SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 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 No. 1-10492
EPITOPE, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0779127
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
8505 S.W. Creekside Place
Beaverton, Oregon 97008
(Address of principal executive offices) (Zip code)
(503) 641-6115
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, as of December 1, 1997:
$65,757,368
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of December 1, 1997: Common Stock, no par value,
13,454,330 shares.
Documents Incorporated by Reference:
Definitive Proxy Statement for 1998 Annual Shareholders' Meeting: Part III
<PAGE>
Table of Contents
PART I
Page
ITEM 1. Business 3
ITEM 2. Properties 14
ITEM 3. Legal Proceedings 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
ITEM 6. Selected Financial Data 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 20
ITEM 8. Financial Statements and Supplementary Data 21
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant 22
ITEM 11. Executive Compensation 22
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management 22
ITEM 13. Certain Relationships and Related Transactions 22
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 22
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PART I
ITEM 1. BUSINESS
Epitope, Inc. (Epitope or the Company), is an Oregon corporation incorporated in
1981. Epitope develops and markets oral specimen collection kits and related
diagnostic tests for the detection of the Human Immunodeficiency Virus (HIV),
the cause of Acquired Immune Deficiency Syndrome (AIDS), and for the detection
of other medical conditions and analytes. Epitope's lead product, the patented
OraSure(R) collection device, is used as part of an oral specimen diagnostic
system. The Company markets the device under the brand name EpiScreen(TM) in the
United States for use in screening life insurance applicants, and in certain
foreign countries for use in professional markets. In the balance of this
document the product will be referred to only as OraSure.
The OraSure device consists of a small, treated cotton-fiber pad on a nylon
handle that is placed in the patient's mouth for two minutes. The device
collects oral mucosal transudate (OMT), a serum-derived fluid that, unlike
saliva, contains higher concentrations of HIV antibodies in people infected with
the virus. As a result, OMT testing is a highly accurate method for detecting
HIV infection. Because OraSure uses a noninvasive, needle-free collection
method, the Company believes that oral fluid testing has several significant
advantages over blood-based testing systems for both healthcare professionals
and patients.
Epitope also markets HIV-1 Western blot confirmatory test kits used to confirm
positive results of initial screening tests for HIV-1 infection. Its OraSure
HIV-1 Western blot confirmatory test kit is used in conjunction with
oral-specimen based screening tests, while its EPIblot(R) HIV-1 Western blot
confirmatory test kit is used in conjunction with blood-based screening tests.
The kits are distributed worldwide under an exclusive agreement with Organon
Teknika Corporation (Organon Teknika), a member of the Akzo Pharma group of Akzo
Nobel, NV. , an international chemical and pharmaceutical manufacturer based in
Arnhem, The Netherlands.
The OraSure HIV-1 Oral Specimen Collection device and the OraSure HIV-1 Western
blot and EPIblot confirmatory tests have all received clearance from the U.S.
Food and Drug Administration (FDA) for sale to professional markets in the
United States.
In February 1995, the Company entered into a Development, License and Supply
Agreement (the SB Agreement) with SmithKline Beecham plc (SB), under which SB
would market the OraSure device on an exclusive basis in the U.S. and certain
foreign countries as part of an integrated test system to physicians, hospitals
and other healthcare professionals. The parties terminated the agreement in July
1997. As a result, the Company may now sell the OraSure directly or through
other distributors to markets previously reserved to SB under the SB Agreement.
During fiscal 1997, Agritope, Inc. (Agritope) was a wholly owned subsidiary of
Epitope. Agritope is a biotechnology company specializing in the development of
new fruit and vegetable plant varieties for sale to the fresh produce industry.
Epitope expects to make a distribution of all of its ownership interest in
Agritope to Epitope's shareholders (the Agritope Spin-off) in late December
1997. Following the Agritope spin-off, Epitope will no longer own or control any
shares of Agritope stock.
BACKGROUND
Acquired Immune Deficiency Syndrome (AIDS) is caused by the Human
Immunodeficiency Virus. HIV attacks the immune system, slowly weakening the
body's ability to ward off infection and certain forms of cancer. When these
complications develop, the HIV infection has progressed to clinically diagnosed
AIDS. HIV is spread through sexual contact, blood transfusions, the sharing of
intravenous needles, accidental needle sticks, or contact between a mother and
her child during gestation, childbirth, or breast-feeding. There is currently no
known cure for HIV/AIDS. However, the recent introduction of a new class of
anti-HIV drugs called protease inhibitors, when used in combination with
nucleoside analogs (e.g., AZT), has shown promising results in slowing progress
of the disease. Clinical studies have demonstrated that the early detection and
treatment of HIV can help to curb the effects of the disease and significantly
prolong the life of the patient. Other studies have shown that treatment with
AZT of an HIV-infected pregnant woman may prevent the transmission of HIV from
the mother to her child.
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According to the United Nations Program on HIV/AIDS, an estimated 30.6 million
people worldwide are now living with HIV, the virus that causes AIDS. Data from
1997 show that the previous estimates of HIV transmission grossly underestimated
the spread of the AIDS virus. The U.N. now believes that new infections are
occurring almost twice as fast as they estimated a year ago. Instead of 8,200
new infections a day, the U.N. now believes that there are 16,000. In North
America, an estimated 860,000 people have been infected with HIV. For children,
the report estimates that 1,600 under 15 years old are infected each day
compared to 1,000 per day a year ago.
Based on industry estimates, the Company believes that approximately 100 million
HIV tests were performed in the U.S. in 1996, with blood banks accounting for
about 25 million. The Company feels that a large proportion of the non-blood
bank HIV testing market should be available to OraSure because of the accuracy
of the test and the benefits of not having to draw blood. Currently, most HIV
tests are performed by testing a patient's blood. There are a number of blood
tests for HIV, the most common of which is the enzyme-linked immunosorbent assay
(ELISA or EIA). In order to reduce the possibility that an individual without
HIV will be diagnosed as having the virus (a false positive), most
industrialized countries require the retesting of the blood sample using a
second, more specific test to confirm an initial positive test result. The most
commonly used confirmatory test is the Western blot.
The Company believes that blood-based testing, in a situation other than blood
donation, has a number of disadvantages which increase healthcare costs and
patient inconvenience, pose a risk of infection to healthcare professionals and
make testing uneconomic or unavailable in certain applications or settings, and
that the OraSure product overcomes these problems. The disadvantages of blood
testing include:
Risk of HIV Infection. Blood tests involve the use of needles or lancets to
obtain blood from the patient. Healthcare professionals collecting blood risk
contracting HIV if accidentally stuck by the needle or lancet used to obtain
blood from an infected patient.
Limited Access. Because blood must be collected by trained professionals, its
collection is often difficult or prohibitively expensive in certain settings.
For example, community-based outreach programs, homeless shelters, rural
communities, and other remote settings often lack healthcare professionals
trained in blood collection. As a result, blood testing may not be as readily
available in some of these settings.
Higher Overall Cost. The cost of collecting a blood specimen represents a
significant component of the total cost of HIV testing. Furthermore, when a
healthcare professional must travel to the subject's office or home to collect a
blood sample, as is often the case with life insurance applicant testing, the
cost of collecting the blood specimen is substantially increased.
Patient Discomfort. Blood tests require the use of needles or lancets that are
uncomfortable for patients. In addition, patients with small or damaged veins,
such as intravenous drug users, the elderly and young children, may require
multiple needle sticks in order to obtain an adequate blood sample.
EPITOPE ORAL SPECIMEN COLLECTION TECHNOLOGY
In order to address the significant drawbacks associated with blood-based tests,
Epitope developed and patented a device to collect an oral specimen instead of
blood. The OraSure device, shaped like a small toothbrush, consists of a
cotton-fiber pad treated with a proprietary salt solution. The pad, which is
mounted on a nylon handle, is placed in the patient's mouth between the lower
cheek and gum for two minutes. The pad collects oral mucosal transudate, a
serum-derived fluid that, unlike saliva, contains higher concentrations of
antibodies. OMT contains approximately four times the amount of antibodies found
in ordinary whole saliva. Following collection, the pad is sealed in a specimen
vial containing a proprietary preservative solution. The treated pad enhances
the collection, and the preservative solution enhances the stabilization, of
antibodies and other analytes originating from the oral mucosae. The specimen in
the vial is stable for three weeks at room temperature, although in most cases
laboratory testing takes place within one to three days.
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PRODUCTS
OraSure. In December 1994, the Company received clearance from the FDA to sell
OraSure to professional markets for the ELISA screening of HIV-1 antibodies. The
device is marketed directly by the Company under the trade name EpiScreen for
use by the U.S. life insurance industry and in certain international markets,
and under the trade name OraSure to healthcare professionals in the United
States and a number of other countries. See "Marketing."
The OraSure oral specimen collection and HIV-1 testing system is easily
administered and involves three steps: (i) collection of an oral specimen using
the OraSure collection device, (ii) ELISA screening of the specimen for HIV
antibodies at a laboratory, and (iii) laboratory confirmation of positive
screening test results with the FDA-cleared OraSure Western blot kit. A trained
healthcare professional then conveys test results and provides appropriate
counseling to the patient.
The OraSure HIV-1 testing system represents a highly accurate alternative to
traditional blood-based tests. In clinical trials, OraSure provided the correct
result or triggered appropriate follow-up testing in 3,569 out of 3,570 cases
(99.97 percent). The Company believes OraSure has several advantages over
blood-based tests, as outlined in the following table.
Feature Blood Test EpiScreen/OraSure
Safety Poses risk of HIV Eliminates risk of
infection through needle-stick accidents
accidental needle sticks
Invasiveness Requires use of a Uses noninvasive
needle or lancet collection technique
Ease of use Requires blood Sample collection
collection by a requires minimal
trained healthcare training
professional
Portability Generally performed in Can be used rapidly and
a physician's office efficiently in almost
or other healthcare any setting
setting
Cost Requires a nurse or Eliminates the need for
other trained healthcare and costs associated
professional with a trained
healthcare professional
Oral-based and Serum-based Western Blot Confirmatory Tests. Epitope has also
developed, and in June 1996 received FDA clearance to market, an oral-based
HIV-1 Western blot confirmatory test. This test uses the original oral specimen
to confirm positive results of initial OraSure HIV-1 ELISA screening tests.
Epitope has also marketed EPIblot, a serum-based Western blot HIV-1 confirmatory
test kit, since 1987. The kit is used to confirm the positive results of initial
blood-based screening tests for HIV-1 infection.
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MARKETS
Life Insurance Industry. Epitope believes there is a significant need in the
life insurance industry for an easy-to-administer, noninvasive and
cost-effective HIV testing system such as OraSure. In the United States,
approximately 4.5 million HIV tests were administered in 1996 by the life
insurance industry in connection with the issuance of new policies. In addition,
data from the American Council of Life Insurance and the Health Insurance
Association of America indicate that over $1.5 billion in AIDS-related death
benefits were paid in 1995. The organizations also cautioned that, due to
difficulty in identifying all AIDS-related claims, the data may significantly
understate the financial impact of AIDS on the insurance industry.
Traditional HIV testing of life insurance applicants involves the use of a
paramedic or other trained healthcare professional to obtain a blood sample. The
cost to the insurance company for an HIV test includes the cost of the paramedic
as well as the cost of the collection kit and laboratory testing services. These
costs range from approximately $55 to $70, of which $35 to $50 is the cost of
the paramedic. As a result, insurance companies have generally limited HIV
testing to policies with face amounts of $100,000 or more. Based on industry
statistics, Epitope estimates that in 1994 approximately 9 million policies were
issued for face amounts of less than $100,000, representing 66 percent of all
policies issued. The Company believes that the use of OraSure can significantly
reduce the cost of HIV testing to the insurance industry because collection of
an oral fluid specimen can be performed by insurance agents or other persons
without professional medical training, eliminating the cost of the paramedic and
making testing at policy levels below $100,000 a cost-effective practice.
Moreover, the Company has found that some insurance companies are adopting
OraSure for use in connection with applications for insurance policies with face
amounts at and above $100,000 because the tests for HIV-1, cocaine and cotinine
give them sufficient information. John Hancock Mutual Life Insurance, one of the
nation's largest life insurers, is now using OraSure to test applicants 40 years
old and under for policies up to but not including $1 million, citing the
elimination of the unpleasant blood and urine tests and other medical exams
required for underwriting purposes.
Epitope also believes that the use of OraSure will allow the insurance industry
to address "anti-selection." Anti-selection occurs when an individual who knows
that he or she is infected with HIV intentionally applies for one or more life
insurance policies that do not entail HIV testing. The Company believes that the
adoption of OraSure by a number of insurance companies, and the availability of
a recently approved over-the-counter (OTC) HIV blood test, may increase the
incidence of anti-selection. By allowing insurance companies to lower the policy
level at which HIV testing is cost-effective, the use of OraSure may allow
insurance companies to reduce their exposure to losses from anti-selection and
thereby to lower overall claims costs.
An additional advantage of the OraSure testing system is that the oral specimen
used for HIV testing can also be used to identify smokers and users of cocaine.
Cotinine, a metabolite of nicotine, can be detected using OraSure. The FDA has
advised Epitope that OraSure may be used for cocaine testing for the purpose of
life insurance risk assessment while a 510(k) notice is undergoing final review,
and may be used for cotinine testing generally. In a presentation at the 105th
annual meeting of The American Academy of Insurance Medicine, a major life
insurance company reported results of the use of the OraSure testing system in
Canada and in the Bahamas from 1992 to 1995. The life insurance company reported
that agent collection reduced its testing costs by $65 per application. During
the four-year study period, the insurer found that it saved $1.7 million by
using OraSure for HIV and cocaine testing. In addition, the life insurance
company determined that it realized $1.6 million in increased premiums as a
result of identifying smokers who claimed on their applications that they were
nonsmokers. In another study presented to this same Academy, Crown Life of
Canada reported that the five year savings from testing for cocaine, cotinine
and HIV were approximately $1.4 million.
Physician and Public Health Clinical Market. The physician market consists
primarily of individual doctor's offices which are supplied through the
physician's supply house network. Selling to this market requires a substantial
sales force to call on the many offices throughout the country, each making its
own purchasing decision. SB was marketing to these customers through
representatives of the physician supply network and advertising in trade
journals. Since the termination of the SB Agreement, Epitope has chosen not to
focus on this highly diverse market at this time because of the high cost of
selling to these customers.
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The public health market is more concentrated than the physician market, with
typically more purchasing power in each decision maker. The customers consist of
a broad range of clinics and laboratories such as states, counties, colleges and
universities, prison systems and the military. There are also a number of
smaller organizations in this market such as AIDS Service Organizations and
various community based organizations set up for the primary purpose of
encouraging and enabling HIV testing to combat the spread of AIDS. The OraSure
device has received a warm welcome in much of this market because of its ease of
use and reliability. In some cases there has been an issue of higher cost for
OraSure testing as compared to blood-based testing. This has been principally in
the smaller organizations or in customers who are starting with small volume
testing and therefore not achieving volume price breaks for the OraSure device
or the related tests. In order to avoid having cost be a major obstacle to
growth in volume and adoption of this new testing format, Epitope is addressing
the issue on several fronts. For example, to assist in the cost of testing and
to provide fast turnaround with accurate test methods, Epitope has entered into
an agreement with LabOne to provide a prepackaged OraSure test kit with prepaid
testing and sample shipment to LabOne via overnight express. This product
package will be sold directly to the public health customers by the Epitope
sales force.
OTC Market. The over-the-counter (OTC) market for HIV testing currently consists
only of one test, distributed by Home Access Health Care, which uses a dried
blood spot to provide the patient's sample. This sample is then sent to a
laboratory for testing and the test results are communicated to the customer via
an 800 number. In July 1997, citing lower sales than expected and the lower
market estimates, Johnson & Johnson dropped its Confide product from the OTC
market. Also in July 1997, SB and Epitope terminated their agreement. As a
result, Epitope has significantly reduced the attention and resources it was
devoting to preparation for the OTC market, and has shifted instead to the
public health markets, including college health and corrections. The Company has
not ruled out an eventual move into the OTC market, but it is not a high
priority at this time.
