and directors against certain liabilities that they may incur in their
capacities as such.
Item 15. Recent Sales of Unregistered Securities.
Agritope will sell 1,343,704 shares of Agritope Common at a price of $7
per share in the Regulation S Sale to certain foreign investors for an aggregate
price of $9.4 million. Agritope expects that proceeds from the Regulation S Sale
will be received immediately following the Distribution. Agritope and Vilmorin
have also agreed to the Preferred Stock Sale for the sale of 214,285 shares of
Agritope Series A Convertible Preferred at a price of $7 per share for an
aggregate purchase price of $1.5 million. In addition, Agritope has granted
Vilmorin the Series A Option, exercisable by Vilmorin or its designees and
expiring January 15, 1998, to purchase up to 785,715 additional shares of Series
A Convertible Preferred at a price of $7 per share. Subscribers in the
Regulation S Sale have entered stock purchase agreements and have deposited the
purchase price in an escrow account, pending completion of the Distribution and
the closing of the Regulation S Sale. Shares sold in the Regulation S Sale and
the sale of Series A Convertible Preferred will not be registered under the
Securities Act in reliance upon the exemption from registration provided by
Regulation S.
II-2
<PAGE>
To facilitate the December 1997 merger (the "Merger") of Agritope,
Inc., an Oregon corporation, with and into the Registrant, on November 14, 1997,
the Registrant issued one share of its common stock, par value $.01 per share,
to Epitope, Inc., an Oregon corporation, in consideration for Epitope's payment
to the Registrant of $100. The share was canceled when the Merger took effect.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits to the Registration Statement required by Item 601 to
Regulation S-K are listed in the accompanying index to exhibits.
(b) No financial statement schedules have been filed because the
requested information is not applicable or is provided as part of the
consolidated financial statements in the Information Statement/Prospectus
included in this Registration Statement.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Beaverton, state of Oregon, on December 19, 1997.
AGRITOPE, INC.
By /s/ Gilbert N. Miller
Gilbert N. Miller, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 5 to the Registration Statement has been signed on December 19,
1997, by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
* 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
*MICHEL de BEAUMONT Director
Michel de Beaumont
*By /s/ Gilbert N. Miller
Gilbert N. Miller
(Attorney-in-Fact)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Number Description
2.* Separation Agreement between Epitope, Inc. ("Epitope"), and
Agritope, Inc. ("Agritope"), dated as of December 1, 1997.
3.1* Certificate of Incorporation of Agritope.
3.2* Bylaws of Agritope.
3.3* Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock.
4.1 Form of Common Stock Certificate.
4.2 Form of Rights Agreement between Agritope and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, which includes
as Exhibit A the Designation of Terms of the Series B Junior
Participating Preferred Stock and as Exhibit B the form of
Rights Certificate, as amended.
4.3* Form of stock purchase agreement in connection with the
Regulation S Sale.
4.4* Preferred Stock Purchase Agreement between Agritope and
Vilmorin dated December 5, 1997.
5. Opinion of Tonkon Torp LLP.
8. Opinion of Miller, Nash, Wiener, Hager & Carlsen LLP.
10.1* Transition Services and Facilities Agreement between Epitope
and Agritope, dated as of December 1, 1997.
10.2* Tax Allocation Agreement between Epitope and Agritope, dated
as of December 1, 1997.
10.3 Amended and Restated Employee Benefits Agreement between
Epitope and Agritope, dated as of December 19, 1997.
10.4* Agritope, Inc. 1997 Stock Award Plan.
10.5* Agritope, Inc. 1997 Employee Stock Purchase Plan.
10.6* Form of Employment Agreement between Agritope and Adolph J.
Ferro, Ph.D.
10.7* Form of Employment Agreement between Agritope and Gilbert N.
Miller.
10.8* Form of Employment Agreement between Agritope and Richard K.
Bestwick, Ph.D.
II-5
<PAGE>
10.9* Form of Employment Agreement between Agritope and Matthew G.
Kramer.
10.10* Employment Agreement between Vinifera, Inc. and Joseph A.
Bouckaert.
10.11* Form of Indemnification Agreement for directors.
10.12* Form of Indemnification Agreement for officers.
10.13* Lease of Land and Certain Improvements located at 4288 Bodega
Avenue entered into by and between Gianni Neve and Maria Neve,
Landlord, and Vinifera, Inc., Tenant, dated as of February 1,
1996.
10.14* Option to License and Research Support Agreement between the
Salk Institute for Biological Studies and Epitope dated
February 25, 1997, including Amendment dated July 25, 1997,
and Assignment between Agritope and Epitope. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.
10.15 Superior Tomato Associates, L.L.C. Operating Agreement dated
February 19, 1996, including Assignment and Assumption
Agreement between the Company and Andrew and Williamson Sales,
Co.
10.16 Form of Restated Placement Agent Agreement between American
Equities Overseas Inc., and Agritope.
10.17** Form of Warrant Agreement to be issued to Vector Securities in
partial consideration for services in connection with the
Distribution.
10.18 Form of Warrant Agreement to be issued in connection with the
Regulation S Sale.
10.19* Research and Development Agreement between Agritope and
Vilmorin & Cie, dated as of December 5, 1997. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.
10.20* Assignment and Modification of Lease dated November 7, 1997
among Pacific Realty Associates, L.P. ("Pacific"), American
Show Management, Inc. ("ASM"), and Agritope, Lease Amendment
dated June 3, 1996, between Pacific and ASM, and Lease dated
October 4, 1995, between Pacific and ASM.
21. The subsidiaries of Agritope are Vinifera, Inc., an Oregon
corporation, and Agrimax Floral Products, Inc., a Minnesota
corporation. Agritope owns a 662/3 percent interest in
Superior Tomato Associates, L.L.C.
23.1* Consent of Price Waterhouse LLP.
23.2 Consent of Tonkon Torp LLP (included in Exhibit 5).
23.3 Consent of Miller, Nash, Wiener, Hager & Carlsen LLP (included
in Exhibit 8).
II-6
<PAGE>
24.* Powers of attorney
27.* Financial Data Schedule.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
* Previously filed
** To be filed by amendment
II-7
[FACE OF STOCK CERTIFICATE]
COMMON STOCK COMMON STOCK
AGRITOPE, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND RESTRIC-
TIONS ON SHARES
CSIP00855D 10 7
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
AGRITOPE, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS that facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
/s/ Gilbert N. Miller /s/ Adolph J. Ferro
EXECUTIVE VICE PRESIDENT CHAIRMAN OF THE BOARD, PRESIDENT
CHIEF FINANCIAL OFFICER AND SECRETARY AND CHIEF EXECUTIVE OFFICER
[AGRITOPE, INC.
CORPORATE SEAL
STATE OF DELAWARE]
<PAGE>
[REVERSE SIDE OF STOCK CERTIFICATE]
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Agritope, Inc. (the
"Corporation") and ChaseMellon Shareholder Services, L.L.C. (the "Rights
Agent"), dated as of November 14, 1997, as amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of the
Corporation. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Corporation will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor. Under
certain circumstances set forth in the rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or on behalf of
such Person or by any subsequent holder, may become null and void.
The Corporation is authorized to issue common stock and preferred stock.
The holder of this certificate may obtain from the Secretary of the Corporation,
upon the holder's request and without charge, a statement of the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock (or series thereof) and the qualifications,
limitations or restrictions of such preferences and/or rights as are established
from time to time, and the number of shares constituting each class and series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN ACT - ......... Custodian ............
in common (Cust) (Minor)
TEN ENT - as tenants by under Uniform Gifts to Minors
the entirelee Act............................
JT TEN - as joint tenants UNIF TRF MIN ACT - .....Custodian (until age .....)
with right of (Cust)
survivorship and .........under Uniform Transfers
not as tenants in (Minor)
common to Minors Act...................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, -------------------- hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated--------------------------------
X----------------------------------------
X----------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER
Signature(s) Guaranteed
By-----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM, PURSUANT
TO S.E.C. RULE 17Ad-18
AMERICAN BANK NOTE COMPANY DECEMBER 18 1997 fm
3504 ATLANTIC AVENUE
SUITE 12 054064bk
LONG BEACH, CA 90807
(582) 988-2333
(FAX) (582) 426-7460
AGRITOPE, INC.
(a Delaware corporation)
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
Rights Agreement
Dated as of November 14, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. Certain Definitions 1
2. Appointment of Rights Agent 6
3. Issue of Rights Certificates 6
4. Form of Rights Certificates 8
5. Countersignature and Registration 9
6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost
or Stolen Rights Certificates 10
7. Exercise of Rights; Purchase Price; Expiration Date
of Rights 11
8. Cancellation and Destruction of Rights Certificates 14
9. Reservation and Availability of Capital Stock 14
10. Preferred Stock Record Date 16
11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights 17
12. Certificate of Adjusted Purchase Price or Number of
Shares 28
13. Consolidation, Merger or
Sale or Transfer of Assets or Earning Power 28
14. Fractional Rights and Fractional Shares 31
15. Rights of Action 33
16. Agreement of Rights Holders 33
17. Rights Holder and Rights Certificate Holder Not
Deemed a Stockholder 34
18. Concerning the Rights Agent 34
<PAGE>
19. Merger or Consolidation or Change of Name of
Rights Agent 35
20. Duties of Rights Agent 36
21. Change of Rights Agent 38
22. Issuance of New Rights Certificates 39
23. Redemption and Termination 40
24. Exchange 40
25. Notice of Certain Events 42
26. Notices 43
27. Supplements and Amendments 44
28. Successors 44
29. Determinations and Actions by the Board of
Directors, Etc. 45
30. Benefits of This Agreement 45
31. Severability 45
32. Governing Law 46
33. Counterparts 46
34. Descriptive Headings 46
Exhibit A -- Designation of Terms of Series B Junior
Participating Preferred Stock
Exhibit B -- Form of Rights Certificate
ii
<PAGE>
TABLE OF DEFINED TERMS
Term Defined Section
- ------------ -------
Acquiring Person 1(a)
Adjustment Shares 11(a)(ii)
Adverse Person 1(b)
Affiliate 1(c)
Agreement Intro
Associate 1(c)
Beneficial Owner; beneficially own 1(d)
Board of Directors Intro
Business Day 1(e)
Certificate of Incorporation 11(a)(iii)
Close of Business 1(f)
Common Stock Intro;1(g)
Common Stock Equivalents 11(a)(iii)
Company (Agritope, Inc.) Intro
Company (following a Section 13 Event) 13(a)
Current Value 11(a)(iii)
Distribution Date 3(a)
Epitope 1(a)
equivalent preferred stock 11(b)
Exchange Act 1(a)
Exchange Date 7(a)
Exchange Ratio 24(a)
iii
<PAGE>
Term Defined Section
- ------------ -------
Expiration Date 7(a)
Final Expiration Date 7(a)
Exchange Act 1(a)
Nasdaq 11(d)(i)
Person 1(h)
Original Rights 1(d)
Preferred Stock Intro;(i)
11(a)(ii)
Principal Party 13(b)
Purchase Price 1(j);
11(a)(ii)
Qualifying Offer 11(a)(ii)(A)
Record Date Intro
Redemption Date 7(a)
Redemption Price 23(a)
Rights Intro
Rights Agent Intro
Rights Certificates 3(a)
Rights Dividend Declaration Date Intro
Section 11(a)(ii) Event 11(a)(ii)
Section 11(a)(ii) Trigger Date 11(a)(iii)
Section 13 Event 13(a)
Securities Act 7(c)
iv
<PAGE>
Term Defined Section
- ------------ -------
Spread 11(a)(iii)
Stock Acquisition Date 1(m)
Strategic Partner 1(a)(vi)
Subsidiary 1(n)
Substitution Period 11(a)(iii)
Trading Day 11(d)(i)
Triggering Event 11(a)
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of November 14, 1997 (the "Agreement"),
between Agritope, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company (the
"Rights Agent").
W I T N E S E T H
WHEREAS, on November 14, 1997 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company (the "Board of Directors")
authorized and declared a dividend distribution of one Right for each share of
the Company's common stock, par value $.01 per share (the "Common Stock"),
outstanding at the close of business on December 19, 1997 (the "Record Date"),
and has authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to the provisions of Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date and the Distribution
Date, each Right initially representing the right to purchase 1/1,000 of a share
of the Company's Series B Junior Participating Preferred Stock (the "Preferred
Stock") having the rights, powers and preferences set forth in Exhibit A
attached hereto, upon the terms and subject to the conditions hereinafter set
forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15 percent or more of the shares of Common Stock then
outstanding, but shall not include:
(i) Epitope, Inc.; an Oregon corporation ("Epitope"), prior
to the distribution of the Company's Common Stock held by Epitope to the
shareholders of Epitope;
(ii) the Company;
(iii) any Subsidiary of the Company;
(iv) any employee benefit plan of the Company or of any
Subsidiary of the Company;
<PAGE>
(v) any Person or entity organized, appointed or established
by the Company for or pursuant to the terms of any such plan; 6
(vi) any of the Company's strategic partners that are stated
to be covered by this subparagraph in an amendment to this Agreement adopted
pursuant to Section 27 hereof (a "Strategic Partner"); provided, however, that
if such Strategic Partner, together with its Affiliates and Associates,
collectively acquires Beneficial Ownership of more than 20 percent of the shares
of Common Stock then outstanding (including as outstanding shares of Common
Stock, for purposes of this subparagraph, all unissued shares of Common Stock
that are then Beneficially Owned by any such Persons) by any means other than
direct issuances by the Corporation or transactions receiving prior approval of
the Board of Directors, the Strategic Partner, including each Affiliate and
Associate of the Strategic Partner, which is then the Beneficial Owner of any
shares of Common Stock, shall then be deemed an Acquiring Person; and, provided
further, that, if the Strategic Partner, together with its Affiliates and
Associates, is divested or divests itself of Beneficial Ownership of Common
Stock such that such Persons collectively Beneficially Own less than 15 percent
of the Common Stock outstanding (including as outstanding shares of Common
Stock, for purposes of this subparagraph, all unissued shares of Common Stock
that are then Beneficially Owned by any such Persons), and then the Strategic
Partner, including its Affiliates and Associates, becomes the Beneficial Owner
of any additional shares of Common Stock by any means other than direct
issuances by the Corporation or transactions receiving prior approval of the
Board of Directors, then all such Persons which are then the Beneficial Owners
of any Common Stock shall be deemed to be Acquiring Persons; or
(vii) any such Person who has reported or is required to
report Beneficial Ownership of 15 percent or more (but less than 25 percent) of
the shares of Common Stock then outstanding on Schedule l3G under the Exchange
Act of 1934, as amended (the "Exchange Act") (or any comparable or successor
report), or on Schedule l3D under the Exchange Act (or any comparable or
successor report) which Schedule l3D does not state any intention to or reserve
the right to control or influence the management or policies of the Company or
engage in any of the actions specified in Item 4 of such Schedule (other than
the disposition of the Common Stock) and, within 10 Business Days of being
requested by the Company to advise it regarding the same, certifies to the
Company that such Person acquired shares of Common Stock in excess of l4.9
percent inadvertently or without knowledge of the terms of the Rights or
consequences of such Beneficial Ownership under this Agreement and who, together
2
<PAGE>
with all Affiliates and Associates, thereafter does not acquire additional
shares of Common Stock while the Beneficial Owner of 15 percent or more of the
shares of Common Stock then outstanding; provided, however, that if the Person
requested to so certify fails to do so within 10 Business Days, then such Person
shall become an Acquiring Person immediately after such 10 Business Day Period.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person"
solely as the result of an acquisition of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by a Person to l5 percent or more of the Common Stock
of the Company then outstanding as determined above; provided, however, that if
a Person becomes the Beneficial Owner of l5 percent or more of the Common Stock
of the Company then outstanding (as determined above) solely by reason of
acquisitions of Common Stock by the Company and shall, after such acquisitions
by the Company, become the Beneficial Owner of any additional shares of Common
Stock by any means whatsoever, then such Person shall be deemed to be an
"Acquiring Person." Any determination made by the Board of Directors as to
whether any Person is or is not an "Acquiring Person" shall be conclusive and
binding upon all holders of Rights.
(b) "Adverse Person" shall mean any Person declared to be an
Adverse Person by the Board of Directors upon determination that the criteria
set forth in Section 11(a)(ii)(B) apply to such Person; provided, however, that
the Board of Directors shall not declare any Person who is the Beneficial Owner
of l0 percent or more of the outstanding Common Stock of the Company to be an
Adverse Person if such Person has reported or is required to report such
ownership on Schedule l3G under the Exchange Act (or any comparable or successor
report) or on Schedule 13D under the Exchange Act (or any comparable or
successor report) which Schedule 13D does not state any intention to or reserve
the right to control or influence the management or policies of the Company or
engage in any of the actions specified in Item 4 of such Schedule (other than
the disposition of the Common Stock) so long as such Person neither reports nor
is required to report such ownership other than as described in this paragraph
(b).
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
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(d) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own:" (A) securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase or
exchange; or (B) securities issuable upon exercise of Rights at any time prior
to the occurrence of a Triggering Event; or (C) securities issuable upon
exercise of Rights from and after the occurrence of a Triggering Event which
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or Section
22 hereof (the "Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, as in effect on the date of this
Agreement), including pursuant to any agreement, arrangement or understanding,
whether or not in writing; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act, and (B) is not also
then reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or an Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy
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as described in the proviso to subparagraph (ii) of this paragraph (c)) or
disposing of any voting securities of the Company; provided, however, that
nothing in this paragraph (c) shall cause a person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such person's participation in good faith
in a firm commitment underwriting until the expiration of 40 days after the date
of such acquisition.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the state of Oregon are
authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5 p.m.,
Pacific time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5 p.m., Pacific time, on the next succeeding Business
Day.
(g) "Common Stock" shall mean the common stock, par value $.01
per share, of the Company, except that "Common Stock" when used with reference
to any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(h) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(i) "Preferred Stock" shall mean shares of Series B Junior
Participating Preferred Stock of the Company, and, to the extent that there is
not a sufficient number of shares of Series B Junior Participating Preferred
Stock authorized to permit the full exercise of the Rights, any other series of
Preferred Stock of the Company designated for such purpose containing terms
substantially similar to the terms of the Series B Junior Participating
Preferred Stock.
(j) "Purchase Price" shall mean the price to be paid for each
1/1,000 of a share of Preferred Stock pursuant to the exercise of a Right, which
price is, as of the date hereof, as set forth in Section 7(b) hereof. The
Purchase Price is subject to adjustment from time to time as set forth in
Sections 11 and 13 hereof.
(k) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
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(l) "Section 13 Event" shall mean any event described in clauses
(i),(ii) or (iii) of Section 13(a) hereof.
(m) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(n) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(o) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable. The Rights Agent shall in no way be held responsible for
the actions of any such Co-Rights Agent.
Section 3. Issue of Rights Certificates.
(a) Until the earliest of: (i) the Close of Business on the tenth
Business Day after the Stock Acquisition Date; (ii) the Close of Business on the
tenth Business Day (or such later date as the Board of Directors shall
determine) after the date that a tender or exchange offer by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement, if upon consummation thereof, such Person
would be the Beneficial Owner of l5 percent or more of the shares of Common
Stock then outstanding; or (iii) the Close of Business on the tenth Business Day
after the Board of Directors determines, pursuant to the criteria set forth in
Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the earliest of
(i), (ii) and (iii) being herein referred to as the "Distribution Date"), then
the following shall apply: (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the
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certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will send by
first-class, postage prepaid mail, to each holder of the Common Stock as of the
Close of Business on the Distribution Date, at the address of such holder shown
on the records of the Company, one or more right certificates, in substantially
the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right
for each share of Common Stock so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) With respect to certificates for the shares of Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates for the Common Stock and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date or the Expiration
Date (as such term is defined in Section 7 hereof), the transfer of any
certificates representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common
Stock which are issued (whether originally issued or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date or in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such shares of
Common Stock shall also be deemed to be certificates for Rights, and shall bear
the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Agritope,
Inc. (the "Corporation") and ChaseMellon Shareholder Services, L.L.C.
(the
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<PAGE>
"Rights Agent"), dated as of November 14, 1997, as amended from time
to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal offices of the Corporation. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Corporation will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date
of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person or an Adverse Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to certificates containing the foregoing legend, until the earlier
of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated
with the Common Stock represented by such certificates shall be evidenced by
such certificates alone and registered holders of Common Stock shall also be the
registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof), when, as and
if issued, shall each be substantially in the form set forth in Exhibit B hereto
and may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
transaction reporting system on which the Rights may from time to time be listed
or traded, or to conform to usage. Subject to the provisions of Sections 11 and
22 hereof, the
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<PAGE>
Rights Certificates, whenever issued, which are issued in respect of Common
Stock which was issued and outstanding as of the Close of Business on the
Distribution Date, shall be dated as of the Distribution Date, and on their face
shall entitle the holders thereof to purchase such number of 1/1,000s of a share
of Preferred Stock as shall be set forth therein at the price set forth therein
(such exercise price per 1/1,000 of a share, the "Purchase Price"), but the
amount and type of securities purchasable upon the exercise of each Right and
the Purchase Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person or
Adverse Person or any Associate or Affiliate of an Acquiring Person or Adverse
Person; (ii) a transferee of an Acquiring Person or Adverse Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring Person
or Adverse Person becomes such; or (iii) a transferee of an Acquiring Person or
Adverse Person (or of any such Associate or Affiliate) who becomes a transferee
prior to or concurrently with the Acquiring Person or Adverse Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person or Adverse Person to holders of
equity interests in such Acquiring Person or Adverse Person or to any Person
with whom such Acquiring Person or Adverse Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6
or 11 hereof upon transfer, exchange, replacement or adjustment of any other
Rights Certificate referred to in this sentence, shall contain (to the extent
feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or Adverse Person or an Affiliate or Associate of an Acquiring Person
or Adverse Person (as such terms are defined in the Rights Agreement).
