<PAGE>
As filed with the Securities and Exchange Commission on August 8, 2000
Registration No. 333-39210
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
To
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
ORASURE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
---------------
DELAWARE 3841 36-4370966
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
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)
---------------
ROBERT D. THOMPSON
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:
JOHN A. GRANDA, ESQ. JEFFREY P. LIBSON, ESQ.
Stinson, Mag & Fizzell, P.C. Pepper Hamilton LLP
1201 Walnut Street, Suite 2800 1235 Westlake Drive, Suite 400
Kansas City, Missouri 64106 Berwyn, Pennsylvania 19312
(816) 842-8600 (610) 640-7800
Facsimile: (816) 691-3495 Facsimile: (610) 640-7835
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration statement is declared
effective and all other conditions to the merger (as defined herein) have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [_]
---------------
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 said section 8(a),
may determine.
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<PAGE>
EPITOPE
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Epitope, Inc. and STC Technologies, Inc. have
agreed on the merger of the two companies into OraSure Technologies, Inc. which
is a wholly-owned subsidiary of Epitope. We believe OraSure Technologies will
be able to create substantially more stockholder value than could be achieved
by Epitope or STC individually.
Upon completion of the transaction, each share of STC common stock will be
converted into a number of shares of common stock of OraSure Technologies based
on an exchange ratio that will depend upon the average closing price of Epitope
common stock during a 20 trading day pre-merger measurement period ending prior
to the third trading day before the date of the stockholder meetings held to
approve the mergers. The maximum exchange ratio is 6.8364 shares of OraSure
Technologies common stock for each share of STC common stock which is
applicable if the average closing price of Epitope common stock during the
measurement period is less than $8.00. If the average closing price of Epitope
common stock during the measurement period is between $8.00 and $13.00, the
exchange ratio will range from 6.8364 and 5.4691 shares of OraSure Technologies
common stock for each share of STC common stock, respectively. If the average
closing price of Epitope common stock during the measurement period is above
$13.00, there is no minimum exchange ratio but shares with a maximum trading
value of $260 million would be issued to STC stockholders and optionholders.
STC and Epitope stockholders will not know the number of shares that STC
stockholders will receive in the mergers until three days before the vote on
the mergers, but they can call to receive that information at
We are asking Epitope
stockholders to approve the
agreement and plan of merger. A
special meeting of Epitope
stockholders will be held:
Thursday, August 31, 2000
10:00 a.m., Local Time
---------------------------
---------------------------
---------------------------
Epitope, Inc.'s board of
directors unanimously recommends
that Epitope stockholders vote FOR
approval of the agreement and plan
of merger.
Robert D. Thompson
President and Chief Executive Officer,
Epitope, Inc.
STC
any time during that three day period. The companies plan to consummate the
mergers on the same date as the date on which the meetings of stockholders of
Epitope and STC are held to vote on the mergers. It is a condition to the
mergers that immediately prior to the completion of the mergers, the
outstanding shares of STC Series A Convertible Preferred Stock will be
converted into STC common stock.
Each share of Epitope common stock will be converted into one share of common
stock of OraSure Technologies.
It is anticipated that after the mergers approximately an equal number of
fully diluted shares of OraSure Technologies will be held by former Epitope
stockholders, optionholders and warrantholders, on the one hand, and by the
former STC stockholders and optionholders, on the other hand. This relative
ownership could vary based on the average closing price of Epitope common stock
during the measurement period as described above.
Some of STC's stockholders, including members of management and the board of
directors, have executed stockholder agreements in which they have agreed to
vote a sufficient number of shares of STC stock to assure adoption by STC of
the agreement and plan of merger under Delaware law. Some of Epitope's
stockholders, including members of management and the board of directors, who
collectively hold 3.3% of the outstanding Epitope common stock, have executed
stockholder agreements in which they have agreed to vote all of their shares of
Epitope common stock in favor of approval of the agreement and plan of merger.
We are asking STC stockholders
to adopt the agreement and plan of
merger. A special meeting of STC
stockholders will be held:
Thursday, August 31, 2000
10:00 a.m., Local Time
---------------------------
---------------------------
---------------------------
STC's board of directors
unanimously recommends that STC
stockholders vote FOR adoption of
the agreement and plan of merger.
Michael J. Gausling
President and Chief Executive Officer,
STC Technologies, Inc.
Consider the risks described on pages 13 through 21 of this document.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the stock to be issued under this document or
determined if this document is accurate or adequate. Any representation to
the contrary is a criminal offense.
Joint proxy statement/prospectus dated , 2000 and first mailed to
stockholders on , 2000.
<PAGE>
This document incorporates important business and financial information about
Epitope that is not included in or delivered with this document. This
information is available without charge to stockholders upon written or oral
request at Epitope's address and telephone number listed on page 120. To obtain
timely delivery, stockholders must request the information no later than August
24, 2000.
<PAGE>
EPITOPE
NOTICE OF SPECIAL MEETING
TO BE HELD ON THURSDAY, AUGUST 31, 2000
AT 10:00 A.M.
To the Stockholders of Epitope, Inc.:
A special meeting of stockholders of Epitope, Inc. will be held on Thursday,
August 31, 2000, at 10:00 a.m., local time, at , ,
, to consider and vote upon:
1. A proposal to approve the agreement and plan of merger, dated as of
May 6, 2000, among Epitope, Epitope's wholly-owned subsidiary, OraSure
Technologies, Inc., and STC Technologies, Inc., pursuant to which Epitope
and STC each will merge into OraSure Technologies and OraSure Technologies
will issue shares of common stock in exchange for the shares of STC common
stock and Epitope common stock surrendered in connection with the mergers,
all as described in the attached document.
2. Such other business as may properly come before the meeting.
Holders of record of Epitope common stock at the close of business on July
24, 2000, will be entitled to vote at the Epitope meeting or any adjournment or
postponement.
Admittance to the special meeting will be granted only to stockholders as of
the record date and guests of management. Please bring identification and, if
you hold your shares in "street name" or otherwise not in your own name, please
bring proof of share ownership, such as an account statement, for admittance.
The board of directors of Epitope has determined that the agreement and plan
of merger is fair to and in the best interests of Epitope and its stockholders,
has declared its advisability, and unanimously recommends that you vote in
favor of the approval of the agreement and plan of merger.
Please do not send any certificates for your stock.
Andrew S. Goldstein
Secretary
, 2000
Your vote is important. Whether or not you plan to attend the Epitope
meeting, please complete, date and return your proxy card in the enclosed
envelope promptly or authorize the individuals named on your proxy card to vote
your shares by calling toll free at or, if outside the U.S.,
calling , or using the Internet ( ) by following the instructions
included with your proxy card.
If you do not vote your shares, or instruct your stockbroker to vote for you,
it will have the same effect as voting against the merger.
<PAGE>
STC
NOTICE OF SPECIAL MEETING
TO BE HELD ON THURSDAY, AUGUST 31, 2000
AT 10:00 A.M.
To the Stockholders of STC Technologies, Inc.:
A special meeting of stockholders of STC Technologies, Inc. will be held on
Thursday, August 31, 2000, at 10:00 a.m., local time, at ,
, , to consider and vote upon:
1. A proposal to adopt the agreement and plan of merger, dated as of May
6, 2000, among Epitope, Inc., Epitope's wholly-owned subsidiary, OraSure
Technologies, Inc., and STC, pursuant to which Epitope and STC each will
merge into OraSure Technologies and OraSure Technologies will issue shares
of common stock in exchange for the shares of STC common stock and Epitope
common stock surrendered in connection with the mergers, all as described
in the attached document.
2. Such other business as may properly come before the meeting.
Holders of record of STC common stock and STC Series A convertible preferred
stock at the close of business on July , 2000, will be entitled to vote at
the STC meeting or any adjournment or postponement.
Admittance to the special meeting will be granted only to stockholders as of
the record date and guests of management. Please bring identification.
Please contact Richard Hooper at (610) 882-1820 if you have any questions
regarding the special meeting.
The board of directors of STC has determined that the agreement and plan of
merger is fair to and in the best interests of STC and its stockholders, has
declared its advisability, and unanimously recommends that you vote in favor of
the adoption of the agreement and plan of merger.
Please do not send any certificates for your stock.
Jeffrey P. Libson
Secretary
, 2000
Your vote is important. Whether or not you plan to attend the STC meeting,
please complete, date and return your proxy card in the enclosed envelope
promptly.
If you do not vote your shares, it will have the same effect as voting
against the merger.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGERS................................... 1
SUMMARY................................................................... 2
EPITOPE, INC. SELECTED FINANCIAL DATA..................................... 8
STC TECHNOLOGIES, INC. SELECTED FINANCIAL DATA............................ 9
COMPARATIVE PER SHARE DATA................................................ 10
Summary Unaudited Comparative Historical and Pro Forma Per Share Data... 11
Market Price Data....................................................... 12
RISK FACTORS.............................................................. 13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 22
THE MERGERS............................................................... 24
General................................................................. 24
Background of the Mergers............................................... 24
Our Reasons for the Mergers; Recommendations of Our Boards of
Directors.............................................................. 30
Material United States Federal Income Tax Consequences of the Mergers... 32
Regulatory Matters Relating to the Mergers.............................. 34
Appraisal Rights........................................................ 34
Federal Securities Laws Consequences.................................... 36
Accounting Treatment.................................................... 37
Stock Market Listing.................................................... 38
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGERS........................ 38
Existing Agreements and Plans with Respect to Directors and Officers.... 38
Board of Directors, Management and Agreements of the Combined Company... 39
Ownership of Common Stock; Stock Options................................ 42
Additional Information Concerning the Designees to the Board of
Directors.............................................................. 42
THE AGREEMENT AND PLAN OF MERGER.......................................... 44
Structure of the Mergers................................................ 44
Timing of Closing....................................................... 44
Merger Consideration.................................................... 44
Treatment of Stock Options.............................................. 45
Exchange of Certificates................................................ 46
The Board of OraSure Technologies and Related Matters................... 46
Name of OraSure Technologies............................................ 47
Representations and Warranties.......................................... 47
Covenants............................................................... 48
Mutual Covenants........................................................ 51
Conditions.............................................................. 52
Termination of the Agreement and Plan of Merger......................... 53
Fees and Expenses Payable by Epitope Because of a Termination........... 54
Fees and Expenses Generally............................................. 55
Amendments and Waivers.................................................. 55
STOCKHOLDER AGREEMENTS AND VOTING INDICATIONS............................. 56
OPINIONS OF FINANCIAL ADVISORS............................................ 57
Opinion of Financial Advisor to Epitope................................. 57
Opinion of Financial Advisor to STC..................................... 62
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Opinion and Analysis of Robertson Stephens.............................. 63
Comparable Company Analysis............................................. 64
Contribution Analysis................................................... 66
Discounted Cash Flow Analysis........................................... 66
Financing History Analysis.............................................. 67
Pro Forma Merger Analysis............................................... 67
Other Factors........................................................... 67
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 69
Pooling of Interests Accounting Treatment............................... 69
Periods Covered......................................................... 69
INFORMATION ABOUT THE MEETINGS AND VOTING................................. 78
Matters Relating to the Meetings........................................ 78
Vote Necessary to Approve Epitope and STC Proposals..................... 79
Voting by Proxy......................................................... 80
How to Vote by Proxy.................................................... 80
Other Business; Adjournments............................................ 81
INFORMATION ABOUT EPITOPE, INC............................................ 81
INFORMATION ABOUT STC TECHNOLOGIES, INC................................... 82
General................................................................. 82
Industry Background - In Vitro Diagnostic Testing Market................ 82
Products................................................................ 83
Insurance Risk Assessment Products...................................... 83
Drugs-of-Abuse Products................................................. 83
Q.E.D.(R) Saliva Alcohol Test........................................... 85
Histofreezer(R) Portable Cryosurgical Removal System.................... 85
Up-Converting Phosphor Technology - UPT................................. 86
Competitive Analysis of UPT Labels...................................... 87
UPT Lateral Flow Applications........................................... 88
UPT License Agreements.................................................. 90
Research and Development................................................ 90
Sales and Marketing..................................................... 91
Significant Customers, Suppliers Products, and Markets.................. 91
Manufacturing........................................................... 91
Employees............................................................... 92
Competition............................................................. 92
Patents, Copyrights, and Proprietary Information........................ 94
Government Regulation................................................... 94
Environmental Regulations............................................... 96
Product Liability Insurance............................................. 96
Properties.............................................................. 96
Legal Proceedings....................................................... 97
Recent Developments..................................................... 97
Executive Compensation.................................................. 97
Stock Option Grants..................................................... 98
Certain Relationships and Related Transactions.......................... 98
Management's Discussion and Analysis of STC's Financial Condition and
STC's Results of Operations............................................ 99
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
STC STOCK OWNERSHIP........................................................ 105
INFORMATION ABOUT ORASURE TECHNOLOGIES, INC................................ 106
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS............................. 106
DESCRIPTION OF ORASURE TECHNOLOGIES CAPITAL STOCK.......................... 113
General.................................................................. 113
OraSure Technologies Common Stock........................................ 113
OraSure Technologies Preferred Stock..................................... 113
Description of Rights.................................................... 114
Statutory Business Combination Provision................................. 115
Other Matters............................................................ 115
Stockholder Proposals.................................................... 116
Limitations on Director/Officer Liability................................ 116
Transfer Agent and Registrar............................................. 117
LEGAL MATTERS.............................................................. 118
EXPERTS.................................................................... 118
FUTURE STOCKHOLDER PROPOSALS............................................... 118
WHERE YOU CAN FIND MORE INFORMATION........................................ 119
STC TECHNOLOGIES, INC. FINANCIAL STATEMENTS................................ F-1
</TABLE>
ANNEXES
<TABLE>
<C> <S>
Annex A --Agreement and Plan of Merger
Annex B --Opinion of Deutsche Bank Securities Inc.
Annex C --Opinion of FleetBoston Robertson Stephens Inc.
Annex D --Section 262 of the Delaware General Corporation Law
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q: Why are Epitope and STC proposing the mergers?
A: We are proposing the mergers because we believe the combined strengths of
the two companies will enable us to compete more effectively on a national
and international basis and to create substantially more stockholder value
than could be achieved by the companies individually.
Q: What will happen in the mergers?
A: We are proposing a transaction in which both Epitope and STC will merge into
OraSure Technologies, Inc., which is a new company formed under Delaware law
solely for the purposes of combining the two companies and changing the
state of incorporation of Epitope from Oregon to Delaware. Epitope
stockholders and STC stockholders each will have their respective shares of
common stock converted into newly-issued shares of common stock of OraSure
Technologies.
Q: When are the stockholders' meetings?
A: Each company's meeting will take place on August 31, 2000. The location of
each meeting is specified on the cover page to this document.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this
document. Then, please mail your signed proxy card in the enclosed return
envelope or, for Epitope stockholders only, vote by telephone or by
Internet, as soon as possible, so that your shares may be represented at
your meeting. In order to assure that we obtain your vote, please give your
proxy as instructed on your proxy card even if you currently plan to attend
your meeting in person.
Q: What should I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to your company's Secretary.
Or, you can attend your meeting in person and vote. You may also revoke your
proxy by sending a notice of revocation to your company's Secretary at the
address under "Summary--The Companies" on page 2.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them. You
should therefore be sure to provide your broker with instructions on how to
vote your shares.
If you do not give voting instructions to your broker, you will, in effect,
be voting against the applicable merger unless you appear in person at your
stockholders' meeting and vote in favor of that merger.
Q: Should I send in my stock certificates now?
A: No. If the mergers are completed, we will send Epitope stockholders and STC
stockholders written instructions for exchanging their share certificates.
Q: What plans are there for future dividends?
A: Neither Epitope nor STC has historically paid quarterly dividends to its
stockholders. OraSure Technologies' dividend policy will be set by its board
of directors. The amount of any dividends will depend on a number of
factors, including OraSure Technologies' financial condition, capital
requirements, results of operations, future business prospects and other
factors that OraSure Technologies' board of directors may deem relevant. We
do not anticipate that OraSure Technologies will pay dividends to
stockholders in the foreseeable future because it plans to deploy its
capital in a manner intended to generate growth in stockholder value.
Q: When do you expect the mergers to be completed?
A: We are planning on completing the mergers on the same date as the date on
which the meetings of stockholders are held to vote on the mergers.
Q: Whom do I call if I have questions about the meetings or the mergers?
A: Epitope and STC stockholders may call D. F. King & Co. at 800-658-8509.
1
<PAGE>
SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
mergers fully and for a more complete description of the legal terms of the
mergers, you should carefully read this document and the documents we refer to.
See "Where You Can Find More Information" on page 119.
The Companies
Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(503) 641-6115
Epitope develops, manufactures and markets medical devices and diagnostic
products utilizing its proprietary oral fluid technologies for sale to public-
and private-sector clients worldwide. Epitope's primary focus is on the
detection of HIV antibodies, with emphasis in the U.S. life insurance and
global public health markets, and on the use of oral fluid testing for the
detection of drugs of abuse and other substances. Epitope's common stock is
traded on the Nasdaq National Market under the symbol "EPTO".
STC Technologies, Inc.
150 Webster Street
Bethlehem, Pennsylvania 18015
(610) 882-1820
STC develops, manufactures and markets proprietary diagnostic products and
medical devices for use in clinical laboratories, physician offices and
workplace testing. STC is a supplier of oral fluid tests to the insurance risk
assessment testing market and also manufactures and markets other substance
abuse testing products. STC also is developing up-converting phosphor
technology ("UPT(TM)") for a broad range of diagnostic applications including
but not limited to use in rapid point of care oral fluid testing for the
detection of drugs of abuse and other substances. STC's securities are not
publicly traded.
OraSure Technologies, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(503) 641-6115
OraSure Technologies is a newly formed Delaware corporation that has not, to
date, conducted any activities other than those incident to its formation, the
execution of the agreement and plan of merger and the preparation of this joint
proxy statement/prospectus. In the reorganization, Epitope and STC will merge
into OraSure Technologies. The business of OraSure Technologies will be the
combined businesses currently conducted by Epitope and STC.
Reasons for the Mergers
The combination of the developer of an oral fluid collection device with a
manufacturer of oral fluid tests will better enable us to achieve our shared
mission of becoming a leading oral fluid diagnostics company. Combining Epitope
and STC will leverage our expertise in oral fluid technology, infectious
disease testing and substance abuse testing. By building upon our complementary
product portfolios, technologies and sales infrastructure, we believe the
combination will open up new U.S. and foreign markets and strengthen
positioning in key current markets such as the rapidly expanding point of care
market. In particular, STC's proprietary up-converting phosphor technology has
broad applications for oral fluid testing. With the increased sensitivity and
accuracy of UPT technology, OraSure Technologies can expand the menu of tests
available on Epitope's OraSure(R) oral fluid collection device as well as
expand oral fluid testing to point-of-care testing.
This same basic technology represented by UPT is also expected to be of
significant benefit to other medical diagnostic manufacturers outside the area
of expertise of Epitope and STC. For many of these additional applications of
UPT, OraSure Technologies plans to license the technology to these other
companies to provide an ongoing revenue stream of license fees and royalties.
These complementary skill sets, together with a combined research and
development investment of $5.4 million for the twelve months ended September
30, 1999, should accelerate product
2
<PAGE>
development and commercialization of a variety of oral fluid testing platforms.
We believe stockholder value will be further enhanced by greater opportunities
for increased revenues as well as more than $2 million of estimated annual cost
savings relating to cost avoidance and elimination of duplication.
The mergers will also effect a change in the state of incorporation of
Epitope from Oregon to Delaware in order to provide a greater degree of
predictability and certainty in complying with applicable corporate law
requirements.
To review our reasons for the mergers in greater detail, see page 30.
Our Recommendations to Stockholders (see
page 30)
To Epitope Stockholders:
Epitope's board of directors unanimously recommends that you vote FOR
approval of the agreement and plan of merger.
To STC Stockholders:
STC's board of directors unanimously recommends that you vote FOR adoption of
the agreement and plan of merger.
The Mergers
The agreement and plan of merger is attached as Annex A to this document. We
urge you to read the agreement and plan of merger as it is the principal legal
document that governs the mergers. If the agreement and plan of merger is
adopted by our stockholders, we will combine our businesses through two
separate mergers into OraSure Technologies.
What STC and Epitope Stockholders Will Receive (see page 44)
As a result of the mergers, each share of STC common stock will be converted
into a number of shares of common stock of OraSure Technologies that will
depend upon the average closing price of Epitope common stock during a 20
trading day period ending prior to the third trading day before the date of the
stockholder meetings held to approve the mergers. If the average closing price
of Epitope common stock were to be between $8.00 and $13.00 per share, each
share of STC common stock would be converted into between 6.8364 and 5.4691
shares of OraSure Technologies common stock, respectively. We refer in this
document to the number of shares of OraSure Technologies common stock that each
share of STC common stock will be converted into as the "exchange ratio" and
the low to high range of the average closing price of Epitope common stock as
the "collar."
The outstanding shares of STC series A convertible preferred stock will be
converted into STC common stock prior to the completion of the mergers. As a
result of the mergers, these shares of STC common stock will be converted into
shares of common stock of OraSure Technologies as described above.
As a result of the mergers, Epitope stockholders will receive one share of
common stock of OraSure Technologies for each share of Epitope common stock. As
of July 24, 2000, there were 16,778,938 shares of common stock of Epitope
outstanding.
OraSure Technologies will not issue any fractional shares. Instead, the
company will pay holders of common stock of STC cash equal to the value of any
fractional shares computed based on the mean of the high and low sales prices
of common stock of OraSure Technologies as reported on the Nasdaq National
Market on the first full day on which it is traded after completion of the
mergers. Epitope stockholders will not receive fractional shares because their
exchange ratio is one-for-one.
Opinions of Financial Advisors (see page 57)
Epitope
The Epitope board of directors has received an opinion of its financial
advisor, Deutsche Bank Securities Inc., also operating as and referred to in
this document as "Deutsche Banc Alex. Brown," as to the fairness, from a
financial point of view, to Epitope of the exchange ratio. The full text of
Deutsche Banc Alex. Brown's written opinion dated May 6, 2000 is attached as
Annex B. We encourage you to read this opinion carefully in its entirety for a
description of the assumptions made, matters
3
<PAGE>
considered and limitations on the review undertaken. Deutsche Banc Alex.
Brown's opinion is addressed to the Epitope board of directors and does not
constitute a recommendation to any stockholder as to how to vote with respect
to matters relating to the proposed mergers.
STC
STC's board of directors received the opinion of FleetBoston Robertson
Stephens Inc., STC's financial advisor, as to the fairness of the exchange
ratio from a financial point of view, to STC and the holders of shares of STC
common stock. The full text of Robertson Stephens' written opinion dated May 9,
2000 is attached as Annex C. We encourage you to read this opinion carefully in
its entirety for a description of the assumptions made, matters considered and
limitations on the review undertaken. Robertson Stephens' opinion is addressed
to the STC board of directors and does not constitute a recommendation to any
stockholder as to how to vote with respect to matters relating to the proposed
mergers.
Comparative Per Share Market Price Information (see page 10)
Epitope common stock is listed on the Nasdaq National Market. For the 20
trading days ending on May 5, 2000, the last full trading before announcement
of the agreement and plan of merger, the average closing price of Epitope
common stock was $9.17. On August 4, 2000, the most recent practicable date
prior to the mailing of this document, Epitope common stock closed at $13.00.
There is no established public trading market for STC common stock.
Listing of Common Stock of OraSure Technologies
Following the consummation of the mergers, shares of OraSure Technologies
will be listed on the Nasdaq National Market under the ticker symbol "OSUR".
Stockholder Votes Required (see page 79)
For Epitope stockholders: Approval of the agreement and plan of merger
requires the approval of the holders of a majority of the total votes entitled
to be cast by holders of Epitope common stock. As of May 6, 2000, directors and
executive officers of Epitope and their affiliates owned an aggregate number of
shares of Epitope representing approximately 3.3% of the total votes entitled
to be cast, and they have executed stockholder agreements in which they have
agreed to vote all of these shares in favor of approval of the agreement and
plan of merger.
For STC stockholders: Adoption of the agreement and plan of merger requires
the approval of the holders of a majority of the outstanding shares of STC
common stock. For purposes of this vote, the holders of STC convertible
preferred stock will vote with STC common stock. As of May 6, 2000, directors
and executive officers of STC and their affiliates owned an aggregate number of
shares of STC representing approximately 57.4% of the total votes entitled to
be cast, and they have executed stockholder agreements in which they have
agreed to vote all of these shares in favor of adoption of the agreement and
plan of merger. These votes are sufficient to adopt the agreement and plan of
merger.
Ownership of OraSure Technologies After the Merger
Assuming that the average closing price of Epitope common stock during the 20
trading day measurement period ending prior to the third trading day before the
date of the stockholder meeting held to approve the mergers is $13.00, the same
as during the comparable time period prior to the mailing date of this joint
proxy statement/prospectus, about 50% of the outstanding common stock of
OraSure Technologies will be held by former Epitope stockholders and about 50%
of the outstanding common stock of OraSure Technologies will be held by former
STC stockholders. After giving effect to the issuance of common stock of
OraSure Technologies upon the exercise of Epitope options and warrants and STC
options, about 51% of the fully diluted common stock of OraSure Technologies
will be held by former Epitope stockholders, optionholders and warrantholders,
and about 49% of the fully diluted common stock of OraSure Technologies will be
held by former STC stockholders and optionholders.
Board of Directors (see page 39)
After the mergers, the board of directors of OraSure Technologies will have
seven members,
4
<PAGE>
consisting of three persons designated by Epitope's board of directors, three
persons designated by STC's board of directors and one person designated by the
boards of both Epitope and STC.
Executive Officers (see page 39)
After the mergers, we intend that Mr. Robert D. Thompson of Epitope will be
the chief executive officer of OraSure Technologies and Mr. Michael J. Gausling
of STC will be the president and chief operating officer of OraSure
Technologies. Our plan is that after the mergers, the six most senior positions
in OraSure Technologies will be comprised of three executives from Epitope and
three executives from STC.
Interests of Officers and Directors in the Mergers (see page 38)
When you consider our boards of directors' recommendations that you vote in
favor of the relevant proposals, you should be aware that a number of our
officers and directors will be entitled to receive significant benefits if the
mergers occur that they will not be entitled to receive if the mergers do not
occur.
Material United States Federal Income Tax Consequences of the Mergers (see page
32)
An STC stockholder's receipt of common stock of OraSure Technologies in the
merger of STC into OraSure Technologies will be tax-free for United States
federal income tax purposes, except for tax resulting from the receipt of cash
instead of any fractional share of common stock of OraSure Technologies. An
Epitope stockholder's receipt of common stock of OraSure Technologies in the
merger of Epitope into OraSure Technologies will be tax-free for United States
federal income tax purposes. Epitope, STC and OraSure Technologies will not
recognize gain or loss for United States federal income tax purposes as a
result of the mergers.
Accounting Treatment (see page 37)
We believe the mergers will qualify as a "pooling of interests" for
accounting and financial reporting purposes, which means that we will treat our
companies as if they had always been combined for accounting and financial
reporting purposes.
Appraisal Rights (see page 34)
Epitope is incorporated under Oregon law and STC is incorporated under
Delaware law. Under applicable Oregon law, Epitope stockholders do not have any
appraisal rights in connection with the mergers. Under applicable Delaware law,
STC stockholders have appraisal rights if they do not vote or vote against the
merger and comply with procedures required under Delaware law.
Regulatory Approvals (see page 34)
There are no remaining regulatory conditions to completion of the mergers.
Conditions to the Completion of the Mergers (see page 52)
Completion of the mergers depends upon satisfaction or waiver of a number of
conditions. The most significant of these conditions are the following:
. adoption and approval of the agreement and plan of merger by the
requisite vote of Epitope's stockholders and by the requisite vote of
STC's stockholders;
. receipt by each of Epitope and STC from their respective independent
accountants of a letter concurring with their clients' management that no
condition exists that would preclude OraSure Technologies from accounting
for the mergers as a "pooling of interests" in accordance with generally
accepted accounting principles;
. receipt of opinions of tax counsel to Epitope and STC that each of the
mergers will qualify as a tax-free reorganization for federal income tax
purposes;
. Deutsche Banc Alex. Brown's opinion attached as Annex B not being
withdrawn or materially modified in an adverse manner;
. absence of a material adverse change in the financial condition, results
of operations, cash flow, assets, liabilities, business or prospects of
Epitope or STC.
5
<PAGE>
Termination of the Agreement and Plan of Merger (see page 53)
The agreement and plan of merger can be terminated by Epitope or STC upon the
occurrence of various events. The most significant of those events are:
. Epitope stockholders do not approve the agreement and plan of merger;
. either party approves or recommends another proposal made by a third
party to its stockholders;
. a tender or exchange offer for securities of either party has commenced
and that party has not sent a statement to its security holders
recommending rejection of such tender or exchange offer within the
required time.
In addition, Epitope can terminate the agreement and plan of merger before
its stockholders' vote upon three business days' notice to STC if the Epitope
board of directors has determined in good faith, after considering any revised
proposal by STC, that an acquisition proposal by a third party is a superior
proposal, Epitope has complied with its obligations in the agreement and plan
of merger not to solicit such proposals and Epitope makes the payment and
reimbursement described in the "Termination Fees" section below.
STC can also terminate the agreement and plan of merger if Epitope's
stockholder rights plan has been triggered which could take place upon
occurrence of the same type of circumstances with respect to Epitope's stock as
are described with respect to OraSure's stockholder rights plan under the first
paragraph under "Description of Rights" on page 114.
Epitope and STC can also both agree to terminate the agreement and plan of
merger. The agreement and plan of merger will terminate automatically if the
transactions contemplated by it are enjoined by a court of competent
jurisdiction for a period extending beyond 90 days.
STC Walk-Away Right (see page 54)
In the event Epitope's stock price falls below $6.00 per share, STC can
terminate the agreement and plan of merger. STC's determination of whether or
not to exercise its walk-away right will be based upon its Board's careful
consideration of the impact of such decrease on the valuation of STC's business
in the merger and other strategic alternatives to the merger which may be
available to STC, including consideration of whether STC should continue as a
separate company, seek other possible merger opportunities, undertake an
initial public offering of its securities or other possible alternatives. STC
does not intend to resolicit proxies in connection with its determination of
whether to exercise its walk-away right. A vote for the merger and approval of
the merger agreement by STC stockholders constitutes acknowledgement of STC's
possible exercise of its walk-away right.
Termination Fees and Expenses (see page 54)
Epitope will be required to pay STC a fee of $3,000,000 if the agreement and
plan of merger is terminated by STC because of various events which relate to
Epitope's support of, or failure to recommend against, an acquisition proposal
from a third party.
Epitope will make an additional payment of $2,000,000 to STC and will
reimburse STC for its reasonable expenses incurred in connection with the
mergers up to a maximum of $1,000,000 if:
. an acquisition proposal by a third party had been made for Epitope prior
to the actions set out above; and
. within twelve months following the termination of the agreement and plan
of merger by STC, Epitope enters into a definitive agreement with the
party that made such acquisition proposal.
Epitope will pay a termination fee to STC in an amount equal to $5,000,000
and will reimburse STC for its reasonable expenses incurred in connection with
the mergers up to a maximum of $1,000,000 if the agreement and plan of merger
is terminated by Epitope because, prior to the required approval of its
stockholders, Epitope has entered into a definitive agreement for a superior
acquisition approval and has satisfied the requirements described above
permitting it to do so.
The $5,000,000 termination fee and $1,000,000 expense reimbursement referred
to above will be
6
<PAGE>
reduced to the extent any termination fee or expense reimbursement has already
been paid to STC by Epitope for any reason.
Stockholder Agreements (see page 56)
Some of STC's stockholders, including members of management and the board of
directors, have agreed to vote all of their shares of STC stock in favor of
adoption of the agreement and plan of merger. These votes are sufficient to
adopt the agreement and plan of merger under Delaware law. Some of Epitope's
stockholders, including members of management and the board of directors, who
collectively hold 3.3% of the outstanding Epitope common stock, have executed
stockholder agreements in which they have agreed to vote all of their shares of
Epitope common stock in favor of approval of the agreement and plan of merger.
Material Differences in Rights of Stockholders (see page 106)
The certificate of incorporation and bylaws of OraSure Technologies will
change the rights of Epitope and STC stockholders in the following respects:
. increase the number of authorized shares of common stock from 30 million
in the case of Epitope, and 6 million in the case of STC, to 120 million;
. increase the number of authorized shares of preferred stock from 1
million in the case of Epitope, and 2 million in the case of STC, to 25
million;
. reduce the number of directors from nine in the case of Epitope, and
eight in the case of STC, to seven with three members being designated by
each of Epitope and STC and one member designated jointly by Epitope and
STC;
. OraSure Technologies' board will be composed of three classes, one of
which is elected each year, while all of STC's directors are elected each
year;
. OraSure's directors may be removed only for "cause" as narrowly defined
while STC's or Epitope's directors may be removed with or without cause
if, in the case of Epitope, 90% of the votes are cast for removal;
. STC stockholders can act by written consent with the minimum number of
votes required by law, but OraSure Technologies' stockholders must vote
at a meeting of stockholders;
. a special meeting of stockholders may be called by holders of a majority
of the outstanding STC shares or ten percent of the outstanding Epitope
shares, but a special meeting of OraSure Technologies can only be called
by the chairman, the president or the board;
. amendments to the certificate of incorporation require a vote by the
holders of a majority of the outstanding shares, but rights of the type
described above in this summary require a vote by holders of 66 2/3% of
the outstanding shares of OraSure Technologies; and
. STC has no stockholder rights plan but both Epitope and OraSure
Technologies have similar stockholder rights plan, except that the
purchase price of each right is $60 in the case of Epitope and $85 in the
case of OraSure Technologies.
7
<PAGE>
EPITOPE, INC. SELECTED FINANCIAL DATA
The table below shows summary selected historical financial information for
Epitope as of and for the years ended September 30, 1999, 1998, 1997, 1996 and
1995 and has been derived from the audited consolidated financial statements of
Epitope. The information as of and for the six months ended March 31, 2000 and
1999, has been derived from the unaudited condensed consolidated financial
statements of Epitope. This information is only a summary, and you should read
it in conjunction with Epitope's historical financial statements and related
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the annual reports, quarterly reports and
other information on file with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 119.
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Year Ended September 30,
-------------------- --------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- -------- -------- --------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Revenues.............. $ 9,102 $ 7,005 $ 10,073 $ 9,792 $ 9,360 $ 5,594 $ 2,856
Operating costs and
expenses............. 11,727 9,496 13,555 12,042 14,323 10,881 14,464
Other income (net).... 986 194 276 322 882 6,388 1,157
(Loss) income from
continuing
operations........... (1,639) (2,297) (3,206) (1,928) (4,081) 1,101 (10,451)
Discontinued
operations........... -- -- -- -- (18,359) (2,501) (8,045)
Net loss.............. (1,639) (2,297) (3,206) (1,928) (22,440) (1,400) (18,496)
(Loss) income per
share from continuing
operations........... (0.11) (0.17) (0.23) (0.14) (0.30) 0.08 (0.88)
Net loss per share.... (0.11) (0.17) (0.23) (0.14) (1.67) (0.11) (1.56)
Shares used in per
share calculations... 15,249 13,888 13,957 13,529 13,404 12,661 11,886
Balance Sheet Data:
Working capital....... $ 17,490 $ 6,901 $ 6,887 $ 6,510 $ 9,538 $ 24,793 $ 20,686
Total assets.......... 21,597 10,449 10,694 10,357 17,012 29,784 26,142
Accumulated deficit... (107,891) (105,342) (106,251) (103,046) (95,426) (72,985) (71,585)
Shareholders' equity.. 19,740 8,719 8,576 8,274 15,014 27,967 22,347
</TABLE>
8
<PAGE>
STC TECHNOLOGIES, INC. SELECTED FINANCIAL DATA
The table below shows summary selected historical financial information for
STC. The historical financial information as of and for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995 has been derived from the audited
financial statements of STC. The information as of and for the six months ended
June 30, 2000 and 1999, has been derived from the unaudited financial
statements of STC. This information is only a summary, and you should read it
in conjunction with STC ' historical financial statements and related notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations. See "Information About STC " on page 82.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------ ------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- ------- ------- ------- ------- ------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Revenues.............. $ 7,479 $ 6,315 $14,015 $10,652 $ 7,922 $ 7,617 $7,539
Costs and expenses.... 7,416 6,151 14,591 10,647 8,972 8,725 8,036
Other income
(expense), net....... (36) (151) (370) (451) (100) (230) 47
Income (loss) before
income taxes......... 27 13 (946) (446) (1,150) (1,338) (450)
Income taxes.......... 12 -- 50 -- -- 30 --
Net income (loss)..... 15 13 (996) (446) (1,150) (1,368) (450)
Deemed dividend on
preferred stock...... (500) (250) (750) -- -- -- --
Net income (loss) to
common stockholders.. (485) (237) (1,746) (446) (1,150) (1,368) (450)
Net income (loss) per
share................ (0.20) (0.10) (0.73) (0.19) (0.48) (0.68) (0.23)
Shares used in per
share calculations... 2,389 2,389 2,389 2,389 2,389 2,000 2,000
Pro forma net income
(loss) per share
(1).................. -- (0.32)
Shares used in pro
forma per share
calculated (1)....... 3,469 3,142
Balance Sheet Data:
Working capital....... $ 8,771 $ 10,893 $ 9,886 $ 2,215 $ 2,932 $ 5,303 $2,928
Total assets.......... 19,077 19,832 19,556 10,426 8,966 10,458 8,081
Long-term debt........ 5,302 5,819 5,820 6,001 4,026 5,077 5,456
Redeemable preferred
stock................ 10,102 9,101 9,602 -- -- -- --
Retained earnings
(accumulated
deficit)............. (2,838) (1,924) (2,853) (1,857) (1,411) (261) 55
Stockholders' equity
(deficit)............ (178) 2,072 414 2,427 2,859 3,709 1,098
</TABLE>
--------
(1) Gives effect to the conversion of redeemable convertible preferred stock
from original date of issuance.
9
<PAGE>
COMPARATIVE PER SHARE DATA
A summary of the relative exchange ratios for the mergers is shown in the
table below. The calculations assume that all outstanding options, warrants and
shares of preferred stock of STC have been exercised or converted so that
3,656,876 STC shares are deemed to be outstanding at the effective time of the
mergers. For a more detailed description of the calculations please see "The
Agreement and Plan of Merger--Merger Consideration."
<TABLE>
<S> <C> <C> <C> <C>
Average Epitope Basis for OraSure Exchange Ratio Percentage
Stock Price (for calculation of Technologies of STC Shares to Ownership of
20 day period shares to be Shares to be OraSure OraSure
measurement issued to STC issued to STC Technologies Technologies
period that ends Stockholders Stockholders Shares fully diluted
prior to the common stock by
third trading stockholders of
day before the Epitope and STC
date of the
meetings held to
approve the
mergers)
-------------------------------------------------------------------------------------------
Less than $8.00 25 million 25 million 6.8364 Epitope
shares shares stockholders: 45%
STC stockholders:
55%
-------------------------------------------------------------------------------------------
From $8.00 to Number of shares From 20 to 25 From 6.8364 to Epitope
$9.99 to be adjusted million shares 5.4691 stockholders:
to equal $200 From 45% to 51%
million STC stockholders:
From 55% to 49%
-------------------------------------------------------------------------------------------
From $10.00 to 20 million 20 million 5.4691 Epitope
$13.00 shares shares stockholders: 51%
STC stockholders:
49%
-------------------------------------------------------------------------------------------
Above $13.00 Number of shares Less than 20 Less than 5.4691 Epitope
to be adjusted million stockholders:
to equal $260 Begins at 51% and
million increases
proportionately
STC stockholders:
Begins at 49% and
decreases
proportionately
(see "Merger
Consideration" on
page 44)
</TABLE>
10
<PAGE>
Summary Unaudited Comparative Historical and Pro Forma Per Share Data
The following table sets forth per share data of:
. Epitope on a historical basis.
. STC on a historical basis.
. Epitope and STC combined on a pro forma basis, assuming an Epitope price
that is at least $10.00 but not more than $13.00 per share.
. Epitope and STC combined on a pro forma basis stated on an equivalent STC
basis, assuming an Epitope price that is at least $10.00 but not more
than $13.00 per share.
This table should be read in conjunction with the historical financial
statements and notes thereto for Epitope and the historical financial
statements and notes thereto for STC contained herein. Pro forma combined and
equivalent pro forma per share data reflect the combined results of Epitope and
STC presented as though they were one company for all periods shown.
The STC equivalent per share pro forma information shows the effect of the
mergers from the perspective of an owner of STC common stock.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, September 30,
------------------ ----------------------
Income (loss) per share from 2000 1999 1999 1998 1997
continuing operations: -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Epitope historical basis.......... $ (0.11) $ (0.17) $(0.23) $(0.14) $(0.30)
STC historical basis.............. (0.42) (0.02) (0.70) (0.26) (0.47)
Epitope and STC combined on a pro
forma basis assuming an Epitope
price of:
At least $10.00 but not more
than $13.00.................... (0.08) (0.08) (0.15) (0.10) (0.20)
Epitope and STC combined on a pro
forma basis per STC equivalent
common share assuming an Epitope
price of:
At least $10.00 but not more
than $13.00.................... (0.44) (0.45) (0.81) (0.53) (1.08)
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 2000 As of September 30, 1999
Book Value Per Share: ------------------- ------------------------
<S> <C> <C>
Epitope historical basis......... $ 1.18 $0.60
STC historical basis............. (0.07) 0.30
Epitope and STC combined on a pro
forma basis assuming an Epitope
price of:
At least $10.00 but not more
than $13.00................... 0.68 0.40
Epitope and STC combined on a pro
forma basis per STC equivalent
common share assuming an Epitope
price of:
At least $10.00 but not more
than $13.00................... 4.45 2.18
</TABLE>
11
<PAGE>
Market Price Data
The table below presents the high and low sales prices per share of Epitope
common stock on the Nasdaq Stock Market on May 5, 2000, the last full trading
day immediately preceding the public announcement of the proposed mergers, and
on August 4, 2000, the most recent practicable date prior to the mailing of
this document, as well as the "equivalent stock price" of shares of STC common
stock on such dates. The "equivalent stock price" of shares of STC common stock
represents the per share sales price for Epitope common stock on the Nasdaq
National Market at such specified date, multiplied by the possible exchange
ratios described under "Summary Unaudited Comparative Historical and Pro Forma
Per Share Data" which may be applicable depending upon the average closing
price of Epitope common stock during the 20 trading day measurement period
ending prior to the third trading day before the date of the stockholder
meetings held to approve the mergers. The "equivalent stock price" per share of
STC common stock shows the effect of the mergers from the perspective of an
owner of STC common stock. STC stockholders should obtain current market
quotations for shares of Epitope common stock prior to making any decision with
respect to the mergers.
<TABLE>
<CAPTION>
STC STC
Equivalent Equivalent
Stock Price Stock Price
assuming assuming
an exchange an exchange
Epitope ratio of ratio of
Common Stock 5.4691 6.8364
(Price per (Price per (Price per
share) share) share)
--------------- ------------- -------------
High Low High Low High Low
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
May 5, 2000......................... $12.875 $11.250 $70.43 $61.54 $88.07 $76.95
August 4, 2000...................... $13.500 $12.813 $73.83 $70.08 $92.29 $87.59
</TABLE>
There is no established public trading market for STC common stock.
The table below presents the average closing sales price per share of Epitope
common stock on the Nasdaq Stock Market for the 20 trading day measurement
period ending May 5, 2000 and July 20, 2000, as well as the "equivalent stock
price" of shares of STC common stock during such periods.
<TABLE>
<CAPTION>
STC
Equivalent Stock
Price based on
the applicable
Epitope exchange ratio
Common Stock (Price per
(Price per share) share)
----------------- ----------------
<S> <C> <C>
20 trading day average ending May 5, 2000.. $9.17 $54.69
20 trading day average ending August 4,
2000...................................... $13.228 $71.10
</TABLE>
Neither Epitope nor STC has historically paid quarterly dividends to its
stockholders. OraSure Technologies' dividend policy will be set by its board of
directors. The amount of dividends will depend on a number of factors,
including OraSure Technologies' financial condition, capital requirements,
results of operations, future business prospects and other factors that OraSure
Technologies' board of directors may deem relevant. We do not anticipate that
OraSure Technologies will pay dividends to stockholders in the foreseeable
future because it plans to deploy its capital to generate growth in stockholder
value.
Following the consummation of the mergers, shares of OraSure Technologies
common stock will be listed on the Nasdaq National Market under the ticker
symbol "OSUR".
12
<PAGE>
RISK FACTORS
You should consider the following risk factors in determining how to vote at
the meeting.
Risks Related to the Transaction
Epitope and STC Stockholders Will Not Know the Number of Shares of OraSure
Technologies Common Stock that STC Stockholders Will Receive in the STC Merger
and Epitope Stockholders Will Not Know Their Percentage Ownership in OraSure
Technologies Until Three Trading Days Before the Meeting Held to Vote on the
Mergers; Changes in the Market Price of Epitope Common Stock Could Affect the
Number of Shares of OraSure Technologies Issued to STC Stockholders
The number of shares of OraSure Technologies to be received by stockholders
of STC is determined by the average closing price of Epitope common stock
during a 20 trading day measurement period ending prior to the third trading
day before the date of the stockholder meetings held to approve the mergers.
The maximum number of shares of OraSure Technologies which shareholders of STC
may receive has been capped at 6.8364 shares of OraSure Technologies' common
stock per share of STC common stock, however a minimum number of shares has not
been set. If the average closing price of Epitope common stock during the
measurement period is between $8.00 and $13.00 each share of STC common stock
will receive between 6.8364 and 5.4691 shares of common stock of OraSure
Technologies. If the average closing price of Epitope common stock during the
measurement period is greater than $13, shares with a maximum trading value of
$260 million would be issued to STC stockholders and optionholders.
The percentage ownership of OraSure Technologies to be held by Epitope
stockholders is dependent upon the number of shares of OraSure Technologies to
be issued to STC stockholders. Epitope stockholders will not be able to
determine their percentage ownership until three trading days prior to the
meeting. The price of Epitope common stock has recently experienced price
fluctuations and may increase or decrease significantly in the future. The
price of Epitope common stock may vary because of
. changes in the business of Epitope,
. operations or prospects of Epitope,
. the timing of the completion of the mergers,
. the prospects of post-merger operations,
. general market and economic conditions and other factors.
We urge stockholders to obtain current market quotations for Epitope common
stock.
Epitope and STC Directors and Officers Have Interests Relating to the Mergers
Which are Different From Your Interests
We expect to retain the majority of Epitope's and STC's officers after the
mergers. Epitope's and STC's officers will have employment agreements with the
combined company. In addition, these officers will be entitled to participate
in our employee benefit plans, including grants of stock options in our stock
option plan.
If we complete the mergers, options to purchase approximately 790,914 shares
of Epitope common stock held by Epitope's directors and executive officers at a
weighted exercise price of $4.56 per share will become immediately exercisable.
Additionally, under the terms of the agreement and plan of merger, officers,
directors, employees and agents of Epitope and STC are indemnified against all
judgments, fines, losses, claims, damages, costs or expenses or liabilities
arising from their positions relating to any act or omission occurring at or
prior to closing. A detailed discussion of these interests can be found on page
38 under the heading "Interests of Officers and Directors in the Mergers."
13
<PAGE>
We May Be Unable to Successfully Integrate Our Technological Development, Sales
and Marketing, and Regulatory Compliance Departments and Realize the Full Cost
Savings We Anticipate
The mergers involve the integration of two companies that have previously
operated independently. The difficulties of combining the companies' operations
include:
. the necessity of coordinating geographically separated organizations;
. coordinating research and development, sales and marketing and regulatory
compliance efforts;
. integrating personnel with diverse business backgrounds; and
. combining different corporate cultures.
The process of integrating operations could cause an interruption of, or loss
of momentum in, the activities of one or more of OraSure Technologies'
businesses and the loss of key personnel. Any delays or difficulties
encountered in connection with the mergers and the integration of the two
companies' operations could divert management's attention from the day-to-day
activities of the business.
Among the factors considered by the STC and the Epitope boards of directors
in connection with their respective approvals of the agreement and plan of
merger were the opportunities for economies of scale and operating efficiencies
that could result from the mergers. We cannot give any assurance that these
savings will be realized within the time periods contemplated or realized at
all.
We Will Incur Significant Merger-Related and Integration-Related Expenses
A one-time charge for direct incremental merger-related transaction costs
will be recorded in the quarter in which the mergers are consummated. The
direct incremental merger-related transaction costs consist principally of
charges related to investment banking fees, professional services, registration
and other regulatory costs of approximately $5.4 million. We expect to incur
charges to operations, currently estimated to be $1.7 million, to reflect costs
associated with combining the operations of the two companies. These costs will
be recorded subsequent to consummation of the mergers. These amounts are
preliminary estimates and are therefore subject to change. Additional
unanticipated expenses may be incurred in the integration of our businesses.
Conditions to the Mergers May Not Be Satisfied Which Would Result in
Cancellation of the Mergers and Significant Expenses for STC and Epitope
The agreement and plan of merger contains conditions that, if not satisfied,
would result in the mergers not occurring, even though the Epitope and STC
stockholders approved it. We cannot assure you that all of the closing
conditions to the mergers will be satisfied, that any unsatisfied conditions
will be waived or that the mergers will occur. If the mergers do not occur, STC
and Epitope may incur significant expenses that could result in decreased net
income or increased net losses for STC and Epitope respectively.
The Price of OraSure Technologies Common Stock May Be Affected by Factors
Different from Those Affecting the Value of Epitope and STC Stock as Individual
Companies and May Fluctuate Significantly Regardless of OraSure Technologies'
Actual Operating Performance
Upon completion of the mergers, Epitope and STC common stockholders will
become OraSure Technologies' common stockholders. The combined company's
business will differ from that of each of Epitope and STC individually as a
result of the integration of their product offerings, research and development
programs and marketing strategies. OraSure Technologies' results of operations,
as well as the price of OraSure Technologies' common stock, may be affected by
factors different from those affecting Epitope's and STC's results of
operations and the value of Epitope and STC stock individually. These factors
include the integration of two businesses, the realization of anticipated cost
savings and the prospects of the combined company. See "Information about
Epitope, Inc.," "Information about STC Technologies, Inc.," and "Where You Can
Find More Information."
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There is no current public market for OraSure Technologies common stock but
that stock will be listed on the Nasdaq National Market effective immediately
following completion of the mergers. The trading price of OraSure Technologies'
common stock may be volatile. OraSure Technologies' stock price could be
subject to wide fluctuations in response to a variety of factors, including:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new products or services offered by OraSure Technologies or its
competitors;
. changes in financial estimates by securities analysts;
. OraSure Technologies' announcement of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
. additions or departures of key personnel;
. sales of common stock; and
. other events that may be beyond OraSure Technologies' control.
In addition, the Nasdaq National Market has recently experienced extreme
price and volume fluctuations. These fluctuations often have been unrelated or
disproportionate to the operating performance of the various listed companies.
These broad market and industry factors may materially adversely affect the
market price of OraSure Technologies' common stock, regardless of OraSure
Technologies' actual operating performance.
Clients of Epitope and/or STC May Delay or Cancel Contracts as a Result of
Concerns Over the Mergers
The announcement and closing of the mergers could cause clients and potential
clients of Epitope and STC to delay or cancel contracts as a result of client
concerns and uncertainty over the combined company's offerings, personnel or
services. Such a delay or cancellation could result in a loss of revenues for
OraSure Technologies.
If the Mergers Are Not Completed, Epitope May Be Required To Pay STC Up To $6
Million
The agreement and plan of merger provides that Epitope must pay STC a $3
million break up fee if STC terminates the transaction because the Epitope
meeting of its stockholders is not held prior to October 31, 2000, except due
to judicial action beyond Epitope's control, or if the Epitope board of
directors has:
. adversely changed its recommendation on the mergers;
. approved, endorsed or recommended an acquisition proposal of a third
party; or
. not sent the Epitope stockholders a recommendation of rejection of any
tender offer bid of a third party within ten days of commencement of the
tender offer.
Epitope may also be required to pay an additional $2 million to STC if, prior
to the termination of the agreement and plan of merger by STC, Epitope has
. entered into negotiations with a third party for a superior proposal and
the third party acquires Epitope within twelve months following the
termination of the agreement and plan of merger; or
. Epitope enters into a definitive agreement with a third party, before the
vote of its stockholders, for a superior proposal and Epitope terminates
the agreement and plan of merger.
Epitope has also agreed to pay up to an additional $1 million of STC's
expenses if an agreement or transaction with a third party is entered into
under the circumstances described above.
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The Ability of OraSure Technologies Stockholders to Effect Changes in Control
of OraSure Technologies will be Limited
There are provisions in OraSure Technologies' certificate of incorporation,
bylaws, and the Delaware General Corporation Law that could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer, or proxy contest involving OraSure Technologies or could discourage a
third party from attempting to acquire control of OraSure Technologies, even if
these events would be beneficial to the interests of the stockholders. In
particular, these provisions include:
. division of our board of directors into three classes serving staggered
three-year terms;
. removal of our directors by the stockholders only for cause
. ability to issue additional shares of our common stock or preferred stock
without stockholder approval;
. prohibiting our stockholders from calling a special meeting of
stockholders
. prohibiting our stockholders from amending provisions of our certificate
of incorporation or by-laws except with approval by stockholders owning
66.6% of the common stock.
OraSure Technologies also has a rights plan in place under which one right
will be attached to each share of common stock issued in the mergers. The
Rights will detach and become exercisable if, among other things, a person
acquires 15% or more of the outstanding common stock without approval of the
board of directors of OraSure Technologies. In that event, each right entitles
the holders of the rights to purchase, for the right's exercise price, common
stock of OraSure Technologies having a value equal to two times that exercise
price. However, all rights owned by the acquiring person in those circumstances
become automatically void. Persons interested in acquiring control of OraSure
Technologies are therefore more likely to negotiate with the board of directors
of OraSure Technologies for that purpose in order to avoid risking the
significant economic and voting dilution from triggering exercisability of the
rights.
OraSure Technologies is also subject to provisions of the Delaware
corporation law that, in general, prohibit any business combination with a
beneficial owner of 15% or more of the OraSure Technologies common stock for
five years unless the holder's acquisition of OraSure Technologies stock was
approved in advance by the OraSure Technologies board of directors.
Sales of Substantial Amounts of OraSure Technologies Common Stock in the Open
Market Could Depress OraSure Technologies' Stock Price
If OraSure Technologies' stockholders sell substantial amounts of OraSure
Technologies' common stock in the public market following consummation of the
mergers, the market price of OraSure Technologies' common stock could fall.
These sales might also make it more difficult for OraSure Technologies to sell
equity or equity related securities at a time and price that OraSure
Technologies would deem appropriate.
Sales of a large number of shares of common stock in the public market
following the consummation of the mergers, or even the belief that such sales
could occur, could cause a drop in the market price of OraSure Technologies'
common stock and could impair OraSure Technologies' ability to raise capital
through offerings of OraSure Technologies' equity securities. Based on the
number of shares outstanding as of July 20, 2000, there will be between
40,497,271 and 35,753,608 shares of OraSure Technologies' common stock
outstanding immediately after the mergers, assuming that the average Epitope
common stock price for the 20 trading day measurement period ending prior to
the third trading day before the date of the meetings held to approve the
merger is between $8.00 and $13.00 per share. In addition, there would be
between 4,997,580 and 4,741,243 shares of OraSure Technologies' common stock
reserved for issuance upon the exercise of options and warrants outstanding
immediately after the mergers, with respect to that same trading range. All of
the shares issued to STC and Epitope stockholders will be freely tradable
without restrictions or further registration under the Securities Act of 1933,
unless such shares are held by any OraSure Technologies "affiliate" or any
"affiliate" of STC or Epitope prior to the mergers, as that term is defined
under the Securities Act of 1933. The term
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"affiliate" would include directors, executive officers and some significant
stockholders. Two institutional investors which are affiliates of STC that hold
764,706 shares of STC convertible preferred stock immediately prior to the
mergers have the right to require OraSure Technologies to file registration
statements registering the 4,182,294 shares of OraSure Technologies common
stock they would receive in the mergers for future sale if the average Epitope
common stock price during the measurement period is between $10.00 and $13.00
per share.
Risks Related to the Business of OraSure Technologies
We Will Face Intense Competition from New and Existing Diagnostic Products
The diagnostics industry is focused on the testing of biological specimens in
a laboratory or at the point of care and is highly competitive and rapidly
changing. Our principal competitors are specialized biotechnology firms,
pharmaceutical companies with biotechnology divisions and medical diagnostic
companies, many of which have considerably greater financial, technical, and
marketing resources.
As new products enter the market, our products may become obsolete or our
competitors' products may be more effective or more effectively marketed and
sold than our products.
If OraSure Technologies fails to maintain and enhance its competitive
position, our customers may decide to use products developed by our competitors
which would result in a loss of revenues.
Our Research and Development Efforts May Not Succeed or Our Competitors May
Develop More Effective or Successful Diagnostic Products
In order to remain competitive, we must commit substantial resources each
year to research and development. In the twelve months ended December 31, 1999,
STC spent $4.8 million on research and development including a one-time
acquired in-process technology charge of $1.5 million and Epitope spent
approximately $2.3 million on research and development.
In our business, the research and development process takes a significant
amount of time from inception to commercial product launch. This process is
conducted in various stages, and during each stage there is a substantial risk
that we will not achieve our goals and have to abandon a product in which we
have invested substantial amounts. We cannot assure you that OraSure
Technologies will succeed in its research and development efforts. If OraSure
Technologies fails to develop commercially successful products, or if
competitors develop more effective products or a greater number of successful
new products, our customers may decide to use products developed by our
competitors which would result in a loss of revenues.
The Significant Time Necessary for Regulatory Approval of New Diagnostic
Products May Prevent or Adversely Delay Our Ability to Bring New Diagnostic
Products to Market
We and our competitors are subject to strict government controls on the
development, manufacture, labeling, distribution and marketing of products. We
often must obtain and maintain regulatory approval for a product from a
country's national health or drug regulatory agency before the product may be
sold in a particular country.
The submission of an application to a regulatory authority does not guarantee
that it will grant a license to market the product. Each authority may impose
its own requirements and delay or refuse to grant approval, even though a
product has been approved in another country.
In our principal markets, the approval process for a new product can be
complex and lengthy. The time taken to obtain approval varies depending on the
nature of the application and may result in the passage of a significant period
of time from the date of application. This increases the cost to us of
developing new products and increases the risk that we will not succeed in
introducing or selling them.
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In addition, the European Union has established a requirement that diagnostic
medical devices used to test biological specimens must receive regulatory
approval known as a CE mark by December 2003 or be forced to stop or delay
export to the European community of products without the CE mark until this is
received. This requirement will affect many of OraSure Technologies' products.
OraSure Technologies will not be permitted to sell its products in Europe if a
CE mark is not obtained by this date which may lead to the termination of
strategic alliances for sales of those products in Europe. While STC and
Epitope intend to apply for CE marks for their future products, and are not
aware of any material reason why such approvals will not be granted, there can
be no assurance that a CE mark will be received prior to the deadline. Epitope
currently holds a CE mark for its OraSure oral fluid collection device.
If the U.S. Food and Drug Administration (FDA) does not believe our Western
blot product and medical devices are manufactured in compliance with FDA's
"good manufacturing practices" regulations, FDA may require Epitope to suspend
production.
Epitope's Western blot products, as with all of its medical devices, must be
manufactured in compliance with FDA's "good manufacturing practices" (GMP)
regulations. The FDA issued a warning letter in June 1998 and observations of
deficiencies in January 1999. In June 2000, after an inspection, the FDA stated
its view that Epitope's products are not manufactured in compliance with these
GMP regulations. FDA has questioned Epitope's compliance with GMP regulations
in areas such as process validation, purchasing controls, complaint handling,
and equipment controls. Epitope has undertaken a substantial review of its
manufacturing, and has either already made changes or has plans to make
changes, to satisfy FDA with respect to its GMP compliance. These plans have
been communicated to the FDA in a meeting in March 2000 and in a written reply
to the agency in June 2000. There is a risk that the FDA will not be satisfied
by Epitope's efforts. If the FDA is not satisfied, it could issue another
warning letter, or take other enforcement action intended to force Epitope to
stop manufacturing its products until FDA believes Epitope is in compliance
with GMP requirements. Also, although FDA has recently granted Epitope
permission to obtain certificates needed for export of products, the FDA would
refuse export permission in the future if the agency determines that Epitope's
progress toward GMP compliance is not sufficient.
A Market For Our Intercept and OraQuick Products May Not Develop
OraSure Technologies' future success will depend partly on the market
acceptance, and the timing of such acceptance, of recently introduced products
such as the Intercept oral fluid drug test service, products currently in
development, such as the OraQuick rapid oral fluid test, and products based
upon the UPT technology, if successfully developed, and other new products or
technologies that may be developed or acquired and introduced. To achieve
market acceptance, we must make substantial marketing efforts and spend
significant funds to inform potential customers and the public of the perceived
benefits of our products. We currently have limited evidence on which to
evaluate the market reaction to products that may be developed, and there can
be no assurance that any products will meet with market acceptance and fill the
market need that we perceive to exist.
We Depend On Patents and Proprietary Rights Relating to Our Diagnostic Products
Which May Offer Only Limited Protection Against Potential Infringement. If We
are Unable to Enforce Our Patents and Proprietary Rights, We May Face Increased
Competition Which Could Result in a Loss of Revenues
The diagnostics industry places considerable importance on obtaining patent,
trademark, and trade secret protection, as well as other intellectual property
rights, for new technologies, products and processes. Our success depends, in
part, on our ability to develop and maintain a strong intellectual property
portfolio for our products and technologies both in the United States and in
other countries. Litigation or other legal proceedings may be necessary to
defend against claims of infringement, to enforce our intellectual property
rights, and could result in substantial cost to us and diversion of our
efforts.
As appropriate, we intend to file patent applications and obtain patent
protection for our proprietary technology. These patent applications and
patents will cover, as appropriate, compositions of matter for our products,
methods of making those products, methods of using those products, and
apparatus relating to the use or manufacture of those products.
We will also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We will enter into
confidentiality agreements with our employees, consultants, advisors
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jand collaborators. However, these parties may not honor these agreements and
we may not be able to successfully protect our rights to unpatented trade
secrets and know-how. Others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets and know-how.
Many of our scientific and management personnel were previously employed by
competing companies. Although we encourage and expect all such employees to
abide by any confidentiality agreement with a prior employer, such companies
may allege trade secret violations and similar claims against us.
To facilitate development and commercialization of our proprietary technology
base, we may need to obtain licenses to patents or other proprietary rights
from other parties. If we are unable to obtain such licenses, our product
development and commercialization efforts may be delayed.
We may collaborate with universities and governmental research organizations
which, as a result, may acquire certain rights to any inventions or technical
information derived from such collaboration.
We may incur substantial costs in asserting or protecting our intellectual
property rights, or in defending suits against us related to intellectual
property rights. Such disputes could substantially delay our product
development or commercialization activities. Such disputes might include state
or federal court litigation as well as patent interference, patent
reexamination, patent reissue, or trademark opposition proceedings in the
United States Patent and Trademark Office. Such opposition or revocation
proceedings could be instituted in a foreign patent office. An adverse decision
in any such proceeding could result in the loss of our rights to a patent, an
invention, or trademark.
The sales potential for OraQuick will be affected by the ability to obtain
access to an HIV-2 license
The overall sales potential, and the specific countries in which OraSure
Technologies will be able to sell its OraQuick rapid HIV test, will be affected
by whether it can arrange a sublicense or distribution agreement, related to
the patent for detection of the HIV-2 virus. HIV-2 is a type of the HIV virus
estimated to represent less than 2% of known HIV cases worldwide. Nevertheless,
HIV-2 is considered to be an important component in the testing regimen for HIV
in many markets. In addition, a patent on the detection of HIV-2 is in force in
most of the countries of North America, Western Europe, and in Japan, Korea and
South Africa. Access to a license for HIV-2 may be necessary to sell HIV-2
tests in countries where this patent is registered, or to manufacture in those
same countries and sell into non-patent markets. Since the HIV-2 patent is
registered in the United States, OraSure Technologies would be restricted from
manufacturing the HIV-1/2 version of its OraQuick product in the U.S. and
selling into other countries, even if the HIV-2 patent was not registered in
those other countries. OraSure Technologies believes that the HIV-2 patent is
not in force in Sub-Saharan Africa (except South Africa), India, Pakistan,
People's Republic of China, Thailand, Russia and Eastern European countries.
The importance of HIV-2 differs by country, and can be affected by both
regulatory requirements and by competitive pressures. In most countries, any
product used to screen the blood supply, will require the ability to detect
HIV-2, although the OraQuick product has not been intended for that market
purpose. In other markets, including the United States, a test which can detect
only the more prevalent HIV-1 type is generally considered sufficient, except
in testing related to the blood supply. Because the competitive situation in
each country will be affected by the availability of other testing products as
well as the country's regulatory environment, OraSure Technologies may be at a
competitive disadvantage in some markets without an HIV-2 product even if it's
not required by regulations.
Epitope is pursuing several alternatives to address this situation. Whichever
alternative is ultimately chosen will affect the overall potential timing and
amount of revenue from the OraQuick product. The first alternative is to
negotiate an agreement with a company which holds an HIV-2 license, and to
manufacture an HIV-1/2 version of the OraQuick product in the U.S. for domestic
use and for export to other countries. This alternative would provide wide
market access, but may require distribution through the license holder to some
countries and royalty payments related to the HIV-2 license. A second
alternative is to sell an OraQuick HIV-1 version in markets such as the United
States, which do not require HIV-2 for most diagnostic testing, and to export
this version to other countries, which do not require HIV-2 detection. The
third alternative is to sell an
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HIV-1 version of OraQuick in the U.S. market, and to manufacture an OraQuick
HIV-1/2 version in a country where the HIV-2 patent is not in force, for export
to countries where market pressures require an HIV-1/2 test. Both the second
and third alternatives could delay introduction of the OraQuick test into the
U.S. market.
If We Lose Our Key Personnel or are Unable to Attract and Retain Qualified
Personnel as Necessary, Our Diagnostic Product Development Programs Could Be
Delayed or Harmed
Our success will depend to a large extent upon the efforts of key managerial
and technical employees. The loss of such employees in connection with the
mergers could cause interruptions or delays in our activities, as well as
possible increases in our costs. We will have substantial key-man life
insurance on our key employees.
Our success also depends to a significant degree upon the future
contributions of the executive officers, management, and scientific staff of
the combined company. If we lose the services of these people, we may be unable
to achieve our business objectives. We may not be able to attract or retain
qualified employees in the future due to the intense competition for qualified
personnel among other medical products businesses. If we are not able to
attract and retain the necessary personnel to accomplish our business
objectives, we may experience constraints that will adversely affect our
ability to meet the demands of its strategic partners in a timely fashion or to
support our internal research and development programs. In particular, our
product development programs depend on the ability to attract and retain highly
skilled scientists, including molecular biologists, biochemists and engineers.
Recruiting qualified personnel can be an intensely competitive and time-
consuming process. Although we believe we will be successful in attracting and
retaining qualified personnel, competition for experienced scientists and other
technical personnel from numerous companies and academic and other research
institutions may limit our ability to do so on acceptable terms. All of our
employees, other than a few senior officers who will have employment agreements
after the mergers, are at-will employees, which means that either the employee
or OraSure Technologies may terminate their employment at any time. If we
experience difficulty in recruiting and retaining qualified personnel, and in
particular scientific personnel, we may need to provide higher compensation to
such personnel than we currently anticipate or we may incur additional expenses
for the recruitment of qualified personnel.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through STC's UPT
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire these services or to develop
this expertise could impair the development, if any, of products related to the
UPT technologies.
As a Result of Products Under Development, the Combined Company Will Have an
Increased International Presence and Our Ability to Sell Our Diagnostic
Products in International Markets May Be Limited by Regulatory and Cultural
Constraints
The combined company intends to devote significant resources to increase
international sales of its OraQuick and UPT products.
However, in the past, neither STC nor Epitope has had significant direct
experience with the governmental regulatory agencies in foreign countries that
control sale of products into those countries. Epitope has experienced extended
delays in obtaining approvals to make sales in Argentina and Greece,
demonstrating that compliance with foreign regulatory requirements can be
difficult and impede international marketing efforts. In addition to economic
and political issues, a number of factors can slow or prevent international
sales, including those set forth below:
. Regulatory requirements in general or more stringent regulation of
testing products in particular may slow, limit, or prevent the offering
of products in foreign jurisdictions;
. Exchange rates, currency fluctuations, tariffs and other barriers,
extended payment terms, dependence on and difficulties in managing
international distributors or representatives;
. Cultural and political differences may make it difficult to effectively
market, sell and gain acceptance of products in foreign jurisdictions;
. Accounts receivable collection may be more difficult;
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. Inexperience in international markets may slow or limit our ability to
sell products in foreign countries; and
. Additional regulations and regulatory processes may affect sales of
products.
Some of these factors may cause the costs of our international sales to
exceed significantly our domestic costs of doing business.
We May Be Sued for Product Liabilities for Injuries Resulting from the Use of
Our Diagnostic Products
We may be held liable if any product we developed, or any product which is
made with the use or incorporation of, any of technologies belonging to us,
causes injury or is found otherwise unsuitable during product testing,
manufacturing, marketing or sale. Although we will obtain product liability
insurance, this insurance may not fully cover our potential liabilities. As new
products come to market, we will need to increase our products liability
coverage. Inability to obtain sufficient insurance coverage at an acceptable
cost or otherwise to protect against potential product liability claims could
affect our decision to commercialize products developed by us or our strategic
partners. If we are sued for any injury caused by our products, our liability
could exceed our total assets.
We May Not Be Able to Commercialize the UPT Technologies or Products, Which
Could Negatively Affect Future Revenues of OraSure Technologies
STC's UPT technology is new and is in the early stage of development and
commercial development of UPT may not be successful. Successful products
require significant development and investment, including testing, to
demonstrate their cost-effectiveness or other benefits prior to their
commercialization. To date, STC has not commercialized any UPT product.
In addition, regulatory approval must be obtained before most products based
upon the UPT technology may be sold. Additional development efforts on UPT
products will be required before any regulatory authority will review them.
Regulatory authorities may not approve these products for commercial sale.
Accordingly, because of these uncertainties, products based upon the UPT
technology may not be commercialized. The failure to develop UPT products with
commercial potential would negatively affect OraSure Technologies' future
revenues.
We May be Dependent Upon Strategic Partners to Assist in Developing and
Commercializing Some of Our Diagnostic Products
We intend to pursue some product opportunities independently. However, we may
pursue some product opportunities that require a level of investment to develop
and commercialize them that necessitate involving one or more strategic
partners.
In particular, our strategy for development and commercialization of UPT and
certain of our products may entail entering into additional arrangements with
corporate partners, universities, research laboratory licensees, and others. If
we are able to enter into such arrangements, we may be required to transfer
certain material rights to such strategic partners, licensees, and others.
While we expect that our current and future partners, licensees, and others
have and will have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities will be controlled by others. Consequently, there can be no
assurance that any revenues or profits will be derived from such arrangements.