International. In light of the worldwide scope of the HIV epidemic, Epitope
believes there are significant opportunities for sale of OraSure in
international markets. The Company believes that the ease of use, portability,
increased safety and aversion to blood draw in certain cultures will provide
significant advantages over blood tests in international markets. Epitope has
initiated an international marketing program that features direct assistance to
distributors in establishing OraSure programs that include laboratory services,
cooperation from screening test manufacturers, and provision of Western blot
confirmatory kits in each country. Epitope is currently marketing OraSure
directly to customers in Canada and through distributors in the United Kingdom,
Thailand, Argentina, Brazil, South Africa, Greece, the Philippines, Taiwan,
Mexico and Colombia. Epitope also has a joint venture in Japan.
PRODUCTS UNDER DEVELOPMENT
OraSure. Oral mucosal transudate (OMT) contains many constituents found in blood
serum. Because of this feature, the Company believes OraSure is a platform
technology with a wide variety of potential applications beyond HIV testing. For
example, the OraSure device may be useful for the diagnosis of a variety of
infectious diseases in addition to HIV, such as viral hepatitis and a number of
childhood diseases. In addition, the Company believes that the use of oral
specimens may allow physicians to diagnose diseases more readily in children
without subjecting them to the discomfort of drawing a blood sample, thereby
increasing the frequency of testing for diseases.
The Company has demonstrated that the OraSure device has potential for the
collection of samples which can be tested for drugs of abuse (NIDA-5) and
cotinine, a derivative of nicotine. Under an agreement with Epitope, STC
Technologies, Inc., has developed enzyme immunoassays (EIA's) for the detection
of cocaine, methamphetamine, cannabanoids (THC), opiates, phencyclidine (PCP)
and cotinine present in oral specimens. Four 510(k) notifications for cocaine,
methamphetamines, cannabanoids (THC) and cotinine are currently undergoing FDA
review. Additional 510(k) notifications for opiates and PCP are expected to be
submitted within the next few months. If approved, these will allow Epitope to
market OraSure to professional markets for drug abuse detection, in addition to
the life insurance industry. Although cotinine is not currently regulated by the
FDA for risk assessment, the 510(k) application for cotinine has been filed in
anticipation that cotinine testing for non-insurance purposes will be performed
at some time in the future. Physicians may also find the device useful for
monitoring level of drugs and hormones that must be maintained within narrow
therapeutic ranges. Monitoring of these
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substances currently requires frequent blood tests to determine drug
concentration. The Company believes that oral specimen testing would eliminate
the discomfort and inconvenience associated with this frequent blood testing.
OraQuick. Epitope is currently developing OraQuick(R), a one-step, rapid-format
oral specimen testing system designed to provide test results within ten
minutes. The Company believes that OraQuick has significant potential as a rapid
test for professional use, and as an OTC home-based test. Epitope has
substantially completed a prototype of OraQuick to test for HIV, with other
tests in various stages of development. Like OraSure, OraQuick is a platform
technology with a variety of potential applications in addition to HIV testing.
Modifications of the basic OraQuick technology may allow use of this approach
for detection of antibodies against the ulcer-causing bacterium helicobacter
pylori, as well as for a variety of infectious diseases such as syphilis, viral
hepatitis, and childhood infections. The application of this technology for
drugs of abuse testing appears possible and is a high priority within the
Epitope development group.
DNA Forensic Testing. Epitope has conducted successful preliminary trials which
have shown that it is possible to collect an excellent DNA sample using the
OraSure device. This sample is in addition to the antibody sample that is used
to test for HIV, making it possible to test for antibodies and produce a DNA
"fingerprint" with a single OraSure collection. The Company has contracted with
a well-established firm, experienced in the field of DNA testing, to conduct
further tests.
MARKETING
Life Insurance Industry. Epitope currently markets its OraSure device for use in
screening life insurance applicants for HIV, cocaine, and nicotine. The Company
maintains a three-member direct sales force that markets OraSure directly to the
insurance companies. The insurance companies then make their own decision
regarding which insurance reference laboratory to use to supply their devices
and testing service. The major laboratories currently using the OraSure device
include LabOne, Inc., Osborn Laboratories and Clinical Reference Laboratory. As
of November 1997, 24 of the top 100, and 6 of the top 10 life insurance
companies were using OraSure to varying degrees for testing applicants for life
insurance. Currently there are 62 insurance companies using OraSure. Because the
insurance companies are in various stages of their launch plans with OraSure,
there exists a wide range of policy limits where the product is being applied.
Some insurance companies have chosen to extend their testing to lower policy
limits where they did not test at all before, while others have used OraSure to
replace some of their blood-based testing. The Company's sales focus is on
converting additional insurance companies to the use of OraSure, and extending
its use within the companies already using OraSure.
Physician and Public Health Clinical Market. Through September 1997, SB marketed
Epitope's oral HIV testing system to the physician, hospital and other
professional healthcare provider markets under the brand name OraSure. The
Company resumed direct marketing of the device to these markets in October 1997.
Information about the product is accessible to consumers through a toll-free
number (1-800-OraSure) and on the Internet (www.OraSure.com). Epitope is in the
process of determining whether to merge the OraSure web site into the Epitope
web site (www.Epitope.com). The SB product launch in 1996 and 1997 was
accompanied by an advertising campaign featuring two-page spreads in major
medical professional publications. The OraSure brand was also a major sponsor of
the 1996 AIDS Candlelight March in Washington, D.C., conducted in connection
with the display of the National AIDS Quilts. In addition, SB sponsored numerous
AIDS testing programs through various public health organizations, further
increasing the awareness of OraSure in these markets. During the period of the
agreement (from Feb 1995 to July 1997), SB marketed and publicized the OraSure
brand name, and the benefits of oral specimen testing, nationwide. SB set up a
testing service for OraSure samples through its SB Clinical Laboratories (SBCL)
division, which continues to operate following the termination of the SB
Agreement. In addition, SB initiated customer contacts, and began the sales
process in the public health arena with a dedicated sales force making
significant inroads in this market. Epitope has hired some of the key sales
personnel from SB that had been focused on the public health market, and has
begun selling its products directly to these customers.
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OTC Market. In addition to the sales efforts in the professional and public
health markets, substantial work was put into preparation for launching the
OraSure product into the OTC market. This market would have required an FDA
approved testing laboratory (such as the one set up by SBCL), a counseling
service to provide test results, advice and referrals to customers, and a system
which would insure accurate and reliable handling of information related to the
customer sample, test results and counseling data. Epitope and SB conducted
clinical trials which demonstrated that ordinary untrained customers can
reliably use the OraSure device to collect an adequate sample for HIV testing
using only printed instructions supplied with the OraSure device. Although SB
and Epitope have chosen not to pursue the OTC markets at this time, Epitope has
begun discussions with other potential marketing partners. Epitope continues to
believe that the benefits of oral specimen testing would offer a significant
advantage in a consumer setting because it helps to overcome the aversion many
people have to taking their own blood for a sample.
International. Epitope markets to international customers primarily through
carefully chosen distributors with knowledge of their local market. The
distributor's expertise is supplemented by Epitope's contacts with the testing
companies to assist in registering the necessary tests in each country, and
Epitope's assistance with training and support materials.
Western Blot Distribution. Epitope has entered into supply and distribution
agreements with Organon Teknika. The supply agreement provides that Organon
Teknika will supply the HIV-1 antigen used to manufacture Western blot
confirmatory test kits. The distribution agreement grants Organon Teknika the
exclusive right to purchase Western blot confirmatory test kits from Epitope and
to market them worldwide. Epitope and Organon Teknika recently extended the
expiration dates for the supply and distribution arrangements to March 31, 1998.
COMPETITION
Competition in the emerging market for HIV testing is intense and is expected to
increase. The Company believes that the principal competition will come from
existing blood-based HIV assays and from urine-based testing assays. Epitope's
competitors include specialized biotechnology firms as well as pharmaceutical
companies with biotechnology divisions and medical diagnostic companies, many of
which have considerably greater financial, technical, and marketing resources
than Epitope. Competition may intensify as technological advances are made and
become more widely known and as products reach the market in greater numbers.
Furthermore, new testing methodologies could be developed in the future that
render Epitope's oral-based HIV test impractical, uneconomical or obsolete.
There can be no assurance that Epitope's competitors will not succeed in
developing or marketing technologies and products that are more effective than
those developed by Epitope or that would render its technologies or products
obsolete or otherwise commercially unattractive. In addition, there can be no
assurance that competitors will not succeed in obtaining regulatory approval for
these products, or in introducing or commercializing them before Epitope. Such
developments could have a material adverse effect on the Company's business,
financial condition and results of operations.
Three companies have submitted applications to the FDA for OTC HIV blood
testing: Direct Access Diagnostics, Home Access Health Corp., and ChemTrak
Incorporated. The FDA has approved home collection kits for HIV blood testing
developed by Direct Access Diagnostics (Johnson & Johnson) and by Home Access
Health Corp. In July 1997 Johnson & Johnson withdrew its HIV home test from the
market, citing weak sales.
Cambridge Biotech Corporation and BioRad Laboratories, Inc. manufacture HIV
Western blot confirmatory tests, and Waldheim Pharmazeutika manufactures
immunofluorescent HIV confirmatory tests, which compete with Epitope's EPIblot
HIV-1 Western blot serum-based confirmatory test kits.
Several other companies market or have announced plans to market oral specimen
collection devices and tests outside the United States and have announced plans
to seek FDA approval of such tests in the United States. Epitope expects the
number of devices competing with its OraSure device to increase as the benefits
of oral specimen-based testing become more widely accepted. The Company expects
that FDA approval of the OraSure device will also encourage potential
competitors to develop oral diagnostic products. No such devices have yet been
approved by the FDA for HIV testing. See "Government Regulation".
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The FDA has approved an HIV ELISA screening test for use with a urine sample.
More recently the FDA notified Cambridge Biotech Corp that it had completed the
review of its HIV-1 Western Blot confirmatory test for use with urine samples,
and that the application was approvable, pending the completion of product
labeling and restrictions on its use. Until a confirmatory test for HIV testing
with urine is approved, a patient who gives an initial positive urine screening
result must return to give a second, blood-based sample for confirmatory
testing. The Company believes that urine collection can be logistically more
difficult, inconvenient and potentially embarrassing for the patient, and that
privacy and chain-of-custody issues are further impediments to routine use of
urine-based HIV tests.
GOVERNMENT REGULATION
General. Many of Epitope's proposed and existing diagnostic products are subject
to regulation by the FDA, other federal, state, and local agencies, and
comparable bodies in foreign countries. Such regulation governs almost all
aspects of development and marketing, including the introduction, advertising,
promotion, manufacturing practices, labeling, distribution, and record keeping
for the products. In the United States, different types of diagnostic products
are regulated differently by the FDA, as discussed below. As part of the FDA
clearance process, Epitope often must demonstrate that its products are both
safe and effective for a particular indication or application.
Drugs and Biological Products. Generally, drugs and biological products require
FDA approval before marketing. The steps required before a drug or biological
product may be marketed in the United States include: (1) preclinical laboratory
and animal tests; (2) submission of an application for an investigational new
drug or biological product, which must become effective before human clinical
trials may commence; (3) human clinical trials; (4) submission of a Product
License Application (PLA) for the biological product or a New Drug Application
(NDA) for most other new drug products; and (5) approval of the PLA or NDA.
Preclinical safety and initial efficacy testing is usually undertaken in
animals. Results of such preclinical and other laboratory tests are submitted to
the FDA before human clinical trials can begin. Clinical trials are typically
conducted in three phases. Phase I uses human subjects to determine safety and
tolerance. Phase II uses a limited patient population to determine effectiveness
and dosage and to identify side effects. Compounds found effective and safe in
Phase II are further tested in Phase III with an expanded patient population at
geographically dispersed clinical study sites. Each phase may last from one to
two years or more.
Most products are not approved because of the failure to demonstrate safety,
effectiveness, or both. The FDA may suspend clinical trials at any time if it is
felt that subjects or patients are being exposed to an unacceptable health risk.
Obtaining FDA approval requires substantial time and effort. There can be no
assurance that any approval will be granted to Epitope on a timely basis, if at
all. As part of the approval process, the FDA may require the Company to
initiate post-approval marketing studies.
Medical Devices. Medical devices are classified either in Class I, Class II, or
Class III. Class I devices are subject only to general control provisions of the
Federal Food, Drug, and Cosmetic Act, as amended (the FDC Act). These provisions
include requirements that a device not be adulterated or misbranded. Class II
devices are those for which general controls are insufficient to provide a
reasonable assurance of safety and efficacy and for which a "generic"
performance standard or other special controls are appropriate. Devices that do
not meet the criteria for Class I or II are placed in Class III. Class I and II
devices, those Class III devices initially marketed prior to passage of the
Medical Device Amendments of 1976 (MDA) for which premarket approval
applications (PMAs) are not yet required, and devices substantially equivalent
to such devices, may be marketed upon FDA clearance of a Premarket Notification
(a 510(k)). Other Class III devices may be commercially marketed only after FDA
approval of a PMA. Generally, the process of obtaining FDA approval of a PMA is
similar to that for obtaining approval of a biological or other drug product.
Based upon the information provided in a 510(k) Notice regarding the device's
intended use and technological features, the FDA will determine whether the
device is "substantially equivalent" to a predicate device, i.e., a device
legally marketed which did not require a PMA. If a device is found to be
substantially equivalent to a predicate device, it may be freely marketed in the
United States so long as the device is otherwise in compliance with the FDC Act.
If it is not so found, it will be considered a Class III device requiring a PMA.
Substantial equivalence means
- 10 -
<PAGE>
that the FDA has found that the device has the same intended use as the
predicate device, and either has the same technological characteristics or has
different characteristics, but there is information in the 510(k) Notice that
shows the device is as safe and effective as the predicate and does not present
different questions of safety and effectiveness.
OraSure Collection Device. Use of the OraSure collection device for applications
involving the detection of antibodies to HIV is regulated by the FDA as use of a
Class III medical device requiring a PMA. In December 1994, the FDA approved
Epitope's PMA for use of the OraSure device in HIV screening. Post-approval
marketing studies are under way as required as part of the FDA's approval of the
OraSure device. In June 1996, the FDA approved the PMA for use of the OraSure
oral specimen-based Western blot confirmatory test kit for HIV-1 diagnosis. A
second generation HIV-1 antibody EIA test for OraSure samples is currently under
review by the FDA.
The Company has also applied for regulatory clearance of the use of the OraSure
device for HIV testing (device, screening test, and Western Blot confirmatory
test) in Canada.
Epitope has submitted 510(k) Notices for use of OraSure in testing for several
drugs of abuse. These submissions are currently undergoing FDA review. See
"Business-- Products Under Development--OraSure." In the meantime, the FDA has
advised Epitope that OraSure may be used for cocaine testing for the purposes of
life insurance risk assessment.
Western Blot Test Kits. Epitope's HIV-1 Western blot serum-based confirmatory
test kits are used to confirm whether individuals are infected with HIV-1. They
are regulated by the FDA as biological products, unlike most other diagnostic
tests which are regulated as medical devices. In March 1991, the FDA cleared the
EPIblot HIV-1 serum-based confirmatory test kit for commercial distribution. As
noted above, a PMA seeking permission to market the OraSure oral specimen-based
Western blot confirmatory test kit for HIV-1 diagnosis was approved by the FDA
in June 1996.
Manufacturing Regulations. Every company that manufactures drugs, biological
products, or medical devices distributed in the United States is subject to
inspections by the FDA and must comply with the FDA's Quality Systems
regulations. These regulations govern, among other matters, manufacture,
testing, release, packaging, distribution, documentation, purchasing and design
control.
Other. Epitope is also subject to regulation by the Occupational Safety and
Health Administration and may be subject to regulation by the U.S. Environmental
Protection Agency (EPA) under the Toxic Substances Control Act (TSCA), the
Resource Conservation and Recovery Act, and other legislation. Epitope is also
subject to foreign regulations governing, for example, human clinical trials and
marketing with respect to products distributed outside the United States.
Approval processes vary from country to country, and the length of time required
for approval or to obtain other clearances may in some cases be longer than that
required for U.S. governmental approvals. The extent of potentially adverse
governmental regulation affecting Epitope that might arise from future
legislative or administrative action cannot be predicted.