Accordingly, this Rights Certificate and the Rights represented hereby
may become null and void in the circumstances specified in Section
7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President
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<PAGE>
or any Vice President, manually or by facsimile signature, and shall have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Rights Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature,
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 4(b), 7(e) and l4
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
(other than a Rights Certificate representing Rights that have been exchanged
pursuant to Section 24 hereof) may be transferred, split up, combined or
exchanged for another Rights Certificate, entitling the registered holder to
purchase a like number of 1/1,000s of a share of Preferred Stock (or, following
a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall
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<PAGE>
surrender the Rights Certificate to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or Rights Agent shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 4(b), 7(e), 14 and 24
hereof, countersign and deliver to the Person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Sections 9(c), 11(a)(iii) and 23(a) hereof) in whole
or in part at any time after the Distribution Date upon surrender of the Rights
Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the principal office
or offices of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of
1/1,000s of a share (or other securities, cash or other assets, as the case may
be) as to which such surrendered Rights are then exercisable, at or prior to the
earliest of: (i) the Close of
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Business on November 14, 2007 (the "Final Expiration Date"); (ii) the time at
which the Rights are redeemed (the "Redemption Date"), as provided in Section 23
hereof; or (iii) the time at which such Rights are exchanged (the "Exchange
Date"), as provided in Section 24 hereof (the earliest of (i), (ii) and (iii)
being herein referred to as the "Expiration Date").
(b) The Purchase Price for each 1/1,000 of a share of Preferred
Stock pursuant to the exercise of a Right shall initially be $25, and shall be
subject to adjustment from time to time as provided in Sections 11 and 13(a)
hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per 1/1,000 of a share of Preferred Stock (or other shares, securities,
cash or other assets, as the case may be) to be purchased as set forth below and
an amount equal to any applicable transfer tax, the Rights Agent shall, subject
to Section 20(k) hereof, thereupon promptly: (i)(A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if the
Rights Agent is the transfer agent for such shares) certificates for the total
number of 1/1,000s of a share of Preferred Stock to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit the total number
of shares of Preferred Stock issuable upon exercise of the Rights hereunder with
a depository agent, requisition from the depository agent depository receipts
representing such number of 1/1,000s of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depository agent) and the Company will direct the depository agent to comply
with such request; (ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of fractional shares in accordance with Section 14 hereof;
(iii) after receipt of such certificates or depository receipts, cause the same
to be delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder; and (iv) after receipt thereof, deliver such cash, if any, to or upon
the order of the registered holder of such Rights Certificate. The payment of
the Purchase Price (as such amount may be adjusted pursuant to Section
11(a)(iii) hereof) shall be made in cash or by certified bank check or bank
draft payable to the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of the Company, pay
cash and/or distribute other property pursuant to Section 11(a) hereof, the
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<PAGE>
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock would be
issued. Notwithstanding the foregoing provisions of this Section 7(c), the
Company may suspend the issuance of Preferred Stock upon exercise of Rights for
a reasonable period, not in excess of 90 days, during which the Company seeks to
register under the Securities Act of 1933, as amended (the "Securities Act"),
and any applicable securities law of any jurisdiction, the Preferred Stock to be
issued pursuant to the Rights; provided, however, that nothing contained in this
Section 7(c) shall relieve the Company of its obligations under Section 9(c)
hereof.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or Adverse Person or an Associate
or Affiliate of an Acquiring Person or Adverse Person, (ii) a transferee of an
Acquiring Person or Adverse Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person or Adverse Person becomes such,
or (iii) a transferee of an Acquiring Person or Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person or Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom the Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action, and no
holder of such Rights (whether or not such holder is an Acquiring Person or an
Adverse Person or an Affiliate or Associate of an Acquiring Person or Adverse
Person) shall have any rights whatsoever with respect to
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<PAGE>
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or other Person as a result of
the Company's failure to make any determination with respect to an Acquiring
Person or Adverse Person or any of their respective Affiliates, Associates or
transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall
have: (i) completed and signed the certificate contained in the form of election
to purchase set forth on the reverse side of the Rights Certificate surrendered
for such exercise; and (ii) provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or Rights Agent shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any provision of this Agreement. The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company or shall, at the written request of
the Company, destroy such cancelled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be
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<PAGE>
sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange or included for quotation on any transaction reporting
system, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable (but only to the extent that it is
reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange or included for quotation on such
transaction reporting system upon official notice of issuance upon such
exercise.
(c) The Company shall use its best efforts to: (i) file, as soon
as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Securities Act
with respect to the securities purchasable upon exercise of the Rights on an
appropriate form; (ii) cause such registration statement to become effective as
soon as practicable after such filing; and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the date
of the expiration of the Rights. The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed 90 days
after the date set forth in clause (i) of the first sentence of this Section
9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under
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applicable law or a registration statement shall not have been declared
effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all 1/1,000s of a share of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of 1/1,000s of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be)
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of 1/1,000s of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) in respect of a name other than that of, the
registered holder of the Rights Certificates evidencing Rights surrendered for
exercise or to issue or deliver any certificates for a number of 1/1,000s of a
share of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in a name other than that of the registered holder upon the exercise of
any Rights until such tax shall have been paid (any such tax being payable by
the holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for a number of 1/1,000s of a share of Preferred Stock (or for
Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Preferred Stock (or Common Stock and/or other securities, as the
case may be) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and all applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or Common Stock and/or other
securities, as the case may be) transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate shall be dated, the next
succeeding Business
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Day on which the Preferred Stock (or Common Stock and/or other securities, as
the case may be) transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Rights Certificate shall not be
entitled to any rights of a stockholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then
and in each such event, except as otherwise provided in this Section 11(a) and
Section 7(e) hereof, the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, which, if such Right had been exercised immediately
prior to such date and at a time when the Preferred Stock transfer books of the
Company were open, he or she would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event that:
(A) any Person (other than the Company, any Subsidiary
of the Company, any employee benefit
17
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plan of the Company or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), alone or together with its
Affiliates and Associates, shall become an Acquiring Person, unless
the event causing the Person to become an Acquiring Person is (l) a
transaction set forth in Section 13(a) hereof or (2) an acquisition of
shares of Common Stock pursuant to a tender offer or an exchange offer
for all outstanding shares of Common Stock at a price and on terms
determined by at least a majority of the members of the Board of
Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring
Person, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to stockholders (taking into
account all factors which such members of the Board of Directors deem
relevant including, without limitation, prices which could reasonably
be achieved if the Company or its assets were sold on an orderly basis
designed to realize maximum value) and (b) otherwise in the best
interests of the Company and its stockholders (a "Qualifying Offer");
or
(B) The Board of Directors of the Company shall declare
any Person to be an Adverse Person, upon a determination that such
Person, alone or together with its Affiliates and Associates, has, at
any time after this Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a filing under the Securities Act
or Exchange Act, become the Beneficial Owner of a number of shares of
Common Stock which the Board of Directors of the Company determines to
be substantial (which number of shares shall in no event represent
less than l0 percent of the outstanding shares of Common Stock) and a
determination by the Board of Directors of the Company, after
reasonable inquiry and investigation, including consultation with such
persons as such directors shall deem appropriate and consideration of
such factors as are permitted by applicable law, that (a) such
Beneficial Ownership by such Person is intended to cause the Company
to repurchase the shares of Common Stock beneficially owned by such
Person or to cause pressure on the Company to take action or enter
into a transaction or series of transactions intended to provide such
Person with short-term financial gain under circumstances where the
Board of Directors determines that the best long-term interests of the
18
<PAGE>
Company would not be served by taking such action or entering into
such transaction or series of transactions at the time or (b) such
Beneficial Ownership is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, impairment of
relationships with customers or impairment of the Company's ability to
maintain its competitive position) on the business or prospects of the
Company;
then, promptly following the occurrence of any event described in Section
11(a)(ii)(A) or (B) hereof (a "Section 11(a)(ii) Event"), proper provision shall
be made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall thereafter have the right to receive, upon exercise thereof
at the then current Purchase Price in accordance with the terms of this
Agreement, in lieu of a number of 1/1,000s of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the then number
of 1/1,000s of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by 50 percent of the current market price (determined pursuant
to Section 11(d) hereof) per share of Common Stock on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's Certificate of Incorporation, as amended
at the time (the "Certificate of Incorporation"), but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A)
determine the value of the Adjustment Shares issuable upon the exercise of a
Right (the "Current Value"); and (B) with respect to each Right (subject to
Section 7(e) hereof), make adequate provision to substitute for the Adjustment
Shares, upon the exercise of a Right and payment of the applicable Purchase
Price: (l) cash, (2) a reduction in the Purchase Price, (3) Common Stock or
other equity securities of the Company (including, without limitation, shares,
or units of shares, of preferred stock, such as the Preferred Stock, which the
Board has deemed to have essentially the same value or economic rights as shares
of Common Stock (such shares of preferred stock being referred to as "Common
Stock Equivalents")), (4) debt securities of the Company, (5) other
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<PAGE>
assets, or (6) any combination of the foregoing, having an aggregate value equal
to the Current Value (less the amount of any reduction in the Purchase Price),
where such aggregate value has been determined by the Board of Directors based
upon the advice of a nationally recognized investment banking firm selected by
the Board of Directors; provided, however, that if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above within 30
days following the later of (x) the first occurrence of a Section 11(a)(ii)
Event and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, shares of Common Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. For purposes of the preceding sentence, the term "Spread"
shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If
the Board determines in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in full of
the Rights, the 30-day period set forth above may be extended to the extent
necessary, but not more than 90 days after the Section 11(a)(ii) Trigger Date,
in order that the Company may seek stockholder approval for the authorization of
such additional shares (such 30-day period, as it may be extended, is herein
called the "Substitution Period"). To the extent that action is to be taken
pursuant to the first and/or third sentences of this Section 11(a)(iii), the
Company (l) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek such stockholder approval for such authorization of additional
shares and/or to decide the appropriate form of distribution to be made pursuant
to such first sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of each Adjustment Share shall be the
Current Market Price per share of the Common Stock on the Section 11(a)(ii)
Trigger Date and the per-share or per-unit value of any Common Stock Equivalent
shall be deemed to equal the Current Market Price per share of the Common Stock
on such date.
(b) In case the Company shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of
Preferred Stock entitling them to
20
<PAGE>
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or shares having the same rights, privileges
as the shares of Preferred Stock ("equivalent preferred stock")) or securities
convertible into Preferred Stock or equivalent preferred stock at a price per
share of Preferred Stock or per share of equivalent preferred stock (or having a
conversion price per share, if a security convertible into Preferred Stock or
equivalent preferred stock) less than the Current Market Price (as determined
pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Preferred Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of shares
of Preferred Stock and/or equivalent preferred stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to
21
<PAGE>
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the Current Market Price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock on such record date, less
the fair market value (as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent and the holders of the
Rights) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such Current Market Price
(as determined pursuant to Section 11(d) hereof) per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the Purchase
Price shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the 30 consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share
of Common Stock on any date shall be deemed to be the average of the daily
closing prices per share of such Common Stock for the 10 consecutive Trading
Days immediately following such date; provided, however, that in the event that
the Current Market Price per share of the Common Stock is determined during a
period following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such Common
Stock or securities convertible into shares of such Common Stock (other than the
Rights), or (B) any subdivision, combination or reclassification of such Common
Stock, and the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification shall not have
occurred prior to the commencement of the requisite 30 Trading Day or 10 Trading
Day period, as set forth above, then, and in each such case, the Current Market
Price shall be properly adjusted to take into account ex-dividend trading or the
subdivision, combination or reclassification, as the case may be. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which
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<PAGE>
the shares of Common Stock are listed or admitted to trading or, if the shares
of Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("Nasdaq") or such other system then in
use, or, if on any such date the shares of Common Stock are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Stock selected by
the Board of Directors of the Company. If on any such date no market maker is
making a market in the Common Stock, the fair va1ue of the Common Stock on such
date as determined in good faith by the Board of Directors shall be used. The
term "Trading Day" shall mean a day on which the principal national securities
exchange or principal transaction reporting system on which the shares of Common
Stock are listed or admitted to trading is open for the transaction of business
or, if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange or transaction reporting system, a Business Day. If
the Common Stock is not publicly held or not so listed or traded, Current Market
Price per share shall mean the fair value per share as determined in good faith
by the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
Current Market Price per share (or per 1/1,000 of a share) of Preferred Stock
shall be determined in the same manner as set forth above for the Common Stock
in clause (i) of this Section 11(d) (other than the last sentence thereof). If
the Current Market Price per share of Preferred Stock cannot be determined in
the manner provided above or if the Preferred Stock is not publicly held or
listed or traded in a manner described in clause (i) of this Section 11(d), the
Current Market Price per share of Preferred Stock shall be conclusively deemed
to be an amount equal to 1,000 (as such number may be appropriately adjusted for
such events as stock splits, stock dividends, combinations, reclassifications,
recapitalizations and similar transactions with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current Market
Price per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, Current Market Price
per share of the Preferred Stock shall mean the fair value per share as
determined in good faith by the Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive for
all purposes.
23
<PAGE>
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1 percent in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest 1/10,000 of a share of Common Stock or
other share or 1/1,000,000 of a share of Preferred Stock, as the case may be.
(f) If, as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
this Section 11, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with
respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of 1/1,000s of a share of
Preferred Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
1/1,000s of a share of Preferred Stock (calculated to the nearest 1/1,000,000)
obtained by (i) multiplying (x) the number of 1/1,000s of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of 1/1,000s of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of 1/1,000s of a
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<PAGE>
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
1/10,000) obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of 1/1,000s of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per 1/1,000 of a share and the
number of 1/1,000s of a share which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the number
of 1/1,000s of a share of Preferred Stock issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
25
<PAGE>
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such number of 1/1,000s of a share of Preferred
Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of 1/1,000s of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of 1/1,000s of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such further adjustments in the number of
1/1,000s of a share of Preferred Stock which may be acquired upon exercise of
the Rights, and such adjustments in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that in
its good faith judgment the Board of Directors of the Company shall determine to
be advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders or shall reduce the taxes payable by such holders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more
26
<PAGE>
than 50 percent of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates; provided, however, that
this Section 11(n) shall not affect the ability of any Subsidiary of the Company
to consolidate with, merge with or into, or sell or transfer assets or earning
power to, any other Subsidiary of the Company.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or 27 hereof, take (or
permit any Subsidiary to take) any action if at the time such action is taken it
is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding,
in the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Stock, or (iii) combine the outstanding
shares of Common Stock into a smaller number of shares, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator which
shall be the total number of shares of Common Stock outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately following the
occurrence of such event.
(q) The failure of the Board of Directors of the Company to
declare a Person to be an Adverse Person following such Person becoming the
Beneficial Owner of shares of Common
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Stock representing 10 percent or more of the outstanding shares of Common Stock
shall not imply that such Person is not an Adverse Person or limit the Board of
Directors' right at any time in the future to declare such Person to be an
Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof,
the Company shall: (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment;
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate; and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (ii)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of the Company
or any other Person or cash or any other property, or (iii) the Company shall
sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50 percent of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons (other than the Company or any Subsidiary of the Company in
one or more transactions each of which complies with Section 11(o) hereof) (any
event described in clauses (i), (ii) or (iii) of this Section 13(a) being a
"Section 13 Event"), then, and in each such case (except as may be contemplated
by Section 13(d) hereof), proper provision shall be made so that: (A) each
holder of a Right, except as provided in Section 7(e) hereof, shall thereafter
have the right to receive, upon the exercise thereof
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at the then current Purchase Price in accordance with the terms of this
Agreement, such number of validly authorized and issued, fully paid,
nonassessable and freely tradable shares of Common Stock of the Principal Party
(as such term is hereinafter defined), not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of
1/1,000s of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section
13 Event, multiplying the number of such 1/1,000s of a share for which a Right
was exercisable immediately prior to the first occurrence of such Section
11(a)(ii) Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by (2) 50 percent of the Current Market
Price (determined pursuant to Section 11(d)(i) hereof) per share of the Common
Stock of such Principal Party on the date of consummation of such Section 13
Event; (B) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof apply only to such Principal Party following
the first occurrence of a Section 13 Event; (D) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of shares of its Common Stock) in connection with the consummation of any
such transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (E) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (i) or
(ii) of the first sentence of Section 13(a) hereof, the Person that is the
issuer of any securities into which shares of Common Stock of the Company
are converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such consolidation or merger;
and
(ii) in the case of any transaction described in clause (iii) of
the first sentence of Section 13(a) hereof,
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the Person that is the party receiving the largest portion of the assets or
earning power transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary of another Person the Common Stock of which is and
has been so registered, "Principal Party" shall refer to such other Person; and
(2) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger, or sale or transfer mentioned in paragraph (a) of
this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date, and similarly comply with applicable state
securities laws;
(ii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on Nasdaq or such other system then in use; and
(iii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply
in all respects with the
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requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
consolidations, mergers, sales or other transfers. In the event that a Section
13 Event shall occur at any time after the occurrence of a Section 11(a)(ii)
Event, the Rights which have not theretofore been exercised shall thereafter
become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(i) and (ii) of Section 13(a) if: (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Qualifying
Offer (or a wholly owned Subsidiary of any such Person or Persons); (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such tender offer or exchange offer; and
(iii) the form of consideration being offered to the remaining holders of shares
of Common Stock pursuant to such transaction is the same as the form of
consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights
(i.e., Rights to acquire less than 1/1,000 of a share of Preferred Stock). In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
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to trading on the principal national securities exchange on which the Rights are
listed or admitted to trading, or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices, as reported by Nasdaq
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
1/1,000 of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of 1/1,000 of a share of
Preferred Stock). In lieu of fractional shares of Preferred Stock that are not
integral multiples of 1/1,000 of a share of Preferred Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of 1/1,000 of a share of Preferred Stock. For purposes of
this Section 14(b), the current market value of 1/1,000 of a share of Preferred
Stock shall be 1/1,000 of the closing price of a share of Preferred Stock (as
determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one share of Common Stock. For purposes of this Section
14(c), the current market value of one share of Common Stock shall be the
closing price of one share of Common Stock (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
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Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be evidenced
by the certificates for shares of Common Stock registered in the name of the
holders of the Common Stock (which certificates for Common Stock shall also
constitute certificates for Rights) and each Right will be transferable only in
connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the Person in whose name a Rights Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights
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Agent, subject to the last sentence of Section 7(e) hereof, shall be required to
be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Holder and Rights Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right or Rights Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
the number of 1/1,000s of a share of Preferred Stock or any other securities of
the Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Right or Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and attorney fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and
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<PAGE>
expenses of defending against any claim of liability arising therefrom. Anything
to the contrary notwithstanding, in no event shall the Rights Agent be liable
for special, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the likelihood of such loss or damage.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate representing Preferred Stock or Common Stock or other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by the Rights Agent
to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
its counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or shareholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of either of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. If at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and if at that time any of
the Rights Certificates shall not have been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) If at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent
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may adopt the countersignature under its prior name and deliver Rights
Certificates so countersigned; and if at that time any of the Rights
Certificates shall not have been countersigned, the Rights Agent may countersign
such Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of "current market price") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or
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execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof); nor shall it be
responsible for any adjustment required under the provisions of Section 11, 13
or 24 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment or change in
exercisability); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or Preferred Stock to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer or the Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer,
member or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents,
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and the Rights Agent shall not be answerab1e or accountable for any act,
default, neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or misconduct;
provided, however, reasonable care was exercised in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause l and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock and Preferred Stock, by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Stock and Preferred Stock, by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his or her Rights Certificate for inspection by the
Company), then any registered holder of any Rights Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or any state of the United States, so long as such corporation is
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authorized to do business as a banking institution, is authorized to exercise
corporate trust powers, is in good standing, is subject to supervision or
examination by federal or state authority, and has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $100
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock
and the Preferred Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such Rights
Certificate shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
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Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the Close of Business on the tenth Business
Day following the Stock Acquisition Date, or (ii) the Close of Business on the
Final Expiration Date, redeem all, but not less than all, the then outstanding
Rights at a redemption price of $.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The Board of Directors may
not redeem any Rights following a determination pursuant to Section 11(a)(ii)(B)
that any Person is an Adverse Person. Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable after the first
occurrence of a Section 11(a)(ii) Event until such time as the Company's right
of redemption hereunder has expired. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the Current Market
Price, as defined in Section 11(d)(i) hereof, of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board
of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears on
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at
any time after any Person becomes an Acquiring Person or is determined to be an
Adverse Person pursuant to Section 11(a)(ii)(B), exchange all or part of the
then outstanding and exercisable Rights (which shall not include
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<PAGE>
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Stock for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50 percent or more of the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to Section 24(a) hereof and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear on
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at
its option, may substitute shares of Preferred Stock (or equivalent preferred
stock, as such term is defined in Section 11(b) hereof) for shares of Common
Stock exchangeable for Rights, at the initial rate of 1/1,000 of a share of
Preferred Stock (or equivalent preferred stock) for each share of Common Stock,
as appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Stock pursuant to Section 3(A) of the rights, powers and preferences
attached hereto as Exhibit A, so that the fraction of a share of Preferred Stock
delivered in lieu of each share of Common Stock shall have the same voting
rights as one share of Common Stock.
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(d) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Right Certificates, with regard
to which such fractional share of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this paragraph (e), the current
market value of a whole share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50 percent of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with
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Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the shares of Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 20 days prior to the
record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever
shall be the earlier.
(b) If any Section 11(a)(ii) Event shall occur, then, in any such
case, (i) the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Section
11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attention: Chief Financial Officer
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, Washington 98101
Attention: Dennis Treibel
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<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at his or her
address as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date
and subject to the penultimate sentence of this Section 27, the Company may by
action of the Board of Directors, and the Rights Agent shall if the Company so
directs, supplement or amend any provision of this Agreement in any manner
without the approval of any holders of Common Stock. From and after the
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may by action of the Board of Directors, and the Rights Agent shall
if directed by the Company, from time to time, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period herein or (iv) to change or
supplement any other provisions herein in any manner which the Board of
Directors may deem necessary or desirable so long as the interests of the
holders of the Rights or Rights Certificates (other than an Acquiring Person or
Adverse Person or any Affiliate or Associate of an Acquiring Person or Adverse
Person) shall not be materially and adversely affected thereby; provided,
however, this Agreement may not be supplemented or amended to lengthen, pursuant
to clause (iii) of this sentence, (A) a time period relating to when the Rights
may be redeemed at such time and the Rights are not then redeemable, or (B) any
other time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders of
Rights (other than an Acquiring Person or Adverse Person or any Affiliate or
Associate of an Acquiring Person or Adverse Person). Upon the delivery of a
certificate from an appropriate officer of the Company, which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock of the Company.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
44
<PAGE>
Section 29. Determinations and Actions By the Board of Directors,
Etc. For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement. The Board of
Directors of the Company have the exclusive power and authority to administer
this Agreement and to exercise all rights and powers specifically granted to the
Board of Directors or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (a) interpret provisions of this Agreement, and (b) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend this Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (ii) below, all omissions with
respect to the foregoing) which are done or made by the Board of Directors in
good faith, shall (i) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties, and (ii) not
subject the Board of Directors to any liability to the holders of the Rights.