We Depend Upon Patent Licenses and Other Proprietary Rights From Third Parties,
Including Rights to UPT Compositions, Methods, and Apparatuses
STC has licensed the worldwide rights to UPT compositions, methods, and
apparatuses for use in diagnostic applications, which are the subject of six
issued United States patents, and of two pending U.S. patent applications.
Corresponding patents and patent applications have been granted or issued in
numerous foreign countries, including, for example, European countries, Japan,
and Canada. STC cooperates with the licensor to prosecute such patent
applications and protect such patent rights. Failure by the licensor to
prosecute such applications and protect such patent rights could harm our
business. If these third parties do not meet their obligations under the
license agreements or do not reasonably consent to sublicenses by us, or if the
license agreement is terminated we could lose the opportunity to develop UPT.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
"Forward-looking statements" contained in this document, are those statements
concerning anticipated financial or product performance, product development,
plans for growth and other factors that could affect future operations or
financial position, and other non-historical facts with respect to OraSure
Technologies, Epitope or STC. These statements often include the words,
"believes," "expects," "anticipates," "intends," "plans," "estimates," "may,"
"will," "should," "could," or similar expressions.
Examples of forward-looking statements include:
. pro forma financial statements and projections relating to revenues,
income or loss, earnings or loss per share, financial condition, capital
expenditures, the payment or non-payment of dividends, future share price
or value, and other financial items;
. statements of plans and objectives;
. statements of future economic performance; and
. statements of the assumptions underlying these statements.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Future results of
operations, financial condition, business and stock price or values of Epitope,
STC and OraSure Technologies may be materially different from those described
in these forward-looking statements. Stockholders of Epitope and STC are
cautioned not to put undue reliance on any forward-looking statement.
Among the factors that could cause actual results or the share price or value
of OraSure Technologies stock, to be materially different from those described
in, or contemplated by, the forward-looking statements are the following:
. the ability to attain estimated expense savings;
. the ability to continue to successfully market existing products, which
may be adversely impacted by the introduction of competing products;
. OraSure Technologies' ability to integrate the two businesses and
possible future mergers and acquisitions as well as successfully manage
growth;
. OraSure Technologies' ability to successfully develop and market new
products;
. market acceptance of oral testing products and UPT products;
. the ability to expand the market for existing products;
. the ability to fund research and development activities;
. the ability to get to market ahead of competition;
. the greater financial and technical resources of competitors;
. the success of OraSure Technologies' research and development activities
and the speed with which regulatory authorizations and product rollouts
may be achieved;
. the ability to commercialize early stage technologies;
. the ability to develop distribution channels and the marketing abilities
of the companies with which it collaborates;
. internal marketing obstacles, including delays in obtaining regulatory
approvals;
. the ability to obtain and maintain all certifications required by
customers;
. future changes in laws and regulations, including regulations affecting
government reimbursement for laboratory testing, and regulations
governing anti-fraud and abuse, drug testing, and environmental and
occupational safety;
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. the ability to successfully negotiate pricing of products with our
customers;
. the loss or impairment of sources of capital and the adequacy of such
sources to meet OraSure Technologies' funding needs;
. fluctuations in currency exchange rates;
. fluctuations in quarterly operating results;
. the effects of OraSure Technologies' accounting policies and general
changes in generally accepted accounting practices;
. OraSure Technologies' exposure to product liability 1awsuits;
. OraSure Technologies' success in litigation involving its intellectual
property, including possible inability to protect proprietary
technologies;
. ethical, social, legal and political developments affecting, among other
things, the use of our HIV or drug testing products;
. general economic and business conditions;
. OraSure Technologies' ability to attract and retain management and other
employees;
. the number of shares of OraSure Technologies issued in the mergers; and
. other risk factors detailed in Epitope's Securities and Exchange
Commission filings, including its Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q.
We have described under "Risk Factors" additional factors that could cause
actual results to be materially different from those described in the forward-
looking statements. Other factors that we have not identified in this document
could also have this effect.
All forward-looking statements made in this document are made as of the date
of this document. Epitope, STC and OraSure Technologies may not publicly update
or correct any of these forward-looking statements in the future.
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THE MERGERS
General
The Epitope board of directors is using this document to solicit proxies from
the holders of Epitope common stock for use at the Epitope meeting. The STC
board of directors also is using this document to solicit proxies from the
holders of STC common stock and convertible preferred stock for use at the STC
meeting. We will sometimes refer to the merger of STC into OraSure Technologies
as the "STC Merger" and the merger of Epitope into OraSure Technologies as the
"Epitope Merger." The STC Merger and the Epitope Merger are referred to
collectively as the "mergers."
Epitope Proposal
At the Epitope meeting, Epitope stockholders will be asked to vote upon a
proposal to approve the agreement and plan of merger. We sometimes refer to
this proposal as the "Epitope proposal."
STC Proposal
At the STC meeting, holders of STC common stock and STC convertible preferred
stock will be asked to vote together as a single class upon a proposal to adopt
the agreement and plan of merger. We sometimes refer to this proposal as the
"STC proposal."
Background of the Mergers
Epitope and STC have common interests in the research and development of
diagnostic products for use in detecting the presence of specific chemical
substances for the life insurance testing market such as cotinine (a metabolite
of nicotine) and cocaine. In September 1995, Epitope and STC entered into a
regulatory approval agreement to collaborate to obtain FDA clearance for the
detection of specific drugs of abuse in an oral fluid sample such as cocaine,
cannabinoids (marijuana), opiates, amphetamines and PCP. Since that time,
Epitope and STC have distributed each other's products to their customers
through a series of distribution agreements, which have resulted in payments by
STC to Epitope of approximately $135,000 and payments by Epitope to STC of
approximately $123,000, to date as described on page 84.
In January 1998, STC began evaluating options to finance its future growth,
including, financing from institutional investors, corporate affiliations,
possible sale of product lines, raising capital from private institutional
investors and existing stockholders, and bank financings.
On February 10, 1998, John Morgan, Epitope's then president and chief
executive officer, visited STC's headquarters in Bethlehem, Pennsylvania, to
learn more about STC and its UPT technology and to discuss the status of
regulatory approval for STC's drugs of abuse tests. During that meeting, future
possible collaborative business opportunities (including expanded distribution
arrangements, which subsequently led to additional distribution agreements
between STC and Epitope) were discussed with Michael Gausling, STC's president
and chief executive officer. At the end of the meeting, the parties agreed to
continue their discussions. On February 20, 1998, STC and Epitope signed a
mutual non-disclosure agreement. On February 24, 1998, Mr. Gausling visited
Epitope's headquarters in Beaverton, Oregon to continue these discussions.
On April 7, 1998, at a regularly scheduled STC board of directors meeting,
the STC board of directors was briefed about the discussions with Epitope and
approved proceeding with discussions and mutual due diligence regarding a
strategic business relationship with Epitope. On April 8, 1998, STC and Epitope
signed a non-binding agreement concerning the parties' willingness to continue
discussions regarding a possible strategic business relationship, including
Epitope's acquisition of STC's outstanding stock, formation of a joint venture,
or an equity investment in STC.
From April through June 1998, STC and Epitope, with Epitope's financial
consultant, EGS Securities Corp., each conducted due diligence investigations
concerning the other company, including meetings at the offices of EGS, STC and
Epitope. On June 15 and June 16, 1998, STC's senior management made a
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presentation to Epitope's board of directors, senior management and financial
consultant regarding STC, its history, business, strategies, products, UPT
technology, markets and financial information. Following this presentation, the
Epitope board of directors authorized Epitope management to continue
discussions with STC. On June 23, 1998, Epitope's senior management and
representatives from EGS made a presentation to STC's board of directors and
several STC stockholders. Epitope's presentation included a brief overview of
Epitope, its business, history, products, business strategy, technologies,
marketing focus, management and financial information. Following the
presentation, the STC board of directors authorized the continuation of due
diligence and discussions with Epitope concerning a possible
relationship/transaction with Epitope. STC then told Epitope that STC's board
did not consider STC for sale, but that STC's board was willing to consider an
offer from Epitope.
On July 3, 1998, Mr. Gausling, Richard Hooper, STC's chief financial officer,
and outside legal counsel to STC attended meetings at EGS in New York City at
which preliminary business and financial terms regarding a possible acquisition
by Epitope of STC's core business product lines, but excluding UPT, was
discussed. A draft term sheet was received by STC on July 4, 1998. The draft
term sheet did not contemplate a merger of Epitope and STC. It called for a ten
year exclusive, worldwide license to Epitope for use of STC's current business
products which would have excluded UPT technology. The license fee consisted of
$6.6 million, payable in installments and a guarantee by Epitope of STC's debt.
The proposed terms also included a call option for Epitope to purchase all of
STC's stock related to STC's current products business for an exercise price
equal to 3 million shares of Epitope common stock, assumption by Epitope of all
of STC's debt and a formula contingent payment of up to 1 million additional
shares of Epitope common stock if earnings before interest and taxes from sales
of STC's current business products exceeded $3.161 million. Conversely, STC was
given a put option with the same exercise price, except that it did not include
assumption of any STC debt by Epitope. The Epitope call option was proposed to
be exercisable 30 days following the second anniversary of the closing date and
STC's put option was proposed to be exercisable for 30 days following
expiration of Epitope's exercise period. The consideration offered by Epitope
was determined by a review of STC's core business, an estimate of the potential
savings from combining the businesses of the two companies, and a comparison to
the valuation multiples of similar companies in the medical diagnostics
business.
At STC's regularly scheduled meeting of its board of directors on July 14,
1998, Mr. Gausling presented Epitope's proposal and recommended that STC reject
the proposal. Mr. Gausling expressed his view that the proposal was not
favorable to STC and did not adequately address valuation, liquidity and the
treatment of STC employees. After discussion, the STC board rejected Epitope's
proposal, based primarily on the STC board's determination that the proposed
transaction did not reflect a sufficient valuation of STC's business, and that
deferral of a significant amount of the consideration was not in STC's or its
stockholders' best interests. On July 21, 1998, Mr. Morgan informed the Epitope
board of directors that the term sheet presented to STC had been rejected.
Discussions between STC and Epitope regarding a business combination were
terminated. STC did not make any counteroffer to Epitope relating to its
proposed transaction.
On April 21, 1999, the Epitope board of directors reached a consensus that
Epitope should pursue opportunities for consolidation or the acquisition of
businesses or product lines that would broaden Epitope's current product lines
while focusing on the area of non-invasive medical diagnostic testing.
On June 15, 1999, at a regularly scheduled meeting of the STC board of
directors, board representatives of new investors inquired whether STC had ever
given consideration to possible merger, sale or acquisition opportunities. At
this meeting, Mr. Gausling discussed STC's previous negotiations with Epitope,
as well as several other potential transactions relating to the purchase, sale
or license of individual product lines or groups of products.
On June 23, 1999, Mr. Gausling and Mr. Morgan met at Epitope and reviewed the
status of on-going distribution arrangements between STC and Epitope. At the
meeting, new discussions regarding a possible business combination commenced.
On July 8, 1999, Mr. Morgan met with Mr. Gausling at STC to discuss a possible
purchase of STC's core business product lines as well as rights to the UPT
technology related to oral
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fluid testing applications. At that time, Mr. Gausling indicated to Mr. Morgan
that, while STC was not actively seeking a sale or merger, he believed the STC
board would be willing to consider a proposal from Epitope because of the
perceived strategic fit of the businesses. Mr. Gausling also indicated that he
believed an Epitope proposal, to be considered worthwhile for STC, would have
to provide for a valuation of STC resulting in ownership of at least half of
the stock of the combined company (and preferably substantially more than half
based on Epitope's then current stock price), provide sufficient capital in
order to enable STC to continue the development of UPT technology, provide
continued employment for STC's employees in Bethlehem, Pennsylvania, and
provide increased liquidity for STC's stockholders.
On July 20, 1999, STC received a non-binding term sheet from Epitope setting
forth the proposed principal terms for Epitope's purchase of these product
lines. The draft term sheet did not contemplate a merger of Epitope and STC. It
proposed the acquisition of STC's current business products only (excluding UPT
technology). The purchase price consisted of shares of Epitope stock which
would be subject to restrictions on resale (although post-closing registration
was contemplated). The proposed terms would have resulted in STC receiving
shares representing approximately 43% of the combined company's outstanding
stock at the time of Closing, with a potential for additional shares, to be
issued based on terms contingent on factors to be measured during the following
calendar year, which could have resulted in STC receiving shares equal to
approximately 48% of the combined company's outstanding stock during the
following calendar year. The proposal also contemplated Epitope receiving
distribution rights for products developed by STC from UPT technology and
warrants to purchase shares of STC stock (at unspecified terms). In addition,
the proposal contemplated Epitope assuming approximately $5 million of STC's
indebtedness. The consideration offered by Epitope was determined by a review
of STC's core business, an estimate of the potential savings from combining the
businesses of the two companies, and a comparison to the valuation multiples of
similar companies in the medical diagnostics business.
At a special meeting of the STC board of directors held on July 26, 1999, Mr.
Morgan made a presentation describing Epitope's performance, objectives for
growth, plans for introduction of a new rapid test for HIV called OraQuick and
potential to expand Epitope's product offerings by adding oral fluid tests for
indications beyond HIV. Mr. Morgan also discussed the proposed terms of the
purchase of these product lines. Mr. Morgan's presentation also included a
discussion of Epitope's anticipated expansion of international sales of its
OraSure device, which Epitope expected to make a meaningful impact on future
operating results. Mr. Morgan also described FDA inspections of its facilities
which had resulted in an FDA warning letter and further follow-up, and he
described Epitope's active and planned changes in its procedures to improve
compliance. Also in attendance were several STC executives and stockholders,
and representatives from STC's legal counsel, independent accounting firm and a
prospective financial advisor to STC. Following Mr. Morgan's presentation,
STC's board met with representatives of the prospective financial advisor.
During that meeting, the representatives of the prospective financial advisor
made a presentation to the STC board concerning the firm's experience and
capabilities in assisting companies considering strategic business
alternatives. Their presentation also included, based on publicly available
information, a brief overview of the business, products and markets of STC and
Epitope, and financial and stock performance data of Epitope, a brief
discussion of factors considered by boards undertaking similar business
transactions, as well as a brief discussion of the types of valuation
methodologies generally conducted in similar business transactions. Ultimately,
STC determined not to engage a financial advisor at that time. The STC board
then engaged in a discussion of the proposed transaction and concluded that a
sale of less than all of its business on the terms proposed would place
significant limitations on the ability of STC to pursue the continued research
and development of UPT technology, that the percentage of Epitope shares to be
issued to STC (and the related market value of Epitope stock) did not reflect a
sufficient valuation of STC's business, that the transaction might not be
treated as a pooling of interests for accounting purposes and that, having
recently completed a private equity financing, STC had sufficient cash
resources to continue to operate as an independent company. The STC board also
expressed concerns about Epitope's program to achieve compliance with FDA
requirements, as well as a substantial doubt regarding Epitope's ability to
achieve its international sales goals with its OraSure device. As a result,
STC's board rejected Epitope's proposal and discussions between STC and Epitope
regarding a
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business combination again were terminated. STC did not make any counteroffer
to Epitope relating to its proposed transaction.
On February 17 and February 18, 2000, Robert Thompson, the newly appointed
chief executive officer of Epitope, visited STC's offices to discuss the status
of a national launch of the Intercept drugs-of-abuse testing system and to
further discuss future mutual business opportunities. During meetings on
February 18, 2000, Mr. Thompson initiated discussions with Mr. Gausling
regarding various strategic alliances, including possible changes in the
companies distribution agreements, or a possible merger of Epitope and STC.
During February 21 through March 3, 2000, Epitope and STC evaluated these
various strategic alliances as well as a possible merger and relative
valuations related to the possible merger. During that time, Epitope and STC
each discussed financial and business information concerning one another, and
responded to requests from each other for information and briefed members of
its board about the discussions.
On March 3, 2000, STC received a non-binding term sheet from Epitope which
set forth the principal terms of the proposed transaction. The term sheet
contemplated a direct merger of STC into Epitope with all common and preferred
shares converted into an aggregate of 20 million shares of common stock, with
the possibility that the exchange ratio of common and preferred stock of STC
might differ. Instead of a collar on Epitope's common stock price to address
the impact on the value of the consideration payable in the mergers as a result
of market fluctuations from signing through closing, the term sheet
contemplated as a condition to the closing of the mergers that the opinions
rendered by Epitope's and STC's financial advisors at the time of signing of
the agreement and plan of merger not be withdrawn. The governance aspects of
the proposal included a board of seven directors composed of four STC
representatives and three Epitope representatives, Robert Thompson as the chief
executive officer and president, and Michael Gausling as the non-executive vice
chairman of the board. The deal protection provisions proposed included (i)
agreements by officers, directors and large stockholders to vote for the
merger, (ii) an agreement not to solicit alternative acquisition proposals with
no right to terminate the agreement and plan of merger because a higher offer
had been made by a third party, (iii) a termination fee payable by STC to
Epitope in the amount of $5 million, plus reimbursement of Epitope's expenses,
if either the merger was not consummated by a specified date or STC's
shareholders failed to approve the merger and an alternative acquisition
proposal was then pending, or an agreement for an alternative acquisition
proposal was entered into within one year of that proposal, and (iv) reciprocal
options to purchase up to 19.9% of the other's capital stock exercisable if the
termination fee became payable, but with the profits from the exercise of the
option, together with the termination fee, capped at $5 million. The material
differences between the proposed term sheet and the mergers described in the
agreement and plan of merger are the addition of the collar on the exchange
ratio, the number of STC designees to the combined company's board of directors
decreasing from four to three, the election of Mr. Gausling as President and
Chief Operating Officer of the combined company, the elimination of any
termination fee to be paid by STC to Epitope and the elimination of reciprocal
options to purchase stock.
At a regularly scheduled meeting of STC's board of directors held on March
14, 2000, the STC board of directors was provided with Epitope's term sheet
and, after discussion, the board of directors directed STC management to
proceed with the merger negotiations. At the meeting, the STC board of
directors also approved hiring a financial advisor to evaluate the
advisability, from a financial point of view, of a possible merger with
Epitope. On March 20, 2000, STC retained FleetBoston Robertson Stephens Inc. as
its financial advisor.
On March 3, 2000, the Epitope board of directors met and considered the
status of preliminary discussions with STC regarding a potential merger. The
Epitope board requested that management perform substantial due diligence and
engage a financial advisor to assist Epitope in connection with the
transaction. Epitope subsequently retained Deutsche Banc Alex. Brown to serve
as its financial advisor.
On March 21, 2000, the Epitope board of directors was informed by Mr.
Thompson about the status of preliminary discussions with STC regarding a
merger. The board authorized the engagement of Stinson,
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Mag & Fizzell to serve as legal counsel with respect to the proposed merger and
related documentation, negotiation and due diligence matters.
During the period from March 29 through March 31, 2000, STC senior management
commenced due diligence at Epitope's headquarters. Both companies' financial
advisors were present for the meetings. On April 6, 2000, Epitope's financial
advisor conducted due diligence at STC's headquarters in Bethlehem,
Pennsylvania. Legal and accounting due diligence was conducted by each
company's advisors from April 10 through April 18, 2000. On April 10, 2000, Mr.
Hooper and STC's legal and financial advisors participated on a conference call
to discuss the proposed term sheet. In early April 2000, counsel to Epitope
provided STC a proposed agreement and plan of merger.
The parties had originally contemplated a structure for the combination which
involved a single step merger of STC directly into Epitope. Counsel to Epitope,
however, recommended adding a second-step merger to the structure in which
Epitope would merge into a newly-created corporation organized under Delaware
law solely for the purpose of changing Epitope's state of incorporation from
Oregon to Delaware. The parties
agreed that a change of the state of incorporation from Oregon to Delaware
would be advisable because it
would provide a greater degree of predictability and certainty in complying
with applicable corporate law requirements and provide related benefits
described under "Reasons for the Mergers; Recommendations of Our Boards of
Directors." In order to accomplish the second-step merger, Epitope formed a
wholly-owned subsidiary under Delaware law originally named Edward Merger
Subsidiary, Inc. which was later changed to OraSure Technologies, Inc.
From April 10 through April 12, 2000, Mr. Gausling and STC's executive vice
president and chief scientific officer, Dr. Sam Niedbala, attended meetings at
Epitope. Mr. Gausling and Dr. Niedbala made a presentation to Epitope's board
of directors on April 10, 2000. STC's presentation included a brief overview of
STC's business, history, operating results, products, marketing strategies, UPT
technology (and STC's analysis of market opportunities for products developed
from the UPT technology), business strategy, projected operating results and
STC's view of the combined company's opportunities.
On April 17, 2000, representatives of STC, Epitope and their advisors
participated on a conference call to negotiate terms of the proposed agreement
and plan of merger.
On April 18, 2000, the Epitope board of directors was informed about the
status of merger discussions with STC and related strategic, financial and
legal matters by Mr. Thompson and Epitope's legal and financial advisors.
At a meeting on April 25, 2000 at the offices of STC's legal counsel, Messrs.
Gausling and Thompson met with each company's legal and financial advisors to
negotiate the valuation of STC, break-up fees, escrow provisions, stockholder
agreements, and other matters. Following the meeting, Mr. Thompson traveled to
STC and informally met with several members of STC's board of directors.
During the remainder of April and the beginning of May, representatives of
Epitope, STC and their advisors participated on conference calls to negotiate
the final terms of the agreement and plan of merger and to discuss various
legal, financial and regulatory matters.
During the meetings held in March, April and May 2000, Epitope and STC,
together with their legal and financial advisors, engaged in discussions and
negotiations regarding the terms of the mergers. As a result of these
negotiations, Epitope and STC agreed that the fixed exchange ratio proposed in
the initial term sheet should be preserved as long as the average closing price
of Epitope common stock during a pricing period of 20 trading days ending prior
to the third trading day before the stockholder meetings remained between
$10.00 per share and $13.00 per share. These prices reflected a recent
historical average trading price and the current trading price of Epitope
common stock at that time. In the event that the average Epitope closing price
over the pricing period was between $8.00 per share and $10.00 per share,
Epitope and STC agreed that the exchange ratio should be adjusted upward to
compensate the STC stockholders for the decrease in the value of the Epitope
shares to be received in the mergers and that the exchange ratio should be
fixed in the event that the
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average Epitope closing price over the pricing period declined below $8.00 per
share. In connection with this price protection, Epitope and STC agreed to a
downward adjustment to the exchange ratio in the event that the average Epitope
closing price over the pricing period climbed above $13.00 per share in order
to limit the value of the consideration that Epitope would have to provide to
STC stockholders in the mergers. Epitope and STC also agreed to permit STC to
terminate the mergers in the event that the average Epitope closing price over
the pricing period declined below $6.00 per share.
On April 29, 2000, a meeting was held between members of Epitope's senior
management and board of directors and representatives of Sawtooth Capital
Management, the owner of approximately 15% of Epitope's outstanding common
stock. A non-disclosure agreement was signed by Sawtooth prior to the meeting.
The representatives of Sawtooth were already familiar with the core businesses
of STC because of the existing relationship between Epitope and STC, and agreed
that there was a clear strategic fit between the companies. Sawtooth also
focused their attention on the future potential for the products of the
combined company and on comparisons to the market capitalizations of comparable
medical diagnostic companies. During those discussions, Sawtooth expressed its
support for the mergers and indicated it planned to vote for approval of the
agreement and plan of merger.
At a special meeting of the STC board of directors held on May 6, 2000, the
board of directors met with STC's legal and financial advisors in attendance.
At that meeting, Robertson Stephens delivered its opinion subsequently
confirmed in writing to the STC board of directors to the effect that, as of
that date, based upon and subject to the assumptions made, matters considered
and limits of the review undertaken by Robertson Stephens, the exchange ratio
was fair, from a financial point of view, to STC and STC stockholders. The STC
board of directors reviewed discussion materials prepared by Robertson Stephens
with regard to Epitope's offer and engaged in a detailed discussion of the
merits of the proposed transaction to STC's stockholders. STC's legal counsel
reviewed the material terms and conditions of the agreement and plan of merger,
the results of the due diligence review of Epitope, the negotiations that led
to the proposed final terms of the transaction and the application of the
director's fiduciary duties to consideration of and action on the mergers.
Based on their discussions and the materials presented at this meeting and
prior meetings, STC's board of directors concluded that Epitope's proposal was
in the best interests of STC and its stockholders and approved the agreement
and plan of merger and related documents. The STC board did not consider
soliciting bids from other potential acquirors because the STC board had not
considered the company to be currently for sale and was not actively seeking a
sale or merger transaction, but was willing to consider the unsolicited offer
from Epitope due to the perceived strategic fit of the businesses.
A special meeting of the Epitope board of directors was held on May 6, 2000
with representatives of Epitope's legal and financial advisors in attendance.
At the meeting, Epitope's legal counsel reviewed the material terms and
conditions of the agreement and plan of merger, the results of the due
diligence review of STC, the negotiations that led to the proposed final terms
of the transaction and the application of the director's fiduciary duties to
consideration of and action on the mergers and related agreements. Also at the
meeting, Deutsche Banc Alex. Brown delivered to the Epitope board of directors
its opinion to the effect that, as of that date and based on and subject to the
matters described in its opinion, the exchange ratio was fair, from a financial
point of view, to Epitope. Based on their discussions and material presented at
this meeting and at prior meetings, Epitope's board of directors concluded that
the merger proposal was in the best interests of Epitope's stockholders and
approved the agreement and plan of merger and related documents. The Epitope
board did not consider soliciting bids from other potential acquirors because
it viewed the mergers as a strategic combination providing unique benefits.
The agreement and plan of merger was executed by STC, Epitope and OraSure
Technologies as of May 6, 2000. In connection with the execution of the
agreement and plan of merger, stockholders of STC representing approximately
57.4% of the outstanding shares of STC stock entered into a voting agreement
pursuant to which they agreed, among other things, to vote their shares of STC
stock in favor of adopting the agreement and plan of merger. In connection with
the execution of the agreement and plan of merger, stockholders of Epitope
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representing approximately 3.3% of the outstanding shares of Epitope common
stock entered into a voting agreement pursuant to which they agreed, among
other things, to vote their shares of Epitope common stock in favor of the
mergers.
On May 8, 2000, STC and Epitope issued a joint press release announcing the
execution of the agreement and plan of merger between Epitope and STC.
Our Reasons for the Mergers; Recommendations of Our Boards of Directors
The combination of a developer of an oral fluid collection device with an
oral fluid test developer will better enable us to achieve our shared mission
of becoming a leading oral fluid diagnostic company. Combining Epitope and STC
will leverage our expertise in oral fluid technology, infectious disease
testing and substance abuse testing. By building upon our complementary product
portfolios, technologies and sales infrastructure, we believe the combination
will open up new U.S. and foreign markets and strengthen positioning in key
current markets such as the rapidly expanding point of care market. In
particular, STC's proprietary Up-Converting Phosphor technology, UPT, has broad
applications for oral fluid testing. With the increased sensitivity and
accuracy of UPT technology, OraSure Technologies can expand the menu of tests
available on Epitope's OraSure(R) oral fluid collection device as well as
expand oral fluid testing to point-of-care testing.
This same basic technology represented by UPT is also expected to be of
significant benefit to other medical diagnostic manufacturers outside the area
of expertise of Epitope and STC. For many of these additional applications of
UPT, OraSure Technologies plans to license the technology to these other
companies to provide an ongoing revenue stream of license fees and royalties.
These complementary skill sets, together with a combined annual research and
development investment of $5.4 million for the twelve months ended September
30, 1999, should accelerate product development and commercialization of a
variety of oral fluid testing platforms. We believe stockholder value will be
further enhanced by greater opportunities for increased revenues as well as
more than $2 million of estimated annual cost savings relating to cost
avoidance and elimination of duplication.
The merger of Epitope into OraSure Technologies will effect a change in the
state of incorporation from Oregon to Delaware in order to (i) obtain a greater
degree of predictability and certainty regarding how the entity's affairs
should be conducted to assure compliance with applicable corporate law
requirements; and (ii) obtain the benefits resulting from the responsiveness of
Delaware's legislature and courts to the needs of corporations organized under
Delaware's jurisdiction. Delaware has long been the leading state in adopting,
construing and implementing comprehensive and flexible corporate laws
responsive to the legal and business needs of corporations. As a result,
Delaware's General Corporation Law has become widely regarded as the most
extensive and well-defined body of corporate law in the United States. Because
of Delaware's prominence as the state of incorporation for many major
corporations, both the legislature and courts in Delaware have demonstrated an
ability and a willingness to act quickly and effectively to meet changing
business needs. Moreover, the Delaware courts have rendered a substantial
number of decisions interpreting and explaining Delaware law, including legal
principles applicable to measures that may be taken by a corporation and as to
the conduct of its board of directors to comply with their fiduciary
obligations. For these reasons, many United States corporations initially have
chosen Delaware as their state of incorporation or subsequently have changed
their corporate domicile to Delaware in a manner similar to the Epitope
proposal.
Each of our boards of directors, in reaching its decision on the mergers,
consulted with its senior management and legal and financial advisors, reviewed
a significant amount of information and considered a number of factors. All of
the material factors considered are set forth below:
. the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors" and "Cautionary Statement Concerning
Forward-Looking Statements":
. the strategic and financial alternatives available to each of Epitope and
STC in their industry (as described below);
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. the strategic fit between Epitope and STC, and the belief that OraSure
Technologies has the potential to enhance stockholder value through
additional opportunities and operating efficiencies;
. the opportunity for Epitope's and STC's stockholders to participate in a
larger, more competitive company;
. the fact that the transaction was structured with shared corporate
governance for OraSure Technologies, including equal representation of
Epitope and STC designees on the company's board of directors, as well as
the fact that Mr. Thompson will be the chief executive officer and
Mr. Gausling will serve as president and chief operating officer of
OraSure Technologies, thus enabling each of Epitope and STC to provide
substantial input into the policies and operation of the combined
businesses and effect the long-term goals of each company;
. information concerning the financial performance, business operations,
financial condition and proprietary technologies of Epitope and STC and
of the two companies on a combined basis;
. the financial presentations, including the opinions, of our respective
financial advisors as to the fairness, from a financial point of view, of
the exchange ratio as described below under the caption "Opinions of
Financial Advisors;"
. the likely impact of the mergers on each company's employees (including
the selection of STC's facilities in Bethlehem, Pennsylvania as the
corporate headquarters of the combined company) and customers (including
expanded offerings of existing products and enhanced new product
development activities);
. the expected effect of the mergers on our existing strategic
relationships with third parties (including an expanded research and
development organization and an expanded new product pipeline, with the
potential for increased new product development and new technological
innovations);
. the interests of officers and directors of each company in the mergers,
as described under "Interests of Officers and Directors in the Mergers;"
. the fact that Epitope is permitted to terminate the agreement and plan of
merger upon receipt of a superior acquisition proposal, subject to the
payment of a specified termination fee and expense reimbursement;
. the impact that the termination fee and expense reimbursement may have on
potential third-party acquirors; and
. the qualification of the mergers as tax-free reorganizations for United
States federal income tax purposes, except for tax resulting from any
cash received for fractional shares by the holders of STC common stock.
The STC board of directors also considered the benefits of this transaction
as opposed to other alternatives, including the valuation given to STC's
business, the opportunity to retain STC's facilities in Bethlehem, Pennsylvania
as the headquarters of the combined company (with the direct benefits of
continued employment and possibly expanded employment, aiding STC's existing
employees and its community), the addition of Epitope's products to its own
product list (providing expanded product offerings for existing and new
customers, as well as the enhanced possibility of the development of new
products and technologies), the opportunity to leverage a higher revenue base
in order to increase profitability, and the potential liquidity for STC's
stockholders through the exchange of their shares in STC for shares of Orasure
which would be publicly-traded on the Nasdaq National Market. The STC board
also considered possible alternatives, including continuing as a separate
company. The STC board did not believe that a merger transaction was necessary
for the ultimate success of its business, and in light of the strategic fit
with Epitope, did not solicit bids from other companies or engage in merger
discussions with any other companies. The STC board also considered that the
combined company's size (in anticipated revenues, profits and human resources)
would enable it to more easily expand its presence in existing markets and
enter new markets with its products, as well as make it more visible to
institutional investors and the overall investment community. However, the
board was concerned with the possiblity that the further commercialization of
its technologies could result in the need for capital and the risk that, as a
private company, STC might not have sufficient access to capital and might not,
when needed, be able to complete a public offering in order to gain access to
public capital markets, or otherwise obtain capital. After consideration of the
factors described above, and in consideration of the uncertainties presented by
possible alternatives, the STC board of directors concluded that the merger was
a superior alternative for STC.
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The Epitope board viewed the mergers as a strategic combination in that it
will provide vertical integration of products and services, result in
significantly enhanced opportunities for increased revenues and cost
efficiencies, be accretive to pro forma income per share and share value based
solely on conservative cost savings estimates and the number of shares likely
to be issued in the mergers, add significant financial strength and flexibility
and enhance the competitive position of the combined companies. In view of the
unique strategic fit between Epitope and STC and the unique benefits from their
combination, the Epitope board believed that it was neither necessary nor
useful to solicit alternative acquisition bids.
In view of the wide variety of the material factors considered in connection
with their respective evaluations of the mergers and the complexity of these
matters, our boards of directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign any relative weight to the various
factors considered. In addition, our boards of directors did not undertake to
make any specific determination as to whether any particular factor, or any
aspect of any particular factor, was favorable or unfavorable to our boards of
directors' ultimate determination, but rather our boards of directors conducted
an overall analysis of the factors described above, including discussions with
and questioning of our respective management and legal and financial advisors.
In considering the factors described above, individual members of our boards of
directors may have given different weight to different factors.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by our boards of directors will be achieved through
consummation of the mergers.
Recommendation of the Board of Directors of Epitope
Epitope's board of directors unanimously recommends that Epitope stockholders
vote FOR approval of the agreement and plan of merger.
Recommendation of the Board of Directors of STC
STC's board of directors unanimously recommends that STC stockholders vote
FOR adoption of the agreement and plan of merger.
Material United States Federal Income Tax Consequences of the Mergers
The following discussion summarizes the material United States federal income
tax consequences of the mergers. This discussion is based on the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations,
administrative interpretations and court decisions as in effect as of the date
of this document, all of which may change, possibly with retroactive effect.
This discussion does not address all aspects of federal income taxation that
may be important to a stockholder of Epitope or a stockholder of STC in light
of that holder's particular circumstances or to a holder subject to special
rules, such as:
. a stockholder who is not a citizen or resident of the United States,
. a financial institution or insurance company,
. a tax-exempt organization,
. a dealer or broker in securities,
. a stockholder that holds stock of STC or Epitope as part of a hedge,
appreciated financial position, straddle or conversion transaction, or
. a stockholder who acquired stock of STC or Epitope pursuant to the
exercise of options or otherwise as compensation.
This discussion will sometimes refer to the merger of STC into OraSure
Technologies as the "STC Merger" and the merger of Epitope into OraSure
Technologies as the "Epitope Merger" and collectively as the "mergers."
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Tax Opinions. Epitope has received an opinion of Stinson, Mag & Fizzell,
P.C., and STC has received an opinion of Pepper Hamilton LLP (together with
Stinson, Mag & Fizzell, P.C., "tax counsel"), each dated as of the date of this
document, that the mergers will be treated for federal income tax purposes as
reorganizations within the meaning of Section 368 (a) of the Internal Revenue
Code and that Epitope, OraSure Technologies and STC will each be parties to the
reorganizations within the meaning of Section 368(b) of the Internal Revenue
Code. It is a condition to the obligation of each of Epitope and STC to
complete the mergers that the relevant tax counsel confirm its opinion as of
the closing date. Neither Epitope nor STC intends to waive this condition.
The opinions of tax counsel regarding the mergers have relied, and the
confirmation opinions regarding the mergers as of the closing date will rely,
on (1) representations and covenants made by Epitope, OraSure Technologies and
STC, including those contained in representation letters of officers of
Epitope, OraSure Technologies and STC, (2) an assumption regarding the
completion of the mergers in the manner contemplated by the agreement and plan
of merger, and (3) an assumption that the shares of STC and Epitope are held as
capital assets by the stockholders of STC and Epitope, respectively. In
addition, the opinions of tax counsel have assumed, and tax counsel's ability
to provide the closing date opinions will depend on, the absence of changes in
existing facts or in law between the date of this document and the closing
date. If any of those representations, covenants or assumptions is inaccurate,
tax counsel may not be able to provide the closing date opinions and the tax
consequences of the mergers could differ from those described in the opinions
that tax counsel have delivered. Tax counsel's opinions neither bind the IRS
nor preclude the IRS or the courts from adopting a contrary position. Epitope,
OraSure Technologies and STC do not intend to obtain a ruling from the IRS on
the tax consequences of the mergers.
United States Federal Income Tax Treatment of the Mergers. The mergers will
be treated for United States federal income tax purposes as reorganizations
within the meaning of Section 368 (a) of the Internal Revenue Code, and
Epitope, OraSure Technologies and STC will each be parties to the
reorganizations within the meaning of Section 368(b) of the Internal Revenue
Code.
United States Federal Income Tax Consequences to Epitope Stockholders. For
United States federal income tax purposes:
. A holder of Epitope common stock will not recognize any gain or loss upon
its exchange in the Epitope Merger of its shares of Epitope common stock
for shares of the common stock of OraSure Technologies.
. A holder of Epitope common stock will have a tax basis in the common
stock of OraSure Technologies received in the Epitope Merger equal to the
tax basis of the Epitope common stock surrendered by that holder in the
Epitope Merger.
. The holding period for shares of common stock of OraSure Technologies
received in exchange for shares of Epitope common stock in the Epitope
Merger will include the holding period for the shares of Epitope common
stock surrendered in the Epitope Merger, provided such common stock was
held as a capital asset.
United States Federal Income Tax Consequences to STC Stockholders. For United
States federal income tax purposes:
. A holder of STC common stock will not recognize any gain or loss upon its
exchange in the STC Merger of its shares of STC common stock for shares
of the common stock of OraSure Technologies.
. If a holder of STC common stock receives cash instead of a fractional
share of the common stock of OraSure Technologies, the holder will be
required to recognize gain or loss, measured by the difference between
the amount of cash received instead of that fractional share and the
portion of the tax basis of the holder's shares of STC common stock
allocable to that fractional share. This gain or loss will be capital
gain or loss provided such common stock was held as a capital asset, and
will be long-term capital gain or loss if the share of STC common stock
exchanged for that fractional share of the common stock of OraSure
Technologies was held for more than one year on the closing date.
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. A holder of STC common stock will have a tax basis in the common stock of
OraSure Technologies received in the STC Merger equal to (1) the tax
basis of the STC common stock surrendered by that holder in the STC
Merger, reduced by (2) any tax basis of the STC common stock surrendered
that is allocable to any fractional share of the common stock of OraSure
Technologies for which cash is received.
. The holding period for shares of the common stock of OraSure Technologies
received in exchange for shares of STC common stock in the STC Merger
will include the holding period for the shares of STC common stock
surrendered in the STC Merger, provided such common stock was held as a
capital asset.
This discussion of material United States federal income tax consequences is
intended to provide only a general summary, and is not a complete analysis or
description of all potential United States federal income tax consequences of
the mergers. This discussion does not address tax consequences that may vary
with, or are contingent on, individual circumstances. In addition, it does not
address any non-income tax or any state, local or non-U.S. income tax
consequences of the mergers. Accordingly, we strongly urge each stockholder to
consult his or her own tax advisor to determine the particular United States
federal, state or local or non-U.S. income or other tax consequences to him or
her of the mergers.
Regulatory Matters Relating to the Mergers
Antitrust Review
Epitope and STC believe that the mergers promote competition and are in the
public interest in part because OraSure Technologies will be able to compete
more effectively with larger companies than either Epitope or STC could alone.
However, there can be no assurance that a challenge to the mergers on antitrust
grounds will not be made.
U.S. Antitrust Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
promulgated under the Hart-Scott-Rodino Act, the acquisition of shares of
OraSure Technologies by a non-exempt holder of STC common stock pursuant to the
mergers may not be consummated until notifications have been given and certain
information and materials have been furnished to and reviewed by the Department
of Justice and the Federal Trade Commission and specified waiting period
requirements have been satisfied. On June 1, 2000, the premerger notification
forms required by the Hart-Scott-Rodino Act were filed with the U.S. Department
of Justice and the U.S. Federal Trade Commission. The applicable waiting period
under the Hart-Scott-Rodino Act expired on June 12, 2000 upon the grant of an
early termination of the thirty day statutory waiting period under the Hart-
Scott-Rodino Act. At any time prior to or after the consummation of the
mergers, the Department of Justice or the Federal Trade Commission could take
action under the federal antitrust laws, including seeking to enjoin the
mergers or seeking conditions thereon. State antitrust authorities and private
parties in certain circumstances may bring legal action under the antitrust
laws seeking to enjoin the mergers or impose conditions.
Appraisal Rights
Holders of Epitope common stock do not have appraisal rights under Oregon
corporation law in connection with the Epitope Merger because Epitope's common
stock is traded on the Nasdaq National Market.
Record holders of STC common and convertible preferred stock will have
appraisal rights under Section 262 of Delaware General Corporation Law in
connection with the STC Merger. Each stockholder of record who desires to
exercise appraisal rights must satisfy the following conditions and otherwise
comply with the provisions of Section 262:
. A separate written demand for appraisal of shares must be delivered to
the Corporate Secretary of STC at 150 Webster Street, Bethlehem,
Pennsylvania 18015, before the taking of the vote on the STC Proposal at
the STC Meeting. This written demand must reasonably inform STC of the
identity of the
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stockholder and that the stockholder thereby demands the appraisal of
his or her shares. In addition to informing STC of the identity of the
record holder and the demand for appraisal of shares, such demand should
also specify the mailing address of that stockholder and the number of
shares of common stock or convertible preferred stock owned by that
stockholder. A proxy or vote abstaining from voting, or voting against
the STC Proposal, or a failure to vote on the STC Proposal, does not
constitute such a demand for appraisal within the meaning of Section
262.
. A stockholder of record wishing to exercise his or her appraisal rights
under Section 262 must not vote for or consent to the adoption of the
STC Proposal. If a stockholder returns a signed proxy failing to specify
either (i) a vote against the STC Proposal or (ii) a direction to
abstain from voting on the STC Proposal, the proxy will be voted for the
adoption of the STC Proposal, which will have the effect of waiving that
stockholder's appraisal rights and nullifying any previously filed
written demand for appraisal.
A demand for appraisal must be made by or for and in the name of the
stockholder of record, fully and correctly, as such stockholder's name appears
on the certificates representing the STC common stock or convertible preferred
stock. Such demand cannot be made by the beneficial owner if he or she does
not also hold the shares of record. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If the shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must
be executed by all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, he or she is
acting as agent for the record holder.
A record holder, such as a broker, who holds shares as a nominee for others
may exercise his or her right of appraisal with respect to the shares held for
all or less than all beneficial owners of shares as to which he or she is the
record holder. In such case, the written demand must set forth the number of
shares as to which appraisal is sought. If the number of shares as to which
appraisal is sought is not expressly mentioned, the demand will be presumed to
cover all shares of common stock or convertible preferred stock outstanding in
the name of such record holder. Persons whose shares are held by brokers or
other nominees and who desire to exercise dissenters' rights of appraisal
should consider either (a) arranging to have their shares transferred into
their own names of record and making the necessary written demand for
appraisal or (b) arranging to have their broker or other nominee, as the case
may be, take all of the steps necessary to comply with Section 262.
Within 10 days after the Effective Time of the STC Merger, OraSure
Technologies as the surviving corporation in the STC Merger must provide
notice of the Effective Time of the STC Merger to all stockholders who have
complied with Section 262 and have not voted for or consented to the STC
Proposal. At any time within 60 days after the Effective Time of the STC
Merger, any stockholder may withdraw his or her demand for appraisal and
accept the terms offered in the STC Merger; after this, the stockholder may
withdraw his or her demand for appraisal only with the consent of OraSure
Technologies. In either event, the right of such stockholder to an appraisal
ceases.
Within 120 days after the Effective Time of the STC Merger, either OraSure
Technologies as the surviving corporation in the STC Merger or any stockholder
who has complied with the provisions of Section 262, as described above, may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of the shares of all stockholders entitled to appraisal.
Inasmuch as OraSure Technologies as the surviving corporation in the STC
Merger has no obligation to file such a petition, and has no present intention
to do so, any stockholder of record who desires such a petition to be filed
should file it on a timely basis. If no petition for appraisal is filed with
the Court of Chancery within 120 days after the Effective Time of the STC
Merger, stockholders' rights to appraisal cease, and all stockholders become
entitled to receive the consideration provided for in the Agreement and Plan
of Merger.
If a petition for an appraisal is timely filed and a copy thereof served
upon OraSure Technologies as the surviving corporation in the STC Merger,
after a hearing on such petition the Delaware Court of Chancery will
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determine which stockholders are entitled to appraisal rights and will appraise
the fair value of the shares of common stock or convertible preferred stock
owned by those stockholders. The fair value of the shares will be determined
exclusive of any element of value arising from the accomplishment or
expectation of the STC Merger. A fair rate of interest, if any, may be paid
upon the amount determined to be the fair value. In determining fair value, and
the fair rate of interest, the Court may consider all relevant factors.
The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as the Court deems equitable under
the circumstances. Upon application of a dissenting stockholder, the Court may
order that all or a portion of expenses incurred by any dissenting stockholder
in connection with the appraisal proceeding, including reasonable attorneys'
fees and the fees and expenses of experts, be charged pro rata against the
value of all shares of common stock or convertible preferred stock entitled to
appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time of the STC Merger, be entitled to vote
for any purpose the shares of common stock or convertible preferred stock
subject to such demand or to receive payment of dividends or other
distributions with respect to the shares held by that holder, except for
dividends or distributions payable to stockholders of record at a date prior to
the Effective Time of the STC Merger.
Federal Securities Laws Consequences
This document does not cover any resales of the common stock of OraSure
Technologies to be received by the stockholders of STC and of Epitope upon
completion of the mergers, and no person is authorized to make any use of this
document in connection with any such resale.
All shares of OraSure Technologies common stock that will be distributed to
stockholders of STC and Epitope in the mergers will be freely transferable,
except for the restrictions on transfer imposed by the federal securities laws
on "affiliates" of STC, Epitope or OraSure Technologies. Shares of OraSure
Technologies common stock received by persons who are deemed to be affiliates
of STC or Epitope, but who are not and will not become affiliates of OraSure
Technologies as of the time the vote is taken on the mergers, may be resold by
them only in transactions permitted by the resale provisions of Rule 145(d) or
as otherwise permitted under the Securities Act of 1933. Persons who are or
will become affiliates of OraSure Technologies as of the time the vote is taken
on the mergers may be resold by them only in transactions permitted by the
resale provisions of Rule 144 or as otherwise permitted under the Securities
Act of 1933. Persons who may be deemed to be affiliates of STC, Epitope or
OraSure Technologies generally include persons that control, are controlled by,
or under common control with the respective entity, such as their respective
officers, directors and significant stockholders.
In general, under Rule 144, an affiliate of OraSure Technologies would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of one percent of the number of shares of such class of
stock then outstanding or the average weekly trading volume of the shares of
such class of stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the issuer.
In general, Rule 145(d) will impose the same volume and manner of sale
limitations as under Rule 144 as to sales made during the one year period
following the mergers. During the period between the first and second year
following consummation of the mergers, resales made by persons subject to Rule
145(d) are permitted to be made without any volume or manner of sale of
limitations if OraSure Technologies is current in meeting its reporting
requirements under the Securities Exchange Act of 1934. There are no
limitations on resales by persons who are subject to Rule 145(d) after two
years have elapsed following the mergers if such persons are not then
affiliates of OraSure Technologies and have not been so affiliated during the
preceding three months.
SEC guidelines indicate further that the "pooling-of-interests" method of
accounting generally will not be challenged on the basis of sales of shares by
affiliates of Epitope or STC if the affiliates do not dispose of any
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of their shares that the affiliates own, or shares of OraSure Technologies they
receive in connection with the mergers, during the period beginning 30 days
before the mergers and ending when financial results covering at least 30 days
of operations of OraSure Technologies following the mergers have been
published.
OraSure Technologies has obtained written agreements from affiliates
containing provisions intended to preserve the ability to account for the
mergers as a "pooling of interests" and to ensure compliance with the
restrictions imposed by the Securities Act of 1933 on the resale or other
disposition of shares issued pursuant to the mergers.
Under the terms of an agreement between STC and its institutional investors,
two of which are affiliates, if OraSure Technologies proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other security holders exercising registration rights, the
institutional investor affiliates are entitled to notice of such registration
and are entitled to include shares of common stock in the registration.
Further, the institutional investor affiliates have the right to require
OraSure Technologies to file an unlimited number of additional registration
statements on Form S-3 at OraSure Technologies' expense. These registration
rights are subject to certain conditions and limitations, among them, a limit
on the number of registration statements which may be required to be filed in
any one year, a minimum offering amount, the right of the underwriters of an
offering to limit the number of shares included in such registration and
OraSure Technologies' right not to effect a requested registration for up to a
maximum of 180 days in the event that OraSure Technologies determines in good
faith that such registration might interfere with any transaction it is
contemplating or involve initial or continuing disclosure obligations that
might not be in its best interests.
Accounting Treatment
Epitope and STC believe the mergers will qualify as a "pooling of interests"
for accounting and financial reporting purposes. The "pooling of interests"
method of accounting assumes that the combining companies have been merged from
inception, and the historical financial statements for periods prior to
consummation of the mergers are restated as though the companies had been
combined from inception pursuant to Opinion No. 16 of the Accounting Principles
Board.
We expect that prior to the completion of the mergers:
. PricewaterhouseCoopers LLP will deliver to Epitope a letter stating that
based upon discussions with officials of Epitope responsible for
financial and accounting matters and information provided to
PricewaterhouseCoopers LLP, PricewaterhouseCoopers LLP concurs with
Epitope management's conclusions that, as of the date of its letter, no
conditions exist relating to Epitope that would preclude OraSure
Technologies from accounting for the mergers as a pooling of interests.
. Arthur Andersen LLP will deliver to STC a letter stating that based upon
discussions with officials of STC responsible for financial and
accounting matters and information furnished to Arthur Andersen LLP,
Arthur Andersen LLP concurs with STC management's conclusion that, as of
the date of its letter, no conditions exist related to STC that they
believe would preclude STC from qualifying as a "combining company" and
that no conditions exist they believe would preclude OraSure Technologies
from accounting for the mergers as a pooling of interests.
Epitope and STC have agreed to use their reasonable best efforts to cause the
mergers to qualify as a pooling of interests. The agreement and plan of merger
permits each of STC and Epitope to waive covenants and conditions and to amend
the agreement to modify covenants and conditions. While it is not expected that
either STC or Epitope would waive or modify the provisions of the agreement and
plan of merger requiring receipt of the letters from the accounting firms
concurring with their client's management to account for the merger as a
pooling of interests, it is permitted by the agreement.
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Stock Market Listing
Following consummation of the mergers, shares of OraSure Technologies will be
listed on the Nasdaq National Market under the ticker symbol "OSUR".
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGERS
In considering the recommendations of the boards of directors of Epitope and
STC with respect to the mergers, stockholders of Epitope and STC should be
aware that the officers and directors of Epitope and STC have interests in the
mergers that are different from, or in addition to, their interests as
stockholders of Epitope and STC generally. The boards of directors of Epitope
and STC were aware of these interests and considered them, among other matters,
in approving the agreement and plan of merger and the transactions contemplated
by the agreement and plan of merger.
Existing Agreements and Plans with Respect to Directors and Officers
Epitope
Employment Agreements. Robert D. Thompson is the president and chief
executive officer of Epitope, Charles E. Bergeron is the chief financial
officer of Epitope, William D. Block is the vice president of sales and
marketing for Epitope, J. Richard George, Ph.D., is the chief scientific
officer of Epitope, and Andrew S. Goldstein is the senior vice president of
advanced technology development for Epitope. These individuals are the current
executive officers of Epitope. Each of them has an employment agreement with
Epitope. Pursuant to such employment agreements, all current executive officers
of Epitope, other than Mr. Goldstein, are entitled to receive one year of
salary in the event their employment is terminated without cause. Mr. Goldstein
is entitled to receive two years of salary in the event his employment is
terminated in connection with a change in control of Epitope. The agreements
with Messrs. Thompson, Bergeron and Block permit each of them to treat a change
in control of Epitope and certain other events as a termination without cause.
The agreements do not expire by their terms and are terminable by Epitope with
cause (upon 90 days' notice, in the case of Mr. Goldstein) or, subject to
payment of the salary amounts described above, without cause. However, none of
the executive officers, other than Mr. Bergeron, will receive any cash payment
as a result of the termination of their current employment agreements with
Epitope. Although Mr. Bergeron is named in the agreement and plan of merger as
the chief financial officer of the combined company, he will only be serving in
that position for a transitional period which is expected to end on January 1,
2001. Mr. Bergeron will not be entering into an employment agreement with
OraSure Technologies, but he will receive twelve months of his regular salary
in the amount of $157,500 upon the termination of his employment with OraSure
Technologies. OraSure Technologies has not yet identified the person who will
become its chief financial officer at the end of that transitional period.
Stock Option Plans. As a result of the mergers and pursuant to the applicable
stock option agreements, all outstanding stock options awarded under the
Epitope, Inc. Amended and Restated 1991 Stock Award Plan, the Epitope, Inc.
2000 Stock Award Plan and Mr. Thompson's nonqualified stock option agreement,
whether or not fully vested, will accelerate, vest and become fully exercisable
upon consummation of the mergers. Any option that is not exercised before the
date the mergers become effective will be converted into an immediately
exercisable right with respect to common stock of OraSure Technologies
following the mergers, in a manner intended to maintain the aggregate intrinsic
value of the converted options. The number of shares of OraSure Technologies
stock to which any converted option will pertain will equal the same number of
Epitope shares subject to such award, and the exercise price of such options
will be the current exercise price of such option.
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The following table shows the number of unvested options and the estimated
value of unvested options that will become vested and exercisable for executive
officers of Epitope, assuming the mergers are completed on August 31, 2000
assuming that the price per share at the effective time of the mergers is
$13.00.
<TABLE>
<CAPTION>
Number of Unvested Aggregate Value of
Name Epitope Options (1) Unvested Options (2)
---- ------------------ --------------------
<S> <C> <C>
Robert D. Thompson............... 375,000 $ 4,875,000
Charles E. Bergeron.............. 50,417 655,421
William D. Block................. 81,251 1,056,263
J. Richard George, Ph.D.......... 45,417 590,421
Andrew S. Goldstein.............. 35,209 457,717
------- -----------
587,294 $ 7,634,822
======= ===========
</TABLE>
--------
(1) Includes all options granted that will be unvested and outstanding on July
20, 2000 or later, provided that the mergers have not occurred by that
date.
(2) Grants valued assuming a market value of $13.00 per share for OraSure
Technologies stock at the time of the mergers, less the exercise price for
each option granted.
STC
Employment Agreements. STC currently does not have any employment agreements
with any of its executive officers. However, after the consummation of the
mergers pursuant to the agreement and plan of merger, Michael J. Gausling, the
president and chief executive officer of STC, Dr. R. Sam Niedbala, the
executive vice president and chief science officer of STC and William Hinchey,
the executive vice president of business development-oral fluid products of
STC, will be employed by OraSure Technologies pursuant to employment
agreements, the terms of which are set forth below.
Stock Options and Incentive Plans. None of the stock options awarded under
the STC 1996 Employee Incentive and Non-Qualified Stock Option Plan prior to
the consummation of the mergers will accelerate or vest as a result of the
mergers. Any option that is not exercised before the date the mergers become
effective will be converted into an option with respect to common stock of
OraSure Technologies following the mergers, in a manner intended to maintain
the aggregate intrinsic value of the converted options. The number of shares of
combined company stock to which any such converted option will pertain will
equal the number of STC shares subject to such award multiplied by the exchange
ratio, and the exercise price of such options will be the current exercise
price of such option divided by the exchange ratio. For more information about
the exchange ratio, see the section entitled "The Agreement and Plan of
Merger--Merger Consideration" beginning on page 44.
Increased Liquidity of Shares The STC shares and options to purchase shares
of STC will be converted in the STC Merger to shares of OraSure Technologies
and options to purchase shares of OraSure Technologies, which shares will be
publicly traded. These shares will therefore have increased liquidity, subject
to the restrictions on disposition described under "Federal Securities Law
Consequences."
Board of Directors, Management and Agreements of the Combined Company
Board of Directors of the Combined Company. We have agreed in the agreement
and plan of merger that, as of the effective time of the mergers, the board of
directors of the combined company will have 7 members, consisting of three
persons designated by Epitope's board of directors, three persons designated by
STC's board of directors, and one person mutually acceptable to the boards of
both Epitope and STC. More information concerning the designees is provided
under the heading "Additional Information Concerning the Designees to the Board
of Directors" beginning on page 42.
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Management of the Combined Company. We have also agreed that Mr. Thompson,
the president and chief executive officer of Epitope, will become the chief
executive officer of OraSure Technologies; Mr. Gausling, the president and
chief executive officer of STC, will become the president and chief operating
officer of OraSure Technologies; Dr. Niedbala, the executive vice president and
chief science officer of STC, will become the executive vice president and
chief science officer of OraSure Technologies; Dr. George, the chief scientific
officer of Epitope, will become the senior vice president of research and
development, infectious disease of OraSure Technologies; Mr. Block, the vice
president of sales and marketing of Epitope, will become the senior vice
president of sales of OraSure Technologies; Mr. Hinchey, the executive vice
president of business development-oral fluid products of STC, will become the
senior vice president of marketing of OraSure Technologies; and Mr. Bergeron,
the chief financial officer of Epitope, will become the vice president and
chief financial officer of OraSure Technologies for a transitional period. All
other management positions of OraSure Technologies will be determined jointly
by Mr. Thompson and Mr. Gausling.
Employment Agreements with OraSure Technologies. Pursuant to the agreement
and plan of merger, OraSure Technologies will enter into employment agreements
with six people: Robert D. Thompson, Michael J. Gausling, William Hinchey, R.
Sam Niedbala, Ph.D., William D. Block and J. Richard George, Ph.D. The salary
which Mr. Thompson, Mr. Block and Dr. George will receive under the employment
agreement with OraSure Technologies described below are the same as their
current salary with Epitope.
Mr. Thompson's employment agreement provides, among other things, that Mr.
Thompson will serve as the chief executive officer of OraSure Technologies for
a term of three years, subject to automatic renewal for successive one year
periods unless either party gives the other party notice that the term will not
be extended. Mr. Thompson will be paid a regular salary of $275,000 per year.
Mr. Thompson is also eligible to participate in the executive bonus plan to be
established by OraSure Technologies, and to receive or participate in any long-
term incentive plan or any other additional benefits which may be made
available by OraSure Technologies from time to time. Mr. Thompson will be
reimbursed for job-related expenses, he will be paid a one-time relocation
allowance of $30,000 upon relocation of his residence to Pennsylvania, and
OraSure Technologies will purchase, or arrange for a third-party to purchase,
Mr. Thompson's house in Portland, Oregon at a purchase price of $672,000.
OraSure Technologies will pay all mortgage payments on the house that become
due between the date of the relocation of OraSure Technologies' headquarters to
Pennsylvania and the closing date of the purchase of Mr. Thompson's Portland,
Oregon house, with any amounts so paid to be grossed up for any income tax owed
by Mr. Thompson as a result of such payments. The agreement also provides that
Mr. Thompson and OraSure Technologies will enter into a business protection
agreement containing noncompetition provisions.
Mr. Thompson's employment agreement will terminate upon Mr. Thompson's death
or upon 60 days' written notice from Mr. Thompson to OraSure Technologies. Mr.
Thompson's employment agreement may also be terminated by OraSure Technologies
for cause (as defined therein), or without cause. Upon the termination of Mr.
Thompson's employment without cause, Mr. Thompson will continue to be paid his
annual salary for the greater of (x) 12 months, (y) the remaining term of the
employment agreement, or (z) 36 months if Mr. Thompson elects to treat one of
the events described below as a termination without cause. Mr. Thompson may
elect to treat the following events as a termination without cause:
. a material breach of the employment agreement by OraSure Technologies,
. a reduction in Mr. Thompson's salary or a change in his title or a
substantial diminution of his duties,
. a requirement that Mr. Thompson regularly report to someone other than
the chairman of the board, or
. a "change in control" of OraSure Technologies.
A "change in control" generally is defined to take place when disclosure of
such a change would be required by the proxy rules promulgated by the
Securities and Exchange Commission or when either:
. a person (other than OraSure Technologies, any of its subsidiaries, any
employee benefit plan of OraSure Technologies or any person with voting
power arising from a revocable proxy) acquires
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beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of
30% or more of the combined voting power of OraSure Technologies' voting
securities,
. less than a majority of the directors are persons who were either
nominated or selected by the board,
. the consummation of any consolidation or merger in which OraSure
Technologies is not the surviving corporation or the sale, lease,
exchange or other transfer of all or substantially all of the assets of
OraSure Technologies, or
. the approval by the stockholders of OraSure Technologies of any plan or
proposal for the liquidation or dissolution of OraSure Technologies.
All of the other employment agreements are substantially similar to Mr.
Thompson's, with the following exceptions:
Mr. Gausling will serve as the president and chief operating officer of
OraSure Technologies, he will be under the supervision of the chief executive
officer of OraSure Technologies and he will be paid a regular salary of
$225,000 per year (as compared to his annual salary of $200,000 from STC). Mr.
Gausling's house will not be purchased by OraSure Technologies and he will
receive no relocation allowance. Mr. Gausling's employment agreement contains
the same termination provisions as Mr. Thompson's, except that Mr. Gausling
cannot elect to treat a requirement that he regularly report to someone other
than the chairman of the board as a termination without cause.
Mr. Hinchey will serve as the senior vice president of marketing of OraSure
Technologies, he will be under the supervision of the chief executive officer
of OraSure Technologies and he will be paid a regular salary of $150,000 per
year (as compared to his annual salary of $140,000 from STC). Mr. Hinchey's
employment agreement is for a term of two, rather than three, years. Mr.
Hinchey's house will not be purchased by OraSure Technologies and he will
receive no relocation allowance. Mr. Hinchey's employment agreement contains
the same termination provisions as Mr. Thompson's, except that Mr. Hinchey
cannot elect to treat a requirement that he regularly report to someone other
than the chairman of the board as a termination without cause and he will be
paid his salary for 24 months, rather than 36 months, if he elects to treat one
of the events described above as a termination without cause.
Dr. Niedbala will serve as the executive vice president and chief science
officer of OraSure Technologies, he will be under the supervision of the chief
executive officer of OraSure Technologies and he will be paid a regular salary
of $185,000 per year (as compared to his annual salary of $175,000 from STC).
Dr. Niedbala's house will not be purchased by OraSure Technologies and he will
receive no relocation allowance. Dr. Niedbala's employment agreement contains
the same termination provisions as Mr. Thompson's, except that Dr. Niedbala
cannot elect to treat a requirement that he regularly report to someone other
than the chairman of the board as a termination without cause and he will be
paid his salary for 24 months, rather than 36 months, if he elects to treat one
of the events described above as a termination without cause.
Mr. Block will serve as the senior vice president of sales of OraSure
Technologies, he will be under the supervision of the chief executive officer
of OraSure Technologies and he will be paid a regular salary of $150,000 per
year. Mr. Block's employment agreement is for a term of two, rather than three,
years. Mr. Block's house will be purchased by OraSure Technologies at a
purchase price equal to the average of three independent appraisals or such
other price as is agreed to by OraSure Technologies and Mr. Block. Mr. Block
will receive a $30,000 relocation allowance. Mr. Block's employment agreement
contains the same termination provisions as Mr. Thompson's, except that Mr.
Block cannot elect to treat a requirement that he regularly report to someone
other than the chairman of the board as a termination without cause and he will
be paid his salary for 24 months, rather than 36 months, if he elects to treat
one of the events described above as a termination without cause.
Dr. George will serve as the senior vice president of research and
development, infectious disease, of OraSure Technologies, he will be under the
supervision of the chief science officer of OraSure Technologies
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and he will be paid a regular salary of $150,000 per year. Dr. George's
employment agreement is for a term of two, rather than three, years. Dr.
George's house will not be purchased by OraSure Technologies and he will
receive no relocation allowance. Dr. George's employment agreement contains the
same termination provisions as Mr. Thompson's, except that Dr. George cannot
elect to treat a requirement that he regularly report to someone other than the
chairman of the board as a termination without cause and he will be paid his
salary for 24 months, rather than 36 months, if he elects to treat one of the
events described above as a termination without cause.
Ownership of Common Stock; Stock Options
As of July 20, 2000, directors and executive officers of Epitope beneficially
owned an aggregate of approximately 1,166,598 shares of Epitope common stock,
including options to purchase 879,079 shares of Epitope common stock
exercisable within 60 days. These shares collectively constitute approximately
7.0% of the outstanding shares of Epitope common stock.
As of June 1, 2000, directors and executive officers of STC beneficially
owned an aggregate of 2,058,033 shares of STC common stock including 784,706
shares of STC convertible preferred stock, and options to purchase 12,500
shares of STC common stock exercisable within 60 days. These shares
collectively constitute approximately 59.3% of the outstanding shares of STC
common stock.
Additional Information Concerning the Designees to the Board of Directors
Following the merger, OraSure Technologies' board of directors will have
seven members, consisting of three individuals designated by Epitope's board of
directors and three individuals designated by STC's board of directors and one
individual designated by the boards of both Epitope and STC.
Epitope Designees. The following current directors of Epitope are Epitope's
designees for OraSure Technologies' board of directors.
Robert D. Thompson, age 38, president and chief executive officer of Epitope.
Prior to joining Epitope in January 2000, Mr. Thompson was chief operating
officer and chief financial officer at LabOne, Inc., a Kansas City, Missouri-
based insurance testing laboratory. Mr. Thompson originally joined LabOne as
vice president-business development in 1993 and was promoted to chief financial
officer, treasurer, and executive vice president, finance, in 1994. He added
the title of chief operating officer in 1996. LabOne is one of the pioneers in
the use of Epitope's OraSure device for HIV testing in the insurance market and
supplies HIV testing services to support Epitope's public health test kit
product. Before joining LabOne, Mr. Thompson served as chief financial officer
of Metwest, Inc., a Dallas-based clinical laboratory, and worked for seven
years as an international business consultant. Mr. Thompson received an M.B.A.
degree from Harvard Graduate School of Business Administration and a B.S.
degree in Economics from the Wharton School of Business at the University of
Pennsylvania.
Roger L. Pringle, age 59, director of Epitope. Mr. Pringle has been chairman
of the board and a member of the board of directors of Epitope since February
1989. Mr. Pringle is president of The Pringle Company, a management consulting
firm in Portland, Oregon, which he founded in 1975. Mr. Pringle is also a
director of Agritope, Inc. and Bank of the Northwest.
Frank G. Hausmann, age 42, director of Epitope. Mr. Hausmann has been a
member of the board of directors of Epitope since December 1999. Mr. Hausmann
has been employed by CenterSpan Communications Corporation, formerly known as
Thrustmaster, Inc., since July 1998 and has been its president and chief
executive officer since October 1998. He served as vice president, finance and
administration and chief financial officer prior to that time. From August 1997
to May 1998, Mr. Hausmann served as vice president, finance and chief financial
officer of Atlas Telecom, Inc., a developer of enhanced facsimile and voice-
mail solutions, that was experiencing financial difficulties and engaged Mr.
Hausmann as part of its efforts to turn
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around the company. In May 1998, an involuntary bankruptcy case was commenced
against Atlas Telecom. From September 1995 to July 1997, he served as vice
president, corporate development and general counsel of Diamond Multimedia
Systems, Inc., a designer and marketer of computer peripherals such as modems
and graphics and sound cards. Mr. Hausmann received B.S. degrees in economics
and political science from Willamette University and a J.D. degree from the
University of Oregon. He is a member of the Oregon State Bar. Mr. Hausmann is
also a director of CenterSpan Communications Corporation.
STC Designees. The following current directors of STC are STC's designees for
OraSure Technologies' board of directors.
Michael J. Gausling, age 42, president and chief executive officer of STC.
Mr. Gausling a co-founder of STC and has served as chairman of the board since
1996, president and chief executive officer since 1990, a director of STC since
1987, and was executive vice president, finance and operations from 1987 to
1990. Prior to forming STC, he had been employed in the area of corporate
finance at Procter and Gamble. Mr. Gausling received his B.S.M.E. from
Rensselear Polytechnic Institute and his MBA in Finance from Miami University.
Mr. Gausling is also a director of Paragon Technologies, Inc. and Keystone
Savings Bank.
William W. Crouse, age 57, Director of STC. Mr. Crouse has been a member of
the board of directors of STC since April 1999. Since 1994, Mr. Crouse has
served as Managing Director of HealthCare Ventures LLC, a venture capital firm.
Mr. Crouse served as Worldwide President of Ortho Diagnostic Systems, and Vice
President of Johnson & Johnson International. Mr. Crouse has more than 30 years
experience in the pharmaceutical industry. He serves as a director of
BioTransplant Incorporated, Dendreon Corporation, The New York Blood Center and
Lehigh University. Mr. Crouse received his B.S. in finance and economics from
Lehigh University and his M.B.A. from Pace University.
Michael G. Bolton, age 56, Director of STC. Mr. Bolton has been a member of
the board of directors of STC since April 1999 and is a Senior Vice President
of Safeguard Scientifics, Inc. Since January 1998, Mr. Bolton has served as the
Managing Director of Pennsylvania Early Stage Partners L.P., a Safeguard
Scientific's affiliate. Prior to joining Safeguard, Mr. Bolton was an executive
at Lehigh University for 25 years. Mr. Bolton was the founding chief executive
of the Ben Franklin Technology Center at Lehigh University and co-founder of
the NEPA Venture Fund. Mr. Bolton received his B.A. in Economics and his MBA
from Lehigh University.
Joint Designee. The seventh member of OraSure Technologies' board of
directors will be selected jointly by the boards of Epitope and STC. No
candidate for that seat had been selected as of the date of this joint proxy
statement/prospectus. The person who will be elected to this board seat will
qualify as an "independent" director under applicable NASD rules and therefore
will not be an officer, employee or affiliate of, or have other disqualifying
relationships with, either Epitope or STC.
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THE AGREEMENT AND PLAN OF MERGER
The following summary of the agreement and plan of merger is qualified by
reference to the complete text of the agreement and plan of merger dated as of
May 6, 2000, which is incorporated by reference and attached as Annex A.
Structure of the Mergers
Under the agreement and plan of merger, STC will merge into OraSure
Technologies, a newly formed subsidiary of Epitope and, immediately thereafter,
Epitope will merge into OraSure Technologies. OraSure Technologies will be the
surviving corporation in both of the mergers. We will sometimes refer to the
merger of STC into OraSure Technologies as the "STC Merger" and the merger of
Epitope into OraSure Technologies as the "Epitope Merger."
Timing of Closing
The closing of the mergers will take place on a date mutually agreed upon by
Epitope and STC, which will be no later than the third business day after all
closing conditions set forth in the agreement and plan of merger have been
satisfied or waived. The closing date is expected to be the same date as the
date of the stockholder meetings held to approve the mergers. We expect that
immediately upon the closing of the mergers, we will file a certificate of
merger with respect to the STC Merger with the Secretary of State of the State
of Delaware, we will then file a certificate of merger with respect to the
Epitope Merger with the Secretary of State of Delaware and articles of merger
with respect to the Epitope Merger with the Secretary of State of the State of
Oregon. The effective time of the mergers will either be the time the
certificates of merger and the articles of merger are filed, or at such later
time as may be specified in the certificates of merger and the articles of
merger.