TARGETED STOCK AND AGRITOPE SPIN-OFF
In November 1996, the Epitope board of directors (the Epitope Board) proposed
creating two separate classes of Epitope common stock, one to reflect the
business and operations of the Epitope Medical Products business and the other
to reflect the business and operations of Agritope, then a wholly owned
subsidiary engaged in the agricultural biotechnology business (the Targeted
Stock Proposal). In May 1997, prior to a shareholder vote on the Targeted Stock
Proposal, the Epitope Board withdrew the Targeted Stock Proposal from
consideration. In July 1997, the Epitope Board approved a proposal to spin off
Agritope, subject to obtaining financing for Agritope and the satisfaction of
certain other conditions, in a distribution to Epitope shareholders (the
Agritope Spin-off). In late December 1997, Epitope expects to distribute all of
its ownership interest in Agritope to Epitope's shareholders through a stock
dividend. Epitope will then no longer own or control any shares of Agritope
stock.
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<PAGE>
DISCONTINUED OPERATIONS
Agritope. Agritope (then named Agricultural Genetic Systems, Inc.) was acquired
by Epitope in 1987. Agritope consists of two units: Agritope Research and
Development (Agritope R&D) and Vinifera, Inc. (Vinifera). Agritope R&D uses
biotechnology in the development of new fruit and vegetable plant varieties for
sale to the fresh produce industry. To date, Agritope has not completed
commercialization of this technology. A portion of the research and development
efforts conducted by Agritope has been performed under various research grants
and contracts. Vinifera is engaged in the grapevine propagation and distribution
business. During 1995, Vinifera was in the development stage and generated
minimal product sales. Vinifera commenced commercial stage operations in 1996.
Agritope's results of operations are presented as discontinued operations in the
consolidated financial statements included in this Annual Report on Form 10-K
for all periods presented. Agritope's net assets are presented in the September
30, 1997 balance sheet as net assets of discontinued operations. All
intercompany loans from Epitope to Agritope have been reflected as capital
contributions to Agritope consistent with the separation agreement dated between
Agritope and Epitope dated December 1, 1997, which also provides that net
expenses of Agritope after that date will be borne by Agritope, subject to the
completion of the Agritope Spin-off.
Andrew and Williamson Sales, Co. 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 Epitope common stock 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. In addition, the Company has
provided a guarantee to Wells Fargo Bank for a credit facility provided to A&W
which has a borrowing limit of $6.5 million. This credit line is secured by
A&W's accounts receivable, inventory and equipment, as well as by personal
guarantees from the owners of A&W, who have agreed to reimburse Epitope for any
amounts the Company is required to pay under the guarantee.
SUPPLIES
The HIV-1 antigen needed to manufacture Epitope's Western blot HIV confirmatory
test kits is available from only a limited number of sources. Organon Teknika,
the exclusive distributor of the test kits, is required to supply Epitope's
requirements for antigen for the term of its distribution agreement with
Epitope, which ends March 31, 1998. If for any reason Organon Teknika should no
longer be able to supply the Company's antigen needs, management believes
Epitope would be able to obtain its own supply of antigen at a competitive cost.
A change in the antigen would require FDA approval. Epitope has obtained a
license from the National Technical Information Service which is required for
the production of the HIV-1 antigen currently used in the Company's Western blot
test kits, although it is unlikely that Epitope would choose to manufacture its
own antigen because of its availability from other suppliers.
Other materials used by Epitope in manufacturing, production, and research and
development operations are widely available from a variety of sources.
GRANTS AND CONTRACTS
Epitope has received funding in the past from the National Institute of Allergy
and Infectious Diseases (NIAID), for work in developing a rapid test to detect
HIV antibodies in oral fluid specimens, and from the National Cancer Institute
(NCI) to fund research for the treatment of cancer by exploiting a deficiency of
certain compounds in cancer cells. As a part of the SB Agreement, various R&D
projects at Epitope were funded by SB, in exchange for certain marketing rights
to products which would have resulted from the development. With the termination
of the SB Agreement, Epitope regained the rights to the results of the work that
had been accomplished under this funding. The Company intends to continue to
participate in grant programs and projects with strategic partners as it deems
- 12 -
<PAGE>
appropriate. The Company regularly makes applications for new grants, but there
is no assurance that grant support will be continued.
PATENTS AND PROPRIETARY INFORMATION
Epitope has obtained patents in the United States and certain foreign countries
for the OraSure and OraQuick devices and related technology. Epitope has applied
for additional patents, both in the United States and in certain foreign
countries, on the OraSure collection device and a number of other technologies
and products. The Company anticipates filing patent applications for protection
on future products and technology. United States patents generally have a
maximum term of 20 years from the date an application is filed or 17 years from
issuance, whichever is longer.
Much of the technology developed by the Company is subject to trade secret
protection. To reduce the risk of loss of trade secret protection through
disclosure, the Company requires its employees and consultants to enter into
confidentiality agreements. The Company believes that patent and trade secret
protection is important to its business. However, the issuance of a patent or
existence of trade secret protection does not in itself ensure the Company's
success. Competitors may be able to produce products competing with a patented
Company product without infringing on the Company's patent rights. Issuance of a
patent in one country generally does not prevent manufacture or sale of the
patented product in other countries. The issuance of a patent to the Company or
to a licenser is not conclusive as to validity or as to the enforceable scope of
the patent. The validity or enforceability of a patent can be challenged by
litigation after its issuance, and, if the outcome of such litigation is adverse
to the owner of the patent, the owner's rights could be diminished or withdrawn.
Trade secret protection does not prevent independent discovery and exploitation
of the secret product or technique.
PERSONNEL
At September 30, 1997, the Company and its subsidiaries had 130 full-time
employees, including 85 persons employed by Epitope, and 45 employed by
Agritope. Epitope employees included 15 persons in research and product
development, 25 in administration and marketing, 34 in manufacturing and
production, and 11 in regulatory affairs and quality assurance. Agritope
employees included 22 in research and development and 23 at the Vinifera grape
plant nursery operation which also employs seasonal part-time employees as
needed. The Company considers its relations with its employees to be excellent.
None of its employees are represented by labor unions.
The Company and its subsidiaries employ 12 persons holding Ph.D. or M.D. degrees
with specialties in the following disciplines: analytical chemistry,
bacteriology and public health, biochemistry, biophysics, hematology and
internal medicine, immunology, molecular biology, organic chemistry, plant
biology and plant pathology. From time to time, the Company also engages the
services of scientists as consultants to augment the skills of its scientific
staff.
SCIENTIFIC ADVISORY BOARD
The Company also utilizes the services of a Scientific Advisory Board. The
Scientific Advisory Board meets periodically to review the Company's research
and development efforts and to apprise the Company of scientific developments
pertinent to the Company's business. The Scientific Advisory Board comprises
chair Daniel Malamud, Ph.D., Professor and Chair, Department of Biochemistry,
University of Pennsylvania School of Dental Medicine; J. Richard George, Ph.D.,
Vice President of Scientific Affairs of Epitope; Lesley M. Hallick, Ph.D., Vice
President for Academic Affairs, Oregon Health Sciences University; and James I.
Mullins, Ph.D., Professor of Microbiology and Medicine, University of
Washington; and John V. Parry, Ph.D, Deputy Director, Hepatitis and
Retrovirology Laboratory, Central Public Health Laboratory, Virus Reference
Division, London.
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<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The previous discussion of the Company's business should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
in this Annual Report on Form 10-K. Statements regarding future events or
performance set forth in this report 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 loss or impairment
of sources of capital; ability of the Company to develop product distribution
channels; development of competing products; market acceptance of oral testing
products; 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.
ITEM 2. PROPERTIES.
The Company leases approximately 35,600 square feet of office, manufacturing,
and laboratory space in Beaverton, Oregon, under two leases that terminate
January 31, 2000. Each lease calls for fixed monthly payments over its term. The
Company also entered into a three-year lease, effective October 1, 1996, for
2,265 square feet of warehouse space used to store inventory and equipment.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is listed for trading on the National Market tier of
The Nasdaq Stock Market ("NASDAQ") under the symbol EPTO. Prior to Jan 2, 1997,
the Company's Common Stock was listed for trading on the American Stock Exchange
("AMEX") under the symbol EPT. High and low sales prices reported by NASDAQ and
AMEX during the periods indicated are shown below.
SALES PRICES PER SHARE
YEAR ENDED SEPTEMBER 30 1997 1996
HIGH LOW HIGH LOW
First Quarter $ 16.375 $ 10.875 $ 18.00 $ 9.50
Second Quarter 17.375 9.75 19.50 13.875
Third Quarter 11.125 6.25 22.875 15.50
Fourth Quarter 8.625 4.625 16.125 11.75
On December 1, 1997, there were 1,004 holders of record of the Common Stock, and
the closing price of the Common Stock was $5.75. The Company has never paid any
cash dividends, and the Board of Directors does not anticipate paying cash
dividends in the foreseeable future. The Company intends to retain any future
earnings to provide funds for the operation and expansion of its business.
On September 30, 1997, the Company issued 209,368 shares of Common Stock to
SmithKline Beecham plc in a private placement in exchange for $1,500,000 in
cash. The shares were issued in reliance on Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended. SB is an accredited investor, as
defined in Regulation D. The Company filed a Form D regarding sale of the
shares.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
COMPARATIVE FINANCIAL DATA
(In thousands, except per share data)
The following table sets forth selected historical consolidated income and
balance sheet data of Epitope, Inc. and its subsidiaries. The balance sheet data
at September 30, 1997 and 1996 and the operating results data for the years
ended September 30, 1997, 1996, and 1995 have been derived from audited
consolidated financial statements and notes thereto included in this Annual
Report on Form 10-K. The balance sheet data at September 30, 1995, 1994 and 1993
and operating results data for the years ended September 30, 1994 and 1993 have
been derived from audited consolidated financial statements and notes thereto
not included in this Annual Report on Form 10-K and, in the opinion of
management, include all adjustments necessary for fair presentation. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included in Item 8 herein and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPARATIVE FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996 1995 1994 1993
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 9,360 $ 5,594 $ 2,856 $ 2,605 $ 2,759
Operating costs and expenses..................... 14,324 10,881 14,463 8,890 9,376
Other income (expense), net...................... 882 6,388(1) 1,157 456 (1,154)
Profit (loss) from continuing operations......... (4,081) 1,101 (10,451) (5,829) (7,771)
Discontinued operations.......................... (18,359) (2,501) (8,045) (9,804) (6,958)
Net loss......................................... (22,440) (1,400) (18,496) (15,633) (14,729)
Profit (loss) per share from continuing
operations..................................... (.30) .08(2) (.88) (.58) (.88)
Net loss per share............................... (1.67) (.11) (1.56) (1.56) (1.67)
Shares used in per share
calculations.................................... 13,404 12,661(2) 11,886 10,050 8,828
BALANCE SHEET DATA
Working capital.................................. $ 9,538 $ 24,793 $ 20,686 $ 16,766 $ 8,703
Total assets..................................... 17,012 29,784 26,142 19,993 9,071
Accumulated deficit.............................. (95,426) (72,985) (71,585) (53,090) (37,457)
Shareholders' equity............................. 15,014 27,967 22,347 18,470 7,970
</TABLE>
(1) Includes one-time licensing fee of $5.0 million.
(2) 13,440,000 shares used in calculation of profit per share from continuing
operations due to common stock equivalents.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of operations and financial condition should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Annual Report on Form 10-K. 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 loss or impairment of sources of
capital; ability of the Company to develop product distribution channels;
development of competing products; market acceptance of oral testing products;
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.
TARGETED STOCK AND AGRITOPE SPIN-OFF
In November 1996, the Epitope Board proposed creating two separate classes of
Epitope common stock, one to reflect the business and operations of the Epitope
medical products business and the other to reflect the business and operations
of Agritope (the "Targeted Stock Proposal"). In May 1997, prior to a shareholder
vote on the Targeted Stock Proposal, the Epitope Board withdrew the Targeted
Stock Proposal from consideration. In July 1997, the Epitope Board approved the
Agritope Spin-off, subject to obtaining financing for Agritope and the
satisfaction of certain other conditions. In October 1997, commitments for
financing for Agritope considered to be adequate by the Epitope Board were
obtained. In late December 1997, Epitope expects to distribute all of its
ownership interest in Agritope to Epitope's shareholders through a stock
dividend. Epitope will then no longer own or control any shares of Agritope
stock.
DISCONTINUED OPERATIONS
Agritope. Agritope is a wholly owned subsidiary of Epitope acquired in 1987.
Agritope consists of two units: Agritope R&D and Vinifera. Agritope R&D uses
biotechnology in the development of new fruit and vegetable plant varieties for
sale to the fresh produce industry. To date, Agritope has not completed
commercialization of this technology. A portion of the research and development
efforts conducted by Agritope has been performed under various research grants
and contracts. Vinifera is engaged in the grapevine propagation and distribution
business. During 1995, Vinifera was in the development stage and generated
minimal product sales. Vinifera commenced commercial stage operations in 1996.
Agritope's results of operations and net assets are presented as discontinued
operations in the consolidated financial statements included in this Annual
Report on Form 10-K for all periods presented. All intercompany loans from
Epitope to Agritope have been reflected as capital contributions to Agritope
consistent with the separation agreement dated December 1, 1997. The 1997 loss
from discontinued operations of Agritope includes an accrual of $1.2 million for
Agritope's operating losses from October 1, 1997 through December 1, 1997 and
for costs of the Agritope Spin-off. The separation agreement provides that net
expenses of Agritope after December 1, 1997 will be borne by Agritope.
Andrew and Williamson Sales, Co. 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 Epitope common stock 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.
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<PAGE>
A&W's results of operations for the period from December 13, 1996 through May
27, 1997 are presented in the consolidated financial statements included in this
Annual Report on Form 10-K 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 $5.7 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, the write-off of $633,000 in A&W acquisition costs, and the accrual of
$262,000 in estimated costs associated with the rescission.
RESULTS OF OPERATIONS
The table below shows the amount (in thousands) and percentage of Epitope's
total revenue contributed by each of its principal products and by grants and
contracts.
<TABLE>
FISCAL YEAR 1997 1996 1995
Product Sales
<S> <C> <C> <C> <C> <C> <C>
Oral specimen collection devices..................... $6,279 67% $3,311 59% $ 981 34%
Western blot HIV confirmatory tests.................. 1,791 19 1,540 28 1,811 64
Other product sales.................................. 14 - 14 - 15 -
------ --- ------ --- ------ ---
8,084 86 4,865 87 2,807 98
Grants and contracts................................. 1,276 14 729 13 49 2
------- --- ------ --- ------ ---
$9,360 100% $5,594 100% $2,856 100%
</TABLE>
Revenues. Product sales increased by $3.2 million or 66 percent from 1996 to
1997 and by $2.1 million or 73 percent from 1995 to 1996 primarily as a result
of expanded sales volume of Epitope's lead product, the EpiScreen/OraSure oral
specimen collection device. Approximately 39 percent of 1996 sales were
attributable to shipments in the fourth quarter. The significant increase in
sales volume of the OraSure device is primarily due to increased purchases of
the device by the Company's distributors for the life insurance testing market
following approval of the device by the FDA in June 1996 for use in conjunction
with an oral-based confirmatory test. Sales of the device to the life insurance
testing market in the fourth quarter of fiscal 1997 were adversely affected by
reductions in orders as several of the Company's distributors reduced existing
inventory levels. Sales in the life insurance market are expected to continue to
be at reduced levels in the first quarter of fiscal 1998, with growth expected
in both the insurance and public health markets in the second quarter.
Sales in 1997 also reflect increased sales in the public health market due to
the marketing efforts of SB, the Company's former marketing partner. In July
1997, as a result of SB's decision to discontinue pursuit of a plan to develop
and market over-the-counter products for disease detection, SB terminated its
development, license and supply agreement with Epitope. Because the agreement
was terminated, Epitope regained OraSure marketing rights from SB. During the
transition period in August and September of 1997, SB continued to market the
OraSure testing system to the medical community. Beginning in October 1997, the
product is being marketed through Epitope's direct sales force.