Section 30. Benefits of This Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any term, provision, covenant or restriction is held by such court
or authority to be invalid, void or unenforceable and the Board of Directors of
the Company determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in
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<PAGE>
Section 23 hereof shall be reinstated and shall not expire until the Close of
Business on the tenth Business Day following the date of such determination by
the Board of Directors. Without limiting the foregoing, if any provision
requiring a majority of the members of the Board of Directors who are not
officers of the Company and who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person to act is held by any court of competent
jurisdiction or other authority to be invalid, void or unenforceable, such
determination shall be made by the Board of Directors of the Company in
accordance with applicable law and the Company's Certificate of Incorporation
and Bylaws, as in effect at that time.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the state of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts made
and to be performed entirely within such state.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and attested as of the date first written above.
AGRITOPE, INC.
Attest:
By-------------------------- By-------------------------------
Secretary Title----------------------------
CHASEMELLON SHAREHOLDER SERVICES,
L.L.C.
Attest:
By-------------------------- By--------------------------------
Secretary Title-----------------------------
47
<PAGE>
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
This Amendment to the Rights Agreement, dated as of November 14, 1997,
between Agritope, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company (the
"Rights Agent"), is entered into as of December 19, 1997.
This amendment is adopted pursuant to Section 27 of the Rights
Agreement. All capitalized terms used in this Amendment that are not defined
herein shall have the meanings specified in the Rights Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. The only "Strategic Partner" referred to in Section 1(a)(vi) of the
Rights Agreement is Vilmorin & Cie, a French company, and the
provisions of Section 1(a)(vi) apply only to Vilmorin & Cie,
together with its Affiliates and Associates.
2. Except as specified herein, all provisions of the Rights Agreement
shall remain in full force and effect and are not modified by this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested as of the date first written above.
Attest: AGRITOPE, INC.
By-------------------------- By-------------------------------
Secretary Title----------------------------
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
Attest:
By-------------------------- By--------------------------------
Secretary Title-----------------------------
<PAGE>
Exhibit A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B JUNIOR PARTICIPATING
PREFERRED STOCK
OF
AGRITOPE, INC.
(Pursuant to Section 151 of the General Corporation Law
of the state of Delaware)
The undersigned officers of Agritope, Inc., a corporation
organized and existing under the General Corporation Law of the state of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, do hereby certify:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Corporation, the Board of Directors
on November 14, 1997 adopted the following resolution, as required by Section
151 of the Delaware General Corporation Law, creating a series of 30,000 shares
of Preferred Stock, par value $.01 per share, designated as Series B Junior
Participating Preferred Stock:
RESOLVED, that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a new series of Preferred Stock of the Corporation
be, and it hereby is, created, and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The shares of such
series shall be designated as "Series B Junior Participating Preferred Stock"
and the number of shares constituting such series shall be 30,000. Such series
is hereinafter referred to as the "Series B Preferred Stock." The par value of
the Series B Preferred Stock shall be $.01 per share.
<PAGE>
Section 2. Dividends and Distributions.
The holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the last day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the
provisions for adjustment hereinafter set forth, 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, par value $.01 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series B Preferred Stock. In the event
the Corporation shall at any time after ----------, 1997 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series B Preferred stock as provided in Paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $0.01 per share on the series A Preferred
Stock shall nevertheless be payable on such subsequent quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the
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<PAGE>
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series B Preferred Stock, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
B Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series B Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series B Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B Preferred
stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series B Preferred Stock shall entitle the holder thereof to 1,000
votes (and each 1/1,000 of a share of Series B Preferred Stock shall entitle the
holder thereof to one vote) on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series B Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series B Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
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<PAGE>
(C) (i) If at any time dividends on any Series B Preferred Stock shall
be in arrears in an amount equal to six quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series B Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series B Preferred Stock) with dividends in arrears in an amount equal to six
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect two directors in addition to any number of directors
that the holders of any series of Preferred Stock may otherwise be entitled to
elect.
(ii) During any default period, such voting right of the holders of
Series B Preferred Stock may be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders, provided that
such voting right shall not be exercised unless the holders of 10 percent in
number of shares of Preferred Stock outstanding shall be present at the meeting
in person or by proxy. The absence of a quorum of the holders of Common Stock
shall not affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall exercise
such voting right initially during an existing default period, they shall have
the right, voting as a class, to elect directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two directors or, if such
right is exercised at an annual meeting, to elect two directors. If the number
which may be so elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right to make such
increase in the number of directors as shall be necessary to permit the election
by them of the required number. After the holders of the Preferred Stock shall
have exercised their right to elect directors in any default period and during
the continuance of such period, the number of directors shall not be increased
or decreased except by vote of the holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securities ranking senior to or pari
passu with the Series B Preferred Stock.
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<PAGE>
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than 10 percent of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the calling of a special
meeting of the holders of Preferred Stock, which meeting shall thereupon be
called by the Chairman, President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to the holder at the holder's last address appearing on the books of
the Corporation. Such meeting shall be called for a time not earlier than 10
days and not later than 50 days after such order or request or in default of the
calling of such meeting within 50 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders owning in the
aggregate not less than 10 percent of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no
such special meeting shall be called during the period within 50 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to be
entitled to elect the whole number of directors until the holders of Preferred
Stock shall have exercised their right to elect two directors voting as a class,
after the exercise of which right (x) the directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may, except as provided in paragraph
(C)(ii) of this Section 3, be filled by vote of a majority of the remaining
directors theretofore elected by the holders of the class of stock which elected
the director whose office shall have become vacant. References in this paragraph
(C) to directors elected by the holders of a particular class of stock shall
include directors elected by such directors to fill vacancies, as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect directors shall cease, (y)
the term of any
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<PAGE>
directors elected by the holders of Preferred Stock as a class shall terminate,
and (z) the number of directors shall be such number as may be provided for in
the Certificate of Incorporation or Bylaws irrespective of any increase made
pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by law or in
the Certificate of Incorporation or Bylaws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, holders of Series B Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series B Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except dividends paid ratably on the Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution,
6
<PAGE>
liquidation or winding up) to the Series B Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series B Preferred Stock, or any shares of stock ranking on a parity with
the Series B Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Section 4(A), purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without designation as to series, and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein or in the Certificate of Incorporation.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to:
(i) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock, unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received the higher of (a) $0.01 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, or (b) an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 1,000 times the aggregate amount to be distributed per
share to holders of Common Stock; or
7
<PAGE>
(ii) the holders of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series B Preferred
Stock, except distributions made ratably on the Series B Preferred Stock
and all other such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
(B) In the event the Corporation shall at any time (i) declare any
dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide,
combine or consolidate the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or smaller number of shares, then
in each such case the aggregate amount to which holders of shares of Series B
Preferred Stock are entitled under clause (i)(b) of Section 6(A) hereof shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series B Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series B Preferred Stock shall
not be redeemable. Notwithstanding the foregoing, the Corporation may acquire
shares of Series B Preferred Stock in any other manner permitted by law, the
Certificate of Incorporation or this amendment thereof.
8
<PAGE>
Section 9. Rank. Unless otherwise provided in the Certificate of
Incorporation or an amendment thereof relating to a subsequent series of
Preferred Stock of the Corporation, the Series B Preferred Stock shall rank
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, and senior to the Common Stock of the Corporation.
Section 10. Amendment. The Certificate of Incorporation shall not be
further amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series B Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a class.
Section l1. Fractional Shares. Series B Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Stock.
IN WITNESS WHEREOF, we have executed and attested this Certificate of
Designation on behalf of the Corporation this 1st day of December, 1997. We
further declare under penalty of perjury under the laws of the state of Delaware
that the matters set forth herein are, to our knowledge, true and correct.
AGRITOPE, INC.
By /s/ Adolph J. Ferro
Title Chairman, President & CEO
Attest:
/s/ Gilbert N. Miller
Secretary
<PAGE>
EXHIBIT B
Form of Rights Certificate
Certificate No. R-
------- Rights
NOT EXERCISABLE AFTER ----------, 2007 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ADVERSE
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. {THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME
AN ACQUIRING PERSON OR ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON OR ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e)
OF SUCH AGREEMENT.}1
Rights Certificate
AGRITOPE, INC.
This certifies that --------------------------------, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of November 14, 1997 (the "Rights
Agreement"), between Agritope, Inc., a Delaware corporation (the "Company"), and
ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"), to purchase from
the Company at any time prior to 5 p.m. (Pacific time) on November 14, 2007 at
the office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, 1/1,000 of a fully paid, nonassessable share of
Series B Junior Participating Preferred Stock (the "Preferred Stock") of the
Company, at a purchase price of $------ per 1/1,000 of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of shares which
may be purchased upon
- --------
1 The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.
1
<PAGE>
exercise thereof) set forth above, and the Purchase Price per share set forth
above, are the number and Purchase Price as of -----------, based on the
Preferred Stock as constituted at such date. The Company reserves the right to
require prior to the occurrence of a Triggering Event (as such term is defined
in the Rights Agreement) that a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or Adverse Person
or an Affiliate or Associate of any such Acquiring Person or Adverse Person (as
such terms are defined in the Rights Agreement), (ii) a transferee of any such
Acquiring Person or Adverse Person, Associate or Affiliate, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person or Adverse Person,
or an Affiliate or Associate of an Acquiring Person or Adverse Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events. In certain circumstances described in the Rights Agreement,
the Rights evidenced hereby may entitle the holder hereof to purchase capital
stock of an entity other than the Company or receive cash or other assets, all
as prescribed in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices
2
<PAGE>
of the Rights Agent designated for such purpose, may be exchanged for another
Rights Certificate or Rights Certificates of like tenor and date evidencing
Rights entitling the holder to purchase a like aggregate number of 1/1,000s of a
share of Preferred Stock as the Rights evidenced by the Rights Certificate or
Rights Certificates surrendered shall have entitled such holder to purchase. If
this Rights Certificate shall be exercised in part, the holder shall be entitled
to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $0.01 per Right at any time prior to the earlier of the
close of business on (i) the tenth business day following the Stock Acquisition
Date (as such time period may be extended pursuant to the Rights Agreement), and
(ii) the Final Expiration Date. In addition, the Rights may be exchanged, in
whole or in part, for shares of the Common Stock, or shares of preferred stock
of the Company having essentially the same value or economic rights as such
shares. Immediately upon the action of the Board of Directors of the Company
authorizing any such exchange, and without any further action or any notice, the
Rights (other than Rights which are not subject to such exchange) will terminate
and the Rights will only enable holders to receive the shares issuable upon such
exchange.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of 1/1,000 of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
3
<PAGE>
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of ---------------
ATTEST: AGRITOPE, INC.
By------------------------- By----------------------------
Secretary Title-------------------------
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By--------------------------------------
Authorized Signature
4
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED--------------------------------------------------------------
hereby sells, assigns and transfer unto ----------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ----------------- Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: -----------------
------------------------------------
Signature
Signature Guaranteed:
5
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(l) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or
Adverse Person or an Affiliate or Associate of any such Acquiring Person or
Adverse Person (as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or Adverse
Person or an Affiliate or Associate of an Acquiring Person or Adverse Person.
Dated:------------------------- --------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
6
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate)
To: AGRITOPE, INC.
The undersigned hereby irrevocably elects to exercise ----------
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number:----------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number:----------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:--------------------------
-------------------------------------
Signature
Signature Guaranteed:
7
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(l) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or Adverse Person or an Affiliate or Associate of any such Acquiring
Person or Adverse Person (as such terms are defined pursuant to the Rights
Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or Adverse Person or an
Affiliate or Associate of an Acquiring Person or Adverse Person.
Dated: ----------, ---- --------------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
8
TONKON TORP LLP
1600 PIONEER TOWER
888 SW FIFTH AVENUE
PORTLAND, OREGON 97204
503-241-1440
Carol Dey Hibbs 503-802-2016
FAX 503-972-3716
[email protected]
December 19, 1997
To the Board of Directors
of Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Re: Registration Statement on Form S-1
We have acted as counsel to Agritope, Inc., a Delaware corporation
("Agritope"), in connection with the preparation and filing with the Securities
and Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "Securities Act"), of Agritope's Registration Statement on Form S-1
(Registration No. 333-345) (the "Registration Statement"). The Registration
Statement relates to the distribution as a dividend of shares of Agritope's
common stock, par value $.01 per share, including certain preferred stock
purchase rights (the "Agritope Stock"), to shareholders of Epitope, Inc., an
Oregon corporation ("Epitope") pursuant to Agritope's spin-off from Epitope (the
"Spin-Off").
In our capacity as such counsel, we have examined and relied upon the
originals, or copies certified or otherwise identified to our satisfaction, of
the Registration Statement and such corporate records, documents, certificates
and other agreements and instruments as we have deemed necessary or
<PAGE>
appropriate to enable us to render the opinions hereinafter expressed.
Based on the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the following opinions:
1. The Agritope Stock has been duly authorized by all necessary
corporate action of Agritope.
2. When distributed by Epitope to its shareholders pursuant to the
Spin-Off, the Agritope Stock will be validly issued, fully paid and
nonassessable.
Our opinion is limited to matters of Delaware General Corporation Law.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the related prospectus.
Very truly yours,
/s/ Tonkon Torp LLP
December 19, 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 - December 19, 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"). 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. We hereby confirm that the Tax
Discussion accurately sets forth our opinion.
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 - December 19, 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,
/s/ Miller, Nash, Wiener, Hager & Carlsen LLP
<PAGE>
[EPITOPE LETTERHEAD]
December 19, 1997
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 December
1, 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 1,343,704 shares of Agritope
stock in a private placement to certain investors for $7 per share, or
an aggregate price of
- 1 -
<PAGE>
$9.4 million (the "Private Placement") subsequent to the Distribution,
but as part 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. Shares sold in the Private Placement will represent between
27 percent and 32 percent of outstanding Agritope voting stock after
completion of the Distribution and the two subsequent transactions,
depending on the exercise of the Series A Option.
5. 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.
6. In connection with a research and development
collaboration, Agritope and Vilmorin & Cie ("Vilmorin") have entered
into an agreement for the sale of 214,285 shares of Agritope Series A
Preferred stock ("Series A Convertible Preferred") at a price of $7 per
share, or an aggregate purchase price of $1.5 million (the "Preferred
Stock Sale").
7. The proceeds from the Preferred Stock Sale will be received
immediately following the Distribution.
8. Agritope has also agreed to grant Vilmorin an option (the
"Series A Option"), exercisable by Vilmorin or its designees and
expiring January 15, 1998, to purchase up to 785,715 additional shares
of Series A Convertible Preferred at a price of $7 per share.
9. If it exercises the Series A Option in full, Vilmorin will
own 20 percent of the outstanding Agritope voting stock.
10. As a result of the Private Placement, Preferred Stock
Sale, and Series A Option, the Agritope Stock distributed to
Epitope's shareholders in the Distribution will represent
approximately 53 percent to 63 percent of all the Agritope Stock
outstanding after completion of the Distribution and the two subsequent
transactions, depending on the exercise of the Series A Options.
11. No property other than Agritope Stock will be distributed
in the Distribution.
12. 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.
- 2 -
<PAGE>
13. All 2.7 million 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 5
shares of Epitope Stock.
14. 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.
15. 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.
16. 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 raise capital through the
Private Placement, the Preferred Stock Sale and, to the extent
exercised, the Series A Option. Neither the Private Placement nor the
Preferred Stock Sale could occur without the successful completion of
the Distribution.
17. 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.
18. After the Distribution, both Agritope and Epitope will
continue to conduct their respective active businesses.
19. There is no intercorporate indebtedness existing between
Agritope and Epitope that was issued, acquired, or will be settled at a
discount.
20. Neither Agritope nor Epitope is an investment company as
defined in Internal Revenue Code ss.ss. 368(a)(2)(f)(iii) and (iv).
21. 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.
22. 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.
- 3 -
<PAGE>
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: /s/ Gilbert N. Miller
Its: Executive Vice President and
Chief Financial Officer
- 4 -
AMENDED AND RESTATED
EMPLOYEE BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EMPLOYEE BENEFITS
AGREEMENT (this "Agreement") is entered into by and between Epitope, Inc., an
Oregon corporation ("Epitope"), and Agritope, Inc., a Delaware corporation
("Agritope"), as of December 19, 1997.
RECITALS
A. The board of directors of Epitope has determined that it is
in the best interests of Epitope and its shareholders to separate the businesses
of Epitope and Agritope.
B. In furtherance of the plan to separate the businesses,
Epitope and Agritope have entered into that certain Separation Agreement dated
December 1, 1997 (the "Separation Agreement"), pursuant to which Epitope will
make a dividend distribution to its shareholders (the "Distribution") of all the
issued and outstanding shares of Agritope common stock, par value $.01 per
share, including certain preferred stock purchase rights attached thereto, held
by Epitope, on the terms and conditions contained therein.
C. In connection with the Distribution, Epitope and Agritope
desire to provide for the allocation between them of assets, liabilities and
responsibilities with respect to certain employee compensation and benefit plans
and programs following the Distribution.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Epitope and Agritope agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms shall have the meanings given below or
elsewhere in this Agreement, or as set forth in the Separation Agreement.
401(k) Retirement Plan: A defined contribution plan maintained
pursuant to Section 401(k) or 401(a) of the Code for Employees and their
beneficiaries. The following are specific 401(k) Retirement Plans:
(i) Agritope 401(k) Plan: The Agritope, Inc. 401(k)
Profit Sharing Plan to be adopted by Agritope prior
to the Distribution Date pursuant to Section (a) of
this Agreement.
(ii) Epitope 401(k) Plan: The Epitope, Inc. 401(k) Profit
Sharing Plan, in effect as of the date hereof.
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Additional Insurance Plans: Insurance plans providing
insurance benefits other than Medical/Dental Plan benefits to Employees,
including Life Insurance and Accidental Death and Dismemberment Insurance.
Agritope Board: The board of directors of Agritope.
Agritope Option Plan: The Agritope, Inc. 1997 Stock Award Plan
to be adopted pursuant to Section of this Agreement.
Agritope Stock Distribution Value: See definition in Section .
Agritope Stock Plans: The Agritope Option Plan and the
Agritope Purchase Plan. Each Agritope Stock Plan will contain substantially the
same material provisions as the corresponding Epitope Plan.
Distribution Date: The effective date of the Distribution, as
determined by the Epitope board of directors.
Distribution Ratio: The number (which may be or include a
fraction) of shares of Agritope Stock to be issued in the Distribution to
Epitope shareholders for each share of Epitope Stock as determined by the
Epitope Board.
Employee: An individual who, on the Distribution Date, is an
employee of either Epitope or Agritope or any of its subsidiaries. There will be
two categories of Employees after the Distribution:
Agritope Employee: Any individual who is an employee
of Agritope or any of its subsidiaries immediately after the
Distribution.
Epitope Employee: Any individual who is an employee
of Epitope immediately after the Distribution.
Epitope Option Plans: The Epitope, Inc. Incentive Stock Option
Plan and the Epitope, Inc. 1991 Stock Award Plan.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
Existing Agritope Option Plan: The Agritope, Inc. 1992 Stock
Award Plan.
Existing Epitope Option: Each unexercised option to purchase
Epitope Stock outstanding as of the close of business on the day before the
Distribution Date, issued pursuant to an Epitope Option Plan or the Existing
Agritope Option Plan.
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Medical/Dental Plan: A plan providing health benefits to
Employees and their dependents, including:
(i) Agritope Medical/Dental Plans: The Medical/Dental Plans
to be established by Agritope in accordance with Section hereof and
(ii) Epitope Medical/Dental Plans: The Epitope Medical/Dental
Plans in effect as of the date hereof and continued by Epitope after
the Distribution Date.
Plan: Any plan, policy, arrangement, contract or agreement
providing compensation or benefits for any group of Employees or for any
individual Employee or the dependents or beneficiaries of any such Employee,
including without limitation any employee welfare and employee pension benefit
plans (as defined in ERISA) and any employee option plans. The term "Plan" as
used in this Agreement does not include any contract, agreement or understanding
entered into by Epitope or Agritope relating to settlement of actual or
potential employee-related litigation claims.
Purchase Plan: A stock-based Plan meeting the requirements of
Section 423 of the Code. The following are specific Purchase Plans:
(i) Agritope Purchase Plan: The Agritope, Inc. 1997
Employee Stock Purchase Plan to be adopted by Agritope prior
to the Distribution Date pursuant to Section .
(ii) Epitope Purchase Plan: The Epitope, Inc. 1993
Employee Stock Purchase Plan, as amended, in effect as of the
date hereof.
Qualified Beneficiary: An individual (or dependent thereof)
who either (1) experiences a "qualifying event" (as that term is defined in Code
Section 4980B(f)(3) and ERISA Section 603) while a participant in any
Medical/Dental Plan, or (2) becomes a "qualified beneficiary" (as that term is
defined in Code Section 4980B(g)(1) and ERISA Section 607(3)) under any
Medical/Dental Plan.
Service Time: The period taken into account under any Plan for
purposes of determining length of service or plan participation to satisfy
eligibility, vesting, benefit accrual and similar requirements under such Plan.
Welfare Plan: Any Plan that provides medical, health,
disability, accident, life insurance, death, dental or any other welfare
benefit, including, without limitation, any post-employment benefit.
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ARTICLE 2
EMPLOYMENT AND CREDITS
2.1 Allocation of Responsibilities on Distribution Date. On the
Distribution Date, except as otherwise agreed between the parties, Agritope
shall retain or assume, as the case may be, sole responsibility as employer for
Agritope Employees, and shall cause any Agritope Employee that is then a party
to any employment, change in control or other employment-related agreement with
Epitope to terminate such agreement effective as of the Distribution Date
(except confidentiality, indemnification, and similar agreements relating
primarily to past services to Epitope). Except as otherwise provided in this
Agreement, the fact that Agritope assumes or retains responsibility as employer
of Agritope Employees as of the Distribution Date shall not, of itself, cause
such employee to be deemed terminated under any Plan maintained by Epitope or
Agritope.
