SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - - - -
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended June 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _ _ _ _ _ to _ _ _ _ _
Commission File Number 1-10492
EPITOPE, INC.
(Exact name of Registrant as specified in its charter)
OREGON 93-0779127
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8505 SW Creekside Place
Beaverton, Oregon 97008-7108
(Address of principal executive offices) (Zip code)
(503) 641-6115
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, no par value, outstanding as of June 30,
1997: 13,231,410
<PAGE>
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EPITOPE MEDICAL PRODUCTS
Condensed Combined Balance Sheets
at September 30, 1996 and June 30, 1997............................ 3
Condensed Combined Statements of Operations
for the three and nine months ended June 30, 1997 and 1996 ........ 4
Condensed Combined Statements of Changes in Group Equity
for the nine months ended June 30, 1997............................ 5
Condensed Combined Statements of Cash Flows
for the nine months ended June 30, 1997 and 1996................... 6
AGRITOPE
Condensed Combined Balance Sheets
at September 30, 1996 and June 30, 1997............................ 7
Condensed Combined Statements of Operations
for the three and nine months ended June 30, 1997 and 1996......... 8
Condensed Combined Statements of Changes in Group Equity
for the nine months ended June 30, 1997............................ 9
Condensed Combined Statements of Cash Flows
for the nine months ended June 30, 1997 and 1996..................10
EPITOPE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at September 30, 1996 and June 30, 1997............................11
Condensed Consolidated Statements of Operations
for the three and nine months ended June 30, 1997 and 1996.........12
Condensed Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended June 30, 1997............................13
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1997 and 1996..................14
Notes to Condensed Financial Statements................................15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .............................................18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................25
2
<PAGE>
EPITOPE MEDICAL PRODUCTS
CONDENSED COMBINED BALANCE SHEETS
6/30/97 9/30/96
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents (Note 2) ............. $ 1,826,660 $ 795,787
Marketable securities (Note 2) ................. 7,141,353 18,818,120
Trade accounts receivable, net ................. 1,407,191 1,147,599
Other receivables .............................. 209,474 174,083
Inventories (Note 2) ........................... 1,352,720 1,157,930
Prepaid expenses ............................... 224,648 89,518
------------ ------------
12,162,046 22,183,037
Property and equipment, net .................... 1,336,640 1,542,757
Patents and proprietary technology, net ........ 660,348 601,234
Other assets and deposits ...................... 7,256 22,758
------------ ------------
$ 14,166,290 $ 24,349,786
LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable ............................... $ 287,174 $ 449,170
Salaries, benefits and other accrued liabilities 1,761,407 1,368,166
------------ ------------
2,048,581 1,817,336
Commitments and contingencies .................. - -
Group equity (Note 2)
Contributed capital ............................ 56,223,280 64,237,350
Accumulated deficit ............................ (44,105,571) (41,704,900)
------------ ------------
12,117,709 22,532,450
$ 14,166,290 $ 24,349,786
3
<PAGE>
EPITOPE MEDICAL PRODUCTS
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
<S> <C> <C> <C> <C>
6/30/97 6/30/96 6/30/97 6/30/96
Revenues
Product sales ................................... $ 2,500,010 $ 1,065,916 $ 7,011,369 $ 2,953,612
Grants and contracts ............................ 383,652 41,347 848,991 585,429
----------- ----------- ---------- -----------
2,883,662 1,107,263 7,860,360 3,539,041
Costs and expenses
Product costs ................................... 970,078 623,966 2,771,933 1,792,520
Research and development costs................... 1,466,028 750,692 3,333,058 2,208,826
Selling, general and administrative expenses..... 1,568,459 1,132,657 4,724,804 3,835,794
----------- ----------- ---------- -----------
4,004,565 2,507,315 10,829,795 7,837,140
Loss from operations ............................ (1,120,903) (1,400,052) (2,969,435) (4,298,099)
Other income (expense), net
Interest income.................................. 129,679 341,990 551,964 785,653
Other, net....................................... 312 5,003,334 16,800 5,002,327
----------- ----------- ---------- -----------
129,991 5,345,324 568,764 5,787,980
Net income (loss)................................ $ (990,912) $ 3,945,272 $ (2,400,671) $ 1,489,881
</TABLE>
4
<PAGE>
EPITOPE MEDICAL PRODUCTS
CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1996 ...................... $ 64,237,350 $ (41,704,900) $ 22,532,450
Common stock issued upon
exercise of options .............................. 48,008 - 48,008
Common stock issued as
compensation 272,091 - 272,091
Compensation expense for
stock option grants .............................. 319,862 - 319,862
Net assets transferred to Agritope .................. (8,654,031) (8,654,031)
Net loss for the period ............................. - (2,400,671) (2,400,671)
------------- ------------- ------------
Balances at June 30, 1997 ........................... $ 56,223,280 $ (44,105,571) $ 12,117,709
</TABLE>
5
<PAGE>
EPITOPE MEDICAL PRODUCTS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
<S> <C> <C>
6/30/97 6/30/96
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................................... $ (2,400,671) $ 1,489,881
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ......................................... 547,570 648,504
Increase in accounts receivable and other receivables ................. (294,983) (321,214)
(Increase) decrease in inventories .................................... (194,790) 175,853
Increase in prepaid expenses .......................................... (135,130) (138,729)
Increase (decrease) in accounts payable and accrued liabilities ....... 231,245 (1,935,206)
Common stock issued as compensation for services....................... 272,091 69,216
Compensation expense for stock option grants and
deferred salary increases........................................... 319,862 651,147
Other, net ............................................................ 13,704 2,164
------------ ------------
Net cash provided by (used in) operating activities.................... (1,641,102) 641,616
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities ................................... (15,298,316) (35,078,490)
Proceeds from sale of marketable securities ........................... 26,977,551 34,837,414
Additions to property and equipment ................................... (187,053) (84,960)
Expenditures for patents and proprietary technology ................... (214,184) (333,594)
Return of investment in affiliated companies........................... - 142,510
------------ ------------
Net cash provided by (used in) investing activities.................... 11,277,998 (517,120)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................ 48,008 5,252,455
Cash advances to Agritope ............................................. (8,654,031) (2,527,809)
------------- -------------
Net cash provided by (used in) financing activities.................... (8,606,023) 2,724,646
Net increase in cash and cash equivalents ............................. 1,030,873 2,849,142
Cash and cash equivalents at beginning of period ...................... 795,787 13,210
------------ ------------
Cash and cash equivalents at end of period............................. $ 1,826,660 $ 2,862,352
</TABLE>
6
<PAGE>
AGRITOPE
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/97 9/30/96
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 2) .................... $ 453,389 $ 4,903,476
Marketable securities (Note 2) ........................ 1,785,338 --
Trade accounts receivable, net ........................ 185,447 264,986
Other receivables ..................................... 2,817 32,337
Inventories (Note 2) .................................. 1,987,506 509,745
Prepaid expenses ...................................... 23,913 812
------------ ------------
4,438,410 5,711,356
Property and equipment, net ........................... 2,443,498 1,286,196
Patents and proprietary technology, net ............... 1,293,369 510,244
Investment in affiliated companies (Note 3) ........... 1,306,680 2,448,623
Other assets and deposits ............................. 29,950 140,513
------------ ------------
$ 9,511,907 $ 10,096,932
LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable ...................................... $ 237,079 $ 91,474
Current portion of long-term debt ..................... 4,186 --
Convertible notes (Note 4) ............................ -- 3,620,003
Salaries, benefits and other accrued liabilities ...... 1,780,884 735,478
------------ ------------
2,022,149 4,446,955
Long-term debt, less current portion .................. 15,682 --
Minority interest in consolidated subsidiaries (Note 5) 769,799 215,407
Commitments and contingencies (Note 6) ................ -- --
Group equity (Note 2)
Contributed capital ................................... 52,448,435 36,714,932
Accumulated deficit ................................... (45,744,158) (31,280,362)
------------ ------------
6,704,277 5,434,570
$ 9,511,907 $ 10,096,932
</TABLE>
7
<PAGE>
AGRITOPE
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
<S> <C> <C> <C> <C>
6/30/97 6/30/96 6/30/97 6/30/96
Revenues
Product sales ................................... $ 402,605 $ - $ 566,239 $ -
Grants and contracts ............................ 13,185 164,763 101,507 514,030
------------ ------------- ------------ -------------
415,790 164,763 667,746 514,030
Costs and expenses
Product costs ................................... 436,197 - 548,343 -
Research and development costs .................. 465,436 327,834 1,250,390 990,673
Selling, general and administrative expenses..... 850,893 362,075 2,264,043 1,064,398
------------ ------------- ------------ -------------
1,752,526 689,909 4,062,776 2,055,071
Loss from operations ............................ (1,336,736) (525,146) (3,395,030) (1,541,041)
Other income (expense), net
Interest income.................................. 43,227 139,685 197,804 273,313
Interest expense................................. (1,139) (60,262) (25,010) (192,103)
Valuation loss (Note 3).......................... - - (1,900,000) -
Cost of debt conversion (Note 4)................. - - (1,216,654) -
Other, net....................................... (28,011) - 81,594 -
------------- ------------- ------------ -----------
14,077 79,423 (2,862,266) 81,210
Loss from continuing operations ................. (1,322,659) (445,723) (6,257,296) (1,459,831)
Discontinued operations
Income from discontinued operations (Note 6) .... - - 170,646 -
Estimated loss on disposal (Note 6).............. - - (8,377,146) -
-------------- ------------- ------------ -----------
- - (8,206,500) -
Net loss......................................... $ (1,322,659) $ (445,723) $(14,463,796) $ (1,459,831)
</TABLE>
8
<PAGE>
AGRITOPE
CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL
<S> <C> <C> <C>
Balances at September 30, 1996 .............. $ 36,714,932 $(31,280,362) $ 5,434,570
Common stock issued upon
exercise of options ...................... 29,576 -- 29,576
Common stock issued as
compensation ............................. 23,437 -- 23,437
Compensation expense for
stock option grants ...................... 20,832 -- 20,832
Common stock issued upon exchange of
convertible notes ........................ 4,442,875 -- 4,442,875
Common stock issued upon acquisition (Note 6) 1,820,000 -- 1,820,000
Minority interest investment
in subsidiary (Note 5) ................... 742,752 -- 742,752
Net assets transferred from
Epitope Medical Products ................. 8,654,031 -- 8,654,031
Net loss for the period ..................... -- (14,463,796) (14,463,796)
------------ ------------ ------------
Balances at June 30, 1997 ................... $ 52,448,435 $(45,744,158) $ 6,704,277
</TABLE>
9
<PAGE>
AGRITOPE
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
<S> <C> <C>
6/30/97 6/30/96
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .............................................................. $ (14,463,796) $ (1,459,831)
Adjustments to reconcile net loss
to net cash used in operating activities:
Income from discontinued operations (Note 6)........................... (170,646) -
Non-cash portion of estimated loss on disposal (Note 6)................ 7,767,653 -
Depreciation and amortization ......................................... 383,302 188,885
(Increase) decrease in accounts receivable and other receivables ...... 109,059 (82,338)
Increase in inventories ............................................... (1,477,761) -
(Increase) decrease in prepaid expenses ............................... (23,101) 55,284
Increase (decrease) in accounts payable and accrued liabilities ....... 323,253 (203,821)
Common stock issued as compensation for services....................... 23,437 4,029
Compensation expense for stock option grants........................... 20,832 171,873
Minority interest in subsidiary operating results...................... (208,310) -
Valuation loss......................................................... 1,900,000 -
Non-cash portion of cost of debt conversion............................ 1,149,054 -
Other, net............................................................. (9,046) 4,972
------------ ------------
Net cash used in operating activities.................................. (4,676,070) (1,320,947)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities.................................... (1,785,338) -
Additions to property and equipment ................................... (1,471,276) (40,114)
Expenditures for patents and proprietary technology ................... (853,718) (459)
Investment in affiliated companies .................................... - (327,550)
Investment in discontinued operations (Note 6)......................... (5,767,160) -
------------ ------------
Net cash used in investing activities.................................. (9,877,492) (368,123)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. 20,887 -
Principal payments on long-term debt................................... (241,019) (39,507)
Proceeds from issuance of stock........................................ 29,576 -
Minority interest investment in subsidiary (Note 5).................... 1,640,000 -
Cash advanced from Epitope Medical Products ........................... 8,654,031 2,527,809
------------ ------------
Net cash provided by financing activities.............................. 10,103,475 2,488,302
Net increase (decrease) in cash and cash equivalents .................. (4,450,087) 799,232
Cash and cash equivalents at beginning of period ...................... 4,903,476 4,246,687
------------ ------------
Cash and cash equivalents at end of period............................. $ 453,389 $ 5,045,919
</TABLE>
10
<PAGE>
EPITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/97 9/30/96
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 2) ................................... $ 2,280,049 $ 5,699,263
Marketable securities (Note 2) ....................................... 8,926,691 18,818,120
Trade accounts receivable, net ....................................... 1,592,638 1,412,585
Other receivables .................................................... 212,291 206,420
Inventories (Note 2) ................................................. 3,340,226 1,667,675
Prepaid expenses ..................................................... 248,561 90,330
------------ ------------
16,600,456 27,894,393
Property and equipment, net .......................................... 3,780,138 2,828,953
Patents and proprietary technology, net .............................. 1,953,717 1,111,478
Investment in affiliated companies (Note 3) .......................... 1,306,680 2,448,623
Other assets and deposits ............................................ 37,206 163,271
------------ ------------
$ 23,678,197 $ 34,446,718
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ..................................................... $ 524,253 $ 540,644
Current portion of long-term debt .................................... 4,186 -
Convertible notes due June 30, 1997 (Note 4) ......................... - 3,620,003
Salaries, benefits and other accrued liabilities ..................... 3,542,291 2,103,644
------------ ------------
4,070,730 6,264,291
Long-term debt, less current portion ................................. 15,682 -
Minority interest in consolidated subsidiaries (Note 5) .............. 769,799 215,407
Commitments and contingencies (Note 6) ............................... - -
Shareholders' equity (Note 2)
Preferred stock, no par value - 1,000,000 shares authorized
no shares issued or outstanding ................................... - -
Common stock, no par value - 30,000,000 shares authorized
13,231,410 and 12,937,383 shares issued and outstanding,
respectively ...................................................... 108,671,715 100,952,282
Accumulated deficit .................................................. (89,849,729) (72,985,262)
------------ ------------
18,821,986 27,967,020
$ 23,678,197 $ 34,446,718
</TABLE>
11
<PAGE>
EPITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
<S> <C> <C> <C> <C>
6/30/97 6/30/96 6/30/97 6/30/96
Revenues
Product sales ................................... $ 2,902,615 $ 1,065,916 $ 7,577,608 $ 2,953,612
Grants and contracts ............................ 396,837 206,110 950,498 1,099,459
------------ ------------- ------------ -------------
3,299,452 1,272,026 8,528,106 4,053,071
Costs and expenses
Product costs ................................... 1,406,275 623,966 3,320,276 1,792,520
Research and development costs................... 1,931,464 1,078,526 4,583,448 3,199,499
Selling, general and administrative expenses..... 2,419,352 1,494,732 6,988,847 4,900,192
------------- ------------- ------------ -------------
5,757,091 3,197,224 14,892,571 9,892,211
Loss from operations ............................ (2,457,639) (1,925,198) (6,364,465) (5,839,140)
Other income (expense), net
Interest income.................................. 172,906 481,675 749,768 1,058,966
Interest expense................................. (1,139) (60,262) (25,010) (192,103)
Valuation loss (Note 3).......................... - - (1,900,000) -
Cost of debt conversion (Note 4)................. - - (1,216,654) -
Other, net....................................... (27,699) 5,003,334 98,394 5,002,327
------------- ------------- ------------ -------------
144,068 5,424,747 (2,293,502) 5,869,190
Net income (loss) from continuing operations..... (2,313,571) 3,499,549 (8,657,967) 30,050
Discontinued operations
Income from discontinued operations (Note 6)..... - - 170,646 -
Estimated loss on disposal (Note 6).............. - - (8,377,146) -
------------- ------------- ------------ -------------
- - (8,206,500) -
Net income (loss)................................ $ (2,313,571) $ 3,499,549 $ (16,864,467) $ 30,050
Income (loss) per share from continuing
operations....................................... $ (.17) $ .25 $ (.64) $ -
Net income (loss) per share...................... (.17) .25 (1.25) -
Weighted average number of shares
outstanding................................... 13,522,733 13,840,132 13,460,191 13,413,493
</TABLE>
12
<PAGE>
EPITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES DOLLARS DEFICIT TOTAL
<S> <C> <C> <C> <C>
Balances at September 30, 1996................... 12,937,383 $ 100,952,282 $ (72,985,262) $ 27,967,020
Common stock issued upon
exercise of options........................... 6,096 77,584 - 77,584
Common stock issued as
compensation.................................. 37,564 295,528 - 295,528
Compensation expense for
stock option grants........................... - 340,694 - 340,694
Common stock issued upon exchange of
convertible notes............................. 250,367 4,442,875 - 4,442,875
Common stock issued upon acquisition (Note 6).... - 1,820,000 - 1,820,000
Minority interest investment in
subsidiary (Note 5)........................... - 742,752 - 742,752
Net loss for the period ......................... - - (16,864,467) (16,864,467)
------------ ------------- ------------- --------------
Balances at June 30, 1997 ....................... 13,231,410 $ 108,671,715 $ (89,849,729) $ 18,821,986
</TABLE>
13
<PAGE>
EPITOPE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
<S> <C> <C>
6/30/97 6/30/96
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................................... $ (16,864,467) $ 30,050
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Income from discontinued operations (Note 6)........................... (170,646) -
Non-cash portion of estimated loss on disposal (Note 6)................ 7,767,653 -
Depreciation and amortization ......................................... 930,872 837,389
Increase in accounts receivable and other receivables ................. (185,924) (403,552)
(Increase) decrease in inventories .................................... (1,672,551) 175,853
Increase in prepaid expenses .......................................... (158,231) (83,445)
Increase (decrease) in accounts payable and accrued liabilities ....... 554,498 (2,139,027)
Common stock issued as compensation for services....................... 295,528 73,245
Compensation expense for stock option grants and
deferred salary increases........................................... 340,694 823,020
Minority interest in subsidiary operating results...................... (208,310) -
Valuation loss......................................................... 1,900,000 -
Non-cash portion of cost of debt conversion............................ 1,149,054 -
Other, net............................................................. 4,658 7,136
------------ ------------
Net cash used in operating activities.................................. (6,317,172) (679,331)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities ................................... (17,083,654) (35,078,490)
Proceeds from sale of marketable securities ........................... 26,977,551 34,837,414
Additions to property and equipment ................................... (1,658,329) (125,074)
Expenditures for patents and proprietary technology ................... (1,067,902) (334,053)
Investment in discontinued operations (Note 6)......................... (5,767,160) -
Investment in affiliated companies .................................... - (185,040)
------------ -------------
Net cash provided by (used in) investing activities.................... 1,400,506 (885,243)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. 20,887 -
Principal payments on long-term debt................................... (241,019) (39,507)
Proceeds from issuance of common stock ................................ 77,584 5,252,455
Minority interest investment in subsidiary (Note 5).................... 1,640,000 -
------------ ------------
Net cash provided by financing activities.............................. 1,497,452 5,212,948
Net increase (decrease) in cash and cash equivalents .................. (3,419,214) 3,648,374
Cash and cash equivalents at beginning of period ...................... 5,699,263 4,259,897
------------ ------------
Cash and cash equivalents at end of period............................. $ 2,280,049 $ 7,908,271
</TABLE>
14
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 THE COMPANY
Epitope, Inc. (the Company or Epitope) is an Oregon corporation utilizing
biotechnology to develop and market medical diagnostic products through its
Epitope Medical Products group (Epitope Medical Products) and superior new
plants and related products through its Agritope group (Agritope).