As of September 30, 1997, the Company had firm orders and contractual
commitments for the OraSure device and the Western Blot confirmatory tests
respectively totaling approximately $900,000 and $450,000 scheduled for shipment
within 90 days, as compared to firm orders for delivery within 90 days of $1.8
million and $450,000 respectively as of September 30, 1996.
Sales of the Company's Western blot HIV confirmatory test increased by $251,000
or 16 percent from 1996 to 1997 and decreased by $271,000 or 15 percent from
1995 to 1996. Sales in 1996 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, 1997 sales of the oral-based Western blot
HIV confirmatory test have increased as a result of increased use of the related
oral specimen collection device and screening test. As of September 30, 1997,
the Company had firm orders for the Western blot HIV confirmatory test totaling
$450,000 scheduled for shipment before December 31, 1997.
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<PAGE>
Grant and contract revenues increased by $547,000 or 75 percent from 1996 to
1997 and by $681,000 or 14 fold from 1995 to 1996 due to funding of research
projects by the Company's former development partner, SB. In July 1997, the
Company's development, license and supply agreement with SB was terminated, and
the R&D funding by SB was curtailed. Discussions are underway with other
potential partners who might replace some or all of this R&D funding.
Gross Margin on product sales was 57 percent in 1997, 45 percent in 1996, and
negative in 1995. The improvement in gross margins is attributable to increased
sales and production volumes for the OraSure device which resulted in lower per
unit costs and to the shift in product mix towards the OraSure device which
carries a higher gross margin than does the Western blot HIV confirmatory test.
The gross margin in the fourth quarter of 1997 was adversely affected by the
disposal of inventory on hand which was manufactured with SB labeling and
packaging when the development, license and supply agreement with SB was
terminated. Excluding the inventory adjustment, the gross margin would have been
59 percent in 1997.
Research and Development Expenses. Research and development expenses increased
by $991,000 or 31 percent from 1996 to 1997 and decreased by $1.5 million or 31
percent from 1995 to 1996. The decrease in 1996 was primarily attributable to
cost reductions associated with the Company's September 1995 restructuring
program as well as lower levels of clinical trials activity. The increase in
1997 was primarily the result of increased levels of research activity,
including several clinical studies, conducted under arrangements with SB and for
other projects performed by the Company. Plans are in place to reduce the R&D
expense for 1998, unless additional funding is forthcoming from potential new
partners.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.6 million or 32 percent from 1996 to
1997 and decreased by $1.6 million or 25 percent from 1995 to 1996. The increase
in 1997 was primarily attributable to higher corporate and marketing expenses as
the Company expanded its direct sales efforts. The decrease in 1996 was
primarily due to the results of the Company's September 1995 restructuring
program. Selling, general and administrative expenses for 1995 included
approximately $607,000 for severance payments and other costs associated with
implementing the restructuring program. In addition, marketing expenses in 1996
were $754,000 lower than in 1995 as a result of the restructuring program. 1998
sales expenses are expected to increase as a result of direct marketing efforts
by the Company in the public health market.
Selling, general and administrative expenses have been reduced by $1.4 million,
$1.1 million and $1.9 million in 1997, 1996 and 1995, respectively, for amounts
allocated to Agritope (see "Discontinued Operations"). Certain corporate
overhead services such as accounting, annual meeting costs, annual report
preparation, audit, executive management, facilities, finance, general
management, human resources, information systems, investor relations, legal
services, payroll and SEC filings were provided by Epitope on a centralized
basis for the benefit of the medical products business and for Agritope ("Shared
Services"). Such expenses have been allocated between the medical products
business and Agritope using activity indicators which, in the opinion of
management, represent a reasonable measure of each business's utilization of
such Shared Services. Epitope and Agritope have entered into a transitional
services agreement whereby, following the Agritope Spin-off, Epitope will
continue to provide certain of these services to Agritope and Agritope will
reimburse Epitope for the cost of such services during a transitional period.
The allocation of Shared Services to Agritope is expected to significantly
decrease in 1998 as Agritope eventually moves to separate facilities. However,
the Company has implemented a cost reduction plan for 1998 that is expected to
result in savings in selling, general, and administrative expenses to off-set
the reduction in allocations to Agritope.
Other Income (Expense), Net. Other income for 1996 included $5.0 million related
to license fees received from SB as a result of FDA approval of an extension of
dating for the OraSure/EpiScreen device. Interest income decreased in 1997,
primarily due to lower levels of invested funds.
- 19 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(IN THOUSANDS) 9/30/97 9/30/96
Cash and cash equivalents................ $ 1,934 $ 5,223
Marketable securities.................... 7,142 18,818
Working capital.......................... 9,532 24,793
Net cash flows from operating activities improved significantly from 1995 to
1996 as a result of improved operating results and the receipt of a $5.0 million
license fee from SB in 1996. Cash flows from operations in 1997 did not include
such a payment. Proceeds from the issuance of equity securities of the Company,
augmented by funding from strategic partners and other research grants, have
represented the primary sources of funds for meeting the Company's requirements
for operations, working capital and business expansion. Epitope received $1.5
million for the issuance of common stock in a 1997 private placement. The
Company also received proceeds of $168,000, $5.9 million and $21.0 million from
the exercise of warrants and options to purchase common stock in 1997, 1996 and
1995, respectively. Research grant funding from strategic partners was $1.3
million, $729,000 and $49,000 in 1997, 1996 and 1995, respectively. Funding of
the Company's discontinued operations, Agritope and A&W, required $13.9 million,
$3.2 million and $7.8 million in 1997, 1996 and 1995, respectively.
The Company anticipates that it will continue to need funds to support ongoing
research and development projects as well as to provide additional manufacturing
capacity and related increases in working capital to support growth. The Company
intends to utilize cash reserves, cash generated from sales of products and
research funding from strategic partners to provide some of the necessary funds.
The Company is also exploring opportunities to generate additional funds from
the sale of equity securities, and may receive funds through the exercise of
outstanding stock options and warrants.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
- 20 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is (i) set forth below and (ii) contained
in the Company's Consolidated Financial Statements included in Item 14 of this
Annual Report on Form 10-K.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except income (loss) per share)
The following table presents summarized quarterly results of operations for each
of the fiscal quarters in the Company's fiscal years ended September 30, 1997
and 1996. These quarterly results are unaudited, but, in the opinion of
management, have been prepared on the same basis as the Company's audited
financial information and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The data should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included in Item 14 of this
Annual Report on Form 10-K.
<TABLE>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
YEAR ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 2,641 $ 2,336 $ 2,884 $ 1,500 $ 9,360
Operating costs and expenses..................... 3,251 3,574 4,005 3,494 14,324
Other income, net................................ 319 274 173 116 882
Loss from continuing operations.................. (291) (964) (948) (1,878) (4,081)
Discontinued operations.......................... (4,093) (9,202) (1,366) (3,698) (18,359)
Net loss......................................... (4,384) (10,166) (2,314) (5,576) (22,440)
Loss per share from continuing operations........ (.02) (.07) (.07) (.14) (.30)
Net loss per share............................... (.34) (.74) (.17) (.42) (1.67)
YEAR ENDED SEPTEMBER 30, 1996
Revenues......................................... $ 1,225 $ 1,207 $ 1,107 $ 2,055 $ 5,594
Operating costs and expenses..................... 2,510 2,819 2,507 3,045 10,881
Other income, net................................ 293 283 5,485(1) 327 6,388
Income (loss) from continuing operations......... (992) (1,329) 4,085 (663) 1,101
Discontinued operations.......................... (660) (488) (585) (768) (2,501)
Net income (loss)................................ (1,652) (1,817) 3,500 (1,431) (1,400)
Income (loss) per share from continuing
operations.................................... (.08) (.11) .30 (.05) .08
Net income (loss) per share...................... (.13) (.14) .25 (.11) (.11)
</TABLE>
(1) Includes license fee of $5.0 million from SmithKline Beecham, plc.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
- 21 -
<PAGE>
PART III
The Company has omitted from Part III the information that will appear in the
Company's definitive proxy statement for its 1998 annual meeting of shareholders
(the "Proxy Statement"), which will be filed within 120 days after the end of
the Company's fiscal year pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
information under the captions "Election of Directors" and "Executive Officers"
in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
information under the caption "Principal Shareholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
information under the caption "Certain Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) Consolidated Financial Statements and Schedules.
- 22 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS Page
Report of Independent Accountants............................................ 24
Consolidated Balance Sheets at September 30, 1997 and 1996................... 25
Consolidated Statements of Operations for years ended
September 30, 1997, 1996, and 1995........................................ 26
Consolidated Statements of Changes in Shareholders' Equity for years ended
September 30, 1997, 1996, and 1995........................................ 27
Consolidated Statements of Cash Flows for years ended
September 30, 1997, 1996, and 1995........................................ 28
Notes to Consolidated Financial Statements................................... 29
- 23 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Epitope, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in shareholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Epitope, Inc. and
its subsidiaries at September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Portland, Oregon
October 31, 1997, except for Note 3, as to which the date is December 1, 1997
- 24 -
<PAGE>
EPITOPE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
SEPTEMBER 30 1997 1996
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents.............................................. $ 1,934,480 $ 5,222,749
Marketable securities.................................................. 7,141,640 18,818,120
Trade accounts receivable, net (Note 2)................................ 928,047 1,147,599
Other accounts receivable.............................................. 128,949 174,083
Inventories (Note 2)................................................... 1,324,647 1,157,930
Prepaid expenses....................................................... 78,240 89,518
------------ ------------
Total current assets................................................... 11,536,003 26,609,999
Property and equipment, net (Note 4)................................... 1,200,988 1,542,757
Patents and proprietary technology, net (Note 2)....................... 657,487 601,233
Other assets and deposits.............................................. 55,099 22,759
Net assets of discontinued operations (Note 3)......................... 3,562,726 1,007,607
------------ ------------
$ 17,012,303 $ 29,784,355
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................... $ 110,285 $ 449,169
Salaries, benefits and other accrued liabilities ...................... 1,887,825 1,368,166
------------ ------------
Total current liabilities.............................................. 1,998,110 1,817,335
Commitments and contingencies (Notes 3 and 9).......................... - -
Shareholders' equity (Note 5)
Preferred stock, no par value - 1,000,000 shares authorized; no
shares outstanding................................................... - -
Common stock, no par value - 30,000,000 shares authorized; 13,454,330
and 12,937,383 shares issued and outstanding, respectively........... 110,439,726 100,952,282
Accumulated deficit.................................................... (95,425,533) (72,985,262)
------------ ------------
15,014,193 27,967,020
$ 17,012,303 $ 29,784,355
</TABLE>
The accompanying notes are an integral part of these statements.
- 25 -
<PAGE>
EPITOPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 1997 1996 1995
Revenues
<S> <C> <C> <C>
Product sales............................................. $ 8,083,606 $ 4,864,378 $ 2,806,850
Grants and contracts...................................... 1,276,454 729,271 48,672
------------ ----------- ------------
9,360,060 5,593,649 2,855,522
Costs and expenses
Product costs............................................. 3,512,054 2,681,429 3,163,012
Research and development costs............................ 4,156,996 3,165,838 4,617,246
Selling, general and administrative expenses.............. 6,654,553 5,033,491 6,682,860
------------ ----------- ------------
14,323,603 10,880,758 14,463,118
Loss from operations...................................... (4,963,543) (5,287,109) (11,607,596)
Other income (expense), net
Interest income........................................... 885,583 1,386,968 1,157,305
Interest expense.......................................... (8,165) - -
License fee............................................... - 5,000,000 -
Other, net................................................ 4,861 1,493 (319)
------------ ----------- -------------
882,279 6,388,461 1,156,986
Net income (loss) from continuing operations.............. (4,081,264) 1,101,352 (10,450,610)
Discontinued operations (Note 3)
Loss from discontinued operations; Agritope............... (9,890,599) (2,501,268) (8,045,218)
Income from discontinued operations; A&W.................. 170,646 - -
Estimated loss on disposal of A&W......................... (8,639,054) - -
------------ ----------- ------------
(18,359,007) (2,501,268) (8,045,218)
Net loss.................................................. $ (22,440,271) $ (1,399,916) $ (18,495,828)
Income (loss) per share from continuing operations........ $ (.30) $ .08 $ (.88)
Net loss per share........................................ $ (1.67) $ (.11) $ (1.56)
Weighted average number of shares
outstanding.............................................. 13,404,402 12,661,420* 11,886,234
</TABLE>
* Income per share from continuing operations calculated using 13,440,396
weighted average shares outstanding due to common stock equivalents.
The accompanying notes are an integral part of these statements.
- 26 -
<PAGE>
EPITOPE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
COMMON STOCK ACCUMULATED
SHARES DOLLARS DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30, 1994.............. 10,926,551 $ 71,559,900 $ (53,089,518) $ 18,470,382
Common stock issued upon
exercise of options....................... 183,525 2,145,673 - 2,145,673
Common stock issued as
compensation.............................. 16,013 266,800 - 266,800
Compensation expense for
stock option grants....................... - 1,374,710 - 1,374,710
Common stock issued upon
exercise of warrants...................... 1,336,000 18,892,750 - 18,892,750
Common stock issued upon exchange of
convertible notes........................ 23,041 449,991 - 449,991
Equity issuance costs....................... - (757,877) - (757,877)
Net loss for the year....................... - - (18,495,828) (18,495,828)
----------- ------------ ------------ -----------
BALANCES AT SEPTEMBER 30, 1995.............. 12,485,130 93,931,947 (71,585,346) 22,346,601
Common stock issued upon
exercise of options....................... 386,550 4,886,118 - 4,886,118
Common stock issued as compensation......... 19,353 263,586 - 263,586
Compensation expense for stock
option grants............................. - 1,044,183 - 1,044,183
Common stock issued upon
exercise of warrants...................... 46,350 826,600 - 826,600
Equity issuance costs....................... - (152) - (152)
Net loss for the year....................... - - (1,399,916) (1,399,916)
---------- ------------ ------------ -----------
BALANCES AT SEPTEMBER 30, 1996.............. 12,937,383 100,952,282 (72,985,262) 27,967,020
Common stock issued upon
exercise of options....................... 16,124 168,211 - 168,211
Common stock issued as
compensation.............................. 41,088 323,938 - 323,938
Compensation expense for
stock option grants....................... - 489,668 - 489,668
Common stock issued upon exchange
of convertible notes (Note 3)............. 250,367 4,529,009 - 4,529,009
Equity issuance costs....................... - (86,134) - (86,134)
Capital contributed in rescission (Note 3).. - 1,820,000 - 1,820,000
Common stock issued for cash................ 209,368 1,500,000 - 1,500,000
Minority interest investment in Vinifera.... - 742,752 - 742,752
Net loss for the year....................... - - (22,440,271) (22,440,271)
---------- ------------ ------------ -----------
BALANCES AT SEPTEMBER 30, 1997.............. 13,454,330 $ 110,439,726 $ (95,425,533) $ 15,014,193
</TABLE>
The accompanying notes are an integral part of these statements.