2.2 Service Time. For purposes of determining Service Time under any
Welfare Plan, Agritope shall credit each Agritope Employee with such Employee's
Service Time and original hire date as may be reflected in Epitope's employment
records as of the Distribution Date. Such Service Time and hire date shall
continue to be maintained for as long as the Employee's employment with Agritope
does not terminate. Agritope shall be free to make such determinations relating
to Service Time under any Agritope Stock Plans as Agritope, in its sole
discretion, deems appropriate. Subject to the provisions of ERISA, Agritope may,
in its sole discretion, make such decisions as it deems appropriate with respect
to determining Service Time for any Agritope Employee whose employment with
Agritope is terminated following the Distribution Date but who is subsequently
reemployed by Agritope.
ARTICLE 3
STOCK OPTIONS
3.1 Amendment of Epitope Option Plans. Prior to the Distribution Date,
Epitope shall take all action necessary and appropriate to amend the Epitope
Option Plans and, to the extent necessary and permissible without the consent of
option holders, outstanding options issued under the plans to be consistent with
the terms of this Section .
(a) Effect of Employment by Agritope. For purposes of
determining the period during which Existing Epitope Options remain
exercisable, employment by Agritope or any of its majority owned
subsidiaries following the Distribution Date shall be deemed employment
by Epitope, notwithstanding the fact that Agritope will no longer be a
subsidiary of Epitope after the Distribution Date. For continued or
future vesting and all other purposes relating to Existing Epitope
Options, employment by Agritope or any of its majority owned
subsidiaries after the Distribution Date shall not be deemed employment
by Epitope. Accordingly, any affected holder of an Existing Epitope
Options granted under Epitope Option Plans will be treated as a
terminated employee and options will continue to vest according to the
schedule provided in the applicable award agreement.
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(b) Adjustment to Exercise Price of Existing Epitope Options.
The per share exercise price of each Existing Epitope Option issued
under the Epitope Option Plans shall be reduced one day after the
Distribution Date by subtracting the Agritope Stock Distribution Value
(as defined below) from the stated exercise price. "Agritope Stock
Distribution Value" is equal to (a) $7, being the price per share at
which foreign investors have agreed to purchase Agritope Stock,
multiplied by (b) the number of shares of Agritope Stock that are
issued in the Distribution or that investors have agreed as of the
Distribution Date to purchase, plus the 214,285 shares of Agritope
Preferred to be purchased by Vilmorin & Cie, divided by (c) the number
of shares of Epitope Stock outstanding on the Record Date.
3.2 Amendment of Existing Agritope Option Plan. Prior to the
Distribution Date, Agritope shall take all action necessary and appropriate to
amend the Existing Agritope Option Plan and/or outstanding Award Agreements (as
defined in the Existing Agritope Option Plan) entered into in connection with
the Plan to be consistent with the terms of this Section .
(a) Issuance of Epitope Stock Upon Exercise. Epitope Stock
shall be issued upon exercise of Existing Epitope Options granted
pursuant to the Existing Agritope Option Plan, notwithstanding the fact
that the options are denominated in shares of Agritope Stock. The
existing agreement between Epitope and Agritope providing for issuance
of Epitope Stock upon exercise of such options will be amended to
remain in effect following the Distribution.
(b) Effect of the Distribution. If the holder of Existing
Epitope Options granted under the Existing Agritope Option Plan is an
Agritope Employee after the Distribution, such holder shall for
continued or future vesting purposes be deemed terminated on the
Distribution Date but, for purposes of determining the period options
remain exercisable, such holder shall not be deemed terminated until
employment by Agritope is terminated. Accordingly, Existing Epitope
Options granted under the Existing Agritope Option Plan shall continue
to vest following the Distribution Date according to the vesting
schedule applicable to terminated employees set forth in the applicable
Award Agreement. If such option holder is an Epitope Employee, such
options shall continue to vest and be exercisable as set forth in the
Existing Agritope Option Plan or outstanding Award Agreements.
(c) Adjustment to Exercise Price of Options Issued Under
Existing Agritope Plan. The per share exercise price of each Existing
Epitope Option issued under the Existing Agritope Option Plan (which
price is stated in terms of Agritope Stock) shall be reduced one day
after the Distribution Date by subtracting from the stated exercise
price the product of (a) the Agritope Stock Distribution Value,
multiplied by (b) the number (which will be a fraction) of shares of
Epitope Stock to be issued in lieu of each share of Agritope Stock for
which the option is exercised.
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(d) No Further Option Grants. Agritope shall not grant any
additional options under the Existing Agritope Option Plan.
3.3 Effect of the Distribution on Change in Control Provisions. Nothing
in this Agreement or in any amendment to the Epitope Option Plans, the Existing
Agritope Option Plan or to any award agreement issued under any Plan shall be
interpreted to modify the change in control provisions in any Existing Epitope
Options. Existing Epitope Options shall continue to become immediately and fully
vested and exercisable as to all shares covered by such option upon a Change in
Control Date (as defined in the terms and conditions applicable to Existing
Epitope Options).
3.4 Adoption of Agritope Option Plan. Prior to the Distribution Date,
Agritope shall take, or cause to be taken, all action necessary and appropriate
(i) to prepare and ratify the adoption of the Agritope Option Plan, and (ii) to
present the Agritope Option Plan to Epitope, as the sole shareholder of
Agritope, for approval. Agritope and Epitope shall cooperate in the adoption of
the Agritope Option Plan and the reservation for issuance under the plan of such
shares of Agritope Stock as are deemed necessary and appropriate by the Agritope
Board.
3.5 Communication Regarding Termination Of Employment. Agritope shall
notify Epitope of the termination of employment of any Agritope Employee holding
an Existing Epitope Option within ten days of such termination. Such notice with
respect to termination shall specify the date of termination, whether the
termination was for cause or came as a result of retirement, and such other
information as Epitope shall reasonably request.
ARTICLE 4
STOCK PURCHASE PLANS
4.1 Epitope Purchase Plan. The Epitope Purchase Plan will continue in
full force and effect in accordance with its terms. Participants under the
Epitope Purchase Plan will be eligible to participate in the Distribution only
to the extent that, by operation of the Epitope 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 Common Stock under
the Epitope Purchase Plan as of the Record Date but have not yet been
mechanically recorded as shareholders of record on the Record Date will be
treated as shareholders of record for purposes of the Distribution. Employment
by Agritope or any of its majority-owned subsidiaries following the Distribution
Date shall not be deemed employment by Epitope for purposes of the Epitope
Purchase Plan and any Agritope Employee shall be treated as a terminated
employee under the Epitope Purchase Plan. For purposes of the continuing
operation of the Epitope Purchase Plan, Epitope will adjust the Maximum Purchase
Price (as defined in the Epitope Purchase Plan) to account for the effect of the
Distribution by subtracting the Agritope Stock Distribution Value from the
Maximum Purchase Price.
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4.2 Adoption of Agritope Purchase Plan. Prior to the Distribution Date,
Agritope shall take, or cause to be taken, all action necessary and appropriate
(i) to ratify the adoption of the Agritope Purchase Plan, and (ii) to present
the Agritope Purchase Plan to Epitope, as the sole shareholder of Agritope, for
approval.
ARTICLE 5
OTHER BENEFIT PLANS
5.1 401(k) Retirement Plans.
(a) Establishment of Agritope 401(k) Plan. Effective January
1, 1998, Agritope shall establish and thereafter administer the
Agritope 401(k) Plan, in such form as may be approved by the Agritope
Board, which is intended to qualify under Sections 401(a), 501(a) and
401(k) of the Code and to be in compliance with the requirements of
ERISA. The Agritope 401(k) Plan will provide credit for services
rendered to Epitope or any of its subsidiaries prior to the
Distribution Date in determining Service Time.
(b) Continuation of Benefits. Agritope Employees shall
continue to be eligible to participate in the Epitope 401(k) Plan until
such time as the Agritope 401(k) Plan is established and becomes
effective. Effective as of the effective date of the Agritope 401(k)
Plan, which is expected to be January 1, 1998, Agritope will provide
benefits under the Agritope 401(k) Plan to all Agritope Employees who
were participants in, or otherwise entitled to benefits under, the
Epitope 401(k) Plan. 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.
(c) Vesting and Distribution of Accounts. Agritope Employees
shall become fully vested (if not already fully vested) in their
Matching Accounts, as defined under the Epitope 401(k) Plan, as of the
Distribution Date. Agritope Employees shall be entitled to distribution
from the Epitope 401(k) Plan of all of their accounts within a
reasonable time after the Distribution Date. The Agritope 401(k) Plan
shall accept a rollover contribution from any Agritope Employee who
elects that their distribution from the Epitope 401(k) Plan be rolled
over to the Agritope 401(k) Plan.
(d) Epitope to Provide Information. Epitope shall provide
Agritope, as soon as practicable after the Distribution Date, with a
list of Agritope Employees who, to the best knowledge of Epitope, were
participants in or otherwise entitled to benefits under the Epitope
401(k) Plan on the Distribution Date, together with a listing of each
participant's Service Time under the Epitope 401(k) Plan and a listing
of each such Agritope Employee's account balance thereunder. Epitope
shall provide Agritope with such additional information in the
possession of Epitope or Epitope's agent as may be reasonably requested
by Agritope related to the effective administration of the Agritope
401(k) Plan.
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(e) Cooperation. Agritope and Epitope shall, in connection
with the plan-to-plan transfer described in , use their best efforts to
cooperate in the plan-to-plan transfer of funds and in making any and
all appropriate filings required by the Commission or the Internal
Revenue Service, or required under the Code, ERISA, or any applicable
securities laws and the regulations thereunder.
(f) Effect of the Distribution. The Distribution and
subsequent transfer of account balances shall not be treated as a
termination or partial termination of the Epitope 401(k) Plan or of
Agritope Employees under the Epitope 401(k) Plan.
5.2 Medical/Dental Plan Liability and Coverage.
(a) Continuation of Coverages After the Distribution. Epitope
shall continue to provide coverage to Agritope Employees under Epitope
Medical/Dental Plans after the Distribution Date until such time as new
medical/dental plans are established by Agritope. If during the period
from the Distribution Date until the establishment of Agritope Medical
and Dental Plans, Epitope, in its reasonable discretion, determines
that continued coverage of Agritope Employees under Epitope
Medical/Dental Plans will have an adverse effect on the business plans
or strategies of Epitope, Epitope may, upon 90 days written notice to
Agritope, terminate such coverage. After the Distribution Date,
Agritope shall be responsible for all costs under the Epitope
Medical/Dental Plans attributable to Agritope Employees, as shall be
determined by Epitope in its reasonable discretion.
(b) Agritope Medical/Dental Plans. Unless the parties
otherwise agree, Agritope shall establish Agritope Medical/Dental Plans
to provide coverages to Agritope Employees substantially similar to
those available under the corresponding Epitope Medical/Dental Plans on
or before January 1, 1999. In connection with the establishment of
Agritope Medical/Dental Plans, Agritope Employees and their eligible
dependents and beneficiaries shall have no preexisting condition
limitation imposed other than that which is or was imposed under the
plan or plans in which they were enrolled before the date Agritope
Medical/Dental Plans are established and become effective (the "Cutoff
Date"), and will be credited with any expenses incurred toward
deductibles, out-of-pocket expenses, maximum benefit payments, and any
benefit usage toward plan limits that would have been applicable under
the plan or plans in which they were enrolled before the Cutoff Date.
(c) Responsibility for Coverages after the Cutoff Date.
Immediately after the Cutoff Date, Agritope shall provide coverage to
Agritope Employees under Agritope Medical/Dental Plans. Epitope
Medical/Dental Plans shall continue to be responsible for claims that
arise prior to the Cutoff Date subject to the cost reimbursement
provisions set forth in Section .
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(d) COBRA. Epitope shall be responsible for complying with the
requirement of Code Section 4980B and Part 6 of Title I of ERISA
("COBRA Requirements") with respect to any Employee in its group health
plan and their "qualified beneficiaries" whose "qualifying event" (as
such terms are defined in Code Section 4980B) occurs prior to the
Distribution Date. After the Distribution Date, Agritope shall be
responsible for compliance with COBRA Requirements with respect to
Agritope Employees whose "qualifying event" occurs on or after the
Distribution Date.
(e) No Qualifying Event. The Distribution described in the
Separation Agreement shall not, by itself, create a "qualifying event"
(as described in Code Section 4980B(f)(3) and ERISA Section 603).
(f) Refunds. In the event that subsequent to the Cutoff Date,
refunds are received from carriers providing medical or dental
insurance, such refunds will belong to Epitope, to the extent
attributable to Epitope Employees. Agritope shall receive such refunds
to the extent attributable to Agritope Employees, as shall be
determined by Epitope in its reasonable discretion.
5.3 Life Insurance/Accidental Death and Dismemberment Coverages.
(a) Continuation of Coverages After the Distribution. Epitope
shall continue to provide coverage to Agritope Employees under
Epitope's Additional Insurance Plans after the Distribution Date until
such time as Additional Insurance Plans are established by Agritope. If
during the period from the Distribution Date until the establishment by
Agritope of Additional Insurance Plans, Epitope, in its reasonable
discretion, determines that continued coverage of Agritope Employees
under Epitope's Additional Insurance Plans will have an adverse effect
on the business plans or strategies of Epitope, Epitope may, upon 90
days' written notice to Agritope, terminate such coverage. After the
Distribution Date, Agritope shall be responsible for all costs under
Epitope's Additional Insurance Plans attributable to Agritope
Employees, as shall be determined by Epitope in its reasonable
discretion.
(b) Agritope's Additional Insurance Plans. Unless the parties
otherwise agree, Agritope shall establish Additional Insurance Plans to
provide coverages to Agritope Employees substantially similar to those
available under Epitope's corresponding Additional Insurance Plans on
or before January 1, 1999.
(c) Responsibility for Coverages. Immediately after Agritope's
Additional Insurance Plans become effective, Agritope shall be solely
responsible for providing all coverages relating to Additional
Insurance Plans to Agritope Employees.
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5.4 Vacation And Sick Pay Liabilities. Effective on the Distribution
Date, Epitope shall retain, as to Epitope Employees, and Agritope shall assume
or retain, as the case may be, as to Agritope Employees, all liabilities
(whether vested or unvested, and whether funded or unfunded) for vacation and
sick leave accrued as of the Distribution Date. Agritope shall be solely
responsible for the payment of such vacation or sick leave to Agritope Employees
after the Distribution Date. Each of Epitope and Agritope shall provide to its
own Employees on the Distribution Date the same vested and unvested balances of
vacation and sick leave as credited to such Employee on the Epitope payroll
systems as of the Distribution Date. Nothing in this Agreement shall be
construed to limit the right of either Epitope or Agritope to change its
vacation or sick leave policies as it deems appropriate.
5.5 Flexible Spending Accounts. Effective as of the Distribution Date,
Agritope shall establish Flexible Spending Account Plans that are substantially
equivalent to those currently provided by Epitope. Spending account balances for
Agritope Employees will not be transferred by Epitope to the new plans
established by Agritope. Agritope Employees will have 90 days after the
Distribution Date to make claims for payment from their existing spending
account balances.
ARTICLE 6
RELATED MATTERS
6.1 Notice of Costs. Epitope and Agritope acknowledge that Epitope and
Agritope may have incurred or may incur costs and expenses, including, but not
limited to, contributions to Plans and the payment of insurance premiums arising
from or related to any of the Plans that are, as set forth in this Agreement,
the responsibility of the other party hereto. Accordingly, Epitope and Agritope
shall (i) give notice to the other party of the costs and expenses incurred or
the costs and expenses to be incurred and (ii) demand that the other party, if
it has the obligation to pay, pay or reimburse the cost and expense.
6.2 Payroll Reporting And Withholding.
(a) Agritope and Epitope hereby adopt the "standard procedure"
for preparing and filing IRS Forms W-2 (Wage and Tax Statements) and
W-3 (Transmittal of Income and Tax Statements), as described in Section
4 of Revenue Procedure 96-60 ("Rev. Proc. 96-60"). Under this procedure
Epitope must perform all reporting duties for the wages and other
compensation it has paid to Employees prior to the Distribution Date,
including the furnishing and filing of Forms W-2 and W-3. Agritope will
be responsible for all reporting duties for the wages and other
compensation it pays to Agritope Employees.
(b) Epitope will keep on file all Forms W-4 (Employee's
Withholding Allowance Certificate) and W-5 (Earned Income Credit
Advance Payment Certificate) provided by Agritope Employees. Agritope
Employees must provide Agritope with new Forms W-4 and W-5 for the year
in which the Distribution occurs.
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(c) With respect to Agritope Employees with garnishments, tax
levies, child support orders, qualified medical child support orders,
and wage assignments in effect with Epitope on the Distribution Date,
Agritope shall be responsible for honoring such payroll deduction
authorizations or court or governmental orders applicable to Agritope
Plans, and will continue to make payroll deductions and payments to any
authorized payee, as specified by the court or governmental order that
was filed with Epitope. Epitope shall provide Agritope with full
information about any such matters before the Distribution Date.
(d) Unless otherwise prohibited by law or provided by this
Agreement or another agreement entered into in connection with the
Distribution, or by a Plan document, with respect to Agritope Employees
with authorizations for payroll deductions in effect with Epitope on
the Distribution Date, Agritope as the successor employer will honor
such payroll deduction authorizations relating to each Agritope
Employee, and shall not require that such Agritope Employee submit a
new authorization to the extent that the type of deduction by Agritope
does not differ from that made by Epitope. Any such payroll deduction
in favor of Epitope shall continue to be withheld by Agritope for
Epitope's benefit.
6.3 Access to Records and Confidentiality. Epitope shall retain all
employment records, personnel files, and other information relating to Epitope
Employees and payroll records relating to Agritope Employees. Agritope shall
take possession of all personnel and employment records, except payroll records,
relating to Agritope Employees after the Distribution Date. Agritope and Epitope
will make available to the other party such records, documents, and other
information relating to employment matters involving Agritope Employees and
other matters covered in this Agreement as may be reasonably requested. The
parties shall cooperate in providing any information necessary for the
resolution of any dispute that may arise between Epitope or Agritope and any
third party arising out of subject matter covered by this Agreement after the
Distribution Date. Epitope and Agritope will each, upon adequate notice and
reasonable request, make its employees and facilities available to the other
party and shall permit the other party to copy at its own expense records
relating to Agritope Employees as necessary and appropriate. Except as required
by law or with the prior written consent of Epitope and any affected Employee,
all records, documents, and other information provided to Agritope by Epitope
related to Agritope Employees and other matters covered in this Agreement shall
be kept confidential by Agritope and its representatives and shall not be
disclosed to any other person or entity.
ARTICLE 7
EMPLOYMENT MATTERS
7.1 Separate Employers. After the Distribution Date, Epitope and
Agritope will be separate and independent employers.
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7.2 Employment Policies And Practices. Epitope and Agritope may adopt
such employment policies, compensation practices, retirement plans, welfare
benefit plans, and other employee benefit plans or policies of any kind or
description, as each may determine, in its sole discretion, are necessary and
appropriate, in addition to those required under this Agreement. Except as
otherwise expressly provided herein, no provision of this Agreement shall be
construed as a limitation on the right of Epitope or Agritope to amend or
terminate any policies, practices, or Plan.
7.3 Funding Of Plans. Any claims by or on behalf of Employees or any
federal, state or local government agency for alleged underfunding of, or
failure to make payments to, health and welfare funds based on acts or omissions
occurring on or before the Distribution Date or arising from or in connection
with the Distribution, will be the sole responsibility of each party as to its
own employees (i.e., Epitope with respect to Epitope Employees and Agritope with
respect to Agritope Employees).
7.4 Employment Tax Rates. Agritope shall comply with ORS Chapter 657 in
determining whether to assume the state unemployment tax experience of Epitope
for purposes of establishing its own unemployment tax experience rates.
ARTICLE 8
MISCELLANEOUS
8.1 Indemnification. Each party to this Agreement shall indemnify,
defend, and hold harmless the other party against losses incurred as a result of
claims relating to matters covered in this Agreement to the extent provided in
the Separation Agreement. In addition, subject to the indemnification procedures
set forth in the Separation Agreement:
(a) Indemnification by Epitope. Epitope shall indemnify,
defend, and hold harmless Agritope and its subsidiaries from and
against any liabilities incurred as a result of claims made against
Agritope by Epitope Employees relating to or arising out of employment
of Epitope Employees by Epitope after the Distribution Date, employee
benefits provided to Epitope Employees after the Distribution Date, or
termination in connection with the Distribution of any Employee who
becomes or remains an Epitope Employee on or after the Distribution
Date; and
(b) Indemnification by Agritope. Agritope shall indemnify,
defend, and hold harmless Epitope and any future subsidiary of Epitope
from and against any liabilities incurred as a result of claims made
against Epitope by Agritope Employees relating to or arising out of
employment of Agritope Employees by Agritope after the Distribution
Date, employee benefits provided to Agritope Employees after the
Distribution Date, or termination in connection with the Distribution
of any Employee who becomes or remains an Agritope Employee on or after
the Distribution Date.
- 12 -
<PAGE>
8.2 No Third-Party Beneficiaries. No provision of this Agreement shall
be construed to create a right in any Employee, or dependent or beneficiary of
such Employee, including without limitation any right under a Plan which such
person would not otherwise have under the terms of the Plan itself. This
Agreement is for the benefit of the parties hereto and is not intended to confer
upon any other person except the parties hereto any rights or remedies.
8.3 Attorney-Client Privilege. Consistent with the provisions of
Section 6.6 of the Separation Agreement, provisions requiring either party to
this Agreement to cooperate shall not be deemed to be a waiver of the
attorney/client privilege for either party nor shall they require either party
to waive its attorney/client privilege.
8.4 Dispute Resolution. Any disputes between the parties arising out of
or related to this Agreement shall be resolved or decided as set forth in the
Separation Agreement.
8.5 Relationship of the Parties. Neither party is an agent of the other
party and neither party has any authority to bind the other party, transact any
business in the other party's name or on its behalf, or make any promises or
representations on behalf of the other party unless otherwise agreed to in
writing. Each party will perform all of its respective obligations under this
Agreement as an independent contractor.
8.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior written or oral agreements between the parties with respect to the subject
matter hereof, including the Employee Benefits Agreement between the parties
dated as of December 1, 1997.
8.7 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the state of Oregon.
8.8 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 hereby waives
any argument that venue in any such forum is not convenient or proper.
8.9 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (i) on the date of service if served personally on the party to whom
notice is given; (ii) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(iii) on the business day after delivery to an overnight courier service or the
express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed; or (iv) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by registered or certified mail, postage prepaid, properly
addressed and return-receipt requested, to the party as follows:
- 13 -
<PAGE>
If to Epitope: Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Facsimile No. (503) 641-8665
If to Agritope: Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Facsimile No. (503) 520-6196
Any party may change its address and facsimile number by giving the other party
written notice of its new address and facsimile number in the manner set forth
above.