Merger Consideration
The STC Merger. The agreement and plan of merger provides that, at the
effective time of the STC Merger, each share of STC common stock outstanding
immediately prior to the effective time of that merger, other than shares as to
which appraisal rights have been exercised, will be converted into shares of
common stock of OraSure Technologies at an exchange ratio determined as
follows:
(i) if the average Epitope stock price is greater than $13.00, then the
exchange ratio will be determined by dividing $260 million by the
average Epitope stock price, and then dividing that number by the
number of shares of fully diluted STC common stock outstanding;
(ii) if the average Epitope stock price is equal to or less than $13.00,
but equal to or more than $10.00, then the exchange ratio will be
determined by dividing 20 million shares by the number of shares of
fully diluted STC common stock outstanding; or
(iii) if the average Epitope stock price is less than $10.00, then the
exchange ratio will be determined by dividing $200 million by the
average Epitope stock price, and then dividing that number by the
number of shares of fully diluted STC common stock outstanding;
provided that, if the number you get when you divide $200 million by
the average Epitope stock price is greater than 25 million, then such
number shall be deemed to be 25 million for the purposes of
completing the calculation set forth above.
For purposes of determining the exchange ratio, the following definitions
apply:
"average Epitope stock price" means the average of the closing price per
share of Epitope common stock during a 20-day measurement period that ends
immediately preceding the third trading day before the date of the
stockholder meetings held to approve the mergers; and
"fully diluted STC common stock outstanding" means the sum of the number
of shares of STC common stock outstanding immediately prior to the
effective time of the STC Merger and the number of shares of STC common
stock underlying all STC options or other rights to purchase or acquire STC
common stock.
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The following table sets forth the per share value of the merger
consideration to be received by the holders of STC common stock at various
average closing prices of Epitope common stock, assuming that the fully diluted
STC common stock outstanding immediately prior to the effective time of the
mergers is equal to 3,656,876 shares.
<TABLE>
<CAPTION>
Average Epitope Stock Price Per Share Consideration Exchange Ratio
--------------------------- ----------------------- --------------
<S> <C> <C>
$15.00 $71.10 4.7399
$14.00 $71.10 5.0785
$13.00 $71.10 5.4691
$12.00 $65.63 5.4691
$11.00 $60.16 5.4691
$10.00 $54.69 5.4691
$ 9.00 $54.69 6.0768
$ 8.00 $54.69 6.8364
$ 7.00 $47.86 6.8364
$ 6.00 $41.02 6.8364
</TABLE>
All shares of STC convertible preferred stock will be converted into shares
of STC common stock prior to the STC Merger. However, any shares of STC common
stock issued and owned or held by STC or OraSure Technologies will be canceled
without any payment for those shares.
Each share of OraSure Technologies common stock outstanding or held in
treasury immediately prior to the effective time of the STC Merger will
continue to represent one share of common stock of OraSure Technologies.
OraSure Technologies will not issue any fractional shares in the STC Merger.
Holders of STC common stock who would otherwise receive fractional shares will
instead receive a cash payment based upon the value of such fractional shares
of the common stock of OraSure Technologies.
As a result of the STC Merger, all shares of STC common stock and convertible
preferred stock will no longer be outstanding.
The Epitope Merger. The agreement and plan of merger provides that each share
of Epitope common stock outstanding immediately prior to the effective time of
the Epitope Merger will, at the effective time of that merger, be converted
into one share of common stock of OraSure Technologies. However, any shares of
Epitope common stock issued and owned or held by Epitope or OraSure
Technologies will be canceled without any payment for those shares.
Each share of OraSure Technologies common stock outstanding or held in
treasury immediately prior to the effective time of the Epitope Merger will
continue to represent one share of common stock of OraSure Technologies.
As a result of the Epitope Merger, all shares of Epitope common stock will no
longer be outstanding.
Treatment of Stock Options
The STC Merger. At the effective time of the STC Merger, each outstanding
option granted by STC to purchase shares of STC common stock will be converted
into an option with respect to common stock of OraSure Technologies, in a
manner intended to maintain the aggregate intrinsic value of the converted
options. There will be no acceleration in the vesting or exercisability of any
such option as a result of the STC Merger. The number of shares of common stock
of OraSure Technologies which any such converted option will pertain to will
equal the number of STC shares subject to such award multiplied by the exchange
ratio used to determine the merger consideration for the STC Merger, and the
exercise price of such award will be the current exercise price of such award
divided by the exchange ratio.
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The Epitope Merger. At the effective time of the Epitope Merger, each
outstanding option granted by Epitope to purchase shares of Epitope common
stock will be converted into an option with respect to common stock of OraSure
Technologies, in a manner intended to maintain the aggregate intrinsic value of
the converted options. The number of shares of common stock of OraSure
Technologies to which any such converted option will pertain will be equal to
the same number of Epitope shares subject to the option, and the exercise price
of the option will remain the per-share exercise price specified in the option.
Pursuant to Epitope's 1991 Stock Award Plan and 2000 Stock Award Plan and Mr.
Thompson's non-qualified stock option agreement, all outstanding options will
immediately vest and become exercisable upon completion of the mergers. In
connection with the vesting of these stock options, OraSure Technologies will
recognize a one-time, non-cash charge of $665,267 related to deferred
compensation in the quarter in which the mergers are consummated. This charge
is the total of the unamortized portion of the difference between the original
exercise price and the market price at the time the options were issued to each
person who received discounted options.
Exchange of Certificates
OraSure Technologies has appointed ChaseMellon Shareholder Services, L.L.C.
exchange agent to handle the exchange of STC and Epitope stock certificates for
stock certificates of OraSure Technologies in the mergers and the payment of
cash for fractional shares that would otherwise have been issued pursuant to
the STC Merger. Soon after the effective time of the mergers, the exchange
agent will send to each former STC and Epitope stockholder a letter of
transmittal to be used to exchange STC and Epitope stock certificates for
shares of OraSure Technologies and, in the case of the STC Merger, to receive
cash instead of any fractional shares. The letter of transmittal will contain
instructions explaining the procedure for surrendering STC and Epitope stock
certificates. You should not return any stock certificates with the enclosed
proxy card.
Holders of STC and Epitope stock who surrender their stock certificates to
the exchange agent, together with a properly completed letter of transmittal,
will receive the appropriate merger consideration. Holders of unexchanged
shares of STC or Epitope stock will not be entitled to receive any dividends or
other distributions payable by OraSure Technologies after the effective time of
the mergers until they surrender their stock certificates in accordance with
the exchange agent's instructions.
The Board of OraSure Technologies and Related Matters
Board of Directors of OraSure Technologies. Epitope and STC have agreed to
take the necessary action so that, as of the effective time of the mergers, the
board of directors of OraSure Technologies will consist of seven members, three
of whom will be designated by Epitope's board of directors and three of whom
will be designated by STC's board of directors, and one of whom will be a
person mutually acceptable to the boards of both Epitope and STC. The board of
directors of OraSure Technologies will be divided into three classes, with the
initial terms of office of the first, second and third classes expiring at the
first, second and third annual meetings of the stockholders of OraSure
Technologies, respectively. One STC designee and one Epitope designee will be
placed in each class of the board of OraSure Technologies.
Management of OraSure Technologies. The agreement and plan of merger provides
that, as of the effective time of the mergers, the following persons will serve
as the principal officers of OraSure Technologies: Mr. Thompson, the president
and chief executive officer of Epitope, will serve as the chief executive
officer of OraSure Technologies; Mr. Gausling, the president and chief
executive officer of STC, will serve as the president and chief operating
officer of OraSure Technologies; R. Sam Niedbala, the executive vice president
and chief science officer of STC, will serve as executive vice president and
chief science officer of OraSure Technologies; J. Richard George, Ph.D., the
chief scientific officer of Epitope, will serve as senior vice president of
research and development, infectious disease of OraSure Technologies; William
D. Block, the vice president of sales and marketing of Epitope, will serve as
senior vice president of sales of OraSure Technologies; William Hinchey, the
executive vice president of business development-oral fluid products of STC,
will serve as senior vice president of marketing of OraSure Technologies; and
Mr. Bergeron, the chief financial officer of Epitope, will become the vice
president and chief financial officer of OraSure Technologies for a
transitional period. All other management positions of OraSure Technologies
will be determined jointly by Mr. Thompson and Mr. Gausling.
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Headquarters of OraSure Technologies. We agreed in the agreement and plan of
merger that by January 1, 2001 the principal corporate offices and headquarters
of OraSure Technologies will be located in Bethlehem, Pennsylvania.
Name of OraSure Technologies
We agreed in the agreement and plan of merger that the name of the combined
company will be OraSure Technologies, Inc.
Representations and Warranties
In the agreement and plan of merger, Epitope and STC make customary
representations and warranties to each other relating to, among other things:
. corporate existence and power;
. corporate authority to enter into, and carry out the obligations under,
the agreement and plan of merger and enforceability of the agreement and
plan of merger;
. government approvals and required consents;
. lack of conflicts with existing agreements;
. capitalization;
. in the case of Epitope, documents and other reports that have been or
will be filed with the Securities and Exchange Commission;
. financial statements;
. absence of undisclosed liabilities;
. reliability of information to be supplied for this joint proxy
statement/prospectus;
. the absence of material changes and events;
. the absence of material litigation;
. taxes;
. employee benefit plan matters;
. compliance with laws;
. licenses, permits and registrations;
. title to properties;
. intellectual property;
. environmental matters;
. payment of fees to finders or brokers in connection with the agreement
and plan of merger;
. opinions of financial advisors as to fairness of the exchange ratio from
a financial point of view as of May 6, 2000;
. required vote of stockholders of Epitope and STC;
. board approval and recommendations to stockholders of Epitope and STC;
. exemption of the mergers from state takeover statutes;
. accounting for the mergers as a pooling of interests;
. treatment of the mergers as a tax-free reorganization;
. restrictions on disposition of stock by affiliates to ensure "pooling of
interests," accounting and compliance with federal securities laws;
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. the absence of undisclosed agreements with employees requiring payments
as a result of the mergers;
. the absence of transactions with directors, officers and affiliates not
previously disclosed;
. material contracts;
. the absence of unlawful payments;
. insurance;
. compliance with FDA requirements; and
. product liability claims.
In addition, Epitope also represented to STC that its stockholder rights plan
is not applicable to the mergers or the agreement and plan of merger. The
agreement and plan of merger also contains representations and warranties
relating to the wholly-owned subsidiary of Epitope into which both Epitope and
STC will be merged, including due organization, capitalization, corporate
authorization, lack of conflicts with existing agreements, no prior business
activities and taxes.
The representations and warranties contained in the agreement and plan of
merger do not survive the effective time of the mergers.
Covenants
We have each undertaken to perform covenants set forth in the agreement and
plan of merger. The principal covenants are as follows:
Interim Operations of Epitope and STC. From the date of signing the agreement
and plan of merger until the effective time of the mergers or the termination
of the agreement and plan of merger, we have each agreed to conduct our
business in the ordinary course consistent with past practice, to use
commercially reasonable efforts to preserve our current business organizations
intact, to maintain in effect all licenses, approvals and other obligations and
to preserve our relationships with customers, suppliers and others with whom we
do business with the intention that our ongoing business shall not be impaired
in any material respect. In addition, each of us has agreed to restrictions,
subject to limited exceptions, that prohibit us from taking specified actions,
including the following:
. amend our articles or certificates of incorporation, bylaws or other
governing documents;
. split, combine or reclassify any of our capital stock;
. declare, set aside or pay any dividends or other distribution;
. purchase, redeem or otherwise acquire any shares of our capital stock;
. issue, deliver or sell any shares of our capital stock or options,
warrants or other rights to acquire our capital stock other than the
options to purchase shares of our common stock in an amount equal to the
number of shares underlying options forfeited prior to closing by our
employees, under our option plans, and upon exercise of stock options and
warrants in accordance with their present terms;
. amend any term of any of our outstanding securities;
. incur any capital expenditures except for those contemplated by our
capital expenditure budget or those incurred in the ordinary course of
business;
. acquire any assets or equity interests with a fair market value of more
than $100,000, excluding amounts contemplated by our capital expenditure
budget, but in no event may asset or equity interest acquisitions and
budgeted capital expenditures exceed $500,000 in the aggregate;
. sell, lease, out-license, encumber or otherwise dispose of assets except
in the ordinary course of business, assets no longer in use, or assets
related to discontinued operations;
. incur or generate any debt or issue any debt securities, warrants or
rights to acquire any debt, make any loans, capital contributions to or
investments in any other person, or, except in the ordinary course of
business consistent with past practices, guarantee any debt securities or
indebtedness of others, in any case, in an amount in excess of $100,000;
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. enter into any agreement or arrangement that restricts or limits us from
engaging or competing in any line of business or in any location;
. enter into, amend, modify or terminate any material agreement except in
the ordinary course of business and consistent with past practice;
. except in the ordinary course of business or as may be required by law or
any existing agreement, increase the amount of compensation of any
director or executive officer or increase any employee benefits, grant
any severance pay to any director, officer or employee, adopt, amend,
make a contribution to, or accelerate vesting under any benefit plan, or
hire any employee with an annual base salary in excess of $75,000;
. except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of our respective accounting
methods or our respective fiscal year;
. make any material tax election or settle any material income tax
liability, other than in the ordinary course of business consistent with
past practices;
. settle or commence any litigation or investigation material to our
respective business other than the discharge of various liabilities in
the ordinary course of business;
. enter into any new line of business;
. amend, modify, or waive any provision of Epitope's stockholder rights
plan, other than as required to close the mergers;
. take any action to redeem Epitope's stock purchase rights under its
stockholder rights plan; or
. agree, commit or resolve to do any of the foregoing.
No Solicitation. Except as described below, we have agreed that each of us
will not directly or indirectly, and we will use our reasonable best efforts to
cause each of our officers, directors, employees, agents and representatives,
not to, solicit, initiate, or knowingly facilitate or encourage any inquiries
or proposals relating to an "acquisition proposal," as defined below,
participate in any discussions or negotiations or provide any information
regarding any acquisition proposal, grant any waiver or release under any
standstill or similar agreement, or enter into any agreement with respect to an
acquisition proposal.
An "acquisition proposal" is:
. any offer or proposal for a purchase or sale of 10% or more of the assets
of Epitope or STC, any purchase or sale of, or tender or exchange offer
for, 10% or more of any equity securities of Epitope or STC, or any other
similar transaction or series of transactions involving the issuance of
more than 10% of the outstanding securities of Epitope or STC; or
. any offer or proposal for a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, issuance of securities,
acquisition of securities, liquidation or dissolution or similar
transaction involving Epitope or STC, other than a proposal made by the
other party or its affiliate.
However, in response to an unsolicited bona fide written acquisition proposal
to acquire Epitope, Epitope may:
. furnish any information to any person making such acquisition proposal;
. participate in discussions or negotiations regarding such acquisition
proposal; and
. recommend approval of such acquisition proposal and withdraw its
recommendation to approve these mergers.
In order for Epitope to engage in any of the above activities in response to
the unsolicited acquisition proposal:
. its meeting of stockholders must not have occurred;
. in order to furnish information or participate in discussions or
negotiations as described above, its board of directors must conclude in
good faith that the acquisition proposal could reasonably be expected to
result in a "superior proposal" as described below;
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. in order to recommend approval of such acquisition proposal or withdraw
its recommendation as described above, its board of directors must
conclude in good faith that the acquisition proposal constitutes a
"superior proposal";
. prior to providing any information or data to any person in connection
with an acquisition proposal, it must receive from that person an
executed confidentiality agreement containing terms at least as stringent
as the terms contained in the confidentiality agreement Epitope entered
into with STC before signing the agreement and plan of merger; and
. prior to providing any information or data to any person or entering into
discussions or negotiations with any person, Epitope must notify STC.
Epitope has also agreed to promptly keep STC informed of the status and terms
of any proposals, offers, discussions or negotiations related to a bona fide
unsolicited written acquisition proposal.
Epitope is not prevented from disclosing to its stockholders its position
with respect to an acquisition proposal, or taking other action required, in
order to comply with Rules 14d-9 and 14e-2 under the Securities Exchange Act of
1934.
A "superior proposal" is a written proposal made by a third party for:
(1) a merger, reorganization, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Epitope, as a result of which either:
(A) its stockholders before the transaction cease to own at least 50%
of the voting securities of the entity surviving or resulting from such
transaction, or the ultimate parent entity of the surviving or
resulting entity; or
(B) the individuals comprising its board of directors before the
transaction do not constitute a majority of the board of directors of
the entity surviving or resulting from such transaction, or ultimate
parent entity of the surviving or resulting entity;
(2) a sale, lease, exchange, transfer or other disposition of at least
50% of the assets of it and its subsidiaries, taken as a whole, in a single
transaction or a series of related transactions; or
(3) the acquisition, directly or indirectly, by a person of beneficial
ownership of 50% or more of its common stock, whether by merger,
consolidation, share exchange, business combination, tender or exchange
offer or otherwise, other than a merger, consolidation, share exchange,
business combination, tender or exchange offer or other transaction upon
the consummation of which such party's stockholders would in the aggregate
beneficially own greater than 60% of the voting securities of such person;
which is otherwise on terms which its board of directors in good faith
concludes, after consultation with its financial advisors and outside counsel,
after taking into account, among other things, all legal, financial, regulatory
and other aspects of the proposal and the nature of the person making the
proposal, would, if consummated, result in a transaction that is more favorable
to its stockholders, from a financial point of view, than the merger between
Epitope and STC (after giving effect to any revised proposal made by STC during
a three business day period after notice thereof), and is reasonably capable of
being completed. No acquisition proposal will be deemed a superior proposal if
any financing required to complete the contemplated transaction is not
committed in writing at the time the Epitope board of directors determines that
the proposal is a superior proposal.
Board of Directors' Covenant to Recommend. We have agreed that each of our
respective boards of directors will, subject to its fiduciary duties under
applicable law and Epitope's right to pursue the types of bona fide written
unsolicited acquisition proposals described above that it receives, recommend
to our respective stockholders the adoption and approval of the agreement and
plan of merger, and will not, subject to its fiduciary duties under applicable
law and Epitope's right to pursue bona fide written unsolicited acquisition
proposals of the type described above that it receives, withdraw, modify, or
materially qualify in a manner adverse to the other company its recommendation,
or to take any action or make any statement in connection with its
stockholders' meeting that is materially inconsistent with its recommendation.
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Mutual Covenants
We have also undertaken to perform other covenants relating to our conduct
prior to the effective time, including those requiring us:
. to use our reasonable best efforts to take all actions and do all things
necessary or advisable under applicable law to complete the mergers and
the other transactions contemplated by the agreement and plan of merger
as soon as practicable;
. to prepare the OraSure Technologies registration statement and this joint
proxy statement/prospectus and to cause OraSure Technologies to take any
required action under state securities laws in connection with the
issuance of OraSure Technologies common stock in the mergers;
. to notify each other of the time the registration statement has become
effective or any supplement or amendment has been filed, the issuance of
any stop order, the suspension of qualification of the shares in any
jurisdiction, or any request by the SEC for amendment of this joint proxy
statement/prospectus or comments on this joint proxy
statement/prospectus, responses to those comments or requests from the
SEC for additional information;
. to notify each other if information in this joint proxy
statement/prospectus becomes or is discovered to be misleading;
. to cooperate to make any required governmental filing and to obtain all
required third-party consents;
. to cooperate to set a mutually acceptable date for the special meetings;
. to give notice of and convene meetings of our stockholders to consider
and vote upon adoption and approval of the agreement and plan of merger
and the mergers;
. to permit the other party to review any communication given by us to any
governmental entity or in connection with any proceeding by a private
party and give the other party the opportunity to attend, and participate
in, any such proceeding;
. to use our reasonable best efforts to cause the OraSure Technologies
common stock to be issued in the mergers to be approved for listing on
the Nasdaq National Market; and
. to consult with one another before issuing a press release or making any
public statement regarding the agreement and plan of merger, except as
required by applicable law or any listing agreement with the National
Association of Securities Dealers.
Access to Information. We have agreed to provide each other with access to
our offices and information, with such information to be held subject to our
obligations of confidentiality undertaken in connection with the agreement and
plan of merger.
Notification of Certain Matters. We have agreed to notify each other of:
. the receipt of any notice or communication from a third party alleging
that their consent is required in connection with the agreement and plan
of merger;
. any communication from a governmental entity with respect to the
transactions contemplated by the agreement and plan of merger;
. any actions, suits or investigations commenced or, to the knowledge of
the party, threatened, against the party; and
. such party's obtaining knowledge of any occurrence causing a
representation or warranty to be untrue or inaccurate in any material
respect or causing the material failure of a party to comply with a
covenant or condition of the agreement and plan of merger.
Tax and Accounting Treatment. Each party has agreed that it will use it best
efforts to cause the mergers to receive tax-free treatment, other than the
taxes resulting from the payment of cash instead of issuing fractional shares,
as described in this joint proxy statement/prospectus in the section entitled
"The Mergers--Material United States Federal Income Tax Consequences of the
Mergers" beginning on page 32, and to qualify for "pooling of interests"
accounting treatment, as described in the section entitled "The Mergers--
Accounting Treatment" beginning on page 37.
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Confidentiality. We have each agreed that we will hold, and will cause our
representatives to hold, in confidence, all information received in connection
with the transactions contemplated by the agreement and plan of merger. We have
agreed not to use the confidential material for any purpose other than the
purpose of the transactions contemplated by the agreement and plan of merger.
We have also agreed that the confidential information will only be disclosed to
representatives on a need to know basis and each such representative will be
informed of its obligation to keep the information confidential. If we are
required by law to disclose the confidential information, we have agreed to
promptly notify the party disclosing the information so that they may seek an
appropriate protective order preventing such disclosure. We will not be subject
to these obligations with respect to any information:
. that is or becomes generally available to the public other than as a
result of a disclosure by one of us in connection with the agreement and
plan of merger;
. that was previously available to us on a non-confidential basis; or
. that becomes available to us on a non-confidential basis from an outside
source that is not known to the party receiving the information to be
contractually or legally prohibited from disclosing the information.
If the agreement and plan of merger is terminated, we have agreed that we
will use our best efforts to cause the documents and other materials subject to
such confidentiality obligations to be destroyed or returned.
Insurance and Indemnification. OraSure Technologies has agreed to:
. assume certain indemnification agreements of Epitope and STC, which
agreements will survive the mergers and continue in effect for the longer
of six years or until the final disposition of any claim made pursuant to
such agreements;
. indemnify and hold harmless all past and present directors, officers and
employees of STC and Epitope and its subsidiaries, to the fullest extent
permitted by Delaware law, for acts or omissions occurring on or before
the mergers, including reimbursement for all expenses incurred in
connection with any action, proceeding or investigation arising from such
acts or omissions; and
. cause to be maintained for a period of six years after the mergers
policies of directors' and officers' liability insurance and fiduciary
liability insurance covering the directors and officers of STC and
Epitope similar in scope and coverage to that maintained by STC and
Epitope.
Conditions
Each of our respective obligations to complete the mergers are subject to the
satisfaction or waiver of various conditions, the most significant of which
are:
. the adoption and approval of the agreement and plan of merger by the STC
stockholders and the Epitope stockholders;
. the approval for listing on the Nasdaq National Market the common stock
of OraSure Technologies to be issued in the mergers;
. the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act which expired on July 1,
2000;
. the receipt of all other governmental and regulatory consents, approvals
and authorizations necessary for the mergers and the issuance of common
stock in the mergers, unless not obtaining those consents or approvals
would not reasonably be expected to have a material adverse effect on
OraSure Technologies and its subsidiaries, taken together, after the
mergers;
. the absence of any law, order or injunction prohibiting completion of the
mergers or which otherwise would reasonably be expected to have a
material adverse effect on OraSure Technologies and its subsidiaries,
taken together, after the mergers;
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. receipt by each of Epitope and STC from their respective independent
accountants of a letter concurring with the conclusions of their clients'
management that no condition exists that would preclude OraSure
Technologies from accounting for the mergers of Epitope and STC into
OraSure Technologies as a "pooling of interests" in conformity with
generally accepted accounting principles and applicable rules of the
Securities and Exchange Commission.
The obligations of STC on one hand, and Epitope on the other, to consummate
the mergers of STC and Epitope into OraSure Technologies are also subject to
the fulfillment, on or before the effective time of the mergers, of the
following additional conditions, unless waived in writing:
. the performance by the other party in all material respects of all
obligations required to performed by it;
. the representations and warranties of the other party being true in all
material respects as if they were made on the closing date of the
mergers;
. the receipt of an opinion from its counsel to the effect that the merger
of STC into OraSure Technologies or the merger of Epitope into OraSure
Technologies, as the case may be, will qualify as a tax free
reorganization within the meaning of federal income tax laws and that
each of Epitope, STC and OraSure Technologies will be a party to such
reorganization;
. the receipt of all required employment and affiliate agreements;
. in the case of Epitope, the opinion of Epitope's financial advisor
attached as Annex B not being withdrawn or materially modified in an
adverse manner;
. the Food and Drug Administration having taken no adverse action
prohibiting or significantly limiting the manufacture, sale, promotion or
distribution of any products of STC or Epitope, as the case may be or
their respective operations; and
. the absence of any material adverse change in the financial condition,
results of operations, cash flows, assets, liabilities, business or
prospects of STC or Epitope, as the case may be.
It is a further condition to the obligations of STC that, at the effective
time of the mergers, no event has occurred that would trigger a distribution of
rights under Epitope's stockholder rights plan or that would make such rights
exercisable. It is a further condition to Epitope's obligations that, at the
effective time of the mergers, the holders of all shares of the convertible
preferred stock of STC have converted such shares into common stock of STC.
Termination of the Agreement and Plan of Merger
Termination by Epitope or STC. Either one of us may terminate the agreement
and plan of merger and abandon the mergers at any time prior to the effective
time of the mergers if:
. both of us agree to terminate effective by mutual written agreement;
. the mergers have not been completed by October 31, 2000, provided that
the terminating party's breach of or failure to fulfill any obligation
under the agreement and plan of merger is not the cause of the mergers
not being completed;
. a law or regulation makes consummation of the mergers illegal;
. a court order or ruling of another governmental entity permanently
prohibiting the completion of the mergers becomes final and non-
appealable, provided that the terminating party shall have used its
reasonable best efforts to avoid or remove such prohibition; or
. Epitope's stockholders fail to approve the agreement and plan of merger.
Termination by Epitope. Epitope may terminate the agreement and plan of
merger and abandon the mergers at any time prior to the effective time of the
mergers if:
. the board of directors of STC amends, withdraws or materially qualifies
in any manner adverse to Epitope its recommendation to its stockholders
for adoption of the agreement and plan of merger or takes any action or
makes any statement in connection with the STC stockholders meeting
materially inconsistent with such recommendation, or has resolved or
publicly proposed to take such action;
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. the board of directors of STC approves, endorses or recommends another
proposal to its stockholders;
. STC or one of its affiliates willfully and materially breaches its
obligations with respect to alternate acquisition proposals;
. STC breaches any representation, warranty or covenant that will cause a
condition to closing not to be satisfied before the earlier of 20
business days written notice thereof or October 31, 2000;
. a tender or exchange offer relating to the securities of STC has
commenced and STC has not sent a statement recommending rejection of such
tender or exchange offer to its security holders within ten business days
after the commencement of such tender or exchange offer; or
. prior to the required approval of its stockholders, Epitope enters into a
definitive agreement for a superior proposal for Epitope and the
agreement and plan of merger is terminated, provided that Epitope
complied with the terms of the agreement and plan of merger with respect
to the superior proposal, Epitope's board of directors determined in good
faith, after taking into account any revised proposal by STC during a
three business day period after notice thereof, that an acquisition
proposal is a superior proposal and Epitope makes the payment and
reimbursement described below.
Termination by STC. STC may terminate the agreement and plan of merger and
abandon the mergers at any time prior to the effective time of the mergers if:
. The board of directors of Epitope amends, withdraws or materially
qualifies in a manner adverse to STC its recommendation to its
stockholders for adoption of the agreement and plan of merger or takes
any action or makes any statement in connection with the Epitope
stockholders meeting materially inconsistent with such recommendation, or
has resolved or publicly proposed to take such action;
. Epitope's board of directors approves, endorses or recommends another
proposal to its stockholders;
. Epitope or one of its affiliates willfully and materially breaches its
obligations with respect to alternate acquisition proposals;
. Epitope breaches any representation, warranty or covenant that will cause
a condition to closing not to be satisfied before the earlier of 20
business days written notice thereof or October 31, 2000;
. a tender or exchange offer relating to the securities of Epitope has
commenced and Epitope has not sent a statement recommending rejection of
such tender or exchange offer to its security holders within ten business
days after the commencement of such tender or exchange offer;
. the rights issued under Epitope's stockholder rights plan have become
exercisable or such plan has otherwise been triggered or a distribution
has otherwise occurred under such plan;
. the average closing stock price of Epitope during a 20-day period ending
three days prior to the effective time of the mergers is less than $6.00
per share; or
. the Epitope meeting of stockholders is canceled or is otherwise not held
or a final vote of Epitope's stockholders has not been taken with respect
to the merger prior to October 31, 2000, except as a result of a
judgment, injunction, order or decree of any competent authority or
events or circumstances beyond the reasonable control of Epitope.
In addition, the agreement and plan of merger will automatically terminate if
the transactions contemplated by it are enjoined by a court of competent
jurisdiction for a period extending beyond 90 days.
Fees and Expenses Payable by Epitope Because of a Termination
Epitope has agreed to pay STC a termination fee in the following amounts in
the following circumstances:
. Epitope will pay a termination fee to STC in an amount equal to
$3,000,000 if the agreement and plan of merger is terminated by STC
because:
(a) Epitope's board of directors has adversely changed its
recommendation, or fails to include in this joint proxy statement
its recommendation, to its stockholders for adoption of the
agreement and plan of merger;
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(b) Epitope's board of directors recommends, approves or endorses
another acquisition proposal to its stockholders;
(c) a tender or exchange offer relating to the securities of Epitope
has commenced and Epitope has not sent a statement recommending
rejection of such tender or exchange offer to its security holders
within ten business days after the commencement of such tender or
exchange offer;
(d) Epitope or its board of directors or any committee thereof shall
have resolved to do or permit any of the foregoing; or
(e) the Epitope meeting of stockholders is canceled or is otherwise not
held or a final vote of Epitope's stockholders has not been taken
with respect to the mergers prior to October 31, 2000, except as a
result of a judgment, injunction, order or decree of any competent
authority or events or circumstances beyond the reasonable control
of Epitope.
. Epitope will make an additional payment of $2,000,000 to STC and will
reimburse STC for its reasonable expenses incurred in connection with the
mergers up to a maximum of $1,000,000 if:
(a) an acquisition proposal had been made prior to the actions set out
in subparagraphs (a)--(e) above; and
(b) within twelve months following the termination of the agreement and
plan of merger by STC, Epitope enters into a definitive agreement
with the party that made such acquisition proposal.
. Epitope will pay a termination fee to STC in an amount equal to
$5,000,000 and will reimburse STC for its reasonable expenses incurred in
connection with the mergers up to a maximum of $1,000,000 if the
following circumstances occur: (i) the agreement and plan of merger is
terminated by Epitope because, prior to the required approval of its
stockholders, Epitope's board of directors has entered into a definitive
agreement for a superior proposal (as described above), (ii) Epitope has
given STC three business days to negotiate a revised transaction with it
and the Epitope board of directors concludes in good faith, after taking
into account any revised proposal by STC, that it has received a superior
proposal from a third party; and (iii) Epitope has complied with the
restrictions on soliciting or encouraging acquisition proposals from
third parties.
. The $5,000,000 termination fee and $1,000,000 expense reimbursement
referred to above will be reduced to the extent any termination fee or
expense reimbursement has already been paid to STC by Epitope for any
reason.
Fees and Expenses Generally
Except as described above, all fees and expenses incurred in connection with
the agreement and plan of merger will be paid by the party incurring such fees
and expenses.
Amendments and Waivers
Any provision of the agreement and plan of merger may be amended or waived by
the parties at any time before or after the stockholders' meetings. However, no
amendment or waiver requiring stockholder approval (generally those
representing material changes) shall be made after the stockholders' meetings
without the further approval of such stockholders. If a provision of the
agreement and plan of merger is amended or waived prior to the meetings, we
would anticipate, to the extent required by applicable law, preparing and
mailing to stockholders an amendment or supplement to this proxy statement and
resoliciting proxies for use at the meetings. All amendments to the agreement
and plan of merger must be in writing signed by each party. All waivers must be
in writing and signed by the party against whom the waiver is to be effective.
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STOCKHOLDER AGREEMENTS AND VOTING INDICATIONS
The following information relating to the stockholder agreements is not
intended to be a complete description of all of the information relating to the
stockholder agreements, but is intended to include the material terms of the
stockholder agreements.
As a condition to the execution by STC and Epitope of the agreement and plan
of merger, some of the stockholders of Epitope, including members of management
and the board of directors, entered into stockholder agreements for the benefit
of STC and some of the stockholders of STC, including members of management and
the board of directors, entered into stockholder agreements for the benefit of
Epitope.
Pursuant to the stockholder agreements, the stockholders agreed to vote their
shares of STC and Epitope common stock in favor of adoption of the agreement
and plan of merger and granted irrevocable proxies in support of such voting
agreements. Any transferee of their shares are subject to such voting
agreements and irrevocable proxies. The obligations under the stockholder
agreements terminate automatically upon the termination of the agreement and
plan of merger.
The obligations of these stockholders in the stockholder agreements will not
be affected if the price of Epitope stock falls below $6.00 per share, but will
terminate if STC, in that event, exercises its walk-away right in the agreement
and plan of merger.
The following holders of STC securities, representing 1,992,024 shares or
approximately 57.4% of its outstanding stock, are parties to stockholder
agreements for the benefit of Epitope: HealthcareVentures V, LP; Michael J.
Gausling; William M. Hinchey; Pennsylvania Early Stage Partners, L.P.; Raymond
S. Niedbala; The Michael J. Gausling Grantor Retained Annuity Trust Dated April
28, 2000; The Mike Gausling Irrevocable Education Trust Dated April 28, 2000;
The Raymond S. Niedbala 2000 Grantor Retained Annuity Trust Dated April 28,
2000; The Raymond S. Niedbala Family Trust Dated April 28, 2000; The William M.
Hinchey 2000 Grantor Retained Annuity Trust Dated April 27, 2000; and The
William M. Hinchey Irrevocable Education Trust Dated April 27, 2000.
The following holders of Epitope common stock, representing 529,177 shares or
approximately 3.3% of its outstanding common stock, are parties to stockholder
agreements for the benefit of STC: Roger Pringle and Andrew Goldstein.
Sawtooth Capital Management, the owner of approximately 15% of Epitope's
common stock, has informed Epitope that it plans to vote for approval of the
agreement and plan of merger.
As of July 20, 2000 Epitope directors and executive officers beneficially
owned 1,166,598 shares of Epitope common stock, including 879,079 shares
subject to options exercisable within 60 days. These shares represent
approximately 7% of the outstanding shares of Epitope common stock as of July
20, 2000. These individuals have indicated that they intend to vote all of
these shares which are outstanding as of the record date in favor of the
Epitope Proposal.
As of July 20, 2000 STC directors and executive officers beneficially owned
2,058,033 shares of STC common stock, including 12,500 shares subject to
options exercisable within 60 days. These shares represent approximately 59.3%
of the votes entitled to be cast as of the record date. These individuals have
indicated that they intend to vote all of the above shares which are
outstanding as of the record date in favor of the STC Proposal.
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OPINIONS OF FINANCIAL ADVISORS
Opinion of Financial Advisor to Epitope
Epitope engaged Deutsche Banc Alex. Brown to act as its exclusive financial
advisor in connection with the mergers. On May 6, 2000, at a meeting of the
Epitope board of directors held to evaluate the proposed mergers, Deutsche Banc
Alex. Brown rendered an oral opinion, confirmed by delivery of a written
opinion dated the same date, to the effect that, as of that date and based on
and subject to the matters described in its opinion, the exchange ratio was
fair, from a financial point of view, to Epitope. Deutsche Banc Alex. Brown's
opinion addressed the fairness of the exchange ratio, from a financial point,
to Epitope rather than Epitope's stockholders since STC is a privately held
company and the exchange ratio, which reflects the number of shares of OraSure
Technologies common stock to be received by STC stockholders, will be
determined based on Epitope's closing stock price as though Epitope were the
issuer, or "acquiror," in the mergers.
The full text of Deutsche Banc Alex. Brown's written opinion dated May 6,
2000, which describes the assumptions made, matters considered and limitations
of the review undertaken, is attached as Annex B and is incorporated into this
document by reference. Deutsche Banc Alex. Brown's opinion is addressed to the
Epitope board of directors and relates only to the fairness, from a financial
point of view, to Epitope of the exchange ratio. The opinion does not address
the merits of the underlying decision by Epitope to engage in the mergers and
does not constitute a recommendation to any stockholder as to how to vote with
respect to matters relating to the proposed mergers. The summary of Deutsche
Banc Alex. Brown's opinion described below is qualified in its entirety by
reference to the full text of its opinion.
In connection with Deutsche Banc Alex. Brown's role as Epitope's financial
advisor, and in arriving at its opinion, Deutsche Banc Alex. Brown:
. reviewed publicly available financial and other information concerning
Epitope, financial and other information concerning STC and internal
analyses and other information which Epitope, STC and their advisors
furnished to or discussed with Deutsche Banc Alex. Brown;
. held discussions with members of Epitope's and STC's senior managements
regarding the business and prospects of their companies and the joint
prospects of OraSure Technologies;
. reviewed the reported prices and trading activity for Epitope common
stock;
. compared financial and stock market information for Epitope and financial
and other information for STC with similar information for other
companies whose securities are publicly traded;
. reviewed the financial terms of recent business combinations which
Deutsche Banc Alex. Brown deemed comparable in whole or in part;
. reviewed the terms of the agreement and plan of merger; and
. performed other studies and analyses and considered other factors as
Deutsche Banc Alex. Brown deemed appropriate.
Deutsche Banc Alex. Brown did not assume responsibility for independent
verification of, and did not independently verify, any information, whether
publicly available or furnished to Deutsche Banc Alex. Brown, concerning
Epitope, STC or OraSure Technologies, including, without limitation, any
financial information, forecasts or projections considered in connection with
the rendering of its opinion. For purposes of its opinion, Deutsche Banc Alex.
Brown assumed and relied upon the accuracy and completeness of all information
that it reviewed and did not conduct a physical inspection of any of the
properties or assets, or prepare or obtain any independent evaluation or
appraisal of any of the assets or liabilities, contingent or otherwise, of
Epitope or STC. With respect to the financial forecasts and projections
relating to Epitope and STC that were made available to Deutsche Banc Alex.
Brown and used in its analyses, including forecasts of synergies expected to be
achieved as a result of the mergers, Epitope and STC advised Deutsche Banc
Alex. Brown, and Deutsche Banc Alex. Brown assumed, that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Epitope's and STC's managements. Deutsche Banc Alex. Brown's
opinion was necessarily based on economic, market and other conditions existing
on, and the information made available to Deutsche Banc Alex. Brown as of, the
date of its opinion.
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<PAGE>
For purposes of rendering its opinion, Deutsche Banc Alex. Brown assumed
that, in all respects material to its analysis, the representations and
warranties of Epitope, STC and OraSure Technologies contained in the agreement
and plan of merger were true and correct, Epitope, STC and OraSure Technologies
will each perform all of the covenants and agreements to be performed by it
under the agreement and plan of merger and all conditions to the obligations of
each of Epitope, STC and OraSure Technologies to consummate the mergers will be
satisfied without any waiver. Deutsche Banc Alex. Brown also assumed that all
material governmental, regulatory or other approvals and consents required in
connection with the consummation of the mergers will be obtained and that in
connection with obtaining any necessary governmental, regulatory or other
approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either Epitope or STC is a party or
is subject or by which it is bound, no limitations, restrictions or conditions
will be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Epitope or STC or materially reduce the contemplated
benefits of the mergers to Epitope.
Epitope informed Deutsche Banc Alex. Brown, and for purposes of rendering its
opinion Deutsche Banc Alex. Brown assumed, that the mergers are expected to
qualify as tax-free reorganizations for federal income tax purposes and be
accounted for as a poolings of interests. In connection with its opinion,
Deutsche Banc Alex. Brown was not authorized to, and did not, solicit interest
from any third party with respect to the acquisition of all or a part of
Epitope. Deutsche Banc Alex. Brown expressed no opinion as to the price at
which OraSure Technologies common stock will trade at any time. No other
instructions or limitations were imposed by Epitope on Deutsche Banc Alex.
Brown with respect to the investigations made or the procedures followed by it
in rendering its opinion.
The following is a summary of the material financial analyses performed by
Deutsche Banc Alex. Brown in connection with its opinion to the Epitope board
of directors dated May 6, 2000. The financial analyses summarized below include
information presented in tabular format. In order to fully understand Deutsche
Banc Alex. Brown's financial analyses, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Deutsche Banc Alex. Brown's financial
analyses.
Contribution Analysis.
Deutsche Banc Alex. Brown analyzed the contributions of Epitope and STC to
OraSure Technologies' latest 12 months and estimated calendar years 2000 and
2001 revenues, and estimated calendar years 2000 and 2001 earnings before
interest and taxes, commonly referred to as EBIT, earnings before interest,
taxes, depreciation and amortization, commonly referred to as EBITDA, and net
income. Estimated financial data for Epitope and STC were based on internal
estimates of or discussions with Epitope's and STC's managements. Based on the
exchange ratio and the closing price of Epitope common stock on May 4, 2000 of
$11.50, this analysis indicated contribution reference ranges for Epitope of
approximately 38.4% to 59.6% and for STC of approximately 40.4% to 61.6%, as
compared to the pro forma equity ownership in OraSure Technologies of Epitope's
stockholders of approximately 47.9% and of STC's stockholders of approximately
52.1%. Deutsche Banc Alex. Brown also analyzed Epitope's contribution based on
the exchange ratio and closing prices of Epitope common stock of $8.00 and
$13.00, the low and high end of the collar, which indicated a contribution
reference range for Epitope of approximately 38.4% to 59.6%, as compared to the
pro forma equity ownership in OraSure Technologies of Epitope's stockholders of
approximately 41.2% to 48.3%.
Analysis of Selected Public Companies.
Deutsche Banc Alex. Brown compared financial information for STC and
financial and stock market information for Epitope and the following five
selected publicly held companies in the medical device industry:
. Biosite Diagnostics, Inc.
. Epitope
. IGEN International, Inc.
. i-Stat Corporation
. LifePoint, Inc.
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<PAGE>
Deutsche Banc Alex. Brown reviewed technology values, calculated as equity
market value, plus debt, less cash, as multiples of latest 12 months and
estimated calendar years 2000 and 2001 revenues. All multiples were based on
closing stock prices on May 4, 2000. Estimated financial data for the selected
companies were based on publicly available research analysts' estimates and
estimated financial data for Epitope and STC were based on internal estimates
of or discussions with Epitope's and STC's managements. Deutsche Banc Alex.
Brown then compared the technology value multiples derived from the selected
companies with corresponding multiples for STC implied by the exchange ratio.
Deutsche Banc Alex. Brown also compared the technology value multiples derived
from the selected companies, excluding Epitope, with corresponding multiples
implied for Epitope based on the closing price of Epitope common stock on May
4, 2000. This analysis indicated the following range of implied technology
value multiples for the selected companies, as compared to the multiples for
STC implied by the exchange ratio and the multiples for Epitope based on the
closing price of Epitope common stock on May 4, 2000:
<TABLE>
<CAPTION>
Implied
STC
Multiples Epitope Multiples
Multiples Based on Based on
of Selected Exchange May 4, 2000
Companies Ratio Closing Stock Price
----------- --------- -------------------
Technology Values: Mean Range
------------------ ---- ------
<S> <C> <C> <C> <C>
Latest 12 months revenues 13x 5x-20x 15x 18x
Estimated calendar year 2000
revenues 9x 7x-12x 12x 12x
Estimated calendar year 2001
revenues 6x 4x-9x 8x 9x
</TABLE>
Analysis of Selected Precedent Transactions.
Deutsche Banc Alex. Brown reviewed the purchase prices and implied
transaction multiples in the following 10 selected transactions in the medical
device industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
. Guidant Corporation Cardio Thoracic Systems, Inc.
. Tyco International Ltd. General Surgical Innovations, Inc.
. Abbott Laboratories Perclose, Inc.
. AutoCyte, Inc. NeoPath, Inc.
. Eclipse Surgical Technologies, Inc. Cardiogenesis Corp.
. Guidant Corporation InControl Corp.
. Guidant Corporation Endovascular Technologies, Inc.
. Johnson & Johnson Biopsys Medical, Inc.
. Pfizer Inc. Corvita Corporation
. Medtronic, Inc. InStent, Inc.
</TABLE>
Deutsche Banc Alex. Brown also reviewed the purchase prices and implied
transaction multiples in the following 11 selected transactions in the life
sciences industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
. PE Corp.--PE Biosystems Group Third Wave Technologies Inc.
. Baxter International Inc. North American Vaccine, Inc.
. Genzyme Corporation Cell Genesys, Inc.
. Invitrogen Corporation NOVEX
. Mylan Laboratories Inc. Penederm Inc.
. Incyte Pharmaceuticals, Inc. Synteni, Inc.
. Arris Pharmaceuticals Corporation Sequana Therapeutics, Inc.
. Medarex, Inc. Genpharm International, Inc.
. Millennium Pharmaceuticals, Inc. ChemGenics Pharmaceuticals, Inc.
. Sandoz AG Genetic Therapy, Inc.
. Glaxo Plc Affymax N.V.
</TABLE>
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<PAGE>
Deutsche Banc Alex. Brown reviewed technology values in the selected
transactions as multiples of latest 12 months revenues. All multiples were
based on publicly available information at the time of announcement of the
relevant transaction. Deutsche Banc Alex. Brown then compared the technology
value multiples derived from the selected transactions with corresponding
multiples for STC implied by the exchange ratio. This analysis indicated the
following range of implied technology value multiples for the selected
transactions, as compared to the multiples for STC implied by the exchange
ratio based on the closing price of Epitope common stock on May 4, 2000:
<TABLE>
<CAPTION>
Implied
STC
Selected Multiples
Medical Selected Life Based on
Device Sciences Exchange
Transactions Transactions Ratio
------------- ------------- ---------
Technology Values: Mean Range Mean Range
------------------ ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Latest 12 months revenues 18x 9x-40x 18x 2x-42x 15x
</TABLE>
Discounted Cash Flow Analyses.
Deutsche Banc Alex. Brown performed separate discounted cash flow analyses of
Epitope and STC to estimate the present value of the unlevered, after-tax free
cash flows that Epitope and STC could each generate on a standalone basis
during estimated calendar years 2000 through 2004. Estimated financial data
used in these analyses were based on internal estimates of or discussions with
Epitope's and STC's managements. The range of estimated terminal values for
Epitope and STC was calculated by applying terminal value multiples ranging
from 10.0x to 14.0x to Epitope's and STC's estimated fiscal year 2004 EBITDA.
The present value of the cash flows and terminal values were calculated using
discount rates ranging from 15.0% to 19.0%. This analysis yielded the following
approximate implied equity reference range for STC, as compared to the equity
value for STC implied by the exchange ratio based on the closing price of
Epitope common stock on May 4, 2000:
<TABLE>
<CAPTION>
Implied STC Equity Reference Implied STC Equity Value
Range Based on Exchange Ratio
---------------------------- ----------------------------------------
<S> <C>
$169.9 million-$270.0 million $230.0 million
This analysis also yielded the following approximate implied equity reference
range for Epitope, as compared to the implied equity value for Epitope based on
the closing price of Epitope common stock on May 4, 2000:
<CAPTION>
Implied Epitope Equity Implied Equity Value of Epitope
Reference Range Based on May 4, 2000 Closing Stock Price
---------------------- ----------------------------------------
<S> <C>
$144.4 million-$215.8 million $211.7 million
</TABLE>
Deutsche Banc Alex. Brown also performed a discounted cash flow analysis of
OraSure Technologies based on the methodology described above in its discounted
cash flow analyses of Epitope and STC on a standalone basis, after giving
effect to cost savings and other potential synergies anticipated by Epitope's
and STC's managements to result from the mergers. Estimated financial data used
in this analysis were based on internal estimates of or discussions with
Epitope's and STC's managements. Utilizing a discount rate of 17.0%, which
reflects the midpoint of the discount rate range used in the standalone
discounted cash flow analyses, Deutsche Banc Alex. Brown compared the implied
equity reference range of Epitope derived from the standalone discounted cash
flow analyses to the implied equity reference range for OraSure Technologies
based on Epitope's stockholders' percentage interest in OraSure Technologies.
This analysis indicated a higher implied equity reference for Epitope after
giving effect to the mergers relative to the implied equity reference range for
Epitope on a standalone basis.
Pro Forma Merger Analysis.
Deutsche Banc Alex. Brown analyzed the potential pro forma financial impact
of the mergers on Epitope's estimated earnings per share for fiscal years 2000
and 2001, both before and after giving effect to cost savings
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<PAGE>
and other potential synergies anticipated by Epitope's and STC's managements to
result from the mergers, with particular focus on fiscal year 2001, the first
year in which Epitope's and STC's managements expect cost savings and other
synergies to be realized. Estimated financial data used in this analysis were
based on internal estimates of or discussions with Epitope's and STC's
managements. Based on the exchange ratio and the closing price of Epitope
common stock on May 4, 2000, the results of the pro forma merger analysis
suggested that the mergers would be dilutive to Epitope's earnings per share in
fiscal year 2001 before giving effect to potential synergies and other cost
savings and accretive to Epitope's earnings per share in fiscal year 2001 after
giving effect to potential synergies and other cost savings. The actual
operating or financial results achieved by OraSure Technologies may vary from
projected results and the variations may be material as a result of business
and operational risks, the timing and amount of synergies, the costs associated
with achieving synergies and other factors.
Other Factors.
In rendering its opinion, Deutsche Banc Alex. Brown also reviewed and
considered other factors, including:
. historical market prices and trading volumes for Epitope common stock and
the relationship between movements in Epitope common stock, the common
stock of selected diagnostic companies and the NASDAQ index; and
. ownership profiles of Epitope and STC.
The above summary is not a complete description of Deutsche Banc Alex.
Brown's opinion to the Epitope board of directors or the financial analyses
performed and factors considered by Deutsche Banc Alex. Brown in connection
with its opinion. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to summary description. Deutsche Banc Alex. Brown believes that its
analyses and the summary above must be considered as a whole and that selecting
portions of its analyses and factors or focusing on information presented in
tabular format, without considering all analyses and factors or the narrative
description of the analyses, could create a misleading or incomplete view of
the processes underlying Deutsche Banc Alex. Brown's analyses and opinion.
In performing its analyses, Deutsche Banc Alex. Brown considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of Epitope and STC. No company, transaction or business used in the
analyses as a comparison is identical to Epitope, STC or the mergers, and an
evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions analyzed.
The estimates contained in Deutsche Banc Alex. Brown's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not necessarily purport to
be appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, Deutsche Banc Alex. Brown's analyses and
estimates are inherently subject to substantial uncertainty.
The type and amount of consideration payable in the mergers was determined
through negotiation between Epitope and STC. Although Deutsche Banc Alex. Brown
provided financial advice to Epitope during the course of negotiations, the
decision to enter into the mergers was solely that of the Epitope board of
directors. Deutsche Banc Alex. Brown's opinion and financial analyses were only
one of many factors considered by the Epitope board of directors in its
evaluation of the mergers and should not be viewed as determinative of the
views of the Epitope board of directors or management with respect to the
exchange ratio or the mergers.
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<PAGE>
Deutsche Banc Alex. Brown is an internationally recognized investment banking
firm and, as a customary part of its investment banking business, is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
estate, corporate and other purposes. Epitope selected Deutsche Banc Alex.
Brown based on Deutsche Banc Alex. Brown's reputation and expertise. In the
ordinary course of business, Deutsche Banc Alex. Brown and its affiliates may
actively trade or hold the securities and other instruments and obligations of
Epitope for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in those securities,
instruments or obligations.
Under the terms of Deutsche Banc Alex. Brown's engagement, Epitope has agreed
to pay Deutsche Banc Alex. Brown for its services upon completion of the
mergers an aggregate financial advisory fee of $1.8 million. In addition,
Epitope has agreed to reimburse Deutsche Banc Alex. Brown for its reasonable
travel and other out-of-pocket expenses, including reasonable fees and
disbursements of counsel, and to indemnify Deutsche Banc Alex. Brown and
related parties against liabilities, including liabilities under the federal
securities laws, relating to, or arising out of, Deutsche Banc Alex. Brown's
engagement.
Opinion of Financial Advisor to STC
STC engaged Robertson Stephens to render an opinion as to the fairness of the
exchange ratio, from a financial point of view, to STC and the "Holders of STC
common stock." The "Holders of STC common stock" is defined in Robertson
Stephens' written opinion letter dated May 9, 2000 as all holders of STC common
stock other than Epitope, OraSure Technologies, any affiliates of Epitope or
OraSure Technologies, holders of dissenting shares or any holders of STC common
stock who are officers or directors (or who have representatives serving as
directors) of STC.
On May 6, 2000, at a meeting of the STC board held to evaluate the proposed
mergers, Robertson Stephens delivered to STC's board its opinion subsequently
confirmed in writing that, as of May 6, 2000 and based on the matters
considered and the limitations on the review undertaken described in the
opinion, the exchange ratio was fair from a financial point of view to STC and
the Holders of STC common stock. The exchange ratio was determined through
negotiations between the respective managements of STC and Epitope. Robertson
Stephens was not asked by, and did not recommend to, STC that any specific
exchange ratio constituted the appropriate exchange ratio for the mergers.
You should consider the following when reading the discussion of the opinion
of STC's financial advisor in this document:
. We urge you to read carefully the entire opinion of Robertson Stephens,
which is set forth in Annex C to this joint proxy statement/prospectus
and is incorporated by reference.
. The following description of the Robertson Stephens opinion is qualified
by reference to the full opinion located in Annex C to this joint proxy
statement/prospectus. The full opinion sets forth, among other things,
the assumptions made by Robertson Stephens, the matters it considered and
the limitations on the review undertaken.
. The Robertson Stephens opinion was prepared for the benefit and use of
the STC board in its consideration of the merger and does not constitute
a recommendation to stockholders of STC or Epitope as to how they should
vote, or take any other action, with respect to the mergers.
. The Robertson Stephens opinion does not address the relative merits of
the mergers and any other business strategies that STC's board
considered, nor does it address the decision of the STC board to proceed
with the mergers.
Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. The Robertson Stephens opinion is necessarily
based upon market, economic and other conditions that were in effect on, and
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<PAGE>
information made available to Robertson Stephens as of, the date of the
opinion. You should understand that subsequent developments may affect the
conclusion expressed in the Robertson Stephens opinion, and that Robertson
Stephens disclaims any undertaking or obligation to advise any person of any
change in any matter affecting its opinion. The Robertson Stephens opinion is
limited to the fairness, from a financial point of view and as of the date
thereof, of the exchange ratio to STC and the Holders of STC common stock.
Opinion and Analysis of Robertson Stephens
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens:
. reviewed certain publicly available financial statements and other
business and financial information of Epitope;
. reviewed certain internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking information, concerning (a) STC prepared by the management of STC
and (b) Epitope prepared by the management of Epitope;
. reviewed certain publicly available estimates of research analysts
relating to Epitope;
. held discussions with the respective managements of STC and Epitope
concerning the businesses, past and current operations, financial
condition and future prospects of both STC and Epitope, independently and
combined, including discussions with the managements of STC and Epitope
concerning cost savings and other synergies that are expected to result
from the mergers as well as their views regarding the strategic rationale
for the mergers;
. reviewed the financial terms and conditions set forth in the agreement
and plan of merger;
. reviewed the stock price and trading history of Epitope common stock;
. compared the financial performance of Epitope and the prices and trading
activity of Epitope common stock with that of certain other publicly
traded companies comparable to Epitope;
. compared the financial performance of STC with that of certain publicly
traded companies comparable to STC;
. reviewed the pro forma impact of the mergers on Epitope's earnings per
share;
. prepared an analysis of the relative contributions of STC and Epitope to
OraSure Technologies;
. prepared a discounted cash flow analysis of STC and Epitope;
. participated in discussions and negotiations among representatives of STC
and Epitope and their financial and legal advisors; and
. made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to Robertson Stephens (including
information furnished to it orally or otherwise discussed with it by management
of STC and Epitope) or publicly available and neither attempted to verify, nor
assumed responsibility for verifying, any of such information. Robertson
Stephens relied upon the assurances of the managements of STC and Epitope that
they were not aware of any facts that would make such information inaccurate or
misleading. Furthermore, Robertson Stephens did not obtain or make, or assume
any responsibility for obtaining or making, any independent evaluation or
appraisal of the properties, assets or liabilities (contingent or otherwise) of
STC or Epitope, nor was it furnished with any such evaluation or appraisal.
With respect to the financial forecasts and projections (and the assumptions
and bases therefor) for each of STC and Epitope that Robertson Stephens
reviewed, Robertson Stephens has assumed that:
. these forecasts and projections were reasonably prepared in good faith on
the basis of reasonable assumptions;
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<PAGE>
. these forecasts and projections reflected the best currently available
estimates and judgments as to the future financial condition and
performance of STC and Epitope; and
. these forecasts and projections would be realized in the amounts and in
the time periods currently estimated.
In addition, Robertson Stephens assumed that:
. the mergers will be consummated upon the terms set forth in the agreement
and plan of merger without material alteration thereof, including, among
other things, that the mergers will be accounted for as a "pooling-of-
interests" business combination in accordance with U.S. generally
accepted accounting principles;
. the mergers will be treated as tax-free reorganizations pursuant to the
Internal Revenue Code of 1986, as amended; and
. the historical financial statements of each of STC and Epitope reviewed
by it were prepared and fairly presented in accordance with U.S.
generally accepted accounting principles consistently applied.
Robertson Stephens relied as to certain legal matters relevant to rendering
its opinion on the advice of counsel to STC.
Robertson Stephens expressed no opinion as to:
. the value of any employee agreement or other arrangements entered into in
connection with the mergers;
. any tax or other consequences that may result from the mergers; or
. what the value of the common stock of OraSure Technologies will be when
issued to STC's stockholders pursuant to the mergers or the price at
which shares of OraSure Technologies' common stock that are issued
pursuant to the mergers may be traded in the future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Robertson Stephens. Certain of the information in this section is
presented in tabular form. IN ORDER TO BETTER UNDERSTAND THE FINANCIAL ANALYSES
PERFORMED BY ROBERTSON STEPHENS, THESE TABLES MUST BE READ TOGETHER WITH THE
TEXT OF EACH SUMMARY. THE ROBERTSON STEPHENS OPINION IS BASED ON THE TOTALITY
OF THE VARIOUS ANALYSES WHICH IT PERFORMED, AND NO PARTICULAR PORTION OF THE
ANALYSIS HAS ANY MERIT STANDING ALONE.
Comparable Company Analysis
Using publicly available information, Robertson Stephens analyzed, among
other things, the total capitalization and trading multiples of the following
selected publicly traded companies in the oral fluids based testing industry:
. Biosite Diagnostics Inc.
. Epitope
. Avitar, Inc.
. American Bio Medica Corp.
. Lifepoint, Inc.
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<PAGE>
Revenues. As set forth in the following table, applying a range of multiples
for Biosite and Epitope for calendar years 1999, 2000 and 2001 to corresponding
revenue data for STC resulted in the following range of implied equity values
and exchange ratios for calendar years 1999, 2000 and 2001. All of the
aforementioned companies are comparable to STC. However, Robertson Stephens
viewed Biosite and Epitope, given their product lifecycles, as providing the
most meaningful comparison and therefore used these two companies as the basis
of this evaluation.
<TABLE>
<CAPTION>
Implied
Multiple Implied Exchange
Calendar Year Range Equity Values Ratio
------------- ---------- ------------- -------------
(in millions)
<S> <C> <C> <C>
1999.................................. 7.9x-17.1x $105.0-$233.9 2.7268-6.0765
2000.................................. 6.4x-10.2x $112.6-$182.9 2.9263-4.7527
2001.................................. 5.4x- 6.6x $157.0-$193.2 4.0786-5.0182
Mean.................................. 3.2439-5.2825
</TABLE>
The comparable company analysis set forth above yielded implied exchange
ratios ranging from 2.7268 to 6.0765, compared to the proposed range of
exchange ratios of 5.456 to 6.820.
No company or business used in the above analysis as a comparison is
identical to STC. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the public trading and other values of the
comparable companies or the business segment or company to which they are being
compared.
Using publicly available information, Robertson Stephens analyzed, among
other things, the total capitalization and trading multiples of Epitope and the
following selected publicly traded companies in the oral fluids based testing
industry:
. Biosite Diagnostics Inc.
. Avitar, Inc.
. American Bio Medica Corp.
. Lifepoint, Inc.
As set forth in the following table, applying a range of multiples for
Biosite and Epitope for calendar years 1999, 2000 and 2001 to corresponding
revenue data for Epitope resulted in the following range of implied equity
values and share prices for calendar years 1999, 2000 and 2001.
<TABLE>
<CAPTION>
Implied
Multiple Implied Price Per
Calendar Year Range Equity Values Share
------------- ---------- ------------- ------------
(in millions)
<S> <C> <C> <C>
1999................................... 7.9x-17.1x $95.0-$ 191.2 $5.22-$10.51
2000................................... 6.4x-10.2x $126.6-$194.3 $6.96-$10.68
2001................................... 5.4x- 6.6x $136.6-$164.2 $7.51-$ 9.03
Mean................................... $6.09-$10.59
</TABLE>
With the exception of Epitope, no company or business used in the above
analysis as a comparison is identical to Epitope. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the public
trading and other values of the comparable companies or the business segment or
company to which they are being compared.
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Contribution Analysis
Using projections for each of STC and Epitope provided by the managements of
STC and Epitope, Robertson Stephens analyzed the respective contributions of
STC and Epitope to the estimated revenues, operating profits and net income of
OraSure Technologies for calendar years 1999, 2000, 2001 and 2002. The actual
results achieved by OraSure Technologies may vary from projected results and
the variations may be material. The following table summarizes the results of
this analysis:
<TABLE>
<CAPTION>
Epitope's Contribution to
STC's Contribution to OraSure OraSure Technologies'
Calendar Year Technologies' Total Revenues Total Revenues
------------- ----------------------------- -------------------------
<S> <C> <C>
1999.................... 57.3% 42.7%
2000.................... 50.9% 49.1%
2001.................... 56.7% 43.3%
2002.................... 48.6% 51.4%
</TABLE>
<TABLE>
<CAPTION>
STC's Contribution to OraSure Epitope's Contribution to
Technologies' Total Operating OraSure Technologies'
Calendar Year Profit Total Operating Profit
------------- ----------------------------- -------------------------
<S> <C> <C>
1999.................... NMF NMF
2000.................... 30.9% 69.1%
2001.................... 59.7% 40.3%
2002.................... 40.1% 59.9%
</TABLE>
<TABLE>
<CAPTION>
Epitope's Contribution to
STC's Contribution to OraSure OraSure Technologies' Net
Calendar Year Technologies' Net Income Income
------------- ----------------------------- -------------------------
<S> <C> <C>
1999.................... NMF NMF
2000.................... 11.3% 88.7%
2001.................... 38.0% 62.0%
2002.................... 26.4% 73.6%
</TABLE>
The contribution analysis set forth above for total revenues resulted in
implied exchange ratios ranging from approximately 4.6919 to 6.6586, compared
to the proposed range of exchange ratios of 5.456 to 6.820.
Discounted Cash Flow Analysis
Robertson Stephens performed a discounted cash flow analysis of the cash
flows of STC using STC estimates provided by the management of STC for the
fiscal years 2000 through 2003. Robertson Stephens first discounted the
projected cash flows through December 31, 2003 using a range of discount rates
from 17.0% to 23.0%. The range of discount rates was based on the weighted
average cost of capital of the comparable companies, derived from publicly
available information. Robertson Stephens then added to the present value of
the cash flows the terminal value of STC in the fiscal year ending December 31,
2003, discounted back at the same discount rate. The terminal value was
computed by multiplying STC's projected revenue in fiscal 2003 by exit revenue
multiples ranging from 6.0x to 10.0x. The range of exit revenue multiples
selected reflect Robertson Stephen's judgment as to an appropriate range of
multiples at the end of the reference period. The discounted cash flow
valuation resulted in implied equity values of STC ranging from approximately
$176.1 million to $320.6 million and implied exchange ratios ranging from
4.5750 to 8.3291, compared to the proposed range of exchange ratios of 5.456 to
6.820.
Robertson Stephens performed a discounted cash flow analysis of the cash
flows of Epitope using estimates provided by the management of Epitope for the
fiscal years 2000 through 2003. Robertson Stephens first discovered projected
cash flows through December 31, 2003 using a range of discount rates from 17.0%
to 23.0%. The range of discount rates was based on the weighted average cost of
capital of Epitope and the comparable companies, derived from publicly
available information. Robertson Stephens then added to the present value of
the cash flows the terminal value of Epitope in the fiscal year ending December
31, 2003, discounted back at the same discount rate. The terminal value was
computed by multiplying Epitope's projected
66
<PAGE>
revenue in fiscal 2003 by exit revenue multiples ranging from 5.0x to 9.0x. The
range of exit revenue multiples selected reflect Robertson Stephen's judgment
as to an appropriate range of multiples at the end of the reference period. The
discounted cash flow valuation resulted in implied equity values of Epitope
ranging from approximately $155.3 million to $281.3 million and an implied
price per share of Epitope common stock ranging from $8.53 to $15.46.
Financing History Analysis
Robertson Stephens reviewed the financing history of STC. This review showed
a post-money equity valuation of STC of $31.7 million, based on a private
placement of preferred stock in June of 1999, STC's most recent financing
transaction.
Pro Forma Merger Analysis
Robertson Stephens analyzed the impact of the mergers on the projected
earnings per share of OraSure Technologies for calendar years 2000, 2001 and
2002. The projected earnings per share of each of STC and Epitope were provided
by the respective managements of STC and Epitope. For purposes of this
analysis, Robertson Stephens assumed a range in the number of shares of Epitope
common stock that may be issued by Epitope in the mergers. The results of this
analysis suggested that in 2001, the first full year of combined operations,
the mergers would be dilutive before taking into account the expected pre-tax
synergies and cost savings and accretive after taking into account the expected
pre-tax synergies and cost savings assuming no more than approximately 22
million shares are issued by Epitope in the merger. The actual operating or
financial results achieved by OraSure Technologies may vary from the projected
results and the variations may be material as a result of business and
operational risks, the timing and amount of synergies, the costs associated
with achieving synergies and other factors.
Other Factors
While this summary describes the analysis and factors that Robertson Stephens
deemed material in its presentation to the STC board, it is not a comprehensive
description of all analysis and factors considered by Robertson Stephens. The
preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore, a fairness opinion is not readily susceptible to partial analysis or
summary description. In arriving at its opinion, Robertson Stephens did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Robertson Stephens believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the evaluation process
underlying its opinion. Several analytical methodologies were employed and no
one method of analysis should be regarded as critical to the overall conclusion
reached by Robertson Stephens. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusion reached by Robertson
Stephens is based on all analyses and factors taken as a whole and also on
application of Robertson Stephens' own experience and judgment. This conclusion
may involve significant elements of subjective judgment and qualitative
analysis. Robertson Stephens gives no opinion as to the value or merit standing
alone of any one or more parts of the analysis it performed. In performing its
analyses, Robertson Stephens made numerous assumptions with respect to industry
performance, general business and other conditions and matters, many of which
are beyond the control of STC, Epitope or Robertson Stephens. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. Accordingly, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which these businesses actually may be sold in the
future, and these estimates are inherently subject to uncertainty. Furthermore,
no opinion is being expressed as to the prices at which shares of the common
stock of OraSure Technologies may be traded at any future time.
67
<PAGE>
The engagement letter between Robertson Stephens and STC provides that, for
its services, Robertson Stephens is entitled to receive a transaction fee equal
to 1.0% of the aggregate transaction value, not to exceed $1.8 million payable
upon completion of the mergers and a fee of $100,000 payable upon the delivery
of the Robertson Stephens fairness opinion, which fee shall be credited against
the transaction fee. STC has also agreed to reimburse Robertson Stephens for
its out-of-pocket expenses related to this work, including legal fees, in an
amount no greater than $50,000 and to indemnify and hold harmless Robertson
Stephens and its affiliates and any other person, director, employee or agent
of Robertson Stephens or any of its affiliates, or any person controlling
Robertson Stephens or its affiliates, for certain losses, claims, damages,
expenses and liabilities relating to or arising out of services provided by
Robertson Stephens as financial advisor to STC. The terms of the fee
arrangement with Robertson Stephens, which STC and Robertson Stephens believe
are customary in transactions of this nature, were negotiated at arm's length
between STC and Robertson Stephens, and the STC board was aware of these fee
arrangements.
Robertson Stephens was retained based on Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally. Robertson Stephens may actively trade the securities of
Epitope or OraSure Technologies for its own account and for the account of its
customers and, accordingly, may at any time hold a long or short position in
these securities.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
68
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following information has been provided to aid you in your analysis of
the financial aspects of the merger. The financial information of Epitope was
derived from the audited consolidated financial statements for the fiscal years
ended September 30, 1997 through 1999 and the unaudited condensed consolidated
financial statements for the nine months ended June 30, 2000. The financial
information of STC was derived from unaudited financial statements for all
periods presented. The information is only a summary and should be read
together with the historical financial statements and related notes contained
in the annual reports and quarterly reports and other information that we have
filed with the Securities and Exchange Commission and incorporated by
reference.
Pooling of Interests Accounting Treatment
The mergers are expected to be accounted for as a "pooling of interests."
This means that, for accounting and financial reporting purposes, the companies
will be treated as if they had always been combined. We have presented
unaudited pro forma financial information that reflects the pooling of
interests method of accounting to provide a picture of what the businesses
might have looked like had they always been combined. The pro forma statements
of operations and pro forma balance sheets were prepared by combining the
historical amounts of each company. The companies may have performed
differently had they always been combined. You should not rely on the unaudited
pro forma financial information as being indicative of the historical results
that would have occurred or the future results that will occur after the
mergers.
Periods Covered
The following unaudited pro forma balance sheets as of June 30, 2000 and
September 30, 1999 are presented as if the mergers had occurred on June 30,
2000 and September 30, 1999. The unaudited pro forma statements of operations
for the nine months ended June 30, 2000 and 1999, and for the years ended
September 30, 1999, 1998 and 1997, are presented as if the companies had always
been merged.