- 27 -
<PAGE>
EPITOPE, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30
<TABLE>
1997 1996 1995
Cash flows from operating activities
<S> <C> <C> <C>
Net loss.................................................. $ (22,440,271) $ (1,399,916) $ (18,495,828)
Adjustments to reconcile Net loss to Net cash
used in operating activities:
Loss from discontinued operations......................... 18,359,007 - -
Depreciation and amortization............................. 729,970 1,086,930 1,458,675
Loss (gain) on disposition of property.................... 17,888 (1,098) 819
Decrease (increase) in receivables........................ 264,686 125,025 (1,022,050)
Increase in inventories................................... (166,717) (233,929) (286,903)
Decrease (increase) in prepaid expenses................... 11,278 69,133 (17,608)
(Increase) decrease in other assets and deposits.......... (32,340) 20,649 (33,521)
Increase (decrease) in accounts payable and accrued
liabilities............................................. 180,773 (1,656,478) 2,168,684
Common stock issued as compensation for services.......... 323,938 263,586 266,800
Compensation expense for stock option grants and
deferred salary increases ........................... 489,668 1,044,183 1,374,710
------------ ----------- ------------
Net cash used in operating activities..................... (2,262,120) (723,213) (14,586,222)
Cash flows from investing activities
Investment in marketable securities....................... (20,106,837) (47,608,270) (16,194,994)
Proceeds from sale of marketable securities............... 31,783,317 45,870,396 4,718,162
Additions to property and equipment....................... (196,910) (1,066,758) (1,350,850)
Proceeds from sale of property............................ - 7,432 14,343
Expenditures for patents and proprietary technology....... (265,435) (770,262) (305,135)
Investment in affiliated companies........................ (6,702,299) (331,280) 652,698
Minority interest in affiliated companies................. - 215,407 -
------------ ----------- ------------
Net cash provided by (used in) investing activities....... 4,511,836 (3,683,335) (12,465,776)
Cash flows from financing activities
Principal payments under installment purchase and
capital lease obligations............................... - (39,507) (16,137)
Proceeds from issuance of common stock.................... 1,668,211 5,885,573 21,060,912
Cost of common stock issuance............................. - (152) (757,877)
Cash to Agritope.......................................... (7,206,196) - -
------------ ----------- ------------
Net cash (used in) provided by financing activities....... (5,537,985) 5,845,914 20,286,898
Net (decrease) increase in cash and cash equivalents...... (3,288,269) 1,439,366 (6,765,100)
Cash and cash equivalents at beginning of year............ 5,699,263 4,259,897 11,024,997
------------ ----------- ------------
Cash and cash equivalents at end of year (Note 3)......... $ 1,934,480 $ 5,699,263 $ 4,259,897
</TABLE>
The accompanying notes are an integral part of these statements.
- 28 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY
Epitope, Inc. (the "Company" or "Epitope") is an Oregon company incorporated in
1981. Epitope develops and markets oral specimen collection kits and related
diagnostic tests for the detection of the Human Immunodeficiency Virus ("HIV"),
the cause of Acquired Immune Deficiency Syndrome ("AIDS"), and for the detection
of other medical conditions and analytes. The Company markets the device under
the brand name EpiScreen in the United States and in certain foreign countries
for use in screening life insurance applicants and under the brand name OraSure
for use in the public health and medical professional markets. The Company also
conducts joint research and development projects under contracts and grants.
See Note 3, Discontinued Operations, below.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Assets and liabilities of majority-owned subsidiaries are
included in these statements. Minority-owned investments and joint ventures are
accounted for using the equity method.
Cash and Cash Equivalents; Marketable Securities. The Company considers all
highly liquid investments with maturities at time of purchase of three months or
less to be cash equivalents. At September 30, 1997, marketable securities
consisted of commercial paper and U.S. Treasury securities with an original
maturity period greater than three months, but generally less than 12 months.
The Company's policy is to invest its excess cash in securities that maximize
(a) safety of principal, (b) liquidity for operating needs, and (c) after-tax
yields.
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company has categorized
all of its investments as available-for-sale securities and, accordingly,
unrealized gains and losses on such investments, if material, are carried as a
separate component of shareholders' equity. Such unrealized gains and losses
were immaterial as of September 30, 1997 and 1996.
Trade Accounts Receivable. Accounts receivable are stated net of an allowance
for doubtful accounts of $32,284 and $6,872, respectively, at September 30, 1997
and 1996.
Inventories. Inventories are recorded at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market. Inventory
components are summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Raw materials.......................................................... $ 296,432 $ 522,824
Work-in-process........................................................ 343,585 389,642
Finished goods......................................................... 670,175 192,882
Supplies............................................................... 14,455 52,582
---------- ----------
$ 1,324,647 $ 1,157,930
</TABLE>
Depreciation and Capitalization Policies. Property and equipment are stated at
cost less accumulated depreciation. Expenditures for repairs and maintenance are
charged to operating expense as incurred. Expenditures for renewals and
betterments are capitalized.
Depreciation and amortization of property and equipment are calculated primarily
under the straight-line method over the estimated lives of the related assets
(three to seven years). Leasehold improvements are amortized over the shorter of
estimated useful lives or the terms of the related leases. When assets are sold
or otherwise disposed of, cost and the related accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
included in operations.
- 29 -
<PAGE>
Accounting for Long-Lived Assets. The Company periodically reviews its
long-lived assets for impairment or as events or circumstances indicate that the
carrying amount of long-lived assets may not be recoverable. If the estimated
net cash flows are less than the carrying amount of the long-lived assets, the
Company recognizes an impairment loss in an amount necessary to write down
long-lived assets to fair value as determined from expected discounted future
cash flows. This accounting policy is consistent with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." There has been no
significant impact to the Company's financial position or results of operations
as the carrying amount of all long-lived assets is considered recoverable.
Patents and Proprietary Technology. Direct costs associated with patent
submissions and acquired technology are capitalized and amortized over their
minimum estimated economic useful lives, generally five years.
Amortization and accumulated amortization are summarized as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Amortization expense for the year ended September 30...... $ 209,180 $ 172,095 $ 130,313
Accumulated amortization at September 30.................. 830,290 621,110 449,015
</TABLE>
Fair Value of Financial Instruments. The carrying amounts for cash equivalents,
accounts receivable, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.
Revenue Recognition. Product revenues are generally derived from the sale of
products and are recognized as revenue when the related products are shipped.
Grant and contract revenues include funds received under research and
development agreements with various entities. Such revenues are recognized in
accordance with the contract terms.
Research and Development. Research and development expenditures are comprised of
those costs associated with the Company's own ongoing research and development
activities including the costs to prepare for, obtain and compile clinical
studies and other information to support product license applications.
Expenditures for research and development also include costs incurred under
contracts to develop certain products, including those contracts resulting in
grant and contract revenues. All research and development costs are expensed as
incurred.
Shared Services. Certain corporate overhead services such as accounting, annual
meeting costs, annual report preparation, audit, executive management,
facilities, finance, general management, human resources, information systems,
investor relations, legal services, payroll and SEC filings are provided by
Epitope on a centralized basis for the benefit of the Company's subsidiaries
("Shared Services"). Such expenses have been allocated to the subsidiaries in
the accompanying financial statements using activity indicators which, in the
opinion of management, represent a reasonable measure of the subsidiaries'
utilization of such Shared Services. These activity indicators, which are
reviewed periodically and adjusted to reflect changes in utilization, include
number of employees, number of computers, and level of expenditures. The related
subsidiaries' operating results are included in discontinued operations. See
Note 3, Discontinued Operations. Selling, general and administrative expenses
have been reduced by Shared Services allocated to the subsidiaries included in
discontinued operations of: $1,402,895, $1,069,249 and $1,892,371 for the years
ended September 30, 1997, 1996 and 1995, respectively.
Income Taxes. The Company accounts for certain revenue and expense items
differently for income tax purposes than for financial reporting purposes. These
differences arise principally from methods used in accounting for stock options
and depreciation rates. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
109") which requires the use of the asset and liability method for accounting
for income taxes. Under SFAS 109, deferred tax assets and liabilities are
recognized based on temporary differences between the financial statement and
the tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the temporary differences are expected to reverse.
- 30 -
<PAGE>
Stock-Based Compensation. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies which have
stock-based compensation arrangements with employees to adopt a fair-value basis
of accounting for stock options and other equity instruments or to continue to
apply the existing accounting rules under Accounting Principles Board Opinion
No. 25, ("APB 25") "Accounting for Stock Issued to Employees," but with
additional financial statement disclosure. The Company has elected to continue
to account for its stock-based compensation under APB 25. See Note 5,
Shareholders' Equity.
Income (Loss) Per Share. 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 such exercise. Common stock equivalents are excluded from
the computation if their effect is anti-dilutive. Primary and fully diluted net
income (loss) per share are the same.
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.
Supplemental Profit and Loss Information. In September 1995, management
announced a company-wide reduction in work force whereby 48 employees were
terminated. The Company charged $607,000 to 1995 results of operations for
severance payments and related expenses of this program. As of September 30,
1996, $55,000 of these charges remained accrued and are included in the
accompanying balance sheets of the Company under the caption "Salaries, benefits
and other accrued liabilities." There were no such accruals remaining as of
September 30, 1997.
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these
estimates. The Company has a contingent liability with regard to the guarantee
of a loan to a former subsidiary (A&W) through Wells Fargo Bank, NA. Because of
the various collateral and corporate and personal guarantees that also back up
this line of credit, the Company feels that the likelihood that the Company will
sustain any loss under this agreement is remote (see Note 3, Discontinued
Operations).
Reclassifications. Certain reclassifications have been made to prior years' data
to conform with the current year's presentation. These reclassifications had no
impact on previously reported results of operations or shareholders' equity.
NOTE 3 DISCONTINUED OPERATIONS
Agritope. Throughout the period presented, Agritope, Inc. ("Agritope") was a
wholly owned subsidiary of Epitope acquired in 1987. Agritope consists of two
units: Agritope Research and Development ("Agritope R&D") and Vinifera, Inc.
("Vinifera"). Agritope R&D uses biotechnology in the development of new fruit
and vegetable plant varieties for sale to the fresh produce industry. To date,
Agritope has not completed commercialization of this technology. A portion of
the research and development efforts conducted by Agritope has been performed
under various research grants and contracts. Vinifera is engaged in the
grapevine propagation and distribution business. During 1995, Vinifera was in
the development stage and generated minimal product sales. Vinifera commenced
commercial stage operations in 1996. Agritope's results of operations and net
assets are presented as discontinued operations in the accompanying consolidated
financial statements for all periods presented. All intercompany loans from
Epitope to Agritope have been reflected as capital contributions to Agritope
consistent with the separation agreement between Epitope and Agritope dated
December 1, 1997. The 1997 loss from
- 31 -
<PAGE>
discontinued operations of Agritope includes an accrual of $1.2 million for
Agritope's operating losses, from October 1, 1997 to December 1, 1997, and costs
of the spin-off of Agritope which is expected to occur in late December 1997.
The separation agreement provides that, all net expenses of Agritope beginning
December 1, 1997, will be borne by Agritope.
Andrew and Williamson Sales, Co. 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 $5.7 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, the write-off of $633,000 in A&W
acquisition costs, and the accrual of $262,000 in estimated costs associated
with the rescission.
THE COMPONENTS OF AGRITOPE'S NET ASSETS ARE SUMMARIZED AS FOLLOWS:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Cash....................................................................... $ 4,384 $ 476,512
Trade accounts receivable, net............................................. 617,359 264,986
Inventories................................................................ 2,081,295 509,745
Other current assets....................................................... 281,778 33,149
---------- ----------
Total current assets....................................................... 2,984,816 1,284,392
Property and equipment, net................................................ 2,749,788 1,286,197
Patents and proprietary technology, net.................................... 1,276,692 510,244
Investment in affiliates................................................... 246,962 2,448,623
Other assets............................................................... 26,797 140,513
---------- ----------
7,285,055 5,669,969
Convertible notes due June 1997............................................ - 3,620,003
Other current liabilities.................................................. 1,326,008 826,952
Long-term liabilities...................................................... 1,196,321 215,407
Accrued losses............................................................. 1,200,000 -
---------- ----------
Net assets of discontinued operations...................................... $ 3,562,726 $ 1,007,607
</TABLE>
THE SUMMARIZED STATEMENTS OF OPERATIONS FOR AGRITOPE AND SUBSIDIARIES IS AS
FOLLOWS:
<TABLE>
SEPTEMBER 30 1997 1996 1995
<S> <C> <C> <C>
Revenues.............................................................. $ 1,551,190 $ 585,485 $ 2,109,688
Operating costs and expenses.......................................... 6,088,883 2,821,397 9,920,166
Other income (expense), net........................................... (4,427,275) (265,356) (234,740)
Minority interest in subsidiary net loss.............................. 274,369 - -
-
Net loss from operations.............................................. (8,690,599) (2,501,268) (8,045,218)
</TABLE>
- 32 -
<PAGE>
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. In addition, the principals of A&W have each
personally guaranteed the loan. The Company's guarantee contains various
financial covenants including minimum tangible net worth levels. The balance
outstanding under the line was $250,000 at September 30, 1997.
Long Term Debt. In November 1996, Epitope exchanged $3,380,000 principal amount
of Agritope convertible notes for 250,367 shares of common stock of Epitope at a
reduced exchange price of $13.50 per share. The exchange price had previously
been fixed at $19.53 per share. Accordingly, Agritope recognized a charge to
results of operations of $1,216,654 in the first quarter of fiscal 1997
representing the conversion expense. In conjunction with the exchange,
unamortized debt issuance costs of $86,134 related to such notes were recognized
as equity issuance costs during 1997. Concurrent with the note conversion,
Epitope made a $4,529,009 capital contribution to Agritope. On June 30, 1997,
Agritope paid in full the remaining $240,000 principal amount outstanding.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
SEPTEMBER 30 1997 1996
<S> <C> <C>
Research and development laboratory equipment.......................... $ 1,096,425 $ 1,056,883
Manufacturing equipment................................................ 1,389,304 1,291,546
Office furniture and equipment......................................... 1,772,698 1,899,948
Leasehold improvements................................................. 1,102,895 1,084,660
Construction in progress............................................... 109,380 134,557
----------- -----------
5,470,702 5,467,594
Less accumulated depreciation and amortization......................... (4,269,714) (3,924,837)
----------- -----------
$ 1,200,988 $ 1,542,757
</TABLE>
NOTE 5 SHAREHOLDERS' EQUITY
Authorized Capital Stock. The Company's amended articles of incorporation
authorize 1,000,000 shares of preferred stock and 30,000,000 shares of common
stock. The Company's Board of Directors has authority to determine preferences,
limitations and relative rights of the preferred stock.
Common Stock Reserved for Future Issuance. As of September 30, 1997, the
following shares of the Company's common stock were reserved for future
issuance, as more fully described below:
<TABLE>
PURPOSE SHARES
<S> <C>
Outstanding warrants............................................................ 2,000,640
Outstanding stock options....................................................... 3,499,865
Employee Stock Purchase Plan subscriptions...................................... 76,460
---------
5,576,965
</TABLE>
- 33 -
<PAGE>
<TABLE>
Common Stock Warrants. As of September 30, 1997, the following warrants to purchase shares of common stock were
outstanding:
DATE OF ISSUANCE SHARES PRICE * EXPIRATION DATE
<S> <C> <C> <C>
September 26, 1991........................................ 159,150 $16.00 September 30, 2000
December 23, 1992......................................... 988,390 18.50 September 30, 2000
July 20, 1993............................................. 375,000 20.00 September 30, 2000
August 1, 1993............................................ 200,000 18.50 September 30, 2000
October 17, 1994.......................................... 50,000 18.50 September 30, 2000
November 22, 1994......................................... 228,100 18.50 September 30, 2000
---------
2,000,640
</TABLE>
* Beginning ten days after the Agritope spin-off, Epitope will allow exercise of
the warrants at a price equal to 110 percent of the average closing price of
Epitope common stock during the five trading days beginning on the date of the
spin-off.
Stock Award Plans. The Company's 1991 Stock Award Plan (the "1991 Plan") was
approved by the shareholders during 1991, replacing the Company's Incentive
Stock Option Plan ("ISOP"). The 1991 Plan provides for stock-based awards to
employees, outside directors and members of scientific advisory committees or
other consultants. Awards which may be granted under the 1991 Plan include
qualified incentive stock options, nonqualified stock options, stock
appreciation rights, restricted awards, performance awards and other stock-based
awards.
Under the terms of the 1991 Plan, qualified incentive stock options on shares of
common stock may be granted to eligible employees, including officers, of the
Company at an exercise price not less than the fair market value of the stock on
the date of grant. The maximum term during which any option may be exercised is
ten years from the date of grant. To date, options have been granted with
four-year vesting schedules.
Options issued to employees under the ISOP were issued at prices not less than
the fair market value of a share of common stock on the date of grant. The
options are exercisable after one year from the date of grant at the rate of 25%
per year cumulatively and expire ten years from the date of grant.
The 1991 Plan also provides that nonqualified options may be granted at a price
not less than 75% of the fair market value of a share of common stock on the
date of grant. The option term and vesting schedule of such awards may either be
unlimited or have a specified period in which to vest and be exercised. For the
discounted nonqualified options issued, the Company amortizes, on a
straight-line basis over the vesting period of the options, the difference
between the exercise price and the fair market value of a share of stock on the
date of grant. As of September 30, 1997, 1,145,874 shares of Epitope common
stock remain available for grant under the Company's stock award plans.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows companies which have stock-based
compensation arrangements with employees to adopt a fair-value basis of
accounting for stock options and other equity instruments or to continue to
apply the existing accounting rules under, but with additional financial
statement disclosure. The Company has continued to account for stock-based
compensation under APB 25, and therefore, SFAS 123 did not have a material
impact on its financial position or results of operations.