8.10 Modification of Agreement. No modification, amendment or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties hereto and then such modification,
amendment or waiver shall be effective only in the specific instance and for the
purpose for which given.
8.11 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either party without the prior
written consent of the other party, and such consent shall not be unreasonably
withheld.
8.12 Titles and Headings. Titles and headings included are for
convenience and are not intended to constitute a part of or to affect the
meaning or interpretation of this Agreement.
8.13 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 hereof shall not in any way be
affected or impaired thereby.
8.14 No Waiver. Neither the failure nor any delay on the part of any
party hereto to exercise any right under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right preclude
any other or further exercise of the same or any other right, nor shall any
waiver of any right with respect to any occurrence be construed as a waiver of
such right with respect to any other occurrence.
8.15 Survival. All covenants and agreements of the parties contained in
this Agreement will survive for five years following the Distribution Date.
- 14 -
<PAGE>
8.16 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when a counterpart has been signed by each party and delivered
to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
EPITOPE, INC.
By:
Its:
AGRITOPE, INC.
By:
Its:
- 15 -
SUPERIOR TOMATO ASSOCIATES, L.L.C.
OPERATING AGREEMENT
February 19, 1996
<PAGE>
TABLE OF CONTENTS
Page
Article I Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 2
(a) Accounting Period. . . . . . . . . . . . . . . . . . . . 2
(b) Additional Member. . . . . . . . . . . . . . . . . . . . 2
(c) Adjusted Asset Value . . . . . . . . . . . . . . . . . . 2
(d) Affiliate. . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Capital Account. . . . . . . . . . . . . . . . . . . . . 2
(f) Capital Commitment . . . . . . . . . . . . . . . . . . . 3
(g) Code . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(h) Company Income Or Loss . . . . . . . . . . . . . . . . . 3
(i) Company Percentage . . . . . . . . . . . . . . . . . . . 3
(j) Depreciation . . . . . . . . . . . . . . . . . . . . . . 3
(k) Development And Marketing Agreement. . . . . . . . . . . 3
(l) Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 3
(m) in interest; Majority In Interest. . . . . . . . . . . . 3
(n) Manager. . . . . . . . . . . . . . . . . . . . . . . . . 3
(o) Member . . . . . . . . . . . . . . . . . . . . . . . . . 3
(p) Members' Council . . . . . . . . . . . . . . . . . . . . 4
(q) Officers . . . . . . . . . . . . . . . . . . . . . . . . 4
(r) Treasury Regulations . . . . . . . . . . . . . . . . . . 4
Article II Name, Purposes And Place Of Business Of Company. . . . . . . . 4
2.1 Company Name . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Company Purposes . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Principal Place Of Business. . . . . . . . . . . . . . . . . . 4
2.4 Registered Agent And Office. . . . . . . . . . . . . . . . . . 4
Article III Period Of Duration . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Period Of Duration . . . . . . . . . . . . . . . . . . . . . . 5
Article IV Names, Admission, Rights And Obligations . . . . . . . . . . . 5
4.1 Names And Addresses. . . . . . . . . . . . . . . . . . . . . . 5
4.2 Admission Of Members . . . . . . . . . . . . . . . . . . . . . 5
4.3 Limitation Of Liability. . . . . . . . . . . . . . . . . . . . 5
4.4 Company Debt Liability . . . . . . . . . . . . . . . . . . . . 5
4.5 Restrictions On Transfers Of Company Interests . . . . . . . . 5
4.6 Withdrawal Of Member . . . . . . . . . . . . . . . . . . . . . 6
i
<PAGE>
TABLE OF CONTENTS
(continued)
Article V Management, Duties And Restrictions. . . . . . . . . . . . . . 6
5.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 The Members' Council . . . . . . . . . . . . . . . . . . . . . 6
5.4 Resignation Of Manager, Officers And Members Of Members'
Council; Removal of Manager. . . . . . . . . . . . . . . . . . 6
5.5 Determination By The Manager. . . . . . . . . . . . . . . . . 6
5.6 Restrictions On The Members. . . . . . . . . . . . . . . . . . 7
5.7 Manager's And Officers' Standard Of Care . . . . . . . . . . . 7
5.8 No Exclusive Duty To Company . . . . . . . . . . . . . . . . . 7
5.9 Indemnity Of The Manager And Officers. . . . . . . . . . . . . 7
Article VI Capital Accounts; Capital Commitment . . . . . . . . . . . . . 8
6.1 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Initial Capital Contributions. . . . . . . . . . . . . . . . . 8
6.3 Additional Capital Commitments . . . . . . . . . . . . . . . . 8
6.4 Noncontributing Members. . . . . . . . . . . . . . . . . . . . 9
6.5 Additional Capital Contributions; Right Of First Refusal . . . 9
6.6 Allocations To New Members . . . . . . . . . . . . . . . . . . 10
Article VII Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Allocation Of Company Income Or Loss . . . . . . . . . . . . . 10
7.2 Income Tax Allocations . . . . . . . . . . . . . . . . . . . . 10
Article VIII Fees And Expenses. . . . . . . . . . . . . . . . . . . . 10
8.1 Management Compensation. . . . . . . . . . . . . . . . . . . . 10
Article IX Distributions To And Withdrawals By Members. . . . . . . . . . 10
9.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Withdrawals By Members . . . . . . . . . . . . . . . . . . . . 10
9.3 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 11
9.4 Members' Obligation To Repay Or Restore. . . . . . . . . . . . 11
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Article X Protective Rights. . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Approval By Members. . . . . . . . . . . . . . . . . . . . . . 11
10.2 Approval By Other Members. . . . . . . . . . . . . . . . . . . 12
Article XI Dissolution Of Company . . . . . . . . . . . . . . . . . . . . 12
11.1 Early Termination Of The Company . . . . . . . . . . . . . . . 12
11.2 Dissolution Procedures . . . . . . . . . . . . . . . . . . . . 12
Article XII Reports And Financial Accounting . . . . . . . . . . . . . . . 13
12.1 Financial Records. . . . . . . . . . . . . . . . . . . . . . . 13
12.2 Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . 13
12.3 Tax Matters Member . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.5 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Article XIII Amendment. . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Article XIV Other Provisions . . . . . . . . . . . . . . . . . . . . . . . 14
14.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.2 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 Binding Agreement. . . . . . . . . . . . . . . . . . . . . . . 14
14.5 Entire Agreement; Captions . . . . . . . . . . . . . . . . . . 15
14.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 15
14.7 Waiver Of Action For Partition . . . . . . . . . . . . . . . . 15
14.8 Execution Of Additional Instruments. . . . . . . . . . . . . . 15
14.9 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.10 Rights And Remedies Cumulative . . . . . . . . . . . . . . . . 15
14.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.12 Heirs, Successors And Assigns. . . . . . . . . . . . . . . . . 15
14.13 Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
iii
<PAGE>
INDEX OF DEFINITIONS
Defined Term Page
Accounting Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Adjusted Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Capital Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capital Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Income Or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Delaware Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Development And Marketing Agreement. . . . . . . . . . . . . . . . . . . . . 3
Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
In Interest; Majority In Interest. . . . . . . . . . . . . . . . . . . . . . 3
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Initial Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Internal Revenue Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Members' Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tax Matters Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Treasury Regulations . . . . . . . . . . . . . . . . . . . . . . . .. . . . .4
iv
<PAGE>
SUPERIOR TOMATO ASSOCIATES, L.L.C.
OPERATING AGREEMENT
This Operating Agreement (the "Agreement") is made as of the 19th day of
February, 1996, by and among Agritope, Inc., a Delaware corporation
("Agritope"), Sunseeds Company, a --------------- corporation ("Sunseeds"), and
Andrew and Williamson Sales Company, Inc., a --------------- corporation ("A&W")
with respect to the operation of Superior Tomato Associates, L.L.C., a Delaware
limited liability company (the "Company").
Whereas, Superior Tomato Associates is being formed, pursuant to the
provisions of the Delaware Limited Liability Company Act (the "Delaware Act"),
upon the filing of a Certificate of Formation with the Secretary of State of the
State of Delaware;
Whereas, the purpose of the Company is to combine Sunseeds' tomato seed
genetics and know-how with Agritope's SAMase technology and know-how and A&W's
growing, packing and distribution know-how to produce and commercialize in North
America economically superior tomatoes for the fresh market; the product (the
"Product") shall be fresh market cherry, roma and vine ripened large fruited
tomato varieties using seed developed by the Company;
Whereas, the Members have entered into this Agreement, setting forth their
respective ownership interests in the Company and the principles by which it
will be operated and governed;
Whereas, concurrently with the execution and delivery of this Agreement,
the parties are entering into a Development and Marketing Agreement, under
which:
Agritope will grant to the Company a non-exclusive license to Agritope's
proprietary technology of regulating ethylene production in tomato
(hereinafter "SAMase");
Sunseeds will grant to the Company a non-exclusive license to Sunseeds'
proprietary tomato germplasm and associated know-how;
Agritope and Sunseeds will collaborate to develop seed for the Product;
and
A&W will supply the production acreage and distribution infrastructure for
the development and testing of the Product, will arrange for the growing
of the Product and will pack and distribute the Product.
Whereas, the parties recognize that there exist significant risks
associated with the business to be carried on by the Company, including without
limitation: the risk that the
<PAGE>
Product might not be successfully developed, or if successfully developed, might
not receive regulatory approval, the risk that the Product might not generate
savings, the risk that the Product might not achieve market acceptance, the risk
of crop failure, the risk associated with the highly volatile tomato market, the
credit risk that growers may not make the payments due from the growers with
respect to the Product, the risk created by the existence of numerous patents
held by different parties in the field of plant genetics and the possibility
that development or marketing of the Product might be impinged by the existence
of any of such patents.
Now, Therefore, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. For purposes of this Agreement, certain terms
used in this Agreement shall be defined as follows:
(a) Accounting Period. An Accounting Period shall be (i) the Fiscal
Year, if there are no changes in the Members' respective interests in Company
income, gain, loss or deductions during such Fiscal Year except on the first day
thereof, or (ii) any other period beginning on the first day of a Fiscal Year,
or any other day during the Fiscal Year upon which occurs a change in such
respective interests, and ending on the last day of a Fiscal Year, or on the day
preceding an earlier day upon which any change in such respective interest shall
occur.
(b) Additional Member. Additional Member shall mean any person or
entity, other than Agritope, Sunseeds or A&W, who or which is admitted to the
Company as a Member pursuant to the terms of this Agreement.
(c) Adjusted Asset Value. Adjusted Asset Value is defined in Exhibit
B to this Agreement.
(d) Affiliate. An Affiliate of a Member is a person or entity
controlling, controlled by, or under common control with, a Member.
(e) Capital Account. The Capital Account of each Member shall
consist of such Member's original capital contribution (i) increased by any
additional capital contribution, such Member's share of Company Income that is
allocated to it pursuant to this Agreement, and the amount of any Company
liabilities that are assumed by such Member or that are secured by any Company
property distributed to such Member, and (ii) decreased by the amount of any
distributions to, or withdrawals by, such Member, such Member's share of any
Company Loss that is allocated pursuant to this Agreement, and the amount of any
liabilities of such Member that are assumed by the Company or that are secured
by any property contributed by such Member to the Company. The foregoing
provision relating to the maintenance of Capital
2.
<PAGE>
Accounts is intended to comply with Treasury Regulation Section
1.704-1(b)(2)(iv) and shall be interpreted and applied in a manner consistent
with such Regulations. Capital contributions may be made in cash or, to the
extent agreed to by a Majority in Interest of the Members, by an in kind
contribution of property or services at the value agreed to by such Members.
(f) Capital Commitment. A Member's Capital Commitment, if any, shall
mean the amount that such Member has agreed to contribute to the capital of the
Company upon such Member's admission to the Company and from time to time
thereafter, as set forth opposite such Member's name on Exhibit A hereto.
(g) Code. The Code, or the Internal Revenue Code, is the Internal
Revenue Code of 1986, as amended from time to time (or any corresponding
provisions of succeeding law).
(h) Company Income Or Loss. Company Income or Loss is defined on
Exhibit B to this Agreement.
(i) Company Percentage. The Company Percentage for each Member shall
be as set forth on Exhibit A hereto, as amended from time to time in accordance
with the terms of this Agreement.
(j) Depreciation. Depreciation is defined on Exhibit B to this
Agreement.
(k) Development And Marketing Agreement. Development and Marketing
Agreement means the agreement referred to in the fourth Whereas clause of the
Agreement.
(l) Fiscal Year. The Company's Fiscal Year for the period between
the date hereof and March 1, 1996 shall be such period, and for all years
thereafter shall commence on March 1 of each year and end on February 28 or
February 29, as the case may be, of the following year except for the final
Fiscal Year of the Company, which shall begin on March 1 of such final Fiscal
Year and end on the date of termination of the Company.
(m) in interest; Majority In Interest. The term "in interest" shall
mean a specified fraction or percentage of the Company Percentages of all
Members (including the Manager) or of designated Members (including the Manager
if within the class of designated Members). A Majority in Interest shall mean
more than 50% in interest.
(n) Manager. Manager shall mean a Member designated or elected by
the Members as Manager pursuant to the terms of this Agreement. As of the
effective date of this Agreement, Agritope is hereby designated as the Manager
pursuant to Section 18-101(10) of the Delaware Act.
(o) Member. Member shall mean each of the Initial Members and
Additional Members as of a given time.
3.
<PAGE>
(p) Members' Council. Members' Council shall mean a council
comprised of three individuals, one of whom is appointed by each Initial Member,
for the purpose of providing advice and counsel on the management of the Company
to the Manager. As of the effective date of this Agreement, the three members of
the Members' Council are Adolph Ferro, who is appointed by Agritope, David
Atkinson, who is appointed by Sunseeds, and Fred Williamson, Sr., who is
appointed by A&W, or their respective designees. Each member of the Members'
Council may be removed and replaced at any time by the Member that appointed
such individual.
(q) Officers. Officer shall mean one or more individuals designated
as such by the Manager pursuant to this Agreement.
(r) Treasury Regulations. Treasury Regulations shall mean the Income
Tax Regulations promulgated under the Code, as such Regulations may be amended
from time to time (including corresponding provisions of succeeding
Regulations).
ARTICLE II
NAME, PURPOSES AND PLACE OF BUSINESS OF COMPANY
2.1 Company Name. The Company shall conduct its activities under the name
Superior Tomato Associates, L.L.C. or such other name as the Manager may
designate.
2.2 Company Purposes. The purpose of the Company is to (i) combine
Sunseeds' tomato seed genetics and know-how with Agritope's SAMase technology
and know-how and A&W's growing, packing and distribution know-how to produce and
commercialize in North American economically superior tomatoes for the fresh
market; the Product shall be fresh market cherry, roma and vine ripened large
fruited tomato varieties using seed developed by the Company, (ii) engage in any
lawful act or activity for which a limited liability company may be organized
under the laws of the State of Delaware and (iii) engage in all activities
necessary, customary, convenient or incident to any of the foregoing. The
Company shall have the power to make and perform all contracts and to engage in
all actions and transactions necessary or advisable to carry out the purposes of
the Company and shall possess all other powers available to it as a limited
liability company under the laws of the State of Delaware.
2.3 Principal Place Of Business. The principal place of business of the
Company shall be at 8505 SW Creekside Drive, Beaverton, Oregon 97008, or at such
other place or places as the Manager may from time to time determine.
2.4 Registered Agent And Office. The name of the registered agent for
service of process of the Company and the address of the Company's registered
office in the State of Delaware shall be The Prentice-Hall Corporation Services,
1013 Centre Road, Wilmington, Delaware 19805, or such other agent or office in
the State of Delaware as a Majority in Interest of the Members may from time to
time designate.
4.
<PAGE>
ARTICLE III
PERIOD OF DURATION
3.1 Period Of Duration. The Company's existence commences upon of the
filing with the Secretary of State of the State of Delaware of the Company's
Certificate of Formation and shall continue for a period of thirty (30) years,
unless sooner dissolved as provided in Section 11.1 below.
ARTICLE IV
NAMES, ADMISSION, RIGHTS AND OBLIGATIONS
4.1 Names And Addresses. The names and addresses of the Members, the
amount of their respective Capital Commitments to the Company, if any, and their
respective Company Percentages are set forth on Exhibit A hereto. The Manager
shall cause Exhibit A to be amended from time to time to reflect the admission
of any Additional Member, the withdrawal of any Member, receipt by the Company
of notice of any change of address of a Member, the change in any Member's
Capital Commitment, the change in any Member's Company Percentage, or the
occurrence of any other event requiring amendment of Exhibit A.
4.2 Admission Of Members. Additional Members may be admitted to the
Company upon the written consent of the Manager and with the approval of a
Majority in Interest of the Members.
4.3 Limitation Of Liability. Each Member's liability shall be limited as
set forth in the Delaware Act and other applicable law.
4.4 Company Debt Liability. No Member shall personally be liable for any
debts or losses of the Company beyond such Member's respective Capital
Commitment.
4.5 Restrictions On Transfers Of Company Interests.
(a) Without the written consent of a Majority in Interest of the
non-transferring Members, no Member shall sell, assign, transfer, or otherwise
dispose of such Member's share in the Company.
(b) In the event of any voluntary or involuntary transfer of a
Member's interest in the Company, or any part thereof, the transferee shall
receive only the transferor's economic interest in the Company, and the
transferee shall not be admitted as a Member or have any right as a result of
such transfer to participate in the affairs of the Company, except as provided
by written consent of a Majority in Interest of the non-transferring Members
which consent may be withheld for any reason or for no reason.
5.
<PAGE>
4.6 Withdrawal Of Member. A Member may not withdraw or resign without the
consent of a Majority in Interest of the non-resigning or non-withdrawing
Members to such withdrawal and the terms thereof.
ARTICLE V
MANAGEMENT, DUTIES AND RESTRICTIONS
5.1 Management. Except as otherwise set forth herein, the Manager shall
have the sole right to manage, control, and conduct the affairs of the Company
and to do any and all acts on behalf of the Company, subject to the provisions
of this Agreement which may require the consent of the Members.
5.2 Officers. Subsequent to the date of this Agreement, one or more
Officers may be designated and appointed by the Manager, in consultation with
the members of the Members' Council. The Manager may delegate a portion of its
day-to-day management responsibilities to any such Officers, and such Officers
shall have the authority to execute documents for, contract for, negotiate on
behalf of and otherwise represent, the interests of the Company as authorized by
the Manager in any job description created by the Manager.
Any number of offices may be held by the same person.
5.3 The Members' Council.
(a) The purpose of The Member's Council is to review and advise
concerning the direction and progress of the Company.
(b) Meetings of the Members' Council may be held at any time and
place within or without the State of Delaware whenever called by the Manager or
any Member.
(c) Written notice of the time and place of all meetings of the
Members' Council shall be given by the Manager (or any Member) upon ten (10)
day's notice, unless the Manager, in its sole discretion, determines that a
lesser period of notice is appropriate.
(d) Any member of the Members' Council may participate in a meeting
thereof by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
5.4 Resignation Of Manager, Officers And Members Of Members' Council;
Removal of Manager. Any Manager, Officer or member of the Members' Council may
resign at any time by giving written notice to each of the Members. The Manager
may be removed, with or without cause, upon the written direction of a Majority
in Interest of the Members.
5.5 Determination By The Manager. All matters concerning allocations,
distributions and tax elections (except as may otherwise be required by the
income tax laws) and accounting procedures not expressly and specifically
provided for by the terms of this Agreement
6.
<PAGE>
shall be determined in good faith by the Manager. Such determination shall be
final and conclusive as to all of the Members.
5.6 Restrictions On The Members. Members other than the Manager shall not
have any power or authority to act for or on behalf of the Company.
5.7 Manager's And Officers' Standard Of Care. In discharging duties, the
Manager or an Officer shall be fully protected in relying in good faith upon any
such records and upon such information, opinions, reports or statements by any
other person, as to matters the Manager or any Officer reasonably believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, profits or losses of the Company or any other facts
pertinent to the existence and amount of assets from which distributions to
Members might properly be paid. Unless fraud, deceit or a wrongful taking shall
be proved by a nonappealable court order, judgment, decree or decision, neither
the Manager nor an Officer shall be liable or obligated to the Members for any
mistake of fact or judgment or for the doing of any act or the failure to do any
act by the Manager or any Officer in conducting the business, operations and
affairs of the Company, which may cause or result in any loss or damage to the
Company or its Members. The Manager or an Officer does not, in any way,
guarantee the return of the Member's Capital Commitment or a profit for the
Members from the operations of the Company. Neither the Manager nor an Officer
shall be responsible to any Member because of a loss of investments or a loss in
operations, unless the loss shall have been the result of fraud, deceit or a
wrongful taking by the Manager or an Officer proved as set forth in this Section
5.7. Neither the Manager nor an Officer shall incur liability to the Company or
to any of the Members as a result of engaging in any other business or venture.
5.8 No Exclusive Duty To Company. Neither the Manager nor an Officer shall
be required to manage the Company as such party's sole and exclusive function,
and such party and any Member may have other business interests and may engage
in other activities (including, without limitation, activities in development,
production and marketing of tomatoes) in addition to those relating to the
Company. Neither the Company nor any Member shall have any right, by virtue of
this Agreement, to share or participate in such other investments or activities
of the Manager or other Member or to the income or proceeds derived therefrom.
5.9 Indemnity Of The Manager And Officers.
(a) The Manager (and the directors, officers, employees and agents
of such Manager) or an Officer of the Company (and the heirs, executors,
personal representatives or administrators of such Manager or Officer) who was
or is made a party to, or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Manager (or a
person acting on behalf of such Manager) or an Officer of the Company
("Indemnitee"), shall be indemnified and held harmless by the Company to the
fullest extent permitted under Section 18-108 of the Delaware Act, as the same
exists or may hereafter be amended. In addition to the
7.
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indemnification conferred in this Article, the Indemnitee shall also be entitled
to have paid directly by the Company the expenses reasonably incurred in
defending any such proceeding against such Indemnitee in advance of its final
disposition, to the fullest extent authorized by applicable law, as the same
exists or may hereafter be amended. The right to indemnification conferred in
this Article shall be a contract right.
(b) The rights and authority conferred in this Article shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the articles of organization or operating
agreement of the Company, agreement, vote of Members, or otherwise.