The interim condensed financial statements included herein are unaudited;
however, in the opinion of the Company, the interim data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for the
interim periods. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K. Results of operations for the
nine-month period ended June 30, 1997 are not necessarily indicative of the
results of operations expected for the full fiscal year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying combined financial statements of Epitope
Medical Products and Agritope have been prepared using the amounts included in
the consolidated financial statements of the Company. Assets, liabilities,
revenues and expenses of each group are included in the respective financial
statements of the applicable group. Cash, cash equivalents and marketable
securities have been allocated 80% to Epitope Medical Products and 20% to
Agritope. Cash, cash equivalents and marketable securities advanced and
allocated by the Company to Agritope have been reflected as contributed capital
in the combined financial statements. The presentation of separate financial
statements for each group is consistent with a proposal to create two classes of
common stock, one targeted to the operations of the Epitope Medical Products
group, and the other to the Agritope group (the Agritope Stock Proposal). The
Agritope Stock Proposal has been withdrawn. The Company is re-evaluating the
presentation in light of a July 1997 proposal to spin off Agritope as a separate
company. The proposed spin-off may result in changes to the allocation of
assets, liabilities, revenues and expenses of each group. See also discussion in
Note 7.
Inventories.
<TABLE>
<CAPTION>
6/30/97 9/30/96
(Unaudited)
EPITOPE MEDICAL PRODUCTS
<S> <C> <C>
Raw materials ....................................... $ 549,582 $ 522,824
Work-in-process ..................................... 408,523 389,642
Finished goods ...................................... 342,033 192,882
Supplies ............................................ 52,582 52,582
---------- ----------
$ 1,352,720 $ 1,157,930
AGRITOPE
Work-in-process ..................................... $ 1,321,299 $ 471,208
Finished goods ...................................... 666,207 38,537
$ 1,987,506 $ 509,745
CONSOLIDATED
Raw materials ....................................... $ 549,582 $ 522,824
Work-in-process ..................................... 1,729,822 860,850
Finished goods ...................................... 1,008,240 231,419
Supplies ............................................ 52,582 52,582
---------- ----------
$ 3,340,226 $ 1,667,675
</TABLE>
Net Income (Loss) Per Share. Consolidated net income (loss) per share has been
computed using the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Common stock equivalents
consist of the number of shares issuable upon exercise of outstanding warrants,
options and convertible notes less the number of shares assumed to have been
purchased for the treasury with the proceeds from the exercise of such
securities. Common stock equivalents are excluded from the computation if their
effect is anti-dilutive. Primary and fully diluted earnings per share are the
same.
15
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). This new
standard is effective for interim and annual periods ending after December 15,
1997. SFAS 128 will require the reporting of "basic" and "diluted" earnings per
share (EPS) instead of "primary" and "fully diluted" EPS as required under
current accounting principles. Basic EPS eliminates the common stock equivalents
considered in calculating primary EPS. Diluted EPS is similar to fully diluted
EPS. Since common stock equivalents were excluded as anti-dilutive in the
computation of EPS for fiscal 1997 periods, basic EPS would have been the same
as primary EPS in fiscal 1997. For fiscal 1996, basic EPS would have been $.28
for the quarter ended June 30, 1996, and the same as primary EPS for the nine
months ended June 30, 1996.
NOTE 3 INVESTMENT IN AFFILIATED COMPANIES
The Company's investment in affiliated companies includes its 9% interest in
UAF, Limited Partnership, a fresh flower distribution operation in Charlotte,
North Carolina, and its 19.5% interest in Petals USA, Inc., an affiliate of a
Canadian fresh flower wholesaler. During the first quarter of fiscal 1997, the
Company determined that the value of its investment in these affiliated
companies had more than temporarily declined and, accordingly, recorded a
non-cash charge to results of operations of $1,900,000 reflecting the permanent
impairment in the value of its investment in these companies. Investment in
affiliated companies also includes the Company's investment in Andrew and
Williamson Sales, Co. (A&W) preferred stock. See Note 6, Discontinued
Operations, Commitments and Contingencies.
NOTE 4 DEBT
Convertible Notes. In November 1996, the Company exchanged $3,380,000 principal
amount of Agritope convertible notes for 250,367 shares of common stock of the
Company at a reduced exchange price of $13.50 per share. The exchange price had
previously been fixed at $19.53 per share. Accordingly, the Company recognized a
non-cash charge to results of operations of $1,217,000 in the first quarter of
fiscal 1997 representing the conversion expense. On June 30, 1997, the Company
paid in full the remaining $240,000 principal amount outstanding.
NOTE 5 SHAREHOLDERS' EQUITY
In April and May 1997, the Company sold 770,000 shares of common stock in its
subsidiary Vinifera, Inc. (Vinifera) to investors for $1,540,000 in cash. This
Vinifera common stock was previously owned by the Company's wholly-owned
subsidiary, Agritope, Inc. In accordance with the terms of the related stock
purchase agreements, Agritope, Inc. contributed the proceeds of these stock
sales to Vinifera's capital. These sales of previously issued shares of Vinifera
common stock reduced the percentage ownership by Agritope, Inc. in Vinifera
voting stock from 76% to 61%.
NOTE 6 DISCONTINUED OPERATIONS, COMMITMENTS AND CONTINGENCIES
On December 12, 1996, a subsidiary of the Company completed a merger with A&W, a
producer and wholesale distributor of fresh and frozen fruits and vegetables
based in San Diego, California. Under the terms of the merger, the Company
issued 520,000 shares of common stock of Epitope, Inc. in exchange for all of
the outstanding common stock of A&W.
On March 29, 1997, the Centers For Disease Control and Prevention (CDC)
associated an outbreak of Hepatitis A in Michigan with frozen strawberries
produced by A&W. A&W immediately initiated a voluntary recall of the
strawberries. There has been no further incidence of Hepatitis A attributed to
the strawberries. The strawberries were grown, harvested, processed and sold
prior to the Company's acquisition of A&W on December 12, 1996. A&W, its former
shareholders, and Epitope have been named in lawsuits pertaining to the frozen
strawberries. The Company intends to vigorously defend against the proceedings.
While it is not possible to determine with certainty what the ultimate outcome
of these lawsuits will be, management does not expect the final disposition of
such proceedings to have a material adverse effect on the Company's financial
position or future results of operations.
16
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
On May 27, 1997, in accordance with the terms of a rescission agreement, the
former shareholders of A&W returned the 520,000 shares of Epitope common stock
they received, and Epitope returned all of the outstanding shares of A&W common
stock. Epitope also received A&W preferred stock in satisfaction of intercompany
loans made to A&W between December 12, 1996 and March 19, 1997. This A&W
preferred stock carries a $5,700,000 liquidation preference, dividend
preferences, and various redemption features.
The A&W purchase price was $7,020,000 based on the fair market value of the
Company's 520,000 shares of common stock used to acquire A&W. The fair market
value of the Company's 520,000 shares of common stock was $5,200,000 on the date
of the rescission. The change in fair market value of $1,820,000 from the
acquisition date to the rescission date has been reflected as contributed
capital.
The results of operations of A&W from December 13, 1996 through May 27, 1997
have been presented as discontinued operations in the accompanying financial
statements. Revenues of A&W were $12,965,000 for the period April 1, 1997
through May 27, 1997, and $26,534,000 for the period from December 13, 1996
through May 27, 1997. The estimated loss on disposal of $8,377,000 reflects
several factors, including the $1,820,000 reduction in market price of the
Company's stock from the purchase date to the rescission date, a $4,779,000
discount of the A&W preferred stock to its estimated net present value as
compared with the face amount of the loans made to A&W, and the accrual of
$1,000,000 in estimated costs associated with the rescission.
Bank Line of Credit. A&W maintains a $6,500,000 revolving bank line of credit.
The line is secured by A&W's accounts receivable, inventory and equipment.
Epitope has agreed to guarantee the line of credit and any succeeding line of
credit through November 1, 1998. The Company's guarantee contains various
financial covenants including minimum tangible net worth levels. The balance
outstanding under the line was $3,500,000 at June 30, 1997.
NOTE 7 SUBSEQUENT EVENTS
Agritope Spin-off. On July 26, 1997, the Company's board of directors approved a
management proposal to spin off its Agritope agricultural biotechnology business
unit. The proposal resulted from the board's 1996 decision to make changes in
corporate structure to allow investors and management to focus separately on the
agricultural and medical products business units of the Company. In November
1996, the board proposed creating two separate classes of Epitope, Inc. common
stock. After the board withdrew that proposal and asked management to further
evaluate alternatives, management recommended a spin-off of Agritope.
The spin-off will be structured to allow Epitope shareholders to retain a stake
in the growth potential of Agritope, while providing a mechanism to separate the
businesses. The spin-off proposal contemplates obtaining capital from investors
and strategic partners to support Agritope's operation as a separate business.
Completion of the spin-off is subject to reaching agreement with investors and
receiving regulatory approval, if required.
OraSure Marketing Rights. On August 4, 1997 the Company terminated its
development, license, and supply agreement with SmithKline Beecham plc (SB) and
regained oral fluid diagnostic marketing rights from SB as a result of SB's
decision to discontinue pursuit of a plan to develop and market over-the-counter
products for disease detection. During a transition period, SB will continue to
market the Company's OraSure testing system to the medical community.
Thereafter, the product will be marketed through distribution channels
established by the Company. SB has also agreed to purchase approximately 200,000
shares of common stock from the Company at the closing price on July 25, 1997.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition should be read in
conjunction with the Financial Statements and Notes thereto included in the
Company's 1996 Annual Report on Form 10-K and with the Financial Statements and
Notes thereto included in this Form 10-Q. Certain statements set forth below
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors with
respect to the Company include litigation against the Company related to A&W;
loss or impairment of sources of capital; ability of the Company to develop
product distribution channels; effect of the Company's proposal to spin off its
Agritope unit; development of competing products; market acceptance of oral
testing and genetically engineered produce; development of other methods for
controlling fruit and vegetable ripening; changes in federal or state law or
regulations; and loss of key personnel. Given these uncertainties, readers are
cautioned not to place undue reliance on the forward-looking statements.
DISCONTINUED OPERATIONS
On December 12, 1996, a subsidiary of the Company completed a merger with Andrew
and Williamson Sales, Co. (A&W), a producer and wholesale distributor of fresh
and frozen fruits and vegetables based in San Diego, California. Under the terms
of the merger, the Company issued 520,000 shares of common stock of Epitope,
Inc. in exchange for all of the outstanding common stock of A&W.
On May 27, 1997, in accordance with the terms of a rescission agreement, the
former shareholders of A&W returned the 520,000 shares of Epitope common stock
they received, and Epitope returned all of the outstanding shares of A&W common
stock. Epitope also received A&W preferred stock in satisfaction of intercompany
loans made to A&W between December 12, 1996 and March 19, 1997. This A&W
preferred stock carries a $5.7 million liquidation preference, dividend
preferences, and various redemption features.
A&W's results of operations for the period from December 13, 1996 through May
27, 1997 are presented in the accompanying financial statements as discontinued
operations. The estimated loss on disposal of $8.4 million results from several
factors, including a $1.8 million reduction in market price of the Company's
stock from the purchase date to the rescission date, a $4.8 million discount of
the A&W preferred stock to its estimated net present value as compared with the
face amount of the loans made to A&W, and the accrual of $1 million in estimated
costs associated with the rescission.
PROPOSED AGRITOPE SPIN-OFF
On July 26, 1997, the Company's board of directors approved a management
proposal to spin off its Agritope agricultural biotechnology business unit. The
proposal resulted from the board's 1996 decision to make changes in corporate
structure to allow investors and management to focus separately on the
agricultural and medical products business units of the Company. In November
1996, the board proposed creating two separate classes of Epitope, Inc. common
stock. After the Board withdrew that proposal and asked management to further
evaluate alternatives, management recommended a spin-off of Agritope.
The spin-off will be structured to allow Epitope shareholders to retain a stake
in the growth potential of Agritope, while providing a mechanism to separate the
businesses. The spin-off proposal contemplates obtaining capital from investors
and strategic partners to support Agritope's operation as a separate business.
Completion of the spin-off is subject to reaching agreement with investors and
receiving regulatory approval, if required. The Agritope spin-off may result in
changes to the allocation of assets, liabilities, revenues and expenses of each
group.