Options granted and outstanding under the Company's stock option plans are
summarized as follows:
<TABLE>
1997 1996 1995
SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at
<S> <C> <C> <C> <C> <C> <C>
beginning of period ...... 3,365,726 $3.50 - 24.00 3,636,103 $1.09 - 24.00 3,483,432 $1.09 - 24.94
Granted.................... 2,801,403 3.50 - 14.81 901,379 9.81 - 18.13 802,050 14.94 - 18.88
Exercised.................. (16,124) 7.25 - 14.81 (386,550) 1.09 - 17.13 (183,525) 1.84 - 22.50
Canceled................... (2,651,140) 3.50 - 24.00 (785,206) 14.38 - 24.00 (465,854) 7.38 - 24.94
--------- ------------ --------- ------------- --------- --------------
Outstanding at end of period 3,499,865 $3.50 - 20.38 3,365,726 $3.50 - 24.00 3,636,103 $1.09 - 24.00
Exercisable................ 2,474,623 $3.50 - 20.38 2,302,212 $3.50 - 24.00 2,002,925 $1.09 - 24.00
</TABLE>
- 34 -
<PAGE>
<TABLE>
Number of Weighted Average Remaining
Exercise Price Range Shares Average Price Contractual Life
- -------------------- ------ ------------- ----------------
<S> <C> <C> <C> <C>
$3.50 - $5.75 55,950 $4.9172 5.69
$6.38 - $6.38 825,000 $6.375 8.27
$6.69 - $7.06 65,150 $6.968 9.53
$7.25 - $7.25 2,175,503 $7.25 7.57
$8.02 - $20.38 296,832 $13.72 8.46
---------- ------ ----
3,418,435 $7.56 7.83
</TABLE>
Options exercisable at September 30, 1997 totaled 2,474,623 shares at a weighted
average exercise price of $7.65. Options available for grant at September 30,
1997 totaled 1,145,874.
Pursuant to the 1991 Plan, 973 and 3,680 shares of common stock were also
awarded to consultants and members of the Company's scientific advisory
committees during 1996 and 1995, respectively.
Employee Stock Purchase Plans. In 1991, the shareholders approved the Company's
adoption of the 1991 Employee Stock Purchase Plan ("1991 ESPP") covering a
maximum of 100,000 shares of common stock for subscription over two offering
periods. The purchase price for stock purchased under the 1991 ESPP for each of
the two 24-month subscription periods was the lesser of 85% of the fair market
value of a share of common stock at the commencement of the subscription period
or the fair market value at the close of each subscription period. An employee
may also elect to withdraw at any time during the subscription period and
receive the amounts paid plus interest at the rate of 6%.
The 1993 Employee Stock Purchase Plan ("1993 ESPP"), as amended and restated
effective February 1, 1993, covers a maximum of 500,000 shares of common stock
for subscription over established offering periods. The Company's Board of
Directors was granted authority to determine the number of offering periods, the
number of shares offered, and the length of each period, provided that no more
than three offering periods (other than Special Offering Subscriptions as
described below) may be set during each fiscal year of the Company. Other
provisions of the 1993 ESPP are similar to the 1991 ESPP. As of September 30,
1997, 76,460 shares of common stock were subscribed for during two offerings
under the 1993 ESPP. Shares subscribed for under these 1993 ESPP offerings may
be purchased over 24 months and have initial subscription prices of $ 8.77 and $
6.00 per share for the various offerings. During the year ended September 30,
1997, 2,472 shares were issued at prices ranging from $8.77 to $12.33 under the
1993 ESPP.
The 1993 ESPP was amended to allow the Company, at its discretion, to provide
Special Offering Subscriptions whereby an employee's annual increase in
compensation could be deferred for a one-year period. At the end of the one-year
period, the employee can elect to receive the deferred compensation amount in
the form of cash or shares of the Company's common stock. The purchase price for
stock issued under a Special Offering Subscription is the lesser of 85% of the
fair market value of a share of common stock on the first day of the calendar
month the employee's increase was effective or the fair market value at the
close of the one-year subscription period. 5,569 Special Offering Subscription
shares were issued to employees during 1995 at an average price of $15.26 per
share.
The Company has elected to account for its stock-based compensation under the
provisions of APB 25, however, as required by SFAS 123, the Company has computed
for pro forma disclosure purposes the value of options granted during 1997 and
1996 using the Black-Scholes option pricing model. The weighted average
assumptions used for stock option grants for 1997 and 1996 were a risk free
interest rate of 5.9 percent and 5.6 percent, respectively, an expected dividend
yield of 0 percent and 0 percent, respectively, an expected life of 4.3 and 4.4
years, respectively, and an expected volatility of 53 percent and 48 percent,
respectively. The weighted average assumptions used for ESPP rights for 1997 and
1996 were a risk free interest rate of 6.1 percent and 5.4 percent,
respectively, an expected dividend yield of 0 percent and 0 percent,
respectively, an expected life of 2 years and 2 years, respectively, and an
expected volatility of 63 percent and 48 percent, respectively. The
weighted-average fair value of ESPP rights granted in 1997 was $248,700 and
$57,600 for ESPP rights granted in 1996.
- 35 -
<PAGE>
Options were assumed to be exercised upon vesting for purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. For the
years ended September 30, 1997 and 1996, the total value of the options granted
was computed to be $9,096,600 and $6,638,200, respectively, which would be
amortized on a straight-line basis over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS 123, the
Company's net income and pro forma net income per share would have been reported
as follows:
<TABLE>
YEAR ENDED SEPTEMBER 30 1997 1996
NET LOSS NET LOSS NET LOSS NET LOSS
PER SHARE PER SHARE
<S> <C> <C> <C> <C>
As reported................................. $ (22,440,271) $ (1.67) $ (1,399,900) $ (.11)
Pro forma................................... (26,958,371) (2.01) (3,579,800) (.28)
</TABLE>
The effects of applying SFAS 123 in providing pro forma disclosure for 1997 and
1996 are not likely to be representative of the effects on reported net income
and earnings per share for future years since options vest over several years
and additional awards are made each year.
NOTE 6 INCOME TAXES
As of September 30, 1997, the Company had net operating loss carryforwards of
approximately $45.0 million and $42.0 million, respectively, to offset federal
and state taxable income. Approximately $6.9 million of the Company's net
operating loss carryforwards were generated as a result of deductions related to
the exercise of stock options. When utilized, such carryforwards, as tax
effected, will be reflected in the Company's financial statements as an increase
in shareholders' equity rather than a reduction of the provision for income
taxes.
As of September 30, 1997, the Company had total gross deferred tax assets of
approximately $21.3 million, consisting primarily of $17.0 million net operating
loss carryforwards, $1.7 million of deferred compensation and a $0.9 million
research and development tax credit carryforward. No benefit for these assets
has been reflected in the accompanying consolidated financial statements as they
do not satisfy the recognition criteria set forth in SFAS 109. Accordingly, a
valuation allowance of $21.3 million, representing a $4.6 million increase since
the prior fiscal year end, has been recorded.
The expected tax benefit of approximately $4.4 million for the year ended
September 30, 1997 is increased by approximately $0.5 million for the effect of
state and local taxes (net of federal impact) and is reduced by approximately
$4.6 million for the effect of the increase in valuation allowance and $0.3
million for other permanent differences consisting primarily of the A&W
valuation difference write off.
The federal and state net operating loss carryforwards available to offset
future taxable income will expire as follows:
<TABLE>
LOSS CARRYFORWARDS
YEAR OF EXPIRATION FEDERAL OREGON
<S> <C> <C>
1998................................................................... $ 22,000 $ ---
1999................................................................... 252,000 25,000
2000................................................................... 100,000 200,000
2001................................................................... 300,000 31,000
2002................................................................... 666,000 ---
2003................................................................... 2,278,000 2,106,000
2004................................................................... 2,360,000 2,206,000
2005................................................................... 1,993,000 1,914,000
2006................................................................... 6,100,000 5,643,000
2007................................................................... 6,378,000 5,788,000
- 36 -
<PAGE>
2008................................................................... 5,370,000 4,671,000
2009................................................................... 3,459,000 4,430,000
2010................................................................... 7,053,000 6,275,000
2011................................................................... 796,000 796,000
2012................................................................... 7,731,000 7,731,000
------------ ------------
$44,858,000 $41,816,000
Significant components of Epitope's deferred tax asset were as follows:
SEPTEMBER 30
1997 1996
Net operating loss carryforwards....................................... $17,030,000 $13,627,000
Deferred compensation.................................................. 1,707,000 1,504,000
Research and experimentation credit carryforwards...................... 888,000 812,000
Accrued expenses....................................................... 868,000 302,000
Other.................................................................. 850,000 436,000
------------ ------------
Gross deferred tax assets.............................................. 21,343,000 16,681,000
Valuation allowance.................................................... (21,343,000) (16,681,000)
------------ ------------
Net deferred tax asset................................................. $ ---- $ ----
</TABLE>
NOTE 7 RESEARCH AND DEVELOPMENT ARRANGEMENTS
In February 1995, the Company entered into a development, license and supply
agreement with SmithKline Beecham, plc ("SB") pursuant to which the Company
conducted research and development projects funded by SB. In July 1997, SB
terminated the agreement. Revenues from research and development arrangements
are included in the accompanying consolidated statements of operations under the
caption "Grants and Contracts."
NOTE 8 DISTRIBUTION AND SUPPLY CONTRACTS
The Company has entered into several contractual arrangements, including those
discussed in the following paragraphs, for distribution of certain of its
products to customers.
The Company continues to maintain supply and distribution agreements with
Organon Teknika Corporation ("Organon Teknika"), whereby Organon Teknika
supplies the Company's antigen requirements and exclusively distributes the
Company's EPIblot HIV confirmatory tests ("EPIblot") on a worldwide basis. As of
April 1, 1994, the Company renewed the agreements which had an initial
termination date of March 31, 1997 (with successive one-year renewal periods
thereafter) and include pricing incentives based on volumes purchased by Organon
Teknika and penalties for failure to purchase specified minimum quarterly
volumes. In 1997, the agreement was extended for another one-year period. For
the years ended September 30, 1997, 1996 and 1995, respectively, revenues
generated from sales of EPIblot to Organon Teknika were $1,791,290, $1,539,164
and $1,808,431, including export sales of $15,750, $62,539 and $72,369.
LabOne, Inc. (previously Home Office Reference Laboratory, Inc.) purchases oral
specimen devices from the Company for use in insurance testing in return for
non-exclusive distribution rights in the United States and Canada under an
agreement which expires on March 13, 2000, with an automatic five-year renewal,
unless either party notifies the other of intent not to renew at least 180 days
prior to the initial expiration date. For the years ended September 30, 1997,
1996 and 1995, respectively, revenues generated from product sales to LabOne,
Inc. were $3,194,698, $1,327,544 and $525,628 including export sales of
$597,000, $394,747 and $58,500.
SB had an exclusive agreement to market the Company's oral specimen collection
device worldwide, except in several foreign countries and to the insurance
industry in the U.S., Canada and Japan. In July 1997, SB terminated its
development, license and supply agreement with Epitope. As a result, the Company
acquired marketing rights for OraSure from SB. During the transition period in
August and September of 1997, SB continued to market the OraSure testing system
to the medical community. Beginning in October 1997, the product is marketed
through Epitope's direct sales force.
- 37 -
<PAGE>
In 1995, SB made an initial license fee payment of $1 million to the Company and
committed an additional license fee of $4 million to be paid upon FDA approval
of a pending request to amend the labeling of the Company's oral specimen
collection device to indicate a two-year shelf life. In April 1996, the FDA
granted the Company's request for extended dating and SB disbursed $4 million
plus interest from escrow. Accordingly, the Company recognized income of $5
million in 1996 operating results.
NOTE 9 COMMITMENTS
The Company leases office, manufacturing, warehouse and laboratory facilities
under operating lease agreements which require minimum annual payments as
follows:
YEAR ENDING SEPTEMBER 30
<TABLE>
<S> <C>
1998.............................................................................................. $ 345,576
1999.............................................................................................. 346,356
2000.............................................................................................. 109,992
---------
$ 801,924
</TABLE>
Under the agreements for the lease of its office and laboratory facilities, the
Company is obligated to the lessor for its share of certain expenses related to
the use, operation, maintenance and insurance of the property. These expenses,
payable monthly in addition to the base rent, are not included in the amounts
shown above. Rent expense aggregated $409,970, $538,665 and $547,930 for the
years ended September 30, 1997, 1996 and 1995, respectively.
NOTE 10 PROFIT SHARING AND SAVINGS PLAN
The Company established a profit sharing and deferred salary savings plan in
1986 and restated the plan in 1991. All employees are eligible to participate in
the plan. In addition, the plan permits certain voluntary employee contributions
to be excluded from the employees' current taxable income under the provisions
of Internal Revenue Code Section 401(k) and the regulations thereunder.
Effective October 1, 1991, the Company replaced a discretionary profit sharing
provision with a matching contribution (either in cash, shares of Epitope common
stock, or partly in both forms) equal to 50% of an employee's basic
contribution, not to exceed 2.5% of an employee's compensation. The Board of
Directors has the authority to increase or decrease the 50% match at any time.
During 1997, 1996 and 1995, respectively, the Company contributed $101,737
(11,459 shares, totaling $101,721 and the remainder in cash), $73,315 (4,653
shares totaling $73,279 and the remainder in cash) and $97,631 (5,562 shares
totaling $97,607 and the remainder in cash). As of September 30, 1997, 27,832
shares of Epitope common stock are held by the plan.
- 38 -
<PAGE>
NOTE 11 GEOGRAPHIC AREA INFORMATION
The Company's products are all included in the medical products industry
segment. See Note 1 for a description of the Company's business. The Company's
products are sold principally in the United States, Canada and Europe. Operating
loss represents revenues less operating expenses. In computing operating loss,
allocated corporate administration expenses have been included; however, other
income and expense items such as interest expense, miscellaneous income, and
other charges have not been added or deducted.
IN THOUSANDS
<TABLE>
GEOGRAPHIC REVENUES OPERATING LOSS IDENTIFIABLE ASSETS
AREAS 1997 1996 1995 1997 1996 1995 1997 1996 1995
United
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
States........ $ 8,569 $ 4,903 $ 2,630 $ (4,964) $ (5,287) $ (11,608) $ 17,012 $ 29,784 $ 26,142
Canada........ 608 404 78 - - - -
Latin
America....... 4 100 - - - - -
Europe........ 49 65 72 - - - -
Other......... 130 122 76 - - - -
------ ------ ------ ------ ------- -------- ------- ------- -------
$ 9,360 $ 5,594 $ 2,856 $ (4,964) $ (5,287) $ (11,608) $ 17,012 $29,784 $ 26,142
</TABLE>
No schedules are included with the foregoing financial statements because the
required information is inapplicable or is presented in the financial statements
or related notes thereto.
(a)(3) Exhibits.
See Index to Exhibits following the signature pages of this report.
(b) Reports on Form 8-K.
Current report on Form 8-K dated July 28, 1997, reporting under Item 5 the
Company's intention to spin-off Agritope and the termination of the SB
Agreement.
Current report on Form 8-K dated September 12, 1997, reporting under Item 5 the
extension and repricing of outstanding warrants.
- 39 -
<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, on December 24, 1997.
EPITOPE, INC.