(c) Any repeal or amendment of this Article by the Members of the
Company shall not adversely affect any right or protection of a Manager or
Officer existing at the time of such repeal or amendment.
ARTICLE VI
CAPITAL ACCOUNTS; CAPITAL COMMITMENT
6.1 Capital Accounts. An individual Capital Account shall be maintained on
the Company's books for each Member.
6.2 Initial Capital Contributions.
(a) Agritope and Sunseeds will each make capital contributions to
the Company up to $100,000. Said contributions shall be made in the form of
invoices submitted to the Company by Agritope and Sunseeds with Agritope and
Sunseeds receiving capital account credits for the amount of such invoices up to
$100,000 each. Each invoice shall represent the cost of Agritope or Sunseeds, as
applicable, of performing its assigned work under the Development and Marketing
Agreement as determined based on generally accepted cost accounting principles,
to include: (i) direct labor, payroll and related costs, including taxes and
benefits, (ii) direct material costs, and (iii) an additional amount, not to
exceed 30% of direct labor costs, for indirect costs (i.e., overhead). Invoices
submitted in excess of $100,000 by either Agritope or Sunseeds shall be paid out
of contributions made by A&W to the extent provided for in subsection (b).
(b) A&W will contribute capital to the Company at the level of
$8,000 per month, with the first contribution due on the signing of this
Agreement, and each subsequent contribution due on the fifteenth day of each
month thereafter (the final contribution being $4,000) up to a total of
$100,000. Invoices submitted in excess of $100,000 by either Agritope or
Sunseeds shall be reimbursed out of cash contributions made by A&W as per the
budget approved by the Members' Council.
6.3 Additional Capital Commitments. Within ten (10) days of a written
notice of the Manager, each Member shall contribute to the Company by wire
transfer or check the
8.
<PAGE>
amount set forth opposite such Member's name under the heading "Additional
Capital Commitment" on Exhibit A hereto, which amount shall be credited to each
Member's Capital Account. The Manager may give the notice for the first $100,000
of each Members's Additional Capital Commitment at any time after January 1,
1997 and may give the notice for the second $100,000 of each Member's Additional
Capital Commitment at any time after January 1, 1998.
6.4 Noncontributing Members. The Company will be entitled to enforce the
obligations of each Member to make the contributions to capital specified in
Sections 6.2 and 6.3 above, including the obligations of Agritope and Sunseeds
to perform their assigned work under the Development and Marketing Agreement and
submit invoices therefor, and the Company will have all remedies available at
law or in equity in the event any such contribution is not so made. If any legal
proceedings relating to the failure of a Member to make such a contribution are
commenced, such Member shall pay all costs and expenses incurred by the Company,
including attorneys' fees, in connection with such proceedings, but the payment
of such costs and expenses shall not be treated as a capital contribution to the
Company. Without limiting the foregoing remedies, if a Member fails to make a
Capital Contribution within the time period set forth in Sections 6.2 above,
then, at the election of a Majority in Interest of the other Members, the
Company Percentage of the defaulting Member shall be reduced to zero (0) and the
Company Percentages of the non-defaulting Members shall be increased by an equal
amount and in proportion to their Company Percentages prior to the default. In
addition, a defaulting Member whose Company Percentage has been so reduced to
zero (0) shall no longer be entitled to receive distribution pursuant to this
Agreement, except distribution as provided in Article XI upon dissolution of the
Company.
6.5 Additional Capital Contributions; Right Of First Refusal.
(a) Each Member shall have a right of first refusal to make its pro
rata share of all capital contributions that the Company may, from time to time,
propose to accept after the date of this Agreement from any other Member, or
from a proposed new Member. Each Member's pro rata share of capital
contributions is the Member's Company Percentage immediately prior to such new
capital contribution.
(b) If the Company proposes to accept additional capital
contributions, it shall give each Member written notice of its intention, the
amount of the capital contribution and the Company Percentage that will be
allocated to the contributor(s) in consideration of such capital contribution.
Each other Member shall have twenty (20) days from the giving of such notice to
agree to contribute its pro rata share of such capital contribution upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the amount to be contributed.
(c) If any Member fails to exercise in full the rights of first
refusal within such twenty (20) day period, (i) the Company shall have sixty
(60) days thereafter to accept the capital contributions in respect of which
such Member's rights were not exercised upon terms and conditions no more
favorable to the contributors thereof than specified in the Company's notice to
the Members pursuant to this Section 6.5. If the Company has not accepted the
capital
9.
<PAGE>
contributions within such sixty (60) days, the Company shall not thereafter
accept any additional capital contributions, without first offering such
interests to the Member in the manner provided above.
6.6 Allocations To New Members. No Additional Member shall be entitled to
any retroactive allocation of losses, income or expense deductions incurred by
the Company. The Manager may, at its option, at the time an Additional Member is
admitted, close the Company books (as though the Company's tax year had ended)
or make pro rata allocations of loss, income and expense deductions to an
Additional Member for that portion of the Company's tax year in which an
Additional Member was admitted, in accordance with the provisions of Section
706(d) of the Code and the Treasury Regulations promulgated thereunder.
ARTICLE VII
ALLOCATIONS
7.1 Allocation Of Company Income Or Loss. Subject to the "Qualified Income
Offset" provisions set forth in Exhibit B, Company Income or Loss for each
Accounting Period shall be allocated one hundred percent (100%) to the Capital
Accounts of the Members in proportion to their respective Company Percentages.
7.2 Income Tax Allocations. Except as otherwise required by the Code and
the rules and Treasury Regulations promulgated thereunder, a Member's
distributive share of Company income, gain, loss, deduction, or credit for
income tax purposes shall be the same as is entered in the Member's Capital
Account pursuant to this Agreement.
ARTICLE VIII
FEES AND EXPENSES
8.1 Management Compensation. The Manager shall be entitled to compensation
on the basis of its reasonable costs for all management services it provides to
the Company as Manager, as approved by a Majority in Interest of the Members.
ARTICLE IX
DISTRIBUTIONS TO AND WITHDRAWALS BY MEMBERS
9.1 Interest. No interest shall be paid to any Member on account of its
interest in, or Capital Commitment to, the Company.
9.2 Withdrawals By Members. Except as provided herein, no Member may
withdraw any amount from the Company without the consent of all of the other
Members, except upon dissolution of the Company.
10.
<PAGE>
9.3 Distributions. At the end of each Fiscal Year, each Member shall
promptly (and in no event later than ninety (90) days after the end of each
Fiscal Year) be paid in cash, fifty percent (50%) of the Company's taxable
income allocable to such Member for the Fiscal Year then ended; provided,
however, the foregoing percentage can be changed by the Manager with the consent
of a Majority in Interest of the Members. In addition to the foregoing
distributions, the Company may ratably distribute cash, securities and other
assets to each of the Members at such times and on such terms and conditions as
the Manager shall deem appropriate if the Manager determines that such assets
are not needed for use (or retained for reasonable reserves) in the business of
the Company. Any such distributions shall be distributed to the Members pro rata
in accordance with Company Percentages, but in no event shall exceed the
cumulative undistributed net income from operations. A Member's right to
participate in distributions under this Section 9.3 shall be restricted to the
extent provided for in Sections 6.4 and 6.5(c).
9.4 Members' Obligation To Repay Or Restore. Except as required by law, no
Member shall be obligated at any time to repay or restore to the Company all or
any part of any distribution made to it from the Company in accordance with the
terms of this Article IX.
ARTICLE X
PROTECTIVE RIGHTS
10.1 Approval By Members. The following will require approval by two-
thirds in interest of the Members.
(a) Any amendment of the Certificate of Formation of the Company or
this Agreement;
(b) The filling of a vacancy in the position of the Manager;
(c) Admission of a new Member;
(d) Approval of the budget on an annual basis, and any modification
to the budget;
(e) Any agreement committing the Company to an obligation in excess
of $10,000;
(f) Any single expenditure or related expenditures in excess of
$5,000;
(g) Creation of any lien or encumbrance on the assets of the
Company;
(h) An alteration of the primary purpose of the Company;
(i) A vote to dissolve the Company;
11.
<PAGE>
(j) The sale, exchange or other disposition of all, or substantially
all, of the Company's assets as part of a single transaction or plan;
(k) The merger of the Company with another limited liability
company, a limited partnership, a general partnership or other entity;
(l) Determination of transfer prices or royalties to be paid to the
Company; and
(m) Approval of growers.
10.2 Approval By Other Members.
(a) A transaction between the Company and any Member, or any party
related to that Member, will require approval of a Majority in Interest of other
Members; and
(b) A decision to compromise the obligation of a Member to return
money or property paid or distributed unlawfully will require approval of a
Majority in Interest of other Members.
ARTICLE XI
DISSOLUTION OF COMPANY
11.1 Early Termination Of The Company. The Company shall dissolve and the
affairs of the Company shall be wound up prior to the term provided in Section
3.1
(a) one hundred eighty (180) days following the death, dissolution,
insanity, retirement, resignation, bankruptcy or expulsion of any Member or the
occurrence of any other event which terminates the continued membership of a
Member, unless two-thirds in interest of the remaining Members, within ninety
(90) days of such event, agree to continue the Company;
(b) upon the vote or written consent of all the Members; or
(c) upon the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act;
11.2 Dissolution Procedures. Upon dissolution of the Company at the
expiration of the Company term or as set forth in Section 11.1:
(a) The affairs of the Company shall be wound up and terminated
under the direction of the Manager or the remaining Members in event of the
withdrawal of the Manager. All matters relating to the dissolution and
liquidation of the Company shall be determined by the Manager, or the remaining
Members, as the case may be.
12.
<PAGE>
(b) The proceeds of liquidation shall be distributed by the Company
in payment of its liabilities in the following order:
(i) to creditors, other than Members, in the order of priority
established by law;
(ii) to Members in repayment of loans made to the Company; and
(iii) to all the Members in accordance with the positive balances in their
Capital Accounts and if any Member's Capital Account has a deficit balance such
Member shall not be required to contribute capital to the Company with respect
to such deficit balance.
ARTICLE XII
REPORTS AND FINANCIAL ACCOUNTING
12.1 Financial Records. The books of the Company shall be kept in
accordance with the terms of this Agreement and otherwise in accordance with
generally accepted accounting principles. The records and books of account of
the Company shall be kept at the principal place of business of the Company.
12.2 Annual Reports.
(a) The Company shall transmit to each Member and to each person (or
such Member's or person's legal representative) who was a Member during any part
of the Fiscal Year in question within ninety (90) days after the end of each
Fiscal Year of the Company the following: (1) a balance sheet for the Company as
of the close of the Fiscal Year and a profit and loss statement for the Fiscal
Year then ended, all in reasonable detail; and (2) a report setting forth the
Capital Accounts of each Member and a description of the manner of their
calculation.
(b) The Company shall also transmit within such ninety (90) day
period to each Member then a member of the Company and to each person (or such
Member's or person's legal representative) who was a Member during any part of
the Fiscal Year in question a Schedule K-1 showing such Member's taxable income
from the Company for such Fiscal Year.
(c) The Manager will be responsible to prepare such reports, at the
expense of the Company.
12.3 Tax Matters Member. The Manager shall be the Company's tax matters
member under the Code and under any comparable provision of state law (the "Tax
Matters Member"). A Majority in Interest of the Members may remove, with or
without cause, the Tax Matters Member, and may appoint a new Tax Matters Member.
The Tax Matters Member shall have the same rights and obligations as the Manager
pursuant to Sections 5.7, 5.8 and 5.9 hereof.
13.
<PAGE>
12.4 Inspection. Each Member will have the right, at its own expense, to
inspect the books and records of the Company during reasonable business hours at
any time, provided that inspections in excess of once per fiscal year will be at
the inspecting Member's expense.
12.5 Audit. The Manager will arrange, at the Company's expense, for an
audit of the books of the Company as a Majority in Interest of the Members shall
instruct the Manager in writing, and with such accounting firm as a Majority in
Interest of the Members shall approve in writing.
ARTICLE XIII
AMENDMENT
13.1 Amendment. This Agreement may be amended by two-thirds in interest of
the Members, provided that, except as provided in Section 6.3 (1) any reduction
of a Member's Company Percentage, except in connection with the contribution of
additional capital by one or more Members or addition of a new Member, (2) any
increase in the Capital Commitment of any Member or other increase in the
liabilities, duties, obligations or responsibility of any member, (3) any
modification to the allocation provisions of this Agreement or (4) any reduction
of a Member's Capital Account may only be made with the consent of such Member.
ARTICLE XIV
OTHER PROVISIONS
14.1 Loans. Subject to Section 10.2 of this Agreement, Members may make
loans to the Company upon such terms and conditions as the Manager may
prescribe.
14.2 Notice. All notices given hereunder shall be in writing. Any notice
herein required to be given to the Company by any of the Members shall be deemed
to have been given when delivered by hand or upon transmission by telefax or
receipt by U.S. Mail or upon confirmed delivery by commercial air courier at the
address set forth in Section 2.3. Any written notice herein required to be given
to a Member shall be deemed to have been given when delivered by hand or upon
transmission by telefax or receipt by U.S. mail or upon confirmed delivery by
commercial air courier at such Member's address set forth on the signature page
hereof, or such other address as may subsequently be recorded in the records of
the Company.
14.3 Counterparts. This Agreement may be executed in more than one
counterpart with the same effect as if the Members executing the several
counterparts had all executed one counterpart.
14.4 Binding Agreement. This Agreement shall be binding on the assignees
and legal successors of the Members.
14.
<PAGE>
14.5 Entire Agreement; Captions. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written and verbal agreements
among the Members with respect to the Company. Descriptive titles are used
herein for convenience only and shall not be considered in the interpretation of
this Agreement.
14.6 Governing Law. This Agreement, and the application and interpretation
hereof, shall be governed exclusively by the terms of the Delaware Limited
Liability Company Act.
14.7 Waiver Of Action For Partition. Each Member irrevocably waives during
the term of the Company any right that it may have to maintain any action for
partition with respect to the property of the Company.
14.8 Execution Of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
14.9 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
14.10 Rights And Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative, and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
14.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
14.12 Heirs, Successors And Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by the Agreement,
their respective heirs, legal representatives, successors and assigns.
15.
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14.13 Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor of the Company.
In Witness Whereof, the parties hereto have executed this Agreement as of
the date first above written.
MEMBERS:
AGRITOPE, INC.
By: /s/ Adolph J. Ferro
Title: President/CEO
Address: 8505 SW Creekside Place
Beaverton, OR 97008
Attn: Chief Executive Officer
SUNSEEDS COMPANY
By: /s/ David Atkinson
Title: President/CEO
Address: 18640 Sutter Blvd.
Morgan Hill, CA 95038
Attn: Chief Executive Officer
ANDREW AND WILLIAMSON SALES COMPANY, INC.
By: Fred Williamson
Title: President/CEO
Address: 9940 Marconi Drive
San Diego, CA 92173
Attn: Chief Executive Officer
<PAGE>
Exhibit A
SCHEDULE OF MEMBERS
Name Initial Additional
and Capital Capital Company
Address Contribution Commitment* Percentage
Agritope, Inc. $100,000 $200,000 33 1/3%
Sunseeds Company $100,000 $200,000 33 1/3%
Andrew and Williamson $100,000 $200,000 33 1/3%
-------- -------- -------
Total $300,000 $600,000 100%
* Exclusive of initial capital contribution
<PAGE>
Exhibit B
CERTAIN DEFINITIONS AND ALLOCATION PROVISIONS
Adjusted Asset Value. The Adjusted Asset Value with respect to any Company
asset shall be the asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Adjusted Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset at the time of
contribution, as determined by the contributing Member and the Company.
(ii) In the discretion of the Manager, the Adjusted Asset Values of all
Company assets may be adjusted to equal their respective gross fair market
values and the resulting unrecognized Company Income or Loss allocated to the
Capital Accounts of the Members, as of the following times: (i) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis capital contribution; and (ii) the
distribution by the Company to a Member of more than a de minimis amount of
Company assets, unless all Members receive simultaneous distributions of either
undivided interests in the distributed property or identical Company assets in
proportion to their interests in Company distributions as provided in Sections
9.3 and 11.2.
(iii) The Adjusted Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values and the resulting unrecognized
Company Income or Loss allocated to the Capital Accounts of the Members, as of
the following times: (i) the termination of the Company for federal income tax
purposes pursuant to Code Section 708(b)(1)(B); and (ii) the termination of the
Company, either by expiration of the Company's term or in accordance with
Section 10.1.
Company Income or Loss. Company Income or Loss shall be an amount computed
for each Accounting Period as of the last day thereof that is equal to the
Company's taxable income or loss for such Accounting Period, determined in
accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(i) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Company Income or Loss pursuant to
this paragraph shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Section 705(a)(2)(B) of
the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Company Income or Loss pursuant to this paragraph shall be
subtracted from such taxable income or loss.
B-1.
<PAGE>
(iii) In the event the Adjusted Asset Value of any Company asset is
adjusted to clause (ii) or (iii) of this definition of Adjusted Asset Value, the
amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Company Income or Loss.
(iv) Gain or loss resulting from any disposition property with respect to
which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Adjusted Asset Value of the property disposed of;
and
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Accounting Period.
Depreciation. Depreciation means, for each Accounting Period, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such Accounting Period, except that if
the Adjusted Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Accounting Period, Depreciation
shall be an amount which bears the same ratio to such beginning Adjusted Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such Accounting Period bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Accounting Period is zero,
Depreciation shall be determined with reference to such beginning Adjusted Asset
Value using any reasonable method selected by the Manager.
Qualified Income Offset. The allocations provided for in Article VII shall
be subject to the following exceptions:
(i) Any loss or expense otherwise allocable to a Member that exceeds the
balance in such Member's Capital Account shall instead be allocated first to all
Members who have positive balances in their Capital Accounts in proportion to
such positive balances, and when all Members' Capital Accounts have been reduced
to zero (0), then to all Members in proportion to Company Percentages.
(ii) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4) through (d)(6), that causes the balance in such Member's
Capital Account to be reduced below zero (0), items of Company income and gain
shall be specially allocated to such Member in an amount and manner sufficient
to eliminate the deficit balance in its Capital Account created by such
adjustments, allocations, or distributions as quickly as possible.
(iii) For purposes of the foregoing, the balance in a Member's Capital
Account shall take into account the adjustments provided in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4) through (d)(6).
B-2.
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(iv) Any special allocations of items of profit, income, gain, loss or
expense pursuant to subparagraphs (i) and (ii) shall be taken into account in
computing subsequent allocations, so that the net amount of any items so
allocated and the profit, gain, loss, income, expense, and all other items
allocated to each Member shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Member if such special
allocations pursuant to subparagraphs (i) and (ii) had not occurred.
B-3.
<PAGE>
DEVELOPMENT AND MARKETING AGREEMENT
THIS AGREEMENT ("Agreement") between SUPERIOR TOMATO ASSOCIATES, L.L.C., a
Delaware limited liability company ("STA"), AGRITOPE, INC., a Delaware
corporation ("Agritope"), SUNSEEDS COMPANY, a _______________ corporation
("Sunseeds"), and ANDREW AND WILLIAMSON SALES COMPANY, INC., a _______________
corporation ("A&W") is effective as of the 19th day of February, 1996
("Effective Date").
1. BACKGROUND.
1.1 Concurrently with this Agreement, Agritope, Sunseeds and A&W are
entering into an Operating Agreement of even date (the "Operating Agreement")
for Superior Tomato Associates, L.L.C.
1.2 The parties desire to combine Sunseeds' tomato seed genetics and
know-how with Agritope's SAMase technology and know-how and A&W's growing,
packing and distribution know-how to produce and commercialize in North America
economically superior tomatoes for the fresh market; the product shall be fresh
market cherry, roma and vine-ripened large fruited tomato varieties using seed
developed by STA.
2. DEFINITION OF TERMS.
The words appearing in capitalized form throughout this Agreement shall have
the meanings assigned to them in this Section 2.
Affiliate means, for the company, an entity controlling, controlled by, or
under common control with such company. "Control" for the purposes of this
definition shall mean ownership of fifty percent (50%) or more of voting
securities.
Agritope Know-How means unpatented inventions, data, processes,
compositions, techniques and other technical information proprietary to
Agritope, which is solely owned by Agritope or which Agritope has the right to
control the use of, relating to methods for ethylene regulation in the Field.
Agritope Licensed Know-How means all Agritope Know-How in existence as of
the Effective Date or created or acquired during the term of the Cooperative
Development Work.
Agritope Licensed Patents means all Agritope Patents in existence as of the
Effective Date of this Agreement, or claiming an invention conceived or
discovery made, or which are acquired, during the term of the Cooperative
Development Work.
Agritope Patents means all those United States and foreign patent
applications and patents (a) listed on Schedule B to this Agreement to the
extent of claims reading on methods for regulation of ethylene production, (b)
all United States and foreign patent applications and
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patents, including continuations and divisions, claiming an invention conceived
or discovery made (including any discovery or breeding of a Novel Variety)
solely by employees and/or agents of Agritope pursuant to the Cooperative
Development Work, that is necessary or useful to apply inventions in clause (a)
to the Field, and (c) any reissues, re-examinations and foreign counterparts of
the foregoing. As used in this definition, the word "patent" includes a
certificate issued under the U.S. Plant Protection Act (and foreign counterparts
thereof) and the words "patent application" includes an application for such
certificate.
Applicable Royalty Percentage for a particular variety of Product means
the royalty percentage established pursuant to Section 6.1 of this Agreement as
a function of the Savings Per Box for such variety of Product that is determined
pursuant to Section 3.2 of this Agreement.
Approved Grower means a grower approved pursuant to Section 10.1 of the
Operating Agreement.
Box means, for any variety of tomatoes, a box of a size in which such
variety of tomatoes is most customarily packed.
Comparison Tomato has the meaning set forth in Section 3.2.
Cooperative Development Work means the Cooperative Development Work
described in Section 3 of this Agreement.
Cost of Goods for a product means the full cost of producing or acquiring
the product, as determined by generally accepted cost accounting procedures.
Cost of Goods shall not include general corporate allocations or other
allocations which are not directly related to production of the item and shall
not include amortization of development expenditures. In the event any item is
acquired by a party from an Affiliate of such party, "cost of manufacturing or
acquiring" shall be deemed to mean such Affiliate's cost of manufacturing or
acquiring.