18
<PAGE>
EPITOPE MEDICAL PRODUCTS
RESULTS OF OPERATIONS
Revenues. Total revenues increased by $1,776,000 or 160% in the current quarter
as compared to the third quarter of fiscal 1996, and by $4,321,000 or 122% in
the comparable nine month periods. Revenues by product line are shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
<S> <C> <C> <C> <C>
Product sales
Oral collection device................................. $ 2,055 71% $ 697 63%
Western blot HIV confirmatory test..................... 445 16 369 33
------ ---- ------- ---
2,500 87 1,066 96
Grants and contracts...................................... 384 13 41 4
------ ---- ------- ---
$ 2,884 100% $ 1,107 100%
NINE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product sales
Oral collection device................................. $ 5,631 72% $ 1,840 52%
Western blot HIV confirmatory test..................... 1,380 17 1,114 31
------ ---- ------- ---
7,011 89 2,954 83
Grants and contracts...................................... 849 11 585 17
------ ---- ------- ---
$ 7,860 100% $ 3,539 100%
</TABLE>
Sales of the Company's oral collection device increased by $1,358,000 or 195% in
the current quarter as compared to the third quarter in fiscal 1996, and by
$3,791,000 or 206% in the comparable nine month periods. The increase is
primarily attributable to increased purchases of the device by the Company's
distributors for the life insurance testing market following approval of the
device by the Food and Drug Administration (FDA) in June 1996 for use in
conjunction with an oral-based confirmatory test. Sales in the current quarter
and nine month period also reflect increased sales in the public health market
due to the marketing efforts of SmithKline Beecham plc (SB). As of June 30,
1997, the Company had firm orders for the device totaling $555,000 scheduled for
shipment before September 30, 1997.
Sales of the device in the fourth quarter of fiscal 1997 are expected to be
lower than third quarter sales due to reductions in orders as several of the
Company's distributors anticipate reducing existing inventory levels. In
addition, in August 1997, the Company terminated its development, license and
supply agreement with SB and regained oral fluid diagnostic marketing rights
from SB as a result of SB's decision to discontinue pursuit of a plan to develop
and market over-the-counter products for disease detection. During a transition
period, SB will continue to market the OraSure testing system to the medical
community. Thereafter, the product will be marketed through distribution
channels to be established by the Company.
Sales of the Company's Western blot HIV confirmatory test increased by $76,000
or 21% in the current quarter as compared to the third quarter in fiscal 1996,
and by $266,000 or 24% in the comparable nine month periods. Sales in the prior
year were negatively affected by a reduction in orders from the Company's
exclusive distributor for this product as the distributor lowered inventory
levels. In addition, current year sales of the oral-based Western blot HIV
confirmatory tests are higher as a result of increased use of the related oral
collection device and screening test. As of June 30, 1997, the Company had firm
orders for the Western blot HIV confirmatory test totaling $410,000 scheduled
for shipment before September 30, 1997.
Grant and contract revenues increased by $342,000 or eight-fold in the current
quarter as compared to the third quarter of fiscal 1996, and by $264,000 or 45%
in the comparable nine month periods. These increases are primarily related to
research and development projects conducted in collaboration with SB. The
research arrangement with SB was terminated in August 1997. These research
projects are directed at developing new applications for the oral collection
device and at making improvements to the device. As of June 30, 1997, the
Company had deferred revenue of $439,000 included in "Salaries, benefits and
other accrued liabilities" related to these projects.
19
<PAGE>
Gross Margins on product sales were 61% and 60% of sales in the third quarter
and first nine months of fiscal 1997 as compared to 41% and 39% of sales in the
comparable periods of fiscal 1996. The improvement in gross margins is
attributable to increased sales and production volumes for the oral collection
device which resulted in lower per unit costs and to the shift in product mix
towards the oral collection device which carries a higher gross margin than does
the Western blot HIV confirmatory test.
Research and development costs increased by $715,000 or 95% in the current
quarter as compared to the third quarter of fiscal 1996 and by $1,124,000 or 51%
in the comparable nine month periods. This increase is a result of higher
research and development expenses incurred under arrangements with SB and for
other projects conducted by the Company. Expenditures for these projects can
vary significantly from quarter to quarter as new projects are started or
expanded while other projects may be extended, completed, or terminated. During
the current quarter several clinical studies were conducted resulting in
increased expenditures. The Company is currently reviewing the status of each of
these projects and will make a determination as to whether to continue each
project in light of the termination of the SB development, license and supply
agreement.
Selling, general and administrative expenses increased by $436,000 or 38% in the
current quarter as compared to the third quarter in fiscal 1996 and by $889,000
or 23% in the comparable nine month periods, primarily as a result of increased
selling and marketing efforts. These expenses include allocation of corporate
shared services of $898,000 and $638,000, respectively, for the current and
prior year quarters and $2,724,000 and $2,360,000 respectively, for the current
and prior year nine month periods.
Other income (expense), net. Interest income decreased by $212,000 or 62% in the
current quarter as compared to the third quarter of fiscal 1996 and by $234,000
or 30% in the comparable nine month periods primarily due to lower levels of
invested principal. Other income in fiscal 1996 also included a non-recurring
license fee of $5,000,000 paid by SB.
LIQUIDITY AND CAPITAL RESOURCES
(IN THOUSANDS) 6/30/97 9/30/96
Cash and cash equivalents..................... $ 1,827 $ 796
Marketable securities......................... 7,141 18,818
Working capital............................... 10,113 20,366
During the nine months ended June 30, 1997, proceeds from the sale of marketable
securities represented the primary source of funds for meeting the Company's
requirements for operations and business expansion. Inventories increased during
the period by $195,000 as a result of increased production levels. Salaries,
benefits and other accrued liabilities increased by $393,000 primarily due to
$439,000 of deferred grant and contract revenue billed in advance of the related
research efforts. In connection with the August 1997 contract termination, these
deferred revenues will be recognized in the fourth quarter of fiscal 1997. In
addition, SB has agreed to purchase approximately 200,000 shares of common stock
from the Company at the closing price on July 25, 1997.
20
<PAGE>
AGRITOPE
RESULTS OF OPERATIONS
Revenues. Total revenues increased by $251,000 or 152% in the current quarter as
compared to the third quarter of fiscal 1996 and by $154,000 or 30% in the
comparable nine month periods. Revenues by component are shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
<S> <C> <C> <C> <C>
Product sales
Grape plant sales...................................... $ 403 97% $ - -%
Grants and contracts...................................... 13 3 165 100
------- ---- ------- ---
$ 416 100% $ 165 100%
NINE MONTHS ENDED JUNE 30 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product sales
Grape plant sales...................................... $ 566 85% $ - -%
Grants and contracts...................................... 102 15 514 100
------- ---- ------ ---
$ 668 100% $ 514 100%
</TABLE>
Sales in the Company's grape plant propagation subsidiary (Vinifera) are highly
seasonal and generally occur in the spring and summer planting seasons. Vinifera
was acquired by the Company in August 1996 and therefore its results are not
included in the comparable periods of fiscal 1996. As of June 30, 1997, Vinifera
had firm orders totaling $820,000 for delivery in the summer of 1997. Deliveries
for some fiscal 1997 orders at Vinifera have been delayed until spring 1998 due
to production delays resulting from the expansion of production capacity at
Vinifera and due to field preparation delays at certain of Vinifera's customers.
Grant and contract revenues decreased by $152,000 or 92% in the current quarter
as compared to the third quarter of fiscal 1996, and by $413,000 or 80% in the
comparable nine month periods. Grant and contract revenues in fiscal 1996
included $408,000 received from three strategic partners for research projects.
These research projects are directed at developing superior new plants through
genetic engineering. Revenue from such projects can vary significantly from
quarter to quarter as new projects are started while other projects may be
extended, completed, or terminated.
Gross margin on product sales was 3% of sales for the first nine months of
fiscal 1997. There were no comparable product sales for the prior year period.
Gross margin in fiscal 1997 has been adversely affected by production start-up
costs incurred during the expansion of production capacity at Vinifera.
Research and development costs increased by $138,000 or 42% in the current
quarter as compared to the third quarter in fiscal 1996 and by $260,000 or 26%
in the comparable nine month periods. The higher research and development costs
in fiscal 1997 reflect increased efforts to develop and propagate crops
containing the Company's patented ethylene control technology as well as
research and development efforts to improve grape plant propagation conducted by
Vinifera. Vinifera was acquired by the Company in August 1996 and therefore its
results are not included in the comparable periods of fiscal 1996.
Selling, general and administrative expenses increased by $489,000 or 135% in
the current quarter as compared to the third quarter in fiscal 1996 and by
$1,200,000 or 113% in the comparable nine month periods. The increases are
attributable to $691,000 of expenses incurred by Vinifera, which was not part of
the combined group in the comparable periods of fiscal 1996, and to expenses of
$424,000 related to development of a proposal to create two classes of common
stock of Epitope, one targeted to the operations of the Epitope Medical Products
group, and the other to the Agritope group. The board of directors has since
determined to withdraw this proposal and to instead
21
<PAGE>
pursue a proposal to spin off Agritope as a separate company. These expenses
also include allocation of corporate shared services of $314,000 and $261,000,
respectively, for the current and prior year quarters and $953,000 and $778,000,
respectively, for the comparable nine month periods.
Other income (expense), net was impacted by two significant non-recurring
charges in the first quarter of fiscal 1997. The Company recorded a non-cash
charge to results of operations of $1,900,000, reflecting the permanent
impairment in the value of its investment in affiliated companies. Additionally,
conversion of $3,380,000 principal amount of Agritope convertible notes at a
reduced exchange price resulted in a non-cash charge to results of operations of
$1,217,000.
Interest income decreased by $96,000 or 69% in the current quarter as compared
to the third quarter in fiscal 1996 and by $76,000 or 28% in the comparable nine
month periods primarily due to lower levels of invested principal. Interest
expense decreased by $59,000 or 98% in the current quarter as compared to the
third quarter in fiscal 1996 and by $167,000 or 87% in the comparable nine month
periods due to the conversion of $3,380,000 principal amount of Agritope notes
into common stock.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
<S> <C> <C>
(IN THOUSANDS) 6/30/97 9/30/96
Cash and cash equivalents.............................................. $ 453 $ 4,903
Marketable securities.................................................. 1,785 -
Working capital ....................................................... 2,416 1,264
</TABLE>
Working capital increased as a result of the conversion in November 1996 of
$3,380,000 principal amount of Agritope notes into 250,367 shares of common
stock of the Company, partially offset by the accrual of estimated costs of
disposal of discontinued operations. Inventories increased by $1,478,000 due to
a buildup at Vinifera in anticipation of sales in the summer and for the
following year. Expenditures for property and equipment were $1,471,000, largely
as a result of expansion of greenhouse capacity at Vinifera. During the first
quarter of the current year, Agritope made a one-time cash payment of $590,000
to a co-inventor of Agritope's ethylene control technology in exchange for all
rights to future compensation. Agritope has also entered into an agreement to
license certain genes and made payments thereunder totaling $171,000 in the
period. Such amounts are included in "Patents and proprietary technology, net."
Agritope's investment in affiliated companies, obtained in connection with
divestiture of its fresh flower distribution business, was reduced by a non-cash
charge of $1,900,000 reflecting the permanent impairment in the value of these
investments. Investment in affiliated companies also includes the estimated net
present value of the Company's investment in A&W preferred stock.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Product Liability and Related Claims
- ------------------------------------
A number of lawsuits, described in more detail below, have been filed against
the Company, Andrew & Williamson Sales, Co. ("A&W"), and various other parties
arising out of the alleged association of certain frozen strawberries sold by
A&W with an outbreak of Hepatitis A in Michigan in March 1997. The berries were
processed by A&W in the spring of 1996 and distributed in several states through
the United States Department of Agriculture ("USDA") school lunch program. A&W
and A&W's chief executive officer have been indicted on charges that A&W falsely
certified to the USDA in November 1996 that the berries were grown in the United
States. The Company acquired A&W on December 12, 1996 without knowledge of the
USDA contract or the certification.
Separate lawsuits relating to the A&W strawberries have been instituted against
the Company and A&W in the Circuit Court of the State of Michigan for the County
of Calhoun on behalf of one school district and a number of individual
plaintiffs. They allege claims based on product liability, fraudulent,
negligent, and innocent misrepresentation, negligence, and violation of the
Michigan Consumer Protection Act. The lawsuits seek compensatory and exemplary
damages in unspecified amounts. The Company has filed motions to dismiss these
lawsuits.
On April 8, 1997, a suit was filed in the Superior Court of the State of
California for the County of Los Angeles, Central District, against the Company,
A&W, and an unrelated company in connection with the A&W strawberries. The
plaintiffs purport to represent a class of California residents who came in
contact with or were exposed to the strawberries or who received gamma globulin
inoculations due to fear of Hepatitis A. Plaintiffs allege gross negligence,
negligence, breach of express and implied warranties, product liability, fraud,
negligent misrepresentation, intentional and negligent infliction of emotional
distress, unfair business practices, and false and misleading advertising. On
August 14, 1997, plaintiffs stipulated to the dismissal without prejudice of the
Company from the litigation.
On April 14, 1997, a suit was filed in the United States District Court for the
Southern District of California against the Company, A&W, and four individuals
who were the owners and officers of A&W prior to December 12, 1996. The
plaintiffs purport to represent a class and allege claims for relief for medical
monitoring, unfair trade practices under the California Business and Professions
Code, and violation of the federal Perishable Agricultural Commodities Act of
1930. On August 8, 1997, plaintiffs voluntarily dismissed their claims against
the Company without prejudice. Class actions alleging the same claims for relief
against the same defendants in the United States District Court for the District
of Oregon and the U.S. District for the Western District of Michigan have been
voluntarily dismissed without prejudice.
Defense of the lawsuits described above has been tendered to the Company's
insurance carriers. As discussed under "Rescission of A&W Acquisition" below,
A&W has agreed to indemnify the Company for joint and several judgments and
certain defense costs to the extent not reimbursed by insurance. The Company
intends to vigorously defend the proceedings. While it is not possible to
determine the ultimate outcome of these lawsuits with certainty, management does
not expect final disposition to have a materially adverse effect on the
Company's financial position or future results of operations.
Certain of the foregoing proceedings were previously described in the Company's
Form 10-Q for the quarter ended March 31, 1997.
23
<PAGE>
Rescission of A&W Acquisition
- -----------------------------
On May 27, 1997, the Company completed the rescission of its acquisition of A&W
pursuant to a Settlement Agreement and Release dated May 4, 1997 (the
"Settlement Agreement"). Pursuant to the Settlement Agreement, the Company
exchanged the outstanding A&W common stock for the 520,000 shares of the
Company's common stock issued in the acquisition and received A&W nonvoting
preferred stock with a liquidation preference of $5.7 million in return for the
cancellation of loans by the Company to A&W.
In connection with the closing of the Settlement Agreement:
(1) Company officers who were also directors or officers of A&W
resigned their positions with A&W.
(2) Fred L. Williamson, Fred M. Williamson, and Keith Andrew personally
guaranteed the $6.5 million credit facility provided by A&W's bank
lender. The facility is secured by A&W accounts receivable and
inventory. The Company's guarantee of the facility will also continue
in effect through November 1, 1998, but the three individual guarantors
have agreed to reimburse the Company for any amounts it is required to
pay under its guarantee.
(3) A&W has agreed to indemnify the Company for joint and several
judgments against the two companies and for certain defense costs, to
the extent not reimbursed by insurance. The Company and A&W have each
reserved the right to assert claims against the other in connection
with suits in which only one is named as a defendant. The parties have
otherwise released each other and certain other parties from
liabilities arising out of events occurring before the rescission.
Additional details of the transaction are stated in the Settlement Agreement, a
copy of which was filed as an exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1997 annual meeting of shareholders (the "Annual Meeting") of
the Company was convened on April 29,1997. The meeting was adjourned so that
additional proxy materials could be circulated to shareholders, and was
reconvened on June 17, 1997, at which time shareholders acted on the matters
described below.