69
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 2000
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------- Adjustments Pro Forma
Epitope STC (Note 2) Combined
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales........................ $ 8,985 $10,778 $(170) $19,593
Grants and contracts................. 117 249 -- 366
------- ------- ----- -------
9,102 11,027 (170) 19,959
------- ------- ----- -------
Costs and expenses
Product costs........................ 3,484 3,486 (71) 6,899
Operations........................... 1,375 -- -- 1,375
Research and development costs....... 2,210 4,255 -- 6,465
Selling, general and administrative
expenses............................ 4,658 4,240 -- 8,898
------- ------- ----- -------
11,727 11,981 (71) 23,637
------- ------- ----- -------
Income (loss) from operations.......... (2,625) (954) (99) (3,678)
Interest income........................ 390 394 -- 784
Interest expense....................... -- (393) -- (393)
Other income (expense), net............ 596 (39) -- 557
------- ------- ----- -------
Income (loss) before income taxes...... (1,639) (992) (99) (2,730)
Income taxes........................... -- 12 -- 12
Deemed Dividend........................ -- --
------- ------- ----- -------
Net income (loss)...................... $(1,639) $(1,004) $ (99) $(2,742)
======= ======= ===== =======
Basic and diluted loss per share....... $ (0.11) $ (0.42) $ (0.08)
======= ======= =======
Weighted average number of shares
outstanding........................... 15,249 2,389 34,224
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
70
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 1999
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------- Adjustments Pro Forma
Epitope STC (Note 2) Combined
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales......................... $ 7,005 $8,701 $ (9) $15,697
Grants and contracts.................. -- 591 -- 591
------- ------ ---- -------
7,005 9,292 (9) 16,288
------- ------ ---- -------
Costs and expenses
Product costs......................... 2,596 3,328 (2) 5,922
Operations............................ 1,312 -- -- 1,312
Research and development costs........ 1,692 2,370 -- 4,062
Selling, general and administrative
expenses............................. 3,896 3,362 -- 7,258
------- ------ ---- -------
9,496 9,060 (2) 18,554
------- ------ ---- -------
Income (loss) from operations........... (2,491) 232 (7) (2,266)
Interest income......................... 207 120 -- 327
Interest expense........................ -- (420) -- (420)
Other income (expense), net............. (13) 19 -- 6
------- ------ ---- -------
Income (loss) before income taxes..... (2,297) (49) (7) (2,353)
Income taxes............................ -- -- -- --
Deemed Dividend......................... -- --
------- ------ ---- -------
Net Income (loss)....................... $(2,297) $ (49) $ (7) $(2,353)
======= ====== ==== =======
Basic and diluted loss per share........ $ (0.17) $(0.02) $ (0.08)
======= ====== =======
Weighted average number of shares
outstanding............................ 13,888 2,389 28,332
======= ====== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
71
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended September 30, 1999
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------- Adjustments Pro Forma
Epitope STC (Note 2) Combined
------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales.................... $10,073 $12,117 $ (42) $22,148
Grants and contracts............. -- 640 640
------- ------- ------- -------
10,073 12,757 (42) 22,788
------- ------- ------- -------
Costs and expenses
Product costs.................... 3,847 4,321 (10) 8,158
Operations....................... 1,895 -- 1,895
Research and development costs... 2,287 3,077 5,364
Acquired in-process technology... -- 1,500 1,500
Selling, general and
administrative expenses......... 5,526 4,664 10,190
------- ------- ------- -------
13,555 13,562 (10) 27,107
------- ------- ------- -------
Loss from operations............... (3,482) (805) (32) (4,319)
Interest income.................... 279 304 583
Interest expense................... (1) (617) (618)
Other income (expense), net........ (2) (45) (47)
------- ------- ------- ------- ---
Net loss........................... $(3,206) $(1,163) $ (32) $(4,401)
======= ======= ======= =======
Basic and diluted loss per share... $ (0.23) $ (0.15)
======= =======
Weighted average number of shares
outstanding....................... 13,957 15,735 29,692
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
72
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended September 30, 1998
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------- Adjustments Pro Forma
Epitope STC (Note 2) Combined
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales........................ $ 9,779 $10,079 $ (53) $19,805
Grants and contracts................. 13 175 188
------- ------- ------ -------
9,792 10,254 (53) 19,993
------- ------- ------ -------
Costs and expenses
Product costs........................ 3,685 3,953 (20) 7,618
Operations........................... 1,101 -- 1,101
Research and development costs....... 2,116 2,349 4,465
Selling, general and administrative
expenses............................ 5,141 4,282 9,423
------- ------- ------ -------
12,043 10,584 (20) 22,607
------- ------- ------ -------
Loss from operations................... (2,251) (330) (33) (2,614)
Interest income........................ 363 154 517
Interest expense....................... (9) (448) (457)
Other income (expense), net............ (31) 5 (26)
------- ------- ------ -------
Net loss............................... $(1,928) $ (619) $ (33) $(2,580)
======= ======= ====== =======
Basic and diluted loss per share....... $ (0.14) $ (0.10)
======= =======
Weighted average number of shares
outstanding........................... 13,529 13,067 26,596
======= ====== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
73
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended September 30, 1997
(Unaudited)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------- Adjustments Pro Forma
Epitope STC (Note 2) Combined
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales...................... $ 8,084 $ 7,297 $ (7) $ 15,374
Grants and contracts............... 1,276 217 1,493
-------- ------- ------ --------
9,360 7,514 (7) 16,867
-------- ------- ------ --------
Costs and expenses
Product costs...................... 3,512 3,097 (1) 6,608
Operations......................... 1,451 -- 1,451
Research and development costs..... 4,028 1,628 5,656
Selling, general and administrative
expenses.......................... 5,333 3,756 9,089
-------- ------- ------ --------
14,324 8,481 (1) 22,804
-------- ------- ------ --------
Loss from operations................. (4,964) (967) (6) (5,937)
Interest income...................... 886 243 1,129
Interest expense..................... (8) (328) (336)
Other income (expense), net.......... 5 -- 5
-------- ------- ------ --------
Net loss from continuing operations.. (4,081) (1,052) (6) (5,139)
-------- ------- ------ --------
Discontinued operations
Loss from discontinued operations,
Agritope.......................... (9,891) -- (9,891)
Income from discontinued
operations, A&W................... 171 -- 171
Estimated loss on disposal of A&W.. (8,639) -- (8,639)
-------- ------- ------ --------
(18,359) -- -- (18,359)
-------- ------- ------ --------
Income taxes......................... -- 30 -- 30
-------- ------- ------ --------
Net loss............................. $(22,440) $(1,082) $ (6) $(23,528)
======== ======= ====== ========
Basic and diluted loss per share from
continuing operations............... $ (0.30) $ (0.20)
======== ========
Basic and diluted loss per share..... $ (1.67) $ (0.91)
======== ========
Weighted average number of shares
outstanding......................... 13,404 12,542 25,946
======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
74
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 2000
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ Adjustments Pro Forma
Epitope STC (Note 2) Combined
--------- ------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents......... $ 7,736 $ 955 $ -- $ 8,691
Marketable securities............. 7,828 6,992 -- 14,820
Trade accounts receivable, net.... 1,573 2,508 (63) 4,018
Other accounts receivable......... 368 -- -- 368
Inventories....................... 1,248 1,033 33 2,314
Prepaid expenses.................. 594 642 -- 1,236
Deferred income taxes............. -- 52 -- 52
--------- ------- ------- ---------
Total current assets............ 19,347 12,182 (30) 31,499
Property and equipment, net......... 1,724 4,596 -- 6,320
Patents and proprietary technology,
net................................ 353 2,024 -- 2,377
Other assets and deposits........... 173 275 -- 448
--------- ------- ------- ---------
$ 21,597 $19,077 $ (30) $ 40,644
========= ======= ======= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Line of credit.................... $ -- $ 144 $ -- $ 144
Current portion of long-term
debt............................. -- 1,054 -- 1,054
Accounts payable.................. 352 1,187 -- 1,539
Salaries, benefits and other
accrued liabilities.............. 1,505 1,026 5,400 7,931
--------- ------- ------- ---------
Total current liabilities....... 1,857 3,411 5,400 10,668
Long-term debt...................... -- 5,302 -- 5,302
Deferred revenue.................... -- 358 -- 358
Deferred income taxes............... -- 82 -- 82
Redeemable convertible preferred
stock.............................. -- 10,102 (10,102) --
Shareholders' equity (deficit)
Common stock, no par value--30,000
shares authorized; 16,709 shares
issued and outstanding,
historical, 35,684 issued and
outstanding, pro forma........... 127,631 -- 13,137 140,768
Additional paid in capital........ -- 3,442 (3,442) --
Treasury stock.................... -- (407) 407 --
Accumulated other comprehensive
loss............................. -- (375) -- (375)
Accumulated deficit............... (107,891) (2,838) (5,430) (116,159)
--------- ------- ------- ---------
Total shareholders' equity
(deficit)...................... 19,740 (178) 4,672 24,234
--------- ------- ------- ---------
$ 21,597 $19,077 $ (30) $ 40,644
========= ======= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
75
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1999
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ Adjustments Pro Forma
Epitope STC (Note 2) Combined
--------- ------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents......... $ 1,076 $ 674 $ 1,750
Marketable securities............. 4,533 8,522 13,055
Trade accounts receivable, net.... 1,490 2,151 3,641
Other accounts receivable......... 73 -- 73
Inventories....................... 1,504 1,140 2,644
Prepaid expenses.................. 330 194 524
Deferred income taxes............. -- 143 143
--------- ------- ------- ---------
Total current assets............ 9,006 12,824 21,830
Property and equipment, net......... 1,030 3,945 4,975
Patents and proprietary technology,
net................................ 487 2,216 2,703
Other assets and deposits........... 171 469 640
--------- ------- ------- ---------
$ 10,694 $19,454 $ 30,148
========= ======= ======= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities
Current portion of long-term
debt............................. $ -- $ 1,001 $ 1,001
Accounts payable.................. 475 942 1,417
Salaries, benefits and other
accrued liabilities.............. 1,643 677 $ 5,400 7,720
--------- ------- ------- ---------
Total current liabilities....... 2,118 2,620 5,400 10,138
Long-term debt...................... -- 6,076 6,076
Deferred revenue.................... -- 514 514
Deferred income taxes............... -- 173 173
Redeemable convertible preferred
stock.............................. -- 9,351 (9,351) --
Shareholders' equity
Common stock, no part value--
30,000 shares authorized, 14,245
shares issued and outstanding,
historical, 33,220 issued and
outstanding, proforma............ 114,827 -- 13,621 128,448
Additional paid in capital........ -- 4,677 (4,677) --
Treasury stock.................... -- (407) 407 --
Accumulated other comprehensive
loss............................. -- (21) (21)
Accumulated deficit............... (106,251) (3,529) (5,400) (115,180)
--------- ------- ------- ---------
Total shareholders' equity...... 8,576 720 3,951 13,247
--------- ------- ------- ---------
$ 10,694 $19,454 $ -- $ 30,148
========= ======= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
76
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(1) The unaudited pro forma condensed combined financial statements for Epitope
and STC give retroactive effect to the proposed mergers, which will be
accounted for as a pooling of interests and, as a result, such statements
are presented as if the companies had been combined for all periods
presented. There were no material differences between the accounting
policies of Epitope and STC. Certain amounts have been reclassified to
conform the pro forma presentation.
(2) The pro forma condensed combined statements of operations include
adjustments for the elimination of sales and purchases between Epitope and
STC. The pro forma condensed combined balance sheets include adjustments
for the elimination of intercompany balances between Epitope and STC and
the exchange of STC's redeemable preferred stock and common stock into
shares of OraSure Technologies common stock based on an assumed exchange
ratio of 5.47 shares of OraSure Technologies common stock for each share of
STC's redeemable preferred stock and common stock outstanding. Transaction
costs will be incurred to complete the mergers and consist primarily of
financial advisor, legal, accounting and consulting fees, and printing,
mailing, and registration expenses. Due to the non-recurring nature of
these costs, they have not been reflected in the pro forma condensed
combined statements of operations. These expenses will be included in the
results of operations in the quarter the mergers are completed. The pro
forma combined balance sheets include an accrual of $5.4 million in
estimated transaction costs.
(3) Pro forma basic and diluted loss per share has been computed using the pro
forma weighted average number of shares of common stock outstanding during
the period. Pro forma basic and diluted net loss per share are the same
since common stock equivalents outstanding are antidilutive for all periods
presented. As a result of the mergers, each outstanding share of STC common
stock outstanding will be converted into the right to receive shares of
OraSure Technologies common stock. For purposes of the pro forma financial
statements it is assumed that 5.47 shares of OraSure Technologies common
stock will be exchanged for each outstanding share and outstanding option
of STC stock. See page 40 for a description of the exchange ratio.
77
<PAGE>
INFORMATION ABOUT THE MEETINGS AND VOTING
The Epitope board of directors is using this document to solicit proxies from
the holders of Epitope common stock for use at the Epitope meeting. The STC
board of directors is also using this document to solicit proxies from the
holders of STC common stock and convertible preferred stock for use at the STC
meeting. We are first mailing this document and accompanying forms of proxies
to Epitope and STC stockholders on or about , 2000.
Matters Relating to the Meetings
Time and Place
<TABLE>
<CAPTION>
Epitope Meeting STC Meeting
------------------------- -------------------------
<S> <C>
Thursday, August 31, 2000 Thursday, August 31, 2000
10:00 a.m., Local Time 10:00 a.m., Local Time
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
Purpose of Meeting is to Vote on the Following Items
<TABLE>
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
1. A proposal to approve the agreement and 1. A proposal to adopt the agreement and
plan of merger. plan of merger.
2. Such other matters as may properly come 2. Such other matters as may properly come
before the Epitope meeting, including before the STC meeting, including the
the approval of any adjournment of the approval of any adjournment of the
meeting. meeting.
Record Date
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
Holders of record of STC common stock and
Holders of record of Epitope common stock STC convertible preferred stock at the
at the close of business on July 24, 2000, close of business on July 24, 2000, will be
will be entitled to vote. entitled to vote.
Outstanding Shares Held on Record Date
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
As of July 24, 2000, there were As of , 2000, there were approximately
approximately outstanding shares outstanding shares of STC common
of Epitope common stock. stock and approximately outstanding
shares of STC convertible preferred stock.
Shares Entitled to Vote
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
Each share of Epitope common stock that you Each share of STC common stock that you own
own as of the record date entitles you to as of the record date entitles you to one
one vote. vote. Each share of STC convertible
preferred stock that you own as of the
record date entitles you to one vote.
Shares held by Epitope in its treasury will Shares held by STC in its treasury will not
not be voted. be voted.
</TABLE>
78
<PAGE>
Quorum Requirement
<TABLE>
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
A quorum of stockholders is necessary to A quorum of stockholders is necessary to
hold a valid meeting. hold a valid meeting.
The presence in person or by proxy at the The presence in person or by proxy at the
meeting of holders of a majority of the meeting of holders of a majority of the
shares of Epitope common stock entitled to shares of STC entitled to vote at the
vote at the meeting is a quorum. meeting is a quorum. Abstentions count as
Abstentions and broker "non-votes" count as present for establishing a quorum.
present for establishing a quorum. Shares
held by Epitope in its treasury do not
count toward a quorum.
A broker non-vote occurs on a proposal when A broker non-vote occurs on a proposal when
a broker is not permitted to vote on that a broker is not permitted to vote on that
proposal without instruction from the proposal without instruction from the
beneficial owner of the shares and no beneficial owner of the shares and no
instruction is given. instruction is given.
Shares Beneficially Owned by Epitope and STC Directors and
Executive Officers as of July 24, 2000
<CAPTION>
Epitope Meeting STC Meeting
------------------------------------------- -------------------------------------------
<S> <C>
Epitope directors and executive officers STC directors and executive officers
beneficially own 1,166,598 shares of beneficially own 2,058,033 shares of STC
Epitope common stock, including 879,079 common stock, including 12,500 shares
shares subject to options exercisable subject to options exercisable within 60
within 60 days. These shares represent days, and 784,706 shares of STC convertible
approximately 7% of the shares of Epitope preferred stock. These shares represent
common stock outstanding as of July 20, approximately 59.3% of the votes entitled
2000. to be cast as of , 2000.
These individuals have indicated that they These individuals have indicated that they
intend to vote all of the above shares intend to vote all of the above shares
which are outstanding as of the record date which are outstanding as of the record date
in favor of the Epitope Proposal. in favor of the STC Proposal.
Vote Necessary to Approve Epitope and STC Proposals
Vote Necessary to Approve Proposals
<CAPTION>
Epitope STC
------------------------------------------- -------------------------------------------
<S> <C>
Approval of the agreement and plan of Adoption of the agreement and plan of
merger requires the affirmative vote of the merger requires the affirmative vote of the
holders of a majority of the total votes holders of a majority of the outstanding
entitled to be cast by holders of Epitope shares of STC common stock and STC
common stock. Abstentions and broker non- convertible preferred stock, voting
votes will have the same effect as votes together as a single class. Abstentions and
against the Epitope proposal. broker non-votes will have the same effect
as votes against the STC proposal. STC
shareholders representing sufficient votes
to adopt the agreement and plan of merger
have executed agreements in which they have
agreed to vote all of their shares of STC
common stock in favor of adoption of the
agreement and plan of merger.
</TABLE>
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Voting by Proxy
Voting Your Proxy. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the proposal submitted at your meeting or abstain from voting.
How to Vote by Proxy
<TABLE>
<CAPTION>
Epitope STC
---------------- -------------------------------------------
<S> <C>
Complete, sign, date and return your proxy Complete, sign, date and return your proxy
card in the enclosed envelope. If you wish card in the enclosed envelope. Please
to vote by telephone, call toll-free at contact Richard Hooper at (610) 882-1820 if
or, if outside the U.S., call you have any questions about the meeting.
and follow the instructions. You will
need to give the personal identification
number contained on your proxy card. If you
wish to vote by Internet, go to and
follow the instructions. You will need to
give the personal identification number
contained on your proxy card.
</TABLE>
--------
* If you hold shares through a broker or other custodian, please follow the
voting instructions for the voting form used by that firm.
If you submit your proxy but do not make specific choices, your proxy will
follow your board's recommendations and vote your shares for their
recommendations.
Epitope's Board of Directors unanimously recommends that you vote FOR
approval of the agreement and plan of merger.
STC's Board of Directors unanimously recommends that you vote FOR adoption of
the agreement and plan of merger.
Revoking Your Proxy. You may revoke your proxy before it is voted by:
. submitting a new proxy with a later date, including, in the case of
Epitope stockholders, a proxy given by telephone or via the Internet,
. notifying your company's Secretary in writing before the meeting that you
have revoked your proxy, or
. voting in person at the meeting.
Voting in Person. If you plan to attend a meeting and wish to vote in person,
we will give you a ballot at the meeting. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring an account
statement or letter from the nominee indicating that you are the beneficial
owner of the shares on July , 2000, the record date for voting.
People With Disabilities. We can provide reasonable assistance to help you
participate in the meeting if you tell us about your disability and your plan
to attend. Please call or write the Secretary of your company at least two
weeks before your meeting at the number or address under "Summary--The
Companies" on page 2.
Confidential Voting. Independent inspectors count the votes. Your individual
vote is kept confidential from us unless special circumstances exist. For
example, a copy of your proxy card will be sent to us if you write comments on
the card.
Proxy Solicitation. We will pay our own costs of soliciting proxies.
In addition to this mailing, Epitope and STC employees may solicit proxies
personally, electronically or by telephone. Epitope is paying D. F. King a
customary fee, plus expenses to assist with the solicitation.
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The extent to which these proxy soliciting efforts will be necessary depends
upon how promptly proxies are submitted. You should submit your proxy by mail,
or in the case of Epitope stockholders--by telephone or via the Internet,
without delay. We will also reimburse brokers and other nominees for their
expenses in sending these materials to you and getting your voting
instructions.
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for STC and Epitope common stock to stockholders as soon as
practicable after the completion of the mergers.
Other Business; Adjournments
We are not currently aware of any other business to be acted upon at either
meeting. If, however, other matters are properly brought before either meeting,
or any adjourned meeting, your proxies will have discretion to vote or act on
those matters according to their best judgment, including to adjourn the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval
of the holders of shares representing a majority of the votes present in person
or by proxy at the meeting, whether or not a quorum exists, without further
notice other than by an announcement made at the meeting. Neither of us
currently intends to seek an adjournment of our meeting.
INFORMATION ABOUT EPITOPE, INC.
Epitope develops, manufactures, and markets oral specimen collection devices
and diagnostic products primarily for the detection of antibodies to the Human
Immunodeficiency Virus (HIV), the cause of AIDS, and for the detection of
cocaine and tobacco use. Epitope's lead product is the patented OraSure(R)
collection device. OraSure is used in conjunction with an oral specimen
diagnostic test. Epitope markets the device for use in screening life insurance
applicants and for public health use. The device is sold in the United States
and Canada, Japan, Thailand, United Kingdom and Hong Kong. On February 2, 2000,
Epitope began marketing OraSure for drugs-of-abuse testing in collaboration
with STC, under STC's trademark Intercept(TM) Drugs of Abuse.
The OraSure device consists of a small, treated cotton-fiber pad on a nylon
handle that is placed in the patient's mouth for two minutes. The device
collects oral mucosal transudate (OMT), a serum-derived fluid that contains
higher concentrations of antibodies than saliva, including HIV antibodies in
people infected with the virus. As a result, OMT testing is a highly accurate
method for detecting HIV infection. Because OraSure uses a noninvasive, needle-
free collection method without need for privacy during the collection process,
we believe that oral fluid testing has several significant advantages over
blood or urine-based tests for both healthcare professionals and patients.
Epitope has developed and introduced other products, including the Orasure
HIV-1 Western blot and EPIblot(R) tests used to confirm positive initial
screening tests. The OraSure HIV-1 Western blot confirmatory test kit is used
in conjunction with oral-specimen based screening tests, while EPIblot is used
in conjunction with blood-based screening tests. The Western blot test kits are
distributed worldwide under an exclusive agreement with Organon Teknika
Corporation. Epitope is developing a new product called OraQuick(R), a rapid-
format oral specimen and blood-based test designed to provide results in
approximately 20 minutes.
Epitope was incorporated under the laws of the state of Oregon in 1981.
Epitope's principal executive offices and laboratories are located at 8505 S.W.
Creekside Place, Beaverton, Oregon 97008 and its telephone number is (503) 641-
6115.
Additional information about Epitope is incorporated by reference into this
document from the various documents filed by Epitope with the Securities and
Exchange Commission. These documents contain important information about
Epitope and its financial condition as well as information on the compensation
paid to directors and executive officers and relationships and related
transactions between them and Epitope. See "Where You Can Find More
Information" on page 119.
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INFORMATION ABOUT STC TECHNOLOGIES, INC.
General
STC Technologies, Inc. develops, manufactures, and markets proprietary
diagnostic products and medical devices for use in clinical laboratories,
physician offices, hospitals, and workplace point-of-care testing. STC is a
supplier of oral fluid tests to the insurance risk assessment testing market
and also manufactures and markets other substance abuse testing products. In
addition to these activities, STC has made a net investment of more than $10.8
million over the past five years to develop UPT (Up-Converting Phosphor
Technology), a proprietary label detection platform technology for the
detection of drugs of abuse and other substances.
STC was incorporated in December 1987, as SolarCare Incorporated. STC began
operations in the Ben Franklin Technology Incubator at Lehigh University with
the original mission to develop and market a sunscreen towelette under their
SunSense trademark. Less than 18 months later, STC licensed the product and
technology to Schering Plough HealthCare Products, the maker of Coppertone sun
care products.
In 1991, STC entered the insurance risk assessment market developing
analytical tests known as immunoassays which use antibodies to detect the
presence of a target compound in a sample. Its first diagnostic test kit was
for cotinine (a nicotine metabolite). Since that time, STC has expanded its
diagnostic products to include a mix of drugs-of-abuse test kits for urine,
serum, oral fluid, and sweat.
Also in 1991, STC became the exclusive U.S. distributor of the Histofreezer
Portable Cryosurgical System. In 1998, STC acquired the rights to Histofreezer
from Koninklijke Utermohlen, NV, The Netherlands. As a result of the
acquisition, STC established a sales office in Reeuwijk, The Netherlands, and
took over a dealer network reaching more than 20 countries worldwide.
In 1994, STC acquired the assets of Enzymatics, Inc. and began to sell the
Q.E.D. Saliva Alcohol Test, a quantitative method for the detection of ethanol,
which has marketing clearance by the FDA and the U.S. Department of
Transportation.
In 1995, STC entered into exclusive worldwide patents, patent applications,
and trade secret licenses for UPT for use in all diagnostic applications.
Industry Background--In Vitro Diagnostic Testing Market
In vitro diagnostic testing is the process of analyzing biological specimens
to screen for, monitor, and diagnose disease and other medical conditions, or
to determine the chemical and/or microbiological constituents of the specimens.
In vitro diagnostic tests are performed outside the body, in contrast to in
vivo tests which are performed directly on or within the body. The in vitro
diagnostic market is large and essentially mature. Worldwide revenues in 1998
were approximately $20 billion and are expected to grow at an annual rate of
between 5% and 7% through 2001. The U.S. in vitro diagnostic market has
historically accounted for $7.8 billion, or approximately 40% of the total
worldwide market. The in vitro diagnostic market can be segmented by:
. the form of the technology being used,
.the market targeted, or
.the type of test performed.
Among the various forms of technology currently utilized, immunoassay and
clinical chemistry tests such as those developed by STC account for
approximately 50% of the $20 billion market. Commercial and hospital
laboratories dominate the end-user market and historically account for nearly
75% of the market.
The industry is facing constant pricing pressure as HMOs pass on cost
containment initiatives, the hospital industry consolidates, and reference
laboratories compete for a greater share of the clinical laboratory business.
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The relative maturity of the industry, in combination with the pressure faced
by the clinical laboratories, may continue to lead to consolidation within the
diagnostic testing market.
In vitro diagnostics remains an integral part of the overall health care
system. In vitro diagnostics represents approximately 4% of the total U.S.
health care costs. While the market is relatively mature and highly
competitive, certain new technologies currently under development by a number
of companies are expected to generate $10 billion in revenue by 2004.
Products
During the past 12 years, STC has established itself as a developer,
manufacturer, and marketer of proprietary immunodiagnostics tests and other
diagnostic products through the commercialization of niche market diagnostic
test kits and novel medical devices. STC's goal is to expand its current in
vitro diagnostic and medical device businesses and sustain long-term growth by
commercializing Intercept, UPlink and UPT as platform technologies.
Insurance Risk Assessment Products
In 1999, STC sold more than 50 million tests for insurance risk assessment.
STC develops and sells immunoassay tests in two formats, MICRO-PLATE and AUTO-
LYTE, to meet the specific needs of each customer in the insurance risk
assessment market. STC MICRO-PLATE assays are sold as finished kits containing
several vials of reagents and 12 strips of 8 plastic reaction containers coated
with antibodies. The sample to be tested is placed into a microwell along with
the reagents. The result of the test is determined by the color of the
microwell upon completion of the reaction. Controlling the reaction involves
the use of a variety of reagents by laboratory personnel. Test results are
analyzed by any of a variety of commercially available laboratory instruments
which are generally not provided by STC. The test kit is commonly used for high
sensitivity measurement of substances comprised of both large and small
molecules. STC has used this testing format to develop tests that detect
substances in urine, serum, and oral fluid specimens. AUTO-LYTE tests are sold
as bottles of reagents. The reagents are used with commercially available
automated analytical instruments which are manufactured by a variety of third
parties. AUTO-LYTE tests provide medium sensitivity to detect substances
comprised of small molecules. AUTO-LYTE is typically used in high volume,
automated, commercial reference laboratories. Test results are produced faster,
allowing for higher throughput.
STC currently markets the MICRO-PLATE oral fluid test for use in screening
life insurance applicants to test for two of the most important underwriting
risk factors: cocaine and cotinine (a metabolite of nicotine). STC sells the
reagents to insurance testing laboratories, which may in turn provide the
laboratory testing to insurance companies, often in combination with Epitope's
OraSure device.
STC has multi-year purchase agreements and reagent rental agreements with its
customers. These agreements generally are entered with a laboratory which has
agreed to purchase a minimum number of tests over a two-to-five-year period.
STC also offers these customers the option of a reagent rental agreement
pursuant to which STC provides the tests as well as analytical laboratory
equipment.
As of August 1999, more than 150 U.S. ordinary life insurance companies were
using oral fluid to varying degrees for testing applicants for life insurance.
These 150 companies included seven of the top ten U.S. life insurance
companies.
Drugs-of-Abuse Products
The worldwide drugs-of-abuse market totaled approximately $305 million in
1998. The majority of drugs-of-abuse testing occurs in centralized laboratories
as part of routine pre-employment workplace screening. However, on-site testing
for drugs-of-abuse is growing rapidly. Testing is concentrated on a set of
commonly abused drugs called the NIDA-5, consisting of THC (marijuana),
cocaine, opiates, amphetamines, and the hallucinogenic drug PCP. Growth in this
market has been slowed by a maturation of test volume and increased
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price competition. However, there has been growth in the on-site sector of the
market for rapid-results products to test for the presence of illicit drugs
which produce results in a short period of time. STC develops, manufactures,
and sells drugs-of-abuse tests in the MICRO-PLATE format. STC's MICRO-PLATE
drugs-of-abuse tests can be performed on commonly used instruments and produce
results in approximately one hour. STC has used this testing format for assays
that detect drugs-of-abuse in urine, serum, oral fluid, and sweat specimens.
STC's drugs-of-abuse products are currently sold in the forensic toxicology
market.
Within the drugs-of-abuse testing market, STC believes that an opportunity
exists for diagnostic testing for substances in bodily fluids other than the
traditional specimens, blood and urine. With respect to blood, the specimen
sample is required to be obtained by a trained professional and there exists
the possibility of infection from bloodborne pathogens for the person drawing
blood. With respect to urine, handling the sample is objectionable to some
people, and in some environments there is the risk that the sample may become
adulterated between initial collection and receipt by the testing
administrator. Therefore, STC has sought out alliances with developers of two
different alternative specimen collection systems, Epitope, the supplier of the
OraSure(R) oral fluid collection device and PharmChem Laboratories, Inc., the
supplier of the PharmChek Sweat Patch.
Forensic Toxicology--The forensic toxicology market is made up of 250-300
laboratories including federal, state and county crime laboratories, medical
examiner laboratories and reference laboratories.
In 1999, STC sold more than 1 million MICRO-PLATE drugs-of-abuse tests to the
forensic toxicology market. STC has developed products to meet the specific
needs of its customers in this market that are provided in easy to use kit
formats that run on automated microplate equipment. Kits are offered for many
sample types, such as, whole blood, serum urine, hair and sweat.
In the first quarter of 2000, STC entered into a multi-year agreement with a
third party to distribute these products outside the U.S.
STC has used this testing format as the basis for the oral fluid MICRO-PLATE
tests.
Intercept Oral Fluid Drug Test--STC has entered into a supply and
distribution agreement with Epitope and LabOne, Inc. for the Intercept service,
STC's oral fluid drugs-of-abuse test. Intercept is a laboratory-based testing
service that uses oral fluid as a testing matrix for the screening and
confirmation of the commonly used NIDA-5 drugs-of-abuse. This product was
launched for workplace testing, public health, and criminal justice markets in
February 2000. Each Intercept test kit contains an oral fluid collector
developed by Epitope and a series of reagents which are used in connection with
a MICRO-PLATE test.
In 1999, STC entered into an exclusive agreement with LabOne, Inc. to
collaborate to market and sell a complete solution for laboratory-based oral
fluid drugs-of-abuse testing in the workplace testing market in the United
States and Canada. The agreement provides for STC to exclusively sell, and for
LabOne to exclusively purchase and distribute, Intercept collection devices and
associated reagents for drugs-of-abuse testing in the workplace testing market
in the United States and Canada. Using Epitope's Intercept collection devices
and STC's reagents, LabOne provides all laboratory services necessary to test
oral fluid specimens collected by customers including screening and
confirmatory studies. The agreement provides for STC to receive marketing
assistance fees, per unit transfer fees on both Intercept collection devices
and associated reagents, a per specimen confirmation methods fees and profit-
sharing fees based upon actual customer pricing. In addition, STC received a
warrant to purchase 50,000 shares of LabOne's common stock. LabOne must meet
certain annual metrics to retain its exclusive rights under such agreement. The
term of the agreement, as amended, is until June 30, 2003 with automatic yearly
renewals unless either party gives notice at least 180 days prior to the end of
the then current term.
STC has received FDA clearance for all NIDA-5 drugs-of-abuse oral fluid
products and for cotinine. STC believes that the Intercept service will be
popular for drugs-of-abuse testing because of its non-invasive nature and ease
of maintaining a chain-of-custody without embarrassment to the person being
tested, as well as the lack of requirement for specially prepared collection
facilities. The availability of an oral fluid test is intended
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to allow workplace administrators to test for impairment on demand, eliminate
scheduling costs, and streamline the testing process. However, there can be no
assurances that STC will be able to exploit such opportunities.
PharmChem Laboratories, Inc.--PharmChem's PharmChek sweat patch was designed
as a drug collection system for the criminal justice testing market. The
collection device is a skin patch which can be worn for up to 14 days. This
significantly lengthens the drug use detection period. The patch is also
tamper-resistant, indicating that it had been removed during the testing
period. With particular applicability to the probation and parole environment,
the patch can be applied and removed at an on-site location, eliminating the
need for specialized specimen collection services, which STC estimates account
for about one-half of the cost of workplace drug testing.
In 1993 STC and PharmChem entered into an agreement that provides that STC
would develop and file FDA applications for reagents to be used in conjunction
with the PharmChek patch to detect the NIDA-5 in sweat. In exchange for
developing the products, PharmChem agreed to purchase its requirements of
reagents from STC. STC has received FDA clearance to market tests using
reagents to test for all the NIDA-5 drugs-of-abuse products. As of June 30,
2000, sales of reagents to PharmChem were limited.
Q.E.D.(R) Saliva Alcohol Test
The Q.E.D. Saliva Alcohol Test is an on-site, low-cost alternative to breath
or blood testing. The test is a quantitative, oral fluid based method for the
detection of ethanol, and has been approved for sale by the FDA and the U.S.
Department of Transportation. The product received a Clinical Laboratory
Improvement Act of 1998 ("CLIA") Waiver in 1997. Each Q.E.D. test kit contains
a collection stick which is used to collect a sample of saliva and a disposable
detection device which display results in a format similar to a thermometer.
The Q.E.D. device is easy to operate and instrumentation is not required to
read the result. The product line comes in two testing ranges 0 to 0.145% and 0
to 0.30% blood alcohol and produces results in two to five minutes.
The markets for alcohol testing are relatively small and fragmented with a
broad range of legal and procedural barriers to entry. Markets range from law
enforcement testing to workplace testing of employees in safety sensitive
occupations. The Q.E.D. test has successfully been adopted by end users in the
petroleum, heavy construction, trucking, and retail business because it is a
low-cost, portable, easy-to-administer, quantitative testing method. Typical
usage situations include pre-employment, random, post-accident, reasonable-
cause, and return-to-duty testing.
In 1999, STC enhanced Q.E.D. performance and upgraded the manufacturing line.
STC also entered into a contract for a private label distributor in
Scandinavia, for 150,000 units of the device. This contract was completed in
February 2000.
Histofreezer(R) Portable Cryosurgical Removal System
STC introduced the Histofreezer Portable Cryosurgical Removal System to the
U.S. market in 1991, as a low-cost alternative to liquid nitrogen and other
eradication methods for removal of benign epidermal lesions. In June 1998, STC
acquired the Histofreezer product from Koninklijke, Utermohlen, N.V., The
Netherlands. As part of the acquisition, STC established a sales office in
Reeuwijk, The Netherlands, and is now integrating a dealer network in more than
20 countries worldwide.
Histofreezer is a mixture of two environmentally friendly cryogenic gases in
a small aerosol canister. When released, these gases are delivered to a
specially designed foam bud, cooling the bud to -57C. The frozen bud is then
applied to the lesion for 20 to 40 seconds creating localized destruction of
the target area. Histofreezer is sold in two sizes of canisters. Histofreezer
sales have been targeted to primary care physicians such as pediatricians,
general and family practitioners, and other physician segments that
traditionally referred patients to dermatologists to remove warts. STC has
established a national network of distributors to reach the physician's office
market in the United States.
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Up-Converting Phosphor Technology--UPT
Overview
In 1995, STC entered into exclusive worldwide patents, patent applications,
and trade secret licenses for UPT for use in all diagnostic applications and
has expended more than $10 million to develop UPT to date. UPT is based on the
use of a unique patented technology which is used to detect specific substances
in tests designed by STC. UPT utilizes the same particle shell that is coated
onto a television screen, but the internal chemistry of the particle has been
changed. These changes result in a particle that is excited by infrared light
as compared to an ultraviolet light source for television. STC and its research
partners have developed phosphorescent particles that up-convert infrared light
to visible light which STC intends to use to develop for several applications.
UPT is currently in development and STC has not yet brought to market any
products which utilize UPT.
This key feature of UPT forms the basis for its use as a detector system. The
process of converting infrared light to visible light is called up-conversion.
STC believes that UPT overcomes some of the limitations of other diagnostic
detection methods with features not commercially available today. When used in
conjunction with antibodies or DNA probes, UPT particles produce zero
background interference, which dramatically increases the potential sensitivity
of any test system. In addition to zero background interference, these
particles are stable in a variety of biological specimens, allow simultaneous
detection of multiple biological markers, and can be used to miniaturize the
test platform.
Key UPT competitive features are as follows:
. No background interference
. High sensitivity
. Multiplex detection of several substances simultaneously
. No fading permits a permanent record
. Applicability to a variety of instrument platforms
. Low cost, easy-to-use
. Compatible with alternative testing matrices such as oral fluid, blood or
others.
STC has reached important milestones in the development of UPT, including
improving the manufacturing process to produce UPT particles, working to
optimize UPT particle coating techniques, producing four distinct colors of UPT
particles to begin experiments on the simultaneous detection of multiple
biological markers to permit multiplexing, and demonstrating initial
feasibility for the use of UPT particles in drugs-of-abuse, infectious disease,
cancer, and limited DNA detection applications. Each of these milestones is an
important step in developing commercial products utilizing UPT.
Description
UPT is a proprietary label detection platform technology being developed by
STC that can be applied to the detection of minute quantities of various
substances such as antigens, proteins, and DNA. High sensitivity is a feature
of UPT patented particle technology and compares favorably to small molecule-
based detection systems such as fluorescence or enzyme assays. The use of STC's
particle-based detection provides a stronger signal for each event detected and
thereby enhances sensitivity in diagnostic testing systems.
Phosphor particles have been used for decades in televisions producing
colored screens and in fluorescent light bulbs. When ultraviolet light strikes
the phosphor-coated area in a screen or bulb, it excites the particles and
colored light is produced. STC's patented improvements on this base technology
employ chemical changes inside the phosphor particles so that infrared light
can be used to produce the colored signal. This use of infrared light rather
than ultraviolet light to create a colored signal is called up-conversion as
opposed to down-conversion which is the use of ultraviolet light. The use of
infrared light to excite the phosphor particles and
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produce a colored light signal creates an important competitive advantage for
the technology in biological systems, especially human clinical diagnostics.
Existing enzyme or fluorescent-based assays employ visible or ultraviolet light
to emit the signals from the enzyme substrate or fluorescent molecules used as
reporter signals in these systems. The disadvantage of using light in the
visible or ultraviolet portion of the spectrum is that often molecules in the
cells or samples for analysis can also create colored light from these
excitation sources. When this occurs, a non-specific signal is generated which
dilutes or obscures the signal of interest for the diagnostic test being
administered. Because up-conversion does not exist in nature, biological
samples and specimens will not produce light, and therefore, will not cause
background interference when excited by infrared light.
The benefit of this "unnatural" detection system is that non-specific
background signals are virtually eliminated. Superior detection sensitivity in
the UPT system should exist compared to other methodologies.
Competitive Analysis of UPT Labels
Biological tests rely on some reporter method to amplify or transform a
limited amount of specimen to be measured into a detectable signal. There are a
variety of methods to do this amplification, however, all of them have
limitations or problems that narrow their scope and utility. The most common
detection labels or reporters are as follows:
Enzymes--are naturally occurring proteins whose biological function is to
catalyze the conversion of materials. They are normally used to catalyze
the conversion of the target substrate to produce energy which in turn is
utilized to produce colored by-products. The color produced is proportional
to the amount of target material in the test specimen. Enzymes, however,
are easily affected by interferants in biological specimens and often have
limited stability.
Fluorescence--is the conversion of light energy to a lower energy
wavelength from a molecule excited by light of a higher energy. The problem
is that many biological materials also fluoresce, which limits this
technology as a label. Fluorophores also fade or bleach when excited for
long periods of time; this limits fluorescence usefulness to short
detection periods.
Radioisotopes--were the first labels used when testing utilizing
antibodies and enzymes was developed nearly thirty years ago. Radioisotopes
are very sensitive, however, their radioactivity decays rapidly, making
them unstable. Due to safety hazards associated with radioactivity,
disposal of the test material becomes problematic, and expensive storage
and disposal costs come into play. Additionally they require special
handling and licensing. The use of radioisotopes is declining as more
stringent laws are enacted for the disposal of radioactive waste.
Chemiluminescence--is the creation of visible light from a chemical
reaction. It produces an amount of light proportional to the level of
substance being measured. Chemiluminescence has been gaining popularity as
a label system. It is relatively easy to use, however, the instrument
required for detection is more expensive than in most other label systems.
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When these labels are integrated into a traditional test system, a number of
common limitations are found. The following table highlights some of these
limitations and the potential advantages of UPT:
<TABLE>
<CAPTION>
Competitive Features of Label Limitations
UPT Traditional Testing Systems UPT Advantage
----------------------- --------------------------- -------------
<S> <C> <C>
Stability of Label Immediate analysis required Permanent UPT labels are
(Fading)............... for enzyme labels or stable permitting
overdevelopment can occur flexibility in running and
analyzing test samples.
Samples may be repeatedly
analyzed over weeks to years
Loss of signal after Photobleaching is not
exposure to excessive light problematic with UPT labels
known as photobleaching
involving fluorescent labels
prohibits prolonged analysis
Background Blood, tissue and Up-conversion eliminates
Interference........... contaminants can interfere non-specific background
with specific signal signals or noise
creating potential for false
positives
Single vs. Multiple
Sample Processing...... Enzyme methods require Presently, UPT can be used
analysis of a single to detect 4 target
determinant per sample substances per sample,
thereby reducing samples and
processing time
Fluorescence methods require
careful selection of
multiple label combinations
to avoid quenching or energy
transfer resulting in loss
of signal
Sensitivity............. Sensitivity varies from 10- Sensitivity of 10-/18/ for
/18/ for chemiluminescence UPT equals the most
to 10-/12/ for enzymes sensitive detection
technology
Hazards................. Some enzyme-based systems UPT particles are non-
employ hazardous materials hazardous
as part of the test
Radioactive waste creates an
environmental hazard and has
a disposal expense
</TABLE>
As indicated by the above table, current tests indicate that UPT may provide
a variety of benefits not possible with other detection methods and may
overcome many of their limitations. Consequently, STC believes that UPT is more
flexible and broadly applicable than other detection methods commercially
available. However, UPT is a new process which has not undergone large scale
trials to validate its expected performance nor has it received regulatory
approvals required in order to commercialize a product utilizing UPT.
UPT Lateral Flow Applications
Background. In vitro tests of biological compounds have become routine for a
variety of applications, including medical diagnosis, forensic toxicology, pre-
employment and insurance risk screening, and foodborne pathogen testing.
Industrial demands for low-cost, sensitive, rapid tests with the potential for
screening multiple
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analytes simultaneously or in rapid succession have caused a burgeoning of
testing systems and formats. Virtually all such systems can be characterized as
having three key components: (1) a probe that recognizes the target substance
being tested for with a high degree of specificity; (2) a reporter that gives a
signal that is qualitatively or quantitatively related to the presence of the
substance tested for; and (3) a detection system capable of relaying
information from the reporter to a method of interpretation. The probe which
can be an antibody or nucleic acid sequence, should interact uniquely and with
high affinity to the analyte but not with non-targets in order to minimize
false positive responses. The reporter is often directly or indirectly coupled
or conjugated to the probe, providing a signal that is related to the
concentration of the substance tested for upon completion of the test. The
reporter should not be subject to signal interference from the surrounding
matrix, either in the form of signal loss from extinction or by competition
from non-specific signal from other materials in the system. This type of
interference is also referred to as noise. The detector is usually a device or
instrument used to determine the presence of the reporter and therefore
substance being tested for in the sample. Ideally, the detector should provide
a quantitative scale for the measurement of the substance tested for that is
both accurate and precise. In many rapid on-site tests, the detection
instrument is the human eye and the test results are reported as a positive or
negative result.
Rapid Test Format. Working with SRI International, Menlo Park, California,
STC has been able to incorporate UPT labels into an on-site rapid test format
which provides results in a short period of time. Similar to a home pregnancy
test, these products work by applying fluid to a test strip which has been
treated with specific biologicals. Carried by the liquid sample, phosphors
labeled with corresponding biologicals flow through the strip and may be
captured as they pass into specific zones. The amount of phosphor signal found
on the strip will be proportional to the amount of the target substance.
STC believes that there exists increasing demand for point-of-care diagnostic
tests which provide results in a short period of time. Many currently marketed
rapid, point-of-care technologies are limiting due to their analytical
sensitivity or the number of analytes detected in a single test. STC is in the
process of developing up-converting phosphors as reporters in point-of-care
diagnostic tests using a lateral flow format.
STC has expanded its efforts to pursue point-of-care UPT applications. To
understand its potential, a variety of basic feasibility studies have been
conducted. These studies demonstrated the potential of the label platform.
These demonstration tests included a variety of drugs, pathogens, proteins,
and DNA. The sensitivities demonstrated by these tests ranged from 10 to 1,000
times better than comparable commercial products. Given the wide array of
analytes feasible with UPT, STC expects to pursue broad market applications in
the future.
Instrument Platform. UPT particles are not visible to the eye and therefore
any test employing UPT labels requires an instrument to "read" the test device
and show the result on a screen. A prototype device employing UPT has been
produced by SRI International as part of a federal grant to demonstrate UPT's
potential for detecting biological and chemical warfare agents. Although only
in its early stages, it was successful enough to become the prototype for
developing a commercial reader. Under the UPlink trademark, STC is pursuing the
commercialization of a UPT collector, test strip, and reader intended for
multiplexed, high sensitivity diagnostic applications.
Recent developments in laser technology have created the opportunity for
advancement in the commercial development of benchtop or hand-held instruments
for the detection of up-converting phosphors in diagnostic tests. In
cooperation with SRI International, STC has developed both a prototype desktop
and a hand-held instrument for use with UPT.
Test Formats
Background. UPT particles are easily conjugated to biomolecules such as
antibodies. This creates a sensitive probe-reporter pair that has been
successfully adapted to a standard lateral flow format. UPT particles combined
with target-specific antibodies are dried into a fleece attached to the strip
and in physical contact with both the strip and an overlying sample absorbent
pad. Beyond the UPT fleece is a wicking fleece that assists in
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driving capillary flow during the test. Once all reagents have been applied,
the test strip is dried and assembled into a protective cassette housing. These
strips are expected to have a shelf-life of 12 months or greater under
appropriate storage conditions.
UPlink Status. STC is pursuing the development of UPlink for on-site drugs-
of-abuse testing in oral fluid samples. During 2000, STC will focus its
research and development activities on feasibility and development of a NIDA-5
drugs-of-abuse multiplexed oral fluid test. Prior to commercialization, UPlink
must undergo additional process and development testing, clinical trials, and
receive FDA approval. STC anticipates that a commercial product for use in
onsite drugs-of-abuse testing in oral fluid samples may be available in the
second half of 2001.
External Development Opportunities. STC is conducting research into
additional applications for UPT outside the in vitro diagnostic market which
would be exploited by developing strategic relationships with third parties for
the potential applications. These relationships would potentially generate
revenue streams for STC through research grants, licensing fees, royalties,
manufacturing capabilities, and instrument sales.
UPT License Agreements
In April 1995, STC entered into an agreement with SRI International and the
David Sarnoff Research Center which was subsequently amended in September 1995.
STC received exclusive worldwide rights under patents and know-how owned by SRI
to develop and market products relating to up converting phosphor in all
diagnostic applications that involve the use of UPT. STC also received non-
exclusive worldwide rights under patents and know how owned by Sarnoff to
develop and market products relating to up converting phosphor in all
diagnostic applications that involve the use of UPT. STC has the right to
sublicense these rights under the agreement subject to consent from SRI and
Sarnoff Research Center.
Under STC's agreement with SRI, STC is required to make license, maintenance
and royalty payments to SRI. STC made an initial license payment to SRI in 1995
as well as research fees in 1995 and 1996 in connection with development
projects in which SRI participated. STC is obligated to make annual maintenance
payments on each anniversary of the agreement following the completion of the
development period until the first commercial sale of a product. STC also must
make royalty payments for a period equal to the longer of ten years from the
date of the first commercial sale of the products or the term in which licensed
patents would infringe the manufacture, use, or sale of a product, but for
SRI's license to STC. Royalty payments must be made by STC for any revenues
generated from the sale of any test products, instrument products, reagent
rentals or sublicenses. A minimum annual royalty commences upon the first
commercial sale of products developed using the licensed technology. STC
believes that the royalty rates payable by STC are comparable to the rates
generally payable by other companies under similar arrangements.
STC's agreement with SRI terminates upon the expiration of STC's obligation
to pay royalties to SRI. In addition, SRI has the right to terminate the
agreement if STC:
.breaches any material provision of the agreement which has not been cured
within thirty days after written notice of the breach;
.files for bankruptcy; or
.has a proceeding commenced or an order, judgement or decree entered against it
seeking dissolution, liquidation of STC or similar action which continues
undismissed or unstayed for a period of sixty days.
Research and Development
In 1999, research and development activities focused on development of UPT,
commercializing the Intercept service, toxicology products, development of
monoclonal antibody capabilities, and improving Q.E.D. performance and cost
structure. UPT efforts were focused on development of a lateral flow device,
particle size reduction,
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feasibility studies for on-site drugs-of-abuse, foodborne pathogens, cardiac
markers, and preliminary DNA feasibility. STC has expanded the research and
development group to 23 scientists/engineers and a system integrator.
STC supplements its own research and development activities by funding
external research. STC has been, and will continue to fund research at Leiden
University, SRI International, and the David Sarnoff Research Institute, Palo
Alto, California. STC also funds various research activities at Lehigh
University, Bethlehem, Pennsylvania.
Research and development expenses totaled approximately $3.3 million in 1999,
of which $468,000 was paid to external consultants for research related
primarily to UPT and $2.8 million was spent internally by the company for
research related primarily to UPT. Research and development expenses totaled
approximately $2.3 million in 1998, $174,000 external and $2.1 million was
internal and $1.9 million in 1997, $186,000 external and $1.7 million was
internal.
Sales and Marketing
STC's strategy is to reach the major target markets through a combination of
direct sales and independent distributors. STC's marketing strategy is to
develop a mix of trade shows, print advertising, and distributor promotions to
support sales to each target market. At this time, STC's Insurance and Forensic
Toxicology products are sold directly to end users; Histofreezer and Q.E.D.
product lines are sold through independent distributors; and Intercept is sold
to workplace testing through LabOne and to the public health and criminal
justice markets on both a direct basis and a co-marketing plan with Epitope.
STC sells the Histofreezer product line to distributors that market to more
than 150,000 primary care physicians and podiatrists. Major distributors
include McKesson HBOC, Physicians Sales & Service, Bergen Brunswig, and Henry
Schein. Sales of Histofreezer totaled approximately $5.7 million in 1999, which
represented approximately 41% of STC's revenue in that year. Sales of
Histofreezer totaled $4.8 million, or 45% of STC's revenue in 1998 and $3.1
million, or 39% of STC's revenue, in 1997.
Significant Customers, Suppliers Products, and Markets
In 1999, two customers accounted for approximately 24% of total revenues with
LabOne accounting for 13% of total revenues and Osborn Labs accounting for 11%
of total revenues. In 1998 and 1997, one customer, LabOne, accounted for
approximately 14% and 17% of total revenues, respectively. The loss of either
of these customers would have a material adverse effect on STC.
Histofreezer is manufactured in the Netherlands by Koninklijeke, Utermohlen,
N.V., the company from which STC acquired the product in 1998. STC purchases
the product pursuant to an exclusive production agreement between the
companies. The production agreement provides that Koninklijeke, Utermohlen,
N.V. shall be the exclusive supplier of the Histofreezer product until June 1,
2003. The management of STC believes that additional manufacturers of the
Histofreezer product are available on terms no less favorable than the terms of
the production agreement with Koninklijeke, Utermohlen, N.V. in the event that
Koninklijeke, Utermohlen, N.V. were to be unable to continue manufacturing the
Histofreezer product.
STC manufactures and markets its products primarily in the United States and
Europe. STC's principal manufacturing facilities are located in the United
States and STC operates a sales office in the Netherlands. Product revenues
attributable to customers in the United States amounted to $10.8 million, $8.9
million and $7.4 million in the years ended December 31, 1999, 1998 and 1997
respectively. Revenues attributable to customers in Europe amounted to $1.8
million in the year ended December 31, 1999 and $1.2 million during the period
from June 1998 through December 1998 in which STC had operations in the
Netherlands.
Manufacturing
STC's AUTO-LYTE and MICRO-PLATE assays are manufactured at its Bethlehem,
Pennsylvania, facility. STC manufactures the test components and assembles and
packages the tests for distribution. More than 50
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million tests were produced at STC's facility in 1999. STC's tests require the
production of highly specific and sensitive antibodies corresponding to the
antigen of interest. Antibodies are produced commercially by injecting a
vaccine consisting of a purified, specific antigen into one of a variety of
animals. The injected animal's immune system then manufactures antibodies,
which are contained in blood samples which are collected on a routine basis,
purified through the use of a chemical process, and prepared for use in various
diagnostic products. Substantially, all of STC's antibody requirements are
produced by a contract supplier. However, in 1999, STC began to develop its own
in-house monoclonal and polyclonal antibody capabilities. STC believes that it
maintains adequate reserves of antibody supplies and believes it has access to
sufficient raw materials for its products.
AUTO-LYTE test kits are manufactured by adding specific antibodies to
chemical solutions which are then packaged as a defined volume of liquid in a
plastic container for use in laboratory equipment. MICRO-PLATE test kits are
produced by placing purified antibodies onto a plastic container which is sent
to customers in multiples of ninety-six tests along with a set of reagents
necessary to control the reaction. The reaction container is sealed in a foil
package and placed in a box with the reagents. The Q.E.D. test is manufactured,
packaged, and shipped from STC's Bethlehem facility.
The Q.E.D. test is manufactured, packaged, and shipped from STC's Bethlehem
facility.
Employees
As of June 30, 2000, STC had 95 full-time employees, including 25 in sales,
marketing, and technical support; 28 in manufacturing; 31 in research and
development; and 11 in administration and finance. Ten of STC's employees hold
Ph.D. degrees. STC's employees are not represented by a collective bargaining
agreement.
STC offers a benefits program to all of its full-time employees. STC
contributes 80% of the premium cost for comprehensive health care coverage for
employees and their families. Additionally, STC maintains a 401(k) plan with
matching contributions for the lesser of 8% of salary or $3,000. STC
contributed $113,708 in 1999, $93,607 in 1998 and $88,106 in 1997 to fund its
matching commitments.
Competition
The diagnostic industry is a multi-billion dollar international industry and
is intensely competitive. Many of STC's competitors are larger with greater
financial, research, manufacturing, and marketing resources. Important
competitive factors for STC's products include product quality, price, ease of
use, customer service, and reputation. Industry competition is based upon
scientific and technological capability, proprietary know-how, access to
adequate capital, the ability to develop and market products and processes, the
ability to attract and retain qualified personnel, and the availability of
patent protection.
A few large corporations produce a wide variety of diagnostic tests and other
medical devices and equipment, a larger number of mid-size companies generally
compete only in the diagnostic industry, and, finally, a significant number of
small companies produce only a few diagnostic products. As a result, the
diagnostic test industry is fragmented and segmented.
The future market for diagnostic tests is expected to be characterized by
consolidation, greater cost consciousness, and tighter reimbursement policies.
The purchaser of diagnostic products will place increased emphasis on lowering
costs, automation, service, and volume discounts. The increased complexity of
the market is expected to force many competitors to enter into joint ventures
or license certain products or technologies.
In the insurance risk assessment market, STC's AUTO-LYTE homogeneous assays
for cocaine and cotinine compete with reagents from Microgenics, Inc. STC's
AUTO-LYTE homogeneous assays for Beta-Blockers and Thiazide as well as MICRO-
PLATE heterogeneous assays for the detection of cocaine, cotinine and IgG in
oral fluid are the only assays available in the market place. In urine
chemistries, STC's significant competitors include Olympus America and Roche.
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STC MICRO-PLATE drugs-of-abuse reagents are targeted to forensic testing
laboratories where sensitivity, automation, and "system solutions" are
important. With respect to sensitivity, in the past laboratories have typically
had to rely on radioimmunoassay. Radioimmunoassay requires radioactive
materials, which have short shelf-life and disposal problems. STC's MICRO-PLATE
tests run on automated equipment and, uncommon for a company of its size, STC
delivers to the laboratory a complete "system package" of reagents, and
instrumentation (known as a "reagent rental" transaction) to meet the specific
needs of each customer.
In the forensic toxicology market, STC competes with both homogeneous and
heterogeneous tests manufactured by a host of companies. Significant
competitors in the market for homogeneous assays include those manufactured by
Dade/Behring, Abbott Diagnostics, Roche Diagnostics and Microgenics.
The Intercept drug testing service competes with a wide variety of drug
testing products and services. These competitors can be divided into two
groups: 1) rapid tests; and 2) lab based services. Within each product or
service group, drug testing can be further divided into testing matrix such as
urine, hair, sweat and oral fluids.
Major competitors in the lab-based drug testing are Quest/SmithKline
Diagnostics, LabCorp, Psychemedics, and Medtox Laboratories. Major competitors
in the rapid testing market include American Biomedica, Roche Diagnostics, and
Biosite Diagnostics.
Within the sub-segment of oral fluid drugs-of-abuse testing, Intercept
competes with one company, Avitar, Inc, who markets a rapid test called Oral
Screen(TM) to the workplace and criminal justice markets. Another development
stage company, LifePoint, Inc. has announced plans to introduce a reader-based
saliva test panel which will include alcohol testing during 2001.
Q.E.D. has two direct competitors, Roche Diagnostics, Inc. and Chematics.
These companies offer semi-quantitative saliva-based alcohol tests and both
have received Department of Transportation approval. Indirect competitors who
offer breath testing equipment include Intoximeters, Drager, and CMI. Although
there are lower priced tests on the market that use oral fluid or breath as a
test medium, these tests are qualitative tests that are believed to be
substantially lower in quality and scope of benefits than the Q.E.D. test.
The Histofreezer product's patented delivery system and warmer operating
temperature than liquid nitrogen, provide STC with the opportunity to target
sales to physicians, such as family practitioners, pediatricians, and
podiatrists. STC does not target sales to dermatologists because they have the
volume of patients required to support the capital costs associated with a
liquid nitrogen delivery system. There is limited competition for convenient
cryosurgical products for wart removal in the primary care physician market.
Consequently, STC has been able to price the product to provide adequate
margins for STC, medical product dealers, and physicians.
Competition for Histofreezer includes portable cryosurgical systems from
CryoSurgery, Inc. In addition, liquid nitrogen is used by medical professionals
to remove warts and other benign skin lesions. Lastly, patients may purchase
various over-the-counter products to treat warts at home.
Patents, Copyrights, and Proprietary Information
STC seeks patent and other intellectual property rights to protect and
preserve its proprietary technology and its right to capitalize on the results
of its research and development activities. STC also relies upon trade secrets,
know-how, continuing technological innovations, and licensing opportunities to
provide it with competitive advantages in its selected markets and to
accelerate new product introductions. Respecting the patent and intellectual
property rights of others, STC regularly searches for third-party patents in
its fields of endeavor to shape its own patent and product commercialization
strategies as effectively as possible as well as to identify licensing
opportunities.
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As part of the UPT license agreements, STC licensed U.S. and foreign patents
and/or patent applications which generally relate to the development of up-
converting phosphor technology and the use of that technology for diagnostic
applications. Since October 7, 1998, the U.S. and European Patent Offices have
issued STC's licensors eight patents for methods, compositions, and apparatuses
relating to phosphor technologies. Several additional UPT patent applications
remain pending in the U.S. and abroad. STC expects to continue to expand its
UPT patent portfolio in 2000.
STC has five U.S. patents and numerous foreign patents and patent
applications for the analog-to-digital threshold signaling technology used in
the Q.E.D. test. These patents are related to the analog-to-digital technology
color control systems and methods, systems and devices for the test, and
detection of biochemical molecules.
STC has three U.S. patents and numerous foreign patents issued for
apparatuses and methods for the topical removal of skin lesions relating to its
Histofreezer device. In addition, STC was issued U.S. patent 5,885,789 in May
of 1999. This patent relates to STC's method for detecting blood in urine
specimens and STC's Auto-Lyte products.
It is STC's policy to require its employees, consultants, outside
collaborators, and other advisors to execute confidentiality agreements upon
the commencement of employment or consulting relationships with STC. These
agreements provide that all confidential information developed by, or made
known to, the individual during the course of the individual's relationship
with STC, is to be kept confidential and not disclosed to third parties except
in specific circumstances. In the case of employees, the agreement provides
that all inventions conceived by the individual during his tenure at STC will
be the exclusive property of STC.
UPT(TM) and Up-link(TM) are trademarks of STC and Histofreezer(R) and Auto-
Lyte(R) are registered trademarks of STC.
Government Regulation
Most of STC's diagnostic products are regulated by the FDA as medical
devices. Prior to entering commercial distribution, all medical devices must
undergo FDA review under either a 510(k) or a PMA review procedure depending on
the type of test. Compared to a PMA, 510(k) notification is generally a
streamlined filing submitted to demonstrate that the device in question is
"substantially equivalent" to another legally marketed device. Tests for
therapeutic drugs and hormones are included in this category. Approval under
this procedure may be granted within 90 days, but in some cases as much as a
year or more is required. STC has submitted and gained market clearance for
fifty-one 510(k)s since inception for human diagnostic products such as
Intercept and other drugs-of-abuse products as well as Histofreezer(R).
Many of the insurance testing products are labeled for "insurance risk
assessment only" and many of the DOA products sold to state crime labs are
labeled for "forensic use only." The FDA does not currently regulate either of
these markets.
Products for physicians' offices and hospital markets are affected by the
Clinical Laboratory Improvement Act of 1998, which is designed to ensure the
quality and reliability of medical testing. Clinical Laboratory Improvement Act
regulations may have the effect of discouraging or increasing the cost of
testing in physicians' offices. These regulations establish requirements for
laboratories in the area of administration, participation in proficiency
testing, patient-test management, quality control, personnel, quality
assurance, and inspection. Under these regulations, the specific requirements
that a laboratory must meet depend upon the complexity of the tests performed
by the laboratory. Laboratory tests are categorized as either: (1) waived
tests, (2) tests of moderate complexity, or (3) tests of high complexity.
Laboratories that perform either moderate or high complexity tests must meet
standards in all areas, with the major difference in requirements between
moderate and high complexity testing concerning quality control and personnel
qualifications. In general, personnel conducting high complexity testing will
require more education and experience than those doing moderate complexity
testing. Under the Clinical Laboratory Improvement Act regulations, all
laboratories
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performing moderately or highly complex tests will be required to obtain either
a registration certificate or certificate of accreditation from the Health Care
Financing Administration. The Q.E.D. test is considered waived under these
regulations. None of STC's other products are currently subject to these
regulations.
The U.S. Food, Drug, and Cosmetic Act regulates STC's quality and
manufacturing procedures for all of its products by requiring STC and its
contract manufacturers demonstrate compliance with Quality Systems Regulations.
The FDA monitors compliance with these requirements by requiring manufacturers
to register with the FDA, which subjects them to periodic FDA inspections of
manufacturing facilities. The FDA conducted an unannounced inspection of the
operations of STC in June 1996. That investigation was concluded without any
disciplinary action.
STC has voluntarily recalled Q.E.D. tests on two occasions. In both
instances, the Q.E.D. tests were recalled because STC did not believe that the
materials met STC's quality standards. Both recalls were conducted according to
FDA guidelines. The FDA investigated the initial recall in December 1996 and
did not take any action against STC. The FDA investigated the second recall in
March 1998. At the conclusion of that investigation, STC was issued a notice
known as a 483 Notice. The notice was issued due to STC's failure to confirm to
the FDA that the corrective actions taken by STC to remedy the deficiencies
leading to the March 1998 recall had corrected the problems. STC has confirmed
with the FDA that its corrective actions addressed the issues that led to the
recall. If violations of the applicable regulations are noted during future FDA
inspections of STC's manufacturing facility, or the manufacturing facilities of
a contract manufacturer, the continued marketing of STC's products may be
adversely affected.
STC is currently pursuing ISO certification in connection with its intent to
file for CE marks. The European Union has established a requirement that in
vitro medical devices must receive a CE mark by December 2003, including many
of STC's products. STC will not be permitted to sell its products in Europe if
a CE mark is not obtained by this date. STC may continue to sell its products
in Europe until this deadline. There are no assurances that STC will obtain
these certifications. Preliminary analysis has been completed which disclosed a
need for additional documentation and training. Management of STC does not
believe any of the areas identified in the report represent a material
impediment to receiving certification and has generated an action plan to
address areas for improvement. The pre-assessment audit has been scheduled for
the third quarter of 2000 with the registrar and the registration audit is
planned for the fourth quarter of 2000. If STC fails to obtain these
certifications, or is delayed in efforts to obtain these certifications, it
could result in the inability of STC or its strategic allies to sell product
and may lead to the termination of strategic alliances where that type of
effect could occur such as with Drager Sicherheitstechnik GmbH.
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STC must also submit evidence of marketing clearance by the FDA to Health
Canada's Therapeutic Products Programme prior to commencing sales in Canada.
STC has completed this process for all of its current products which require
FDA review.
In addition to CE mark certification, FDA approval is pending for two drugs-
of-abuse products. Future products will be submitted for regulatory approval
based upon intended use. Products which are considered human diagnostic
products will be submitted to the FDA as well as appropriate European
regulators.
Environmental Regulations
Because of the nature of its current and proposed research, development, and
manufacturing processes, STC is subject to stringent federal, state, and local
laws, rules, regulations, and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, and handling and
disposal of certain materials and wastes. STC believes that it has complied
with these laws and regulations in all material respects and has not been
required to take any action to correct any noncompliance.
Product Liability Insurance
STC's products carry the risk of potential product liability exposure.
Consequently, STC maintains product liability insurance to cover any such
occurrence. STC believes it has adequate coverage, but there can be no
assurance that there is sufficient coverage. There are no claims pending
against STC at this time.
Properties
On April 30, 1999, STC signed a five-year lease to rent 25,845 square feet of
space at the John M. Cook Technology Center on the south side of Bethlehem
located at 150 Webster Street. In March 2000, STC occupied this facility as its
main corporate, sales and marketing, and research and development offices.
Annual rent for the first five years of this lease is approximately $270,000.
The lease also includes a five-year renewal option and a ten-year purchase
option. STC's administrative offices and research and development laboratories
are located at this Facility.
STC owns 33,500 square feet on 3.4 acres of land at 1745 Eaton Avenue in
Bethlehem, Pennsylvania which is used for manufacturing. STC rents additional
warehouse space on an as-needed basis. STC leases space for a sales office in
Reeuwijk, The Netherlands.
STC believes its manufacturing and laboratory facilities are in compliance
with all applicable laws, rules, and regulations, and are maintained in a
manner consistent with the FDA's Quality Systems Regulations standards.
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STC believes that its facilities are in good condition, well maintained, and
suitable for its needs.
Legal Proceedings
STC is not a party to any material pending legal proceedings against it.
Recent Developments
In March 2000, STC signed a research and development agreement with Drager
Sicherheitstechnik GmbH, a European manufacturer and supplier of medical and
safety technology products for health care and industrial applications, to
develop and optimize the UPlink system for rapid detection of drugs of abuse in
oral fluid. The UPlink system developed with the European partner is expected
to be marketed to law enforcement officials as a system for rapidly assessing
whether a subject is under the influence of one or more DOA substances. As part
of the research and development agreement, STC received a non-refundable fee
and will receive additional fees upon achievement of technical milestones. Upon
successful completion of such research and development activities, the European
partner has the option to become STC's exclusive worldwide distributor of the
UPlink drugs of abuse test strip and reader developed under the research and
development agreement to law enforcement officials for use in rapidly assessing
whether a subject is under the influence of one or more drugs-of-abuse
substances.
Executive Compensation
The following table provides historical information on compensation paid
during the fiscal years ended December 31, 1999, 1998 and 1997 to the named
executive officers of STC who will serve as executive officers of OraSure
Technologies. See page 40 for a discussion of new executive employment
agreements with OraSure Technologies. References to numbers of shares refer to
shares of STC prior to the mergers and will convert into a number of shares of
OraSure Technologies based upon the exchange ratio.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-term
Compensation Compensation
---------------- ------------
Securities
Underlying All Other
Name and Position Year Salary Bonus Options Compensation(1)
----------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael J. Gausling.......... 1999 $175,000 $70,000 3,000 $3,000
Chief Executive Officer and 1998 175,000 10,000 -- 3,000
President 1997 175,000 -- -- 3,000
R. Sam Niedbala.............. 1999 160,000 48,000 3,000 3,000
Executive Vice President, 1998 160,000 10,000 -- 3,000
Chief Science Officer 1997 160,000 -- -- 3,000
William M. Hinchey........... 1999 135,000 33,750 3,000 3,000
Executive Vice President, 1998 135,000 10,000 -- 3,000
Sales and Marketing 1997 135,000 -- -- 3,000
</TABLE>
--------
(1) Consists of contributions to STC through its profit sharing plan available
to all full-time employees after 12 months of employment under Section
401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)
Plan"). Under the 401(k) Plan, STC currently matches employee contributions
up to the lesser of 8% of an employee's salary or $3,000.
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<PAGE>
Stock Option Grants
The following table summarizes stock options to acquire shares of STC granted
to the named executive officers during the fiscal year ended December 31, 1999.
These options vest in four annual installments commencing on the first
anniversary of the date of grant. The percentage of total options granted is
based on an aggregate of 113,102 options granted to employees in 1999,
including options granted to STC's named executive officers.
The potential realizable value of each grant, as set forth in the table
below, is calculated assuming that the market price of the underlying security
appreciates at annualized rates of 5% and 10% over the ten-year term of the
option. The results of these calculations are based on rates set forth by the
Securities and Exchange Commission and are not intended to forecast possible
future appreciation of the price of STC common stock. All of the options listed
below will convert into options to acquire shares of OraSure Technologies as
described under "The Agreement and Plan of Merger--Treatment of Stock Options."
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential
Realizable
Value at
Percent Assumed Annual
of Total Rates of Stock
Options Price
Number of Granted Appreciation
Securities to Exercise of Option Term
Underlying Employees Price per Expiration --------------
Name Options Granted in 1999 Share Date 5% 10%
---- --------------- --------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Gausling..... 3,000 2.7% $4.25 12/15/09 $8,018 $20,320
R. Sam Niedbala......... 3,000 2.7 4.25 12/15/09 8,018 20,320
William M. Hinchey...... 3,000 2.7 4.25 12/15/09 8,018 20,320
</TABLE>
1999 Fiscal Year-End Option Values
The following table shows 1999 year-end amounts and value of shares of STC's
common stock underlying outstanding options for STC's three highest paid
executive officers. None of these persons exercised any stock options in 1999.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at The-Money Options at
December 31, 1999 December 31, 1999(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael J. Gausling........ -- 3,000 $-- $--
R. Sam Niedbala............ -- 3,000 -- --
William M. Hinchey......... -- 3,000 -- --
</TABLE>
--------
(1) There was no public trading market for STC's common stock as of December
31, 1999. Accordingly, these values have been calculated based on the
difference between the estimated fair value per share of $4.25 on December
31, 1999, and the exercise price of the option.