By /s/ Gilbert N. Miller
Gilbert N. Miller
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on December 24, 1997, by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
*JOHN W. MORGAN President and Chief Executive Officer
John W. Morgan (Principal Executive Officer)
/S/ GILBERT N. MILLER Executive Vice President and
Gilbert N. Miller Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
*W. CHARLES ARMSTRONG Director
W. Charles Armstrong
*RICHARD K. DONAHUE Director
Richard K. Donahue
*ADOLPH J. FERRO Director
Adolph J. Ferro
*R. DOUGLAS NORBY Director
R. Douglas Norby
*MICHAEL J. PAXTON Director
Michael J. Paxton
*ROGER L. PRINGLE Director
Roger L. Pringle
*G. PATRICK SHEAFFER Director
G. Patrick Sheaffer
* /S/ GILBERT N. MILLER
Gilbert N. Miller
(Attorney-in-Fact)
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
2.1 Acquisition and Merger Agreement among Registrant, Thamscoe,
Inc., Andrew and Williamson Sales, Co., and the shareholders
of Andrew and Williamson Sales, Co., dated November 6, 1996.
Incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K dated November 6, 1996.
2.2 Settlement Agreement and Release among Epitope, Inc., Keith R.
Andrew and Kevin S. Andrew as co-trustees under the Fred W.
and Virginia S. Andrew 1990 Revocable Living Trust, Keith R.
Andrew, individually, Fred L. Williamson, Fred M. Williamson
and Andrew and Williamson Sales, Co., dated May 4, 1997.
Incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarterly period
ended March 31, 1996 ("March 1996 10-Q").
2.3 Separation Agreement between Epitope, Inc. and Agritope, Inc,
dated December 1, 1997
3.1 Restated Articles of Incorporation, as amended, of Registrant.
Incorporated by reference to Exhibit 3 to the Registrant's
Registration Statement on Form 8-A filed December 26, 1997
(File No. 000-15337).
3.2 Restated Bylaws of Registrant.
4.1 Stock Purchase Agreement dated November 9, 1990, between
certain investors and Registrant. Copies of the agreements
with individual investors shall be filed with the Commission
upon request pursuant to Instruction 2 of Item 601 of
Regulation S-K ("Item 601, Instruction 2"). Incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1994 (the "1994
10-K").
4.2 Unit Purchase Agreement dated September 1991 between certain
investors and Registrant. Copies of the agreements with
individual investors shall be filed with the Commission upon
request pursuant to Item 601, Instruction 2. Incorporated by
reference to Exhibits 4.1 and 4.2 to the Registrant's Current
Report on Form 8-K dated September 17, 1991.
4.3 Note Purchase Agreement dated June 10, 1992, among Agritope,
Inc., Registrant, and certain investors. Copies of the
agreements with individual investors shall be filed with the
Commission upon request pursuant to Item 601, Instruction 2.
Incorporated by reference to Exhibit 4.2 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarterly period
ended June 30, 1992.
4.4 Warrant Purchase Agreement dated as of November 25, 1992,
between certain investors and Registrant. Copies of the
agreements with individual investors shall be filed with the
Commission upon request pursuant to Item 601, Instruction 2.
Incorporated by reference to Exhibit 4.5 to the Registrant's
Annual Report on Form 10-K for the year ended September 30,
1992 (the "1992 10-K").
4.5 1993 Technology Transfer Warrant Issuance Agreement dated as
of June 15, 1993, between certain investors and Registrant.
Copies of the agreements with individual investors shall be
filed with the Commission upon request pursuant to Item 601,
Instruction 2. Incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-3 (No. 33-68510)
("Registration Statement No. 33-68510").
4.6 Form of Letter dated August 1, 1993, from Registrant regarding
modification of the terms of the 1993 Technology Transfer
Warrants. Incorporated by reference to Exhibit 4.5 to
Registration Statement No. 33-68510.
4.7 1993 Warrant Purchase Agreement dated as of July 6, 1993,
between certain investors and Registrant. Copies of the
agreements with individual investors shall be filed with the
Commission upon request pursuant to Item 601, Instruction 2.
Incorporated by reference to Exhibit 4.6 to Registration
Statement No. 33-68510.
- 41 -
<PAGE>
4.8 Notice to warrantholders and current form of warrant
certificate for warrants issued in September 1991 offering,
reflecting extension of expiration date. Incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on
Form 8-K dated September 12, 1997.
4.11 Notice to warrantholders and current form of warrant
certificate for warrants issued in December 1992 offering,
reflecting extension of expiration date. Incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated September 12, 1997.
4.12 Notice to warrantholders and current form of warrant
certificate for warrants issued in July 1993 offering,
reflecting extension of expiration date. Incorporated by
reference to Exhibit 4.3 to the Registrant's Current Report on
Form 8-K dated September 12, 1997.
4.13 Notice to warrantholders and current form of warrant
certificate for warrants issued in August 1993 offering,
reflecting extension of expiration date. Incorporated by
reference to Exhibit 4.4 to the Registrant's Current Report on
Form 8-K dated September 12, 1997.
10.1 Incentive Stock Option Plan of Registrant, as amended.
Incorporated by reference to Exhibit 10.1 to the 1994 10-K.*
10.2 Amended and Restated Epitope, Inc., 1991 Stock Award Plan.*
10.3 Agritope, Inc., 1992 Stock Award Plan. Incorporated by
reference to Exhibit 10.3 to the 1992 10-K.*
10.4 Form of Nonqualified Stock Option Agreement to be issued to
certain officers and directors of Registrant pursuant to
Agritope, Inc., 1992 Stock Award Plan.*
10.5 Lease dated July 17, 1990, among Registrant, Koll Woodside
Associates, a California general partnership, and Petula
Associates, Ltd., an Iowa corporation. Incorporated by
reference to Exhibit 10.5 to the 1994 10-K.
10.6 Fourth Amendment dated May 20, 1994, to Lease dated July 17,
1990, among Registrant, Koll Woodside Associates, a California
general partnership, and Petula Associates, Ltd., an Iowa
corporation. Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarterly period ended June 30, 1994 ("June 1994 10-Q").
10.7 Business Park Lease dated May 5, 1994, among Registrant, Koll
Woodside Associates, a California general partnership, and
Petula Associates, Ltd., an Iowa corporation. Incorporated by
reference to Exhibit 10.2 to the June 1994 10-Q.
10.8 Business Park Lease dated as of December 16, 1994, among
Registrant, Petula Associates Ltd., an Iowa corporation, and
Koll Portland Associates, a California general partnership.
Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarterly period
ended December 31, 1994.
10.9 Agreement dated December 9, 1987, between Registrant and
Adolph Ferro, Ph.D. Incorporated by reference to Exhibit 4.3
to the 1988 S-1.*
10.10 Amendment to Agreement of December 9, 1987, dated November 11,
1996, between Registrant and Adolph J. Ferro, Ph.D.
Incorporated by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the year ended September 30,
1996.
10.11 Distribution Agreement dated as of April 1, 1994, between
Registrant and Organon Teknika Corporation. Incorporated by
reference to Exhibit 10.3 to the June 1994 10-Q.
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<PAGE>
10.12 Supply Agreement dated as of April 1, 1994, between Registrant
and Organon Teknika Corporation. Incorporated by reference to
Exhibit 10.4 to the June 1994 10-Q.
10.13 Form of Indemnification Agreement for directors and officers.
Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-4 (No. 333-15705).*
10.14 Amended and Restated Employment Agreement dated January 8,
1991 between Andrew S. Goldstein and Registrant. Incorporated
by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1991 (the
"1991 10-K").*
10.15 Amended and Restated Employment Agreement dated January 9,
1991, between Adolph J. Ferro, Ph.D., and Registrant.
Incorporated by reference to Exhibit 10.29 to the 1991 10-K.*
10.16 Amendment to Amended and Restated Employment Agreement of
January 9, 1991, dated August 19, 1997, between Registrant and
Adolph J. Ferro, Ph.D.*
10.17 Employment Agreement dated January 28, 1990, between Gilbert
N. Miller and Registrant. Incorporated by reference to Exhibit
10.19 to the 1994 10-K.*
10.18 Employment Agreement dated July 1, 1990, between John H.
Fitchen, M.D. and Registrant. Incorporated by reference to
Exhibit 10.20 to the 1994 10-K.*
10.19 Employment Agreement dated October 6, 1997, between John W.
Morgan and Registrant.*
10.20 Option Agreement dated October 6, 1997, between John W. Morgan
and Registrant.*
10.21 Form of Employment Agreement between Charles E. Bergeron and
Registrant.*
10.22 Form of Employment Agreement between J. Richard George, Ph.D.
and Registrant.*
10.23 Continuing Guaranty by Epitope, Inc. of credit agreement
between Andrew & Williamson Sales Co. ("A&W") and Wells Fargo
Bank, N.A. ("Wells Fargo") and Subordination Agreement among
Registrant, A&W and Wells Fargo each dated as of December 17,
1996. Incorporated by reference to Exhibit 10.2 to the March
1996 10-Q.
10.24 Amended and Restated Employee Benefits Agreement between
Epitope, Inc. and Agritope, Inc., dated December 19, 1997.*
10.25 Transition Services and Facilities Agreement between Epitope,
Inc. and Agritope, Inc., dated December 1, 1997.
10.26 Tax Allocation Agreement between Epitope, Inc. and Agritope,
Inc., dated December 1, 1997.
21. The Registrant's subsidiaries are Agritope, Inc., an Oregon
corporation, Vinifera, Inc., an Oregon corporation, and
Agrimax Floral Products, Inc., a Minnesota corporation. The
Registrant also owns a 67 percent interest in Superior Tomato
Associates, L.L.C., a Delaware limited liability company, and
a 60 percent interest in Epitope KK, a Japanese limited
liability company. The Registrant will no longer own an
interest in Agritope, Inc., Vinifera, Inc., Agrimax Floral
Products, Inc. or Superior Tomato Associates, L.L.C.,
following the spin-off of Agritope, Inc.
23. Consent of Price Waterhouse LLP.
24. Powers of Attorney.
27. Financial Data Schedule.
* Management contract or compensatory plan or arrangement
- 43 -
SEPARATION AGREEMENT
between
Epitope, Inc.
and
Agritope, Inc.
Dated December 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
ARTICLE 1
<S> <C> <C>
DEFINITIONS................................................................ 1
ARTICLE 2
PRE-DISTRIBUTION TRANSACTIONS....................................................... 4
2.1 Private Placement of Agritope Equity. ..................................................... 4
2.2 Agritope Corporate Actions.................................................................. 5
2.3 Epitope Approval............................................................................ 5
2.4 Related Agreements.......................................................................... 5
2.5 Securities Law Actions...................................................................... 5
ARTICLE 3
THE DISTRIBUTION.............................................................. 6
3.1 Discretion of Epitope Board; No Obligation.................................................. 6
3.2 Conditions to the Distribution.............................................................. 6
3.3 The Distribution............................................................................ 6
3.4 Fractional Shares........................................................................... 7
ARTICLE 4
INDEMNIFICATION, CLAIMS AND OTHER MATTERS................................................. 7
4.1 Indemnification by Epitope.................................................................. 7
4.2 Indemnification by Agritope................................................................. 7
4.3 Insurance Proceeds.......................................................................... 8
4.4 Procedure for Indemnification............................................................... 8
4.5 Other Claims................................................................................ 10
4.6 Contribution in Respect of Certain Indemnifiable Losses..................................... 10
4.7 No Beneficiaries............................................................................ 11
ARTICLE 5
CERTAIN ADDITIONAL MATTERS......................................................... 11
5.1 Construction of Agreements.................................................................. 11
5.2 Consents and Assignments.................................................................... 11
5.3 No Representations or Warranties............................................................ 11
5.4 Officers and Directors...................................................................... 11
5.5 Existing Intercompany Arrangements.......................................................... 12
5.6 Termination of Intercompany Accounts........................................................ 12
ARTICLE 6
ACCESS TO INFORMATION AND SERVICES; TECHNOLOGY............................................... 12
6.1 Provision of Corporate Records.............................................................. 12
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<PAGE>
6.2 Access to Information....................................................................... 12
6.3 Production of Witnesses and Individuals..................................................... 12
6.4 Retention of Records........................................................................ 13
6.5 Confidentiality............................................................................. 13
6.6 Privileged Matters.......................................................................... 14
6.7 Technology.................................................................................. 15
ARTICLE 7
INSURANCE................................................................. 16
7.1 Transition.................................................................................. 16
7.2 Post-Distribution Date Claims............................................................... 16
7.3 Allocation of Insurance Proceeds............................................................ 16
ARTICLE 8
DISPUTE RESOLUTION............................................................. 17
8.1 Negotiation and Binding Arbitration......................................................... 17
8.2 Initiation.................................................................................. 17
8.3 Submission to Arbitration................................................................... 17
8.4 Equitable Relief............................................................................ 17
ARTICLE 9
MISCELLANEOUS............................................................... 18
9.1 Entire Agreement............................................................................ 18
9.2 Expenses.................................................................................... 18
9.3 Governing Law............................................................................... 18
9.4 Jurisdiction and Venue...................................................................... 18
9.5 Notices..................................................................................... 18
9.6 Modification of Agreement................................................................... 19
9.7 Termination................................................................................. 19
9.8 Successors and Assigns...................................................................... 19
9.9 No Third Party Beneficiaries................................................................ 19
9.10 Titles and Headings; Interpretation......................................................... 19
9.11 Exhibits.................................................................................... 20
9.12 Severability................................................................................ 20
9.13 No Waiver................................................................................... 20
9.14 Survival.................................................................................... 20
9.15 Counterparts................................................................................ 20
</TABLE>
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<PAGE>
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement") is entered into
by and between Epitope, Inc., an Oregon corporation ("Epitope"), and Agritope,
Inc., a Delaware corporation ("Agritope"), as of December 1, 1997.
RECITALS
A. Agritope is a wholly owned subsidiary of Epitope, principally
engaged in research and development of agricultural products using plant genetic
engineering.
B. The board of directors of Epitope has determined that it is in the
best interests of the shareholders of Epitope to separate Agritope from Epitope
by distributing as a dividend to holders of Epitope common stock, no par value
("Epitope Stock"), all of the issued and outstanding shares of Agritope common
stock, par value $.01 per share, including certain preferred stock purchase
rights attached thereto (the "Agritope Stock"), held by Epitope (the
"Distribution"), as provided herein; and
C. Epitope and Agritope have determined that it is necessary and
desirable to establish the principal corporate transactions required to effect
the separation of Agritope from Epitope, and to enter into certain other
agreements governing matters relating to the Distribution and the relationship
between Epitope and Agritope after the Distribution.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Epitope and Agritope agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms shall have the meanings given below or
elsewhere in this Agreement.
Action: any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with such specified person;
provided, however, that unless otherwise expressly provided, the Agritope Units
and Epitope shall not be deemed to be Affiliates of one another for purposes of
this Agreement.
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<PAGE>
Agent: ChaseMellon Shareholder Services, L.L.C., the
distribution agent appointed by Epitope and Agritope to distribute the Agritope
Stock in connection with the Distribution.
Agritope Business: (i) the business of research and
development, marketing and sales of novel agricultural products using both plant
genetic engineering and other modern methods; (ii) the businesses of Vinifera
involving grapevine plant propagation and disease screening and elimination
programs; and (iii) any other business or operation conducted by an Agritope
Unit at any time. The Agritope Business does not include the business conducted
by Andrew and Williamson Sales, Co., a California corporation formerly owned by
Epitope.
Agritope Employee: any employee of a Core Company, and any
employee of Epitope who is assigned to a Core Company on or prior to the
Distribution Date.
Agritope Preferred: Agritope Series A preferred stock, par
value $.01 per share.
Agritope Unit: each Core Company and Related Company.
Books and Records: books and records (or true and complete
copies thereof), including computerized records, of Epitope that relate
principally to any Agritope Unit or the Agritope Business or decisions made by
Epitope that relate to Agritope, including, without limitation, all books and
records relating to Agritope Employees, the purchase of materials, supplies and
services by any Agritope Unit, and the technologies, customers, and business
partners of any Agritope Unit; and all files relating to any Action involving
any Agritope Unit or involving any Agritope Employee or director (including any
Action that arose when the Agritope Employee was employed by Epitope).
Code: the Internal Revenue Code of 1986, as amended.
Commission: the Securities and Exchange Commission.
Core Company: each of Agritope, Vinifera, and Agrimax Floral
Products, Inc., a Minnesota corporation.
Distribution Date: the effective date of the Distribution, as
determined by the Epitope Board.
Distribution Prospectus: the information statement/prospectus
to be distributed to holders of Epitope Stock in connection with the
Distribution.