(b) At the Annual Meeting, the following individuals were elected by
the votes indicated as Class I directors of the Company for terms expiring in
2000:
NOMINEE FOR WITHHELD
W. Charles Armstrong 11,699,343 630,416
Adolph J. Ferro, Ph.D. 11,588,142 741,617
Roger L. Pringle 11,678,753 651,006
The other directors whose terms of office continued after the Annual
Meeting are: Richard K. Donahue; Andrew S. Goldstein; Margaret H. Jordan; R.
Douglas Norby; Michael J. Paxton; and G. Patrick Sheaffer.
(c) Other items acted on at the Annual Meeting were amendments to the
1991 Stock Award Plan ("Award Plan") described in the proxy materials for the
meeting and amendments to the 1993 Employee Stock Purchase Plan ("Purchase
Plan") described in the proxy materials for the meeting.
24
<PAGE>
Amendments to the Award Plan were approved by the following vote:
<TABLE>
<CAPTION>
Votes for Votes against Abstained Not voted
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Amendments to Award Plan 4,925,808 1,623,062 187,793 6,978,815
Amendments to the Purchase Plan were approved by the following vote:
Votes for Votes against Abstained Not voted
--------- ------------- --------- ---------
Amendments to Purchase Plan 5,700,912 1,272,581 185,260 6,556,725
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits filed with this report are listed in the attached exhibit index
following the signature page of this report.
(b) Reports on Form 8-K
On April 3, 1997 the Company filed a Current Report on Form 8-K dated April 1,
1997, to report under Item 5 events related to the recall of frozen strawberries
by A&W.
On April 22, 1997, the Company filed a Current Report on Form 8-K dated April 7,
1997, to report under Item 5 the filing of a suit by the Company in federal
court seeking damages and rescission of its acquisition of A&W and developments
and legal proceedings relating to A&W's distribution of frozen strawberries
which the CDC associated with an outbreak of Hepatitis A.
On May 28, 1997, the Company filed a Current Report on Form 8-K dated May 27,
1997, to report under Item 2 the disposition of A&W pursuant to the settlement
agreement described above under Part II, Item 1.
On June 4, 1997, the Company filed a Current Report on Form 8-K dated June 3,
1997, to report under Item 5 a change in management as a result of which W.
Charles Armstrong was appointed interim President and Chief Executive Officer of
the Company.
On July 29, 1997, the Company filed a Current Report on Form 8-K dated July 28,
1997 to report under Item 5 the decision by Epitope's board of directors to
pursue a proposal to spin-off Agritope as a separate company and the
re-acquisition by the Company of oral fluid diagnostic marketing rights from SB.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPITOPE, INC., an Oregon corporation
August 14, 1997 W. CHARLES ARMSTRONG
Date W. Charles Armstrong
President, Chief Executive Officer and Director
(Principal Executive Officer)
August 14, 1997 GILBERT N. MILLER
Date Gilbert N. Miller
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
August 14, 1997 MARK V. ALLRED
Date Mark V. Allred
Controller
(Principal Accounting Officer)
26
<PAGE>
EXHIBIT INDEX
10.1 Form of Indemnification Agreement with officers and directors
10.2 Amended and Restated 1991 Stock Award Plan
10.3 Second Amendment and Restatement of 1993 Employee Stock Purchase Plan
27. Financial Data Schedule
27
FORM OF INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the ___
day of _______________________, by and between _____________ ("Indemnitee") and
Epitope, Inc., an Oregon corporation (the "Company").
RECITALS
A. The Company has recognized the difficulty that publicly held
corporations are having in attracting and retaining qualified directors,
officers and key employees as a result of the increasing risk of claims and
actions against them arising out of their association with the Company.
B. Indemnitee is an officer, director and/or key employee of the
Company and/or any of the Company's subsidiaries.
C. Indemnitee is willing to serve, to continue to serve and to take on
additional service for or on behalf of the Company and/or any of the Company's
subsidiaries.
D. In view of the mutual desire of the parties that Indemnitee render
valuable services to the Company, the parties have agreed to enter into this
Indemnification Agreement.
THEREFORE IT IS AGREED:
1. Definitions. The following definitions shall apply to this
Agreement:
1.1. "Act" shall be the Oregon Business Corporation Act and
all amendments thereto hereinafter enacted.
1.2. "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals and attorneys'
fees and disbursements and any expenses of establishing a right to
indemnification under this Agreement.
1.3. "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including an excise tax assessed with respect to an
employee benefit plan, or reasonable Expenses incurred with respect to a
Proceeding.
1.4. "Party" includes an individual who was is or is
threatened to be made a named defendant or respondent in a proceeding.
1.5. "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
- 1 -
<PAGE>
2. Indemnification. The Company shall indemnify Indemnitee against
Liability and Expenses actually and necessarily incurred by him or her in any
Proceeding in which he or she is made a Party by reason of being or having been
a director, officer or key employee of the Company and/or any of the Company's
subsidiaries, except in relation to matters as to which indemnification is
prohibited by the Act; but such indemnification shall not be deemed exclusive of
any other rights to which Indemnitee may be entitled under any bylaw or
agreement of the Company, general or specific action of the Company's board of
directors, vote of the Company's shareholders or otherwise.
3. Procedure for Indemnification. After the final disposition of any
Proceeding in which Indemnitee may be entitled to indemnification pursuant to
this Agreement, Indemnitee may send to the Company a written request for
indemnification. The Company shall, in accordance with the provisions of the Act
regarding determination and authorization of indemnification, make a finding
whether the indemnification requested is permitted by the laws of the state of
Oregon no later than 60 days following receipt by the Company of such request.
The Company shall cause the indemnification requested to be authorized and paid
unless the Company finds that the indemnification requested is not so permitted.
Indemnitee shall be given an opportunity to be heard and to present evidence in
connection with the consideration of the party or parties determining
Indemnitee's right to indemnification under the Act. If the Company does not
authorize indemnification hereunder, Indemnitee shall have the right to seek
court-oredered indemnification in accordance with the provisions of the Act. In
any such action, neither the making of, nor the failure to make, any finding by
the Company that indemnification of the Indemnitee is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the Indemnitee has not met the standard of conduct required by the Act. In
making its determination and in any court proceeding, the Company shall have the
burden of proving that Indemnitee has not met the standard of conduct required
by the Act to entitle Indemnitee to indemnification.
4. Procedure for Advancement of Expenses. The Company shall pay for or
reimburse the reasonable Expenses incurred by Indemnitee as a result of being
Party to a Proceeding promptly upon receipt of a written request for payment of
such Expenses that is in accordance with the requirements of the Act for such
written statements. Such written statement shall also include or be accompanied
by documentation of the Expenses incurred certified true and correct by
Indemnitee. When available, such documentation of expenses shall include copies
of bills or statements evidencing the Expenses incurred. If the requirements of
this Section 4 are met, the Company shall pay the amount requested promptly
notwithstanding the absence of a final disposition of the Proceeding.
5. Partial Indemnity. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
Expenses or Liability incurred by Indemnitee in the preparation, investigation,
defense, appeal or settlement of any Proceeding but not, however, for the total
amount thereof, the Company shall indemnify Indemnitee for the portion of such
Expenses or Liability to which Indemnitee is entitled in accordance with this
Agreement.
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<PAGE>
6. Insurance. The Company may, but shall not be required to, purchase
and keep in force during the term of this Agreement a policy or policies of
liability insurance on behalf of Indemnitee against Liability and Expenses
incurred in any Proceeding. Nothing herein shall be construed to prohibit
Indemnitee from maintaining his or her own policy of liability insurance.
7. Exclusions. The Company shall not be liable to make any payment
hereunder:
7.1. If it shall be finally adjudicated that such payment is
prohibited by law;
7.2. On account of any Proceeding brought under Section 16(b)
of the Securities Exchange Act of 1934, as such law is amended from time to
time, or under any similar law that replaces Section 16(b), in which judgment is
rendered against Indemnitee for an accounting for profits made from the purchase
or sale by Indemnitee of the securities of the Company;
7.3. For Liability or Expenses in any Proceeding brought by
Indemnitee against the Company unless (I) the Proceeding is brought as a
Proceeding for indemnity under this Agreement, (ii) Indemnitee is successful in
whole or in part in a Proceeding or (iii) the indemnification is included in a
settlement of the Proceeding or is awarded by a court;
7.4. To the extent payment is actually made to Indemnitee
under a valid, enforceable and collectible insurance policy, whether provided by
the Company or by Indemnitee (the "Insurance Policy"), by or out of a fund
created by the Company and under the control of a trustee or otherwise (the
"Fund") or from other sources provided by the Company ("Other Sources"); or
7.5. For amounts paid in settlement of a claim effected
without the Company's prior written consent, which consent shall not be
unreasonably withheld. If Indemnitee shall become obligated or required to pay
any amount that the Company would be obligated to pay hereunder except for the
exclusion in Section 7.4, the Company shall advance such amount to Indemnitee if
payment is not reasonably expected to be made under the Insurance Policy, by the
Fund or from Other Sources prior to the time that Indemnitee must make such
payment, provided, however, that Indemnitee shall immediately pay over to the
Company, from the funds Indemnitee later receives under the Insurance Policy,
from the Fund or from Other Sources, an amount equal to the amount advanced.
8. Defense of Claim. If any Proceeding asserted or commenced against
Indemnitee is also asserted or commenced against the Company, the Company shall
be entitled to participate in the Proceeding at its own expense and, except as
otherwise provided herein below, to the extent that it may wish the Company
shall be entitled to assume the defense thereof. After notice from the Company
to Indemnitee of its election to assume the defense of any such Proceeding,
Indemnitee shall have the right to employ Indemnitee's own
- 3 -
<PAGE>
counsel in such Proceeding, but the Expenses of such counsel incurred after
notice from the Company to Indemnitee of its assumption of the defense thereof
shall be the Expenses of Indemnitee, and the Company may not be obligated to
Indemnitee under this Agreement for any Expenses subsequently incurred by
Indemnitee in connection therewith other than the reasonable costs of
investigation, travel and lodging Expenses arising out of Indemnitee's
participation in the defense of such Proceeding unless (i) otherwise authorized
by the Company, (ii) Indemnitee's counsel shall have reasonably concluded, and
so notified the Company in writing, that there may be a conflict of interest
between the Company and Indemnitee in the conduct of the defense of such
Proceeding or (iii) the Company shall not in fact have employed counsel to
assume the defense of such Proceeding. If the Company may be obligated for some
or all of the Expenses of Indemnitee under this Section 8, the determination of
Indemnitee's entitlement to indemnification shall be made in accordance with
Section 3.
9. Change in Control.
9.1. The Company agrees that, if there is a Change in Control
(as hereinafter defined) of the Company, then with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnification and
Expense advances under this Agreement, the Company shall seek legal advice only
from special, independent counsel selected by the Company with the consent of
Indemnitee, which consent shall not be unreasonably withheld, with respect to
matters arising out of this Agreement, including but not limited to the right of
Indemnitee to indemnification hereunder. Such counsel shall, among other things,
render its written opinion to the Company and Indemnitee as to whether and to
what extent Indemnitee would be permitted to be indemnified under the Act and as
to the amount of reasonable indemnification. Such written opinion shall be
binding upon the Company and Indemnitee. The Company shall agree to pay the
reasonable fees of such special counsel and to indemnify fully such counsel
against any and all expenses, including attorney fees, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
9.2. For the purpose of this Section 9, a "Change in Control"
shall be deemed to have occurred if:
9.2.1. Any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportion as their
ownership of the Company, becomes the "Beneficial Owner," as defined in Rule
13d-3 under the 1934 Act, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding voting securities ("Voting Stock");
9.2.2. During any period of twenty-four (24)
consecutive months, not including any period prior to the execution of this
Agreement, individuals who at the
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<PAGE>
beginning of such period constitute the board of directors of the Company and
any new director, other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in Section
9.2.1 or 9.2.3, whose election was approved by a vote of at least two-thirds
(2/3rds) of the shares entitled to vote, cease for any reason to constitute a
majority of the board; or
9.2.3. The stockholders of the Company (i) approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation that would result in the Voting Stock outstanding
immediately prior thereto continuing to represent, either by remaining
outstanding or by being converted into Voting Stock of the surviving entity, at
least seventy percent (70%) of the combined voting power of the Voting Stock of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, (ii) approve a plan of complete liquidation of the Company or
(iii) approve an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
10. Potential Change in Control.
10.1. In the event of a Potential Change in Control (as
hereinafter defined), the Company shall, upon written request by Indemnitee,
create a trust (the "Trust") for the benefit of Indemnitee and from time to time
upon written request of Indemnitee shall fund the Trust in an amount sufficient
to satisfy any and all Expenses reasonably anticipated at the time of each such
request to be incurred in connection with investigating, preparing for and
defending any Proceeding for which Indemnitee may be entitled to indemnification
under this Agreement, and any and all Liability for which Indemnitee is entitled
to indemnification hereunder from time to time actually paid, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligations shall be determined in
accordance with the provisions of the Act with regard to determination and
authorization of indemnification.
10.2. The terms of the Trust shall provide that upon a Change
in Control:
10.2.1. The Trust shall not be revoked or the
principal thereof invaded without the prior written consent of Indemnitee;
10.2.2. The trustee of the Trust (the "Trustee")
shall advance, within two (2) business days of a written request by Indemnitee
in accordance with the requirements of Section 4, any and all Expenses to
Indemnitee, and Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which Indemnitee would be required to reimburse the Company
pursuant to the Act and Section 4;
10.2.3. The Trust shall continue to be funded by the
Company in accordance with the funding obligation set forth above;
10.2.4. The Trustee shall promptly pay to Indemnitee
all
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<PAGE>
amounts for which Indemnitee shall be entitled to indemnification pursuant to
this Agreement or otherwise; and
10.2.5. All unexpended funds in the Trust shall
revert to the Company upon a final determination by the special counsel
established in accordance with Section 9 or a court of competent jurisdiction,
as the case may be, that Indemnitee has been fully indemnified under the terms
of this Agreement.
10.3. The Trustee shall be selected by Indemnitee with the
consent of the Company, which consent shall not be unreasonably withheld, and
all reasonable expenses, fees and other disbursements of the Trustee in
connection with the establishment and administration of the Trust shall be paid
by the Company.
10.4. Nothing in this Section 10 shall relieve the Company of
any of its obligations under this Agreement.
10.5. A "Potential Change in Control" shall be deemed to have
occurred if: (i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control; (ii) any person,
including the Company, publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of stock of the Company representing
nine and one-half percent (9.5%) or more of the combined voting power of the
Company's then outstanding Voting Stock, increases his or her beneficial
ownership of such stock by five (5) percentage points or more over the
percentage so owned by such person; or (iv) the board of directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
11. Nonexclusivity and Continuation of Rights. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights
consistent with the laws of the state of Oregon to which Indemnitee may be
entitled under the Company's articles of incorporation, bylaws or any other
agreement, vote of shareholders or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Company, and shall continue
notwithstanding that Indemnitee may have ceased to be connected with the
Company.
12. Heirs, Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the heirs, successors and assigns of the Company and
Indemnitee.
13. Severability. Wherever possible, each provision in this Agreement
shall be interpreted in such manner as to be effective and valid under the laws
of the state of Oregon, but if any provision of this Agreement shall be
invalidated by any court of competent
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<PAGE>
jurisdiction, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
14. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
15. Modification and Amendment. No amendment, modification, termination
or claimed waiver of any of the provisions hereof shall be valid unless in
writing and signed by both of the parties hereto.
16. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee: If to the Company:
Name Epitope, Inc.
Address Attn.: Corporate Secretary
City, State ZIP 8505 S.W. Creekside Drive
Beaverton, Oregon 97008
or to such other address as may have been furnished to the other party.
17. Governinq Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Oregon.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first hereinabove written.
INDEMNITEE EPITOPE, INC., an Oregon
corporation
____________________________________ By
Title:
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EPITOPE, INC.
AMENDED AND RESTATED 1991 STOCK AWARD PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment; Amendment and Restatement. Epitope, Inc.
("Corporation"), hereby establishes the Epitope, Inc., 1991 Stock Award Plan
(the "Plan"), effective as of January 8, 1991, subject to shareholder approval
as provided in Article . The Plan was previously amended and restated effective
March 25, 1991, December 8, 1992, December 14, 1993, and December 13, 1994, and
is further amended and restated as set forth herein effective December 17, 1996.