Certain Relationships and Related Transactions
In order to partially finance the acquisition of the worldwide distribution
rights to the Histofreezer product line, STC secured bridge financing of
$1,894,000 from Messrs. Gausling, Hinchey and Niedbala to fund approximately
75% of the acquisition. On December 17, 1998, Lafayette Ambassador Bank as part
of the bank's $6,756,000 loan package refinanced $750,000 of the subordinated
debt. The remaining balance of $1.1 million was refinanced by Lafayette
Ambassador Bank in August 1999.
Messrs. Gausling, Niedbala and Hinchey have given personal guarantees as
collateral for STC's $1 million line of credit.
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<PAGE>
Information regarding employment agreements which the named STC executive
officers have entered into with OraSure Technologies may be found beginning on
page 39 under the heading of "Board of Directors, Management and Agreements
with the Combined Company."
Management's Discussion and Analysis of STC's Financial Condition and STC's
Results of Operations
Profile
STC develops, manufactures, and markets proprietary diagnostic products and
medical devices for use in clinical laboratories, physician offices, hospitals,
and workplace point-of-care testing. STC is a supplier of oral fluid assays to
the insurance risk assessment testing market and also manufactures and markets
other substance abuse testing products. In addition to these activities, STC
has made a net investment of more than $12.0 million over the past five years
to develop UPT (Up-Converting Phosphor Technology), a proprietary label
detection technology for the detection of drugs of abuse and other substances.
STC does not expect any revenues from UPT product sales for at least the next
twelve months, if at all. STC expects expenses related to the development and
commercialization of UPT to increase over historical levels, primarily due to
expected increases in research and development and marketing.
<TABLE>
<CAPTION>
Six Months
Ended June
RESULTS OF OPERATIONS Year Ended December 31, 30,
--------------------- ------------------------- --------------
1999 1998 1997 2000 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product........................... $13,117 $10,467 $ 7,717 $7,304 $5,809
Licensing and product
development...................... 898 185 205 175 506
------- ------- ------- ------ ------
14,015 10,652 7,922 7,479 6,315
------- ------- ------- ------ ------
Cost and expenses:
Cost of goods sold................ 4,500 4,145 3,033 2,355 2,131
Sales and marketing............... 3,705 2,869 2,885 1,992 1,492
Research and development.......... 3,304 2,339 1,870 2,160 1,834
Acquired in-process technology.... 1,500 -- -- -- --
General and administrative........ 1,582 1,294 1,185 909 694
------- ------- ------- ------ ------
14,591 10,647 8,973 7,416 6,151
------- ------- ------- ------ ------
Operating income (loss)......... (576) 5 (1,051) 63 164
Interest expense.................... 544 561 334 253 269
Interest income..................... (316) (105) (235) (255) (103)
Foreign currency (gain) loss........ 142 (5) -- 8 (14)
------- ------- ------- ------ ------
Income (loss) before income
taxes.......................... (946) (446) (1,150) 27 13
Income taxes........................ 50 -- -- 12 --
------- ------- ------- ------ ------
Net income (loss)................... $ (996) $ (446) $(1,150) $ 15 $ 13
======= ======= ======= ====== ======
</TABLE>
Six months ended June 30, 2000 and 1999
Total revenues increased 18% to approximately $7.5 million in 2000 from
approximately $6.3 million in 1999.
Product revenues increased 26% to approximately $7.3 million in 2000 from
approximately $5.8 million in 1999. This increase was the result of increased
sales across nearly all business lines, primarily the insurance testing and
worldwide Histofreezer(R) markets. International sales increased 60% to $1.4
million in 2000 from $870,000 in 1999.
Licensing and product development revenues decreased to $175,000 in 2000 from
$506,000 in 1999. During 2000, licensing and product development revenues
primarily consisted of income from STC's
99
<PAGE>
partnership with LabOne related to the Intercept(TM) service. During 1999,
licensing and product development revenues consisted of income from research
agreement with outside parties to develop specific target substances for point-
of-care testing and to conduct a business and technology assessment of UPT(TM).
During the remainder of 2000, STC will focus its UPT(TM) efforts on the
development of license revenue from external research and development
contracts. STC expects to capitalize on UPT(TM) outside STC's core markets by
developing strategic relationships with third parties. These relationships are
expected to generate revenue streams for STC through research and development
and supply agreements. However, there can be no assurance as to the receipt or
timing of these fees, if any.
Cost of goods sold, as a percentage of product revenues, decreased to 32% in
2000 from 37% in 1999. Gross margins improved as a result of favorable product
mix primarily as a result of higher insurance and Histofreezer sales, price
increases for Histofreezer(R) and toxicology clients, and greater revenues
compared to STC's fixed costs.
Sales and marketing expenses increased 34% to approximately $2.0 million in
2000 from approximately $1.5 million in 1999, as a result of STC's national
market launch for the Intercept service in February 2000, increased travel, and
higher staffing levels. As a result of the Intercept service launch, STC has
significantly increased its marketing and sales efforts to create market
awareness and demand for these new products, including media and advertising
campaigns and the creation of our first website dedicated to the sale of an
oral fluid test over the Internet. Sales and marketing expenses, as a
percentage of total revenues, were 27% and 24% in 2000 and 1999, respectively.
Research and development expenses increased to approximately $2.2 million in
2000 from approximately $1.8 million in 1999. Research and development efforts
were focused on development of Uplink(TM) reader, test strip, and collector for
drugs-of-abuse applications and DNA feasibility studies. In an effort to meet
UPT(TM)'s aggressive time schedule, STC continues to hire experienced
scientists and has contracted with several outside consulting groups to
supplement STC's internal work. Additional development activities focused on
commercializing the Intercept service, toxicology product improvement projects,
and development of antibodies. A portion of 1999 expenses included $300,000 for
the renewal of UPT(TM) license agreements. As a result of the termination of
this agreement in July 1999, STC did not expend any monies in 2000.
General and administrative expenses increased 31% to $909,000 in 2000 from
$694,000 in 1999. This increase was due to the expansion of STC's MIS
department, and costs associated with STC's building expansion.
Operating income decreased to $63,000 in 2000 from $164,000 in 1999 as a
result of increased research and development costs related to UPT(TM),
increased sales and marketing costs, and increased general and administrative
expenses which were partially offset by increased product revenues and
improvements in gross margins.
Interest expense decreased to $253,000 in 2000 from $269,000 in 1999 as a
result of principal loan repayments and the refinancing of subordinated debt.
Interest income increased to $225,000 in 2000 from $103,000 in 1999 as a
result of higher cash and cash equivalents available for investment in 2000
from the proceeds of the sale of our Series A convertible preferred stock in
1999.
During 2000, a provision for income taxes of $12,000 was recorded as a result
of STC's profitability.
Years ended December 31, 1999 and 1998
Total revenues increased 32% to approximately $14.0 million in 1999 from
approximately $10.7 million in 1998.
Product revenues increased 25% to approximately $13.1 million in 1999 from
approximately $10.5 million in 1998. This increase was the result of increased
sales in the insurance testing market as a result of both price
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<PAGE>
increases and increased testing volume, the acquisition of Histofreezer in June
1998, and continued growth of toxicology sales. International product sales
were 18% of total product revenues in 1999, up from 15% last year, as a result
of increased Histofreezer sales and the revenues associated with a one-time
private label sale of the Q.E.D.(R) Saliva Alcohol Test in Europe.
Licensing and product development revenues increased 385% to $898,000 in 1999
from $185,000 in 1998. The increase was primarily the result of STC beginning
to secure research projects for the evaluation of UPT for a broad range of
market applications. During 1999, STC received licensing and product
development revenues fees in connection with a research agreement to
collaborate on the development of certain analyses for point-of-care testing,
licensing and product development revenues to conduct a business and technology
assessment of UPT for food pathogen applications, and licensing and product
development revenues from STC's partnership with LabOne for the Intercept
service. During 1998, licensing and product development revenues consisted
primarily of fees from outside parties to develop certain proprietary
antibodies and certain product development revenues for the Q.E.D. test.
Costs of goods sold, as a percentage of product revenues, decreased to 34% in
1999 from 40% in 1998. Gross margins improved primarily as a result of
increased pricing for various insurance risk assessment products, Q.E.D. and
Histofreezer, improvements in manufacturing operating processes, greater
capacity utilization, and favorable product mix as a result of insurance risk
assessment and domestic Histofreezer sales.
Sales and marketing expenses increased 29% to approximately $3.7 million in
1999 from approximately $2.9 million in 1998 as a result of STC's preparations
for a national market launch for the Intercept service in February 2000 and the
establishment of its international sales office in the Netherlands. Sales and
marketing expenses remained relatively constant at 26% and 27% of total
revenues in 1999 and 1998, respectively, despite a $836,000 increase in 1999
spending.
Research and development expenses increased 41% to approximately $3.3 million
in 1999 from approximately $2.3 million in 1998, primarily as a result of
increasing investment in UPT. Research and development expenses as a percentage
of total revenues were 24% and 22% in 1999 and 1998, respectively. Development
activities focused on commercializing the Intercept service, toxicology product
improvement projects, development of monoclonal antibody capabilities, and
improving the performance of the Q.E.D. test. UPT efforts were focused on
development of a lateral flow device, particle size reduction, feasibility
studies for on-site drugs-of-abuse, foodborne pathogens, cardiac markers, and
preliminary DNA feasibility.
In 1999, STC paid $1.5 million to its sublicensor (1) for the termination of
an existing license agreement between the sublicensor and STC with respect to
the sublicense of UPT patents owned by Leiden University, The Netherlands and
(2) to secure a direct research, development, and license arrangement with
Leiden University. STC has accounted for the purchase price as acquired in-
process technology expense because, at the date of the transaction, the
technology rights acquired by STC related to UPT had not progressed to a stage
where it met technological feasibility and there existed a significant amount
of uncertainty as to STC's ability to complete the development of the
technology which would achieve market acceptance within a reasonable timeframe.
In addition, the acquired in-process technology did not have an alternative
future use to STC that had reached technological feasibility.
At the acquisition date, the primary project that related to UPT involved
development and testing activities associated with lateral flow testing
technology. The project under development at the valuation date represents an
advanced technology that is expected to address several shortcomings of
traditional immunodiagnostic detection methods. The UPT technology produces
less background interference that dramatically increases the potential
sensitivity of the test.
At the acquisition date, the UPT technology was in an early phase of
development and significant technological challenges remained to commercialize
the product. STC expects to spend approximately $3.4 million in 2000 to
complete development of the lateral flow technology in combination with the
development
101
<PAGE>
of the UPlink reader. Funding is expected to come from internal working
capital, and future spending is planned to enhance and maintain the UPT
technology in future periods. The anticipated completion date for the UPlink
reader, including FDA approval, is estimated at 12 to 18 months, at which time
STC expects to begin generating product and product license revenue from the
developed product in the second half of 2001.
Due to the early stage of development of the acquired in process technology,
significant technological and market risks exist. If these projects are not
successfully developed in a timely manner, the sales and profitability of the
combined company may be adversely affected in future periods.
General and administrative expenses increased 22% to approximately $1.6
million in 1999 from approximately $1.3 million in 1998, which represented 11%
of total revenues in 1999 compared to 12% in 1998. This increase was due to the
amortization of patent and product rights associated with the acquisition of
worldwide distribution rights to Histofreezer in 1998, the expansion of STC's
MIS department, and STC's 1999 Management Bonus Plan.
Operating loss was $576,000 in 1999 compared to income of $5,000 in 1998
primarily as a result of the acquired in-process technology charge of $1.5
million. Excluding this charge, operating income improved $618,000 as a result
of the continued increases in profitability of STC's existing product lines.
Interest expense decreased to $544,000 in 1999 from $561,000 in 1998 as a
result of loan repayments and the refinancing of $1.1 million of subordinated
debt.
Interest income increased to $316,000 in 1999 from $105,000 in 1998 as a
result of higher cash and cash equivalents available for investment from the
proceeds of the sale of our Series A Convertible Preferred Stock in the second
quarter of 1999.
Foreign currency loss was $142,000 in 1999 as a result of higher guilder
rates during 1999 as compared to STC's foreign exchange contract rates.
Years ended December 31, 1998 and 1997
Total revenues increased 34% to approximately $10.7 million in 1998 from
approximately $8.0 million in 1997.
Product revenues increased 36% to approximately $10.5 million in 1998 from
approximately $7.7 million in 1997. This increase was the result of the
acquisition of Histofreezer in June 1998, new sales to an insurance laboratory
customer, strong unit volume growth for oral fluid testing of insurance
applicants, and continued growth of the domestic Histofreezer product line. As
a percentage of product revenues, international product sales increased to 15%
in 1998 from 5% in 1997 as a result of the Histofreezer acquisition in 1998 and
increased international activities for forensic toxicology drugs-of-abuse.
Licensing and product development revenues decreased 10% to $185,000 in 1998
from $205,000 in 1997. During 1998, licensing and product development revenues
consisted primarily of fees to develop certain proprietary antibodies and
product development fees for the Q.E.D. test. During 1997, licensing and
product development revenues consisted primarily of a Phase I research grant
for the detection of E. coli O157, and certain product development fees for the
Q.E.D. test.
Cost of goods sold, as a percentage of product revenues, increased to 40% in
1998 from 39% in 1997. Lower material costs and favorable product mix were
offset by increased labor and quality control costs, lower gross margins on the
sale of the Histofreezer international units, and higher depreciation and
warranty costs for STC's reagent rental program.
Sales and marketing expenses remained level at $2.9 million, with sales and
marketing expenses as a percentage of total revenues decreasing to 27% from
36%. In 1998, higher direct selling expenses were offset by a reduction in non-
recurring costs associated with the startup of a project with an insurance
laboratory customer and the elimination of certain Histofreezer commissions in
1998.
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<PAGE>
Research and development expenses increased 25% to approximately $2.3 million
in 1998 from approximately $1.9 million in 1997 as a result of increasing
investments in our UPT technology. Additional development activities focused on
finishing the development of Intercept products, internal product improvement
projects, and improving performance of the Q.E.D. test. Partially offsetting
these activities was STC's decision to discontinue the development of the AUTO-
LYTE(R) drugs-of-abuse panel due to the dependency on certain sole source
suppliers and a non-competitive cost structure.
General and administrative expenses increased 9% to approximately $1.3
million in 1998 from $1.2 million in 1997. This increase was due to the
amortization of patent and product rights associated with the acquisition of
worldwide distribution rights to Histofreezer in 1998, employee training costs,
and increased staffing. Excluding the Histofreezer amortization, general and
administrative expenses would have declined by approximately $40,000.
Operating income improved by approximately $1.0 million.
Interest expense increased to $561,000 in 1998 from $334,000 in 1997 as a
result of approximately $1.9 million of debt incurred to finance the
Histofreezer acquisition and one-time expenses associated with STC's
refinancing of existing bank debt.
Interest income decreased to $105,000 in 1998 from $235,000 in 1997 as a
result of lower cash balances in 1998.
Liquidity and Capital Resources
STC's cash and short-term investment position decreased $1.5 million from
approximately $9.4 million at December 31, 1999, to approximately $7.9 million
at June 30, 2000, as a result of STC's capital investment into the
infrastructure of our facilities, continued principal term debt payments, and
prepaid expenses associated with the contemplated mergers. At June 30, 2000,
STC's working capital was $8.8 million.
Liquidity is expected to remain strong for the foreseeable future, but will
continue to be negatively affected by increased UPT(TM) investment for research
and development and the design and construction of a fully automated lateral
flow manufacturing line, principal loan payments, investment into the
commercialization of the Intercept service, and capital expenditure
requirements.
The combination of STC's current cash position, available borrowings under
STC's credit facilities, and STC's cash flow from operations will be sufficient
to fund our operations and capital expenditures through at least the fourth
quarter of 2001.
Net cash used in operating activities was $32,000, a decline of $509,000 over
1999 as a direct result of the payment of professional and other expenses
related to the contemplated merger, lower accrual levels, and increased
inventory.
Net cash provided by investing activities was $94,000, primarily as a result
of STC's investment into tenant fit-out costs, additional laboratory equipment,
and information systems equipment associated with the new facilities offset by
the sale of short-term investments of $1.2 million.
During 2000, STC anticipates making capital expenditure investments of up to
$2 million. Approximately $1.1 million of this amount represents tenant build-
out costs, additional laboratory equipment, furniture, phones, computer
equipment, and security systems for the new facilities and renovation of its
manufacturing facilities. We expect to invest up to $100,000 for the UPT(TM)
lateral flow pilot manufacturing equipment. The balance is represented by
planned expenditures for manufacturing equipment and computers and information
technology.
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<PAGE>
At June 30, 2000, STC had a $1.0 million working capital line of credit in
place with a bank with an interest rate of the bank's LIBOR rate + 235 basis
points. STC had borrowings of $144,000 outstanding at June 30, 2000, under this
line of credit. This lending facility expires June 30, 2001.
At June 30, 2000, STC had a $1.0 million equipment line of credit in place
with a bank. There were no borrowings under this line of credit outstanding at
June 30, 2000. Any future draws on the equipment line will be to purchase
equipment and the interest rate will be fixed at prime. The unused portion of
this lending facility expires on June 30, 2001.
The credit facilities require, among other items, the maintenance of certain
minimum financial ratios, first lien position on all assets, and the personal
guarantees of STC's founders and principal stockholders. The personal
guarantees of STC's founders and principal stockholders are anticipated to be
removed upon the closing of the mergers.
It is anticipated that these credit facilities will remain in effect
following the mergers.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements". The
bulletin draws on existing accounting rules and provides specific guidance on
revenue recognition of up-front non-refundable license fees. STC has followed
such principles in its financial statements.
104
<PAGE>
STC STOCK OWNERSHIP
The following table sets forth certain information regarding the ownership of
common stock at July 31, 2000, by: (1) each person, entity or group known by
STC to own beneficially more than 5% of STC's outstanding common stock; (2)
each director; (3) each of the named executive officers; and (4) all directors
and executive officers as a group. Unless otherwise indicated, the address of
each person identified is c/o STC Technologies, Inc., 150 Webster Street,
Bethlehem, PA, 18015.
The percentages shown are based upon 3,468,859 shares of common stock
outstanding assuming conversion of all outstanding convertible preferred stock
into common stock. Pursuant to Rule 13d-3 under the Exchange Act, shares of
common stock which a person has the right to acquire pursuant to the exercise
of stock options and warrants held by that holder that are exercisable within
sixty days are deemed to be outstanding for the purpose of computing the
percentage ownership of that person, but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially
Name of Beneficial Owner Owned Percentage
------------------------ ------------ ----------
<S> <C> <C>
HealthCare Ventures V, L.P............................ 588,235 17.0%
44 Nassau Street
Princeton, New Jersey 08542(1)
William M. Hinchey(2)................................. 426,811 12.3
Michael J. Gausling(3)................................ 399,408 11.5
R. Sam Niedbala(4).................................... 401,099 11.5
Pennsylvania Early Stage Partners, L.P................ 176,471 5.1
Building 500, Suite 510
435 Devon Park Drive
Wayne, PA 19087(5)
Michael J. Caruso(6).................................. 57,509 1.7
Jeffrey P. Libson(7).................................. 4,000 *
Michael G. Bolton(8).................................. 177,971 5.1
William W. Crouse(9).................................. 589,735 17.0
Harold R. Werner(10).................................. 589,735 17.0
All directors and executive officers as a group (9
persons)(11)......................................... 2,058,033 59.3
</TABLE>
--------
* Less than one percent
(1) Consists of shares of common stock to be received upon conversion of 588,
235 shares of Class A Preferred Stock.
(2) Includes 100,000 shares held by The William M. Hinchey 2000 Grantor
Retained Annuity Trust Dated April 27, 2000 of which Mr. Hinchey is the
trustee and 4,705 share held by The William M. Hinchey Irrevocable
Education Trust Dated April 27, 2000 of which Maureen H. Hinchey is a
trustee. Also includes 3,333 shares of Class B common stock.
(3) Includes 100,000 shares held by The Michael J. Gausling Grantor Retained
Annuity Trust Dated April 28, 2000 of which Mr. Gausling is the trustee and
6,500 shares held by The Mike Gausling Irrevocable Education Trust Dated
April 28, 2000 of which Sharon M. Gausling is a trustee. Also includes 88
shares of Class B common stock.
(4) Includes 100,000 shares held by The Raymond S. Niedbala 2000 Grantor
Retained Annuity Trust Dated April 28, 2000 of which Dr. Niedbala is the
trustee and 15,000 shares held by The Raymond S. Niedbala Family Trust
Dated April 28, 2000 of which Linda-Lee Niedbala is a trustee. Also
includes 3,333 shares of Class B common stock.
(5) Consists of shares of common stock to be received upon conversion of
176,471 shares of Class A Preferred Stock.
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<PAGE>
(6) Includes 8,000 shares of Class B common stock and 4,000 shares of common
stock which Mr. Caruso has the right to acquire within 60 days of June 1,
2000 upon the exercise of stock options.
(7) Includes 4,000 shares of common stock which Mr. Libson has the right to
acquire within 60 days of June 1, 2000 upon the exercise of stock options.
(8) Includes 176,471 shares held of record by Pennsylvania Early Stage Partners
L.P. Mr. Bolton is the managing director of Pennsylvania Early Stage
Partners GP, LLC, the general partner of Pennsylvania Early Stage Partners
L.P. Also includes 1,500 shares of common stock which Mr. Bolton has the
right to acquire within 60 days of June 1, 2000 upon the exercise of stock
options.
(9) Includes 588,235 shares held of record by HealthCare Ventures V, LP. Mr.
Crouse is a general partner of HealthCare Partners V, L.P., the general
partner, of HealthCare Ventures V, LP. Mr. Crouse, together with the other
general partners of HealthCare Ventures V, LP shares voting and investment
control with respect to the shares owned by HealthCare Ventures V, LP. Also
includes 1,500 shares of common stock which Mr. Crouse has the right to
acquire within 60 days of June 1, 2000 upon the exercise of stock options.
(10) Includes 588,235 shares held of record by HealthCare Ventures V, LP. Mr.
Werner is a general partner of HealthCare Partners V, L.P., the general
partner, of HealthCare Ventures V, LP. Mr. Werner, together with the other
general partners of HealthCare Ventures V, LP shares voting and investment
control with respect to the shares owned by HealthCare Ventures V, LP.
Also includes 1,500 shares of common stock which Mr. Werner has the right
to acquire within 60 days of June 1, 2000 upon the exercise of stock
options.
(11) Includes 588,235 shares held of record by HealthCare Ventures V, LP,
176,471 shares held of record by Pennsylvania Early Stage Partners L.P.
and 12,500 shares of common stock which certain directors have the right
to acquire within 60 days of June 1, 2000 upon the exercise of stock
options.
INFORMATION ABOUT ORASURE TECHNOLOGIES, INC.
OraSure Technologies is a newly formed Delaware corporation that has not, to
date, conducted any activities other than those incident to its formation, its
execution of the agreement and plan of merger and related agreements, and its
participation in the preparation of this joint proxy statement/prospectus. The
financial statements of OraSure Technologies are omitted because OraSure
Technologies has nominal assets and no liabilities, as well as no operations to
date. There are also no contingent assets or liabilities. OraSure Technologies
has 100 shares of its common stock issued and outstanding, all of which are
owned by Epitope.
As a result of the mergers of STC and Epitope into OraSure Technologies, the
business of OraSure Technologies will be the businesses currently conducted by
STC and Epitope. The headquarters of OraSure Technologies will be located at
150 Webster Street, Bethlehem, Pennsylvania by January 1, 2001 and its
telephone number at that address will be (610) 882-1820. Until January 1, 2001,
the address for OraSure Technologies will be 8505 S.W. Creekside Place,
Beaverton, Oregon 97008 and its telephone number will be (503) 641-6115.
MATERIAL DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Copies of the OraSure Technologies certificate of incorporation and bylaws,
the STC certificate of incorporation and bylaws, and the Epitope articles of
incorporation and bylaws, in each case as in effect on the date of this joint
proxy statement/prospectus, will be sent to Epitope or STC stockholders upon
request. See "Where You Can Find More Information" on page 119. See "The
Ability of OraSure Technologies Stockholders to Effect Changes in Control of
OraSure Technologies will be Limited" on page 16 for a description of the
differences described below that could have the effect of delaying or impeding
the removal of incumbent directors and could make more difficult a merger,
tender offer, or proxy contest involving OraSure Technologies or could
discourage from attempting to acquire control of OraSure Technologies, even if
those events would be beneficial to the interests of stockholders.
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Summary of Material Differences Between Current Rights of STC and Epitope
Stockholders and Rights Those Stockholders Will Have as OraSure Technologies
Stockholders Following the Mergers
Authorized Capital Stock
STC Epitope OraSure Technologies
The authorized capital The authorized capital The authorized capital
stock of STC consists of stock of Epitope stock of OraSure
6,000,000 shares of consists of 30,000,000 Technologies consists of
common stock and shares of common stock 120,000,000 shares of
2,000,000 shares of and 1,000,000 shares of common stock and
preferred stock, preferred stock. 25,000,000 shares of
including 1,118,000 preferred stock,
shares of Series A including
Convertible Preferred shares of Series A
Stock. Preferred Stock.
As of the date of this As of the date of this As of the date of this
document, no shares of document, no shares of document, no shares of
any series of STC any series of Epitope any series of OraSure
preferred stock are preferred stock are Technologies preferred
outstanding, other than outstanding. stock are outstanding.
1,080,061 shares of
Series A Convertible
Preferred Stock.
Number of Directors
STC Epitope OraSure Technologies
The STC board of The Epitope board of The OraSure Technologies
directors currently directors currently board of directors
consists of eight consists of nine currently consists of
directors. directors. nine directors but will
be reduced to seven
directors concurrently
with the mergers.
Following the mergers,
the OraSure Technologies
board of directors will
initially consist of
three members designated
by Epitope, three
members designated by
STC and one member who
will be a person
mutually acceptable to
both STC and Epitope.
Classification of Board of Directors
STC Epitope OraSure Technologies
The STC board of The Epitope board of The OraSure Technologies
directors is not divided directors is divided board of directors is
into classes. Each into three classes, with divided into three
director serves a one- each class serving a classes, designated as
year term. staggered three-year Class I, Class II and
term. This provision may Class III. Concurrently
not be amended or with the mergers, the
repealed unless such size of OraSure
action is approved by Technologies Board will
the affirmative vote of be reduced to seven
not less than 90 percent members and all of its
of the votes then current
entitled to be cast in
the election of
directors.
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members will resign
except for Messrs.
Thompson, Pringle and
Hausmann. Mr. Hausmann
and Mr. Bolton will
serve as Class I
directors for a one-year
term, Mr. Pringle and
Mr. Crouse will serve as
Class II directors for a
two-year term and Mr.
Thompson and Mr.
Gausling will serve as
Class III directors for
a three-year term. At
each annual meeting
beginning in 2001,
successors to directors
whose terms are expiring
will be elected for
three-year terms.
Removal of Directors
STC Epitope OraSure Technologies
Any or all of the Directors may be removed Directors may be removed
directors may be removed from office with or from office only for
with or without cause by without cause by the cause, and only by the
vote of the holders of a affirmative vote of affirmative vote of the
majority of the shares holders of at least 90% holders of a majority of
then entitled to vote at of the votes then shares of stock entitled
an election of entitled to be cast for to vote in an election
directors. the election of of directors.
directors, only at a
meeting of the
stockholders called
expressly for that
purpose. This provision
may not be amended or
repealed unless such
action is approved by
the affirmative vote of
not less than 90% of the
votes then entitled to
be cast in the election
of directors.
Stockholder Action by Written Consent
STC Epitope OraSure Technologies
STC stockholders may act Epitope stockholders may The stockholders of
by written consent in act by written consent OraSure Technologies may
lieu of a meeting of in lieu of a meeting of not act by written
stockholders. Such stockholders. Such consent in lieu of a
consent must be signed consent must be signed meeting of stockholders,
by the holders of by all stockholders unless such consent is
outstanding stock having entitled to vote. unanimous.
not less than the
minimum number of votes
that would be necessary
to authorize or take
such action at a meeting
at which all shares
entitled to vote thereon
were present and voted.
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Calling of Special Meetings of Stockholders
STC Epitope OraSure Technologies
The STC bylaws provides The Epitope bylaws The OraSure Technologies
that the president may provide that a special certificate of
call a special meeting meeting of stockholders incorporation provides
of stockholders, and the may be called only by that only the chairman
president or the the president, the board of the board, the
secretary must call such of directors, the president or the board
a meeting at the written holders of not less than of directors (pursuant
request of stockholders one-tenth of all shares to a resolution approved
owning a majority of the entitled to vote at the by a majority of the
entire issued and meeting or as provided whole board) may call a
outstanding voting in the Oregon Business special meeting of
capital stock of STC. Corporation Act. stockholders.
Amendment of Charter and Bylaws
STC Epitope OraSure Technologies
STC's certificate of The board of directors OraSure Technologies'
incorporation may be of Epitope may amend its certificate of
amended if the change is articles of incorporation may be
proposed by the board of incorporation without amended if the change is
directors and approved stockholder approval to proposed by the board of
by the holders of a make certain directors and approved
majority of the housekeeping amendments, by the holders of a
outstanding stock such as technical majority of the
entitled to vote changes to the corporate outstanding stock
thereon, and a majority name, the deletion of entitled to vote
of the outstanding stock the names and addresses thereon, and a majority
of each class entitled of the initial of the outstanding stock
to vote thereon as a directors, the name and of each class entitled
class. address of the initial to vote thereon as a
registered agent, and class, provided that any
the corporation's change in the provisions
mailing address, and of the certificate of
certain other narrowly incorporation relating
defined matters. to:
However, in general, an
amendment to Epitope's
articles of
incorporation must be
adopted by both the
board of directors and
the stockholders. The
vote of the stockholders
needed to approve an
amendment depends upon
the voting groups
entitled to vote
separately on the
amendment, whether any
of those voting groups
would be entitled to
dissenters' rights if
the amendment were
adopted, any special
requirements contained
in the articles of
incorporation and any
additional voting
requirements imposed by
the board of directors.
In general, if a quorum
exists, action by a
voting group is approved
if the votes cast
favoring the action
exceed the votes cast
opposing the action. If
two or more separate
voting groups are
entitled to vote
. actions by
stockholders or
calling special
meetings of
stockholders;
. the election,
qualifications,
powers, duties, or
removal of the
directors, the
classification of
the board of
directors or the
factors for
directors to
consider upon
receipt of an
acquisition
proposal;
. the amendment of the
bylaws or the
adoption of a
provision of the
certificate of
incorporation
inconsistent with
the bylaws; or
. the amendment of the
charter,
must be approved by the
holders of two-thirds
(66.6%) of the combined
voting power of the then
outstanding shares of
stock of all
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on an amendment, the
votes of each voting classes and series of
group must be counted OraSure Technologies
separately. The holders entitled to vote
of outstanding shares of generally in the
a class or series of election of directors,
shares are entitled to voting together as a
vote as a separate single class.
voting group on a
proposed amendment if
the amendment would:
(1) increase or decrease
the aggregate number
of authorized shares
of the class or
series;
(2) effect an exchange
or reclassification
of all or part of
the shares of the
class or series into
shares of another
class or series;
(3) effect an exchange
or reclassification,
or create a right of
exchange, of all or
part of the shares
of another class or
series into shares
of the class or
series;
(4) change the
designation, rights,
preferences or
limitations of all
or part of the class
or series;
(5) change the shares of
all or part of the
class or series into
a different number
of shares of the
same class or
series;
(6) create a new class
or series of shares
having rights or
preferences with
respect to
distributions or to
dissolution that are
prior, superior or
substantially equal
to the shares of the
class or series;
(7) increase the rights,
preferences or
number of authorized
shares of any class
or series that,
after giving effect
to the amendment,
have rights or
preferences with
respect to
distributions or to
dissolution that are
prior, superior or
substantially equal
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to the shares of the
class or series;
(8) limit or deny an
existing preemptive
right of all or part
of the shares of the
class or series; or
(9) cancel or otherwise
affect rights to
distributions or
dividends that have
accumulated but that
have not yet been
declared on all or
part of the shares
of the class or
series.
The right to vote as a
separate voting group
because the class or
series would be affected
in one or more of the
above nine ways is
required even if the
articles of
incorporation provide
that the shares are non-
voting shares. However,
if two or more series of
shares are entitled to
vote as separate voting
groups pursuant to the
above list, and the
proposed amendment would
affect those two or more
series in the same or in
a substantially similar
way, all of the series
so affected must vote
together as a single
voting group on the
proposed amendment.
Classes of shares that
are entitled to vote as
separate voting groups
and that are affected by
a proposed amendment in
the same or a
substantially similar
way are not required to
vote together as a
single voting group.
Each voting group for
which the amendment
would create dissenters'
rights also has the
right to vote as a
separate voting group on
the amendment. The types
of amendments to the
charter that would
create dissenters'
rights are those
amendments that would:
(1) alter or abolish a
preemptive right of
the holder of the
shares to acquire
shares or other
securities; or
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(2) reduce the number of
shares owned by the
stockholder to a
fraction of a share
if the fractional
share is to be
acquired for cash by
the corporation.
Where an amendment would
create dissenters'
rights as to a voting
group, it must be
approved by a majority
of the votes entitled to
be cast on the amendment
by the voting group.
Dissenters' rights do
not apply to shares
listed on a national
securities exchange or
quoted on Nasdaq.
The STC bylaws may be The Epitope bylaws may The OraSure Technologies
amended by the holders be amended by the bylaws may be amended by
of a majority of the affirmative vote of a the vote of a majority
shares entitled to vote majority of the of the whole board of
or by a majority of the directors present (when directors or by the
directors at any regular a quorum exists) at any affirmative vote of two-
meeting of the regular or special thirds (66.6%) of the
stockholders or of the meeting of the board of combined voting power of
board of directors or at directors. The bylaws the then outstanding
any special meeting of also may be amended by shares of stock of all
the stockholders or of the shareholders. classes and series of
the board of directors OraSure Technologies
if notice of such entitled to vote
amendment is properly generally in the
given. election of directors,
voting together as a
single class.
Stockholder Rights Plan
STC Epitope OraSure Technologies
--- ------- --------------------
STC currently has no Epitope entered into a On May 6, 2000, the
stockholder rights plan. Rights Agreement, dated board of directors of
as of December 15, 1997, OraSure Technologies
with ChaseMellon adopted a stockholder
Shareholder Services, rights plan, pursuant to
L.L.C., as Rights Agent, which OraSure
pursuant to which Technologies will issue
Epitope issued rights, rights to purchase its
exercisable only upon Series A Preferred Stock
the occurrence of along with the common
events, to purchase its stock to be issued
Series A Junior pursuant to the mergers,
Participating Cumulative which rights will be
Preferred Stock which exercisable only upon
are similar to those the occurrence of the
described under events described under
"Description of OraSure "Description of OraSure
Technologies Capital Technologies Capital
Stock--Description of Stock--Description of
Rights." The purchase Rights." The purchase
price payable upon price payable upon
exercise of each right exercise of each right
is $60. The rights is $85. The rights will
expire on December 26, expire on May 6, 2010.
2007.
The Rights Agreement has The rights will be
been amended to avoid distributed immediately
any argument that the after the Effective Time
Rights would become of the mergers and
exercisable as a result therefore cannot become
of consummation of the exercisable upon
mergers. consummation of the
mergers.
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DESCRIPTION OF ORASURE TECHNOLOGIES CAPITAL STOCK
General
The authorized capital stock of OraSure Technologies consists of 120,000,000
shares of OraSure Technologies common stock, par value $.000001 per share, of
which, as of July 20, 2000, there were 100 shares issued and outstanding and
25,000,000 shares of preferred stock, par value $.000001 per share, none of
which, as of July 20, 2000, were outstanding and 120,000 shares of which, as of
July 20, 2000, have been designated Series A Preferred Stock and reserved for
issuance upon the exercise of the rights distributed to the holders of OraSure
Technologies common stock pursuant to the rights agreement described below
under "Description of Rights." All of the outstanding shares of the capital
stock of OraSure Technologies are duly authorized, validly issued, fully paid
and nonassessable, and no class is entitled to preemptive rights. As of
July 20, 2000, except for OraSure Technologies' Series A Preferred Stock
purchase rights distributed pursuant to the rights agreement described below
under "Description of Rights", there were no outstanding subscriptions,
options, warrants, rights, contracts or other arrangements or commitments
obligating OraSure Technologies to issue any shares of its capital stock or any
securities convertible into or exchangeable for shares of its capital stock.
If the average of the closing price per share of Epitope common stock during
a 20 trading day measurement period that ends immediately preceding the third
trading day before the vote on the mergers is $8.00 or less, then, based on the
number of shares outstanding as of July 20, 2000, OraSure Technologies is
expected to have a maximum of 40,497,271 shares of common stock outstanding,
and 4,997,580 shares of common stock reserved for issuance upon exercise of
options and warrants, immediately following consummation of the mergers. The
number of shares of common stock that OraSure Technologies would have
outstanding and reserved for issuance upon exercise of options and warrants
immediately following consummation of the mergers would decrease if this
average closing price increases as described under "Merger Consideration" on
page 44.
OraSure Technologies Common Stock
Subject to the rights of holders of any outstanding OraSure Technologies
preferred stock, the holders of outstanding shares of OraSure Technologies
common stock are entitled to share ratably in dividends declared out of assets
legally available therefor at such time and in such amounts as the OraSure
Technologies board of directors may from time to time lawfully determine.
Each holder of OraSure Technologies common stock is entitled to one vote for
each share held and, except as otherwise provided by law or by the OraSure
Technologies board of directors with respect to any series of OraSure
Technologies preferred stock, the holders of OraSure Technologies common stock
will exclusively possess all voting power. Holders of OraSure Technologies
common stock are not entitled to accumulate votes for the election of
directors. The OraSure Technologies common stock is not entitled to conversion
or preemptive rights and is not subject to redemption or assessment. Subject to
the rights of holders of any outstanding OraSure Technologies preferred stock,
upon liquidation, dissolution or winding up of OraSure Technologies, any assets
legally available for distribution to stockowners as such are to be distributed
ratably among the holders of the OraSure Technologies common stock at that time
outstanding.
Following the consummation of the mergers, shares of OraSure Technologies
will be listed on the Nasdaq National Market under the ticker symbol "OSUR".
OraSure Technologies Preferred Stock
The OraSure Technologies board of directors has the authority to issue
OraSure Technologies preferred stock in one or more series with such
distinctive serial designations, at such price or prices and for such other
consideration as may be fixed by the OraSure Technologies board of directors.
OraSure Technologies preferred stock of all series shall be in all respects
entitled to the same preferences, rights and privileges and subject to
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the same qualifications, limitations and restrictions; provided, however, that
different series of OraSure Technologies preferred stock may vary with respect
to, among other things, dividend rates, conversion rights, voting rights,
redemption rights, liquidation preferences and the number of shares
constituting each such series as shall be determined and fixed by resolution or
resolutions of the OraSure Technologies board of directors providing for the
issuance of such series, without any further vote or action by the stockholders
of OraSure Technologies. All the shares of any one series will be alike in
every particular. OraSure Technologies' charter currently provides that no
share of any series of preferred stock may be entitled to more than one vote.
The ability of the OraSure Technologies board of directors to issue OraSure
Technologies preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of
OraSure Technologies. As of the date of this joint proxy statement/prospectus,
no shares of OraSure Technologies preferred stock are issued and outstanding
and 120,000 shares have been designated as Series A Preferred Stock and
reserved for issuance as described below under "Description of Rights."
Description of Rights
On May 6, 2000, the OraSure Technologies board of directors adopted a Rights
Plan which is summarized under this "Rights Plan" section. Pursuant to the
Rights Plan, OraSure Technologies will distribute a dividend of one right to
purchase certain shares of capital stock of OraSure Technologies under certain
circumstances, for each outstanding share of common stock. We refer to these
purchase rights as the "Rights." The Rights will trade with the common stock
and detach and become exercisable only if, in a transaction not approved by the
OraSure Technologies board of directors, ten business days elapse after either
a person (together with such person's affiliates or associates) acquires 15% or
more of the outstanding shares of OraSure Technologies common stock, or
announces a tender offer the consummation of which would result in ownership by
a person (together with such person's affiliates or associates) of 15% or more
of such shares.
If the Rights detach and become exercisable as a result of the commencement
of a tender offer, unless subsequently redeemed, each Right then would entitle
its holder to purchase one one-thousandth of a share of the Series A Preferred
Stock for an exercise price specified in the Rights Plan (which is intended to
equal the estimated value of OraSure Technologies common stock at the end of
the ten-year life of the Rights). If OraSure Technologies were to be involved
in a merger or other business combination transaction after the Rights become
exercisable, each Right would entitle its holder to purchase, for the Right's
exercise price, a number of the acquiring or surviving company's shares of
common stock having a market value equal to twice the exercise price. If, in a
transaction not approved by the OraSure Technologies board of directors, a
person (together with such person's affiliates or associates) acquires 15% or
more of the outstanding shares of OraSure Technologies common stock, each Right
would entitle its holder (other than the acquiring person and its affiliates
and associates, all of whose Rights become automatically void) to purchase, for
the Right's exercise price, a number of shares of OraSure Technologies common
stock having a market value equal to twice the exercise price. At any time
after a person (together with such person's affiliates or associates) acquires
at least 15%, but not more than 50%, of the outstanding shares of OraSure
Technologies common stock, the OraSure Technologies board of directors can
elect to exchange one share of common stock for each Right (other than Rights
held by such acquiring person and its affiliates and associates). OraSure
Technologies would be entitled to redeem the Rights at $.01 per Right at any
time until ten business days following a public announcement that a person
(together with such person's affiliates or associates) has acquired beneficial
ownership of 15% or more of the outstanding shares of common stock. Following
such an announcement, or, subject to certain exceptions, the acquisition of
beneficial ownership of 15% or more of the outstanding shares of common stock
by the acquiror (together with such person's affiliates or associates), the
Rights acquired by such person or persons would be null and void. Prior to the
date upon which the Rights detach, the terms of the Rights Plan could be
amended by the OraSure Technologies board of directors without the consent of
the holders of the Rights. The Rights expire on May 6, 2010, unless earlier
redeemed by OraSure Technologies. The Rights Plan will not be intended to deter
all takeover bids for OraSure Technologies. To the extent an acquiror would be
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discouraged by the Rights Plan from acquiring an equity position in OraSure
Technologies, stockholders may be deprived from receiving a premium for their
shares. The issuance of additional shares of common stock prior to the time the
Rights become exercisable would result in an increase in the number of Rights
outstanding.
We anticipate that the Series A Preferred Stock, if issued, would rank junior
to all other series of preferred stock as to the payment of dividends and the
distribution of assets in liquidation, unless the terms of any such other
series provide otherwise. Each share of Series A Preferred Stock would have a
quarterly dividend rate per share equal to 1,000 times the per share amount of
any dividend (other than a dividend payable in shares of common stock or a
subdivision of the common stock) declared from time to time on the common
stock, subject to certain adjustments. The holders of Series A Preferred Stock
would be entitled to receive a preferred liquidation payment per share of
$1,000 (plus accrued and unpaid dividends) or, if greater, an amount equal to
1,000 times the payment to be made per share of common stock. Generally, the
holder of each share of Series A Preferred Stock would vote together with the
common stock (and any other series of preferred stock entitled to vote on such
matter) on any matter as to which the common stock is entitled to vote,
including the election of directors. The holder of each share of Series A
Preferred Stock would be entitled to 1,000 votes, or one vote for each one one-
thousandth of a share. In the event of any merger, consolidation, combination
or other transaction in which shares of common stock are exchange for or
changed into other stock or securities, cash and/or property, the holder of
each share of Series A Preferred Stock would be entitled to receive 1,000 times
the aggregate amount of stock, securities, cash and/or property into which or
for which each share of common stock is changed or exchanged.
The foregoing dividend, voting and liquidation rights of the Series A
Preferred Stock would be protected against dilution in the event that
additional shares of common stock are issued pursuant to a stock split or stock
dividend. Because of the nature of the Series A Preferred Stock's dividend,
voting, liquidation and other rights, the value of the one one-thousandth of a
share of Series A Preferred Stock purchasable with each Right is intended to
approximate the value of one share of common stock.
Statutory Business Combination Provision
OraSure Technologies will be subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the time that the person became an interested
stockholder, unless (i) prior to such time the Board of Directors of the
corporation approved either the business combination or the transaction in
which the person became an interested stockholder, (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
shares owned by directors who are also officers of the corporation and by
certain employee stock plans, or (iii) at or after such time the business
combination is approved by the Board of Directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who owns 15% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and, together with his
or her affiliates and associates, has owned 15% or more of the corporation's
voting stock within three year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder.
Other Matters
The certificate of incorporation of OraSure Technologies provides that the
number of directors shall be as determined by the Board of Directors from time
to time, but shall be at least three and not more than twelve. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders
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of at least a majority of all outstanding voting stock entitled to vote in an
election of directors. This provision, in conjunction with the provision of the
certificate of incorporation authorizing the Board of Directors to fill vacant
directorships, will prevent stockholders from removing incumbent directors
without cause and filling the resulting vacancies with their own nominees.
The Certification of Incorporation of OraSure Technologies provides that
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent unless such consent is unanimous. The
certificate of incorporation provides that special meetings of the stockholders
can be called only by the Chairman of the Board, the President, or the Board of
Directors pursuant to a resolution approved by a majority of the whole Board of
Directors.
The certificate of incorporation of OraSure Technologies authorizes the Board
of Directors to take into account (in addition to any other considerations
which the Board of Directors may lawfully take into account) in determining
whether to take or to refrain from taking corporate action on any possible
acquisition proposals, including proposing any related matter to the
stockholders of OraSure Technologies, the long-term as well as short-term
interests of OraSure Technologies and its stockholders, including the
possibility that these may be best served by the continued independence of
OraSure Technologies, customers, employees and other constituencies of OraSure
Technologies and any subsidiaries, as well as the effect upon communities in
which OraSure Technologies and any subsidiaries do business. In considering the
foregoing and other pertinent factors, the Board of Directors is not required,
in considering the best interests of OraSure Technologies, to regard any
particular corporate interest or the interest of any particular group affected
by such action as a controlling interest.
Stockholder Proposals
The bylaws of OraSure Technologies contain provisions (i) requiring that
advance notice be delivered to OraSure Technologies of any business to be
brought by a stockholder before any meeting of stockholders and (ii)
establishing certain procedures to be followed by stockholders in nominating
persons for election to the Board of Directors. Generally, such advance notice
provisions provide that written notice must be given to the Secretary of
OraSure Technologies by a stockholder, with respect to director nominations or
stockholder proposals, not less than 50 nor more than 75 days prior to the
meeting (except that if less than 65 days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, then notice by the
stockholder, to be timely, must be received within 15 days of the date on which
notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs). Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the bylaws. The foregoing summary is qualified in its entirety by reference
to the bylaws of OraSure Technologies, which are included as an exhibit to the
registration statement of which this document is a part.
Limitations on Director/Officer Liability
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable for monetary damages for conduct constituting
gross negligence in the exercise of their duty of care. Delaware law enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. The certificate of incorporation of OraSure Technologies limits
the liability of directors to OraSure Technologies or its stockholders to the
fullest extent permitted by Delaware law. Specifically, directors of OraSure
Technologies will not be personally liable to OraSure Technologies or its
stockholders for monetary damages for breach of a director's fiduciary duty as
a director, except for liability for breach of the duty of loyalty, for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, for unlawful payments of dividends or unlawful stock
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repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or for any transaction in which a director has derived an
improper personal benefit.
The bylaws require OraSure Technologies to indemnify to the fullest extent
permitted by Delaware law any person who is a party or is threatened to be made
a party to any action, suit or proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of OraSure
Technologies, or is serving as a director, officer, employee or agent of
another enterprise at OraSure Technologies' request. Indemnification is not,
however, permitted under the bylaws unless the person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to OraSure
Technologies' best interests and, with respect to any criminal action or
proceeding, that such person had no reasonable cause to believe such person's
conduct was unlawful. The bylaws further provide that OraSure Technologies
shall not indemnify any person for any liabilities or expenses incurred by such
person in connection with an action, suit or proceeding by or in the right of
OraSure Technologies in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to OraSure Technologies, unless
and only to the extent that the court in which the action, suit or proceeding
is brought determines that the person is entitled to indemnity for such
expenses. The indemnification provided by the bylaws is not exclusive of any
other rights to which those seeking indemnification may be otherwise entitled.
OraSure Technologies has entered into indemnification agreements with each of
its directors and officers. The indemnification agreements provide that OraSure
Technologies will indemnify the directors and officers against all liabilities
and expenses actually and reasonably incurred in connection with any action,
suit or proceeding (including an action by or in the right of OraSure
Technologies) to which any of them is, was or at any time becomes a party, or
is threatened to be made a party, by reason of their status as a director or
officer of OraSure Technologies, or by reason of their serving or having served
at the request or on behalf of OraSure Technologies as a director, officer,
trustee or in any other comparable position of any other enterprise to the
fullest extent allowed by law. No indemnity will be provided under the
indemnification agreements for any amounts for which indemnity is provided by
any other indemnification obligation or insurance maintained by OraSure
Technologies or another enterprise or otherwise. Nor will indemnity be provided
to any director or officer on account of conduct which is finally adjudged by a
court to have been knowingly fraudulent, deliberately dishonest or willful
misconduct. In addition, no indemnification will be provided if a final court
adjudication determines that such indemnification is not lawful, or in respect
to any suit in which judgment is rendered against any director or officer for
an accounting of profits made from a purchase or sale of securities of OraSure
Technologies in violation of Section 16(b) of the Securities Exchange Act of
1934 or of any similar law, or on account of any remuneration paid to any
director or officer which is adjudicated to have been paid in violation of law.
OraSure Technologies also intends to obtain director's and officer's
liability insurance.
The foregoing limitations on liability and indemnification obligations may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefited OraSure
Technologies and its stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for OraSure Technologies common stock is
ChaseMellon Shareholder Services L.L.C.
LEGAL MATTERS
The validity of the OraSure Technologies common stock to be issued to STC
stockholders and Epitope stockholders in the mergers will be passed upon by
Stinson, Mag & Fizzell, P.C. It is a condition to the completion of the mergers
that Epitope and STC receive opinions from their respective tax counsel that
the
117
<PAGE>
mergers will qualify as tax-free reorganizations for United States federal
income tax purposes. Jeffrey Libson, a partner at Pepper Hamilton LLP, which is
counsel to STC, and a member of the STC board of directors, beneficially owns
4,000 shares of STC common stock.
EXPERTS
The financial statements of Epitope, Inc. incorporated into this joint proxy
statement/prospectus by reference to Epitope's Annual Report on Form 10-K for
the year ended September 30, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The audited financial statements of STC as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 included in
this joint proxy statement/prospectus, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
FUTURE STOCKHOLDER PROPOSALS
OraSure Technologies
It is anticipated that OraSure Technologies' 2001 annual meeting of
stockholders will be held on May 15, 2001. Any OraSure Technologies stockholder
who intends to present a proposal at the annual meeting must deliver the
proposal to OraSure Technologies at 150 Webster Street, Bethlehem, Pennsylvania
18015, Attention: Secretary by the applicable deadline below:
. If the stockholder proposal is intended for inclusion in OraSure
Technologies' proxy materials for that meeting pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, OraSure Technologies must
receive the proposal by March 16, 2000. Such proposal must also comply
with the other requirements of the proxy solicitation rules of the
Securities and Exchange Commission.
. If the stockholder proposal is to be presented without inclusion in
OraSure Technologies' proxy materials for that meeting, OraSure
Technologies must receive the proposal by March 26, 2001 in accordance
with the advance notice provisions of the certificate of incorporation
and bylaws of OraSure Technologies. See " Description of OraSure
Technologies Capital Stock--Stockholder Proposals" beginning on page 116.
Proxies solicited in connection with the 2001 annual meeting of stockholders
will confer on the appointed proxies discretionary voting authority to vote on
stockholder proposals that are not presented for inclusion in the proxy
materials unless the proposing stockholder notifies OraSure Technologies by
March 26, 2001 that such proposal will be made at the meeting.
Epitope
Epitope has already held its 2000 annual meeting of stockholders. Epitope
will hold an annual meeting in 2001 only if the mergers have not already been
completed. Any shareholder who intends to present a proposal at the 2001 annual
meeting and who wishes to include the proposal in Epitope's proxy materials for
that meeting must deliver the proposal to Epitope at 8505 S.W. Creekside Place,
Beaverton, Oregon 97008, Attention: Secretary, by September 13, 2000. Such
proposal must also comply with the other requirements of the proxy solicitation
rules of the Securities and Exchange Commission.
Proxies solicited in connection with the 2001 annual meeting of shareholders
will confer on the appointed proxies discretionary voting authority to vote on
shareholder proposals that are not presented for inclusion in the proxy
materials unless the proposing shareholder notifies Epitope by November 27,
2000 that such proposal will be made at the meeting.
STC
STC will hold an annual meeting in the year 2000 only if the merger has not
already been completed.
118
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Epitope files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information Epitope files at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C., 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Epitope's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at http://www.sec.gov.
OraSure Technologies filed a registration statement on Form S-4 (333-39210)
to register with the SEC the shares of common stock to be issued to
stockholders of STC and of Epitope in the mergers. This document is a part of
that registration statement and constitutes a prospectus of OraSure
Technologies in addition to being a proxy statement of Epitope and STC for
their respective meetings. As allowed by SEC rules, this document does not
contain all the information included in the registration statement or the
exhibits to the registration statement.
The SEC allows Epitope to "incorporate by reference" information into this
document, which means that Epitope can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in, or incorporated by
reference in, this document. This document incorporates by reference the
documents set forth below that Epitope has previously filed with the SEC. These
documents contain important information about Epitope and its finances.
<TABLE>
<CAPTION>
Epitope SEC Filings (File No. 1-10492) Period
-------------------------------------- ------
<C> <S>
Annual Report on Form 10-K filed on December 31, Fiscal year ended September 30, 1999
1999
Quarterly Reports on Form 10-Q filed on February 11, Quarters ended December 31, 1999,
May 10, and August 8, 2000 March 31, 2000, and June 30, 2000
Current Reports on Form 8-K dated October 1, 1999 Filed on October 4, 1999 and May 10,
and May 6, 2000 2000
Proxy Statement on Schedule 14A for Annual Meeting Filed on January 11, 2000
of Stockholders on February 15, 2000
The description of Epitope common stock set forth in Filed on December 30, 1997
the Registration Statement on Form 8-A as amended by
Exhibit 99.1 to Epitope's Current Report on Form 8-K
dated December 24, 1997
</TABLE>
119
<PAGE>
Epitope also is incorporating by reference additional documents that Epitope
files with the SEC between the date of this document and the date of the
Epitope meeting.
Epitope has supplied all information contained or incorporated by reference
in this document relating to Epitope and STC has supplied all such information
relating to STC.
If you are an Epitope stockholder, Epitope may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Epitope or the SEC. Documents incorporated by reference are available from
Epitope without charge, excluding all exhibits unless Epitope has specifically
incorporated by reference an exhibit in this document. Epitope stockholders may
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from the Secretary of Epitope at the following
address:
EPITOPE, INC.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(503) 641-6115
If you would like to request documents from us, please do so by August 24,
2000 to receive them before the meetings.
You should rely only on the information contained or incorporated by
reference in this document to vote on the Epitope proposal and the STC
proposal, as the case may be. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated , 2000. You should not assume that the information
contained in this document is accurate as of any date other than that date, and
neither the mailing of this document to stockholders nor the issuance of common
stock in the mergers shall create any implication to the contrary.
120
<PAGE>
STC TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Public Accountants................................ F-2
Balance Sheets.......................................................... F-3
Statements of Operations................................................ F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity................................................................. F-5
Statements of Cash Flows................................................ F-6
Notes to the Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To STC Technologies, Inc.:
We have audited the accompanying balance sheets of STC Technologies, Inc. (a
Delaware corporation), as of December 31, 1999 and 1998, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of STC Technologies, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Philadelphia, Pa.,
January 26, 2000
F-2
<PAGE>
STC TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ June 30,
1999 1998 2000
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,254,475 $ 1,206,194 $ 954,714
Short-term investments............... 8,163,449 -- 6,992,204
Accounts receivable, net of allowance
for doubtful accounts of $68,954,
$60,590 and $65,638................. 2,506,929 1,517,629 2,508,277
Inventories.......................... 941,742 1,020,333 1,033,181
Prepaid expenses and other........... 175,987 151,405 641,381
Deferred income taxes................ 52,000 143,497 52,000
----------- ----------- -----------
Total current assets............... 13,094,582 4,039,058 12,181,757
PROPERTY AND EQUIPMENT, net............ 3,972,397 3,917,230 4,596,350
PATENTS AND PRODUCT RIGHTS, net........ 2,148,905 2,394,368 2,023,978
OTHER ASSETS........................... 340,541 75,457 274,573
----------- ----------- -----------
$19,556,425 $10,426,113 $19,076,658
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Line of credit....................... $ -- $ -- $ 144,000
Current portion of long-term debt.... 1,054,462 526,851 1,054,462
Accounts payable..................... 884,390 744,305 1,187,401
Accrued expenses..................... 1,269,592 553,389 1,025,132
----------- ----------- -----------
Total current liabilities.......... 3,208,444 1,824,545 3,410,995
----------- ----------- -----------
LONG-TERM DEBT......................... 5,819,980 6,000,633 5,301,734
----------- ----------- -----------
DEFERRED INCOME TAXES.................. 82,000 173,497 82,000
----------- ----------- -----------
DEFERRED REVENUE....................... 430,000 -- 358,334
----------- ----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK
(liquidation preference of $10,328,083
at June 30, 2000)..................... 9,601,609 -- 10,101,781
----------- ----------- -----------
COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Class A common stock (voting), par
value $.000001; 5,000,000 shares
authorized; 2,783,548 shares issued
and 2,000,000 shares outstanding.... 3 3 3
Class B common stock (nonvoting), par
value $.000001; 1,000,000 shares
authorized; 389,338 shares issued
and outstanding..................... -- -- --
Additional paid-in capital........... 3,933,874 4,677,040 3,441,802
Treasury stock, at cost.............. (407,242) (407,242) (407,242)
Accumulated other comprehensive
income (loss)....................... (259,218) 15,042 (375,199)
Accumulated deficit.................. (2,853,025) (1,857,405) (2,837,550)
----------- ----------- -----------
Total stockholders' equity
(deficit)......................... 414,392 2,427,438 (178,186)
----------- ----------- -----------
$19,556,425 $10,426,113 $19,076,658
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
STC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
For the Year Ended December 31, June 30,
------------------------------------- ----------------------
1999 1998 1997 2000 1999
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Product............... $13,116,847 $10,467,444 $ 7,716,541 $7,303,605 $5,809,004
Licensing and product
development.......... 898,154 185,000 205,000 175,110 505,733
----------- ----------- ----------- ---------- ----------
14,015,001 10,652,444 7,921,541 7,478,715 6,314,737
----------- ----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold.... 4,500,152 4,145,070 3,032,641 2,354,747 2,131,064
Sales and marketing... 3,704,635 2,868,469 2,884,958 1,991,781 1,491,630
Research and
development.......... 3,304,295 2,339,329 1,870,102 2,159,666 1,834,458
Acquired in-process
technology........... 1,500,000 -- -- -- --
General and
administrative....... 1,582,237 1,294,278 1,184,388 909,453 693,573
----------- ----------- ----------- ---------- ----------
14,591,319 10,647,146 8,972,089 7,415,647 6,150,725
----------- ----------- ----------- ---------- ----------
Operating income
(loss)............. (576,318) 5,298 (1,050,548) 63,068 164,012
INTEREST EXPENSE........ 543,654 561,215 334,365 252,572 268,976
INTEREST INCOME......... (316,039) (104,974) (234,527) (225,337) (103,031)
FOREIGN CURRENCY (GAIN)
LOSS................... 141,687 (4,805) -- 8,668 (14,487)
----------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes....... (945,620) (446,138) (1,150,386) 27,165 12,554
INCOME TAXES............ 50,000 -- -- 11,690 --
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)....... (995,620) (446,138) (1,150,386) 15,475 12,554
DEEMED DIVIDEND ON
PREFERRED STOCK........ (750,258) -- -- (500,172) (250,086)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS) TO
COMMON STOCKHOLDERS.... $(1,745,878) $ (446,138) $(1,150,386) $ (484,697) $ (237,532)
=========== =========== =========== ========== ==========
BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE
TO COMMON
STOCKHOLDERS........... $ (0.73) $ (0.19) $ (0.48) $ (0.20) $ (0.10)
=========== =========== =========== ========== ==========
SHARES USED IN COMPUTING
BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE
TO COMMON
STOCKHOLDERS........... 2,388,798 2,388,798 2,388,688 2,388,843 2,388,798
=========== =========== =========== ========== ==========
PRO FORMA BASIC AND
DILUTED NET INCOME
(LOSS) PER SHARE
(Unaudited)............ $ (0.32) $ --
=========== ==========
SHARES USED IN COMPUTING
PRO FORMA BASIC AND
DILUTED NET INCOME
(LOSS) PER SHARE
(Unaudited)............ 3,142,064 3,468,904
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
STC TECHNOLOGIES, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stockholders' Equity
-------------------------------
Redeemable Common Stock
------------------------ -------------------------------
Series A Preferred Stock Class A Class B
------------------------ ---------------- --------------
Shares Amount Shares Amount Shares Amount
------------------------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER
31, 1996.......... -- $ -- 2,783,548 $ 3 368,800 $ --
Cash receipt of
subscription
receivable........ -- -- -- -- -- --
Issuance of Class
B common stock in
connection with
purchase of
building.......... -- -- -- -- 19,998 --
Net loss.......... -- -- -- -- -- --
----------- ------------ --------- ------ ------- ------
BALANCE, DECEMBER
31, 1997.......... -- -- 2,783,548 3 388,798 --
Comprehensive
loss:
Net loss......... -- -- -- -- -- --
Currency
translation
adjustment....... -- -- -- -- -- --
Total
comprehensive
loss............
----------- ------------ --------- ------ ------- ------
BALANCE, DECEMBER
31, 1998.......... -- -- 2,783,548 3 388,798 --
Issuance of stock
options to a
consultant........ -- -- -- -- -- --
Sale of Series A
Preferred Stock,
net of expense.... 1,080,061 8,851,351 -- -- -- --
Accretion of
redemption premium
on preferred
stock............. -- 750,258 -- -- -- --
----------- ------------ --------- ------ ------- ------
Comprehensive
loss:
Net loss.......... -- -- -- -- -- --
Currency
translation
adjustment........ -- -- -- -- -- --
Unrealized loss on
marketable
securities........ -- -- -- -- -- --
Total
comprehensive
loss............
----------- ------------ --------- ------ ------- ------
BALANCE, DECEMBER
31, 1999.......... 1,080,061 9,601,609 2,783,548 3 388,798 --
Accretion of
redemption premium
on preferred stock
(unaudited)....... -- 500,172 -- -- -- --
Exercise of stock
options
(unaudited)....... -- -- -- -- 540 --
Comprehensive
loss:
Net income
(unaudited)...... -- --
Currency -- -- -- --
translation
adjustment
(unaudited)...... -- -- -- -- -- --
Unrealized loss
on marketable
securities
(unaudited)...... -- -- -- -- -- --
Total
comprehensive
income
(unaudited).....
----------- ------------ --------- ------ ------- ------
BALANCE, JUNE 30,
2000 (unaudited).. 1,080,061 $ 10,101,781 2,783,548 $ 3 389,338 $ --
=========== ============ ========= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
----------------------------------------------------------------------------------------
Accumulated
Additional Treasury Stock Other Total
Paid-in ------------------- Subscription Comprehensive Accumulated Stockholders'
Capital Shares Amount Receivable Income (Loss) Deficit Equity
------------ ------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER
31, 1996.......... $4,427,065 783,548 $ (407,242) $(50,000) $-- $(260,881) $3,708,945
Cash receipt of
subscription
receivable........ -- -- -- 50,000 -- -- 50,000
Issuance of Class
B common stock in
connection with
purchase of
building.......... 249,975 -- -- -- -- -- 249,975
Net loss.......... -- -- -- -- -- (1,150,386) (1,150,386)
------------ ------- ----------- ------------ ------------- ------------- -------------
BALANCE, DECEMBER
31, 1997.......... 4,677,040 783,548 (407,242) -- -- (1,411,267) 2,858,534
Comprehensive
loss:
Net loss......... -- -- -- -- -- (446,138) (446,138)
Currency
translation
adjustment....... -- -- -- -- 15,042 -- 15,042
-------------
Total
comprehensive
loss............ (431,096)
------------ ------- ----------- ------------ ------------- ------------- -------------
BALANCE, DECEMBER
31, 1998.......... 4,677,040 783,548 (407,242) -- 15,042 (1,857,405) 2,427,438
Issuance of stock
options to a
consultant........ 7,092 -- -- -- -- -- 7,092
Sale of Series A
Preferred Stock,
net of expense.... -- -- -- -- -- -- --
Accretion of
redemption premium
on preferred
stock............. (750,258) -- -- -- -- -- (750,258)
------------ ------- ----------- ------------ ------------- ------------- -------------
Comprehensive
loss:
Net loss.......... -- -- -- -- -- (995,620) (995,620)
Currency
translation
adjustment........ -- -- -- -- (74,260) -- (74,260)
Unrealized loss on
marketable
securities........ -- -- -- -- (200,000) -- (200,000)
-------------
Total
comprehensive
loss............ (1,269,880)
------------ ------- ----------- ------------ ------------- ------------- -------------
BALANCE, DECEMBER
31, 1999.......... 3,933,874 783,548 (407,242) -- (259,218) (2,853,025) 414,392
Accretion of
redemption premium
on preferred stock
(unaudited)....... (500,172) -- -- -- -- -- (500,172)
Exercise of stock
options
(unaudited)....... 8,100 -- -- -- -- -- 8,100
Comprehensive
loss:
Net income
(unaudited)...... -- -- -- -- -- 15,475 15,475
Currency
translation
adjustment
(unaudited)...... -- -- -- -- (59,731) -- (59,731)
Unrealized loss
on marketable
securities
(unaudited)...... -- -- -- -- (56,250) -- (56,250)
-------------
Total
comprehensive
income
(unaudited)..... (100,506)
------------ ------- ----------- ------------ ------------- ------------- -------------
BALANCE, JUNE 30,
2000 (unaudited).. $ 3,441,802 783,548 $ (407,242) $ -- $(375,199) $ (2,837,550) $ (78,186)
============ ======= =========== ============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
STC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
For the Year Ended December 31, Ended June 30,
------------------------------------- ------------------------
1999 1998 1997 2000 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...... $ (995,620) $ (446,138) $(1,150,386) $ 15,475 $ 12,554
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Stock based
compensation
expense.............. 7,092 -- -- -- --
Amortization of
deferred revenue..... (107,500) -- -- (71,666) (23,888)
Depreciation and
amortization......... 1,192,091 1,069,625 854,492 577,742 617,321
Amortization of debt
discount............. -- -- 126,573 -- --
Gain on sale of
property and
equipment............ (44,033) -- -- -- --
Changes in assets and
liabilities:
Accounts receivable.. (989,300) (220,816) (181,550) (1,348) (389,144)
Inventories.......... 78,591 (115,230) (120,874) (91,439) (60,815)
Prepaid expenses and
other............... 47,834 (50,530) (29,903) (455,678) 73,183
Accounts payable..... 140,085 209,200 62,886 303,011 166,753
Accrued expenses..... 716,203 (63,029) 149,896 (244,458) 145,080
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities......... 45,443 383,082 (288,866) 31,639 541,044
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (1,056,012) (722,154) (1,101,281) (1,076,768) (591,621)
Proceeds from the sale
of property and
equipment............ 98,250 -- -- -- --
Purchase of patents
and product rights... -- (2,548,690) -- -- --
Purchase of short-term
investments.......... (8,163,449) -- -- -- (8,063,311)
Proceeds from sale of
short-term
investments.......... -- 315,963 297,236 1,171,245 --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities......... (9,121,211) (2,954,881) (804,045) 94,477 (8,654,932)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net borrowings under
line of credit........ -- -- -- 144,000 --
Proceeds from term
debt................. 2,219,433 6,650,000 3,800,000 -- 74,070
Repayment of term
debt................. (1,872,475) (4,905,166) (4,810,070) (518,246) (283,384)
Net proceeds from
issuance of preferred
and common stock..... 8,851,351 -- 50,000 8,100 8,851,351
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 9,198,309 1,744,834 (960,070) (366,146) 8,642,037
----------- ----------- ----------- ----------- -----------
EFFECT OF FOREIGN
EXCHANGE RATE CHANGES
ON CASH................ (74,260) 15,042 -- (59,731) (38,082)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 48,281 (811,923) (2,052,981) (299,761) 490,067
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 1,206,194 2,018,117 4,071,098 1,254,475 1,206,194
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 1,254,475 $ 1,206,194 $ 2,018,117 $ 954,714 $ 1,696,261
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
1. BACKGROUND:
STC Technologies, Inc. ("the Company") develops, manufactures, and markets
proprietary medical devices and products including in vitro diagnostic tests
and other medical devices for use in commercial labs, physicians' offices,
hospitals, and for point-of-care testing. In addition, the Company has focused
on developing UPT, a proprietary label detection technology.
On May 6, 2000, the Company entered into a merger agreement with Epitope,
Inc. ("Epitope"). The agreement is subject to approval by Epitope and the
Company's shareholders and other closing conditions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of June 30, 2000 and for the six months ended
June 30, 2000 and 1999 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal and recurring adjustments) necessary
for a fair presentation of results for these interim periods. The results of
operations for the six months ended June 30, 2000 are not necessarily
indicative of the results expected for the entire year.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Short-term Investments
Short-term investments consist of treasury notes, certificates of deposits
and other government obligations with original maturities greater than ninety
days and less than one year. Such investments are recorded at fair value due to
the nature of the maturities.
Supplemental Cash Flow Information
For the years ended December 31, 1999, 1998 and 1997, the Company paid
interest of $564,036, $486,799, and $233,887, respectively.
Inventories
Inventories are stated at the lower of cost or market determined on a first-
in, first-out basis.
The Company currently buys one of its medical products from a foreign vendor.
Purchases are payable in foreign currency. Changes in the exchange rate would
impact the Company's product cost. The Company attempts to reduce its exposure
to fluctuations in exchange rates by maintaining an operating balance of
guilders and creating offsetting positions through the purchase of futures
contracts. As of December 31, 1999, the Company did not have any open future
contracts. Future changes in foreign exchange rates or changes in actual
purchases could have a material adverse effect on the Company.
F-7
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
Property and Equipment
Property and equipment are stated at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the lease term. Additions or improvements are capitalized,
while repairs and maintenance are charged to expense. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets or the lease term, whichever is shorter.