The Field means seeds and fruit for fresh market cherry, roma and
vine-ripened large fruited tomato varieties, which seeds and fruit contain
recombinant genetic material that regulates production of ethylene.
Joint Patents means all United States and foreign patent applications and
patents, including continuations and divisions, claiming an invention conceived
or discovery made (including any discovery or breeding of a Novel Variety)
jointly by employees and/or agents of both Agritope and Sunseeds, including any
reissues, re-examinations and all foreign counterparts thereof. Ownership of an
invention shall conclusively be considered "joint" when one or more employees or
agents from Agritope and one or more employees or agents from Sunseeds must be
indicated as co-inventors or joint breeders under United States laws on the
patent application. As used in this definition, the word "patent" includes a
certificate issued under the U.S. Plant Protection Act (and foreign counterparts
thereof) and the words "patent application" includes an application for such
certificate.
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Net Sales means the gross invoice price of each variety of Product sold by
A&W or its agents, on A&W's own behalf or on behalf of any growers, less the
following items, but only insofar as such items are separately invoiced and
included in the gross selling prices: (i) customs duties, import, export,
excise, and sales taxes directly imposed with reference to particular sales;
(ii) costs of transportation; and (iii) credit for returns of defective
Products. In the event of any transfer of Product in other than a bona fide
arm's-length transaction exclusively for money, or any transfer of Product which
otherwise does not result in customary sales revenue, such transfer shall be
(unless the parties agree otherwise) deemed to constitute a sale at the then
current average selling price for the Product.
Novel Variety shall mean "novel variety", as such term is defined in the
U.S. Plant Protection Act (7 U.S.C. Section 2541), as the same may be amended
from time to time.
Product means any product in the Field developed through the Cooperative
Development Work under this Agreement.
Project means the Cooperative Development Work performed by the Parties to
develop, obtain regulatory approval and market a particular variety within the
Field.
Regulatory Approval means (1) in the United States, deregulation from the
U.S.D.A. (or successor agency) and completion of food safety consultations with
the FDA (or successor agency) for production and sales of the Product, or (2)
outside of the United States, analogous order(s) by non-U.S. governmental
agencies which require regulatory approval prior to production and sales of a
Product in such non-U.S. country.
Savings Per Box has the meaning set forth in Section 3.2.
Sharing Payment means any payment provided for in Section 6 hereof.
Sunseeds Know-How means unpatented inventions, data, processes,
compositions, techniques and other technical information proprietary to
Sunseeds, and biological material, which is solely owned by Sunseeds or which
Sunseeds has the right to control the use of, relating to use of tomato
varieties potentially applicable to the Field, including without limitation
proprietary germplasm.
Sunseeds Licensed Know-How means all Sunseeds Know-How in existence as of
the Effective Date or created or acquired during the term of the Cooperative
Development Work.
Sunseeds Licensed Patents means all Sunseeds Patents in existence as of
the effective date of this Agreement, or claiming an invention created, or
discovery made, or which are acquired, during the term of the Cooperative
Development Work.
Sunseeds Patents means all those United States and foreign patent
applications and patents (a) listed on Schedule C to this Agreement, (b) all
United States and foreign patent applications and patents, including
continuations and divisions, claiming an invention conceived
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or discovery made (including any discovery or breeding of a Novel Variety)
solely by employees and/or agents of Sunseeds pursuant to the Cooperative
Development Work that is necessary or useful to apply the inventions in clause
(a), and any other matter included within the definition of Sunseeds Patents, to
the Field, and (c) any reissues, re-examinations and foreign counterparts of the
foregoing. Sunseeds Patents also includes Sunseeds' biological material,
including proprietary germplasm, to the extent it is covered by a patent or
patent application. Without limiting the foregoing, Sunseeds Patents shall
include all patent applications and patents on those varieties of tomatoes that
may become the subject of Projects under this Agreement. As used in this
definition, the word "patent" includes a certificate issued under the U.S. Plant
Protection Act (and foreign counterparts thereof) and the words "patent
application" includes an application for such certificate.
Territory means the United States and Canada.
3. COOPERATIVE DEVELOPMENT WORK.
3.1 Period; Objective. From the Effective Date, Agritope, Sunseeds and A&W
shall work together to develop and obtain any required Regulatory Approval for
Products for STA. STA shall from time-to-time approve specific Projects for
different varieties of Product within the Field. In connection with such
efforts, Sunseeds will furnish to Agritope tomato germplasm for the particular
varieties to be developed in the Projects. Agritope will implant its genetic
material into such germplasm. Sunseeds will make the foundation seed and hybrid
seed. Sunseeds will conduct the breeding activities. Agritope and A&W will
participate in the breeding activities, including selection of hybrid seed from
foundation seed. A&W will supply the production acreage and distribution
infrastructure for the development and testing of the Product.
3.2 Production Testing; Agreement On Cost Savings. At such time as Agritope
and Sunseeds conclude that a particular variety of Product is ready for
production testing, they will so notify A&W. Using seeds provided by Sunseeds,
A&W will then provide approximately 3-5 acres for production testing of such
variety (covering as broad a range of growers and as many locations as possible)
and will grow, or cause Approved Growers to grow, fruit under conditions
resembling as nearly as possible the conditions of large scale commercial
growing. STA will keep detailed records of the cost of growing, picking and
packing such fruit, of the quantity produced, and of shrinkage, and will furnish
such records to Agritope and Sunseeds. A&W will cooperate, and will obtain the
cooperation of each Approved Grower, to furnish to STA information that STA may
reasonably require for such record keeping. A&W will also grow, or cause
Approved Growers to grow, and furnish to STA the same information concerning the
cost of growing, picking and packing, and shrinkage of, an equivalent quantity
of fruit of similar variety using seeds of the type A&W is then using most
commonly in its commercial operations (the "Comparison Tomato"). Based upon such
information (and other industry information as is available concerning growing,
picking and packing of such tomato varieties) STA will determine in good faith
the dollar amount per Box that may be reasonably expected to be saved by use of
such Product, instead of the Comparison Tomato, in large scale commercial
growing, picking and packing. Such dollar amount per Box, will be referred to in
this Agreement as the
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"Savings Per Box." STA will inform Agritope, Sunseeds and A&W of such
determination and provide them with the data supporting such determination.
3.3 Exchange Of Information. During the term of the Cooperative
Development Work, Agritope and Sunseeds will exchange with each other and share
with STA all material information developed pursuant to the Cooperative
Development Work, excluding the exchange of Agritope Know-How and information
concerning Agritope Patents and Sunseeds Know-How and information concerning
Sunseeds Patents, relating to the Field. Agritope and Sunseeds will also furnish
to A&W all information concerning the Product that is pertinent to its
production testing. A&W will share with STA and the other parties all material
information concerning the Product developed by A&W in the course of growing,
picking and packing the Product, including quantity and cost.
3.4 Funding.
(a) STA shall fund the Cooperative Development Work for each Project
on a full cost-reimbursement basis in accordance with budgets pre-approved by
STA. STA will have no obligations to fund any expenditures that are not within
such approved budgets. STA will not reimburse parties for any costs incurred
prior to the date of this Agreement.
(b) Each party shall maintain detailed records which accurately
identify costs and expenses incurred and paid in connection with the Cooperative
Development Work for each specific Project. Each party shall submit this
information to STA as of the last day of each month (or such alternative dates
as STA may establish) for the preceding month and shall submit to STA on January
15 and July 15 of each year an estimate of expenses to be incurred during the
current six months.
4. PRODUCTION AND SUPPLY OF SEEDS.
4.1 Sunseeds Responsibilities. Sunseeds will produce and store seeds for
Product and ship such seeds on behalf of and at the direction of STA. STA will
remit to Sunseeds Sunseeds' Cost of Goods for such seeds from STA's proceeds of
sale of such seeds. Sunseeds shall at all times use its best efforts to supply
STA's demand for seeds for Product.
4.2 Seed Allocations.
(a) A&W will have the first right each season to obtain its
requirements of seeds for Product. A&W will provide to STA A&W's forecasts for
seed six months prior to anticipated shipment, and firm orders for seed (which
will not deviate from forecast by more than twenty percent (20%)) 60 days prior
to shipment, which orders must be placed by June 1 and December 1 of each year.
To the extent firm orders are not received by such dates, STA may allocate
available seeds to third parties. A&W will pay to STA, no later than thirty (30)
days after invoice, STA's Cost of Goods for such seeds, plus fifteen percent
(15%) of such Cost of Goods.
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(b) If seeds remain in excess of A&W's requirements, STA may supply
such seeds to third party Approved Growers on the such terms as STA deems
advisable.
4.3 Seed Specifications. Sunseeds shall supply seed for Product that shall
meet the specifications for such seed as approved in writing by STA.
4.4 Failure Of Sunseeds To Meet STA Requirements. To the extent that
Sunseeds cannot meet STA's requirements for seed for Product, STA shall be free
to obtain such seeds from a third party or parties. Sunseeds agrees to provide
the third party that STA selects with the necessary information and Sunseeds
Know-How to allow the third party to produce the seeds. As a condition to the
disclosure to the third party, the third party will execute a non-disclosure
agreement substantially in the form of Exhibit A of this Agreement.
4.5 Restricted Rights; Labels. A&W will have the right to use the seed
furnished under this Agreement solely to produce fruit in accordance with the
terms of this Agreement and shall require Approved Growers not to propagate the
seed or use it for other purposes. Sunseeds and A&W shall insure that all seeds
provided under Section 4 and under Section 3.2 shall be provided under a label
containing either the words "Unauthorized Propagation Prohibited" or
"Unauthorized Seed Multiplication Prohibited" and, after a certificate issues
under the U.S. Plant Protection Act, words such as "U.S. Protected Variety".
Seeds transferred outside the United States will be transferred under comparable
labels appropriate in the country to which the seeds are transferred.
5. MARKETING AND DISTRIBUTION RIGHTS.
5.1 Commercialization. A&W shall use best efforts to arrange for Approved
Growers to grow fresh tomato Product, and to market and sell fresh tomato
Product in the Territory. STA will not fund or reimburse any growing, picking,
packing or distribution costs for production or sale of Product (including those
expenses incurred pursuant to Section 3.2). A&W will market and sell all tomato
Product under a trade name and mark to be determined by STA, which trade name
and mark will be owned solely by STA.
5.2 Reserved Right To Compete. Each party expressly reserves the right to
research, develop and market products (expressly including tomato products)
which compete indirectly or directly with the Products developed and marketed
under this Agreement.
6. SHARING OF SAVINGS AND PREMIUM.
6.1 Applicable Royalty Percentage. STA, in consultation with the other
parties to this Agreement, and with the concurrence of at least two of the three
other parties, will establish an Applicable Royalty Percentage for each variety
of Product based on the Savings Per Box established pursuant to Section 3.2. In
conjunction with its commercialization efforts, A&W will require each Approved
Grower to agree in writing to pay to STA, the Applicable Royalty Percentage. Any
exceptions to the standard Applicable Royalty Percentage must be approved in
writing by STA. In the event that A&W desires to act as an Approved Grower, the
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Applicable Royalty Percentage for A&W will be the Applicable Royalty Percentage
established by STA or such other Applicable Royalty Percentage as STA and A&W
shall negotiate. Notwithstanding any other provision hereof, no Approved Grower
(including A&W) will receive any seed for Product, until such Approved Grower
has entered into an agreement in form and substance satisfactory to STA
committing to pay the Applicable Royalty Percentage.
6.2 Sharing Payments. In consideration of the Cooperative Development Work
to be undertaken and other obligations set forth herein, A&W agrees to pay STA
as follows: No later than thirty (30) days after the first and all subsequent
calendar months following the first sale of Product, A&W shall pay to STA for
each variety of Product an amount equal to the Applicable Royalty Percentage
multiplied by Net Sales of such variety of Product shipped in such month by A&W
and by Approved Growers arranged by A&W. The Sharing Payments due and payable
hereunder shall be computed for each calendar month in the currency in which the
sale was made, but shall be definitively discharged by payment to STA in U.S.
dollars converted from such currency using the closing spot exchange rate
between the two currencies quoted in the Wall Street Journal (or, if not
available, such other mutually agreeable financial publication of international
circulation) in effect on the last business day of the calendar quarter to which
the payment relates.
7. PATENTS, KNOW-HOW, LICENSE GRANTS.
7.1 Agritope Sole Ownership. Agritope shall own all Agritope Patents and
Agritope Know-How.
7.2 Sunseeds Sole Ownership. Sunseeds shall own all Sunseeds Patents and
Sunseeds Know-How.
7.3 A&W Sole Ownership. A&W shall own all A&W patents, trademarks and
labels.
7.4 Joint Patents; Rights In Product.
(a) STA shall own, and is hereby assigned, all Joint Patents on
inventions created or discoveries made in the Cooperative Development Work.
(b) Within the Field STA shall use any Joint Patents solely for the
development and sale of Products pursuant to this Agreement.
(c) Whether or not any Product qualifies as a Joint Patent, the
Product shall be owned by STA, and each party hereby assigns all rights in the
Product to STA.
7.5 Agritope License To STA. Subject to the terms and conditions of this
Agreement, for Product whose production or sale is covered by a claim of an
Agritope Licensed Patent, or which use Agritope Licensed Know-How, Agritope
hereby grants STA a non-exclusive, paid-up, royalty free (except as provided
herein), license, with the right to
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sublicense with the prior written approval of Agritope (not to be unreasonably
withheld), under Agritope Licensed Patents and Agritope Licensed Know-How to
produce or have produced and use, sell or have sold such Products, in the
Territory.
7.6 Sunseeds License To STA. Subject to the terms and conditions of this
Agreement, for Product whose production or sale is covered by a claim of a
Sunseeds Licensed Patent, or which use Sunseeds Licensed Know-How, Sunseeds
hereby grants STA a non-exclusive, paid-up, royalty free (except as provided
herein), license, with the right to sublicense with the prior written approval
of Sunseeds (not to be unreasonably withheld), under Sunseeds Licensed Patents
and Sunseeds Licensed Know-How to produce or have produced and use, sell or have
sold such Products, in the Territory.
7.7 Notice Of Sole Rights. After the Effective Date of this Agreement, a
party asserting sole ownership of any patent rights or know-how in the Field
developed pursuant to the Cooperative Development Work shall provide reasonable
notice to STA of its intention to seek patent protection or to assert
proprietary interest in such Know-How. STA shall have the right to a reasonable
opportunity to review and comment on such assertions prior to patent
applications being filed. Any dispute among the parties to this Agreement
concerning such assertion shall be resolved by arbitration pursuant to Section
17.8 hereof.
7.8 Regulatory Files. STA, Agritope and Sunseeds shall each have full
access to all materials filed and correspondence with the U.S.D.A., FDA and
other regulatory agencies in connection with the Cooperative Development Work
and each Product, and shall be entitled to use and rely on such materials with
respect to any regulatory approvals for a product sought by either, whether or
not such product relates to this Agreement.
7.9 Cooperation In Filings, Prosecution and Enforcement. Each party agrees
to take such action and execute such documents as shall be necessary or
appropriate for the filing of notices, certificates and acknowledgments of the
licenses granted and assignments made hereunder, for the prosecution of all
Joint Patents, and for the enforcement against third parties of all intellectual
property rights of STA arising under this Agreement. Each party hereby grants to
STA an irrevocable power-of-attorney coupled with an interest to undertake such
activities and to execute and file all instruments necessary or appropriate in
connection with such activities.
8. PROSECUTION OF PATENT RIGHTS.
8.1 Agritope Patents. Agritope shall have the right, but no obligation, to
timely prepare, file, prosecute and maintain, under its exclusive control and at
its expense, Agritope Patents.
8.2 Sunseeds Patents. Sunseeds shall have the right, but no obligation, to
timely prepare, file, prosecute and maintain, under its exclusive control and at
its expense, Sunseeds patents.
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8.3 Joint Patents. STA shall employ counsel acceptable to Agritope and
Sunseeds for the purpose of timely preparing, filing, prosecuting and
maintaining Joint Patents. The reasonable expenses of preparing, filing,
prosecuting and maintaining corresponding Joint Patents shall be borne by STA.
8.4 Prior Art; Review And Comment. Agritope and Sunseeds shall each
cooperate with the other to ensure that all prior art that is pertinent to the
examination of a Joint Patent is brought to the attention of the other party.
Each of the parties shall have the right to review and comment on substantive
documents prepared in connection with the preparation, filing, prosecution and
maintenance of the Joint Patents prior to the filing of such papers; however,
such review and comment shall be performed expeditiously so as not to negatively
affect patent rights.
9. TRADEMARKS.
No party to this Agreement shall have the right to use any trademark of
any other party without such party's prior written consent.
10. CONFIDENTIAL INFORMATION.
10.1 Confidentiality Agreement. The use and disclosure of proprietary
information shall be governed by the attached Schedule A Non-Disclosure
Agreement. The Schedule A Non-Disclosure Agreement shall survive termination of
this Agreement.
10.2 Use Of Consultants. The parties contemplate that from time to time
during the term of this Agreement third party technical consultants may be
employed by either party in connection with the development of Products. The
parties agree that information designated as confidential may be disclosed to
such consultants provided that the other party is given reasonable notice of the
circumstances and nature of the intended disclosure and that the disclosure is
limited to information necessary to enable the technical consultant to provide
technical consulting services. The consultant will be required to sign an
agreement committing the consultant to protect such confidential information.
11. REPORTS.
11.1 Quarterly Sales Reports. Each monthly payment made to STA under
Section 6 shall be accompanied by a full and accurate accounting by A&W. Each
such report shall include at least the following information for each type of
Product as to each country during the month:
(a) The gross invoice price of each variety of Product shipped;
(b) The applicable deductions from such invoice price to yield Net
Sales for each variety of Product shipped; and
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(c) Computation of the sharing payment due to STA pursuant to
Section 6.1 of this Agreement.
11.2 Cost Of Goods. Sunseeds will furnish to STA, and STA will furnish
A&W, reports on such party's Cost of Goods for seed Product shipped to such
party.
12. BOOKS AND RECORDS.
12.1 Records. Each party shall keep full and accurate books of account
containing all particulars that may be necessary for the purpose of calculating
all amounts owing to the other parties. Books of account maintained by the
parties shall be kept at their principal place of business. All such reports and
data shall be open for inspection on a confidential basis at all reasonable
times and either Party may conduct at its own expense, once every year during
normal business hours through an independent certified public accountant, an
examination of the accounts contemplated above. If any audit shall show that the
selling party underpaid the amounts due under this Agreement herein as to the
period subject of the audit, then the party which underpaid shall immediately
pay such deficiency with interest thereon in accordance with Section 12.3. If
the underpayment shall exceed five percent (5%) of the amount owed for any
calendar year, the party underpaying shall also reimburse the other for costs
related to such audit.
12.2 Retention. Books and records required to be maintained by the Parties
hereunder shall be retained for at least three (3) years from the date of the
payment to which they pertain.
12.3 Interest. All payments due hereunder that are not paid when due and
payable hereunder shall bear interest at an annual rate equal to 4% (four
percent) above the U.S. dollar reference rate ("prime rate") charged from time
to time by Bank of America N.T. & S.A. from the date due until paid or at such
lower rate as shall be the maximum rate permitted by law.
13. TERM.
This Agreement shall continue so long as any Product is being developed or
marketed under this Agreement, unless terminated earlier pursuant to Section 14.
14. BREACH.
14.1 Material Breach. STA may terminate this Agreement as to any party for
any material breach by such party of this Agreement or the Operating Agreement
thirty (30) days after providing the other party with written details of the
breach if the breach remains uncured at the end of the thirty (30) day notice
period. Any party may terminate its obligations under this Agreement for any
material breach by STA thirty (30) days after providing STA with written details
of the breach if the breach remains uncured at the end of such thirty (30) day
notice period. In the event of any such termination as to a party, except
arising from a material breach by STA, such party shall immediately deliver to
STA all information and work in process developed under the Cooperative
Development Work.
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15. REPRESENTATIONS AND INDEMNITIES.
15.1 Agritope Representations. Agritope represents and warrants that as of
the Effective Date:
(a) It has granted no prior license or assignment of rights under
the Agritope Patents in the Field.
(b) There are no foreign or United States administrative, judicial
or Patent and Trademark Office proceedings contesting the inventorship or
ownership of any Agritope Patent that is likely to be embodied or used in a
Product;
(c) Neither the execution and delivery of this Agreement, nor the
performance of the obligations of Agritope hereunder shall result in a
violation, breach or event of default (or any event or condition which with
notice or the passage of time or both would constitute an event of default) of
or with respect to any agreement, mortgage, indenture or order of any court of
competent jurisdiction binding upon Agritope or upon the property of Agritope;
(d) It is party to no contract materially adverse to the obligations
undertaken and rights granted in this Agreement;
(e) It holds a patent to the SAMase gene and has obtained a license
to the binary vector system to be used in developing the Product; it has
consulted with patent counsel concerning the patent rights of third parties and,
to the best of its knowledge, it is free to operate using its technology as
contemplated in this Agreement without infringement of the rights of third
parties. There is no assurance, however, that rights of third parties will not
impinge on such freedom to operate.
EXCEPT AS SET FORTH IN THIS SECTION 15.1, AGRITOPE MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF NON-INFRINGEMENT.
15.2 Agritope Indemnification -- Representations And Warranties. Agritope
shall indemnify STA for any losses sustained or expenses incurred by STA as a
result of a breach by Agritope of any of the foregoing representations and
warranties.
15.3 Sunseeds Representations. Sunseeds represents and warrants to STA
that as of the Effective Date:
(a) It has granted no prior license or assignment of rights under
the Sunseeds Patents that would materially impair its ability to develop,
manufacture or sell Products.
(b) There are no foreign or United States administrative, judicial
or Patent and Trademark Office proceedings contesting the inventorship or
ownership of any Sunseeds Patent that is likely to be embodied or used in a
Product.
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(c) Neither the execution and delivery of this Agreement, nor the
performance of the obligations of Sunseeds hereunder shall result in a
violation, breach or event of default (or any event or condition which with
notice or the passage of time or both would constitute an event of default) of
or with respect to any agreement, mortgage, indenture, or order of any court of
competent jurisdiction binding upon Sunseeds or upon the property of Sunseeds.
(d) It is party to no contract materially adverse to the obligations
undertaken in this Agreement.
(e) It owns all rights in the tomato varieties and germplasm to be
used in developing the Product; it has consulted with patent counsel concerning
the patent rights of third parties and, to the best of its knowledge, it is free
to operate using its technology as contemplated in this Agreement without
infringement of the rights of third parties. There is no assurance, however,
that rights of third parties will not impinge on such freedom to operate.