1.2 Purpose. The purpose of the Plan is to promote and advance
the interests of Corporation and its shareholders by enabling Corporation to
attract, retain, and reward key employees, outside advisors, and directors of
Corporation and its subsidiaries. It is also intended to strengthen the
mutuality of interests between such employees, advisors, and directors and
Corporation's shareholders. The Plan is designed to meet this intent by offering
stock options and other equity-based incentive awards, thereby providing a
proprietary interest in pursuing the long-term growth, profitability, and
financial success of Corporation.
ARTICLE 2
DEFINITIONS
2.1 Defined Terms. For purposes of the Plan, the following
terms shall have the meanings set forth below:
"ADVISOR" means a member of an Advisory Committee of
Corporation or a Subsidiary, or any other consultant selected by the Committee,
who is neither an employee of Corporation or a Subsidiary nor a Non-Employee
Director.
"ADVISORY COMMITTEE" means a scientific advisory committee to
Corporation or a Subsidiary.
"AGRITOPE SHARE" means a share of Agritope Stock.
"AGRITOPE STOCK PROPOSAL DATE" means the effective date of the
amendment of Corporation's Articles of Incorporation to create Agritope Stock
and to redesignate Corporation's previously existing common stock as Medical
Products Stock.
"AGRITOPE STOCK" means the Agritope Common Stock, no par
value, of Corporation or any security of Corporation issued in substitution,
exchange, or in lieu of such stock.
"AWARD" means an award or grant made to a Participant of
Options, Stock Appreciation Rights, Restricted Awards, Performance Awards, or
Other Stock-Based Awards pursuant to the Plan.
"AWARD AGREEMENT" means an agreement as described in Section
6.4.
"BOARD" means the Board of Directors of Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, or any successor thereto, together with rules,
regulations, and interpretations promulgated thereunder.
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<PAGE>
Where the context so requires, any reference to a particular Code section shall
be construed to refer to the successor provision to such Code section.
"COMMITTEE" means the committee appointed by the Board to
administer the Plan as provided in Article of the Plan.
"COMMON STOCK" means the Common Stock, no par value, of
Corporation or any security of Corporation issued in substitution, exchange, or
in lieu of such stock. For all periods after the Agritope Stock Proposal Date,
references in this Plan to Common Stock include either Agritope Stock, Medical
Products Stock, or both, as the context may require.
"CONTINUING RESTRICTION" means a Restriction contained in
Sections 6.5(h), 16.4, 16.5, and 16.7 of the Plan and any other Restrictions
expressly designated by the Committee in an Award Agreement as a Continuing
Restriction.
"CORPORATION" means Epitope, Inc., an Oregon corporation, or
any successor corporation.
"DEFERRED COMPENSATION OPTION" means a Nonqualified Option
granted with an option price less than Fair Market Value on the date of grant
pursuant to Section of the Plan.
"DISABILITY" means the condition of being "disabled" within
the meaning of Section 422(c)(7) of the Code. However, the Committee may change
the foregoing definition of "Disability" or may adopt a different definition for
purposes of specific Awards.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute. Where the
context so requires, any reference to a particular section of the Exchange Act,
or to any rule promulgated under the Exchange Act, shall be construed to refer
to successor provisions to such section or rule.
"FAIR MARKET VALUE" means with respect to either Agritope
Shares or Medical Products Shares, on a particular day, without regard to any
restrictions (other than a restriction which, by its terms, will never lapse),
the mean between the reported high and low sale prices, or, if there is no sale
on such day, the mean between the reported bid and asked prices, of Shares of
the applicable class on that day or, if that day is not a trading day, the last
prior trading day, on the securities exchange or automated securities
interdealer quotation system on which such Shares shall have been traded.
"INCENTIVE STOCK OPTION" or "ISO" means any Option granted
pursuant to the Plan that is intended to be and is specifically designated in
its Award Agreement as an "incentive stock option" within the meaning of Section
422 of the Code.
"MEDICAL PRODUCTS SHARE" means a share of Medical Products
Stock.
"MEDICAL PRODUCTS STOCK" means the Epitope Medical Products
Common Stock, no par value, of Corporation or any security of Corporation issued
in substitution, exchange, or in lieu of such stock.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not
an employee of Corporation or any Subsidiary.
"NONQUALIFIED OPTION" or "NQO" means any Option, including a
Deferred Compensation Option, granted pursuant to the Plan that is not an
Incentive Stock Option.
"OPTION" means an ISO, an NQO, or a Deferred Compensation
Option.
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<PAGE>
"OTHER STOCK-BASED AWARD" means an Award as defined in Section
.
"PARTICIPANT" means an employee of Corporation or a
Subsidiary, an Advisor, or a Non-Employee Director who is granted an Award under
the Plan.
"PERFORMANCE AWARD" means an Award granted pursuant to the
provisions of Article of the Plan, the Vesting of which is contingent on
performance attainment.
"PERFORMANCE CYCLE" means a designated performance period
pursuant to the provisions of Section of the Plan.
"PERFORMANCE GOAL" means a designated performance objective
pursuant to the provisions of Section of the Plan.
"PLAN" means this Epitope, Inc., 1991 Stock Award Plan, as
amended and restated and set forth herein and as it may be hereafter amended
from time to time.
"REPORTING PERSON" means a Participant who is subject to the
reporting requirements of Section 16(a) of the Exchange Act.
"RESTRICTED AWARD" means a Restricted Share or a Restricted
Unit granted pursuant to Article of the Plan.
"RESTRICTED SHARE" means an Award described in Section 9.1(a)
of the Plan.
"RESTRICTED UNIT" means an Award of units representing Shares
described in Section 9.1(b) of the Plan.
"RESTRICTION" means a provision in the Plan or in an Award
Agreement which limits the exercisability or transferability, or which governs
the forfeiture, of an Award or the Shares, cash, or other property payable
pursuant to an Award.
"RETIREMENT" means:
(a) For Participants who are employees, retirement from active
employment with Corporation and its Subsidiaries at or after age 50, or
such earlier retirement date as approved by the Committee for purposes
of the Plan;
(b) For Participants who are Non-Employee Directors,
termination of membership on the Board after attaining age 50, or such
earlier retirement date as approved by the Committee for purposes of
the Plan; and
(c) For Participants who are Advisors, termination of service
as an Advisor after attaining age 50, or such earlier retirement date
as approved by the Committee for purposes of the Plan.
However, the Committee may change the foregoing definition of "Retirement" or
may adopt a different definition for purposes of specific Awards.
"SHARE" means a share of Common Stock. For all periods after
the Agritope Stock Proposal Date, references in this Plan to Shares include
either Agritope Shares, Medical Products Shares, or both, as the context may
require.
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"STOCK APPRECIATION RIGHT" or "SAR" means an Award to benefit
from the appreciation of Common Stock granted pursuant to the provisions of
Article 8 of the Plan.
"SUBSIDIARY" means a "subsidiary corporation" of Corporation
within the meaning of Section 425 of the Code, namely any corporation in which
Corporation directly or indirectly controls 50 percent or more of the total
combined voting power of all classes of stock having voting power.
"VEST" or "VESTED" means:
(a) In the case of an Award that requires exercise, to be or
to become immediately and fully exercisable and free of all
Restrictions (other than Continuing Restrictions);
(b) In the case of an Award that is subject to forfeiture, to
be or to become nonforfeitable, freely transferable, and free of all
Restrictions (other than Continuing Restrictions);
(c) In the case of an Award that is required to be earned by
attaining specified Performance Goals, to be or to become earned and
nonforfeitable, freely transferable, and free of all Restrictions
(other than Continuing Restrictions); or
(d) In the case of any other Award as to which payment is not
dependent solely upon the exercise of a right, election, exercise, or
option, to be or to become immediately payable and free of all
Restrictions (except Continuing Restrictions).
2.2 Gender and Number. Except where otherwise indicated by the
context, any masculine or feminine terminology used in the Plan shall also
include the opposite gender; and the definition of any term in Section in the
singular shall also include the plural, and vice versa.
ARTICLE 3
ADMINISTRATION
3.1 General. Except as provided in Section 3.7, the Plan shall
be administered by a Committee composed as described in Section .
3.2 Composition of the Committee. The Committee shall be
appointed by the Board from among its members in a number and with such
qualifications as will meet the requirements for approval by a committee
pursuant to Rule 16b-3 under the Exchange Act. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board. The initial members of
the Committee shall be the members of Corporation's existing Executive
Compensation Committee. The Board may at any time replace the Executive
Compensation Committee with another Committee. In the event that the Executive
Compensation Committee shall cease to satisfy the requirements of Rule 16b-3,
the Board shall appoint another Committee satisfying such requirements.
3.3 Authority of the Committee. The Committee shall have full
power and authority (subject to such orders or resolutions as may be issued or
adopted from time to time by the Board) to administer the Plan in its sole
discretion, including the authority to:
(a) Construe and interpret the Plan and any Award Agreement;
(b) Promulgate, amend, and rescind rules and procedures
relating to the implementation of the Plan;
(c) With respect to employees and Advisors:
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(i) Select the employees and Advisors who shall be
granted Awards;
(ii) Determine the number and types of Awards to be
granted to each such Participant;
(iii) Determine the number of Shares, or Share
equivalents, to be subject to each Award and whether the
Shares subject to an Award are to be Agritope Shares, Medical
Products Shares, or a combination of both;
(iv) Determine the option price, purchase price, base
price, or similar feature for any Award; and
(v) Determine all the terms and conditions of all
Award Agreements, consistent with the requirements of the
Plan.
Decisions of the Committee, or any delegate as permitted by the Plan, shall be
final, conclusive, and binding on all Participants.
3.4 Action by the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business. Action
approved by a majority of the members present at any meeting at which a quorum
is present, or action in writing by all the members of the Committee, shall be
the valid acts of the Committee.
3.5 Delegation. Notwithstanding the foregoing, the Committee
may delegate to one or more officers of Corporation the authority to determine
the recipients, types, amounts, and terms of Awards granted to Participants who
are not Reporting Persons.
3.6 Liability of Committee Members. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan, any Award, or any Participant.
3.7 Awards to Non-Employee Directors. The Board may grant
Awards from time to time to Non-Employee Directors. Awards to Non-Employee
Directors shall be governed by and shall be subject to the terms and conditions
set forth in an Award Agreement in a form approved by the Board.
3.8 Costs of Plan. The costs and expenses of administering the
Plan shall be borne by Corporation.
ARTICLE 4
DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN
4.1 Duration of the Plan. The Plan is effective January 8,
1991, subject to approval by Corporation's shareholders as provided in Article
17. The Plan shall remain in effect until Awards have been granted covering all
the available Shares or the Plan is otherwise terminated by the Board.
Termination of the Plan shall not affect outstanding Awards.
4.2 Shares Subject to the Plan.
4.2.1 General. The shares which may be made subject to Awards
under the Plan shall be Shares of Common Stock, which may be either authorized
and unissued Shares or reacquired Shares. No fractional Shares shall be issued
under the Plan. If an Award under the Plan is canceled or expires for any reason
prior to having been fully Vested or exercised by a Participant or is settled in
cash in lieu of Shares or is
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exchanged for other Awards, all Shares covered by such Awards shall be made
available for future Awards under the Plan. Furthermore, any Shares used as full
or partial payment to Corporation by a Participant of the option, purchase, or
other exercise price of an Award and any Shares covered by a Stock Appreciation
Right which are not issued upon exercise shall become available for future
Awards.
4.2.2 Medical Products Shares. The maximum number of Medical
Products Shares for which Awards may be granted under the Plan shall be
3,400,000 Medical Products Shares, plus the number of Shares which were
available for grant under Corporation's Incentive Stock Option Plan for Key
Employees of Epitope, Inc. (the "ISOP"), on January 8, 1991, subject to
adjustment pursuant to Article 14.
4.2.3 Agritope Shares. The maximum number of Agritope Shares
for which Awards may be granted under the Plan shall be (i) 1,000,000 Agritope
Shares plus (ii) that number of Agritope Shares which is one-half of the number
of shares of Epitope Common Stock (rounded down to the nearest whole number)
subject to outstanding Options under the Plan on the Agritope Stock Proposal
Date, in each case subject to adjustment pursuant to Article 14.
4.2.4 Availability of Shares for Future Awards. If an Award
under the Plan or under the ISOP is canceled or expires for any reason prior to
having been fully Vested or exercised by a Participant or is settled in cash in
lieu of Shares or is exchanged for other Awards, all Shares covered by such
Awards shall be made available for future Awards under the Plan. Furthermore,
any Shares used as full or partial payment to Corporation by a Participant of
the option, purchase, or other exercise price of an Award and any Shares covered
by a Stock Appreciation Right which are not issued upon exercise shall become
available for future Awards.
ARTICLE 5
ELIGIBILITY
5.1 Employees and Advisors. Officers and other key employees
of Corporation and its Subsidiaries (who may also be directors of Corporation or
a Subsidiary) and Advisors who, in the Committee's judgment, are or will be
contributors to the long-term success of Corporation shall be eligible to
receive Awards under the Plan.
5.2 Non-Employee Directors. All Non-Employee Directors shall
be eligible to receive Awards as provided in Section 3.7 of the Plan.
ARTICLE 6
AWARDS
6.1 Types of Awards. The types of Awards that may be granted
under the Plan are:
(a) Options governed by Article of the Plan;
(b) Stock Appreciation Rights governed by Article of the Plan;
(c) Restricted Awards governed by Article of the Plan;
(d) Performance Awards governed by Article of the Plan; and
(e) Other Stock-Based Awards or combination awards governed by
Article of the Plan.
In the discretion of the Committee, any Award may be granted alone, in addition
to, or in tandem with other Awards under the Plan.
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6.2 General. Subject to the limitations of the Plan, the
Committee may cause Corporation to grant Awards to such Participants, at such
times, of such types, in such amounts, for such periods, with such option
prices, purchase prices, or base prices, and subject to such terms, conditions,
limitations, and restrictions as the Committee, in its discretion, shall deem
appropriate. Awards may be granted as additional compensation to a Participant
or in lieu of other compensation to such Participant. A Participant may receive
more than one Award and more than one type of Award under the Plan.
6.3 Nonuniform Determinations. The Committee's determinations
under the Plan or under one or more Award Agreements, including without
limitation, (a) the selection of Participants to receive Awards, (b) the type,
form, amount, and timing of Awards, (c) the terms of specific Award Agreements,
and (d) elections and determinations made by the Committee with respect to
exercise or payments of Awards, need not be uniform and may be made by the
Committee selectively among Participants and Awards, whether or not Participants
are similarly situated.
6.4 Award Agreements. Each Award shall be evidenced by a
written Award Agreement between Corporation and the Participant. Award
Agreements may, subject to the provisions of the Plan, contain any provision
approved by the Committee.
6.5 Provisions Governing All Awards. All Awards shall be
subject to the following provisions:
(a) Type of Shares. Each Award Agreement shall specify whether
the Award covers Agritope Shares, Medical Products Shares, or a
specified combination of both.
(b) Alternative Awards. If any Awards are designated in their
Award Agreements as alternative to each other, the exercise of all or
part of one Award automatically shall cause an immediate equal (or pro
rata) corresponding termination of the other alternative Award or
Awards.
(c) Rights as Shareholders. No Participant shall have any
rights of a shareholder with respect to Shares subject to an Award
until such Shares are issued in the name of the Participant.
(d) Employment Rights. Neither the adoption of the Plan nor
the granting of any Award shall confer on any person the right to
continued employment with Corporation or any Subsidiary or the right to
remain as a director of Corporation or a member of any Advisory
Committee, as the case may be, nor shall it interfere in any way with
the right of Corporation or a Subsidiary to terminate such person's
employment or to remove such person as an Advisor or as a director at
any time for any reason, with or without cause.
(e) Termination Of Employment. The terms and conditions under
which an Award may be exercised, if at all, after a Participant's
termination of employment or service as an Advisor or as a Non-Employee
Director shall be determined by the Committee and specified in the
applicable Award Agreement.