Buildings are depreciated over 20 years, while computer equipment, machinery
and equipment, and furniture and fixtures are depreciated over 3 to 7 years.
When assets are sold or otherwise disposed of, the related property amounts are
relieved from the accounts, and any gain or loss is recorded in the statement
of operations.
Long-term Investments
Included in other assets is an investment in a warrant to purchase shares in
LabOne common stock which is classified as available-for-sale securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Available-
for-sale securities are carried at fair value, based on quoted market prices,
with unrealized gains and losses reported as a separate component of
stockholders' equity. As of December 31, 1999, the Company had $200,000 of
unrealized losses.
Accrued Expenses
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1999 1998 2000
---------- -------- ----------
<S> <C> <C> <C>
Payroll and related benefits................. $ 380,245 $ 83,504 $ 195,838
Legal........................................ 216,440 25,000 13,913
Deferred revenue............................. -- -- 251,338
Other........................................ 672,907 444,885 564,043
---------- -------- ----------
$1,269,592 $553,389 $1,025,132
========== ======== ==========
</TABLE>
Revenue Recognition
The Company recognizes product revenues when products are shipped. The
Company does not grant price protection or product return rights to its
customers. Licensing and product development revenues are recognized when the
related technology is licensed or the product development efforts are
performed. Amounts received prior to the performance of product development
efforts are recorded as deferred revenues.
In December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). The bulletin draws on existing accounting rules and provides specific
guidance on revenue recognition of up-front non-refundable license fees. The
Company has applied the provisions of SAB 101 in the accompanying financial
statements.
Significant Customers and Supplier Concentrations
The Company is dependent on several large customers for a significant portion
of its revenues. In 1999, two customers accounted for approximately 24% of
total revenues. In 1998 and 1997, one customer accounted for approximately 14%
and 17% of total revenues, respectively. A loss of one or more of the Company's
major customers could have a material adverse effect on the Company's business.
For the year ended December 31, 1999, one vendor accounted for approximately
33% of total materials purchased. In 1998, two vendors accounted for
approximately 41% of total materials purchased.
F-8
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured using enacted tax rates that are expected to be in
effect when the differences reverse.
Foreign Currency Translation
Pursuant to SFAS No. 52, "Foreign Currency Translation," the assets and
liabilities of the Company's foreign operations are translated into U.S.
dollars at current exchange rates as of the balance sheet date, and revenues
and expenses are translated at average exchange rates for the period. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity. All foreign currency transaction gains and losses are recorded on the
accompanying statements of operations.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees using the
intrinsic value method in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
accounts for stock-based compensation to nonemployees using the fair value
method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" and Emerging Issues Task Force 96-18.
Net Income (Loss) Per Common Share
The Company has presented basic and diluted net income (loss) per share
pursuant to SFAS No. 128, "Earnings per Share," and the Securities and Exchange
Commission Staff Accounting Bulletin No. 98. In accordance with SFAS 128, basic
and diluted net income (loss) per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. The
Company has excluded all redeemable convertible preferred stock and outstanding
stock options from the calculation of diluted income (loss) per share because
such securities are antidilutive for all periods presented. Pro forma basic and
diluted net income (loss) per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1999 and for the
six months ended June 30, 2000 as described above, and also gives effect to the
conversion of the redeemable convertible preferred stock which will convert to
common stock prior to closing of the planned merger with Epitope (See Note 1)
from the original date of issuance.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," if indicators of
impairment exist, the Company assesses the recoverability of the affected long-
lived assets, which include property and equipment and patents and product
rights, by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the amount of such impairment by comparing the
carrying value of the assets to the present value of the expected future cash
flows associated with the use of the asset. The Company believes the future
cash flows to be received from the long-lived assets will exceed the assets'
carrying value, and accordingly the Company has not recognized any impairment
losses through December 31, 1999.
F-9
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
Other Comprehensive Income
The Company follows SFAS No. 130, "Reporting Comprehensive Income." This
statement requires the classification of items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet.
Reclassification
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
3. INVENTORIES:
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1999 1998 2000
-------- ---------- ----------
<S> <C> <C> <C>
Raw materials................................. $251,557 $ 257,656 $ 331,931
Work in process............................... 284,185 381,707 311,512
Finished goods................................ 406,000 380,970 389,738
-------- ---------- ----------
$941,742 $1,020,333 $1,033,181
======== ========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
------------------------ June 30,
1999 1998 2000
----------- ----------- -----------
<S> <C> <C> <C>
Building and leasehold improve-
ments.............................. $ 2,614,526 $ 2,567,739 $ 3,212,080
Machinery and equipment............. 4,362,377 4,052,482 3,937,026
Computer equipment.................. 795,613 520,929 909,490
Furniture and fixtures.............. 464,475 420,985 511,728
Vehicles............................ 108,997 15,189 128,453
----------- ----------- -----------
8,345,988 7,577,324 8,698,777
Less--Accumulated depreciation and
amortization....................... (4,373,591) (3,660,094) (4,102,427)
----------- ----------- -----------
$ 3,972,397 $ 3,917,230 $ 4,596,350
=========== =========== ===========
</TABLE>
5. ACQUISITION OF PRODUCT RIGHTS:
On June 9, 1998, the Company acquired the patents and exclusive worldwide
distribution rights to one of its medical products. The purchase price of
$2,548,690, including transaction costs, has been recorded as patents and
product rights and is being amortized using the straight-line method over an
estimated useful life of 10 years. Amortization expense for the years ended
December 31, 1999 and 1998 was $245,463 and $154,322, respectively. In
connection with the acquisition, the Company entered into a five-year
production agreement with the seller of this medical product. In addition, the
Company entered into a royalty agreement with a separate party (see Note 11).
6. LINE OF CREDIT:
The Company has established a $1 million line of credit with a bank, which
bears interest at the LIBOR rate plus 235 basis points. Borrowings under this
line are collateralized by the Company's accounts receivable and the personal
guarantees of certain principal stockholders of the Company. The line expires
on April 30, 2000. There were no borrowings against the line at December 31,
1999 and 1998 (See Note 7).
F-10
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000
and 1999 is unaudited)
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Note payable to bank, interest at 8%, monthly
installments of principal and interest of $59,219
through December 2003, and monthly installments of
remaining principal and interest based on prime rate
plus 1% through December 2005, secured by certain
property and equipment, inventory, intangible assets
and the personal guarantees of certain principal
stockholders of the Company.......................... $ 3,379,663 $3,786,000
Note payable to bank, interest at 8%, monthly
installments of principal and interest of $8,181
through December 2003, secured by the Company's
building and the personal guarantees of certain
principal stockholders of the Company................ 949,750 970,000
Note payable to Pennsylvania Industrial Development
Authority, interest at 2%, monthly installments of
principal and interest of $4,895 through March 2010,
secured by a second lien on the Company's building
and the personal guarantees of certain principal
stockholders of the Company.......................... 539,885 587,295
Note payable to bank, interest at 7.8%, monthly
installments of principal and interest of $23,146
through July 2004, secured by certain property and
equipment, inventory, intangible assets and the
personal guarantees of certain principal stockholders
of the Company....................................... 1,065,410 --
Note payable to bank, interest at 7.75%, monthly
installments of principal and interest of $31,271
through July 2002, secured by certain property and
equipment, inventory, intangible assets and the
personal guarantees of certain principal stockholders
of the Company....................................... 875,168 --
Note payable to bank, interest at 7.49%, monthly
installments of principal and interest of $747
through February 2004, secured by automobiles........ 32,010 --
Note payable to bank, interest at 7.75%, monthly
installments of principal and interest of $747
through March 2004, secured by automobiles........... 32,556 --
Note payable to Commonwealth of Pennsylvania, Sunny
Day Fund, secured by certain equipment, monthly
installments of principal and interest (interest at
3%) of $6,752 through June 1999...................... -- 40,189
Subordinated notes payable to certain principal
stockholders, interest payable monthly at prime plus
6%, repaid in 1999................................... -- 1,144,000
----------- ----------
6,874,442 6,527,484
Less--Current portion................................. (1,054,462) (526,851)
----------- ----------
$ 5,819,980 $6,000,633
=========== ==========
</TABLE>
Long-term debt maturities as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000.............................. $1,054,462
2001.............................. 1,139,825
2002.............................. 1,073,249
2003.............................. 928,083
2004.............................. 820,463
Thereafter........................ 1,858,360
----------
$6,874,442
==========
</TABLE>
The Company has established a $1 million equipment facility with a bank (see
Note 6), with interest fixed at the bank's prime rate on the date of
commencement. Borrowings under this line are collateralized by the equipment
financed and the personal guarantees of the Company's principal stockholders.
There were no outstanding borrowings under this facility as of December 31,
1999 and 1998, respectively. The unused portion of the equipment facility
expires on April 30, 2000.
F-11
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
8. INCOME TAXES:
At December 31, 1999, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $130,000 that begins to expire in
2011. The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforward available to be used in any given year in the event
of significant changes in ownership. Given the Company's losses in recent
years, the Company believes a valuation allowance is needed as of December 31,
1999.
The tax effect of temporary differences as established in accordance with
SFAS No. 109 that give rise to deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
Gross deferred tax asset:
Accruals and reserves currently not deductible.... $ 230,000 $ 45,000
Patent costs...................................... 526,000 --
Research and development credit carryforwards..... 306,000 142,000
Net operating loss carryforwards.................. 44,000 465,800
Valuation allowance on deferred tax assets........ (1,027,000) (489,500)
----------- ---------
$ 79,000 $ 163,300
=========== =========
Gross deferred tax liability:
Depreciation...................................... $ (82,000) $(164,800)
Other............................................. (27,000) (28,500)
----------- ---------
$ (109,000) $(193,300)
=========== =========
</TABLE>
9. PREFERRED STOCK
In March and June 1999, the Company completed the closing of a private
placement of 1,080,061 shares of its Series A Convertible Preferred stock (the
"Preferred Stock") at $8.50 per share, which generated net proceeds of
$8,851,351. Each share of the Preferred Stock is convertible, at the option of
the holder, into one share of the Company's Class A common stock, subject to
certain antidilution rights, and automatically converts upon the closing of a
qualified initial public offering. Beginning March 2003, each year 25% of the
Preferred Stock are redeemable at the option of the majority of the holders of
Preferred Stock at $8.50 per share, plus a dividend of 10% per year compounded
annually since the date of issuance. Dividends are accrued as an increase to
the carrying value of the Preferred Stock. The Preferred Stock is carried at
its current redemption value in the accompanying balance sheet outside of
stockholders' equity since the redemption of the Preferred Stock is outside the
control of the Company.
10. STOCK OPTIONS
In May 1996, the Company adopted a stock option plan that provides for the
grant of options to purchase up to 240,000 shares of Class B common stock to
employees, consultants, and advisors. In April 1999, the Company amended the
1996 stock option plan to increase the number of shares to 327,281. Options are
granted with exercise prices equal to or greater than the fair value of the
Class B common stock on the date of grant. Options vest and are exercisable
over a period determined at the discretion of the Board of Directors, but no
longer than 10 years.
The Company applies Accounting Principal Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for its stock option plans. As the exercise price of the stock options exceeded
the fair value of the Class B common stock at the date of option issuance, no
F-12
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
compensation cost has been recorded in the accompanying statement of
operations. The Company follows the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's common stock option plan been determined based upon the fair value of
the options at the date of grant, as prescribed under SFAS No. 123, the
Company's net loss for the years ended December 31, 1999, 1998 and 1997 would
have been as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998 1997
----------- --------- -----------
<S> <C> <C> <C>
Net loss--as reported................. $ (995,620) $(446,138) $(1,150,386)
=========== ========= ===========
Net loss--pro forma................... $(1,054,003) $(483,046) $(1,226,083)
=========== ========= ===========
Basic and diluted net loss per share--
as reported.......................... $ (0.42) $ (0.19) $ (0.48)
=========== ========= ===========
Basic and diluted net loss per share--
pro forma............................ $ (0.44) $ (0.20) $ (0.51)
=========== ========= ===========
</TABLE>
The weighted average fair value of the options granted during 1999, 1998 and
1997 is estimated at $1.55, $2.37 and $2.87, respectively per share, using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of zero; volatility of zero; weighted average risk-free interest rate of
6.37%, 5.61% and 6.33%, respectively, and an expected life of 7 years.
Information with respect to the options granted under the stock option plan
is as follows:
<TABLE>
<CAPTION>
Aggregate Price Per
Shares Price Share
------- ---------- ------------
<S> <C> <C> <C>
Outstanding, December 31, 1996............ -- $ -- $ --
Granted................................. 78,015 1,170,225 15.00
Canceled................................ (4,690) (70,350) 15.00
------- ---------- ------------
Outstanding, December 31, 1997............ 73,325 1,099,875 15.00
Granted................................. 2,000 30,000 15.00
Canceled................................ (4,050) (60,750) 15.00
------- ---------- ------------
Outstanding, December 31, 1998............ 71,275 1,069,125 15.00
Granted................................. 128,602 546,559 4.25
Canceled................................ (7,794) (112,707) 4.25-15.00
------- ---------- ------------
Outstanding, December 31, 1999............ 192,083 1,502,977 4.25-15.00
Exercised............................... (540) (8,100) 15.00
Canceled................................ (4,464) (21,122) 4.25-15.00
------- ---------- ------------
Outstanding, June 30, 2000................ 187,079 $1,473,755 $4.25-$15.00
======= ========== ============
</TABLE>
At December 31, 1999, there were outstanding presently exercisable options to
purchase an aggregate of 58,112 shares at an average exercise price of $12.13
per share, with an aggregate exercise price of $705,055. At December 31, 1999,
135,198 shares were available for future grants under the plan.
11. COMMITMENTS:
Royalty Agreements
As part of the acquisition of the assets of Enzymatics, Inc., the Company
entered into royalty agreements with the Commonwealth of Pennsylvania and a
related state agency. The agreement with the Commonwealth requires a 3% royalty
to be paid on the net sales of the Q.E.D. test up to a maximum of $2.2 million.
The agreement with the related state agency requires a 2% royalty to be paid on
the net sales of the Q.E.D. test up to a maximum of $300,000. Total Q.E.D.
royalty expense was $54,160, $42,267 and $43,962 for the years ended December
31, 1999, 1998 and 1997, respectively. Total royalty payments under the terms
of these
F-13
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
agreements were $34,621, $31,015 and $37,859 for the years ended December 31,
1999, 1998 and 1997, respectively.
As part of the termination agreement with Orion Diagnostica, the Company
entered into a royalty agreement with Orion Diagnostica for AlcoScreen(TM) unit
sales. The agreement requires a royalty of $.20 per AlcoScreen(TM) unit
delivered to a European distributor by the Company up to a maximum of $300,000
through April 25, 2000. Effective April 26, 2000, the royalty is reduced to
$.10 per AlcoScreen(TM) unit delivered to the European distributor. The royalty
agreement expires on April 26, 2004. Total AlcoScreen(TM) royalty expense was
$20,028 for the year ended December 31, 1999. Total royalty payments under the
terms of this agreement were zero for the year ended December 31, 1999.
In connection with the acquisition of the exclusive distribution rights to
the Histofreezer product in 1998, the Company entered into a royalty agreement
with the inventor of Histofreezer. Royalties are payable in Netherlands
Guilders ("NG"), converted to U.S. dollars using the year-end currency exchange
rate, and are based on annual treatment sales of the Histofreezer product. For
the years ended December 31, 1999 and 1998, Histofreezer royalty expense was
$95,448 and $64,117, respectively, based on the average exchange rate during
the years.
Phosphor Agreements
In April 1995, the Company entered into several research, licensing and
royalty agreements (collectively the "Phosphor Agreements") related to the
development of its UPT label detection technology. The Phosphor Agreements
require, among other things, the Company to make annual license payments of
$50,000 until commercial sale of product, pay royalties ranging from 4% to 6%
of net sales of related product as defined, and pay 20% of sublicensing
revenues.
In July 1999, the Company acquired the patent rights (the "Rights") to such
phosphor technology thus amending the Company's requirements to make annual
license payments, pay royalties, and pay sublicensing fees. The Company paid
approximately $1,400,000 for the Rights and incurred approximately $100,000 of
expenses related to the buyout of the Rights. The Company has accounted for the
purchase price of the Rights as acquired in-process technology expense because,
at the date of the transaction, the technology rights acquired by the Company
related to UPT had not progressed to a stage where it met technological
feasibility and there existed a significant amount of uncertainty as to the
Company's ability to complete the development of the technology which would
achieve market acceptance within a reasonable timeframe. In addition, the
acquired in-process technology did not have an alternative future use to the
Company that had reached technological feasibility. In connection with the
buyout, the Company is required to pay royalties of $25,000 per year until the
Rights expire. The Company must also pay sponsored research funds of $125,000
per year through July 2002, and $50,000 per year thereafter until the Rights
expire.
For the years ended December 31, 1999, 1998 and 1997, net investments related
to the Phosphor Agreements and the Rights were $3,699,207, $2,100,688 and
$1,625,832, respectively.
Leases
The Company entered into a 5 year noncancellable building lease in 1999. The
Company anticipates occupancy of the new building in early 2000. Future
payments required under this lease are as follows:
<TABLE>
<S> <C>
2000.............................. $ 201,121
2001.............................. 268,161
2002.............................. 268,161
2003.............................. 268,161
2004 and thereafter............... 335,201
----------
$1,340,805
==========
</TABLE>
F-14
<PAGE>
STC TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(information as of June 30, 2000 and for the six months ended June 30, 2000 and
1999 is unaudited)
Automobile lease expense during 1999, 1998 and 1997 was $25,536, $26,534 and
$29,635, respectively. The Company is required to pay $10,334 on these leases
in 2000.
12. RETIREMENT PLAN:
Effective January 1, 1994, the Company adopted a profit sharing plan that
includes provisions under Section 401(k) (salary deferral) of the Internal
Revenue Code. Contributions to the profit sharing plan are determined annually
by the Board of Directors. Employee contributions are made at the election of
the participants on a monthly basis. The Company may then elect to match the
employee contributions to limits specified within the plan agreement. Company
contributions to the plan were $113,708, $93,607 and $88,106 for the years
ended December 31, 1999, 1998 and 1997, respectively.
13. GEOGRAPHIC INFORMATION:
Under the disclosure requirements of SFAS No. 131, "Segment Disclosures and
Related Information," the Company operates within one segment, medical devices
and products. The Company's products are sold principally in the United States
and Europe. Operating income and identifiable assets are not applicable since
all of the Company's revenues outside the United States are export sales.
The following table represents total revenues by geographic area:
<TABLE>
<CAPTION>
For the Year ended December 31,
----------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
United States............................. $11,653,000 $9,030,000 $7,567,000
Europe.................................... 1,787,000 1,179,000 272,000
Other regions............................. 575,000 443,000 83,000
----------- ----------- ----------
$14,015,000 $10,652,000 $7,922,000
=========== =========== ==========
</TABLE>
F-15
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
May 6, 2000
among
EPITOPE, INC.
EDWARD MERGER SUBSIDIARY, INC.*
and
STC TECHNOLOGIES, INC.
--------
* The name of Edward Merger Subsidiary, Inc. was changed to OraSure
Technologies, Inc. after the Agreement and Plan of Merger was executed.
<PAGE>
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS................................................... A-2
ARTICLE II THE MERGERS.................................................. A-2
SECTION 2.1. STC MERGER........................................... A-2
SECTION 2.2. EPITOPE MERGER....................................... A-5
SECTION 2.3. EXCHANGE OF CERTIFICATES............................. A-7
SECTION 2.4. AFFILIATES........................................... A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EPITOPE................... A-9
SECTION 3.1. CORPORATE EXISTENCE AND POWER........................ A-9
SECTION 3.2. CORPORATE AUTHORIZATION.............................. A-9
SECTION 3.3. GOVERNMENTAL AUTHORIZATION........................... A-9
SECTION 3.4. NON-CONTRAVENTION.................................... A-9
SECTION 3.5. CAPITALIZATION....................................... A-10
SECTION 3.6. SUBSIDIARIES......................................... A-10
SECTION 3.7. EPITOPE SEC DOCUMENTS................................ A-11
SECTION 3.8. FINANCIAL STATEMENTS; NO MATERIAL UNDISCLOSED
LIABILITIES.......................................... A-11
SECTION 3.9. INFORMATION TO BE SUPPLIED........................... A-12
SECTION 3.10. ABSENCE OF CERTAIN CHANGES........................... A-12
SECTION 3.11. LITIGATION........................................... A-12
SECTION 3.12. TAXES................................................ A-12
SECTION 3.13. EMPLOYEE BENEFITS.................................... A-13
SECTION 3.14. COMPLIANCE WITH LAWS; LICENSES, PERMITS AND
REGISTRATIONS........................................ A-14
SECTION 3.15. TITLE TO PROPERTIES.................................. A-14
SECTION 3.16. INTELLECTUAL PROPERTY................................ A-14
SECTION 3.17. ENVIRONMENTAL MATTERS................................ A-15
SECTION 3.18. FINDERS' FEES; OPINIONS OF FINANCIAL ADVISOR......... A-16
SECTION 3.19. REQUIRED VOTE; BOARD APPROVAL........................ A-16
SECTION 3.20. STATE TAKEOVER STATUTES.............................. A-17
SECTION 3.21. POOLING MATTERS; TAX TREATMENT....................... A-17
SECTION 3.22. CERTAIN AGREEMENTS................................... A-17
SECTION 3.23. EPITOPE RIGHTS AGREEMENT............................. A-17
SECTION 3.24. EMPLOYMENT AGREEMENTS................................ A-17
SECTION 3.25. TRANSACTIONS WITH DIRECTORS, OFFICERS AND
AFFILIATES........................................... A-18
SECTION 3.26. MATERIAL CONTRACTS................................... A-18
SECTION 3.27. CERTAIN BUSINESS PRACTICES........................... A-19
SECTION 3.28. INSURANCE............................................ A-19
SECTION 3.29. PRODUCT INFORMATION.................................. A-19
SECTION 3.30. PRODUCT LIABILITY CLAIMS............................. A-20
</TABLE>
i
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF STC........................ A-20
SECTION 4.1. CORPORATE EXISTENCE AND POWER........................ A-20
SECTION 4.2. CORPORATE AUTHORIZATION.............................. A-20
SECTION 4.3. GOVERNMENTAL AUTHORIZATION........................... A-20
SECTION 4.4. NON-CONTRAVENTION.................................... A-21
SECTION 4.5. CAPITALIZATION....................................... A-21
SECTION 4.6. SUBSIDIARIES......................................... A-21
SECTION 4.7. FINANCIAL STATEMENTS; NO MATERIAL UNDISCLOSED
LIABILITIES.......................................... A-21
SECTION 4.8. INFORMATION TO BE SUPPLIED........................... A-22
SECTION 4.9. ABSENCE OF CERTAIN CHANGES........................... A-22
SECTION 4.10. LITIGATION........................................... A-22
SECTION 4.11. TAXES................................................ A-22
SECTION 4.12. EMPLOYEE BENEFITS.................................... A-23
SECTION 4.13. COMPLIANCE WITH LAWS; LICENSES, PERMITS AND
REGISTRATIONS........................................ A-24
SECTION 4.14. TITLE TO PROPERTIES.................................. A-24
SECTION 4.15. INTELLECTUAL PROPERTY................................ A-25
SECTION 4.16. ENVIRONMENTAL MATTERS................................ A-25
SECTION 4.17. FINDERS' FEES; OPINIONS OF FINANCIAL ADVISOR......... A-26
SECTION 4.18. REQUIRED VOTE AND WAIVER; BOARD APPROVAL............. A-26
SECTION 4.19. STATE TAKEOVER STATUTES.............................. A-26
SECTION 4.20. POOLING MATTERS; TAX TREATMENT....................... A-27
SECTION 4.21. CERTAIN AGREEMENTS................................... A-27
SECTION 4.22. EMPLOYMENT AGREEMENTS................................ A-27
SECTION 4.23. TRANSACTIONS WITH DIRECTORS, OFFICERS AND
AFFILIATES........................................... A-27
SECTION 4.24. MATERIAL CONTRACTS................................... A-27
SECTION 4.25. CERTAIN BUSINESS PRACTICES........................... A-28
SECTION 4.26. INSURANCE............................................ A-28
SECTION 4.27. PRODUCT INFORMATION.................................. A-28
SECTION 4.28. PRODUCT LIABILITY CLAIMS............................. A-29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB.................. A-29
SECTION 5.1. ORGANIZATION......................................... A-29
SECTION 5.2. CORPORATE AUTHORIZATION.............................. A-30
SECTION 5.3. NON-CONTRAVENTION.................................... A-30
SECTION 5.4. NO BUSINESS ACTIVITIES............................... A-30
SECTION 5.5. TAXES................................................ A-30
</TABLE>
ii
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ARTICLE VI COVENANTS OF EPITOPE......................................... A-30
SECTION 6.1. EPITOPE INTERIM OPERATIONS........................... A-30
SECTION 6.2. ACQUISITION PROPOSALS; BOARD RECOMMENDATION.......... A-32
ARTICLE VII COVENANTS OF STC............................................ A-34
SECTION 7.1. STC INTERIM OPERATIONS............................... A-34
SECTION 7.2. ACQUISITION PROPOSALS; BOARD RECOMMENDATION.......... A-35
ARTICLE VIII COVENANTS OF STC AND EPITOPE............................... A-36
SECTION 8.1. REASONABLE BEST EFFORTS.............................. A-36
SECTION 8.2. CERTAIN FILINGS; COOPERATION IN RECEIPT OF CONSENTS;
LISTING.............................................. A-36
SECTION 8.3. HEADQUARTERS......................................... A-37
SECTION 8.4. PUBLIC ANNOUNCEMENTS................................. A-37
SECTION 8.5. ACCESS TO INFORMATION; NOTIFICATION OF CERTAIN
MATTERS.............................................. A-37
SECTION 8.6. FURTHER ASSURANCES................................... A-38
SECTION 8.7. TAX AND ACCOUNTING TREATMENT......................... A-38
SECTION 8.8. AFFILIATES........................................... A-39
SECTION 8.9. CONFIDENTIALITY...................................... A-39
SECTION 8.10. BENEFIT MATTERS...................................... A-40
SECTION 8.11. ANTITRUST MATTERS.................................... A-40
SECTION 8.12. EXEMPTION FROM LIABILITY UNDER SECTION 16(B)......... A-41
SECTION 8.13. INDEMNIFICATION AND INSURANCE........................ A-41
ARTICLE IX CONDITIONS TO THE MERGER..................................... A-42
SECTION 9.1. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.......... A-42
SECTION 9.2. CONDITIONS TO THE OBLIGATIONS OF EPITOPE AND MERGER
SUB.................................................. A-43
SECTION 9.3. CONDITIONS TO THE OBLIGATIONS OF STC................. A-44
ARTICLE X TERMINATION................................................... A-45
SECTION 10.1. TERMINATION.......................................... A-45
SECTION 10.2. EFFECT OF TERMINATION................................ A-46
SECTION 10.3. FEES AND EXPENSES.................................... A-47
ARTICLE XI MISCELLANEOUS................................................ A-47
SECTION 11.1. NOTICES.............................................. A-47
SECTION 11.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
AFTER THE EFFECTIVE TIME............................. A-47
SECTION 11.3. AMENDMENTS; NO WAIVERS............................... A-48
SECTION 11.4. ASSIGNMENT........................................... A-48
SECTION 11.5. GOVERNING LAW........................................ A-48
SECTION 11.6. COUNTERPARTS; EFFECTIVENESS.......................... A-48
SECTION 11.7. NO THIRD PARTY BENEFICIARIES......................... A-48
SECTION 11.8. INTERPRETATION....................................... A-48
SECTION 11.9. ENFORCEMENT.......................................... A-48
SECTION 11.10. ENTIRE AGREEMENT..................................... A-48
SECTION 11.11. SEVERABILITY......................................... A-49
</TABLE>
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<PAGE>
APPENDICES
Appendix I--Definitions
EXHIBITS
Exhibit A--Epitope Stockholders Agreement
Exhibit B--STC Stockholders Agreement
Exhibit C--Certificate of Merger for STC Merger
Exhibit D--Articles of Merger for Epitope Merger
Exhibit E--Certificate of Merger for Epitope Merger
Exhibit F--Certificate of Incorporation of Merger Sub
Exhibit G--Bylaws of Merger Sub
Exhibit H--Principal Officers of Surviving Corporation
Exhibit I--Epitope Representation Letter
Exhibit J--STC Representation Letter
Exhibit K--Form of STC Affiliate Agreement
Exhibit L--Form of Epitope Affiliate Agreement
Exhibit M--Indemnification Agreements
Exhibit N--List of Employees
Exhibit O--Merger Sub Representation Letter
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 6, 2000 (the "Agreement"), by
and among Epitope, Inc., an Oregon corporation ("Epitope"), Edward Merger
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of
Epitope ("Merger Sub") and STC Technologies, Inc., a Delaware corporation
("STC").
RECITALS:
WHEREAS, the Boards of Directors of Epitope and STC deem it advisable and in
the best interests of each corporation and its respective stockholders that
Epitope and STC engage in a business combination as peer firms in a combination
of equals in order to advance the long-term strategic business interests of
Epitope and STC;
WHEREAS, the combination of Epitope and STC shall be effected by the terms of
this Agreement through the mergers as outlined below;
WHEREAS, the respective Boards of Directors of STC and Merger Sub have each
(i) determined that the merger of STC with and into Merger Sub (the "STC
Merger") is fair to, and in the best interests of, their respective companies
and stockholders, (ii) have approved and declared the advisability of this
Agreement and (ii) have approved the STC Merger, and (iii) have recommended the
approval and adoption of this Agreement by their respective company's
stockholders;
WHEREAS, the respective Boards of Directors of Epitope and Merger Sub have
each (i) determined that the merger of Epitope with and into Merger Sub (the
"Epitope Merger"; the Epitope Merger and the STC Merger are referred to
collectively as the "Mergers") is fair to, and in the best interests of, their
respective companies and stockholders, (ii) have approved and declared the
advisability of this Agreement and the Epitope Merger, and (iii) have
recommended the approval and adoption of this Agreement by their respective
company's stockholders;
WHEREAS, for Federal income tax purposes, it is intended that each of the
Mergers shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (a "368 Reorganization"), and
the regulations promulgated thereunder;
WHEREAS, for accounting purposes, it is intended that each of the Mergers
shall be accounted for as a pooling of interests transaction under United
States generally accepted accounting principles applied on a consistent basis
("GAAP"); and
WHEREAS, simultaneously with the execution and delivery of this Agreement:
(i) STC has entered into an agreement (the "STC Stockholders Agreement") with
certain stockholders of Epitope pursuant to which such Epitope stockholders
have agreed to vote the shares of Epitope Common Stock owned by them in favor
of the Epitope Merger under certain circumstances, which agreement is
accompanied by irrevocable proxies to vote such shares in accordance therewith;
and (ii) Epitope has entered into an agreement (the "Epitope Stockholders
Agreement" and, together with the STC Stockholders Agreement, the "Stockholders
Agreements," in the respective forms attached as Exhibits A and B hereto) with
certain stockholders of STC pursuant to which such STC stockholders have agreed
to vote the shares of STC Common Stock owned by them in favor of the STC Merger
under certain circumstances, which agreement is accompanied by irrevocable
proxies to vote such shares in accordance therewith.
NOW, THEREFORE, in consideration of the premises, which are incorporated into
and made part of this Agreement, and of the mutual representations, warranties,
covenants, agreements and conditions set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the capitalized terms used in this Agreement
shall have the meanings specified or referred to in Appendix I hereto which is
incorporated herein by reference.
ARTICLE II
THE MERGERS
Section 2.1. STC Merger.
(a) The STC Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware General Corporation Law of the
State of Delaware (the "Delaware Law"), at the STC Effective Time (as defined
below), STC shall be merged with and into Merger Sub. As a result of the STC
Merger, the separate corporate existence of STC shall cease and Merger Sub
shall continue as the surviving corporation of the STC Merger (the "Surviving
Corporation").
(b) STC Effective Time. As soon as practicable after the Closing of the STC
Merger, the Certificate of Merger for the STC Merger ("STC Certificate of
Merger"), in substantially the form attached hereto as Exhibit C, prepared and
executed in accordance with the relevant provisions of the Delaware Law, shall
be filed with the Secretary of State of Delaware. The parties hereto agree to
take all such further actions as may be required by law to make the Merger
effective. The Merger shall become effective in accordance with the terms of
this Agreement, the STC Certificate of Merger at the time and date contemplated
therein (such time and date being referred to herein as the "STC Effective
Time").
(c) The Closing. The Closing of the Mergers and transactions contemplated by
this Agreement will take place at 11:00 a.m. on a date mutually agreed upon by
the parties hereto, which shall be no later than the third Business Day
following the date on which all of the conditions to the obligations of the
parties hereunder set forth in Article VIII hereof have been satisfied or
waived. The place of Closing shall be at such place as may be mutually agreed
upon by the parties hereto.
(d) Effects of the STC Merger. At and after the STC Effective Time, the STC
Merger will have the effects set forth in the Delaware Law. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of Merger Sub and STC
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of Merger Sub and STC shall become the debts, liabilities and duties of
the Surviving Corporation. In addition, the STC Merger shall have the following
effects:
(i) Articles of Incorporation. The Certificate of Incorporation of Merger
Sub as in effect as of the date hereof shall be amended to change the name
of Merger Sub to OraSure Technologies, Inc., but otherwise shall read as
set forth in Exhibit F and such Certificate of Incorporation, as so
amended, shall be the Certificate of Incorporation of the Surviving
Corporation (as set forth in Exhibit F hereto) and the Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation.
(ii) Bylaws. The Bylaws of Merger Sub as in effect as of the date hereof
shall be amended to reflect the change of Merger Sub's name to OraSure
Technologies, Inc., but otherwise shall read as set forth in Exhibit G and
shall, as so amended, be the Bylaws of the Surviving Corporation.
(iii) Board of Directors. At the STC Effective Time, the Board of
Directors of the Surviving Corporation shall consist of seven (7) persons.
Of the seven persons initially elected to the Board of Directors of the
Surviving Corporation, three (3) (the "STC Designees") shall be persons
named by the Board of Directors of STC and three (3) (the "Epitope
Designees") shall be persons named by the Board of Directors of Epitope and
one (1) shall be a person mutually acceptable to both the Boards of
Directors
A-2
<PAGE>
of STC and Epitope. The Board of Directors of the Surviving Corporation
shall be divided into three classes, with the initial terms of office of
the first, second and third classes expiring at the first, second and third
annual meetings of the stockholders of the Surviving Corporation,
respectively. One STC Designee and one Epitope Designee shall be placed in
each class of the Board of Directors of the Surviving Corporation. If,
prior to the STC Effective Time, (i) any of the individuals named by STC or
Epitope to serve on the Board of Directors of the Surviving Corporation
following the STC Effective Time resigns, retires or otherwise ceases to
serve as a director of STC or Epitope, as the case may be, or otherwise
becomes unable or unwilling to serve as a director of the Surviving
Corporation, or (ii) STC or Epitope shall determine to replace an
individual named by such party to serve on the Board of Directors of the
Surviving Corporation, the party that designated such individual may name a
replacement to become a director of the Surviving Corporation. The persons
named as members of the Board of Directors of the Surviving Corporation
pursuant to this Section 2.1.(d)(iii) shall be named in the Joint Proxy
Statement/Prospectus and the Registration Statement, subject to receipt of
the consent of such individuals to be so named.
(iv) Management. The principal officers of the Surviving Corporation at
the Effective Time shall be as listed on Exhibit H. All other management
positions of the Surviving Corporation shall be determined jointly by the
Surviving Corporation's President and Chief Executive Officer.
(e) Effect on Capital Stock. At the STC Effective Time, by virtue of the STC
Merger and without any action on the part of the parties hereto or their
respective stockholders:
(i) STC Common Stock. Each share of STC Common Stock outstanding
immediately prior to the STC Effective Time (except for shares of STC
Common Stock held by persons who object to the STC Merger and comply with
all provisions of the Delaware Law concerning the right of such holders to
dissent from the STC Merger and demand appraisal for their shares) shall be
converted into and become shares of Surviving Corporation Common Stock at
an exchange ratio (the "Exchange Ratio") determined as follows (together
with any cash in lieu of fractional shares of Surviving Corporation Common
Stock to be paid pursuant to Section 2.1(e)(iv) (the "Merger
Consideration") which fraction of a share shall be rounded to four decimal
places):
(A) If the Average Epitope Stock Price is greater than $13.00, the
Exchange Ratio shall be the quotient of (i) the quotient of (x) $260
million divided by (y) the Average Epitope Stock Price, divided by (ii)
the sum of the number of shares of STC Common Stock outstanding
immediately prior to the STC Effective Time and the number of shares of
STC Common Stock underlying STC Common Stock Equivalents; or
(B) If the Average Epitope Stock Price is equal to or less than
$13.00, but equal to or more than $10.00, the Exchange Ratio shall be
the quotient of 20 million shares divided by the sum of the number of
shares of STC Common Stock outstanding immediately prior to the STC
Effective Time and the number of shares of STC Common Stock underlying
STC Common Stock Equivalents; or
(C) If the Average Epitope Stock Price is less than $10.00, the
Exchange Ratio shall be the quotient of (i) the quotient of (x) $200
million divided by (y) the Average Epitope Stock Price, divided by (ii)
the sum of the number of shares of STC Common Stock outstanding
immediately prior to the STC Effective Time and the number of shares of
STC Common Stock underlying STC Common Stock Equivalents; provided
however, that in the event the quotient in clause (i) of this
subsection (C) exceeds 25 million shares, such quotient shall be deemed
to be 25 million shares for the purposes of completing the calculation
set forth in this subsection (C), and; provided further, that in the
event that the Average Epitope Stock Price is less than $6.00, STC
shall have the termination rights provided in Section 10.1(h).
(ii) STC Stock held by Merger Sub and STC. Each share of STC Common Stock
or STC Preferred Stock held by STC as treasury stock or owned by Merger Sub
immediately prior to the STC Effective Time shall be cancelled without
payment of any consideration therefor and shall cease to exist.
(iii) Merger Sub Common Stock. Each share of common stock of Merger Sub
outstanding and each share held in treasury immediately prior to the STC
Effective Time shall be converted into and become one share of Surviving
Corporation Common Stock.
A-3
<PAGE>
(iv) Fractional Shares. No fraction of a share of Surviving Corporation
Common Stock shall be issued in connection with the conversion of STC
Common Stock in the STC Merger and the distribution of Surviving
Corporation Common Stock in respect thereof, but in lieu of such fraction,
the Exchange Agent shall make a cash payment (without interest and subject
to the payment of any applicable withholding Taxes) equal to the same
fraction of the market value of a full share of Surviving Corporation
Common Stock, computed on the basis of the mean of the high and low sales
prices of Surviving Corporation Common Stock as reported on NASDAQ on the
first full day on which Surviving Corporation Common Stock is traded on the
Nasdaq Stock Market after the STC Effective Time.
(f) Stock Options and Other Stock Compensation.
(i) On or prior to the STC Effective Time, STC will take all action
necessary such that each stock option or other stock related right or other
form of stock related incentive or deferred compensation that was granted
pursuant to the STC Employee Plans (as defined in Section 4.12(a)) prior to
the STC Effective Time and which remains outstanding immediately prior to
the STC Effective Time shall cease to represent a right with respect to
shares of STC Common Stock and shall be converted, at the STC Effective
Time, into a right, on the same terms and conditions as were applicable
under such stock option or other stock related right or other form of stock
related incentive or deferred compensation, as applicable (but taking into
account any changes thereto (except that there shall be no acceleration in
the vesting or exercisability of such option, right or incentive
compensation by reason of this Agreement, the STC Merger, the Epitope
Merger or the other matters contemplated by this Agreement), provided for
in the STC Employee Plans or in the terms of such right by reason of this
Agreement or the transactions contemplated hereby), with respect to that
number of shares of Surviving Corporation Common Stock determined by
multiplying the number of shares of STC Common Stock subject to such stock
option or other stock related right or other form of stock related
incentive or deferred compensation, as applicable, by the Exchange Ratio,
rounded, if necessary, to the nearest whole share of Surviving Corporation
Common Stock, at (in the case of a stock option or stock appreciation
right) a price per share (rounded to the nearest one-hundredth of a cent)
equal to the per-share exercise price specified in such stock option or
stock appreciation right, as applicable, divided by the Exchange Ratio;
provided, however, that in the case of any stock option to which Section
421 of the Code applies by reason of its qualification under Section 422 of
the Code, the option price, the number of shares subject to such option and
the terms and conditions of exercise of such option shall be determined in
a manner consistent with the requirements of Section 424(a) of the Code.
(ii) As soon as practicable after the STC Effective Time, the Surviving
Corporation shall deliver to the holders of stock options or other stock
related rights or other forms of stock related incentive or deferred
compensation appropriate notices setting forth such holders' rights
pursuant to the STC Employee Plans (except that there shall be no
acceleration in the vesting or exercisability of such option, right or
incentive compensation by reason of this Agreement, the STC Merger, the
Epitope Merger or the other matters contemplated by this Agreement) and the
agreements evidencing the grants of such stock options or other stock
related rights or other forms of stock related incentive or deferred
compensation shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.1(f)(ii) after
giving effect to the STC Merger and the Epitope Merger and the terms of the
STC Employee Plans (except that there shall be no acceleration in the
vesting or exercisability of such option, right or incentive compensation
by reason of this Agreement, the STC Merger, the Epitope Merger or the
other matters contemplated by this Agreement)). To the extent permitted by
law, the Surviving Corporation shall comply with the terms of the STC
Employee Plans and shall take such reasonable steps as are necessary or
required by, and subject to the provisions of, such STC Employee Plans, to
have the stock options which qualified as incentive stock options prior to
the Effective Time continue to qualify as incentive stock options of the
Surviving Corporation after the Effective Time.
(iii) The Surviving Corporation shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Surviving
Corporation Common Stock for delivery upon exercise of stock options or
other stock related rights or other forms of stock related incentive or
deferred compensation in
A-4
<PAGE>
accordance with this Section 2.1(f). Promptly after the STC Effective Time,
the Surviving Corporation
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of
Surviving Corporation Common Stock subject to such stock options or other stock
related rights or other forms of stock related incentive or deferred
compensation, and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such stock options or other stock related rights or
other forms of stock related incentive or deferred compensation remain
outstanding. With respect to those individuals who subsequent to the Mergers
will be subject to the reporting requirements under Section 16(a) of the
Exchange Act, where applicable, the Surviving Corporation shall administer the
STC Employee Plans in a manner consistent with the exemptions provided by Rule
16b-3 promulgated under the Exchange Act.
(g) Certain Adjustments. If, between the date of this Agreement and the
Effective Time, the outstanding STC Common Stock or Epitope Common Stock shall
have been changed into a different number of shares or different class by
reason of any reclassification, recapitalization, stock split, reverse stock
split, combination or exchange of shares, or a stock dividend or dividend
payable in any other securities shall be declared with a record date within
such period, or any similar event shall have occurred, the Exchange Ratio shall
each be appropriately adjusted to provide to the holders of STC Common Stock
the same economic effect as contemplated by this Agreement prior to such event.
(h) Appraisal Rights. Notwithstanding Section 2.1(e), shares of STC Common
Stock outstanding immediately prior to the STC Effective Time and held by a
holder who has not voted in favor of the Mergers or consented thereto in
writing and who has demanded appraisal for such shares of STC Common Stock, as
the case may be, in accordance with the Delaware Law shall not be converted
into the shares of Surviving Corporation Common Stock unless such holder fails
to perfect or withdraws or otherwise loses his right to appraisal. If after the
STC Effective Time such holder fails to perfect or withdraws or loses his right
to appraisal, such shares of STC Common Stock shall be treated as if they had
been converted as of the STC Effective Time into the shares of Surviving
Corporation Common Stock in accordance with Section 2.1(e). STC shall give the
Surviving Corporation prompt notice of any demands received by STC for
appraisal of shares of STC Common Stock, and the Surviving Corporation shall
have the right to participate in all negotiations and proceedings with respect
to such demands. STC shall not, except with the prior written consent of the
Surviving Corporation, make any payment with respect to, or settle or offer to
settle, any such demands.
Section 2.2. Epitope Merger.
(a) The Epitope Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the Business Corporation Act of the State of
Oregon (the "Oregon Law"), and the Delaware General Corporation Law of the
State of Delaware (the "Delaware Law"), at the Epitope Effective Time (as
defined below), which shall be immediately following the STC Effective Time,
Epitope shall be merged with and into Merger Sub. As a result of the Merger,
the separate corporate existence of Epitope shall cease and Merger Sub shall
continue as the surviving corporation of the Epitope Merger (the "Surviving
Corporation").
(b) Epitope Effective Time. As soon as practicable after the Closing of the
Mergers, the Articles of Merger for the Epitope Merger in substantially the
form attached hereto as Exhibit D, prepared and executed in accordance with the
relevant provisions of the Oregon Law, shall be filed with the Secretary of
State of Oregon, and the Certificate of Merger for the Epitope Merger, in
substantially the form attached hereto as Exhibit E, prepared and executed in
accordance with the relevant provisions of the Delaware Law, shall be filed
with the Secretary of State of Delaware. The parties hereto agree to take all
such further actions as may be required by law to make the Epitope Merger
effective. The Epitope Merger shall become effective in accordance with the
terms of this Agreement, the Articles of Merger and the Certificate of Merger
at the time and date contemplated therein (such time and date being referred to
herein as the Epitope Effective Time or "Effective Time").
(c) Effects of the Epitope Merger. At and after the Epitope Effective Time,
the Epitope Merger will have the effects set forth in the Delaware Law and the
Oregon Law. Without limiting the generality of the foregoing,
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and subject thereto, at the Epitope Effective Time all the property, rights,
privileges, powers and franchises of Epitope and Merger Sub shall be vested in
the Surviving Corporation, and all debts, liabilities and duties of Epitope and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation. In addition, the Epitope Merger shall have the following effects:
(i) Certificate of Incorporation. The Certificate of Incorporation of
Merger Sub as in effect as of the date hereof shall be amended to change
the name of Merger Sub to OraSure Technologies, Inc., but otherwise shall
read as set forth in Exhibit F and such Certificate of Incorporation, as so
amended, shall be the Certificate of Incorporation of the Surviving
Corporation.
(ii) Bylaws. The Bylaws of Merger Sub as in effect as of the date hereof
shall be amended to reflect the change of Merger Sub's name to OraSure
Technologies, Inc., but otherwise shall read as set forth in Exhibit G and
shall, as so amended, be the Bylaws of the Surviving Corporation.
(iii) Board of Directors. At the Effective Time, the Board of Directors
of the Surviving Corporation shall consist of the seven (7) persons and be
divided into the classes specified in Section 2.1(d)(iii).
(iv) Management. The principal officers of the Surviving Corporation at
the Effective Time shall be as listed on Exhibit H. All other management
positions of the Surviving Corporation shall be determined jointly by the
Surviving Corporation's President and Chief Executive Officer.
(d) Effect on Capital Stock. At the Epitope Effective Time, by virtue of the
Epitope Merger and without any action on the part of the parties hereto or
their respective stockholders:
(i) Epitope Common Stock. Each share of Epitope Common Stock outstanding
immediately prior to the Epitope Effective Time shall be converted into and
become one share (the "Epitope Exchange Ratio") of Surviving Corporation
Common Stock (the "Epitope Merger Consideration").
(ii) Epitope Stock held by Epitope and Merger Sub. Each share of Epitope
Common Stock held by Epitope as treasury stock or owned by Merger Sub
immediately prior to the Epitope Effective Time shall be cancelled without
payment of any consideration therefor and shall cease to exist.
(iii) Merger Sub Common Stock. Each share of Common Stock of Merger Sub
outstanding and each share held in treasury immediately prior to the
Epitope Effective Time shall be converted into and become one share of
Surviving Corporation Common Stock.
(e) Stock Options and Other Stock Compensation.
(i) On or prior to the Epitope Effective Time, Epitope will take all
action necessary such that each stock option or other stock related right
or other form of stock related incentive or deferred compensation that was
granted pursuant to the Epitope Employee Plans (as defined in Section
4.12(a)) prior to the Epitope Effective Time and which remains outstanding
immediately prior to the Epitope Effective Time shall cease to represent a
right with respect to shares of Epitope Common Stock and shall be
converted, at the Epitope Effective Time, into a right, on the same terms
and conditions as were applicable under such stock option or other stock
related right or other form of stock related incentive or deferred
compensation, as applicable (but taking into account any changes thereto,
provided for in the Epitope Employee Plans or in the terms of such right by
reason of this Agreement or the transactions contemplated hereby), with
respect to that number of shares of Surviving Corporation Common Stock
determined by multiplying the number of shares of Epitope Common Stock
subject to such stock option or other stock related right or other form of
stock related incentive or deferred compensation, as applicable, by the
Epitope Exchange Ratio, at a price per share equal to the per-share
exercise price specified in such stock option or stock appreciation right,
as applicable.
(ii) As soon as practicable after the Epitope Effective Time, the
Surviving Corporation shall deliver to the holders of stock options or
other stock related rights or other forms of stock related incentive or
deferred compensation appropriate notices setting forth such holders'
rights pursuant to the Epitope Employee Plans and the agreements evidencing
the grants of such stock options or other stock related rights or other
forms of stock related incentive or deferred compensation shall continue in
effect on the
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same terms and conditions (after giving effect to the Merger and the terms
of the Epitope Employee Plans. To the extent permitted by law, the
Surviving Corporation shall comply with the terms of the Epitope Employee
Plans and shall take such reasonable steps as are necessary or required by,
and subject to the provisions of, such Epitope Employee Plans, to have the
stock options which qualified as incentive stock options prior to the
Effective Time continue to qualify as incentive stock options of the
Surviving Corporation after the Effective Time.
(iii) The Surviving Corporation shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Surviving
Corporation Common Stock for delivery upon exercise of stock options or
other stock related rights or other forms of stock related incentive or
deferred compensation in accordance with this Section 2.2(d)(ii). Promptly
after the Epitope Effective Time, the Surviving Corporation shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of
Surviving Corporation Common Stock subject to such stock options or other
stock related rights or other forms of stock related incentive or deferred
compensation, and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements
(and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such stock options or other stock related
rights or other forms of stock related incentive or deferred compensation
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, where applicable, the Surviving Corporation shall
administer the Epitope Employee Plans in a manner consistent with the
exemptions provided by Rule 16b-3 promulgated under the Exchange Act.
(f) Certain Adjustments. If, between the date of this Agreement and the
Epitope Effective Time, the outstanding common stock of Merger Sub or Epitope
Common Stock shall have been changed into a different number of shares or
different class by reason of any reclassification, recapitalization, stock
split, reverse stock split, combination or exchange of shares, or a stock
dividend or dividend payable in any other securities shall be declared with a
record date within such period, or any similar event shall have occurred, the
Epitope Exchange Ratio shall be appropriately adjusted to provide to the
holders of STC Common Stock the same economic effect as contemplated by this
Agreement prior to such event.
Section 2.3. Exchange of Certificates.
(a) Prior to the Effective Time, Epitope and STC shall cause the Surviving
Corporation, and the Surviving Corporation agrees, to appoint the Exchange
Agent to act as the exchange agent in connection with the Mergers. Except as
otherwise provided in this Article II, from and after the Effective Time, each
holder of a certificate that immediately prior to the STC Effective Time or
Epitope Effective Time, as the case may be, represented outstanding shares of
STC Common Stock or Epitope Common Stock (collectively, the "Certificates")
shall be entitled to receive in exchange therefor, upon surrender thereof to
the Exchange Agent, a certificate or certificates representing the number of
whole shares of Surviving Corporation Common Stock into which such holder's
shares were converted in the STC Merger or Epitope Merger, as the case may be.
Prior to the Effective Time, the Surviving Corporation will deliver to the
Exchange Agent, in trust for the benefit of the holders of STC Common Stock and
Epitope Common Stock, (i) certificates representing shares of Surviving
Corporation Common Stock (such shares of Surviving Corporation Common Stock
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") and (ii) cash in an amount
sufficient for payment in lieu of fractional shares necessary to make the
exchanges contemplated by this Article II on a timely basis.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder of STC Common Stock and Epitope Common Stock as of the Effective
Time, a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) and instructions for
use in effecting the surrender of Certificates in exchange for certificates
representing shares of Surviving Corporation Common Stock. Upon
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surrender to the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefor, certificates
representing shares of Surviving Corporation Common Stock as set forth in this
Article II, and such Certificate shall forthwith be canceled. No holder of a
Certificate or Certificates shall be entitled to receive any dividend or other
distribution from the Surviving Corporation until the surrender of such
holder's Certificate for a certificate or certificates representing shares of
Surviving Corporation Common Stock. Upon such surrender, there shall be paid to
the holder the amount of any dividends or other distributions (without
interest) that theretofore became payable, but that were not paid by reason of
the foregoing, with respect to the number of whole shares of Surviving
Corporation Common Stock represented by the certificates issued upon surrender,
which amount shall be delivered to the Exchange Agent by the Surviving
Corporation from time to time as such dividends or other distributions are
declared. If delivery of certificates representing shares of Surviving
Corporation Common Stock is to be made to a person other than the person in
whose name the Certificate surrendered is registered or if any certificate for
shares of Surviving Corporation Common Stock as the case may be, is to be
issued in a name other than that in which the Certificate surrendered therefor
is registered, it shall be a condition of such delivery or issuance that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such delivery or issuance
shall pay any transfer or other Taxes required by reason of such delivery or
issuance to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such Tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.4, each Certificate shall represent for
all purposes only the right to receive shares of Surviving Corporation Common
Stock (and, in the case of Certificates theretofore representing STC Common
Stock, cash in lieu of fractional shares) as provided in this Article II
without any interest thereon.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of STC Common Stock
or Epitope Common Stock that were outstanding prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for shares of
Surviving Corporation Common Stock as provided in this Article II, in
accordance with the procedures set forth in this Section 2.3.
(d) Any portion of the Exchange Fund and any cash in lieu of fractional
shares of Surviving Corporation Common Stock made available to the Exchange
Agent which remains undistributed to the former stockholders of STC for one
year after the STC Effective Time shall be delivered to the Surviving
Corporation, upon demand, and any stockholders of STC who have not theretofore
complied with this Article II shall thereafter look only to the Surviving
Corporation for payment of their claim for Surviving Corporation Common Stock,
any cash in lieu of fractional shares of Surviving Corporation Common Stock and
any dividends or distributions with respect to Surviving Corporation Common
Stock. Any portion of the Exchange Fund which remains undistributed to the
former stockholders of Epitope for one year after the Epitope Effective Time
shall be delivered to the Surviving Corporation, upon demand, and any
stockholders of Epitope who have not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation for payment of their
claim for Surviving Corporation Common Stock, and any dividends or
distributions with respect to Surviving Corporation Common Stock.
(e) None of STC, Epitope, or the Surviving Corporation shall be liable to any
holder of shares of STC Common Stock or Epitope Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto) or
cash in lieu of fractional shares of Surviving Corporation Common Stock
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any amounts remaining unclaimed by holders of any such
shares two years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or become
property of any Governmental Entity) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claims or interest of any such holders or their successors, assigns or
personal representatives previously entitled thereto.
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Section 2.4. Affiliates. Notwithstanding anything to the contrary herein, to
the fullest extent permitted by law and pooling of interests accounting
treatment, no certificates representing shares of Surviving Corporation Common
Stock or cash shall be delivered to a Person who may be deemed an "affiliate"
of STC or Epitope in accordance with Section 8.8 hereof for purposes of Rule
145 under the Securities Act and, for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable rules and regulations of the SEC, until such
Person has executed and delivered a STC Affiliate Agreement (as defined in
Section 8.8(a)) or an Epitope Affiliate Agreement (as defined in Section
8.8(b)), as the case may be, pursuant to Section 8.8.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EPITOPE
Except as disclosed in (i) the Epitope Disclosure Schedule delivered to STC
separately prior to, or contemporaneously with, the date hereof (each section
or subsection of which qualifies the correspondingly numbered representation,
warranty or covenant to the extent specified therein) or (ii) the Epitope SEC
Documents filed on or prior to the date hereof, Epitope represents and warrants
to STC that:
Section 3.1. Corporate Existence and Power. Epitope is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Oregon, and has all corporate powers required to carry on its business as
now conducted. Epitope is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified,
individually or in the aggregate, would not be reasonably likely to have an
Epitope Material Adverse Effect. Epitope has heretofore made available to STC
true and complete copies of Epitope's articles of incorporation and bylaws as
currently in effect.
Section 3.2. Corporate Authorization. The execution, delivery and performance
by Epitope of this Agreement and the consummation by Epitope of the
transactions contemplated hereby are within Epitope's corporate powers and,
except for the Epitope Stockholder Approval (as defined herein), have been duly
authorized by all necessary corporate action. Assuming that this Agreement
constitutes the valid and binding obligation of STC, this Agreement constitutes
a valid and binding agreement of Epitope, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.3. Governmental Authorization. The execution, delivery and
performance by Epitope of this Agreement and the consummation by Epitope of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity other than (a) the filing of (i) Articles
of Merger in accordance with the Oregon Law, (ii) a Certificate of Merger in
accordance with the Delaware Law, and (iii) appropriate documents with the
relevant authorities of other states or jurisdictions in which Epitope or any
Epitope Subsidiary is qualified to do business; (b) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") by stockholders of STC who will acquire the Surviving
Corporation Common Stock with a value in excess of $15 million as a result of
the Mergers and who do not have an exemption from the HSR Act therefor; (c)
compliance with any applicable requirements of the Securities Act and the
Exchange Act; (d) such as may be required under any applicable state securities
or blue sky laws; and (e) such other consents, approvals, actions, orders,
authorizations, registrations, declarations and filings that, if not obtained
or made, would not, individually or in the aggregate, (x) be reasonably likely
to have an Epitope Material Adverse Effect or (assuming for this purpose that
the Effective Time had occurred) a Surviving Corporation Material Adverse
Effect, or (y) prevent or materially impair the ability of Epitope to
consummate the transactions contemplated by this Agreement.
Section 3.4. Non-Contravention. The execution, delivery and performance by
Epitope of this Agreement and the consummation by Epitope of the transactions
contemplated hereby do not and will not (a) contravene or
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conflict with Epitope's articles of incorporation or bylaws, (b) assuming
compliance with the matters referred to in Section 3.3, contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Epitope or
any Epitope Subsidiary, (c) constitute a default under or give rise to a right
of termination, cancellation or acceleration of any right or obligation of
Epitope or any Epitope Subsidiary or to a loss of any benefit or status to
which Epitope or any Epitope Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon Epitope or any Epitope
Subsidiary or any license, franchise, permit or other similar authorization
held by Epitope or any Epitope Subsidiary, or (d) result in the creation or
imposition of any Lien on any asset of Epitope or any Epitope Subsidiary other
than, in the case of each of (b), (c) and (d), any such items that would not,
individually or in the aggregate (x) be reasonably likely to have an Epitope
Material Adverse Effect or (y) prevent or materially impair the ability of
Epitope to consummate the transactions contemplated by this Agreement.
Section 3.5. Capitalization.
(a) The authorized capital stock of Epitope consists of 30,000,000 shares of
Epitope Common Stock, and 1,000,000 shares of preferred stock, no par value per
share, of Epitope ("Epitope Preferred Stock"). At the close of business on
April 30, 2000, (i) 16,393,495 shares of Epitope Common Stock were issued and
outstanding, (ii) stock options ("Epitope Stock Options") and warrants
("Epitope Warrants") to purchase an aggregate of 4,136,571 shares of Epitope
Common Stock were issued and outstanding (of which options and warrants to
purchase an aggregate of 3,012,999 shares of Epitope Common Stock were
exercisable), (iii) no shares of Epitope Common Stock were held in its
treasury, (iii) no shares of Epitope Preferred Stock were issued and
outstanding, and (iv) no shares of Epitope Series A Preferred Stock were
reserved for issuance upon exercise of the Epitope Stock Purchase Rights. All
outstanding shares of capital stock of Epitope have been duly authorized and
validly issued and are fully paid and nonassessable.
(b) As of the date hereof, except (i) as set forth in this Section 3.5, and
(ii) for changes since September 30, 1999, resulting from the exercise of stock
options or warrants outstanding on such date, there are no outstanding (x)
shares of capital stock or other voting securities of Epitope, (y) securities
of Epitope convertible into or exchangeable for shares of capital stock or
voting securities of Epitope, or (z) options or other rights to acquire from
Epitope, and no obligation of Epitope to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Epitope (the items in clauses (x), (y) and (z) being
referred to collectively as the "Epitope Securities"). There are no outstanding
obligations of Epitope or any Epitope Subsidiary to repurchase, redeem or
otherwise acquire any Epitope Securities. There are no outstanding contractual
obligations of Epitope to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any other Person. There are
no stockholder agreements, voting trusts or other agreements or understandings
to which Epitope is a party, or of which Epitope is aware, relating to voting,
registration or disposition of any shares of capital stock of Epitope or
granting to any person or group of persons the right to elect, or to designate
or nominate for election, a director to the board of directors of Epitope.
Section 3.6. Subsidiaries.
(a) Each Significant Subsidiary of Epitope is a corporation duly incorporated
or an entity duly organized, and is validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, has all powers
and authority and all material governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted and is duly
qualified to do business as a foreign entity and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, in each case with
such exceptions as, individually or in the aggregate, would not be reasonably
likely to have, an Epitope Material Adverse Effect.
(b) All of the outstanding shares of capital stock of, or other ownership
interest in, each Epitope Subsidiary has been validly issued and is fully paid
and nonassessable. All of the outstanding capital stock of,
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or other ownership interest in, each of Epitope's Subsidiaries, is owned,
directly or indirectly, by Epitope, is owned free and clear of any Lien and
free of any other limitation or restriction (including any limitation or
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests) with such exceptions as, individually or in
the aggregate, would not be reasonably likely to have, an Epitope Material
Adverse Effect. There are no outstanding (i) securities of Epitope or any of
the Epitope Subsidiaries convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities or ownership interests in
any of the Epitope Subsidiaries, (ii) options, warrants or other rights to
acquire from Epitope or any of the Epitope Subsidiaries, and no other
obligation of Epitope or any of the Epitope Subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock, voting
securities or ownership interests in, any of the Epitope Subsidiaries or (iii)
obligations of Epitope or any of the Epitope Subsidiaries to repurchase, redeem
or otherwise acquire any outstanding securities of any of the Epitope
Subsidiaries or any capital stock of, or other ownership interests in, any of
the Epitope Subsidiaries.
Section 3.7. Epitope SEC Documents.
(a) Epitope has made available to STC the Epitope SEC Documents. Epitope has
filed all reports, filings, registration statements and other documents
required to be filed by it with the SEC since September 30, 1997. No Epitope
Subsidiary is required to file any form, report, registration statement or
prospectus or other document with the SEC.
(b) As of its filing date, each Epitope SEC Document complied as to form in
all material respects with the applicable requirements of the Securities Act
and/or the Exchange Act, as the case may be.
(c) No Epitope SEC Document filed pursuant to the Exchange Act contained, as
of its filing date, any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No
Epitope SEC Document, as amended or supplemented, if applicable, filed pursuant
to the Securities Act contained, as of the date such document or amendment
became effective, any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 3.8. Financial Statements; No Material Undisclosed Liabilities.
(a) The audited consolidated financial statements and unaudited consolidated
interim financial statements of Epitope included in the Epitope 10-K and the
Epitope 10-Q fairly present in all material respects, in conformity with GAAP
consistently applied (except as may be indicated in the notes thereto and
except that financial statements on Form 10-Q do not contain all GAAP notes to
such financial statements), the consolidated financial position of Epitope and
its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations, consolidated cash flows and changes in stockholders'
equity for the periods then ended (subject to normal year-end adjustments in
the case of any unaudited interim financial statements).
(b) There are no liabilities of Epitope or any Epitope Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, in each case, that are required by GAAP to be set forth on a
consolidated balance sheet of Epitope, other than:
(i) liabilities or obligations disclosed or provided for in the Epitope
Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations that individually or in the
aggregate, would not be reasonably likely to have an Epitope Material
Adverse Effect.
(c) Epitope and the Epitope Subsidiaries keep proper accounting records in
which all material assets and liabilities, and all material transactions, of
Epitope and the Epitope Subsidiaries are recorded in conformity with GAAP. No
part of Epitope's or any Epitope Subsidiary's accounting system or records, or
access thereto, is under the control of a Person who is not an employee of
Epitope or such Subsidiary.
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Section 3.9. Information to be Supplied.
(a) The information to be supplied by Epitope expressly for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus will (i) in
the case of the Registration Statement, at the time it becomes effective, not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading and (ii) in the case of the remainder of the Joint Proxy
Statement/Prospectus, at the time of the mailing thereof, and at the time of
the Special Meetings, not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement/Prospectus will comply
(with respect to information relating to Epitope) as to form in all material
respects with the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Epitope makes no representation or
warranty with respect to any statements made or incorporated by reference in
the Joint Proxy Statement/Prospectus based on information supplied by STC.
Section 3.10. Absence of Certain Changes. Since September 30, 1999, except as
otherwise expressly contemplated by this Agreement, Epitope and the Epitope
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been (a) any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of Epitope or any Epitope Subsidiary that, individually or in the
aggregate, has had or would be reasonably likely to have an Epitope Material
Adverse Effect, (b) any action, event, occurrence, development or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have an Epitope Material Adverse Effect or (c) any
incurrence, assumption or guarantee by Epitope of any material indebtedness for
borrowed money other than in the ordinary course and in amounts and on terms
consistent with past practices.
Section 3.11. Litigation. Section 3.11 of the Epitope Disclosure Schedule
contains a list and description of each action, suit, investigation,
arbitration or proceeding pending against, or to the Knowledge of Epitope
threatened against, Epitope or any Epitope Subsidiary or any of their
respective assets or properties before any arbitrator or Governmental Entity.
None of such actions, suits, investigations, arbitrations or proceedings,
individually or in the aggregate, would be reasonably likely to have, an
Epitope Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against Epitope that would be reasonably likely
to have, individually or in the aggregate, an Epitope Material Adverse Effect.
Section 3.12. Taxes.
(a) All Tax returns, statements, reports and forms (collectively, the
"Epitope Returns") required to be filed with any taxing authority by, or with
respect to, Epitope and the Epitope Subsidiaries have been filed in substantial
compliance with all applicable laws.
(b) Epitope and the Epitope Subsidiaries have timely paid all Taxes shown as
due and payable on the Epitope Returns that have been so filed, and all other
Taxes not subject to reporting obligations, and, as of the time of filing, the
Epitope Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of Epitope and the Epitope
Subsidiaries (other than Taxes that are being contested in good faith and for
which adequate reserves are reflected on the Epitope Balance Sheet).
(c) Epitope and the Epitope Subsidiaries have made provision for all Taxes
payable by them for which no Epitope Return has yet been filed.
(d) The charges, accruals and reserves for Taxes with respect to Epitope and
the Epitope Subsidiaries reflected on the Epitope Balance Sheet are adequate
under GAAP to cover the Tax liabilities accruing through the date thereof.
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(e) There is no action, suit, proceeding, audit or claim now proposed or
pending against or with respect to Epitope or any of the Epitope Subsidiaries
in respect of any Tax that would be reasonably likely to have an Epitope
Material Adverse Effect.
(f) Neither Epitope nor any of the Epitope Subsidiaries has been a member of
an affiliated, consolidated, combined or unitary group other than one of which
Epitope was the common parent.
(g) Neither Epitope nor any of the Epitope Subsidiaries holds any asset
subject to a consent under Section 341(f) of the Code.
(h) The representations and warranties contained in the Epitope
Representation Letter, attached hereto as Exhibit I, are true and correct.
Section 3.13. Employee Benefits.
(a) Section 3.13(a) of the Epitope Disclosure Schedule contains a correct and
complete list identifying each material "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
each employment, severance or similar contract, plan, arrangement or policy and
each other plan or arrangement (written or oral) providing for compensation,
bonuses, profit-sharing, stock option or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) that is
maintained, administered or contributed to by Epitope or any ERISA Affiliate
(as defined below) of Epitope and covers any employee or former employee of
Epitope or any Epitope Subsidiary. Copies of such plans (and, if applicable,
related trust agreements) and all amendments thereto and written
interpretations thereof have been furnished, or will be made available upon
request, to STC together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) and summary plan description
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Epitope Employee Plans". For purposes of this
Section 3.13, "ERISA Affiliate" of any Person means any other Person which,
together with such Person, would be treated as a single employer under Section
414 of the Code.
(b) No Epitope Employee Plan is now or at any time has been subject to Part
3, Subtitle B of Title I or ERISA or Title IV of ERISA. At no time has Epitope
or any of its ERISA Affiliates contributed to, or been required to contribute
to, any "multiemployer plan," as defined in Section 3(37) or ERISA (a
"Multiemployer Plan"), and neither Epitope nor any of its ERISA Affiliates has,
or ever has had, any liability (contingent or otherwise) relating to the
withdrawal or partial withdrawal from a multiemployer Plan. To the Knowledge of
Epitope, no condition exists and no event has occurred that would be reasonably
likely to constitute grounds for termination of any Epitope Employee Plan that
is a Retirement Plan. To the Knowledge of Epitope, nothing has been done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Epitope Employee Plan has occurred that will make Epitope
or any Epitope Subsidiary, or any officer or director of Epitope or any Epitope
Subsidiary, subject to any liability under Title I of ERISA or liable for any
tax pursuant to Section 4975 of the Code (assuming the taxable period of any
such transaction expired as of the date hereof) that would be reasonably likely
to have an Epitope Material Adverse Effect.
(c) Each Epitope Employee Plan that is intended to be qualified under Section
401(a) of the Code now meets, and at all time since its inception have met, the
requirements for such qualification, and each trust forming a part thereof is
now, and at all times since its inception has been, exempt from tax pursuant to
Section 501(a) of the Code. Each such plan has received a determination letter
from the Internal Revenue Service to the effect that such plan is qualified and
its related trust is exempt from federal income taxes. Epitope has furnished,
or will make available upon request, to STC copies of the most recent Internal
Revenue Service determination letters with respect to each such Epitope
Employee Plan. Each Epitope Employee Plan has been maintained and administered
in substantial compliance with its terms (except that in any case in which any
Epitope Employee Plan is currently required to comply with a provision of ERISA
or of the Code, but is not
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yet required to be amended to reflect such provision, such plan has been
maintained and administered in accordance with the provision) and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Epitope Employee Plan. All material reports, returns and similar documents with
respect to each Epitope Employee Plan required to be filed with any government
agency or distributed to any Epitope Employee Plan participant have been duly
timely filed and distributed.
(d) There is no contract, agreement, plan or arrangement that, as a result of
the Mergers, would be reasonably likely to obligate Epitope to make any payment
of any amount that would not be deductible pursuant to the terms of Section
162(m) or Section 280G of the Code.
(e) Except as disclosed in writing to STC prior to the date hereof, there has
been no amendment to, written interpretation or announcement (whether or not
written) relating to, or change in employee participation or coverage under,
any Epitope Employee Plan that would increase materially the expense of
maintaining such Epitope Employee Plan above the level of the expense incurred
in respect thereof for the fiscal year ended September 30, 1999.
(f) No Epitope Employee Plan promises or provides post-retirement medical,
life insurance or other benefits due now or in the future to current, former or
retired employees of Epitope or any Subsidiary.