EXCEPT AS SET FORTH IN THIS SECTION 15.3, SUNSEEDS MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF NON-INFRINGEMENT OF THE RIGHTS OF THIRD PARTIES.
15.4 Sunseeds Indemnification -- Representations And Warranties. Sunseeds
shall indemnify STA for losses sustained or expenses incurred by STA as a result
of a breach by Sunseeds of the foregoing representations and warranties.
15.5 A&W Representations. A&W represents and warrants to STA that as of
the Effective Date:
(a) Neither the execution and delivery of this Agreement, nor the
performance of the obligations of A&W hereunder shall result in a violation,
breach or event of default (or any event or condition which with notice or the
passage of time or both would constitute an event of default) of or with respect
to any agreement, mortgage, indenture, or order of any court of competent
jurisdiction binding upon A&W or upon the property of A&W.
(b) It is party to no contract materially adverse to the obligations
undertaken in this Agreement.
EXCEPT AS SET FORTH IN THIS SECTION 15.5, A&W MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15.6 A&W Indemnification -- Representations And Warranties. A&W shall
indemnify STA for losses sustained or expenses incurred by STA as a result of a
breach by A&W of the foregoing representations and warranties.
12.
<PAGE>
15.7 STA Warranty Disclaimer. STA MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF NON-INFRINGEMENT OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
16. INFRINGEMENT; THIRD PARTY LICENSES.
16.1 Defense Of Third Party Infringement Suits. In the event that a third
party shall make any claim or sue any party alleging that the production or sale
of a Product (including, without limitation, seeds), infringes a patent of such
third party, then STA shall have the option to control the defense of such suit.
The parties shall provide reasonable cooperation in the defense of such suit and
furnish all evidence in their control. All attorneys' fees as well as any
judgments, settlements, or damages payable with respect to such claim or suit
shall be the responsibility of STA. Notwithstanding the foregoing, if the claim
or suit alleges that the third party's rights are infringed solely by technology
licensed to STA by one of the three other parties to this Agreement, such party
will indemnify, hold harmless and defend the other two of such parties from and
against any judgments, settlements or damages they may be required to pay with
respect to such suit. The indemnifying party will have the sole right to control
the defense of such claim or suit. No party shall enter into any settlement that
materially affects the other party's rights or interests without such other
party's prior written consent, which consent shall not be unreasonably withheld.
16.2 Suits For Infringement By Others. In the event any party becomes
aware of any actual or threatened infringement in the Field of the Agritope
Licensed Patents or the Agritope Licensed Know-How, or the Sunseeds Licensed
Patents or Sunseeds Licensed Know-How, that party shall promptly notify STA and
STA shall determine the most appropriate action to take. In the event STA does
not take action against such alleged infringer within a reasonable period, not
to exceed one hundred eighty (180) days, the owner of such patent rights or
know-how shall be entitled to take action against the alleged infringer.
16.3 Third Party Licenses. In the event that STA determines that it is
necessary or advisable to obtain a license from a third party with respect to
development, production or sale of Products, Agritope, Sunseeds and A&W will
make equal contributions to the capital of STA to pay the amount of any lump sum
license fee payable to such third party and the Applicable Royalty Percentage
will be increased by the amount of royalty payable to such third party on the
sale of Products.
17. GENERAL.
17.1 Entire Agreement. This Agreement, the Operating Agreement and the
Schedules hereto and thereto contain the entire agreement between the parties
relating to the subject matter hereof and all prior understandings,
representations and warranties between the parties are superseded; provided,
however, that this Agreement does not limit any agreement restricting disclosure
or use of confidential or proprietary information previously entered into
between the parties. None of the terms of this Agreement shall be deemed to be
waived or amended by any
13.
<PAGE>
party unless such a waiver or amendment specifically references this Agreement
and is in writing signed by the party to be bound.
17.2 Relationship Of Parties. Each party acknowledges that it is not an
agent of any other party to this Agreement and has no authority to speak for,
represent, or obligate such other party in any way (except in the case of
Agritope, acting in its capacity as Manager of STA). This Agreement does not and
shall not be deemed to create any relationship of a joint venture or a
partnership.
17.3 Severability. The parties do not intend to violate any public policy
or statutory or common law. However, if any sentence, paragraph, clause or
combination of this Agreement is in violation of any law or is found to be
otherwise unenforceable by a court from which there is no appeal, or no appeal
is taken, such sentence, paragraph, clause, or combination of the same shall be
deleted and the remainder of this Agreement shall remain binding, provided that
such deletion does not alter the basic structure of this Agreement. In such
event, the parties shall renegotiate this Agreement in good faith, but should
such negotiations not result in a new agreement with ninety (90) days of the
initiation of such negotiations, then this Agreement may be terminated by any
party by thirty (30) days notice to the other.
17.4 Force Majeure. Any party shall be excused from the performance of its
obligations under this Agreement and shall not be liable for damages to the
other if such performance is prevented by circumstances beyond its effective
control. Such excuse from performance shall continue so long as the condition
responsible for such excuse continues and for a thirty (30) day period
thereafter. For the purposes of this Agreement, circumstances beyond the control
of a party which excuse that party from performance shall include, but shall not
be limited to, acts of God, acts, regulations or laws of any government
including currency controls, war, civil commotion, commandeer, destruction of
facility or materials by fire, earthquake, storm or other casualty, labor
disturbances, judgment or injunction of any court, epidemic, and failure of
public utilities or common carrier.
17.5 Notices. All notices and demands required or permitted to be given or
made pursuant to this Agreement shall be in writing and shall be effective when
personally given or made or when placed in an envelope and deposited in the
United States certified mail postage prepaid, return receipt requested,
addressed as follows:
If to STA: If to Agritope, in care of:
c/o Agritope, Inc. Agritope, Inc.
8505 SW Creekside Pl. 8505 SW Creekside Pl.
Beaverton, OR 97008 Beaverton, OR 97008
Attention: Chief Executive Officer Attention: Chief Executive Officer
with a copy to: with a copy to:
Howard G. Ervin Howard G. Ervin
Cooley Godward Castro Huddleson Cooley Godward Castro Huddleson
14.
<PAGE>
& Tatum & Tatum
One Maritime Plaza, 20th Floor One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580 San Francisco, CA 94111-3580
If to Sunseeds: If to A&W:
Sunseeds Company Andrew and Williamson Sales Company,
18640 Sutter Blvd. Inc.
Morgan Hill, CA 95038 9940 Marconi Drive
Attention: Chief Executive Officer San Diego, CA 92173
Attention: Chief Executive Officer
or to such other address as to which either party may notify the other.
17.6 Binding. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns. This Agreement shall be
assignable: (1) by either party without the consent of the other to any
Affiliate of the party or more of the voting securities); (2) by either party
with the written consent of the other; or (3) by either party without the
consent of the other in connection with the purchase of substantially all the
assets of its business to which this Agreement relates. Any attempted assignment
which does not comply with the terms of this Section shall be void.
17.7 Governing Law. This Agreement is deemed to have been executed in and
shall be governed by and construed according to the laws of the State of
California.
17.8 Arbitration. Any disputes under this Agreement will be resolved by
binding arbitration in San Francisco, California, in accordance with the
commercial arbitration rules of the American Arbitration Association. Full
discovery will be accorded in accordance with the California Code of Civil
Procedure. The parties shall bear equally the costs and fees of the arbitration;
however, the arbitrator shall be authorized to determine whether a party is the
prevailing party, and if so, to award to that prevailing party reimbursement for
its reasonable
15.
<PAGE>
attorneys' fees, disbursements (including, for example, expert witness fees and
expenses, photocopy charges, travel expenses, etc.), and costs arising from the
arbitration.
IN WITNESS WHEREOF, this Agreement is signed by duly authorized
representatives of each party as of the Effective Date.
SUPERIOR TOMATO ASSOCIATES, L.L.C. AGRITOPE, INC.
By: Agritope, Inc.
Its Manager
By: /s/ Adolph J. Ferro By: /s/ Adolph J. Ferro
President/CEO President/CEO
Date: February 19, 1996 Date: February 19, 1996
ANDREW AND WILLIAMSON SALES COMPANY,
SUNSEEDS COMPANY INC.
By: /s/ David Atkinson By: /s/ Fred L. Williamson
President/CEO Pres.
Date: February 21, 1996 Date: February 29, 1996
16.
<PAGE>
Exhibit A
NON-DISCLOSURE AGREEMENT
(MUTUAL DISCLOSURE)
This Agreement is incorporated by reference in the Development and
Marketing Agreement by and among, Superior Tomatoes Association, L.L.C. ("STA"),
Agritope, Inc., Sunseeds, Inc. and Andrew and Williamson Sales Company, Inc. to
assure the protection and preservation of the confidential and or proprietary
nature of information to be disclosed or made available to each other in
connection with the activities under such Development and Marketing Agreement
and the business of STA.
Whereas, the parties desire to assure the confidential status of the
information which may be disclosed to each other;
Now Therefore, in reliance upon and in consideration of the following
undertakings, the parties agree as follows:
1. Subject to the limitations set forth in Paragraph 2, all information
disclosed to another party to this Agreement shall be deemed to be "Proprietary
Information." The term "Proprietary Information" shall include trade secrets,
confidential knowledge, data or any other proprietary information. By way of
illustration but not limitation, "Proprietary Information" includes (a)
inventions, trade secrets, ideas, processes, formulas, source and object codes,
data, programs, other works of authorship, compounds, cell lines, know-how,
improvements, discoveries, developments, test results, designs and techniques;
and (b) information regarding plans for research, development, new products,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers; and information
regarding the skills and compensation of employees of a party.
2. The term "Proprietary Information" shall not be deemed to include
information which the receiving party can demonstrate by competent written
proof: (i) is now, or hereafter becomes, through no act or failure to act on the
part of the receiving party, generally known or available; (ii) is known by the
receiving party at the time of receiving such information as evidenced by its
records; (iii) is hereafter furnished to the receiving party by a third party,
as a matter of right and without restriction on disclosure; or (iv) is
independently developed by the receiving party without any breach of this
Agreement.
3. Each party shall maintain in trust and confidence and not disclose to
any third party, or use for any purpose other than activities under such
Development and Marketing Agreement and the business of STA, any Proprietary
Information received from the other party. Proprietary Information shall not be
used for any purpose or in any manner that would constitute a violation of any
laws or regulations, including without limitation the export control laws of the
1.
<PAGE>
United States. No other rights or licenses to trademarks, inventions,
copyrights, or patents are implied or granted under this Non-Disclosure
Agreement.
4. Proprietary Information supplied shall not be reproduced in any form
except as required to accomplish the intent of this Agreement.
5. The responsibilities of the parties are limited to using their
reasonable and best efforts to protect the Proprietary Information received with
the same degree of care used to protect their own Proprietary Information from
unauthorized use or disclosure. Each party shall advise its employees or agents
who might have access to such Proprietary Information of the confidential nature
thereof. No Proprietary Information shall be disclosed to any officer, employee
or agent of either party who does not have a need for such information.
6. All Proprietary Information (including all copies thereof) shall remain
the property of the disclosing party, and shall be returned to the disclosing
party after the receiving party's need for it has expired, or upon request of
the disclosing party, and in any event, upon completion or termination of this
Agreement.
7. Notwithstanding any other provision of this Agreement, disclosure of
Proprietary Information shall not be precluded to the extent such disclosure is
required to be disclosed by the Receiving Party by judicial action provided that
the receiving party shall immediately notify the disclosing party of any such
action and the disclosing party shall have the opportunity to pursue all
reasonable legal remedies to maintain such information in secret.
8. This Agreement shall continue in full force and effect for so long as
the parties continue to exchange Proprietary Information. The termination of
this Agreement shall not relieve either party of the obligations imposed by this
Agreement with respect to Proprietary Information disclosed prior to the
effective date of such termination, and the provisions of these paragraphs shall
survive the termination of this Agreement.
9. This Agreement shall be governed by the laws of the State of California
as those laws are applied to contracts entered into and to be performed entirely
in California by California residents.
10. This Agreement contains the entire agreement of the parties concerning
use and protection of Proprietary Information and may not be changed, modified,
amended or supplemented except by a written instrument signed by each party.
11. Each party hereby acknowledges and agrees that in the event of any
breach of this Agreement by another party, including, without limitation, the
actual or threatened disclosure of a disclosing party's Proprietary Information
without the prior express written consent of the disclosing party, the
disclosing party will suffer an irreparable injury, such that no remedy at law
will afford it adequate protection against, or appropriate compensation for,
such injury. Accordingly, each party hereby agrees that such other party shall
be entitled to specific
2.
<PAGE>
performance of a receiving party's obligations under this Agreement, as well as
such further injunctive relief as may be granted by a court of competent
jurisdiction.
3.
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Andrew and Williamson Sales, Co., a
California corporation ("A&W"), hereby confirms the assignment, transfer, and
conveyance to Agritope, Inc., an Oregon corporation ("Agritope"), on February
28, 1997, of its 331/3 percent membership interest and any other interest it may
have in Superior Tomato Associates, L.L.C., a Delaware limited liability company
("STA").
In connection with the assignment of A&W's interest in STA,
Agritope hereby assumes and agrees to perform A&W's obligations, if any, under
the STA Operating Agreement dated February 19, 1996.
IN WITNESS WHEREOF, the undersigned have duly executed this
agreement as of May 27, 1997.
ANDREW AND WILLIAMSON SALES, CO.
By: [illegible]
Title: V.P. Operations
AGRITOPE, INC.
By: /s/ Gilbert N. Miller
Title: Executive Vice President
AMERICAN EQUITIES OVERSEAS, INC.
Acting Through American Equities Overseas (UK), Ltd.
16 Old Bond Street
London, England W1X 3DB
December ---, 1997
Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attention: Adolph J. Ferro, Ph.D.
Chairman, President and Chief Executive Officer
Re: Restated Placement Agent Agreement for
Private Placement of Common and Preferred 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,
par value $.01 per share, together with associated preferred stock purchase
rights (collectively, the "Common Stock") and Series A Preferred Stock, par
value $.01 per share (the "Preferred Stock") (the Common Stock and the Preferred
Stock are referred to herein, collectively, as the "Agritope Stock"), of
Agritope, Inc., a Delaware corporation ("Agritope"). The Common Stock and
Preferred Stock will be issued pursuant to Stock Purchase Agreements
substantially in the applicable form you have provided to us (the "Stock
Purchase Agreements"). Upon consummation of this Agreement, the letter agreement
dated October 15, 1997 between American Equities Overseas, Inc. and Agritope,
Inc., an Oregon corporation, will be void and of no further force or effect.
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, at a price of
U.S. $7 per share. In addition to the required minimum placement with Financial
Investors, American Equities will use its best efforts to place up to 1,000,000
shares of Preferred Stock at a price of U.S. $7 per share with Vilmorin & Cie,
which has a product development relationship with Agritope, or its designees
("Strategic Partners"). The Financial Investors, including American Equities, if
it purchases shares in the offering of Common Stock,, and the Strategic Partners
are referred to herein, collectively, as the "Regulation S Investors." All sales
to
<PAGE>
Agritop, Inc.
December --, 1997
Page 2
Regulation S Investors will be made substantially on the terms set forth in this
letter and pursuant to the applicable Stock Purchase Agreements.
All proceeds of the offering of Common Stock will be placed in an
account with Republic New York Securities Corp. ("Republic"), which American
Equities has opened for the benefit of Agritope (the "Proceeds Account"). If the
purchase price paid for any Common Stock purchased by any Financial Investor
other than American Equities is returned to such Financial Investor prior to the
closing of the offering of Common Stock to Financial Investors (the "Common
Stock 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 for Common Stock, which will be
substantially the same as the Stock Purchase Agreements that the other Financial
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
Financial Investors and the applicable provisions of the Stock Purchase
Agreement for Common Stock will be revised accordingly; (ii) American Equities
will have the right to assign its registration rights under Article 5 of the
Stock Purchase Agreement for Common Stock to Financial Investors to whom it
sells the Common Stock that American Equities has purchased; (iii) Section 7.3
of the Stock Purchase Agreement for Common Stock will be deleted; (iv) Section
10.3 of the Stock Purchase Agreement for Common Stock will be revised to reflect
the payment by Agritope of certain American Equities' expenses, as specified
below.
If American Equities purchases any Common Stock from Agritope
hereunder, American Equities may sell such shares to Financial Investors
pursuant to a Stock Purchase Agreement for Common Stock 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 Common Stock
Closing Date (as defined below).
<PAGE>
3
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 Agritope 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.
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 Common Stock 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 Common
Stock 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;
provided, however, that American Equities may not designate any person to
receive warrants unless that person is not a U.S. person (as defined in
Regulation S) and meets all other requirements applicable to Regulation S
offerings. The warrants will be substantially in the form attached hereto as
Exhibit A. American Equities has designated on Exhibit B the persons who will
receive the warrants to be issued hereunder.
Regulation S
- ------------
American Equities understands that the Agritope Stock is being offered
outside the United States in reliance on Regulation S promulgated under the
United States Securities Act of 1933, as amended (the "1933 Act"). This will
confirm American Equities' agreement that all offers and sales of Agritope Stock
and warrants in this offering and through 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 Agritope Stock and warrants 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 Common Stock Closing Date.
American Equities agrees that under Rule 903 of Regulation S: Agritope
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
<PAGE>
4
United States; prior to the expiration of the restricted period specified in
Regulation S, Agritope 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 Agritope Stock
purchaser must certify that it is not a U.S. person and is not acquiring the
Agritope Stock for the account or benefit of a U.S. person; each Agritope Stock
purchaser must agree to resell the Agritope 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 Agritope Stock must contain a legend to the effect that transfer is
prohibited except in accordance with the provisions of Regulation S; and, if
Agritope Stock is sold to a distributor, dealer, or person receiving
compensation for selling the Agritope Stock, a confirmation must be sent to the
purchaser stating that the purchaser is subject to the foregoing restrictions
and others stated in Regulation S.
This will also confirm that no Agritope Stock will be sold to a
distributor, dealer, or person receiving compensation for selling the Agritope
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 Agritope 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 Agritope 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 Agritope Stock
<PAGE>
5
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.
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.
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 Agritope 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, Agritope 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 Financial
Investors. American Equities will obtain from Republic a letter stating that
Republic will permit
<PAGE>
6
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 the
Common Stock Closing, Agritope will deliver to American Equities a single
omnibus stock certificate for the Common Stock issued in the name of Republic
New York Securities Corporation f/b/o Non-U.S. Investors representing all shares
sold by Agritope in the offering of Common Stock. 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 of
Common Stock. Notwithstanding the foregoing, at American Equities' request,
Agritope will issue separate stock certificates for the shares of Common Stock
purchased by specified purchasers and deliver such certificates as directed by
American Equities at the Common Stock Closing, for delivery to such purchasers
after the Common Stock Closing.
At the Common Stock 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 Financial Investors); and (ii) to Agritope, the
remaining balance of the Proceeds Account. American Equities understands that
Agritope will specify the date of the Common Stock Closing (the "Common Stock
Closing Date") by notice to American Equities and Republic.
If the Common Stock Closing does not occur by February 28, 1998,
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 the
Common Stock 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.
The closing of the sale of Preferred Stock to the Strategic Partners
(the "Preferred Stock Closing") will be separate from the Common Stock Closing.
The Preferred Stock Closing will not involve Republic.
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
<PAGE>
7
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 Agritope 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 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-----------------------------
Title--------------------------
Acknowledged and agreed.
AGRITOPE, INC.,
By------------------------------
Adolph J. Ferro, Ph.D.
Chairman, 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 ---------- ---, 200--
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 Delaware (the
"Company"), United States of America ("U.S."), one fully paid and nonassessable
share of common stock, par value $.01 per share, of the Company, including
associated preferred stock purchase rights (collectively, the "Common Stock")
upon presentation and surrender of this Warrant Agreement with the accompanying
Election to Exercise Warrants duly completed, at any time (except as provided
below) 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 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
1
<PAGE>
certified or official bank check in U.S. funds payable to the order of the
Company. These Warrants are issued pursuant to the Restated Placement Agent
Agreement between the Company and American Equities Overseas Inc. dated as of
December ----, 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 --------- ----, 200--- (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 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,
2
<PAGE>
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 Stockholder. No holder of this
Warrant Agreement shall, as such, be entitled to vote, receive dividends, or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose whatever, nor
shall anything contained herein be construed to
3
<PAGE>
confer upon the holder of this Warrant Agreement, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof or give or
withhold consent to any corporate action (whether upon any matter submitted to
stockholders at any meeting thereof or otherwise) including, without limitation,
giving or withholding consent to any merger, recapitalization, issuance of
stock, reclassification of stock, exchange of stock, consolidation or
conveyance, or to receive notice of meetings or other actions affecting
stockholders or to receive dividends or subscription rights or other
distributions.
Section 5. Payment of Certain Taxes and Charges. The Company shall not
be required to issue or deliver any certificate for shares of Common Stock or
other securities upon the exercise of Warrants evidenced by this Warrant
Agreement 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 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.
4
<PAGE>
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 and applicable
state securities laws. The Warrantholder consents to the Company making
a notation on its records and on the certificates for any shares of
Common Stock issued upon exercise hereof in order to implement such
restriction on transferability.
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 to sell its
securities to the public generally; provided, however, that all executive
officers and directors of the Company enter into similar agreements.
5
<PAGE>
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 97008, U.S.A.,
Attn: Secretary, with a copy to Tonkon Torp LLP, 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 Delaware, without
giving effect to choice of laws principles thereof.
Dated:-----------------, 199--.
AGRITOPE, INC.
By---------------------------------
Title------------------------------
The undersigned Warrantholder agrees to be bound by the terms
hereof.
-----------------------------------
By---------------------------------
Title------------------------------
<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."
<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.
<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 97008
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 during the effective period of a
registration statement covering the transaction; any other
legal opinion shall be the responsibility of the
Warrantholder.
Please deliver the certificate and a new Warrant Agreement for the
unexercised Warrants, if any, to:
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
Warrantholder:----------------------
By----------------------------------
Title-------------------------------
[Name of Warrantholder must be
identical to name shown in the
registry books of the Company;
signature must be guaranteed 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 25,000 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.]
<PAGE>
EXHIBIT B
Designated Recipients of Warrants to be
Issued Under this Agreement
No. of Shares of Common
Name Stock Covered by Warrants
---- -------------------------