(f) Change in Control. The Committee, in its discretion, may
provide in any Award Agreement that in the event of a change in control
of Corporation (as the Committee may define such term in the Award
Agreement), as of the date of such change in control:
(i) All, or a specified portion of, Awards requiring
exercise shall become fully and immediately exercisable,
notwithstanding any other limitations on exercise;
(ii) All, or a specified portion of, Awards subject
to Restrictions shall become fully Vested; and
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(iii) All, or a specified portion of, Awards subject
to Performance Goals shall be deemed to have been fully
earned.
The Committee, in its discretion, may include change in control
provisions in some Award Agreements and not in others, may include
different change in control provisions in different Award Agreements,
and may include change in control provisions for some Awards or some
Participants and not for others.
(g) Reporting Persons. With respect to all Awards granted to
Reporting Persons, the Award Agreement shall provide that:
(i) Awards requiring exercise shall not be
exercisable until at least six months after the date the Award
was granted, except in the case of the death or Disability of
the Participant; and
(ii) Shares issued pursuant to any other Award may
not be sold by the Participant for at least six months after
acquisition, except in the case of the death or Disability of
the Participant;
provided, however, that (unless an Award Agreement provides otherwise)
the limitation of this Section (g) shall apply only if or to the extent
required by Rule 16b-3 under the Exchange Act or any applicable
successor provision. Award Agreements for Awards to Reporting Persons
shall also comply with any future restrictions imposed by such Rule
16b-3.
(h) Service Periods. At the time of granting Awards, the
Committee may specify, by resolution or in the Award Agreement, the
period or periods of service performed or to be performed by the
Participant in connection with the grant of the Award.
ARTICLE 7
OPTIONS
7.1 Types of Options. Options granted under the Plan may be in
the form of Incentive Stock Options or Nonqualified Options (including Deferred
Compensation Options). The grant of each Option and the Award Agreement
governing each Option shall identify the Option as an ISO or an NQO. In the
event the Code is amended to provide for tax-favored forms of stock options
other than or in addition to Incentive Stock Options, the Committee may grant
Options under the Plan meeting the requirements of such forms of options.
7.2 General. Options shall be subject to the terms and
conditions set forth in Article and this Article and shall contain such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
7.3 Option Price. Each Award Agreement for Options shall state
the option exercise price per Share of Common Stock purchasable under the
Option, which shall not be less than:
(a) $1 per share in the case of a Deferred Compensation
Option;
(b) 75 percent of the Fair Market Value of a Share on the date
of grant for all other Nonqualified Options; or
(c) 100 percent of the Fair Market Value of a Share on the
date of grant for all Incentive Stock Options.
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7.4 Option Term. The Award Agreement for each Option shall
specify the term of each Option, which may be unlimited or may have a specified
period during which the Option may be exercised, as determined by the Committee.
7.5 Time of Exercise. The Award Agreement for each Option
shall specify, as determined by the Committee:
(a) The time or times when the Option shall become exercisable
and whether the Option shall become exercisable in full or in graduated
amounts over a period specified in the Award Agreement;
(b) Such other terms, conditions, and restrictions as to when
the Option may be exercised as shall be determined by the Committee;
and
(c) The extent, if any, to which the Option shall remain
exercisable after the Participant ceases to be an employee, Advisor, or
director of Corporation or a Subsidiary.
An Award Agreement for an Option may, in the discretion of the Committee,
provide whether, and to what extent, the Option will become immediately and
fully exercisable (i) in the event of the death, Disability, or Retirement of
the Participant, or (ii) upon the occurrence of a change in control of
Corporation.
7.6 Method of Exercise. The Award Agreement for each Option
shall specify the method or methods of payment acceptable upon exercise of an
Option. An Award Agreement may provide that the option price is payable in full
in cash or, at the discretion of the Committee:
(a) In installments on such terms and over such period as the
Committee shall determine;
(b) In previously acquired Shares (including Restricted
Shares);
(c) By surrendering outstanding Awards under the Plan
denominated in Shares or in Share- equivalent units;
(d) By delivery (in a form approved by the Committee) of an
irrevocable direction to a securities broker acceptable to the
Committee:
(i) To sell Shares subject to the Option and to
deliver all or a part of the sales proceeds to Corporation in
payment of all or a part of the option price and withholding
taxes due; or
(ii) To pledge Shares subject to the Option to the
broker as security for a loan and to deliver all or a part of
the loan proceeds to Corporation in payment of all or a part
of the option price and withholding taxes due; or
(e) In any combination of the foregoing or in any other form
approved by the Committee.
If Restricted Shares are surrendered in full or partial payment of an Option
price, a corresponding number of the Shares issued upon exercise of the Option
shall be Restricted Shares subject to the same Restrictions as the surrendered
Restricted Shares.
7.7 Special Rules for Incentive Stock Options. In the case of
an Option designated as an Incentive Stock Option, the terms of the Option and
the Award Agreement shall be in conformance with the statutory and regulatory
requirements specified in Section 422 of the Code, as in effect on the date such
ISO is granted. ISOs may be granted only to employees of Corporation or a
Subsidiary. ISOs may not be granted
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under the Plan after January 8, 2001, unless the ten-year limitation of Section
422(b)(2) of the Code is removed or extended.
7.8 Restricted Shares. In the discretion of the Committee, the
Shares issuable upon exercise of an Option may be Restricted Shares if so
provided in the Award Agreement.
7.9 Deferred Compensation Options. The Committee may, in its
discretion, grant Deferred Compensation Options with an option price less than
Fair Market Value to provide a means for deferral of compensation to future
dates. The option price shall be determined by the Committee subject to Section
(a) of the Plan. The number of Shares subject to a Deferred Compensation Option
shall be determined by the Committee, in its discretion, by dividing the amount
of compensation to be deferred by the difference between the Fair Market Value
of a Share on the date of grant and the option price of the Deferred
Compensation Option. Amounts of compensation deferred with Deferred Compensation
Options may include amounts earned under Awards granted under the Plan or under
any other compensation program or arrangement of Corporation as permitted by the
Committee. The Committee shall grant Deferred Compensation Options only if it
reasonably determines that the recipient of such an Option is not likely to be
deemed to be in constructive receipt for income tax purposes of the income being
deferred.
7.10 Reload Options. The Committee, in its discretion, may
provide in an Award Agreement for an Option that in the event all or a portion
of the Option is exercised by the Participant using previously acquired Shares,
the Participant shall automatically be granted a replacement Option (with an
option price equal to the Fair Market Value of a Share on the date of such
exercise) for a number of Shares equal to (or equal to a portion of) the number
of shares surrendered upon exercise of the Option. Such reload Option features
may be subject to such terms and conditions as the Committee shall determine,
including without limitation, a condition that the Participant retain the Shares
issued upon exercise of the Option for a specified period of time.
7.11 Limitation on Number of Shares Subject to Options. In no
event may options for more than 500,000 Shares be granted to any individual
under the Plan during any fiscal year period.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 General. Stock Appreciation Rights shall be subject to the
terms and conditions set forth in Article and this Article and shall contain
such additional terms and conditions, not inconsistent with the express terms of
the Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
8.2 Nature of Stock Appreciation Right. A Stock Appreciation
Right is an Award entitling a Participant to receive an amount equal to the
excess (or if the Committee shall determine at the time of grant, a portion of
the excess) of the Fair Market Value of a Share of Common Stock on the date of
exercise of the SAR over the base price, as described below, on the date of
grant of the SAR, multiplied by the number of Shares with respect to which the
SAR shall have been exercised. The base price shall be designated by the
Committee in the Award Agreement for the SAR and may be the Fair Market Value of
a Share on the grant date of the SAR or such other higher or lower price as the
Committee shall determine.
8.3 Exercise. A Stock Appreciation Right may be exercised by a
Participant in accordance with procedures established by the Committee. The
Committee may also provide that a SAR shall be automatically exercised on one or
more specified dates or upon the satisfaction of one or more specified
conditions. In the case of SARs granted to Reporting Persons, exercise of the
SAR shall be limited by the Committee to the extent required to comply with the
applicable requirements of Rule 16b-3 under the Exchange Act.
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8.4 Form of Payment. Payment upon exercise of a Stock
Appreciation Right may be made in cash, in installments, in Shares, by issuance
of a Deferred Compensation Option, or in any combination of the foregoing, or in
any other form as the Committee shall determine.
ARTICLE 9
RESTRICTED AWARDS
9.1 Types of Restricted Awards. Restricted Awards granted
under the Plan may be in the form of either Restricted Shares or Restricted
Units.
(a) Restricted Shares. A Restricted Share is an Award of
Shares transferred to a Participant subject to such terms and
conditions as the Committee deems appropriate, including, without
limitation, restrictions on the sale, assignment, transfer, or other
disposition of such Restricted Shares and may include a requirement
that the Participant forfeit such Restricted Shares back to Corporation
upon termination of Participant's employment (or service as an Advisor)
for specified reasons within a specified period of time or upon other
conditions, as set forth in the Award Agreement for such Restricted
Shares. Each Participant receiving a Restricted Share shall be issued a
stock certificate in respect of such Shares, registered in the name of
such Participant, and shall execute a stock power in blank with respect
to the Shares evidenced by such certificate. The certificate evidencing
such Restricted Shares and the stock power shall be held in custody by
Corporation until the Restrictions thereon shall have lapsed.
(b) Restricted Units. A Restricted Unit is an Award of units
(with each unit having a value equivalent to one Share) granted to a
Participant subject to such terms and conditions as the Committee deems
appropriate, and may include a requirement that the Participant forfeit
such Restricted Units upon termination of Participant's employment (or
service as an Advisor) for specified reasons within a specified period
of time or upon other conditions, as set forth in the Award Agreement
for such Restricted Units.
9.2 General. Restricted Awards shall be subject to the terms
and conditions of Article and this Article and shall contain such additional
terms and conditions, not inconsistent with the express provisions of the Plan,
as the Committee (or the Board with respect to Awards to Non-Employee Directors)
shall deem desirable.
9.3 Restriction Period. Restricted Awards shall provide that
such Awards, and the Shares subject to such Awards, may not be transferred, and
may provide that, in order for a Participant to Vest in such Awards, the
Participant must remain in the employment (or remain as an Advisor) of
Corporation or its Subsidiaries, subject to relief for reasons specified in the
Award Agreement, for a period commencing on the date of the Award and ending on
such later date or dates as the Committee may designate at the time of the Award
(the "Restriction Period"). During the Restriction Period, a Participant may not
sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares
received under or governed by a Restricted Award grant. The Committee, in its
sole discretion, may provide for the lapse of restrictions in installments
during the Restriction Period. Upon expiration of the applicable Restriction
Period (or lapse of Restrictions during the Restriction Period where the
Restrictions lapse in installments) the Participant shall be entitled to
settlement of the Restricted Award or portion thereof, as the case may be.
Although Restricted Awards shall usually Vest based on continued employment (or
service as an Advisor) and Performance Awards under Article shall usually Vest
based on attainment of Performance Goals, the Committee, in its discretion, may
condition Vesting of Restricted Awards on attainment of Performance Goals as
well as continued employment (or service as an Advisor). In such case, the
Restriction Period for such a Restricted Award shall include the period prior to
satisfaction of the Performance Goals.
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9.4 Forfeiture. If a Participant ceases to be an employee or
Advisor of Corporation or a Subsidiary during the Restriction Period for any
reason other than reasons which may be specified in an Award Agreement (such as
death, Disability, or Retirement) the Award Agreement may require that all
non-Vested Restricted Awards previously granted to the Participant be forfeited
and returned to Corporation.
9.5 Settlement of Restricted Awards.
(a) Restricted Shares. Upon Vesting of a Restricted Share
Award, the legend on such Shares will be removed and the Participant's stock
power will be returned and the Shares will no longer be Restricted Shares. The
Committee may also, in its discretion, permit a Participant to receive, in lieu
of unrestricted Shares at the conclusion of the Restriction Period, payment in
cash, installments, or by issuance of a Deferred Compensation Option equal to
the Fair Market Value of the Restricted Shares as of the date the Restrictions
lapse.
(b) Restricted Units. Upon Vesting of a Restricted Unit Award,
a Participant shall be entitled to receive payment for Restricted Units in an
amount equal to the aggregate Fair Market Value of the Shares covered by such
Restricted Units at the expiration of the Applicable Restriction Period. Payment
in settlement of a Restricted Unit shall be made as soon as practicable
following the conclusion of the applicable Restriction Period in cash, in
installments, in Shares equal to the number of Restricted Units, by issuance of
a Deferred Compensation Option, or in any other manner or combination of such
methods as the Committee, in its sole discretion, shall determine.
9.6 Rights as a Shareholder. A Participant shall have, with
respect to unforfeited Shares received under a grant of Restricted Shares, all
the rights of a shareholder of Corporation, including the right to vote the
shares, and the right to receive any cash dividends. Stock dividends issued with
respect to Restricted Shares shall be treated as additional Shares covered by
the grant of Restricted Shares and shall be subject to the same Restrictions.
ARTICLE 10
PERFORMANCE AWARDS
10.1 General. Performance Awards shall be subject to the terms
and conditions set forth in Article and this Article and shall contain such
other terms and conditions not inconsistent with the express provisions of the
Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
10.2 Nature of Performance Awards. A Performance Award is an
Award of units (with each unit having a value equivalent to one Share) granted
to a Participant subject to such terms and conditions as the Committee deems
appropriate, including, without limitation, the requirement that the Participant
forfeit such Performance Award or a portion thereof in the event specified
performance criteria are not met within a designated period of time.
10.3 Performance Cycles. For each Performance Award, the
Committee shall designate a performance period (the "Performance Cycle") with a
duration to be determined by the Committee in its discretion within which
specified Performance Goals are to be attained. There may be several Performance
Cycles in existence at any one time and the duration of Performance Cycles may
differ from each other.
10.4 Performance Goals. The Committee shall establish
Performance Goals for each Performance Cycle on the basis of such criteria and
to accomplish such objectives as the Committee may from time to time select.
Performance Goals may be based on performance criteria for Corporation, a
Subsidiary, or an operating group, or based on a Participant's individual
performance. Performance Goals may include objective and subjective criteria.
During any Performance Cycle, the Committee may adjust the Performance
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Goals for such Performance Cycle as it deems equitable in recognition of unusual
or nonrecurring events affecting Corporation, changes in applicable tax laws or
accounting principles, or such other factors as the Committee may determine.
10.5 Determination of Awards. As soon as practicable after the
end of a Performance Cycle, the Committee shall determine the extent to which
Performance Awards have been earned on the basis of performance in relation to
the established Performance Goals.
10.6 Timing and Form of Payment. Settlement of earned
Performance Awards shall be made to the Participant as soon as practicable after
the expiration of the Performance Cycle and the Committee's determination under
Section , in the form of cash, installments, Shares, Deferred Compensation
Options, or any combination of the foregoing or in any other form as the
Committee shall determine.
ARTICLE 11
OTHER STOCK-BASED AND COMBINATION AWARDS
11.1 Other Stock-Based Awards. The Committee (or the Board
with respect to Awards to Non-Employee Directors) may grant other Awards under
the Plan pursuant to which Shares are or may in the future be acquired, or
Awards denominated in or measured by Share equivalent units, including Awards
valued using measures other than the market value of Shares. Such Other
Stock-Based Awards may be granted either alone, in addition to, or in tandem
with, any other type of Award granted under the Plan.
11.2 Combination Awards. The Committee may also grant Awards
under the Plan in tandem or combination with other Awards or in exchange of
Awards, or in tandem or combination with, or as alternatives to, grants or
rights under any other employee plan of Corporation, including the plan of any
acquired entity. No action authorized by this section shall reduce the amount of
any existing benefits or change the terms and conditions thereof without the
Participant's consent.
ARTICLE 12
DEFERRAL ELECTIONS
The Committee may permit a Participant to elect to defer
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise, earn-out, or Vesting of an
Award made under the Plan. If any such election is permitted, the Committee
shall establish rules and procedures for such payment deferrals, including, but
not limited to: (a) payment or crediting of reasonable interest on such deferred
amounts credited in cash, (b) the payment or crediting of dividend equivalents
in respect of deferrals credited in Share equivalent units, or (c) granting of
Deferred Compensation Options.