Section 3.14. Compliance with Laws; Licenses, Permits and Registrations.
(a) Neither Epitope nor any Epitope Subsidiary is in violation of, or has
violated, any applicable provisions of any laws, statutes, ordinances,
regulations, judgments, injunctions, orders or consent decrees, except for any
such violations that, individually or in the aggregate, would not be reasonably
likely to have an Epitope Material Adverse Effect.
(b) Each of Epitope and the Epitope Subsidiaries has all permits, licenses,
approvals, authorizations of and registrations with and under all federal,
state, local and foreign laws, and from all Governmental Entities required by
Epitope and the Epitope Subsidiaries to carry on their respective businesses as
currently conducted, except where the failure to have any such permits,
licenses, approvals, authorizations or registrations, individually or in the
aggregate, would not be reasonably likely to have an Epitope Material Adverse
Effect.
Section 3.15. Title to Properties.
(a) Epitope and each Epitope Subsidiary have good and marketable title to, or
valid leasehold interests in, all their properties and assets except for such
as are no longer used or useful in the conduct of their businesses or as have
been disposed of in the ordinary course of business and except for defects in
title, easements, restrictive covenants and similar Liens, encumbrances or
impediments that do not materially interfere with the ability of Epitope and
its Subsidiaries to use their respective assets and conduct their businesses,
as currently used or conducted. All such assets and properties, other than
assets and properties in which Epitope or any Epitope Subsidiary has leasehold
interests, are free and clear of all Liens, except for Liens that, in the
aggregate, do not and will not materially interfere with the ability of Epitope
and the Epitope Subsidiaries to use their respective assets and conduct their
businesses, as currently conducted.
(b) Epitope and each Epitope Subsidiary (i) are in substantial compliance
with the terms of all leases to which they are a party and under which they are
in occupancy, and all such leases are in full force and effect and (ii) enjoy
peaceful and undisturbed possession under all such leases.
Section 3.16. Intellectual Property.
(a) Epitope and the Epitope Subsidiaries own or have a valid license to use
(i) all fictional business names, trading names, registered and unregistered
trademarks, service marks, domain names and applications (collectively,
"Marks"); (ii) all patents, patent applications, and inventions and discoveries
that may be
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patentable (collectively, "Patents"); (iii) all copyrights in both published
works and unpublished works (collectively, "Copyrights"); (iv) all rights in
mask works (collectively, "Rights in Mask Works"); and (v) all know-how, trade
secrets, and confidential information, (such as, customer lists, software,
technical information, data, process technology, and plans) (collectively,
"Trade Secrets"); necessary to (x) carry on the business of Epitope as
currently conducted or as proposed to be conducted by the Surviving
Corporation, to (y) make, have made, use, distribute and sell all products
currently sold by Epitope and all products in development, including all
products proposed to be sold under the "OraSure" or "OraQuick" trade names.
(b) There are no outstanding and, to Epitope's Knowledge, no Threatened
disputes or disagreements with respect to any agreement to which Epitope or an
Epitope subsidiary is a party, relating to any of Epitope's Marks, Patents,
Copyrights, Rights in Mask Works, or Trade Secrets (collectively, "Epitope
Intellectual Property").
(c) Epitope is the owner of all right, title, and interest in and to the
Epitope Intellectual Property, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(d) All former and current employees of Epitope have executed written
contracts with Epitope that assign to Epitope all rights to any inventions,
improvements, discoveries, or information relating to the business of Epitope.
To Epitope's knowledge, no employee of Epitope has entered into any contract
that restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than Epitope.
(e) All of the Patents are currently in compliance in all material respects
with formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions that have not been
paid when due.
(f) Epitope uses reasonable procedures to keep its Trade Secrets
confidential. Epitope's Trade Secrets have been disclosed only under written
agreements that require the recipient to hold such Trade Secrets confidential.
(g) No Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To Epitope's Knowledge, there is no
potentially interfering patent or patent application of any third party.
(h) No Patent is infringed or, to Epitope's Knowledge, has been challenged or
threatened in any way. To Epitope's Knowledge, none of the products
manufactured and sold or proposed to be sold, nor any process or know-how used,
by Epitope infringes or is alleged to infringe any Patent or other proprietary
right of any other Person.
(i) Epitope is not required to make any payments to any third parties in
connection with its use of Epitope Intellectual Property.
(j) All products made, used, or sold under the Patents have been marked with
the proper patent notice.
Section 3.17. Environmental Matters.
(a) To the Knowledge of Epitope, there has not been, as of the date hereof,
any (i) "release" (as defined in 42 U.S.C. (S)9601(22)) or threat of a
"release" of any "hazardous substances" (as defined in 42 U.S.C. (S)9601(14))
or oil or other petroleum related products on or about any of the real property
owned, operated or leased by Epitope or any Epitope Subsidiary ("Epitope Real
Property"), or (ii) release or presence of any pollutant, contaminant or
condition giving rise to a cause of action under federal, state or local
statutory or common law on or about any of the Epitope Real Property other than
such as would not reasonably be expected to have an Epitope Material Adverse
Effect.
(b) Neither Epitope nor any Epitope Subsidiary has any contract, agreement or
otherwise arranged for disposal or treatment, or arranged with a transporter
for transport for disposal or treatment, of hazardous substances at any
"facility" (as defined in 42 U.S.C. (S)9601(9)) owned or operated by another
Person.
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(c) Neither Epitope nor any Epitope Subsidiary has accepted any hazardous
substances for transport to disposal or treatment facilities or sites selected
by Epitope or any Epitope Subsidiary.
(d) To the Knowledge of Epitope, the Epitope Real Property and the use
thereof is in material compliance with, and each Epitope and each Epitope
Subsidiary is in compliance with, all applicable laws, statutes, ordinances,
rules and regulations of any Governmental Entity relating to environmental
protection, underground storage tanks, toxic waste, hazardous waste, oil or
hazardous substance handling, treatment, storage, disposal or transportation,
or arranging therefor, respecting any products or materials previously or now
located on, or in transit from the Epitope Real Property, including without
limitation the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, and the Superfund
Amendments and Reauthorization Act of 1986.
(e) The past disposal practices relating to hazardous substances and
hazardous wastes of Epitope and each Epitope Subsidiary (and their respective
predecessors, if any) have been accomplished in accordance with all applicable
laws, statutes, rules, regulations and ordinances.
(f) Neither Epitope nor any Epitope Subsidiary has been notified of, nor, to
the Knowledge of Epitope or any Epitope Subsidiary is there, any basis for any
potential liability of Epitope or any Epitope Subsidiary with respect to the
cleanup of any waste disposal site or facility. Neither Epitope nor any Epitope
Subsidiary has received any notification to the effect that any site at which
Epitope or any Epitope Subsidiary has disposed of hazardous substances or oil
has been or is under investigation by any Governmental Entity.
(g) Neither Epitope nor any Epitope Subsidiary has received any notification
of releases or hazardous substances or oil from any Governmental Entity.
Section 3.18. Finders' Fees; Opinions of Financial Advisor.
(a) Except for Deutsche Bank Securities Inc. (also operating as Deutsche Banc
Alex. Brown), there is no investment banker, broker, finder or other
intermediary that has been retained by, or is authorized to act on behalf of,
Epitope or any Epitope Subsidiary who might be entitled to any fee or
commission from STC or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
(b) The Board of Directors of Epitope has received the opinion of Deutsche
Bank Securities Inc., dated as of the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to Epitope.
Section 3.19. Required Vote; Board Approval.
(a) The only votes of the holders of any class or series of capital stock of
Epitope required by law, rule, regulation or rule of the National Association
of Securities Dealers, Inc. to approve and adopt this Agreement and/or any of
the other transactions contemplated hereby, including the Mergers, are the
affirmative vote of the holders of more than fifty percent of all votes
entitled to be cast on the STC Merger and the Epitope Merger (the "Epitope
Stockholder Approval").
(b) Epitope's Board of Directors has unanimously (i) determined and declared
that this Agreement and the transactions contemplated hereby, including the
Merger, are advisable and in the best interests of Epitope and its
stockholders, (ii) approved and adopted this Agreement, the Merger and the
other transactions contemplated hereby and (iii) resolved to recommend to such
stockholders that they vote in favor of adopting and approving this Agreement
and the Mergers in accordance with the terms hereof, subject to the Board's
fiduciary duties under applicable law, at a special meeting of the stockholders
of Epitope duly held for such purpose (the "Epitope Stockholders Meeting").
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Section 3.20. State Takeover Statutes.
(a) Epitope has taken all actions required to be taken by it in order to
exempt this Agreement and the transactions contemplated hereby from the
provisions of Sections 60.801 through 60.845 of the Oregon Law, and
accordingly, such Sections do not apply to the Mergers or any of such
transactions. No other "control share acquisition," "business combination,"
"fair price" or other anti-takeover laws or regulations enacted under state or
federal laws in the United States apply to this Agreement or any of the
transactions contemplated hereby.
Section 3.21. Pooling Matters; Tax Treatment.
(a) Epitope intends that the Mergers be accounted for under the "pooling of
interests" method under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board, and the
rules and regulations of the SEC. Epitope will request a letter addressed to it
from PriceWaterhouse Coopers LLP, dated as of the Closing Date, and (if and
when obtained) a copy of it will be delivered to STC. Such letter (which may
contain customary qualifications and assumptions) shall state that
PriceWaterhouse Coopers LLP concurs with Epitope's management's conclusion that
no conditions exist that would preclude the Surviving Corporation from
accounting for the Mergers as a "pooling of interests," as described in the
first sentence of this Section 3.21(a).
(b) Neither Epitope nor any of its Affiliates has taken or agreed to take, or
will take, any action or is aware of any fact or circumstance that would
prevent or impede the Mergers from qualifying (i) for "pooling of interests"
accounting treatment as described in Section 3.21(a) above or (ii) as a 368
Reorganization or that would make untrue any representation or warranty
contained in the Representation Letter attached as Exhibit I.
Section 3.22. Certain Agreements. None of Epitope, any Epitope Subsidiary or
any of their respective Affiliates (i) are parties to or otherwise bound by any
agreement or arrangement that limits or otherwise restricts Epitope, any
Epitope Subsidiary, the Surviving Corporation or any of their respective
Affiliates from engaging or competing in any line of business or in any
locations, and (ii) except in the ordinary course of business, have amended,
modified or terminated any material contract, agreement or arrangement of
Epitope or any Epitope Subsidiary or otherwise waived, released or assigned any
material rights, claims or benefits of Epitope or any Epitope Subsidiary
thereunder.
Section 3.23. Epitope Rights Agreement. Merger Sub will, prior to the
Effective Time, take or cause to be taken all action so that each issued and
outstanding share of STC Common Stock (other than shares to be cancelled in
accordance with Section 2.1(e)(iii)), upon conversion of such shares into
Surviving Corporation Common Stock in accordance with Section 2.1(e)(i), shall
have associated rights to purchase the appropriate number of shares of
Surviving Corporation Series A Preferred Stock pursuant to the Merger Sub
Rights Agreement. Epitope has amended the Epitope Rights Agreement in
accordance with its terms to render it inapplicable to the transactions
contemplated by this Agreement so that the entering into of this Agreement and
the consummation of the transactions contemplated hereby do not and will enable
or require the Rights granted thereunder (the "Epitope Stock Purchase Rights")
to be exercised, distributed or triggered. Epitope has delivered to STC a true
and complete copy of the Epitope Rights Agreement, as amended, in effect as of
the date of the execution of this Agreement.
Section 3.24. Employment Agreements. There exists (i) no union, guild or
collective bargaining agreement to which Epitope or any Epitope Subsidiary is a
party, (ii) no employment, consulting or severance agreement between Epitope or
any Subsidiary of Epitope and any Person (except for consulting agreements that
individually, and in the aggregate, are not material to Epitope), and (iii) no
employment, consulting, severance or indemnification agreement or other
agreement or plan to which Epitope or any Epitope Subsidiary is a party that
would be altered or result in any bonus, golden parachute, severance or other
payment or obligation to any Person, or result in any acceleration of the time
of payment or in the provision or vesting of any benefits, as a result of the
execution or performance of this Agreement or as a result of the Mergers or the
other transactions contemplated hereby.
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Section 3.25. Transactions With Directors, Officers and Affiliates. Except
for any of the following matters which would not be required to be disclosed
pursuant to Item 402 or Item 404 of Regulation S-K of the U.S. Securities and
Exchange Commission (the "Commission"), since September 30, 1999, there have
been no transactions between Epitope or any of its Subsidiaries and any
director, officer, employee, stockholder or "Affiliate" (as identified pursuant
to Section 8.8 hereof) of Epitope or any of its Subsidiaries, including,
without limitation, loans, guarantees or pledges to, by or for Epitope or any
of Epitope's Subsidiaries from, to, by or for any of such Persons. Since
September 30, 1999, none of the officers or directors of Epitope or any of its
Subsidiaries, and no spouse or relative of any of such Persons, has been a
director or officer of, or has had any material direct or indirect interest in,
any Person which during such period has been a supplier, customer or sales
agent of Epitope or any of its Subsidiaries or has competed with or been
engaged in any business of the kind being conducted by Epitope or any of its
Subsidiaries.
Section 3.26. Material Contracts. Schedule 3.26 delivered to STC by Epitope
prior to the execution of this Agreement lists all material contracts and
agreements to which, as of the date hereof, Epitope or any Epitope Subsidiary
is a party or by which Epitope or any Epitope Subsidiary is bound or under
which Epitope or any Epitope Subsidiary has or may acquire any rights, which
were not filed prior to the date hereof as exhibits to Epitope Commission
Filings, which involve or relate to (i) obligations of Epitope or any Epitope
Subsidiary for borrowed money or other indebtedness where the amount of such
obligations exceeds $250,000 individually, (ii) the lease by Epitope or any
Epitope Subsidiary, as lessee or lessor, of real property for rent of more than
$250,000 per annum, (iii) the purchase or sale of goods (other than raw
material to be purchased by Epitope on terms that are customary and consistent
with the past practice of Epitope and in amounts and at prices substantially
consistent with past practices of Epitope) or services with an aggregate
minimum purchase price of more than $250,000 per annum, (iv) rights to
manufacture and/or distribute any product which accounted for more than
$250,000 of the consolidated revenues of Epitope and its Subsidiaries during
the fiscal year ended September 30, 1999 or under which Epitope or any Epitope
Subsidiary received or paid license or other fees in excess of $250,000 during
any year, (v) the purchase or sale of assets or properties not in the ordinary
course of business having a purchase price in excess of $250,000, (vi) the
right (whether or not currently exercisable) to use, license (including any
"in-license" or "outlicense"), sublicense or otherwise exploit any intellectual
property right or other proprietary asset of Epitope or of any of Subsidiary of
Epitope or any other Person which, when considered together with all such other
rights, is material to Epitope; (vii) any material collaboration or joint
venture or similar arrangement; (viii) the restriction on the right or ability
of Epitope or any Subsidiary of Epitope (A) to compete with any other Person,
(B) to acquire any product or other asset or any services from any other
Person, (C) to solicit, hire or retain any Person as an employee, consultant or
independent contractor, (D) to develop, sell, supply, distribute, offer,
support or service any product or any technology or other asset to or for any
other Person, (E) to perform services for any other Person, or (F) to transact
business or deal in any other manner with any other Person; (ix) any currency
hedging; or (x) individual capital expenditures or commitments in excess of
$250,000. All such contracts and agreements are duly and validly executed by
Epitope or such Epitope Subsidiary, and are in full force and effect. Neither
Epitope nor any of its Subsidiaries has violated or breached, or committed any
default under, any contract or agreement, and, to the knowledge of Epitope, no
other Person has violated or breached, or committed any default under, any
contract or agreement, which violation, breach or default (alone or in
combination with other violations, breaches or defaults under such contract or
agreement or under other contracts or agreements) has had or may reasonably be
expected to have an Epitope Material Adverse Effect. No event has occurred
which, after notice or the passage of time or both, would constitute a default
by Epitope or any Subsidiary of Epitope under any contract or agreement or give
any Person the right to (A) declare a default or exercise any remedy under any
contract or agreement, (B) receive or require a rebate, chargeback, penalty or
change in delivery schedule under any contract or agreement, (C) accelerate the
maturity or performance of any contract or agreement, or (D) cancel, terminate
or modify any contract or agreement, in each case which, together with all
other events of the types referred to in clauses (A), (B), (C) and (D) of this
sentence has had or may reasonably be expected to have an Epitope Material
Adverse Effect. All such contracts and agreements will continue, after the
Effective Time, to be binding in all material respects in accordance with their
respective terms until their respective expiration dates.
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Section 3.27. Certain Business Practices. Neither Epitope, nor to the
Knowledge of Epitope any director, officer, agent or employee of Epitope, has
(i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
Section 3.28. Insurance. Epitope has made available to STC a summary of all
material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of Epitope and its
Subsidiaries. Each of such insurance policies is in full force and effect.
Since September 30, 1999, neither Epitope nor any of its Subsidiaries has
received any notice or other communication regarding any actual or possible (i)
cancellation or invalidation of any material insurance policy, (ii) refusal of
any coverage or rejection of any material claim under any insurance policy, or
(iii) material adjustment in the amount of the premiums payable with respect to
any insurance policy. There is no pending workers' compensation or other claim
under or based upon any insurance policy of Epitope or any of its Subsidiaries
other than claims incurred in the ordinary course of business.
Section 3.29. Product Information.
(a) Non-Exempt Products. The products of Epitope listed on Section 3.29(a) of
the Disclosure Schedule (the "Epitope Non-Exempt Products") are subject to the
premarket approval requirements of the Medical Device Amendments to the Federal
Food, Drug and Cosmetic Act and all premarketing approval letters received from
Food and Drug Administration (the "FDA") are identified on Section 3.29(a) of
the Disclosure Schedule.
(i) All Epitope Non-Exempt Products and all modifications or changes to
any Non-Exempt Product are in compliance in all material respects with the
premarketing and postmarking regulatory controls of the Medical Device
Amendments to the Federal Food, Drug and Cosmetic Act.
(ii) All pre-market notification submissions and any supplementary
materials submitted therewith are accurate in all material respects and
each of the Epitope Non-Exempt Products is suitable for its intended use.
(iii) During the five-year period prior to the date hereof, there have
been no adverse actions taken by the FDA or any other Governmental Entity
involving Non-Exempt Products including, without limitation any recalls of
any Epitope Non-Exempt Product. For Epitope Non-Exempt Products, Epitope
maintains a system designed to keep records of complaints. There are no
current recalls or, to Epitope's or Epitope Knowledge, threatened recalls
of any Epitope Non-Exempt Product.
(iv) All Epitope Non-Exempt Products are manufactured in all material
respects in accordance with the good manufacturing practices regulations of
the Federal Food, Drug and Cosmetic Act. All contract manufacturers and
contract sterilizers have been, during the five-year period prior to the
date hereof, and are now registered with the Food and Drug Administration
and all facilities used in the manufacture and sterilization of Epitope
Non-Exempt Products have been, during the five-year period prior to the
date hereof, and are now in compliance in all material respects with the
applicable regulations of the Food and Drug Administration.
(v) No Epitope Non-Exempt Products have been, during the five-year period
prior to the date hereof, or are now misbranded.
(vi) During the five-year period prior to the date hereof, for all
Epitope Non-Exempt Products, Epitope has either submitted to the Food and
Drug Administration all written information disseminated on new uses in a
supplemental application or submitted an application for an exemption from
submission of a supplemental application.
(b) Neither Epitope nor any Epitope Subsidiary has any Knowledge of any
current investigations by any Governmental or Regulatory including, without
limitation, the Food and Drug Administration regarding Epitope or any products
of Epitope or any Epitope Subsidiary.
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Section 3.30. Product Liability Claims. During the three-year period
preceding the date hereof, neither Epitope nor any Epitope Subsidiary has ever
been notified of or received a claim, informally or in a legal action filed
with a court, arbitrator, mediator or with any other adjudicatory body or
incurred any uninsured or insured liability, in the form of a judgment,
settlement or other payment or required activity or inactivity, for or based
upon breach of product warranty (other than warranty service and repair claims
in the ordinary course of business not material in amount of significance),
strict liability in tort, negligent design or manufacture of product, negligent
provision of instructions, warnings or services, fraudulent representations,
deceptive trade practices or any other allegation of liability, concerning a
personal injury (whether physical or emotional distress) or resulting in
product recalls, arising from the materials, design, testing, manufacture,
packaging, labeling (including instructions for use) or sale of its products or
from the provision of services (hereafter collectively referred to as "Product
Liability"). To the knowledge of Epitope, no basis for any claim based upon
alleged Product Liability exists which would have an Epitope Material Adverse
Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STC
Except as disclosed in the STC Disclosure Schedule delivered to Epitope
separately prior to, or contemporaneously with, the date hereof (each section
or subsection of which qualifies the correspondingly numbered representation,
warranty or covenant to the extent specified therein), STC represents and
warrants to Epitope that:
Section 4.1. Corporate Existence and Power. STC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers required to carry on its business as
now conducted. STC is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified,
individually or in the aggregate, would not be reasonably likely to have a STC
Material Adverse Effect. STC has heretofore made available to Epitope true and
complete copies of STC's certificate of incorporation and bylaws as currently
in effect.
Section 4.2. Corporate Authorization. The execution, delivery and performance
by STC of this Agreement and the consummation by STC of the transactions
contemplated hereby are within STC's corporate powers and, except for the STC
Stockholder Approval (as defined herein), have been duly authorized by all
necessary corporate action. Assuming that this Agreement constitutes the valid
and binding obligation of Epitope, this Agreement constitutes a valid and
binding agreement of STC, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws, now or hereafter in effect, relating to or
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
Section 4.3. Governmental Authorization. The execution, delivery and
performance by STC of this Agreement and the consummation by STC of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity other than (a) the filing of (i) the
Articles of Merger in accordance with the Oregon Law, (ii) the Certificate of
Merger in accordance with the Delaware Law, and (iii) appropriate documents
with the relevant authorities of other states or jurisdictions in which STC or
any STC Subsidiary is qualified to do business; (b) compliance with any
applicable requirements of the HSR Act by stockholders of STC who will acquire
the Surviving Corporation Common Stock with a value in excess of $15 million as
a result of the Mergers and who do not have an exemption from the HSR Act
therefor; (c) compliance with any applicable requirements of the Securities Act
and the Exchange Act; (d) such as may be required under any applicable state
securities or blue sky laws; and (e) such other consents, approvals, actions,
orders, authorizations, registrations, declarations and filings that, if not
obtained or made, would not, individually or in the aggregate, (x) be
reasonably likely to have a STC Material Adverse Effect or (assuming for this
purpose that the Effective Time had occurred) a Surviving Corporation Material
Adverse Effect, or (y) prevent or materially impair the ability of STC to
consummate the transactions contemplated by this Agreement.
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Section 4.4. Non-Contravention. The execution, delivery and performance by
STC of this Agreement and the consummation by STC of the transactions
contemplated hereby do not and will not (a) contravene or conflict with STC's
certificate of incorporation or bylaws, (b) assuming compliance with the
matters referred to in Section 4.3, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to STC, (c) constitute a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of STC or any STC Subsidiary or to a loss of any benefit or
status to which STC is entitled under any provision of any agreement, contract
or other instrument binding upon STC or any STC Subsidiary or any license,
franchise, permit or other similar authorization held by STC, or (d) result in
the creation or imposition of any Lien on any asset of STC other than, in the
case of each of (b), (c) and (d), any such items that would not, individually
or in the aggregate (x) be reasonably likely to have a STC Material Adverse
Effect or (y) prevent or materially impair the ability of STC to consummate the
transactions contemplated by this Agreement.
Section 4.5. Capitalization.
(a) The authorized capital stock of STC consists of 6,000,000 shares of STC
Common Stock and 2,000,000 shares of STC Preferred Stock. At the close of
business on May 5, 2000, (i) 2,388,798 shares of STC Common Stock were issued
and outstanding, (ii) stock options ("STC Stock Options") and warrants ("STC
Warrants") to purchase an aggregate of 187,477 shares of STC Common Stock were
issued and outstanding (of which options and warrants to purchase an aggregate
of 60,060 shares of STC Common Stock were exercisable), (iii) 783,548 shares of
STC Common Stock were held in its treasury, (iv) 1,080,061 shares of STC
Preferred Stock were issued and outstanding, and (v) stock options and warrants
to purchase an aggregate of 0 shares of STC Preferred Stock were issued and
outstanding (of which options and warrants to purchase an aggregate of 0 shares
of STC Preferred Stock were exercisable). All outstanding shares of capital
stock of STC have been duly authorized and validly issued and are fully paid
and nonassessable.
(b) As of the date hereof, except (i) as set forth in this Section 4.5, (ii)
and (ii) for changes since December 31, 1999, resulting from the exercise of
stock options outstanding on such date, there are no outstanding (x) shares of
capital stock or other voting securities of STC, (y) securities of STC
convertible into or exchangeable for shares of capital stock or voting
securities of STC, or (z) options or other rights to acquire from STC, and no
obligation of STC to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of STC
(the items in clauses (x), (y) and (z) being referred to collectively as the
"STC Securities"). There are no outstanding obligations of STC or any STC
Subsidiary to repurchase, redeem or otherwise acquire any STC Securities. There
are no outstanding contractual obligations of STC to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any other Person. There are no stockholder agreements, voting trusts or other
agreements or understandings to which STC is a party, or of which STC is aware,
relating to voting, registration or disposition of any shares of capital stock
of STC or granting to any person or group of persons the right to elect, or to
designate or nominate for election, a director to the board of directors of
STC.
Section 4.6. Subsidiaries. STC does not have any subsidiaries and does not
own or control, directly or indirectly, any stock or equity interest in any
corporation or other Person.
Section 4.7. Financial Statements; No Material Undisclosed Liabilities.
(a) The audited consolidated balance sheets of STC as of December 31, 1997,
1998 and 1999, together with the related audited statements of operations,
stockholders' equity and cash flows for the fiscal years then ended and the
notes thereto and the unaudited balance sheet of STC as of February 29, 2000,
together with the related unaudited statements of operations, stockholders'
equity and cash flows for the period then ended (the "STC Financial
Statements") fairly present in all material respects, in conformity with GAAP
consistently applied (except as may be indicated in the notes thereto and
except that the unaudited interim financial statements do not contain all GAAP
notes to such financial statements), the financial position of STC as of the
dates thereof and its results of operations, stockholders' equity and
consolidated cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
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(b) There are no liabilities of STC of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, in each case, that
are required by GAAP to be set forth on a balance sheet of STC, other than:
(i) liabilities or obligations disclosed or provided for in the STC
Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations that individually or in the
aggregate, would not be reasonably likely to have a STC Material Adverse
Effect.
(c) STC keeps proper accounting records in which all material assets and
liabilities, and all material transactions, of STC are recorded in conformity
with GAAP. No part of STC's accounting system or records, or access thereto, is
under the control of a Person who is not an employee of STC.
Section 4.8. Information to be Supplied.
(a) The information to be supplied by STC expressly for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus will (i) in
the case of the Registration Statement, at the time it becomes effective, not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading and (ii) in the case of the remainder of the Joint Proxy
Statement/Prospectus, at the time of the mailing thereof, and at the time of
the Special Meetings, not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement/Prospectus will comply
(with respect to information relating to STC) as to form in all material
respects with the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, STC makes no representation or warranty
with respect to any statements made or incorporated by reference in the Joint
Proxy Statement/Prospectus based on information supplied by Epitope.
Section 4.9. Absence of Certain Changes. Since December 31, 1999, except as
otherwise expressly contemplated by this Agreement, STC has conducted its
business in the ordinary course consistent with past practice and there has not
been (a) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of STC that, individually or in
the aggregate, has had or would be reasonably likely to have a STC Material
Adverse Effect, (b) any action, event, occurrence, development or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have a STC Material Adverse Effect or (c) any
incurrence, assumption or guarantee by STC of any material indebtedness for
borrowed money other than in the ordinary course and in amounts and on terms
consistent with past practices.
Section 4.10. Litigation. Section 4.10 of the STC Disclosure Schedule
contains a list of each action, suit, investigation, arbitration or proceeding
pending against, or to the Knowledge of STC threatened against, STC or any of
its assets or properties before any arbitrator or Governmental Entity. None of
such actions, suits, investigations, arbitrations or proceedings, individually
or in the aggregate, would be reasonably likely to have a STC Material Adverse
Effect. There are no outstanding judgments, decrees, injunctions, awards or
orders against STC that would be reasonably likely to have, individually or in
the aggregate, a STC Material Adverse Effect.
Section 4.11. Taxes.
(a) All Tax returns, statements, reports and forms (collectively, the "STC
Returns") required to be filed with any taxing authority by, or with respect
to, STC have been filed in substantial compliance with all applicable laws.
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(b) STC has timely paid all Taxes shown as due and payable on the STC Returns
that have been so filed, and all other Taxes not subject to reporting
obligations, and as of the time of filing, the STC Returns correctly reflected
the facts regarding the income, business, assets, operations, activities and
the status of STC (other than Taxes that are being contested in good faith and
for which adequate reserves are reflected on the STC Balance Sheet).
(c) STC has made provision for all Taxes payable by them for which no STC
Return has yet been filed.
(d) The charges, accruals and reserves for Taxes with respect to STC
reflected on the STC Balance Sheet are adequate under GAAP to cover the Tax
liabilities accruing through the date thereof.
(e) There is no action, suit, proceeding, audit or claim now proposed or
pending against or with respect to STC in respect of any Tax that would be
reasonably likely to have a STC Material Adverse Effect.
(f) STC has not been a member of an affiliated, consolidated, combined or
unitary group other than one of which STC was the common parent.
(g) STC does not hold any asset subject to a consent under Section 341(f) of
the Code.
(h) The representations and warranties contained in the STC Representation
Letter, attached hereto as Exhibit J are true and correct.
Section 4.12. Employee Benefits.
(a) Section 4.12(a) of the STC Disclosure Schedule contains a correct and
complete list identifying each material "employee benefit plan", as defined in
Section 3(3) of ERISA, each employment, severance or similar contract, plan,
arrangement or policy and each other plan or arrangement (written or oral)
providing for compensation, bonuses, profit-sharing, stock option or other
stock related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits) that is maintained, administered or
contributed to by STC or any of its ERISA Affiliates and covers any employee or
former employee of STC or any STC Subsidiary. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof have been furnished, or will be made available upon
request, to Epitope together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) and summary plan description
prepared in connection with any such plan. Such plans are referred to
collectively herein as the "STC Employee Plans". For purposes of this Section
4.12, "ERISA Affiliate" of any Person means any other Person which, together
with such Person, would be treated as a single employer under Section 414 of
the Code.
(b) No STC Employee Plan is now or at any time has been subject to Part 3,
Subtitle B of Title I or ERISA or Title IV of ERISA. At no time has STC or any
of its ERISA Affiliates contributed to, or been required to contribute to, any
"multiemployer plan," as defined in Section 3(37) of ERISA (a "Multiemployer
Plan"), and neither STC nor any of its ERISA Affiliates has, or ever has had,
any liability (contingent or otherwise) relating to the withdrawal or partial
withdrawal from a Multiemployer Plan. To the Knowledge of STC, no condition
exists and no event has occurred that would be reasonably likely to constitute
grounds for termination of any STC Employee Plan that is a Retirement Plan. To
the Knowledge of STC, nothing has been done or omitted to be done and no
transaction or holding of any asset under or in connection with any STC
Employee Plan has occurred that will make STC or any STC Subsidiary, or any
officer or director of STC or any STC Subsidiary, subject to any liability
under Title I of ERISA or liable for any tax pursuant to Section 4975 of the
Code (assuming the taxable period of any such transaction expired as of the
date hereof) that would be reasonably likely to have a STC Material Adverse
Effect.
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(c) Each STC Employee Plan that is intended to be qualified under Section
401(a) of the Code now meets, and at all times since its inception have met,
the requirements for such qualification, and each trust forming a part thereof
is now, and at all times since its inception has been, exempt from tax pursuant
to Section 501(a) of the Code. Each such plan has received a determination
letter from the Internal Revenue Service to the effect that such plan is
qualified and its related trust is exempt from federal income taxes. STC has
furnished, or will make available upon request, to Epitope copies of the most
recent Internal Revenue Service determination letters with respect to each such
STC Employee Plan. Each STC Employee Plan has been maintained and administered
in substantial compliance with its terms (except that in any case in which any
STC Employee Plan is currently required to comply with a provision of ERISA or
of the Code, but is not yet to be amended to reflect such provision, such plan
has been maintained and administered in accordance with the provision) and with
the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such STC Employee Plan. All material reports, returns and similar
documents with respect to each STC Employee Plan required to be filed with any
governmental agency or distributed to any STC Employee Plan participant have
been duly timely filed and distributed.
(d) There is no contract, agreement, plan or arrangement that, as a result of
the Mergers, would be reasonably likely to obligate STC to make any payment of
any amount that would not be deductible pursuant to the terms of Section 162(m)
or Section 280G of the Code.
(e) Except as disclosed in writing to Epitope prior to the date hereof, there
has been no amendment to, written interpretation or announcement (whether or
not written) relating to, or change in employee participation or coverage
under, any STC Employee Plan that would increase materially the expense of
maintaining such STC Employee Plan above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1999.
(f) No STC Employee Plan promises or provides post-retirement medical, life
insurance or other benefits due now or in the future to current, former or
retired employees of STC or any Subsidiary.
Section 4.13. Compliance with Laws; Licenses, Permits and Registrations.
(a) STC is not in violation of, nor has STC violated, any applicable
provisions of any laws, statutes, ordinances, regulations, judgments,
injunctions, orders or consent decrees, except for any such violations that,
individually or in the aggregate, would not be reasonably likely to have a STC
Material Adverse Effect.
(b) STC has all permits, licenses, approvals, authorizations of and
registrations with and under all federal, state, local and foreign laws, and
from all Governmental Entities required by STC to carry on its business as
currently conducted, except where the failure to have any such permits,
licenses, approvals, authorizations or registrations, individually or in the
aggregate, would not be reasonably likely to have a STC Material Adverse
Effect.
Section 4.14. Title to Properties.
(a) STC has good and marketable title to, or valid leasehold interests in,
all its properties and assets except for such as are no longer used or useful
in the conduct of its business or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar Liens, encumbrances or impediments that do not materially
interfere with the ability of STC to conduct its business as currently
conducted. All such assets and properties, other than assets and properties in
which STC has leasehold interests, are free and clear of all Liens, except for
Liens that do not and will not materially interfere with the ability of STC to
conduct its business as currently conducted.
(b) STC (i) is in substantial compliance with the terms of all leases to
which it is a party and under which it is in occupancy, and all such leases are
in full force and effect and (ii) enjoys peaceful and undisturbed possession
under all such leases.
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Section 4.15. Intellectual Property.
(a) STC owns or has a valid license to use (i) all Marks; (ii) all Patents;
(iii) all Copyrights; (iv) all Rights in Mask Works' and (v) all Trade Secrets;
necessary to (x) carry on the business of STC as currently conducted or as
proposed to be conducted by the Surviving Corporation, to (y) make, have made,
use, distribute and sell all products currently sold by STC and all products in
development.
(b) There are no outstanding and, to STC's Knowledge, no threatened disputes
or disagreements with respect to any agreement to which STC is a party,
relating to any of STC's Marks, Patents, Copyrights, Rights in Mask Works, or
Trade Secrets (collectively, "STC Intellectual Property").
(c) STC is the owner of all right, title, and interest in and to the STC
Intellectual Property, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(d) All former and current employees of STC have executed written contracts
with STC that assign to STC all rights to any inventions, improvements,
discoveries, or information relating to the business of STC. To STC's
knowledge, no employee of STC has entered into any contract that restricts or
limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than STC.
(e) All of the Patents are currently in compliance with formal legal
requirements (including payment of filing, examination, and maintenance fees
and proofs of working or use), are valid and enforceable, and are not subject
to any maintenance fees or taxes or actions that have not been paid when due.
(f) STC uses reasonable procedures to keep its Trade Secrets confidential,
STC's Trade Secrets have been disclosed only under written agreements that
require the recipient to hold such Trade Secrets confidential.
(g) No Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To STC's Knowledge, there is no
potentially interfering patent or patent application of any third party.
(h) No Patent is infringed or, to STC's Knowledge, has been challenged or
threatened in any way. To STC's knowledge, none of the products manufactured
and sold or proposed to be sold, nor any process or know-how used, by STC
infringes or is alleged to infringe any Patent or other proprietary right of
any other Person.
(i) STC is not required to make any payments to any third parties in
connection with its use of the STC Intellectual Property.
(j) All products made, used, or sold under the Patents have been marked with
the proper patent notice.
Section 4.16. Environmental Matters.
(a) To the Knowledge of STC, there has not been, as of the date hereof, any
(i) "release" (as defined in 42 U.S.C. (S)9601(22)) or threat of a "release" of
any "hazardous substances" (as defined in 42 U.S.C. (S)9601(14)) or oil or
other petroleum related products on or about any of the real property owned,
operated or leased by STC ("STC Real Property"), or (ii) release or presence of
any pollutant, contaminant or condition giving rise to a cause of action under
federal, state or local statutory or common law on or about any of the STC Real
Property other than such as would not reasonably be expected to have an STC
Material Adverse Effect.
(b) STC has no contract or agreement or has not otherwise arranged for
disposal or treatment, or arranged with a transporter for transport for
disposal or treatment, of hazardous substances at any "facility" (as defined in
42 U.S.C. (S)9601(9)) owned or operated by another Person.
(c) STC has not accepted any hazardous substances for transport to disposal
or treatment facilities or sites selected by STC.
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(d) To the Knowledge of STC, the STC Real Property and the use thereof is in
material compliance with, and STC is in compliance with, all applicable laws,
statutes, ordinances, rules and regulations of any Governmental Entity relating
to environmental protection, underground storage tanks, toxic waste, hazardous
waste, oil or hazardous substance handling, treatment, storage, disposal or
transportation, or arranging therefor, respecting any products or materials
previously or now located on, or in transit from the STC Real Property,
including without limitation the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, and the
Superfund Amendments and Reauthorization Act of 1986.
(e) The past disposal practices relating to hazardous substances and
hazardous wastes of STC (and its predecessors, if any) have been accomplished
in accordance with all applicable laws, statutes, rules, regulations and
ordinances.
(f) STC has not been notified of nor, to the Knowledge of STC, is there any
basis for any potential liability of STC with respect to the clean-up of any
waste disposal site or facility. STC has received no notification to the effect
that any site at which STC has disposed of hazardous substances or oil has been
or is under investigation by any Governmental Entity.
(g) STC has not received any notification of releases of hazardous substances
or oil from any governmental or quasi-governmental agency.
Section 4.17. Finders' Fees; Opinions of Financial Advisor.
(a) Except for BancBoston Robertson Stephens, there is no investment banker,
broker, finder or other intermediary that has been retained by, or is
authorized to act on behalf of, STC or who might be entitled to any fee or
commission from Epitope or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
(b) STC has received the opinion of BancBoston Robertson Stephens dated as of
the date hereof, to the effect that, as of such date, the Exchange Ratio is
fair, from a financial point of view, to STC and the holders of shares of STC
Common Stock (other than Merger Sub, any affiliates of Epitope or Merger Sub,
or any holders of STC Common Stock who are officers or directors (or who have
representatives serving as directors) of STC).
Section 4.18. Required Vote and Waiver; Board Approval.
(a) Assuming satisfaction of the condition set forth in Section 9.3(g), the
only vote or waiver of rights of the holders of any class or series of capital
stock of STC required by law, rule or regulation to approve and adopt this
Agreement and/or any of the other transactions contemplated hereby, including
the Mergers (collectively, the "STC Stockholder Approval") is the affirmative
vote of the holders of more than fifty percent of the outstanding shares of STC
Common Stock in favor of the approval and adoption of this Agreement and
approval of the STC Merger.
(b) STC's Board of Directors has unanimously (i) determined and declared that
this Agreement and the transactions contemplated hereby, including the Mergers,
are advisable and in the best interests of STC and its stockholders, (ii)
approved and adopted this Agreement, the Mergers and the other transactions
contemplated hereby and (iii) resolved to recommend to such stockholders that
they vote in favor of adopting and approving this Agreement and the Mergers in
accordance with the terms hereof at a special meeting of the stockholders of
STC duly held for such purpose (the "STC Stockholders Meeting").
Section 4.19. State Takeover Statutes. STC has taken all actions required to
be taken by it in order to exempt this Agreement and the transactions
contemplated hereby from the provisions of Section 203 of the Delaware Law, and
accordingly, such Section does not apply to the Mergers or any of such
transactions. No other "control share acquisition," "business combination,"
"fair price" or other anti-takeover laws or regulations enacted under state or
federal laws in the United States apply to this Agreement or any of the
transactions contemplated hereby.
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Section 4.20. Pooling Matters; Tax Treatment.
(a) STC intends that the Mergers be accounted for under the "pooling of
interests" method under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board, and the
rules and regulations of the SEC. STC will request a letter addressed to it
from Arthur Andersen LLP dated as of the Closing Date, and (if and when
obtained) a copy of it will be delivered to Epitope. Such letter (which may
contain customary qualifications and assumptions) shall state that Arthur
Andersen LLP concurs with STC's management's conclusion that no conditions
exist with respect to STC that would preclude the Surviving Corporation from
accounting for the Mergers as a "pooling of interests" as described in the
first sentence of Section 4.20(a).
(b) Neither STC nor any of its Affiliates has taken or agreed to take, or
will take, any action or is aware of any fact or circumstance that would
prevent or impede the Mergers from qualifying (i) for "pooling of interests"
accounting treatment as described in Section 4.20(a) above or (ii) as a 368
Reorganization or that would make untrue any representation or warranty
contained in the Representation Letter attached as Exhibit J.
Section 4.21. Certain Agreements. Neither STC nor any of its Affiliates (i)
are parties to or otherwise bound by any agreement or arrangement that limits
or otherwise restricts STC, the Surviving Corporation or any of their
respective Affiliates from engaging or competing in any line of business or in
any locations, and (ii) except in the ordinary course of business, have
amended, modified or terminated any material contract, agreement or arrangement
of STC or otherwise waived, released or assigned any material rights, claims or
benefits of STC thereunder.
Section 4.22. Employment Agreements. There exists (i) no union, guild or
collective bargaining agreement to which STC is a party, (ii) no employment,
consulting or severance agreement between STC and any Person (except for
consulting agreements that individually, and in the aggregate, are not material
to STC), and (iii) no employment, consulting, severance or indemnification
agreement or other agreement or plan to which STC is a party that would be
altered or result in any bonus, golden parachute, severance or other payment or
obligation to any Person, or result in any acceleration of the time of payment
or in the provision or vesting of any benefits, as a result of the execution or
performance of this Agreement or as a result of the Mergers or the other
transactions contemplated hereby.
Section 4.23. Transactions With Directors, Officers and Affiliates. Except
for any of the following matters which would not be required to be disclosed
pursuant to Item 402 or Item 404 of Regulation S-K of the Commission (assuming
STC was subject to such Items), since December 31, 1999, there have been no
transactions between STC or any of its Subsidiaries and any director, officer,
employee, stockholder or "Affiliate" (as identified pursuant to Section 8.8
hereof) of STC, including, without limitation, loans, guarantees or pledges to,
by or for STC, from, to, by or for any of such Persons. Except for any of the
following matters which would not be required to be disclosed pursuant to Item
402 or Item 404 of Regulation S-K of the Commission (assuming that STC was
subject to such Items), since September 30, 1999, none of the officers or
directors of STC, and no spouse or relative of any of such Persons, has been a
director or officer of, or has had any material direct or indirect interest in,
any Person which during such period has been a supplier, customer or sales
agent of STC or has competed with or been engaged in any business of the kind
being conducted by STC.
Section 4.24. Material Contracts. Schedule 4.24 delivered to Epitope by STC
prior to the execution of this Agreement lists all material contracts and
agreements to which, as of the date hereof, STC is a party or by which it is
bound or under which STC has or may acquire any rights, which involve or relate
to (i) obligations of STC for borrowed money or other indebtedness where the
amount of such obligations exceeds $250,000 individually, (ii) the lease by
STC, as lessee or lessor, of real property for rent of more than $250,000 per
annum, (iii) the purchase or sale of goods (other than raw material to be
purchased by STC on terms that are customary and consistent with the past
practice of STC and in amounts and at prices substantially consistent
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with past practices of STC) or services with an aggregate minimum purchase
price of more than $250,000 per annum, (iv) rights to manufacture and/or
distribute any product which accounted for more than $250,000 of the
consolidated revenues of STC during the fiscal year ended September 30, 1999 or
under which STC received or paid license or other fees in excess of $250,000
during any year, (v) the purchase or sale of assets or properties not in the
ordinary course of business having a purchase price in excess of $250,000, (vi)
the right (whether or not currently exercisable) to use, license (including any
"in-license" or "outlicense"), sublicense or otherwise exploit any intellectual
property right or other proprietary asset of STC or any other Person which,
when considered together with all such other rights, is material to STC; (vii)
any material collaboration or joint venture or similar arrangement; (viii) the
restriction on the right or ability of STC (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from any
other Person, (C) to solicit, hire or retain any Person as an employee,
consultant or independent contractor, (D) to develop, sell, supply, distribute,
offer, support or service any product or any technology or other asset to or
for any other Person, (E) to perform services for any other Person, or (F) to
transact business or deal in any other manner with any other Person; (ix) any
currency hedging; or (x) individual capital expenditures or commitments in
excess of $250,000. All such contracts and agreements are duly and validly
executed by STC and are in full force and effect. STC has not violated or
breached, or committed any default under, any contract or agreement, and, to
the Knowledge of STC, no other Person has violated or breached, or committed
any default under, any contract or agreement, which violation, breach or
default (alone or in combination with other violations, breaches or defaults
under such contract or agreement or under other contracts or agreements) has
had or may reasonably be expected to have a STC Material Adverse Effect. No
event has occurred which, after notice or the passage of time or both, would
constitute a default by STC under any contract or agreement or give any Person
the right to (A) declare a default or exercise any remedy under any contract or
agreement, (B) receive or require a rebate, chargeback, penalty or change in
delivery schedule under any contract or agreement, (C) accelerate the maturity
or performance of any contract or agreement, or (D) cancel, terminate or modify
any contract or agreement, in each case which, together with all other events
of the types referred to in clauses (A), (B), (C) and (D) of this sentence has
had or may reasonably be expected to have a STC Material Adverse Effect. All
such contracts and agreements will continue, after the Effective Time, to be
binding in all material respects in accordance with their respective terms
until their respective expiration dates.
Section 4.25. Certain Business Practices. Neither STC nor to the knowledge of
STC any director, officer, agent or employee of STC has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, (assuming for purposes of this Section 4.25 that STC
is subject to Section 30A of the Exchange Act) or (iii) made any other unlawful
payment.
Section 4.26. Insurance. The Company has made available to Epitope a summary
of all material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of STC. Each of
such insurance policies is in full force and effect. Since December 31, 1999,
STC has not received any notice or other communication regarding any actual or
possible (i) cancellation or invalidation of any material insurance policy,
(ii) refusal of any coverage or rejection of any material claim under any
insurance policy, or (iii) material adjustment in the amount of the premiums
payable with respect to any insurance policy. There is no pending workers'
compensation or other claim under or based upon any insurance policy of STC
other than claims incurred in the ordinary course of business.
Section 4.27. Product Information.
(a) Non-Exempt Products. The products of STC listed in Section 4.27(a) of the
Disclosure Schedule (the "STC Non-Exempt Products") are subject to the
premarket notification (510(k)) requirements of the Medical Device Amendments
to the Federal Food, Drug and Cosmetic Act and all marketing
clearance/substantial equivalence letters received from the FDA are identified
in Section 4.27(a) of the Disclosure Schedule.
(i) All STC Non-Exempt Products and all modifications or changes to any
Non-Exempt Product are in compliance in all material respects with the
premarketing and postmarking regulatory controls of the Medical Device
Amendments to the Federal Food, Drug and Cosmetic Act.
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(ii) All pre-market notification submissions and any supplementary
materials submitted therewith are accurate in all material respects and
each of the STC Non-Exempt Products is suitable for its intended use.
(iii) During the five-year period prior to the date hereof, there have
been no adverse actions taken by the FDA or any other Governmental Entity
involving Non-Exempt Products including, without limitation any recalls of
any STC Non-Exempt Product. For STC Non-Exempt Products, STC maintains a
system designed to keep records of complaints. There are no current recalls
or, to STC or STC's Knowledge, threatened recalls of any STC Non-Exempt
Product.
(iv) All STC Non-Exempt Products are manufactured in all material
respects in accordance with the good manufacturing practices regulations of
the Federal Food, Drug and Cosmetic Act. All contract manufacturers and
contract sterilizers have been, during the five-year period prior to the
date hereof, and are now registered with the Food and Drug Administration
and all facilities used in the manufacture and sterilization of STC Non-
Exempt Products have been, during the five-year period prior to the date
hereof, and are now in compliance in all material respects with the
applicable regulations of the Food and Drug Administration.
(v) No STC Non-Exempt Products have been, during the five-year period
prior to the date hereof, or are now misbranded in any material respect.
(vi) During the five-year period prior to the date hereof, for all STC
Non-Exempt Products, STC has either submitted to the Food and Drug
Administration all written information disseminated on new uses in a
supplemental application or submitted an application for an exemption from
submission of a supplemental application.
(b) STC has no Knowledge of any current investigations by any Governmental
Entity including, without limitation, the Food and Drug Administration
regarding STC or any products of STC.
Section 4.28. Product Liability Claims. During the three-year period
preceding the date hereof, STC has never been notified of or received a claim,
informally or in a legal action filed with a court, arbitrator, mediator or
with any other adjudicatory body or incurred any uninsured or insured
liability, in the form of a judgment, settlement or other payment or required
activity or inactivity, for or based upon breach of product warranty (other
than warranty service and repair claims in the ordinary course of business not
material in amount of significance), strict liability in tort, negligent design
or manufacture of product, negligent provision of instructions, warnings or
services, fraudulent representations, deceptive trade practices or any other
allegation of liability, concerning a personal injury (whether physical or
emotional distress) or resulting in product recalls, arising from the
materials, design, testing, manufacture, packaging, labeling (including
instructions for use) or sale of its products or from the provision of services
(hereafter collectively referred to as "Product Liability"). To the Knowledge
of STC, no basis for any claim based upon alleged Product Liability exists
which would have an STC Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to STC as follows:
Section 5.1. Organization. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware. Merger Sub is
a direct wholly-owned subsidiary of Epitope. The authorized capital stock of
Merger Sub consists of 120,000,000 shares of common stock, par value $0.000001
per share and 25,000,000 shares of preferred stock, par value $0.000001 per
share. As of the date hereof, 100 shares of Merger Sub common stock are
outstanding, all of which are held beneficially and of record by Epitope. There
are not now, and immediately prior to the Sam Effective Time, there will be no,
options, warrants or other rights to purchase common stock of Merger Sub.
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Section 5.2. Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this agreement and to consummate the
transaction contemplated by this Agreement. The execution, delivery and
performance by each of Merger Sub of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Merger Sub. This Agreement has been
duly executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors generally or by general equity principles.
Section 5.3. Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated by this Agreement do not and will not contravene or
conflict with its certificate of incorporation or bylaws.
Section 5.4. No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub, the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement. Merger Sub has no subsidiaries.
Section 5.5. Taxes.
(a) The representations and warranties contained in the Merger Sub
Representation Letter attached hereto as Exhibit O are true and correct.
(b) Merger Sub has not taken or agreed to take, will not take, and is not
aware of any fact or circumstance that would prevent or impede the Mergers from
qualifying as 368 Reorganizations or that would make untrue any representation
or warranty contained in the Officer's Certificate referred to in Section
5.5(a) hereof.
ARTICLE VI
COVENANTS OF EPITOPE
Epitope agrees that:
Section 6.1. Epitope Interim Operations. Except as expressly contemplated or
permitted by this Agreement, or as required by any Governmental Entity of
competent jurisdiction, without the prior consent of STC (which consent shall
not be unreasonably withheld or delayed), from the date hereof until the
Effective Time, Epitope shall, and shall cause each of the Epitope Subsidiaries
to, conduct their business in all material respects in the ordinary course
consistent with past practice and shall use commercially reasonable efforts to
(i) preserve intact its present business organization, (ii) maintain in effect
all material foreign, federal, state and local licenses, approvals and
authorizations, including, without limitation, all material licenses and
permits that are required for Epitope or any Epitope Subsidiary to carry on its
business and (iii) preserve existing relationships with its material customers,
lenders, suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, except as expressly
contemplated or permitted by this Agreement, or as required by a Governmental
Entity of competent jurisdiction, from the date hereof until the Effective
Time, without the prior consent of STC (which consent shall not be unreasonably
withheld or delayed), Epitope shall not, nor shall it permit any Epitope
Subsidiary to:
(a) amend its articles of incorporation or by-laws;
(b) split, combine or reclassify any shares of capital stock of Epitope
or any less-than-wholly-owned Epitope Subsidiary or declare, set aside or
pay any dividend (except for dividends by any wholly-owned Epitope
Subsidiary) or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or redeem,
repurchase or otherwise acquire or offer to redeem, repurchase, or
otherwise acquire any of its securities or any securities of any Epitope
Subsidiary;
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(c) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such capital stock or any such convertible securities, other
than (A) a number of shares of capital stock equal to that number of shares
underlying options forfeited prior to the Closing by former Epitope
employees, pursuant to the Epitope Employee Plans; or (B) Epitope Common
Stock upon the exercise of stock options or warrants in accordance with
their present terms or upon exercise of options issued pursuant to clause
(A) above of this Section 6.1(c)(i); or (ii) amend in any respect any term
of any outstanding security of Epitope or any Epitope Subsidiary;
(d) other than in connection with transactions not prohibited by Section
6.1(e), incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (i) contemplated by the capital
expenditure budgets for Epitope and the Epitope Subsidiaries made available
to STC, or (ii) incurred in the ordinary course of business of Epitope and
the Epitope Subsidiaries and consistent with past practice;
(e) acquire (whether pursuant to cash merger, stock or asset purchase or
otherwise) in one transaction or series of related transactions (i) any
assets (including any equity interests) having a fair market value in
excess of $100,000, or (ii) all or substantially all of the equity
interests of any Person or any business or division of any Person having a
fair market value in excess of $100,000, but in no event shall the
expenditures, commitments, obligations or liabilities made, incurred, or
assumed, as the case may be, by Epitope and the Epitope Subsidiaries
pursuant to Section 6.1(d) and 6.1(e) exceed $500,000 in the aggregate;
(f) sell, lease, out-license, encumber or otherwise dispose of any
assets, other than (i) sales of finished goods in the ordinary course of
business consistent with past practice, (ii) equipment and property no
longer used in the operation of Epitope's business and (iii) assets related
to discontinued operations of Epitope or any Epitope Subsidiary;
(g) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness, (ii) issue or sell any debt securities or warrants or rights
to acquire any debt securities of Epitope or any Epitope Subsidiary, (iii)
make any loans, advances or capital contributions to or investments in, any
other Person, or (iv) except in the ordinary course of business consistent
with past practice (which shall include, without limitation, borrowings
under Epitope's existing credit agreements and overnight borrowings and
loans and advances to wholly-owned Epitope Subsidiaries) guarantee any debt
securities or indebtedness of others, in any such case in an amount in
excess of $100,000;
(h) (i) enter into any agreement or arrangement that limits or otherwise
restricts Epitope, any Epitope Subsidiary or any of their respective
Affiliates or any successor thereto or that would, after the Effective
Time, limit or restrict Epitope, any Epitope Subsidiary or the Surviving
Corporation, or any of their respective Affiliates, from engaging or
competing in any line of business or in any location, or (ii) enter into,
amend, modify or terminate any material contract, agreement or arrangement
of Epitope or any Epitope Subsidiary or otherwise waive, release or assign
any material rights, claims or benefits of Epitope or any Epitope
Subsidiary thereunder; provided, however, that this Section 6.1(h) shall
not prevent Epitope from entering into material contracts with customers,
suppliers or distributors, so long as such contracts are entered into in
the ordinary course and consistent with Epitope's past practice;
(i) (i) except as required by law or a written agreement existing on or
prior to the date hereof, increase the amount of compensation of any
director or executive officer or make any increase in or commitment to
increase any employee benefits, (ii) except as required by law, or a
written agreement existing on or prior to the date hereof or a written
Epitope severance policy existing as of the date hereof, grant any
severance or termination pay to any director, officer or employee of
Epitope or any Epitope Subsidiary, (iii) adopt any additional employee
benefit plan or, except in the ordinary course of business consistent with
past practice and containing only normal and customary terms, make any
contribution to any such existing plan or (iv) except as may be required by
law or a written agreement or written employee benefit plan existing on or
prior to the date hereof, or as contemplated by this Agreement, enter into
or amend in any respect or accelerate the vesting under any Epitope
Employee Plan employment
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agreement, option, license agreement or retirement agreements, or (v) hire
any employee with an annual base salary in excess of $75,000;
(j) change (x) Epitope's methods of accounting in effect at September 30,
1999, except as required by changes in GAAP or by Regulation S-X of the
Exchange Act, as concurred with by its independent public accountants, (y)
Epitope's fiscal year, or (z) make any material Tax election, other than in
the ordinary course of business consistent with past practice and
containing only normal and customary terms;
(k) (i) settle, propose to settle, or commence any litigation,
investigation, arbitration, proceeding or other claim that is material to
the business of Epitope and the Epitope Subsidiaries, taken as a whole,
other than the payment, discharge or satisfaction, in the ordinary course
of business consistent with past practice of liabilities (x) recognized or
disclosed in the most recent consolidated financial statements (or the
notes thereto) of Epitope included in the Epitope SEC Documents or (y)
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice, or (ii) make any tax election or
enter into any settlement or compromise of any tax liability; or
(l) Epitope shall not, and shall not permit any of the Epitope
Subsidiaries to, enter into any new line of business;
(m) except to the extent required to comply with its obligations
hereunder, or required by law, Epitope shall not amend or propose to so
amend its Articles of Incorporation, Bylaws or other governing documents;
(n) Epitope shall not amend, modify or waive (other than any amendment or
waiver required to consummate the transactions contemplated by this
Agreement) any provision of the Epitope Rights Agreement, and shall not
take any action to redeem the Epitope Stock Purchase Rights or render the
Epitope Stock Purchase Rights inapplicable to any transaction (other than
the transactions contemplated by this Agreement); or
(o) agree, resolve or commit to do any of the foregoing.
Section 6.2. Acquisition Proposals; Board Recommendation.
(a) Epitope agrees that it shall not, nor shall it permit any Epitope
Subsidiary to, and it shall direct and use its reasonable best efforts to cause
any officer, director, employee, investment banker, attorney, accountant, agent
or other advisor or representative of Epitope or any Epitope Subsidiary, not to
directly or indirectly, (i) solicit, initiate or knowingly facilitate or
encourage the submission of any Acquisition Proposal for Epitope, (ii)
participate in any discussions or negotiations regarding, or furnish to any
Person any information with respect to or take any other action knowingly to
facilitate any inquiries or the making of any proposal that constitutes an
Acquisition Proposal for Epitope, (iii) grant any waiver or release under any
standstill or similar agreement with respect to any class of Epitope's equity
securities or (iv) enter into any agreement with respect to an Acquisition
Proposal for Epitope. Notwithstanding anything in this Agreement to the
contrary, Epitope or its Board of Directors shall be permitted to (A) to the
extent applicable, comply with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal for Epitope, (B) in
response to an unsolicited bona fide written Acquisition Proposal for Epitope
by any Person, recommend approval of such an unsolicited bona fide written
Acquisition Proposal for Epitope to its stockholders or effect an Adverse
Change in the Epitope Recommendation, or (C) engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide Acquisition Proposal for Epitope by any such Person, if
and only to the extent that Epitope (including for this purpose, if authorized
by Epitope, all Epitope Subsidiaries or any officer, director, employee,
investment banker, attorney, accountant, agent or other advisor or
representative of Epitope or any Epitope Subsidiaries) have not violated in any
material respect any of the restrictions contained in Section 6.2(a) and, in
any such case as is referred to in clause (B) or (C), (i) the Epitope
Stockholders Meeting shall not have occurred, (ii) the Epitope Board of
Directors (x) in the case of clause (B) above, concludes in good faith after
consultation with its financial advisors and counsel, and taking into account,
among other things, all legal, financial, regulatory and other aspects of such
Acquisition Proposal, and the nature of the Person making the Acquisition
Proposal, that such written Acquisition Proposal for
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Epitope constitutes a Superior Proposal, and provides written notice of
termination of this Agreement pursuant to Section 10.1(e) (provided that such
termination shall not be effective until such time as Epitope makes the payment
to STC contemplated by Section 10.2(b))or (y) in the case of clause (C) above
concludes in good faith after consultation with its financial advisors and
counsel, and taking into account, among other things, all legal, financial,
regulatory and other aspects of such Acquisition Proposal, and the nature of
the Person making the Acquisition Proposal, that such Acquisition Proposal for
Epitope would reasonably be expected to result in a Superior Proposal, (iii)
prior to providing any information or data to any Person in connection with an
Acquisition Proposal for Epitope by any such Person, the Epitope Board of
Directors receives from such Person an executed confidentiality agreement
containing confidentiality terms at least as stringent as those contained in
the confidentiality agreement between Epitope and STC dated as of March 23,
2000 (the "Confidentiality Agreement"), and (iv) prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, Epitope notifies STC promptly of such inquiries, proposals or
offers received by, any such information requested from, or any such
discussions or negotiations sought to be initiated or continued with, it, its
subsidiaries, its or its subsidiaries' officers or directors, or any of its
agents or representatives indicating, in connection with such notice, the name
of such Person and the material terms and conditions of any inquiries,
proposals or offers and shall furnish only information and data that has been
previously furnished to STC. Epitope will provide STC with a copy of any
written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform STC on a prompt basis of any changes to the terms and
conditions of such Acquisition Proposal. Epitope will take the necessary steps
to inform promptly the individuals or entities referred to in the first
sentence of this Section 6.2(a) of the obligations undertaken in this Section
6.2.
(b) "Superior Proposal" means a written proposal made by a Person other than
STC which is for (I)(i) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving Epitope as a result of which either (A) Epitope's
stockholders prior to such transaction (by virtue of their ownership of
Epitope's shares) in the aggregate cease to own at least 50% of the voting
securities of the entity surviving or resulting from such transaction (or if
there is an ultimate parent entity of such surviving or resulting entity, then
of such ultimate parent entity) or (B) the individuals comprising the board of
directors of Epitope prior to such transaction do not constitute a majority of
the board of directors of the surviving or resulting entity (or, if there is an
ultimate parent entity of such surviving or resulting entity, then of such
ultimate parent entity), (ii) a sale, lease, exchange, transfer or other
disposition of at least 50% of the assets of Epitope and its Subsidiaries,
taken as a whole, in a single transaction or a series of related transactions,
or (iii) the acquisition, directly or indirectly, by a Person of beneficial
ownership of 50% or more of the Epitope Common Stock whether by merger,
consolidation, share exchange, business combination, tender or exchange offer
or otherwise (other than a merger, consolidation, share exchange, business
combination, tender or exchange offer or other transaction upon the
consummation of which Epitope's stockholders would in the aggregate
beneficially own greater than 60% of the voting securities of such Person), and
which is (II) otherwise on terms which the board of directors of Epitope in
good faith concludes (after consultation with its financial advisors and
outside counsel and upon receipt of advice from its financial advisors), taking
into account, among other things, all legal, financial, regulatory and other
aspects of the proposal and the nature of the Person making the proposal, (i)
would, if consummated, result in a transaction that is more favorable to its
stockholders (in their capacities as stockholders), from a financial point of
view, than the transactions contemplated by this Agreement (after giving
effect, for purposes of clause (ii) of Section 10.1(e), to any revised proposal
made by STC prior to the end of the three Business-Day period referred to in
Section 10.1(e)), and (ii) is reasonably capable of being completed; provided,
however, that any such Acquisition Proposal shall not be deemed a Superior
Proposal if any financing required to consummate the transaction contemplated
by such Acquisition Proposal is not committed in writing as of the time the
Epitope Board makes its determination that it is a Superior Proposal.
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ARTICLE VII
COVENANTS OF STC
STC agrees that:
Section 7.1. STC Interim Operations. Except as expressly contemplated or
permitted by this Agreement, or as required by any Governmental Entity of
competent jurisdiction, without the prior consent of Epitope (which consent
shall not be unreasonably withheld or delayed), from the date hereof until the
Effective Time, STC shall conduct its business in all material respects in the
ordinary course consistent with past practice and shall use commercially
reasonable efforts to (i) preserve intact its present business organization,
(ii) maintain in effect all material foreign, federal, state and local
licenses, approvals and authorizations, including, without limitation, all
material licenses and permits that are required for STC to carry on its
business and (iii) preserve existing relationships with its material customers,
lenders, suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, except as expressly
contemplated or permitted by this Agreement, or as required by a Governmental
Entity of competent jurisdiction, from the date hereof until the Effective
Time, without the prior consent of Epitope (which consent shall not be
unreasonably withheld or delayed), STC shall not:
(a) amend its certificate of incorporation or by-laws;
(b) split, combine or reclassify any shares of capital stock of STC or
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property, or any combination thereof) in respect of its
capital stock or redeem, repurchase or otherwise acquire or offer to
redeem, repurchase, or otherwise acquire any of its securities;
(c) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such capital stock or any such convertible securities, other
than (A) a number of shares of capital stock equal to that number of shares
underlying options forfeited prior to the Closing by former STC employees,
pursuant to the STC Employee Plans, (B) STC Common Stock upon the exercise
of stock options or warrants in accordance with their present terms or upon
exercise of options issued pursuant to clause (A) of this Section
7.1(c)(i); or (C) STC Common Stock upon the conversion of the STC Notes; or
(ii) amend in any respect any term of any outstanding security of STC;
(d) other than in connection with transactions not prohibited by Section
7.1(e), incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (i) contemplated by the capital
expenditure budgets for STC made available to Epitope, or (ii) incurred in
the ordinary course of business of STC and consistent with past practice;
(e) acquire (whether pursuant to cash merger, stock or asset purchase or
otherwise) in one transaction or series of related transactions (i) any
assets (including any equity interests) having a fair market value in
excess of $100,000, or (ii) all or substantially all of the equity
interests of any Person or any business or division of any Person having a
fair market value in excess of $100,000, but in no event shall the
expenditures, commitments, obligations or liabilities made, incurred or
assumed, as the case may be, by STC pursuant to Sections 7.1(d) and 7.1(e)
exceed $500,000 in the aggregate;
(f) sell, lease, out-license, encumber or otherwise dispose of any
assets, other than (i) sales of finished goods in the ordinary course of
business consistent with past practice, (ii) equipment and property no
longer used in the operation of STC's business and (iii) assets related to
discontinued operations of STC or any STC Subsidiary;
(g) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness, (ii) issue or sell any debt securities or warrants or rights
to acquire any debt securities of STC, (iii) make any loans, advances or
capital contributions to or investments in, any other Person, or (iv)
except in the ordinary course of business consistent with past practice
(which exception shall include, without limitation, borrowings under STC's
existing credit agreements and overnight borrowings) guarantee any debt
securities or indebtedness of others in any such case in an amount in
excess of $100,000;
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(h) (i) enter into any agreement or arrangement that limits or otherwise
restricts STC or any of its Affiliates or any successor thereto or that
would, after the Effective Time, limit or restrict STC or the Surviving
Corporation, or any of their respective Affiliates, from engaging or
competing in any line of business or in any location, or (ii) enter into,
amend, modify or terminate any material contract, agreement or arrangement
of STC or otherwise waive, release or assign any material rights, claims or
benefits of STC thereunder; provided, however, that this Section 7.1(h)
shall not prevent STC from entering into material contracts with customers,
suppliers or distributors, so long as such contracts are entered into in
the ordinary course and consistent with STC's prior practice;
(i) (i) except as required by law or a written agreement existing on or
prior to the date hereof, increase the amount of compensation of any
director or executive officer or make any increase in or commitment to
increase any employee benefits, (ii) except as required by law, a written
agreement existing on or prior to the date hereof, or a written STC
severance policy existing as of the date hereof, grant any severance or
termination pay to any director, officer or employee of STC or, (iii) adopt
any additional employee benefit plan or, except in the ordinary course of
business consistent with past practice and containing only normal and
customary terms, make any contribution to any existing such plan or (iv)
except as may be required by law or a written agreement or written employee
benefit plan existing on or prior to the date hereof, or as contemplated by
this Agreement, enter into, amend in any respect, or accelerate the vesting
under any STC Employee Plan, employment agreement, option, license
agreement or retirement agreements, or (v) hire any employee with an annual
base salary in excess of $75,000;
(j) change (x) STC's methods of accounting in effect at December 31, 1999
except as required by changes in GAAP, as concurred with by its independent
public accountants, (y) STC's fiscal year, or (z) make any material Tax
election, other than in the ordinary course of business consistent with
past practice and containing only normal and customary terms;
(k) (i) settle, propose to settle or commence, any litigation,
investigation, arbitration, proceeding or other claim that is material to
the business of STC, other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice of
liabilities (x) recognized or disclosed in the STC Financial Statements (or
the notes thereto) or (y) incurred since the date of such Financial
Statements in the ordinary course of business consistent with past
practice, or (ii) make any Tax election or enter into any settlement or
compromise of any Tax liability;
(l) enter into any new material line of business;
(m) except to the extent required to comply with its obligations
hereunder or required by law, STC shall not amend or propose to so amend
its Certificate of Incorporation, Bylaws or other governing documents; or
(n) agree, resolve or commit to do any of the foregoing.
Section 7.2. Acquisition Proposals; Board Recommendation. STC agrees that it
shall not, and it shall use its reasonable best efforts to cause any officer,
director, employee, investment banker, attorney, accountant, agent or other
advisor or representative of STC, not to directly or indirectly, (i) solicit,
initiate or knowingly facilitate or encourage the submission of any Acquisition
Proposal for STC, (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take
any other action knowingly to facilitate any inquiries or the making of any
proposal that constitutes an Acquisition Proposal for STC, (iii) grant any
waiver or release under any standstill or similar agreement with respect to any
class of STC equity securities or (iv) enter into any agreement with respect to
any Acquisition Proposal for STC.
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ARTICLE VIII
COVENANTS OF STC AND EPITOPE
The parties hereto agree that:
Section 8.1. Reasonable Best Efforts. Subject to the terms and conditions
hereof, each party will use reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as practicable.
Section 8.2. Certain Filings; Cooperation in Receipt of Consents; Listing. As
promptly as reasonably practicable after the date hereof, STC and Epitope shall
prepare and Epitope shall file with the SEC the Registration Statement, in
which the Joint Proxy Statement/Prospectus will be included as Epitope's
prospectus. Each of STC and Epitope shall use all reasonable efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as reasonably practicable after such filing and to keep the
Registration Statement effective as long as is necessary to consummate the
Merger and the transactions contemplated thereby. Each of STC and Epitope shall
mail the Joint Proxy Statement/Prospectus to their respective stockholders as
promptly as reasonably practicable after the Registration Statement is declared
effective under the Securities Act and, if necessary, after the Joint Proxy
Statement/Prospectus shall have been so mailed, promptly circulate amended,
supplemental or supplemented proxy material, and, if required in connection
therewith, resolicit proxies. Epitope and STC shall take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or to file a general consent to service of process) required to be
taken under any applicable state securities or blue sky laws in connection with
the issuance of shares of Surviving Corporation Common Stock in the Mergers.