ARTICLE 13
DIVIDEND EQUIVALENTS
Any Awards may, at the discretion of the Committee, earn
dividend equivalents. In respect of any such Award which is outstanding on a
dividend record date for Common Stock, the Participant may be credited with an
amount equal to the amount of cash or stock dividends that would have been paid
on the Shares covered by such Award, had such covered Shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents, including
the timing, form of payment, and payment contingencies of such dividend
equivalents, as it deems are appropriate or necessary.
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ARTICLE 14
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
14.1 Plan Does Not Restrict Corporation. The existence of the
Plan and the Awards granted hereunder shall not affect or restrict in any way
the right or power of the Board or the shareholders of Corporation to make or
authorize any adjustment, recapitalization, reorganization, or other change in
Corporation's capital structure or its business, any merger or consolidation of
the Corporation, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting Corporation's capital stock or the rights thereof,
the dissolution or liquidation of Corporation or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding.
14.2 Adjustments by the Committee. In the event of any change
in capitalization affecting the Common Stock of Corporation, such as a stock
dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Committee, in its sole discretion, may deem appropriate to reflect such
change, shall be made with respect to the aggregate number of Shares for which
Awards in respect thereof may be granted under the Plan, the maximum number of
Shares which may be sold or awarded to any Participant, the number of Shares
covered by each outstanding Award, and the price per Share in respect of
outstanding Awards. The Committee may also make such adjustments in the number
of Shares covered by, and price or other value of any outstanding Awards in the
event of a spin-off or other distribution (other than normal cash dividends), of
Corporation assets to shareholders.
ARTICLE 15
AMENDMENT AND TERMINATION
Without further approval of Corporation's shareholders, the
Board may at any time terminate the Plan, or may amend it from time to time in
such respects as the Board may deem advisable, except that the Board may not,
without approval of the shareholders, make any amendment that would materially
increase the aggregate number of shares of Common Stock that may be issued under
the Plan (except for adjustments pursuant to Article 14 of the Plan). Without
further shareholder approval, the Board may amend the Plan to take into account
changes in applicable securities, federal income tax laws, and other applicable
laws. Further, should the provisions of Rule 16b-3, or any successor rule, under
the Exchange Act be amended, the Board, without further shareholder approval,
may amend the Plan as necessary to comply with any modifications to such rule.
ARTICLE 16
MISCELLANEOUS
16.1 Tax Withholding.
16.1.1 General. Corporation shall have the right to deduct
from any settlement, including the delivery or vesting of Shares, made under the
Plan any federal, state, or local taxes of any kind required by law to be
withheld with respect to such payments or to take such other action as may be
necessary in the opinion of Corporation to satisfy all obligations for the
payment of such taxes. The recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to Corporation for the satisfaction of
any such withholding tax obligations. Corporation shall not be required to make
any such payment or distribution under the Plan until such obligations are
satisfied.
16.1.2 Stock Withholding. The Committee, in its sole
discretion, may permit a Participant to satisfy all or a part of the withholding
tax obligations incident to the settlement of an Award involving payment or
delivery of Shares to the Participant by having Corporation withhold a portion
of the Shares that would otherwise be issuable to the Participant. Such Shares
shall be valued based on their Fair Market Value on the
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date the tax withholding is required to be made. Any stock withholding with
respect to a Reporting Person shall be subject to such limitations as the
Committee may impose to comply with the requirements of the Exchange Act.
16.2 Unfunded Plan. The Plan shall be unfunded and Corporation
shall not be required to segregate any assets that may at any time be
represented by Awards under the Plan. Any liability of Corporation to any person
with respect to any Award under the Plan shall be based solely upon any
contractual obligations that may be effected pursuant to the Plan. No such
obligation of Corporation shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of Corporation.
16.3 Payments to Trust. The Committee is authorized to cause
to be established a trust agreement or several trust agreements whereunder the
Committee may make payments of amounts due or to become due to Participants in
the Plan.
16.4 Annulment of Awards. Any Award Agreement may provide that
the grant of an Award payable in cash is provisional until cash is paid in
settlement thereof or that grant of an Award payable in Shares is provisional
until the Participant becomes entitled to the certificate in settlement thereof.
In the event the employment (or service as an Advisor or membership on the
Board) of a Participant is terminated for cause (as defined below), any Award
which is provisional shall be annulled as of the date of such termination for
cause. For the purpose of this Section 16.4, the term "for cause" shall have the
meaning set forth in the Participant's employment agreement, if any, or
otherwise means any discharge (or removal) for material or flagrant violation of
the policies and procedures of Corporation or for other job performance or
conduct which is materially detrimental to the best interests of Corporation, as
determined by the Committee.
16.5 Engaging in Competition With Corporation. Any Award
Agreement may provide that, if a Participant terminates employment with
Corporation or a Subsidiary for any reason whatsoever, and within 18 months
after the date thereof accepts employment with any competitor of (or otherwise
engages in competition with) Corporation, the Committee, in its sole discretion,
may require such Participant to return to Corporation the economic value of any
Award that is realized or obtained (measured at the date of exercise, Vesting,
or payment) by such Participant at any time during the period beginning on the
date that is six months prior to the date of such Participant's termination of
employment with Corporation.
16.6 Other Corporation Benefit and Compensation Programs.
Payments and other benefits received by a Participant under an Award made
pursuant to the Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination indemnity or severance
pay law of any state or country and shall not be included in, or have any effect
on, the determination of benefits under any other employee benefit plan or
similar arrangement provided by Corporation or a Subsidiary unless expressly so
provided by such other plan or arrangements, or except where the Committee
expressly determines that an Award or portion of an Award should be included to
accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of cash compensation. Awards under the
Plan may be made in combination with or in tandem with, or as alternatives to,
grants, awards, or payments under any other Corporation or Subsidiary plans,
arrangements, or programs. The Plan notwithstanding, Corporation or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain, and reward
employees and directors for their service with Corporation and its Subsidiaries.
16.7 Securities Law Restrictions. No Shares shall be issued
under the Plan unless counsel for Corporation shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Shares delivered under the Plan may be subject to such
stop-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable federal or state securities law. The Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
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16.8 Governing Law. Except with respect to references to the
Code or federal securities laws, the Plan and all actions taken thereunder shall
be governed by and construed in accordance with the laws of the state of Oregon.
ARTICLE 17
SHAREHOLDER APPROVAL
The amendment and restatement of the Plan is expressly subject
to the approval of the Plan by the shareholders at the 1997 annual meeting of
Corporation's shareholders.
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EPITOPE, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
SECOND AMENDMENT AND RESTATEMENT
1. PURPOSE OF THE PLAN. This plan, as amended and restated
effective December 17, 1996, by this Second Amendment and Restatement (the
"Plan"), shall be known as the "Epitope, Inc., 1993 Employee Stock Purchase
Plan." The purpose of the Plan is to permit employees of Epitope, Inc.
("Corporation"), and of its Subsidiaries (as hereinafter defined) to obtain or
increase a proprietary interest in Corporation by permitting them to make
installment purchases of shares of Corporation's Common Stock (as hereinafter
defined) through payroll deductions. The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986 (the "Code").
2. DEFINITIONS.
AGRITOPE STOCK. The Agritope Common Stock, no par value, of
Corporation or any security of Corporation issued in substitution,
exchange, or in lieu of such stock.
AGRITOPE STOCK PROPOSAL DATE. The effective date of the
amendment of Corporation's Articles of Incorporation to create the
Agritope Stock and to redesignate Corporation's previously existing
common stock as Medical Products Stock.
BOARD OF DIRECTORS. The Board of Directors of Corporation or a
committee thereof duly authorized for the purposes of administering
this Plan.
COMMON STOCK. Corporation's no par value common stock and any
security of Corporation issued in substitution, exchange, or in lieu of
such stock. For all periods after the Agritope Stock Proposal Date,
references in this Plan to Common Stock include Agritope Stock or
Medical Products Stock, or both, as the context may require.
ELIGIBLE EMPLOYEES. Those persons who on the applicable
Offering Date are employees of Corporation or a Subsidiary except those
who, immediately prior to the applicable Offering Date, would be deemed
under Section 423(b)(3) of the Code to own stock possessing 5 percent
or more of the total combined voting power or value of all classes of
stock of Corporation or any other corporation that constitutes a parent
or subsidiary corporation of Corporation within the meaning of that
section.
MAXIMUM PURCHASE PRICE. 85 percent of the mean between the
reported high and low sale prices, or, if there is no sale on such day,
the mean between the reported bid and asked prices, of Common Stock
(whether Agritope Stock or Medical Products Stock) on the securities
exchange or automated securities interdealer quotation system on which
Common Stock shall have been traded on the last trading day preceding
the applicable Offering Date.
MEDICAL PRODUCTS STOCK. The Epitope Medical Products Common
Stock, no par value, of Corporation or any security of Corporation
issued in substitution, exchange, or in lieu of such stock.
MONTHLY COMPENSATION. For an Eligible Employee on the payroll
of Corporation or a Subsidiary for the entire calendar month preceding
the applicable Offering Date, the compensation paid or accrued to such
Eligible Employee for such month plus, in the case of such an Eligible
Employee whose compensation for such month was based wholly or partly
on a bonus, commission, profit sharing, or similar arrangement for
which no accrual was made for such month, an amount equal to the
portion attributable to one month of the amount
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accrued to such Eligible Employee as of the day preceding the
applicable Offering Date, on the books of Corporation or its
Subsidiaries in accordance with such arrangement. For all other
Eligible Employees, Monthly Compensation shall be the monthly rate of
compensation in effect immediately prior to the applicable Offering
Date. For all purposes of the Plan, Monthly Compensation shall include
any amount which is contributed by Corporation or a Subsidiary pursuant
to a salary reduction agreement and which is not includable in the
gross income of an Eligible Employee under Code Sections 125 (relating
to "cafeteria plans") or 402(a)(8) (relating to elective contributions
under a "401(k)" plan).
OFFERING DATES. Such dates as may be set by the Board of
Directors, provided that no more than three Offering Dates (other than
Special Offering Dates for purposes of Special Offerings pursuant to
Section of this Plan) may be set during each fiscal year. The first day
of each calendar month, commencing June 1, 1993, shall be a Special
Offering Date. Except as otherwise expressly provided in this Plan, all
references to Offering Dates shall include Special Offering Dates.
OFFERING PERIODS. Such periods as may be set by the Board of
Directors for the offering of Common Stock pursuant to this Plan.
PARTICIPANT. An Eligible Employee who subscribes for the
purchase of shares of Common Stock under the Plan in accordance with
the Plan (including an Eligible Employee who participates in a Special
Offering pursuant to Section of this Plan.
PURCHASE DATES. Such dates as may be set by the Board of
Directors for the purchase of Common Stock, provided that (i) Purchase
Dates shall be no less than six months and no more than 24 months after
the termination of the applicable Offering Period and (ii) Purchase
Dates may be any earlier date of purchase pursuant to the terms of this
Plan, including Sections (termination of employment), (retirement or
disability), and (death).
PURCHASE PERIODS. The period beginning on the termination of
an Offering Period and ending on the applicable Purchase Date.
PURCHASE PRICE. The lesser of (i) the Maximum Purchase Price
or (ii) the mean between the reported high and low sale prices, or, if
there is no sale on such day, the mean between the reported bid and
asked prices, of Common Stock on the securities exchange or automated
securities interdealer quotation system on which Common Stock shall
have been traded on the applicable Purchase Date or, if the Purchase
Date is not a trading day, on the last trading day preceding such date.
The Purchase Price per share shall be subject to adjustment in
accordance with the provisions of Section of this Plan.
SPECIAL OFFERING. An offering pursuant to Section of this
Plan.
SUBSIDIARY. A domestic corporation of which, on the applicable
Offering Date, Corporation or a Subsidiary of Corporation owns at least
51 percent of the total combined voting power of all classes of stock
and whose employees are authorized to participate in the Plan by the
Board of Directors of Corporation.
3. THE OFFERING. The number of shares of Common Stock subject
to the Plan shall be 250,000 shares of Agritope Stock and 500,000 shares of
Medical Products Stock, plus that number of shares of Agritope Stock, which is
one-half of the number of shares of Common Stock (rounded down to the nearest
whole number) subject to outstanding subscriptions pursuant to the Plan
immediately prior to the Agritope Stock Proposal Date, in each case subject to
adjustment as provided in Section of this Plan. During each Offering Period,
Corporation may offer, at the applicable Purchase Price, for subscription by
Eligible Employees in
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accordance with the terms of the Plan, such number of authorized and unissued
shares of its Common Stock subject to the Plan as may be determined by the Board
of Directors.
4. SUBSCRIPTIONS.
a. SHARES SUBJECT TO SUBSCRIPTION. Except as provided in
Section of this Plan with respect to Special Offerings, during each Offering
Period, each Eligible Employee shall be entitled to subscribe for the number of
whole shares of Agritope Stock and Medical Products Stock offered during such
Offering Period designated by him in accordance with the terms of the Plan;
provided, however, that for any Offering Period, the Board of Directors may set
a minimum, a maximum, or both a minimum and a maximum number of shares that may
be subscribed for during such Offering Period. In no event may any employee
subscribe for shares (under any one or more Offering Periods which have Offering
Dates within any calendar year) which would have a total value (computed as the
number of shares subscribed for during each such Offering Period multiplied by
the Maximum Purchase Price for each such Offering Period) in excess of $21,250.
b. FURTHER LIMITATION ON SUBSCRIPTIONS. Notwithstanding
Section of this Plan, the maximum number of shares that may be subscribed for by
an Eligible Employee shall be further limited and reduced to the extent that the
number of shares owned by such Eligible Employee immediately after any Offering
Date for purposes of Section 423(b)(3) of the Code plus the maximum number of
shares set forth in Section of this Plan would exceed 5 percent of the total
combined voting power or value of all classes of stock of Corporation or a
parent or subsidiary corporation of Corporation within the meaning set forth in
Section 423(b)(3) of the Code.
c. SUBSCRIPTION AGREEMENTS. Subscriptions pursuant to the Plan
shall be evidenced by the completion and execution of subscription agreements in
the form provided by Corporation and delivery of such agreements to Corporation,
at the place designated by Corporation, prior to the expiration of each Offering
Period. No subscription agreement shall be subject to termination or reduction
during the Offering Period to which it relates without written consent of
Corporation.
d. OVER SUBSCRIPTION. In the event that the aggregate number
of shares of Agritope Stock or Medical Products Stock subscribed for pursuant to
the Plan as of any Purchase Date shall exceed the number of shares of Agritope
Stock or Medical Products Stock offered for sale during the Offering Period
related to such Purchase Date, then each subscription for such Offering Period
pursuant to which a purchase is effected shall be reduced to the number of
shares of Agritope Stock and Medical Products Stock that such subscription would
cover in the event of a proportionate reduction of all subscriptions for such
Offering Period outstanding on such Purchase Date so that the aggregate number
of shares subject to all such subscriptions would not exceed the number of
shares offered for sale during such Offering Period. In making such reductions,
fractions of shares shall be disregarded and each subscription shall be for a
whole number of shares.
5. PAYMENT OF PURCHASE PRICE. Except as otherwise specifically
provided in the Plan, the Purchase Price of all shares purchased hereunder shall
be paid in equal installments through payroll deduction from the Participant's
compensation during the applicable Purchase Period, without the right of
prepayment. The Maximum Purchase Price multiplied by the number of shares
subscribed for shall be withheld in substantially equal installments on each pay
period during the applicable Purchase Period.
6. SPECIAL OFFERS.
a. DEFINITIONS. For purposes of this Section , capitalized
terms not otherwise defined in Section of this Plan shall have the
following meanings:
ANNUAL INCREASE. The gross annual amount (before any
applicable withholding) by which an employee's compensation would
otherwise be increased during the one-year period following an Annual
Review Date for such employee had the employee not been subject to a
Special Offering Subscription pursuant to this Section .
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ANNUAL REVIEW DATE. The effective date, which may be an
employee's anniversary date, of an increase in compensation on account
of the employee's annual compensation review by Corporation.
SPECIAL OFFERING DATE. The first day of each calendar month
commencing June 1, 1993.
SPECIAL OFFERING SUBSCRIPTION. A subscription pursuant to this
Section 6 for the number of whole shares of Agritope Stock or Medical
Products Stock (or a combination of both) equal to an Eligible
Employee's Annual Increase as of an Annual Review Date divided by the
Maximum Purchase Price for the Special Offering Date which falls on or
immediately follows the Annual Review Date.
SPECIAL PURCHASE DATE. For each Participant with a Special
Offering Subscription, the one-year anniversary of the Annual Review
Date corresponding to the subscription.
SPECIAL PURCHASE PERIOD. The period from a Participant's
Annual Review date preceding a Special Offering Date through the
corresponding Special Purchase Date.
b. SUBSCRIPTION. As of each Annual Review Date for each
Eligible Employee:
i. Corporation may, in its discretion, provide the Eligible
Employee a Special Offering Subscription in lieu of any increase in
cash compensation during the following year; or
ii. The Eligible Employee may make an irrevocable election to
receive a Special Offering Subscription in lieu of any increase in cash
compensation during the following year.
In either case, the Special Offering Subscription shall be (at the discretion of
Corporation) for Agritope Stock, Medical Products Stock, or a combination of
both (specified by reference to relative percentages of the Annual Increase).
For example, Corporation could specify that an employee's Special Offering
Subscription for a $2,400 Annual Increase would be 75 percent (or $1,800) for
Agritope Stock and 25 percent (or $600) for Medical Products Stock.
c. SUBSCRIPTION AGREEMENT. Each Special Offering Subscription
shall be evidenced by the completion of a Special Offering Subscription
Agreement in the form provided by Corporation.
d. PAYMENT OF PURCHASE PRICE. For each Special Offering
Subscription, Corporation shall credit to an account for the
Participant an amount equal to the Annual Increase in equal
installments as of each payment date for the Participant during the
Special Purchase Period.
e. RIGHT TO TERMINATE ELECTION OR REDUCE NUMBER OF SHARES.
Notwithstanding Sections and of this Plan, a Participant subject to a
Special Offering Subscription may terminate the Special Offering
Subscription or reduce the number of shares covered by the Special
Offering Subscription only as of the Special Purchase Date (or an
earlier Purchase Date upon the occurrence of one or more of the events
described in Sections , , or ). Such a termination or reduction must be
made by written notice to Corporation and must be received by
Corporation no later than the last business day before the Special
Purchase Date (or such earlier Purchase Date).
f. WITHHOLDING. Participants shall be subject to applicable
state and federal tax withholding and employment taxes on the shares
purchased pursuant to a Special Offering Subscription or upon payment
of the amounts credited to the Participant's account. Corporation's
obligation to issue shares shall be conditioned on the payment by the
Participant (or other arrangement satisfactory to Corporation) of all
applicable withholding taxes.
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7. APPLICATION OF FUNDS; PARTICIPANTS' ACCOUNTS. All amounts
withheld from and paid by Participants hereunder shall be deposited in
Corporation's general corporate account to be used for any corporate purposes;
provided, however, that Corporation shall maintain a separate bookkeeping
account for each Participant hereunder reflecting all amounts withheld from and
paid by such Participant with respect to each Purchase Period under the Plan. No
interest shall be credited to such separate accounts.
8. ISSUANCE OF SHARES. Shares purchased under the Plan shall,
for all purposes, be considered to have been issued, sold, and purchased at the
close of business on the applicable Purchase Date. Prior to each applicable
Purchase Date, no Participant shall have any rights as a holder of any shares
covered by a subscription agreement. Promptly after each Purchase Date,
Corporation shall issue and deliver to the Participant a stock certificate or
certificates representing the whole number of shares purchased by the
Participant during the Purchase Period ending with such Purchase Date and refund
to the Participant in cash any excess amount in his account relating to such
Purchase Period. No adjustment shall be made for dividends or for the other
rights for which the record date is prior to the applicable Purchase Date,
except as may otherwise be provided in Section .
9. RIGHT TO TERMINATE SUBSCRIPTION. Except as provided in
Section of this Plan, each Participant shall have the right, at any time after
the expiration of each Offering Period and prior to the applicable Purchase
Date, to terminate his subscription relating to such Offering Period by written
notice to Corporation and receive a prompt refund in cash of the total amount in
his account with respect to the applicable Purchase Period.
10. RIGHT TO REDUCE NUMBER OF SHARES. Except as provided in
Section of this Plan, each Participant shall have the right, at any time after
the expiration of each Offering Period and prior to the applicable Purchase
Date, to make, by written notice to Corporation, a one-time-only reduction in
the number of shares covered by his subscription agreement relating to such
Offering Period, provided that such right shall only apply to Purchase Periods
of 12 months or more. Upon such reduction of shares, an appropriate reduction
shall be made in the Participant's future payroll deductions during the
applicable Purchase Period and the excess amount in the Participant's account
with respect to such Purchase Period resulting from such reduction shall be
promptly refunded to the Participant in cash or, at the option of the
Participant, shall be applied in equal amounts against all future installment
payments of the Maximum Purchase Price of the reduced number of shares to be
purchased during the applicable Purchase Period.
11. TERMINATION OF EMPLOYMENT. Upon termination of employment
of a Participant for any reason other than retirement, disability or death,
including by reason of the sale of the Subsidiary by which the Participant is
employed such that Corporation or a Subsidiary of Corporation no longer owns at
least 51 percent of the total combined voting power of all classes of stock of
the Subsidiary, a Participant shall have, during the period of three months
following his termination date, but prior to the applicable Purchase Date, the
right with respect to each Purchase Period for which he has an account under the
Plan to elect to receive either a refund in cash of the total amount of his
account relating to such Purchase Period or the whole number of shares that can
be purchased at the applicable Purchase Price with such amount together with any
remaining cash in his account relating to such Purchase Period. Each election
must be in writing and delivered to Corporation within the aforementioned
period. If the Participant elects to receive shares, the Purchase Date shall be
the date the Participant's election is delivered to Corporation. In the event
the Participant does not make a timely election with respect to any Purchase
Period for which he has an account under the Plan, he shall be deemed to have
elected to receive a cash refund of the amount of his account relating to such
Purchase Period.
12. RETIREMENT; DISABILITY. A participant who retires or whose
employment is terminated by reason of any injury or illness of such a serious
nature as to disable the Participant from resuming employment with Corporation
shall have all of the rights described in Section above and shall have the
additional right to elect, in the manner described in Section , to prepay in
cash in a lump sum the entire unpaid balance of the Purchase Price of the shares
covered by his subscription agreement relating to each Purchase Period and to
receive such shares. The Purchase Date for this purpose shall be the date on
which both the Participant's
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election and the lump-sum cash payment shall have been delivered to Corporation.
For purposes of the Plan, a termination of employment at or after age 60 for any
reason shall be considered retirement.
13. DEATH. In the event of the death of a Participant while in
the employ of Corporation or a Subsidiary and prior to full payment of the
Maximum Purchase Price for the shares covered by his subscription with respect
to each Purchase Period, or the death of a retired or disabled Participant prior
to the exercise of his rights described in Section above, his personal
representative shall have, during the period of three months following the
Participant's death, but prior to the applicable Purchase Date, the rights
described in Section . In the event of the death of a Participant who previously
terminated employment by reason other than retirement or disability prior to
full payment of the Maximum Purchase Price for the shares covered by his
subscription with respect to each Purchase Period and prior to the exercise of
his rights described in Section , his personal representative shall have the
rights described in Section .
14. TEMPORARY LAYOFF; LEAVES OF ABSENCE. A Participant's
installment payments with respect to each Purchase Period shall be suspended
during any period of absence from work due to temporary layoff or leave of
absence without pay. If such Participant returns to active employment within the
applicable Purchase Period, installment payments shall resume and, except as
provided below with respect to Special Offering Subscriptions, the Participant
shall be entitled to elect either to make up the deficiency in his account with
respect to such Purchase Period immediately with a lump-sum cash payment, or to
have future installments with respect to such Purchase Period uniformly
increased to make up the deficiency, or to have an appropriate reduction made in
the number of shares covered by his subscription agreement with respect to such
Purchase Period to eliminate the deficiency. The election (together with the
lump-sum cash payment, if applicable) must be delivered to Corporation within
ten days of the Participant's return to active employment but prior to the
applicable Purchase Date. If the Participant fails to make a timely election,
the appropriate reduction of shares shall be made in accordance with the above.
If the Participant does not return to active employment within the applicable
Purchase Period, he shall have the right to elect to receive either a refund in
cash of the total amount of his account with respect to such Purchase Period or
the whole number of shares which can be purchased at the applicable Purchase
Price with such amount together with any remaining cash in his account with
respect to the Purchase Period. The election must be in writing and delivered to
Corporation prior to, and shall be effective as of, the applicable Purchase
Date. In the event the Participant does not make a timely election with respect
to any Purchase Period, he shall be deemed to have elected to receive the cash
refund with respect to that Purchase Period. For Special Offering Subscriptions
under Section of the Plan, no amounts with respect to Annual Increase will be
credited during a period of absence from work due to temporary layoff or leave
of absence without pay and such amounts will not be made up after return to
active employment.
15. INSUFFICIENCY OF COMPENSATION. In the event that for any
payroll period, for reasons other than termination of employment for any reason,
temporary layoff, or leave of absence without pay, a Participant's compensation
(after all other proper deductions from his compensation) becomes insufficient
to permit the full withholding of his installment payment, the Participant may
pay the deficiency in cash when it becomes due. In the event that, in a
subsequent payroll period, the Participant's compensation becomes sufficient to
make the full installment payment and there still remains a deficiency in his
account, the deficiency must then be eliminated through the election of one of
the alternatives described in Section . The Participant must deliver his
election to Corporation within ten days of the end of such subsequent payroll
period but prior to the applicable Purchase Date. In the event that on the
applicable Purchase Date there remains a deficiency in such a Participant's
account or, in the event a Participant described above fails to make a timely
election, the appropriate reduction of shares shall be made in accordance with
Section 13.
16. INTEREST. Any person who becomes entitled to receive any
amount of cash refund from any account maintained for him pursuant to any
provision of the Plan shall be entitled to receive in cash, at the same time,
simple interest on the amount of such refund at the rate of 6 percent per annum.
Any refund shall be deemed to be made from the most recent payment or payments
made by the Participant pursuant to the Plan.
17. EFFECT OF CERTAIN STOCK TRANSACTIONS. If at any time after
the day preceding the Offering Date for each Purchase Period, and prior to the
issue and sale by Corporation of all the shares of
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Common Stock covered by Participants' subscription agreements with respect to
each Purchase Period for which the Offering Date has occurred, Corporation shall
effect a subdivision of shares of Common Stock or other increase (by stock
dividend or otherwise) of the number of shares of Common Stock outstanding,
without the receipt of consideration by Corporation or another corporation in
which it is financially interested and otherwise than in discharge of
Corporation's obligation to make further payment for assets theretofore acquired
by it or such other corporation or upon conversion of stock or other securities
issued for consideration, or shall reduce the number of shares of Common Stock
outstanding by a consolidation of shares, then (a) in the event of such an
increase in the number of such shares outstanding, the number of shares of
Common Stock then subject to Participants' subscription agreements with respect
to such Purchase Period shall be proportionately increased and the Maximum
Purchase Price and the Purchase Price per share for such Purchase Period shall
be proportionately reduced, and (b) in the event of such a reduction in the
number of such shares outstanding, the number of shares of Common Stock then
subject to subscription agreements with respect to such Purchase Period shall be
proportionately reduced and the Maximum Purchase Price and the Purchase Price
per share for such Purchase Period shall be proportionately increased. Except as
provided in this Section , no adjustment shall be made under this Plan or any
subscription agreement by reason of any dividend or other distribution declared
or paid by Corporation.
18. MERGER, CONSOLIDATION, LIQUIDATION OR DISSOLUTION. In the
event of any merger or consolidation of which Corporation is not to be the
survivor (or in which Corporation is the survivor, but becomes a subsidiary of
another corporation), or the liquidation or dissolution of Corporation, each
Participant shall have the right immediately prior to such event to elect to
receive the number of whole shares that can be purchased at the Purchase Price
applicable to each Purchase Period with respect to which such Participant has
subscribed for purchase of Common Stock with the full amount that has been
withheld from and paid by him pursuant to the subscription agreement relating to
such Purchase Period, together with any remaining excess cash in his account
relating to such Purchase Period. If such election is not made with respect to
the amount in a Participant's account for any Purchase Period, the Participant's
subscription agreement shall terminate and he shall receive a prompt refund in
cash of the total amount in such account.
19. LIMITATION ON RIGHT TO PURCHASE. Notwithstanding any
provision of the Plan to the contrary, if at any time a Participant is entitled
to purchase shares of Common Stock on a Purchase Date, taking into account such
Participant's rights, if any, to purchase Common Stock under the Plan and all
other stock purchase plans of Corporation and of other corporations that
constitute parent or subsidiary corporations of Corporation within the meaning
of Sections 425(e) and (f) of the Code, the result would be that, during the
then current calendar year, such Participant would have first become entitled to
purchase under the Plan and all such other plans a number of shares of Common
Stock of Corporation that would exceed the maximum number of shares permitted by
the provisions of Section 423(b)(8) of the Code, then the number of shares that
such Participant shall be entitled to purchase pursuant to the Plan on such
Purchase Date shall be reduced by the number that is one more than the number of
shares that represents the excess, and any excess amount in his account
resulting from such reduction shall be promptly refunded to him in cash.
20. NON-ASSIGNABILITY. None of the rights of an Eligible
Employee under the Plan or any subscription agreement entered into pursuant
hereto shall be transferable by such Eligible Employee otherwise than by will or
the laws of descent and distribution, and during the lifetime of an Eligible
Employee such rights shall be exercisable only by him.
21. SHARES NOT PURCHASED. Shares of Common Stock subject to
the Plan that are not subscribed for during each successive Offering Period and
shares subscribed for pursuant to such Offering Period that thereafter cease to
be subject to any subscription agreement hereunder shall remain subject to and
reserved for use in connection with a later Offering Period established by the
Board of Directors.
22. CONSTRUCTION; ADMINISTRATION. All questions with respect
to the construction and application of the Plan and subscription agreements
thereunder and the administration of the Plan shall be settled by the
determination of the Board of Directors or of one or more other persons
designated by it, which
- 7 -
<PAGE>
determinations shall be final, binding and conclusive on Corporation and all
employees and other persons. All Eligible Employees shall have the same rights
and privileges under the Plan.
23. TERMINATION OR AMENDMENT. Without further approval of
Corporation's shareholders, the Board of Directors may at any time terminate the
Plan or may amend the Plan from time to time in such respects as the Board of
Directors may deem advisable, except that the Board of Directors may not,
without the approval of Corporation's shareholders, make any amendment that
would materially increase the aggregate number of Shares that may be issued
under the Plan or decrease the price per Share (except for adjustments pursuant
to Section of the Plan.)
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included herein and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,280,049
<SECURITIES> 8,926,691
<RECEIVABLES> 1,631,454
<ALLOWANCES> (38,816)
<INVENTORY> 3,340,226
<CURRENT-ASSETS> 16,600,456
<PP&E> 8,914,778
<DEPRECIATION> (5,134,640)
<TOTAL-ASSETS> 23,678,197
<CURRENT-LIABILITIES> 4,070,730
<BONDS> 0
0
0
<COMMON> 108,671,715
<OTHER-SE> (89,849,729)
<TOTAL-LIABILITY-AND-EQUITY> 23,678,197
<SALES> 7,577,608
<TOTAL-REVENUES> 8,528,106
<CGS> 3,320,276
<TOTAL-COSTS> 3,320,276
<OTHER-EXPENSES> 11,572,295
<LOSS-PROVISION> 3,116,654
<INTEREST-EXPENSE> 25,010
<INCOME-PRETAX> (8,657,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,657,967)
<DISCONTINUED> (8,206,500)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,864,467)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> 0
</TABLE>