(a) No amendment or supplement to the Joint Proxy Statement/Prospectus will
be made by STC or Epitope without the approval of the other party, which will
not be unreasonably withheld or delayed. Each party will advise the other
party, promptly after it receives notice thereof, of (i) the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, (ii) the issuance of any stop order, (iii) the suspension of the
qualification of the shares of Surviving Corporation Common Stock issuable in
connection with the Mergers for offering or sale in any jurisdiction, or (iv)
any request by the SEC for amendment of the Joint Proxy Statement/Prospectus or
comments thereon and responses thereto or requests by the SEC for additional
information, in each case, whether orally or in writing. If at any time prior
to the Effective Time, STC or Epitope discovers any information relating to
either party, or any of their respective Affiliates, officers or directors,
that should be set forth in an amendment or supplement to the Joint Proxy
Statement/Prospectus, so that such document would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party that discovers such information shall promptly notify
the other party hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with respect thereto, and with respect
to the Registration Statement, as the case may be, with the SEC and, to the
extent required by law or regulation, disseminated to the stockholders of STC
or Epitope.
(b) STC and Epitope shall cooperate with one another in (i) determining
whether any other action by or in respect of, or filing with, any Governmental
Entity is required, or any actions, consents, approvals or waivers are required
to be obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated hereby, (ii) seeking any such
other actions, consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith and seeking promptly to
obtain any such actions, consents, approvals or waivers, (iii) setting a
mutually acceptable date for the Special Meetings, so as to enable them to
occur, to the extent practicable, on the same date, and (iv) taking all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
for the purpose of obtaining the requisite votes to approve and adopt this
Agreement, the Mergers and the other matters contemplated by this Agreement.
The Board of Directors of Epitope shall, subject to its fiduciary duties under
applicable law, declare the
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advisability of and recommend adoption and approval of this Agreement, the
Merger and the other matters contemplated by this Agreement by the stockholders
of Epitope, and shall not, subject to its fiduciary duties under applicable
law, withdraw, modify or materially qualify in any manner adverse to STC such
recommendation or take any action or make any statement in connection with the
Epitope Stockholder Meeting materially inconsistent with such recommendation
(any such withdrawal, modification, qualification or statement (whether or not
required), an "Adverse Change in the Epitope Recommendation"). The Board of
Directors of STC shall, subject to its fiduciary duties under applicable law,
declare the advisability of and recommend adoption and approval of this
Agreement, the Merger and the other matters contemplated by this Agreement by
the stockholders of STC, and shall not, subject to its fiduciary duties under
applicable law, withdraw, modify or materially qualify in any manner adverse to
Epitope to such recommendation or take any action or make any statement in
connection with the STC Stockholders Meeting materially inconsistent with such
recommendation (any such withdrawal, modification, qualification or statement
(whether or not required), an "Adverse Change in the STC Recommendation").
(c) Each party shall permit the other party to review any communication given
by it to, and consult with each other in advance of any meeting or conference
with, any Governmental Entity or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the
applicable Governmental Entity or other Person, give the other party the
opportunity to attend and participate in such meetings and conferences, in each
case in connection with the transactions contemplated hereby.
(d) Epitope and STC agree to use their respective reasonable best efforts to
cause the shares of Surviving Corporation Common Stock to be issued upon
conversion of shares of Epitope Common Stock and STC Common Stock in accordance
with this Agreement, the Articles of Merger and the Certificates of Merger to
be approved for listing upon issuance on the Nasdaq Stock Market.
Section 8.3. Headquarters. The parties intend that, by January 1, 2001, the
Surviving Corporation shall maintain its principal corporate offices and
headquarters in Bethlehem, Pennsylvania.
Section 8.4. Public Announcements. Epitope and STC shall use reasonable best
efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any rules of the
Nasdaq Stock Market, to consult with each other before issuing any press
release or, to the extent practical, otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
Section 8.5. Access to Information; Notification of Certain Matters.
(a) From the date hereof until the Effective Time and subject to applicable
law, STC and Epitope shall (i) give to the other party, its counsel, financial
advisors, auditors and other authorized representatives reasonable access
during normal business hours to the offices, properties, books, records,
contracts, commitments, officers and employees and all other information
concerning it and its business, properties, assets, condition (financial or
otherwise) or prospects of such party, (ii) consistent with its legal
obligations, furnish or make available to the other party, its counsel,
financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request and (iii) instruct its employees, counsel, financial
advisors, auditors and other authorized representatives to cooperate with the
reasonable requests of the other party in its investigation. Any investigation
pursuant to this Section 8.5 shall be conducted in such manner as not to
interfere unreasonably with the conduct of the business of the other party.
Unless otherwise required by law, each of Epitope and STC will hold, and will
cause its respective officers, employees, counsel, financial advisors, auditors
and other authorized representatives to hold, any nonpublic information
obtained in any such investigation in confidence in accordance with Section
8.9. No information or knowledge obtained in any investigation pursuant to this
Section 8.5 shall affect or be deemed to modify any representation or warranty
made by any party hereunder.
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(b) Each party hereto shall give prompt notice to each other party hereto of:
(i) the receipt by such party or any of such party's Subsidiaries of any
notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the transactions
contemplated by this Agreement.
(ii) the receipt by such party or any of such party's Subsidiaries of any
notice or other communication from any Governmental Entity in connection
with any of the transactions contemplated by this Agreement; and
(iii) such party's obtaining Knowledge of any actions, suits, claims,
investigations or proceedings commenced, threatened against, relating to or
involving or otherwise affecting any of STC or Epitope, as the case may be,
or any Epitope Subsidiary which relate to the consummation of the
transactions contemplated by this Agreement; and
(iv) such party's obtaining Knowledge of the occurrence, or failure to
occur, of any event which occurrence or failure to occur will be likely to
cause (A) any representation or warranty contained in this Agreement o be
untrue or inaccurate in any material respect, or (B) any material failure
of any party to comply with or satisfy any covenant, condition or agreement
o be complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall limit or otherwise affect the
representations, warranties, obligations or remedies of the parties to the
conditions to the obligations of the parties hereunder.
Section 8.6. Further Assurances. At and after the STC Effective Time or
Epitope Effective Time, as the case may be, the officers and directors of the
Surviving Corporation will be authorized to execute and deliver, in the name
and on behalf of Epitope, STC or Merger Sub, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of
Epitope, STC or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
STC, Epitope or Merger Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with the Mergers.
Section 8.7. Tax and Accounting Treatment.
(a) Prior to the Effective Time, each party shall cooperate with the other
party and shall use its reasonable best efforts to cause the Mergers to qualify
as 368 Reorganizations, and will not take any action reasonably likely to cause
the Mergers not so to qualify. The Surviving Corporation shall not take any
action after the Effective Time that would cause the Mergers not to qualify as
368 Reorganizations.
(b) Each party shall cooperate with the other party and shall use its
reasonable best efforts to cause the Mergers to qualify for "pooling of
interest" accounting treatment as described in Section 3.21 and Section 4.20,
and shall not take any action reasonably likely to cause the Mergers not so to
qualify. Epitope shall use reasonable best efforts to cause to be delivered to
STC two letters from Epitope's independent public accountants, one dated
approximately the date on which the Registration Statement shall become
effective and one dated the Closing Date, each addressed to Epitope and STC, in
form and substance reasonably satisfactory to STC and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
STC shall use reasonable best efforts to cause to be delivered to Epitope two
letters from STC's independent public accountants, one dated approximately the
date on which the Registration Statement shall become effective and one dated
the Closing Date, each addressed to Epitope and STC, in form and substance
reasonably satisfactory to Epitope and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(c) Each party shall cooperate with the other party and shall use its
reasonable best efforts to obtain the opinions referred to in Sections 9.2(b)
and 9.3(b) and in connection therewith, each of Epitope, STC and Merger Sub
shall deliver to such counsel customary representation letters substantially in
the forms attached hereto as Exhibit I, Exhibit J and Exhibit O (the "Epitope
Representation Letter", the "STC Representation Letter", and the "Merger Sub
Representation Letter" respectively) or otherwise in form and substance
reasonably satisfactory to such counsel.
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Section 8.8. Affiliates.
(a) Not less than 45 days prior to the Effective Time, STC shall deliver to
Epitope a letter identifying all persons who, in the reasonable judgment of
STC, may be deemed at the time this Agreement is submitted for adoption by the
stockholders of STC, "affiliates" of STC for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Mergers for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations, and such list shall be updated
as necessary to reflect changes from the date hereof. STC shall use reasonable
best efforts to cause each Person identified on such list to deliver to Epitope
not less than 30 days prior to the STC Effective Time, a written agreement
substantially in the form attached as Exhibit K hereto (a "STC Affiliate
Agreement").
(b) Not less than 45 days prior to the Effective Time, Epitope shall deliver
to STC a letter identifying all persons who, in the reasonable judgment of
Epitope, may be deemed at the time this Agreement is submitted for adoption by
the stockholders of Epitope, "affiliates" of Epitope for purposes of qualifying
the Mergers for pooling of interests accounting treatment under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations, and
such list shall be updated as necessary to reflect changes from the date
hereof. Epitope shall use reasonable best efforts to cause each person
identified on such list to deliver to Epitope not less than 30 days prior to
the Effective Time, a written agreement substantially in the form attached as
Exhibit L (an "Epitope Affiliate Agreement").
(c) The Surviving Corporation shall use its reasonable best efforts to
publish no later than 90 days after the end of the first month after the
Effective Time in which there are at least 30 days of combined operations
following the Mergers (which month may be the month in which the Effective Time
occurs), combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
Section 8.9. Confidentiality.
(a) Prior to the Effective Time and after any termination of this Agreement
each party hereto will hold, and will use its reasonable best efforts to cause
its officers, directors, employees, accountants, counsel, consultants,
advisors, affiliates (as such term is used in Rule 12b-2 under the Exchange
Act) and representatives (collectively, the "Representatives"), to hold, in
confidence all confidential documents and information concerning the other
parties hereto and its Subsidiaries furnished to such party in connection with
the transactions contemplated by this Agreement, including, without limitation,
all analyses, compilations, studies or records prepared by the party receiving
the information or by such party's Representatives, that contain or otherwise
reflect or are generated from such information (collectively, the "Confidential
Material"). The party furnishing any Confidential Material is herein referred
to as the "Delivering Company" and the party receiving any Confidential
Material is herein referred to as the "Receiving Company."
(b) The Receiving Company agrees that the Confidential Material will not be
used other than for the purpose of the transactions contemplated by this
Agreement, and that such information will be kept confidential by the Receiving
Company and its Representatives; provided, however, that (i) any of such
information may be disclosed to the Representatives who need to know such
information for the purpose described above (it being understood that (a) each
such Representative shall be informed by the Receiving Company of the
confidential nature of such information, shall be directed by the Receiving
Company to treat such information confidentially and not to use it other than
for the purpose described above and shall agree to be bound by the terms of
this Section 8.9, and (b) in any event, the Receiving Company shall be
responsible for any breach of this Agreement by any of its Representatives),
and (ii) any other disclosure of such information may be made if the Delivering
Company has, in advance, consented to such disclosure in writing. The Receiving
Company will make all reasonable, necessary and appropriate efforts to
safeguard the Confidential Material from disclosure to anyone other than as
permitted hereby.
(c) Notwithstanding the foregoing, if the Receiving Company or any of its
Representatives is requested or required (by oral question or request for
information or documents in legal proceedings, interrogatories, subpoena, civil
investigative demand or similar process) to disclose any Confidential Material,
the Receiving
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Company will promptly notify the Delivering Company of such request or
requirement so that the Delivering Company may seek an appropriate protective
order and/or waive the Receiving Company's compliance with the provisions of
this Agreement. If, in the absence of a protective order or the receipt of a
waiver hereunder, the Receiving Company or any of its Representatives is
nonetheless, in the reasonable written opinion of the Receiving Company's
counsel, compelled to disclose Confidential Material to any tribunal, the
Receiving Company or such Representative, after notice to the Delivering
Company, may disclose such information to such tribunal. The Receiving Party
shall exercise reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the Confidential Material so disclosed.
The Receiving Company or such Representative shall not be liable for the
disclosure of Confidential Material hereunder to a tribunal compelling such
disclosure unless such disclosure to such tribunal was caused by or resulted
from a previous disclosure by the Receiving Company or any of its
Representatives not permitted by this Agreement.
(d) This Section 8.9 shall be inoperative as to particular portions of the
Confidential Material if such information (i) is or becomes generally available
to the public other than as a result of a disclosure by the Receiving Company
or its Representatives, (ii) was available to the Receiving Company on a non-
confidential basis prior to its disclosure to the Receiving Company by the
Delivering Company or the Delivering Company's Representatives, or (iii)
becomes available to the Receiving Company on a non-confidential basis from a
source other than the Delivering Company or the Delivering Company's
Representatives, provided that such source is not known by the Receiving
Company, after reasonable inquiry, to be bound by a confidentiality agreement
with the Delivering Company or the Delivering Company's Representatives and is
not otherwise prohibited from transmitting the information to the Receiving
Company by a contractual, legal or fiduciary obligation. The fact that
information included in the Confidential Material is or becomes otherwise
available to the Receiving Company or its Representatives under clauses (i)
through (iii) above shall not relieve the Receiving Company or its
Representatives of the prohibitions of the confidentiality provisions of this
Section 8.9 with respect to the balance of the Confidential Material.
(e) If this Agreement is terminated, each party hereto will, and will use its
reasonable best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver
to the party from whom such Confidential Material was obtained, upon request,
all documents and other materials, and all copies thereof, obtained by such
party or on its behalf from any such other parties in connection with this
Agreement that are subject to such confidence.
Section 8.10. Benefit Matters. Epitope and STC will work together to design
benefit plans to be adopted by the Surviving Corporation for the benefit of its
employees as soon as practicable following the Mergers. Until such adoption,
the Surviving Corporation shall cause all Epitope Employee Plans and all STC
Employee Plans to be maintained in full force and effect.
Section 8.11. Antitrust Matters.
(a) The parties hereto promptly will complete all documents required to be
filed with the Federal Trade Commission and the Department of Justice in order
to permit stockholders who will acquire Surviving Corporation Common Stock with
a value in excess of $15 million as a result of the Mergers and who do not have
exemption from the HSR Act therefor to comply with the HSR Act and, together
with the Persons who are required to join in such filings, will file the same
with the appropriate Governmental Entities. The parties hereto promptly will
furnish all materials thereafter required by any of the Governmental Entities
having jurisdiction over such filings and will take all reasonable actions and
file and use all reasonable efforts to have declared effective or approved all
documents and notifications with any such Governmental Entities, as may be
required under the HSR Act for the consummation of the Mergers.
(b) The parties hereto will use their reasonable best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any antitrust, competition or trade
regulatory laws, rules or regulations of any domestic or foreign Governmental
Entity ("Antitrust Laws"). If any suit is threatened or instituted challenging
the Mergers as violating any Antitrust Law, the parties hereto
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will take such action as may be reasonably required (i) by the applicable
Governmental Entity in order to resolve such objections as such Governmental
Entity may have to such transaction under such Antitrust Law or (ii) by any
domestic or foreign court or similar tribunal, in any suit brought by a private
party or governmental authority challenging the Merger as violating any
Antitrust Law, in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order or other order that has the effect
of preventing the consummation of the Merger. Nothing in this Section 8.11
shall require any of Epitope and its Subsidiaries or STC to sell, hold separate
or otherwise dispose of or conduct their business in a specified manner, or
agree to sell, hold separate or otherwise dispose of or conduct their business
in a specified manner, or permit the sale, holding separate or other
disposition of, any assets of Epitope, STC or any Epitope Subsidiary or the
conduct of their business in a specified manner, whether as a condition to
obtaining any approval from a Governmental Entity or any other Person or for
any other reason, if such sale, holding separate or other disposition or the
conduct of their business in a specified manner is not conditioned on the
Closing or would reasonably be expected to have a Material Adverse Effect on
the Surviving Corporation and its Subsidiaries, taken together, after giving
effect to the Mergers.
(c) Each party promptly will inform the others of any material communication
from the Federal Trade Commission, the Department of Justice or any other
domestic or foreign Governmental Entity regarding any of the transactions
contemplated by this Agreement. If any party or any Affiliate thereof receives
a request for additional information or documentary material from any such
government or authority with respect to the transactions contemplated by this
Agreement, such party will endeavor in good faith to make, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response to such request. Each party hereto promptly will advise
the other parties hereto in respect of any understandings, undertakings or
agreements which the advising party proposes to make or enter into with the
Federal Trade Commission, the Department of Justice or any other domestic or
foreign Governmental Entity in connection with the transactions contemplated by
this Agreement.
Section 8.12. Exemption From Liability Under Section 16(b).
(a) Provided that STC delivers to the Surviving Corporation the Section 16
Information with respect to STC prior to the Effective Time, the Board of
Directors of the Surviving Corporation, or a committee of Non-Employee
Directors thereof (as such term is defined for purposes of Rule 16b-3(d) under
the Exchange Act), shall adopt a resolution in advance of the STC Effective
Time providing that the receipt by the STC Insiders of Surviving Corporation
Common Stock in exchange for shares of STC Common Stock, and of options to
purchase Surviving Corporation Common Stock upon assumption and conversion by
the Surviving Corporation of options to purchase STC Common Stock, in each case
pursuant to the transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are intended to be exempt
from liability pursuant to Rule 16b-3 under the Exchange Act.
(b) "Section 16 Information" shall mean information accurate in all respects
regarding the STC Insiders, the number of shares of STC Common Stock, or other
STC equity securities, deemed to be beneficially owned by each such STC Insider
and expected to be exchanged for Surviving Corporation Common Stock in
connection with the Mergers.
(c) "STC Insiders" shall mean those officers and directors of STC who are
subject to the reporting requirements of Section 16(a) of the Exchange Act who
are listed in the Section 16 Information.
Section 8.13. Indemnification and Insurance.
(a) The Surviving Corporation agrees to assume the agreements listed in
Exhibit M, which agreements will survive the Mergers and will continue in full
force and effect for a period of not less than six (6) years from the Effective
Time. In the event any claim is asserted or made within such six-year period,
all rights to indemnification in respect of any such claim will continue until
final disposition thereof. An "Indemnified Party" shall mean any Person who is
at the Effective Time or prior thereto has been an employee, agent, director or
officer of either STC or Epitope as provided in their respective charters,
bylaws or resolutions.
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(b) From and after the Effective Time, the Surviving Corporation shall
indemnify all Indemnified Parties to the fullest extent permitted by the
Delaware Law with respect to all acts and omissions arising out of such
individuals' services as officers, directors, employees or agents of either STC
or Epitope or as trustees or fiduciaries of any plan for the benefit of
employees, or otherwise on behalf of, either STC or Epitope, occurring at or
prior to the Effective Time, including the transactions contemplated by this
Agreement. In the event any Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any such
matter occurring at or prior to the Effective Time, the Surviving Corporation
will pay as incurred such Indemnified Party's legal and other expenses
(including the cost of any investigation and preparation) incurred in
connection therewith. The Surviving Corporation will pay all expenses,
including attorneys' fees, that may be incurred by any Indemnified Party in
enforcing the indemnity and other obligations provided for in this Section
8.13.
(c) The Surviving Corporation will cause to be maintained in effect for not
less than six (6) years from the Effective Time directors' and officers'
liability insurance covering the directors and officers of STC and Epitope
similar in scope and coverage to the directors' and officers' liability
insurance maintained by STC and Epitope for their directors and officers.
(d) The provisions of this Section 8.13 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of the Surviving Corporation.
ARTICLE IX
CONDITIONS TO THE MERGER
Section 9.1. Conditions to the Obligations of Each Party. The respective
obligations of STC, Epitope and Merger Sub to consummate the Mergers are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. Each of the Epitope Stockholder Approval and
the STC Stockholder Approval shall have been obtained;
(b) Securities Laws. (i) The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, no stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated or threatened by the SEC and not concluded or withdrawn and (ii)
all state securities or blue sky authorizations necessary to carry out the
transactions contemplated hereby shall have been obtained and be in effect;
(c) Nasdaq Stock Market Listing. The shares of Surviving Corporation
Common Stock to be issued in the Mergers shall have been approved for
listing upon issuance on the Nasdaq Stock Market, subject to official
notice of issuance;
(d) Antitrust. (i) Any applicable waiting period under the HSR Act
contemplated by Section 8.11 hereof shall have expired or been earlier
terminated and (ii) if required by applicable law, the parties shall have
received a decision from the Commission on the European Communities (the
"European Commission") under Regulation 4064/89 (with or without the
initiation of proceedings under Article 6(1)(c) thereof) that the proposed
Mergers and any matters arising therefrom fall within either Article 6.l(a)
or Article 6. l(b) of such Regulation and that, in any event, the Mergers
will not be referred to any competent authority or dealt with by the
European Commission pursuant to Article 9.3 of such Regulation;
(e) Other Regulatory Approvals. Other than the filings provided for by
Article II, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity the failure of which to obtain would have a STC
Material Adverse Effect, an Epitope Material Adverse Effect or a Surviving
Corporation Material Adverse Effect, shall have been filed, occurred or
been obtained;
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(f) No Injunctions or Restraints; Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, (i) having the effect
of making the Mergers illegal or otherwise prohibiting, enjoining or
restraining consummation of the Mergers or (ii) which otherwise would
reasonably be expected to have a Surviving Corporation Material Adverse
Effect after giving effect to the Mergers; provided, however, that the
provisions of this Section 9.1(f) shall not be available to any party whose
failure to fulfill its obligations pursuant to Sections 8.1 and 8.2 shall
have been the cause of, or shall have resulted in, such order or
injunction.
(g) Pooling. (i) Epitope shall have received a letter (which may contain
customary qualifications and assumptions) from PriceWaterhouse Coopers LLP
dated as of the Closing Date and addressed to Epitope, stating that
PriceWaterhouse Coopers LLP concurs with Epitope's management's conclusion
that no conditions exist that would preclude the Surviving Corporation from
accounting for the Mergers as a "pooling of interests" in conformity with
GAAP as described in Accounting Principles Board Opinion No. 16 and
applicable rules and regulations of the SEC and such letter shall not have
been withdrawn or modified in any material respect and (ii) STC shall have
received a letter (which may contain customary qualifications and
assumption) from Arthur Andersen LLP dated as of the Closing Date and
addressed to STC, stating that Arthur Andersen LLP concurs with STC's
management's conclusion that no conditions exist with respect to STC that
would preclude the Surviving Corporation from accounting for the Mergers as
a "pooling of interests" in conformity with GAAP as described in Accounting
Principles Board Opinion No. 16 and applicable rules and regulations of the
SEC and such letter shall not have been withdrawn or modified in any
material respect.
Section 9.2. Conditions to the Obligations of Epitope and Merger Sub. The
obligations of Epitope and Merger Sub to consummate the Mergers are subject to
the satisfaction, or waiver by Epitope and Merger Sub, on or prior to the
Closing Date, of the following further conditions:
(a) Representations and Covenants. (i) STC shall have performed in all
material respects all of its obligations hereunder required to be performed
by it at or prior to the time of the filing of the Articles of Merger and
the Certificates of Merger; (ii) the representations and warranties of STC
in this Agreement that are qualified as to materiality, STC Material
Adverse Effect or Surviving Corporation Material Adverse Effect shall be
accurate, and any such representations and warranties that are not so
qualified shall be accurate, in all material respects, as of the date of
this Agreement and as of the Effective Time (except for representations and
warranties that address matters only as of a specific date, in which case
such representations and warranties qualified as to materiality, STC
Material Adverse Effect or Surviving Corporation Material Adverse Effect
shall be true and correct, and those not so qualified shall be true and
correct in all material respects, on and as of such earlier date); and
(iii) Epitope shall have received a certificate signed by the Chief
Executive Officer or Chief Financial Officer of STC to the foregoing
effect;
(b) Tax Opinion. Epitope shall have received an opinion of Stinson, Mag &
Fizzell, P.C. in form and substance reasonably satisfactory to Epitope, on
the basis of certain facts, representations and assumptions set forth in
such opinion, dated as of the date of the filing of the Articles of Merger
and the Certificates of Merger, to the effect that the Mergers will qualify
for federal income tax purposes as 368 Reorganizations and that each of
Epitope, STC and Merger Sub will be a party to a reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, such
counsel shall be entitled to rely upon representations of officers of
Epitope, STC and Merger Sub;
(c) Employment Agreements. The employees identified in Exhibit N hereto
shall have executed and delivered to the Surviving Corporation employment
agreements in the respective forms delivered to Epitope and Merger Sub on
or prior to the date hereof;
(d) Affiliate Agreements. Epitope shall have received from each Person
named in the letter referred to in Section 8.8(b) an executed copy of an
Epitope Affiliate Agreement and a STC Affiliate Agreement substantially in
the form of Exhibit L and Exhibit M, respectively, to this Agreement;
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(e) Fairness Opinion. The opinion described in Section 3.18(b) shall not
have been withdrawn or materially modified in an adverse manner;
(f) No Material Adverse Change. There shall have been (i) no material
adverse change in the financial condition, results of operations or cash
flows or assets, liabilities, business or prospects of STC from the date of
the STC Balance Sheet through the Closing Date and (ii) no action taken by
the FDA with respect to STC's products, operations or facilities that would
be reasonably expected to have a STC Material Adverse Effect;
(g) FDA Action. There shall have been no adverse action taken by the Food
and Drug Administration that would, or would be reasonably expected to,
prohibit or significantly limit the manufacture, sale, promotion or
distribution of any products of STC or the operation of STC; and
(h) Epitope Rights Agreement. The Epitope Stock Purchase Rights shall not
have become exercisable or been distributed or triggered.
Section 9.3. Conditions to the Obligations of STC. The obligations of STC to
consummate the Merger are subject to the satisfaction, or waiver by STC, on or
prior to the Closing Date, of the following further conditions:
(a) Representations and Covenants. (i) Epitope shall have performed in
all material respects all of its obligations hereunder required to be
performed by it at or prior to the time of the filing of the Articles of
Merger and the Certificates of Merger; (ii) the representations and
warranties of Epitope and Merger Sub in this Agreement that are qualified
as to materiality, Epitope Material Adverse Effect or Surviving Corporation
Material Adverse Effect shall be accurate, and any such representations and
warranties that are not so qualified shall be accurate, in all material
respects, as of the date of this Agreement and as of the Effective Time
(except for representations and warranties which address matters only as of
a specific date, in which case such representations and warranties
qualified as to materiality, Epitope Material Adverse Effect or Surviving
Corporation Material Adverse Effect shall be true and correct, and those
not so qualified shall be true and correct in all material respects, on and
as of such earlier date); and (iii) STC shall have received a certificate
signed by the Chief Executive Officer or Chief Financial Officer of Epitope
and Merger Sub to the foregoing effect;
(b) Tax Opinion. STC shall have received an opinion of Pepper Hamilton
LLP in form and substance reasonably satisfactory to STC, on the basis of
certain facts, representations and assumptions set forth in such opinion,
dated as of the date of the filing of the Articles of Merger and the
Certificates of Merger, to the effect that the Mergers will qualify for
federal income tax purposes as 368 Reorganizations and that each of
Epitope, STC and Merger Sub will be a party to a reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, such
counsel shall be entitled to rely upon representations of officers of
Epitope, STC and Merger Sub;
(c) Employment Agreements. The employees identified in Exhibit N hereto
shall have executed and delivered to the Surviving Corporation employment
agreements in the respective forms delivered to STC on or prior to the date
hereof;
(d) No Material Adverse Change. There shall have been no material adverse
change in the financial condition, results of operations or cash flows or
assets, liabilities, business or prospects of Epitope from the date of the
Epitope Balance Sheet through the Closing Date;
(e) FDA Action. There shall have been no adverse action taken by the Food
and Drug Administration that would, or would reasonably be expected to,
prohibit or significantly limit the manufacture, sale, promotion or
distribution of any products of Epitope or the operations of Epitope;
(f) Epitope Rights Agreement. The Epitope Stock Purchase Rights shall not
have become exercisable or been distributed or triggered; and
(g) STC Preferred Stock. The holders of all shares of STC Preferred Stock
shall have converted all of their shares into STC Common Stock.
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ARTICLE X
TERMINATION
Section 10.1. Termination. This Agreement may be terminated at any time prior
to the Effective Time by written notice by the terminating party to the other
party (except if such termination is pursuant to Section 10.1(a)),
notwithstanding approval thereof by the respective stockholders of Epitope and
STC:
(a) by mutual written agreement of Epitope and STC;
(b) by either STC or Epitope, if
(i) the Mergers shall not have been consummated by October 31, 2000
(the "Expiration Date"); provided, however, that (x) the right to
terminate this Agreement under this Section 10.1(b)(i) shall not be
available to any party whose breach of any provision of this Agreement
has resulted in the failure of the Mergers to occur on or before the
Expiration Date, and (y) such termination shall not limit any
obligation to make any payment or reimbursement required under Section
10.2(b);
(ii) there shall be any Law that makes consummation of the Mergers
illegal or otherwise prohibited or any judgment, injunction, order or
decree of any Governmental Entity having competent jurisdiction
enjoining Epitope, STC or the Merger Sub from consummating the Mergers
is entered and such judgment, injunction, judgment or order shall have
become final and nonappealable and, prior to such termination, the
parties shall have used reasonable best efforts to resist, resolve or
lift, as applicable, such law, regulation, judgment, injunction, order
or decree; or
(iii) the holders of Epitope Common Stock do not approve this
Agreement.
(c) by Epitope, (i) if there shall have occurred an Adverse Change in the
STC Recommendation (or the Board of Directors of STC have resolved or
publicly proposed to take such action); (ii) if there shall have occurred a
willful and material breach of Section 7.2 by STC or any of its officers,
directors, employees, advisors or agents; (iii) if a breach of any
representation, warranty, covenant or agreement on the part of STC set
forth in this Agreement shall have occurred that would cause the condition
set forth in Section 9.2(a) not to be satisfied, and such condition shall
be incapable of being satisfied or, if capable of being satisfied, shall
not have been satisfied within 20 days after written notice thereof shall
have been received by STC; (iv) STC shall have failed to include in the
Joint Proxy Statement the recommendation of the Board of Directors of STC
in favor of the adoption and approval of this Agreement and the approval of
the Merger; (v) the Board of Directors of STC shall have approved, endorsed
or recommended any Acquisition Proposal; (vi) a tender or exchange offer
relating to securities of STC shall have been commenced and STC shall not
have sent to its security holders, within ten business days after the
commencement of such tender or exchange offer, a statement disclosing that
STC recommends rejection of such tender or exchange offer; or (vii) STC or
STC's Board of Directors or any committee thereof shall have resolved to do
or permit any of the foregoing;
(d) by STC, (i) if there shall have occurred an Adverse Change in the
Epitope Recommendation (or the Board of Directors of Epitope have resolved
or publicly proposed to take such action); (ii) if there shall have
occurred a willful and material breach of Section 6.2 by Epitope, any
Epitope Subsidiary or any of their respective officers, directors,
employees, advisors or agents; or (iii) if a breach of any representation,
warranty, covenant or agreement on the part of Epitope set forth in this
Agreement shall have occurred that would cause the condition set forth in
Section 9.3(a) not to be satisfied, and such condition is incapable of
being satisfied or, if capable of being satisfied, shall not have been
satisfied within 20 days after written notice thereof shall have been
received by Epitope; (iv) Epitope shall have failed to include in the Joint
Proxy Statement the recommendation of the Board of Directors of Epitope in
favor of the adoption and approval of this Agreement and the approval of
the Merger; (v) the Board of Directors of Epitope shall have approved,
endorsed or recommended any Acquisition Proposal; (vi) a tender or exchange
offer relating to securities of Epitope shall have been commenced and
Epitope shall not have sent to its security holders, within ten business
days after the commencement of such tender or exchange offer, a statement
disclosing that Epitope recommends rejection of such tender or exchange
offer; or (vii) Epitope or Epitope's Board of Directors or any committee
thereof shall have resolved to do or permit any of the foregoing;
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(e) by Epitope at any time prior to its required stockholders approval,
upon three Business Days' prior notice to STC, if the Epitope Board of
Directors shall have determined as of the date of such notice that an
Acquisition Proposal is a Superior Proposal and has entered into (subject
to termination of this Agreement) a definitive agreement for such Superior
Proposal; provided, however, that (i) Epitope shall have complied with
Section 6.2, (ii) the Board of Directors of Epitope shall have concluded in
good faith, as of the effective date of such termination, after taking into
account any revised proposal by STC during such three Business Day period,
that an Acquisition Proposal is a Superior Proposal and (iii) Epitope shall
have made the payment and reimbursement set forth in Section 10.2(b);
(f) automatically if the transactions contemplated herein are enjoined by
a court of competent jurisdiction for a period extending beyond 90 days;
(g) by STC, if a Share Acquisition Date shall have occurred pursuant to
the Epitope Rights Agreement;
(h) by STC, if the Epitope Average Price shall be less than $6.00; or
(i) by STC, if the Epitope meeting of stockholders is canceled or is
otherwise not held or if a final vote of Epitope's stockholders has not
been taken with respect to the Mergers prior to October 31, 2000, except as
a result of a judgment, injunction, order or decree of any competent
authority or events or circumstances beyond the reasonable control of
Epitope.
Section 10.2. Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 10.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on
the part of Epitope or STC or their respective officers or directors except
with respect to the provisions of Sections 8.9, 10.2, 12.1, 12.4, 12.5, 12.10
and 12.11 of this Agreement which provisions shall remain in full force and
effect and survive any termination of this Agreement, and except that,
notwithstanding anything to the contrary contained in this Agreement, neither
Epitope nor STC shall be relieved or released from any liabilities or damages
arising out of its willful material breach of this Agreement or any obligations
under Section 10.2(b).
(b) Epitope agrees to pay STC (A) a fee in immediately available funds equal
to $3,000,000 in the event that this Agreement is terminated by STC pursuant to
clauses (i), (iv), (v), (vi) or (vii) of Section 10.1(d) or pursuant to Section
10.1(i), (B) together with an additional payment of $2,000,000 plus
reimbursement to STC of its reasonable Expenses (as defined in Section 10.3) up
to a maximum amount of $1,000,000, if (x) an Acquisition Proposal had been made
prior to the actions referenced in clauses (i), (iv), (v), (vi) or (vii) of
Section 10.1(d) or Section 10.1(i), and (y) within twelve months following such
termination by STC, Epitope enters into a definitive agreement with the party
that made such Acquisition Proposal. Epitope agrees to (i) pay STC a fee in
immediately available funds equal to $5,000,000, and (ii) to reimburse STC for
its reasonable Expenses (as defined in Section 10.3) up to a maximum amount of
$1,000,000, in the event this Agreement is terminated by Epitope pursuant to
Section 10.1(e), which payment and reimbursement shall be reduced by the amount
of all payments, and reimbursements made by Epitope pursuant to the first
sentence of this Section 10.2(b). The payment of the first $3,000,000 required
by clause (A) of the first sentence of this Section 10.2(b) shall be made not
later than the close of business on the second Business Day after STC has
terminated this Agreement pursuant to the provisions referred to in such
sentence. The combined payment and reimbursement of up to an additional
$3,000,000 required by clause (B) of the first sentence of this Section 10.2(b)
shall be made contemporaneously with entering into a definitive agreement with
the third party that made the Acquisition Proposal referred to in that
sentence. The termination of this Agreement, and the payment and reimbursement
required by the second sentence of this Section 10.2(b) shall be made
contemporaneously with a termination of this Agreement by Epitope.
(c) The remedy provided for in Section 10.2(b) shall be the exclusive remedy
at law or in equity that STC shall have in the event of a termination of this
Agreement (A) by STC pursuant to clauses (i), (iv), (v), (vi) or (vii) of
Section 10.1(d) or Section 10.1(i), or (B) by Epitope pursuant to Section
10.1(e).
(d) Epitope acknowledges that the agreements contained in this Section 10.2
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements STC would not have entered into this Agreement.
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Section 10.3. Fees and Expenses. Except as set forth in this Section 10.2(b),
all fees and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Mergers are consummated. As used in this Agreement, "Expenses"
includes all out-of-pocket expenses (including, without limitation, all fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Joint Proxy Statement/Prospectus and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated
hereby.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, in each case, if on a Business Day, and otherwise on the next Business
Day, (b) on the first service, or (c) on the fifth Business Day following the
date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
if to the Surviving Corporation, to the address set forth below for Epitope
and STC, including copies;
if to Epitope, to:
Epitope, Inc.
8505 SW Creekside Place
Beaverton, OR 97008
Attention: Robert Thompson, President
and Chief Executive Officer
with a copy to:
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, MO 64106
Attention: John A. Granda, Esq.
if to STC to:
STC Technologies, Inc.
1745 Eaton Avenue
Bethlehem, PA 18018
Attention: Mike Gausling, President
and Chief Executive Officer
with a copy to:
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Attention: Jeffrey P. Libson, Esq.
Section 11.2. Survival of Representations, Warranties and Covenants After the
Effective Time. The representations, warranties, covenants and other agreements
contained herein and in any certificate or other instrument delivered pursuant
hereto, including any rights arising out of any breach of such representations,
warranties, covenants and other agreements, shall not survive the Effective
Time.
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Section 11.3. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Epitope and STC or in the case of a
waiver, by the party against whom the waiver is to be effective; provided that
(i) after the Epitope Stockholder Approval, no such amendment or waiver shall,
without the further approval of such stockholders, be made that would require
such approval under any applicable law, rule or regulation and (ii) after the
STC Stockholder Approval, no such amendment or waiver shall, without the
further approval of such stockholders, be made that would require such approval
under any applicable law, rule or regulation.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.4. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
Section 11.5. Governing Law. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of Delaware without regard
to any principles of conflicts or choice of law.
Section 11.6. Counterparts; Effectiveness. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that both parties need not sign the same counterpart. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
Section 11.7. No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 8.13 (which is intended to be for the
benefit of the Persons covered thereby and may be enforced by such Persons).
Section 11.8. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 11.9. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms hereof,
this being in addition to any other remedy to which they are entitled at law or
in equity.
Section 11.10. Entire Agreement. This Agreement (together with the exhibits
and schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof.
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Section 11.11. Severability. If any term, provision, covenant or restriction
set forth in this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth in this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not deemed by a party (acting reasonably and in good
faith) to be materially adverse to that party. Upon such a determination, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in order that the
transactions contemplated hereby may be consummated as originally contemplated
to the fullest extent possible.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
Epitope, Inc.
/s/ Robert D. Thompson
By: _________________________________
Name: Robert D. Thompson
Title: President and Chief
Executive Officer
STC Technologies, Inc.
/s/ Michael J. Gausling
By: _________________________________
Name: Michael J. Gausling
Title: President and Chief
Executive Officer
Edward Merger Subsidiary, Inc.
/s/ Robert D. Thompson
By: _________________________________
Name: Robert D. Thompson
Title: Chief Executive Officer
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APPENDIX I
DEFINITIONS
"Acquisition Proposal for Epitope" means any offer or proposal for a merger,
consolidation, share, exchange, business combination, reorganization,
recapitalization, issuance of securities, acquisition of securities,
liquidation, dissolution, tender offer or exchange offer or other similar
transaction or series of transactions involving, or any purchase of 10% or more
of the assets, or directly or indirectly acquires beneficial ownership of
securities representing, or exchangeable for or convertible into, more than 10%
of the outstanding securities of any class of voting securities of, Epitope or
any Significant Subsidiary of Epitope or in which Epitope or any Significant
Subsidiary of Epitope issues securities representing 10% of the outstanding
securities of any class of voting securities of Epitope or any significant
subsidiary of Epitope, other than the transactions contemplated by this
Agreement.
"Acquisition Proposal for STC" means any offer or proposal for a merger,
consolidation, share exchange, business combination, reorganization,
recapitalization, issuance of securities, liquidation, dissolution, tender
offer or exchange offer or other similar transaction or series of transactions
involving, or any purchase of 10% or more of the assets, or directly or
indirectly acquires beneficial ownership of securities representing, or
exchangeable for or convertible into, more than 10% of the outstanding
securities of any class of voting securities of STC or in which STC issues
securities representing 10% of the outstanding securities of any class of
voting securities of STC, other than the transactions contemplated by this
Agreement.
"Action" means any action, suit, proceeding or investigation by or before any
Governmental Entity or arbitrator.
"Affiliate" means, with respect to any Person, any other Person, directly or
indirectly, controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including the
correlative terms "controlling", "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, or partnership or other ownership
interests, by contract, or otherwise.
"Articles of Merger" means the Articles of Merger of Epitope with and into
Merger Sub, in substantially the form attached hereto as Exhibit D.
"Average Epitope Stock Price" means the average of the closing sales price
per share of Epitope Common Stock as reported by NASDAQ on each of the 20
consecutive trading days immediately preceding the third trading day prior to
the Determination Date.
"Business Day" means any day other than a Saturday, Sunday or one on which
banks are authorized by law to close in the City of New York.
"Certificate of Merger" means either (i) the Certificate of Merger of STC
with and into Merger Sub, in substantially the form attached hereto as Exhibit
C, or (ii) the Certificate of Merger of Epitope with and into Merger Sub, in
substantially the form of Exhibit E, as the case may be.
"Certificates of Merger" includes both of such Certificates.
"Closing" means the closing of the Mergers contemplated in this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consequential Damages" means Damages arising out of any interruption of
business, loss of profits, loss of use of facilities, claims of customers, loss
of goodwill or any indirect, incidental or special Damages.
"Damages" means all losses, claims, damages, costs, fines, penalties,
obligations, payments and liabilities (including those arising out of any
Action), together with all reasonable costs and expenses (including reasonable
outside attorneys' fees and reasonable out-of-pocket expenses) incurred in
connection with any of the foregoing.
"Determination Date" means the date on which the last of the following
occurs: (i) the effective date (including the expiration of any applicable
waiting period by law) of the last required consent or order of any
Governmental Entity having authority over and approving or exempting the
Merger, and (ii) the date on which the stockholders of both Epitope and STC
have approved the Merger.
"Epitope Balance Sheet" means Epitope's consolidated balance sheet included
in the Epitope 10-K relating to its fiscal year ended on September 30, 1999.
"Epitope Common Stock" means the common stock of Epitope, no par value per
share, including the associated rights (the "Epitope Stock Purchase Rights") to
purchase shares of Series A Junior Participating Cumulative Preferred Stock of
Epitope (the "Epitope Series A Preferred Stock") pursuant to the Rights
Agreement, dated as of December 15, 1997, between Epitope and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, as proposed to be amended as
contemplated by Section 3.23 hereof (the "Epitope Rights Agreement"). All
references in this Agreement to Epitope Common Stock to be received pursuant to
the Merger shall be deemed to include the Epitope Stock Purchase Rights.
"Epitope Disclosure Schedule" means the schedule delivered to STC by Epitope
pursuant to Article III hereof containing exceptions to the representations and
warranties of Epitope set forth in such Article III.
"Epitope SEC Documents" means (i) Epitope's annual report on Form 10-K for
its fiscal year ended September 30, 1999 (the "Epitope 10-K"), (ii) Epitope's
quarterly report on Form 10-Q (the "Epitope 10-Q") for its fiscal quarter ended
December 31, 1999, (iii) Epitope's proxy or information statements relating to
meetings of, or actions taken without a meeting by, Epitope's stockholders held
since September 30, 1999, and (iv) all other reports, filings, registration
statements and other documents filed by it with the SEC since September 30,
1999.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Exchange Agent" means the agent to be agreed upon by Epitope and STC and
engaged by the Surviving Corporation to effect the exchange of the Certificates
pursuant to Section 2.3 of this Agreement.
"Governmental Entity" means any federal, state or local governmental
authority, any transgovernmental authority or any court, tribunal,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign.
"Joint Proxy Statement/Prospectus" means the joint proxy statement/prospectus
included in the Registration Statement relating to the Special Meetings,
together with any amendments or supplements thereto.
"Knowledge" means, with respect to the matter in question, if any of (i) in
the case of Epitope or Merger Sub, Robert Thompson, President and Chief
Executive Officer, Charles Bergeron, Vice President and Chief Financial
Officer, Andrew S. Goldstein, Senior Vice President, Richard George, Vice
President and Chief Science Officer, William D. Block, Vice President of
Marketing and Sales, and Rob Ngungu, Vice President of Regulatory Affairs and
Quality Assurance, and (ii) in the case of STC, Michael J. Gausling, President
and Chief Executive Officer, William M. Hinchey, Executive Vice President, R.
STC Niedbala, Executive Vice President, and Richard D. Hooper, Chief Financial
Officer, has actual knowledge of such matter.
AI-2
<PAGE>
"Law" means any federal, state, local, municipal, foreign, international,
multinational, or other judicial or administrative order, judgment, decree,
constitution, statute, rule, regulation, treaty, ordinance or principle of
common law.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect" means a material adverse effect on the financial
condition, business, results of operations or prospects of a Person and its
Subsidiaries, taken as a whole, but shall exclude any material adverse effect
arising out of any change or development relating to (i) U.S. or global
economic or industry conditions (including, without limitation, conditions
applicable generally to the oral specimen collection business), (ii) changes in
U.S. or global financial markets or conditions, and/or (iii) any generally
applicable change in Law or GAAP or interpretation of any thereof. "Epitope
Material Adverse Effect" means a Material Adverse Effect in respect of Epitope,
"STC Material Adverse Effect" means a Material Adverse Effect in respect of STC
and "Surviving Corporation Material Adverse Effect" means a Material Adverse
Effect in respect of the Surviving Corporation.
"Merger" or "Mergers" has the meaning specified in the Recitals to this
Agreement.
"Merger Consideration" means the total number of shares of Surviving
Corporation Common Stock issued pursuant to the STC Merger or the Epitope
Merger, as the case may be, issued pursuant to Article II, together with any
cash in lieu of fractional shares of Surviving Corporation Common Stock to be
paid pursuant to Section 2.1(d)(iv).
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including any Governmental Entity.
"Registration Statement" means the Registration Statement on Form S-4
registering under the Securities Act the Surviving Corporation Common Stock
issuable in connection with the Merger.
"STC Balance Sheet" means STC's audited balance sheet relating to its fiscal
year ended on December 31, 1999.
"STC Common Stock" means the common stock of STC, $0.000001 par value per
share, and all references in this Agreement to STC Common Stock shall be deemed
to include both the Class A Common Stock and the Class B Common Stock of STC.
"STC Common Stock Equivalent" means all rights and options to purchase or
acquire STC Common Stock.
"STC Disclosure Schedule" means the schedule delivered to Epitope by STC
pursuant to Article IV hereof containing exceptions to the representations and
warranties of STC set forth in such Article IV.
"STC Preferred Stock" means the Series A Convertible Preferred Stock of STC,
$0.000001 par value per share.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Significant Subsidiary" means any Subsidiary that constitutes a "significant
subsidiary" of such Person with the meaning of Rule 1-02 of Regulation S-X of
the Exchange Act.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions are directly or indirectly owned by such Person. "Epitope
Subsidiary" means a Subsidiary of Epitope.
AI-3
<PAGE>
"Surviving Corporation Common Stock" means the common stock of Merger Sub,
$0.000001 par value per share, including the associated rights (the "Surviving
Corporation Stock Purchase Rights") to purchase shares of Series A Preferred
Stock of the Surviving Corporation (the "Surviving Corporation Series A
Preferred Stock") pursuant to the Rights Agreement between the Surviving
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Surviving Corporation Rights Agreement"). All references in this Agreement to
Surviving Corporation Common Stock to be received pursuant to the Merger shall
be deemed to include the Surviving Corporation Stock Purchase Rights.
"Tax" or "Taxes" means any federal, state, county, local or foreign taxes,
charges, levies, imposts, duties, other assessments or similar charges of any
kind whatsoever, including any interest, penalties and addition imposed thereon
or with respect thereto.
In addition to the definitions set forth above, each of the following terms
is defined in the Section set forth opposite such term:
<TABLE>
<CAPTION>
TERMS Section
----- --------
<S> <C>
Adverse Change in the Epitope Recommendation 8.2(b)
Adverse Change in the STC Recommendation 8.2(b)
Certificates 2.3(a)
Confidentiality Agreement 6.2(a)
Confidential Material 8.9(a)
Delaware Law 2.1(a)
Delivering Company 8.9(a)
Effective Time 2.2(b)
Epitope Preamble
Epitope Designees 2.4(d)
Epitope Employee Plans 3.13(a)
Epitope Intellectual Property 3.16(b)
Epitope Preferred Stock 3.5
Epitope Representation Letter 8.7(c)
Epitope Returns 3.12
Epitope Securities 3.5(b)
Epitope Stockholder Approval 3.19(a)
Epitope Stockholders Agreement Recitals
Epitope Stockholders Meeting 3.19(b)
Epitope Stock Options 3.5(a)
Epitope Warrants 3.5(a)
ERISA 3.13(a)
ERISA Affiliate 3.13(a)
European Commission 9.1(d)
Exchange Ratio 2.1(e)
Expenses 10.3
Expiration Date 10.1(b)
GAAP Recitals
HSR Act 3.3
Mergers Recitals
Merger Consideration 2.1(e)
Multiemployer Plan 3.13(b)
Oregon Law 2.2(a)
Receiving Company 8.9(a)
Representatives 8.9(a)
STC Preamble
</TABLE>
AI-4
<PAGE>
<TABLE>
<S> <C>
STC Designees 2.4(d)
STC Financial Statements 4.7(a)
STC Insiders 8.12(c)
STC Intellectual Property 4.15(b)
STC Representation Letter 8.7(c)
STC Returns 4.11(a)
STC Securities 4.5(b)
STC Stockholder Approval 4.18(a)
STC Stockholders Agreement Recitals
STC Stockholders Meeting 4.18(b)
STC Stock Options 4.5(a)
STC Warrants 4.5(a)
Section 16 Information 8.12(b)
Stockholders Agreements Recitals
Superior Proposal 6.2(b)
Surviving Corporation 2.1(a)
368 Reorganization Recitals
</TABLE>
AI-5
<PAGE>
ANNEX B
[LETTERHEAD OF DEUTSCHE BANK SECURITIES INC.]
May 6, 2000
The Board of Directors
Epitope, Inc.
8505 SW Creekside Place
Beaverton, Oregon 97008-7108
Members of the Board:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Epitope, Inc. ("Epitope") in connection with the proposed
transaction involving Epitope and STC Technologies, Inc. ("STC") pursuant to an
Agreement and Plan of Merger, dated as of May 6, 2000 (the "Agreement"), by and
among Epitope, Edward Merger Subsidiary, Inc., a wholly owned subsidiary of
Epitope ("Sub"), and STC. As set forth more fully in the Agreement, (i) Epitope
will be merged with and into Sub (the "Epitope Merger") pursuant to which each
outstanding share of the common stock, no par value per share, of Epitope
("Epitope Common Stock") will be converted into one share of the common stock,
par value $0.000001 per share, of Sub ("Sub Common Stock") and (ii) STC will be
merged with and into Sub (the "STC Merger" and, together with the Epitope
Merger, the "Mergers") pursuant to which each outstanding share of the Class A
common stock, par value $0.000001 per share, and Class B common stock, par
value of $0.000001 per share, of STC (collectively, "STC Common Stock") will be
converted into the right to receive that number of shares of Sub Common Stock
determined as follows (the total number of shares of Sub Common Stock to be so
determined and issuable in the STC Merger, the "Exchange Ratio"): (A) if the
Average Epitope Stock Price (as defined in the Agreement) is greater than
$13.00, the quotient of (i) the quotient of (x) $260 million divided by (y) the
Average Epitope Stock Price, divided by (ii) the sum of the number of shares of
STC Common Stock outstanding immediately prior to the effective time of the STC
Merger and the number of shares of STC Common Stock underlying outstanding
rights and options to purchase or acquire STC Common Stock ("STC Common Stock
Equivalents"), (B) if the Average Epitope Stock Price is equal to or less than
$13.00, but equal to or more than $10.00, the quotient of 20 million shares
divided by the sum of the number of shares of STC Common Stock outstanding
immediately prior to the effective time of the STC Merger and the number of
shares of STC Common Stock underlying outstanding STC Common Stock Equivalents
or (C) if the Average Epitope Stock Price is less than $10.00, the quotient of
(i) the quotient of (x) $200 million divided by (y) the Average Epitope Stock
Price divided by (ii) the sum of the number of shares of STC Common Stock
outstanding immediately prior to the effective time of the STC Merger and the
number of shares of STC Common Stock underlying outstanding STC Common Stock
Equivalents; provided that the quotient in clause (C)(i), if in excess of 25
million, will be deemed to be 25 million.
You have requested Deutsche Bank's opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to Epitope.
In connection with Deutsche Bank's role as financial advisor to Epitope, and
in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning Epitope, certain financial
and other information concerning STC, and certain internal analyses and other
information furnished to or discussed with it by Epitope, STC and their
respective advisors. Deutsche Bank also has held discussions with members of
the senior managements of Epitope and STC regarding the business and prospects
of their respective companies and the joint prospects of a combined company. In
addition, Deutsche Bank has (i) reviewed the reported prices and trading
activity for Epitope Common Stock, (ii) compared certain financial and stock
market information for Epitope and STC with similar information for certain
other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the Agreement and
(v) performed such other studies and analyses and considered such other factors
as it deemed appropriate.
<PAGE>
Board of Directors
Epitope, Inc.
May 6, 2000
Page 2
Deutsche Bank has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning Epitope, STC or Sub, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, Deutsche Bank has assumed and relied upon the accuracy and
completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise), of Epitope or STC. With respect to the
financial forecasts and projections relating to Epitope and STC that were made
available to Deutsche Bank and used in its analyses, including forecasts of
certain synergies expected to be achieved as a result of the Mergers, Deutsche
Bank has been advised by the managements of Epitope and STC and has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Epitope and STC.
Deutsche Bank's opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to it as of, the
date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in all
respects material to its analysis, the representations and warranties of
Epitope, STC and Sub contained in the Agreement are true and correct, Epitope,
STC and Sub will each perform all of the covenants and agreements to be
performed by it under the Agreement and all conditions to the obligations of
each of Epitope, STC and Sub to consummate the Mergers will be satisfied
without any waiver thereof. Deutsche Bank also has assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the Mergers will be obtained and that in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Epitope or STC is a party or is subject
or by which it is bound, no limitations, restrictions or conditions will be
imposed or amendments, modifications or waivers made that would have a material
adverse effect on Epitope, STC or Sub or materially reduce the contemplated
benefits of the Mergers to Epitope. In addition, representatives of Epitope
have informed Deutsche Bank, and accordingly for purposes of rendering its
opinion Deutsche Bank has assumed, that the Mergers are expected to qualify as
tax-free reorganizations for federal income tax purposes and be accounted for
as poolings of interests. Deutsche Bank is expressing no opinion as to the
price at which Sub Common Stock will trade at any time.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Epitope and is not a recommendation to any stockholder as to how
such stockholder should vote with respect to matters relating to the proposed
Mergers. This opinion is limited to the fairness, from a financial point of
view, of the Exchange Ratio to Epitope. Deutsche Bank expresses no opinion as
to the merits of the underlying decision by Epitope to engage in the Mergers.
Deutsche Bank, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to Epitope in connection with the Mergers and will receive a fee for
our services, a significant portion of which is contingent upon the
consummation of the Mergers and a portion of which is payable upon delivery of
this opinion. In the ordinary course of business, Deutsche Bank and its
affiliates also may actively trade or hold the securities and other instruments
and obligations of Epitope for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities, instruments or obligations.
B-2
<PAGE>
Board of Directors
Epitope, Inc.
May 6, 2000
Page 3
Based upon and subject to the foregoing, it is Deutsche Bank's opinion that,
as of the date of this letter, the Exchange Ratio is fair, from a financial
point of view, to Epitope.
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
B-3
<PAGE>
ANNEX C
May 9, 2000
Board of Directors
STC Technologies, Inc.
1745 Eaton Avenue
Bethlehem, PA 18018-1799
Members of the Board:
We understand that STC Technologies, Inc. ("STC"), Epitope, Inc. ("Epitope"),
and Edward Merger Subsidiary, Inc. (a wholly owned subsidiary of Epitope,
"Merger Sub") have entered into an Agreement and Plan of Merger (the
"Agreement"), dated May 6, 2000, which provides, among other things, for (i)
the merger (the "STC Merger") of STC with and into Merger Sub and (ii) the
merger (the "Epitope Merger", and together with the STC Merger, the "Merger")
of Epitope with and into Merger Sub. Upon consummation of the Merger, Merger
Sub will continue as the surviving corporation (the "Surviving Corporation").
All capitalized terms not defined herein shall have the meanings set forth in
the Agreement.
Under the terms, and subject to the conditions, set forth in the Agreement,
at the effective time of the Merger, the outstanding shares of common stock of
STC, par value $0.000001 per share ("STC Common Stock") other than certain
shares to be canceled pursuant to the Agreement and shares held by stockholders
who properly exercise dissenters' rights ("Dissenting Shares"), will be
converted into the right to receive shares of the common stock of Surviving
Corporation, par value $0.000001 per share ("Surviving Corporation Common
Stock") determined by the exchange ratio (the "Exchange Ratio") as follows: (i)
if the Average Epitope Stock Price is greater than $13.00, the Exchange Ratio
shall be the quotient of (a) the quotient of (x) $260 million divided by (y)
the Average Epitope Stock Price, divided by (b) the sum of the number of shares
of STC Common Stock outstanding immediately prior to the effective time of the
Merger and the number of shares of STC Common Stock underlying STC Common Stock
Equivalents; or (ii) if the Average Epitope Stock Price is equal to or less
than $13.00, but equal to or more than $10.00, the Exchange Ratio shall be the
quotient of 20 million shares divided by the sum of the number of shares of STC
Common Stock outstanding immediately prior to the effective time of the Merger
and the number of shares of STC Common Stock underlying STC Common Stock
Equivalents; or (iii) if the Average Epitope Stock Price is less than $10.00,
the Exchange Ratio shall be the quotient of (a) the quotient of (x) $200
million divided by (y) the Average Epitope Stock Price, divided by (b) the sum
of the number of shares of STC Common Stock outstanding immediately prior to
the effective time of the Merger and the number of shares of STC Common Stock
underlying STC Common Stock Equivalents; provided, however, that in the event
that the quotient in clause (a) of this subsection (iii) exceeds 25 million
shares, such quotient shall be deemed to be 25 million shares for the purposes
of completing the calculation set forth in this subsection (iii) and; provided
further, that in the event that the Average Epitope Stock Price is less than
$6.00, STC shall have the right to terminate the Agreement.
The terms and conditions of the Merger are set out more fully in the
Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view and as of the date hereof to STC and the "Holders of
STC Common Stock." The "Holders of STC Common Stock" shall be defined as all
holders of STC Common Stock other than Epitope, Merger Sub, any affiliates of
Epitope or Merger Sub, holders of Dissenting Shares or any holders of STC
Common Stock who are officers or directors (or who have representatives serving
as directors) of STC.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of Epitope;
<PAGE>
Board of Directors
STC Technologies, Inc.
May 9, 2000
Page 2
(ii) reviewed certain internal financial statements and other financial
and operating data, including certain financial forecasts and other forward
looking information, concerning (a) STC prepared by the management of STC
and (b) Epitope prepared by the management of Epitope;
(iii) reviewed certain publicly available estimates of research analysts
relating to Epitope;
(iv) held discussions with the respective managements of STC and Epitope
concerning the businesses, past and current operations, financial condition
and future prospects of both STC and Epitope, independently and combined,
including discussions with the managements of STC and Epitope concerning
cost savings and other synergies that are expected to result from the
Merger as well as their views regarding the strategic rationale for the
Merger;
(v) reviewed the financial terms and conditions set forth in the
Agreement;
(vi) reviewed the stock price and trading history of Epitope Common
Stock;
(vii) compared the financial performance of Epitope and the prices and
trading activity of Epitope Common Stock with that of certain other
publicly traded companies comparable with Epitope;
(viii) compared the financial performance of STC with that of certain
publicly traded companies comparable to STC;
(ix) reviewed the pro forma impact of the Merger on Epitope's earnings
per share;
(x) prepared an analysis of the relative contributions of STC and Epitope
to the combined company;
(xi) prepared a discounted cash flow analysis of STC and Epitope;
(xii) participated in discussions and negotiations among representatives
of STC and Epitope and their financial and legal advisors; and
(xiii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by managements of STC and Epitope) or publicly
available and have neither attempted to verify, nor assumed responsibility for
verifying, any of such information. We have relied upon the assurances of the
managements of STC and Epitope that they are not aware of any facts that would
make such information inaccurate or misleading. Furthermore, we did not obtain
or make, or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of STC or Epitope, nor were we furnished with any such evaluation or
appraisal. With respect to the financial forecasts and projections (and the
assumptions and bases therefor) for each of STC and Epitope that we have
reviewed, we have assumed that such forecasts and projections have been
reasonably prepared in good faith on the basis of reasonable assumptions and
reflect the best currently available estimates and judgments as to the future
financial condition and performance of STC and Epitope, respectively, and we
have further assumed that such projections and forecasts will be realized in
the amounts and in the time periods currently estimated. We have assumed that
the Merger will be consummated upon the terms set forth in the Agreement
without material alteration thereof, including, among other things, that the
Merger will be accounted for as a "pooling-of-interests" business combination
in accordance with U.S. generally accepted accounting principles ("GAAP") and
that the Merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended. In addition, we have assumed that
the historical financial statements of each of STC and Epitope reviewed by us
have been prepared and fairly presented in accordance with U.S. GAAP
consistently applied. We have relied as to certain legal matters relevant to
rendering our opinion on the advice of counsel to STC.
C-2
<PAGE>
Board of Directors
STC Technologies, Inc.
May 9, 2000
Page 3
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to STC and the Holders of STC Common Stock of the Exchange Ratio. We do
not express any opinion as to (i) the value of any employee agreement or other
arrangement entered into in connection with the Merger, (ii) any tax or other
consequences that might result from the Merger or (iii) what the value of
Surviving Corporation Common Stock will be when issued to STC's stockholders
pursuant to the Merger or the price at which the shares of Surviving
Corporation Common Stock that are issued pursuant to the Merger may be traded
in the future. Our opinion does not address the relative merits of the Merger
and the other business strategies that STC's Board of Directors has considered
or may be considering, nor does it address the decision of STC's Board of
Directors to proceed with the Merger.
In connection with the preparation of our opinion, we were not authorized to
solicit, and did not solicit, third-parties regarding alternatives to the
Merger.
We are acting as financial advisor to STC in connection with the Merger and
will receive (i) a fee contingent upon the delivery of this opinion and (ii) an
additional fee contingent upon the consummation of the Merger. In addition, STC
has agreed to indemnify us for certain liabilities that may arise out of our
engagement. In the ordinary course of business, we may trade in Epitope's or
Surviving Corporation's securities for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in
Epitope's securities or Surviving Corporation's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of STC in connection with its evaluation of the Merger. Our opinion
is not intended to be and does not constitute a recommendation to any
stockholder of STC or Epitope as to how such stockholder should vote, or take
any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to STC and the Holders
of STC Common Stock from a financial point of view.
Very truly yours,
FLEETBoston Robertson Stephens Inc.
/s/ FLEETBoston Robertson Stephens
Inc.
-------------------------------------
C-3
<PAGE>
ANNEX D
Delaware General Corporation Law
(S) 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
D-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
D-3
<PAGE>
the Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by the person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, the person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because the person has met the applicable
standard of conduct set forth in subsections (a) and (b) of Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a, or (3) if there are
no such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
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<PAGE>
Section 145(e) of the DGCL provides that expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that the
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in the person's official capacity and as to action in another
capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against the person and incurred by the person in
any such capacity, or arising out of the person's status as such, whether or
not the corporation would have the power to indemnify the person against such
liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement of
expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Certificate of Incorporation and Bylaws, and Indemnification Agreements
The Certificate of Incorporation limits the liability of directors of the
Registrant to the Registrant or its stockholders to the fullest extent
permitted by Delaware law. Specifically, directors of the Registrant will not
be personally liable to the Registrant or its stockholders for monetary damages
for breach of a director's fiduciary duty as a director, except for liability
for breach of the duty of loyalty, for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or for any transaction in which a director has
derived an improper personal benefit.
The Registrant's Bylaws require the Registrant to indemnify any person who is
a party or is threatened to be made a party to any action, suit or proceeding
by reason of the fact that such person is or was a director, officer, employee
or agent of the Registrant, or is serving as a director, officer, employee or
agent of another enterprise at the Registrant's request. Indemnification is
not, however, permitted under the Bylaws unless the person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
Registrant's best interests and, with respect to any criminal action or
proceeding, that such person had no reasonable cause to believe such person's
conduct was unlawful. The Registrant's Bylaws further provide that the
Registrant shall not indemnify any person for any liabilities or expenses
incurred by such person in connection with an action, suit or proceeding by or
in the right of the Registrant in respect of any claim, issue
II-2
<PAGE>
or matter as to which such person shall have been adjudged to be liable to the
Registrant, unless and only to the extent that the court in which the action,
suit or proceeding is brought determines that the person is entitled to
indemnity for such expenses. The indemnification provided by the Bylaws is not
exclusive of any other rights to which those seeking indemnification may be
otherwise entitled.
The Registrant has entered into indemnification agreements (the "Agreements")
with each of the Registrant's directors and officers. The Agreements provide
that the Registrant will indemnify the directors and officers against all
liabilities and expenses actually and reasonably incurred in connection with
any action, suit or proceeding (including an action by or in the right of the
Registrant) to which any of them is, was or at any time becomes a party, or is
threatened to be made a party, by reason of their status as a director or
officer of the Registrant, or by reason of their serving or having served at
the request or on behalf of the Registrant as a director, officer, trustee or
in any other comparable position of any other enterprise to the fullest extent
allowed by law. No indemnity is provided under the Agreements for any amounts
for which indemnity is provided by any other indemnification obligation or
insurance maintained by the Registrant or another enterprise or otherwise. Nor
is indemnity provided to any director or officer on account of conduct which is
finally adjudged by a court to have been knowingly fraudulent, deliberately
dishonest or a knowing violation of law. In addition, no indemnification is
provided if a final court adjudication shall determine that such
indemnification is not lawful, or in respect to any suit in which judgment is
rendered against any director or officer for an accounting of profits made from
a purchase or sale of securities of the Registrant in violation of Section
16(b) of the Securities Exchange Act of 1934 or of any similar law, or on
account of any remuneration paid to any director or officer which is
adjudicated to have been paid in violation of law.
Insurance
The Registrant intends to maintain liability insurance for the benefit of its
directors and officers.
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 6, 2000, by and
among Epitope, Inc., the Registrant and STC Technologies, Inc.
("Merger Agreement"), including the Epitope Stockholders Agreement
and the STC Stockholders Agreement attached as Exhibits A and B
thereto and the other exhibits attached thereto (filed as Exhibit
2 to the Current Report on Form 8-K of Epitope, Inc. dated May 9,
2000 and incorporated by reference herein)*
3.1 Certificate of Incorporation of the Registrant*
3.1.1 Certificate of Amendment to Certificate of Incorporation dated May
23, 2000*
3.1.2 Certificate of Designation of Series A Preferred Stock of
Registrant (filed as Exhibit A to the Rights Agreement, Exhibit
4.2)
3.2 Bylaws of the Registrant*
4.1 Specimen certificate representing shares of the Registrant's
$.00001 par value common stock
4.2 Rights Agreement dated as of May 6, 2000 between the Registrant
and ChaseMellon Shareholder Service, L.L.C., as Rights Agent
4.3 Stockholders Agreement among STC Technologies, Inc., Health Care
Ventures V, L.P., RHO Management Trust II, Hudson Trust and
Pennsylvania Early Stage Partners, L.P., dated March 30, 1999 (to
be filed by amendment)
4.4 Amendment to Stockholders Agreement filed as Exhibit 4.3 dated
, 2000 (to be filed by amendment)
5.1 Opinion of Stinson, Mag & Fizzell, P.C
8.1 Opinion of Stinson, Mag & Fizzell, P.C.
8.2 Opinion of Pepper Hamilton LLP
10.1 Form of Indemnification Agreement (and list of parties to such
agreement)
10.2 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and Robert D. Thompson
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10.3 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and Michael J. Gausling
10.4 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and William Hinchey
10.5 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and Dr. R. Sam Niedbala
10.6 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and William D. Block
10.7 Form of Employment Agreement dated as of the closing date for the
mergers between the Registrant and J. Richard George
10.8+ Production Agreement with Koninklinjke Utermohlen, N.V. dated June
9, 1998
10.9+ Research and License Agreement with SRI International and David
Sarnoff Research Center dated April 26, 1995
10.10+ First Amendment to Research and License Agreement dated September
1, 1995
10.11 Commercial Lease between Northampton County New Jobs Corp. as
Landlord and STC Technologies, Inc. as Tenant dated April 30, 1999
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Stinson, Mag & Fizzell, P.C. (included in Exhibits 5.1
and 8.1)
23.4 Consent of Pepper Hamilton LLP (included in Exhibit 8.2)
24.1 Powers of Attorney (included on signature page to this
registration statement)
99.1 Consent of Deutsche Bank Securities Inc.*
99.2 Consent of FleetBoston Robertson Stephens Inc.
99.3 Form of Proxy of Epitope, Inc.*
99.4 Form of Proxy of STC Technologies, Inc.*
</TABLE>
--------
*Previously filed
+Portions of this exhibit were omitted and filed separately with the
Securities and Exchange Commission pursuant to an application for
confidential treatment.
(b) Financial statement schedules have been omitted because they either are
not required or are not applicable or because equivalent information has been
included in the financial statements, the notes thereto or elsewhere herein.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
II-4
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That, every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 (section 230.415 of this chapter), will be
filed as part of an amendment of the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with 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 of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 August 8, 2000.
Orasure Technologies, Inc.
/s/ Robert D. Thompson
By: _________________________________
Robert D. Thompson,
President
Know all men by these presents, that we, the undersigned directors of OraSure
Technologies, Inc., hereby severally constitute Robert D. Thompson and Charles
E. Bergeron, and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the registration statement filed herewith and any
and all amendments to said registration statement, and generally to do all such
things in our names and in our capacities as directors to enable OraSure
Technologies, Inc. to comply with the provisions of the Securities Act of 1933,
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signature as they may be signed by our said
attorneys, or any of them, to said registration statement and any and all
amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert D. Thompson President, Chief Executive August 8, 2000
____________________________________ Officer and Director
Robert D. Thompson (Principal Executive
Attorney-in-fact Officer)
* Vice President and Chief August 8, 2000
____________________________________ Financial Officer
Charles E. Bergeron (Principal Financial
Officer and Principal
Accounting Officer)
* Director August 8, 2000
____________________________________
W. Charles Armstrong
* Director August 8, 2000
____________________________________
Andrew S. Goldstein
* Director August 8, 2000
________________________________
Frank G. Hausmann
* Director August 8, 2000
____________________________________
Margaret H. Jordan
* Director August 8, 2000
____________________________________
Michael J. Paxton
* Director August 8, 2000
____________________________________
Roger L. Pringle
* Director August 8, 2000
____________________________________
G. Patrick Sheaffer
* Director August 8, 2000
____________________________________
Robert J. Zollars
</TABLE>
--------
* Signed by Robert D. Thompson, Attorney-in-fact
II-6