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<PAGE>
Employee Benefits Agreement: the agreement, substantially in
the form of Exhibit A hereto, pursuant to which Epitope and Agritope will
provide for certain employee benefit matters.
Epitope Board: the board of directors of Epitope.
Form S-1: the Registration Statement on Form S-1 filed by
Agritope with the Commission to register the Agritope Stock to be distributed to
holders of Epitope Stock in the Distribution.
Indemnifiable Losses: with respect to any claim by an
Indemnitee for indemnification authorized pursuant to Article 4 hereof, any and
all losses, liabilities, claims, damages, obligations, payments, costs and
expenses (including, without limitation, the costs and expenses of any and all
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and reasonable attorney fees and expenses in connection therewith,
including attorney fees before and at trial and in connection with any appeal or
petition for review) suffered by such Indemnitee with respect to such claim,
other than those arising out of an individual's service as a director, officer,
or employee of the entity that would be the Indemnifying Party but for this
exclusion.
Indemnifying Party: any party who is required to pay any other
person pursuant to Article 4 hereof.
Indemnitee: any party who is entitled to receive payment from
an Indemnifying Party pursuant to Article 4 hereof.
Indemnity Payment: the amount an Indemnifying Party is
required to pay an Indemnitee pursuant to Article 4 hereof.
Insurance Proceeds: those monies (i) received by an insured
from an insurance carrier or (ii) paid by an insurance carrier on behalf of the
insured, in either case net of any applicable premium adjustment,
retrospectively rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
Insured Claims: those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectibility or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
Liabilities: any and all debts, liabilities and obligations,
whether accrued, contingent or reflected on a balance sheet, known or unknown,
including, without limitation, those arising under any law, rule, regulation,
Action, order or consent decree of any
- 3 -
<PAGE>
governmental entity or any judgment of any court of any kind or award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
Policies: insurance policies and insurance contracts of any
kind, including, without limitation, primary and excess policies, comprehensive
general liability policies, automobile and workers' compensation insurance
policies, and self-insurance arrangements, together with the rights and benefits
thereunder.
Private Placement: the sale of Agritope Stock or Agritope
Preferred to certain private investors in transactions intended to be exempt
from registration under the Securities Act pursuant to Regulation D or
Regulation S under the Securities Act.
Record Date: the date determined by the Epitope Board as the
record date for the Distribution.
Related Agreements: the Employee Benefits Agreement,
Transition Services and Facilities Agreement, Tax Allocation Agreement, and all
other agreements entered into by Epitope and Agritope pursuant to this Agreement
or otherwise in connection with the Distribution.
Related Company: each of UAF, Limited Partnership, a Delaware
limited partnership, Petals USA, Inc., a Minnesota corporation, and Superior
Tomato Associates, L.L.C., a Delaware limited liability company.
Securities Act: the Securities Act of 1933, as amended.
Shared Policies: all Policies owned or maintained by or on
behalf of Epitope prior to the Distribution Date, relating to both Epitope's
business and the Agritope Business.
Tax Allocation Agreement: the agreement, substantially in the
form of Exhibit B hereto, pursuant to which Epitope and Agritope will provide
for certain tax matters.
Transition Services and Facilities Agreement: the agreement,
substantially in the form of Exhibit C hereto, pursuant to which Epitope will
provide certain transitional services and facilities to Agritope following the
Distribution Date.
Vinifera: Vinifera, Inc., an Oregon corporation.
ARTICLE 2
PRE-DISTRIBUTION TRANSACTIONS
2.1 Private Placement of Agritope Equity. Agritope shall use
its best efforts to obtain commitments in the form of executed share purchase
agreements from investors
- 4 -
<PAGE>
interested in investing in Agritope in a Private Placement to occur immediately
following the Distribution. Agritope shall use its best efforts to determine the
aggregate amount of committed investment capital as soon as practicable.
2.2 Agritope Corporate Actions. Prior to the Distribution Date,
Agritope will take all corporate action necessary to effect the Distribution and
comply with this Agreement and any Related Agreements, including but not limited
to authorizing a recapitalization such that a sufficient number of shares of
Agritope Stock are available to effect the Distribution, and approving
appropriate stock-based compensation or other plans, agreements and
arrangements, as provided for in the Employee Benefits Agreement.
2.3 Epitope Approval. Subject to the business judgment of the Epitope
Board, Epitope shall cooperate with Agritope in effecting any actions that are
reasonably necessary or desirable to be taken by Agritope in connection with the
transactions contemplated by this Agreement or any Related Agreements including,
without limitation, approving or ratifying as sole stockholder of Agritope, the
election or appointment of directors of Agritope to serve following the
Distribution, appropriate stock-based compensation or other plans for Agritope
Employees, board members and consultants, and any recapitalization necessary to
effect the Distribution.
2.4 Related Agreements. Epitope and Agritope will use their best
efforts to cause, on or before the Record Date, the execution and delivery by
each party of the Related Agreements and any other agreements deemed necessary
or desirable by the parties to establish and govern the post-Distribution
relationship of the parties.
2.5 Securities Law Actions.
(a) Epitope and Agritope will prepare, and file with the
Commission, the Form S-1, including the Distribution Prospectus.
Epitope and Agritope shall use reasonable efforts to cause the Form S-1
to become effective under the Securities Act, and, as soon as
practicable after the Distribution Date, Epitope shall mail the
Distribution Prospectus to holders of Epitope Stock as of the Record
Date. The joint obligations of Epitope and Agritope under this Section
2.4(a) shall not affect their respective obligations of indemnity under
Article 4 hereof.
(b) Epitope and Agritope shall take all such actions as may be
necessary or appropriate under the securities or blue sky laws of the
various states or other political subdivisions of the United States and
other countries in connection with the Distribution and the Private
Placement.
(c) Agritope will prepare and file, and will use its best
efforts to have approved, an application for inclusion of Agritope
Stock on The Nasdaq SmallCap Market.
- 5 -
<PAGE>
ARTICLE 3
THE DISTRIBUTION
3.1 Discretion of Epitope Board; No Obligation. The Epitope Board will
have the sole discretion to determine, by resolution, the Record Date and all
appropriate procedures in connection with the Distribution. Nothing contained in
this section shall be interpreted to create any obligation on the part of
Epitope or Agritope to effect or to seek to effect the Distribution or in any
way limit Epitope's right to terminate this Agreement prior to the Record Date.
3.2 Conditions to the Distribution. The Distribution will not occur
prior to such time as each of the following conditions have been satisfied or
have been waived by the Epitope Board, in its sole discretion:
(a) Agritope shall have received binding commitments for
financing in an amount the Epitope Board deems sufficient to support
the operations of the Core Companies as businesses separate from
Epitope for a period of not less than two years;
(b) any waivers, consents, or amendments with respect to
agreements or other obligations entered into by or binding upon Epitope
or any Core Company shall have been executed and received to the extent
necessary to prevent Epitope or the Core Company from being in default
with respect to such agreements or obligations following the
Distribution;
(c) an opinion shall have been received from Miller, Nash,
Wiener, Hager & Carlsen LLP in form and substance satisfactory to the
Epitope Board, with respect to the federal income tax status of the
Distribution under Section 355 of the Code;
(d) the Form S-1 shall have been declared effective by the
Commission;
(e) any material approvals and consents necessary to
consummate the Distribution shall have been obtained and shall be in
full force and effect, and no Action shall be pending or threatened
with respect to the Distribution; and
(f) no other event or development shall have occurred that, in
the judgment of the Epitope Board, would have a material adverse effect
on Epitope or its shareholders.
3.3 The Distribution. On or prior to the Record Date, Epitope
will deliver its certificate or certificates for Agritope Stock to the Agent.
Epitope will deliver to the Agent a stock certificate or certificates
representing, in the aggregate (and rounded down to the nearest whole share),
the number of shares necessary so that one share of Agritope Stock may be
distributed to Epitope shareholders of record for every five shares of Epitope
Stock
- 6 -
<PAGE>
outstanding on the Record Date. Thereafter, Epitope shall instruct the Agent to
distribute to holders of record of Epitope Stock on the Record Date, one share
of Agritope Stock for every five shares of Epitope Stock. All of the shares of
Agritope Stock issued in the Distribution will be fully paid, nonassessable and
free of preemptive rights. If the aggregate number of shares held by Epitope or
delivered to the Agent as of the Record Date exceeds the number to be
distributed to Epitope shareholders, Epitope shall return or instruct the Agent
to return the excess shares to Agritope for cancellation, as an additional
contribution to capital.
3.4 Fractional Shares. No certificates or scrip representing
fractional shares of Agritope Stock will be issued as a part of the
Distribution, and in lieu of receiving fractional shares, each holder of Epitope
Stock who would otherwise be entitled to receive a fractional share of Agritope
Stock pursuant to the Distribution will receive cash from Epitope for such
fractional share.
ARTICLE 4
INDEMNIFICATION, CLAIMS AND OTHER MATTERS
4.1 Indemnification by Epitope. Epitope will indemnify, defend
and hold harmless the Agritope Units and each of their directors, officers,
employees, and agents from and against any and all Indemnifiable Losses after
the Distribution Date arising out of or due to, directly or indirectly: (i)
Liabilities incurred in the course of the business or operations of Epitope
exclusive of the Agritope Business; (ii) any claim that the information included
in the Distribution Prospectus or the Form S-1 under (A) the captions "Summary
- -- Distributing Corporation and Business," "-- Financing of Agritope," "--
Distribution Ratio," "-- Record Date," "-- Distribution Date," "--Shares to be
Distributed," "-- Fractional Share Interests," "-- Primary Purposes of the
Distribution," "-- Tax Consequences," or "--Relationship with Epitope after the
Distribution," and the corresponding information appearing elsewhere in the
Distribution Prospectus, (B) the captions "The Distribution -- Reasons for the
Distribution," "-- Manner of Effecting the Distribution" and "-- Certain Federal
Income Tax Consequences," or (C) the information concerning Vector Securities
International, Inc. is false or misleading with respect to any material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; (iii) any third party claim of failure by
Epitope to perform under, or of any violation by Epitope of, any provision of
this Agreement or any Related Agreement, which is to be performed or complied
with by Epitope; and (iv) breaches of this Agreement or any Related Agreement by
Epitope.
4.2 Indemnification by Agritope. Agritope will indemnify,
defend and hold harmless Epitope and each of its directors, officers, employees,
and agents from and against any and all Indemnifiable Losses after the
Distribution Date arising out of or due to, directly or indirectly: (i)
Liabilities incurred in the course of the Agritope Business, including
obligations under any existing guaranty by Epitope of obligations of any
Agritope Unit; (ii) any claim that any information provided in connection with
the Private Placement, other than the information listed in Section 4.1(ii), is
false or misleading with respect to any material
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fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or that the Private Placement
otherwise violated the applicable law of any country; (iii) any claim that the
information included in the Distribution Prospectus or Form S-1, other than the
information listed in Section 4.1(ii) hereof, is false or misleading with
respect to any material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; (iv) any claim by
any person or entity, other than Epitope or Agritope, that is a shareholder or
equity owner of an Agritope Unit, relating to such person's or entity's stock or
other equity interest in an Agritope Unit; (v) any third party claims of failure
by an Agritope Unit to perform under, or any violation by an Agritope Unit of,
any provision of this Agreement or any Related Agreement which is to be
performed or complied with by an Agritope Unit; and (vi) breaches of this
Agreement or any Related Agreement by an Agritope Unit.
4.3 Insurance Proceeds. The amount that any Indemnifying Party
is or may be required to pay to any Indemnitee pursuant to Section 4.1 or
Section 4.2 hereof will be reduced (including, without limitation,
retroactively) by any Insurance Proceeds and other amounts actually recovered by
or on behalf of such Indemnitee in reduction of the related Indemnifiable Loss.
If an Indemnitee shall have received an Indemnity Payment in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds or
other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnitee will pay to such Indemnifying Party a sum equal to the amount of
such Insurance Proceeds or other amounts actually received. Notwithstanding the
foregoing, nothing in this section grants to an Indemnitee any direct or
indirect rights or benefits to insurance coverage, nor requires an Indemnifying
Party to make any claim for insurance coverage.
4.4 Procedure for Indemnification.
(a) If either party shall receive notice of any claim or
Action brought, asserted, commenced or pursued by any person or entity
not a party to this Agreement (hereinafter a "Third Party Claim"), with
respect to which the other party is or may be obligated to make an
Indemnity Payment, it shall give such other party prompt notice thereof
(including any pleadings relating thereto), specifying in such
reasonable detail as is known to it the nature of such Third Party
Claim and the amount or estimated amount thereof; provided, however,
that the failure of a party to give notice as provided in this Section
4.4 shall not relieve the other party of its indemnification
obligations under this Article 4, except to the extent that such other
party is actually prejudiced by such failure to give notice.
(b) For any Third Party Claim concerning which notice is
required to be given, and, in fact, is given under subparagraph (a) of
this Section 4.4, the Indemnifying Party shall defend in a timely
manner, to the extent permitted by law, such Third Party Claim through
counsel appointed by the Indemnifying Party and reasonably acceptable
to the Indemnitee. Once an Indemnifying Party has commenced
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its defense of an Indemnitee, it cannot withdraw from such defense
until conclusion of the matter, unless the Indemnified Party agrees to
the withdrawal or the Indemnitee is also defending the claim. The
Indemnitee shall have the right to participate in the defense of the
Third Party Claim by employing separate counsel at its own expense.
(c) If a party responds to a notice of a Third Party Claim by
denying its obligation to indemnify the other party, or if the
Indemnifying Party fails to defend in a timely or reasonably
satisfactory manner, the Indemnitee shall be entitled to defend such
Third Party Claim through counsel appointed by it. In addition, if it
is later determined that such party wrongfully denied such claim, or
the Indemnifying Party failed to defend timely or in a reasonably
satisfactory manner, then the Indemnifying Party shall (i) reimburse
the Indemnitee for all reasonable costs and expenses (including
attorney fees before and at trial and in connection with any appeal or
petition for review, but excluding salaries of officers and employees)
incurred by the Indemnitee in connection with its defense of such Third
Party Claim; and (ii) be estopped from challenging a judgment, order,
settlement, compromise, or consent judgment resolving the Third Party
Claim entered into in good faith by the Indemnitee (if such claim has
been resolved prior to the conclusion of the proceeding between the
Indemnitee and Indemnifying Party). An Indemnifying Party, after
initially rejecting a claim for defense or indemnification, may defend
and indemnify the Indemnitee, at any time prior to the resolution of
said Third Party Claim, for such claim, provided that (x) the
Indemnifying Party reimburses the Indemnitee for all reasonable costs
and expenses (including attorney fees before and at trial and in
connection with any appeal or petition for review, but excluding
salaries of officers and employees) incurred by the Indemnitee in
connection with its defense of such Third Party Claim up to the time
the Indemnifying Party assumes control of the defense of such claim
(including costs incurred in the transition of the defense from the
Indemnitee to the Indemnifying Party); and (y) the assumption of the
defense of the Third Party Claim is not expected to prejudice or cause
harm to the Indemnitee.
(d) With respect to any Third Party Claim for which
indemnification has been claimed hereunder, no party shall enter into
any compromise or settlement, or consent to the entry of any judgment
which (i) does not include as a term thereof the giving by the third
party of a release to the Indemnitee from all further liability
concerning such Third Party Claim on terms no less favorable than those
obtained by the party entering into such compromise, settlement or
consent; or (ii) imposes any obligation on the Indemnitee without such
Indemnitee's written consent (such consent not to be withheld
unreasonably), except an obligation to pay money which the Indemnifying
Party has agreed to pay and has the ability to pay on behalf of the
Indemnitee. In the event that an Indemnitee enters into any such
compromise, settlement or consent without the written consent of the
Indemnifying Party (other than as contemplated by Section 4.4(c)
hereof), the entry of such compromise, settlement or consent shall
relieve the Indemnifying Party of its indemnification obligation
related to the claims underlying such compromise, settlement or
consent.
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(e) Upon final judgment, determination, settlement or
compromise of any Third Party Claim, and unless otherwise agreed by the
parties in writing, the Indemnifying Party shall pay promptly on behalf
of the Indemnitee, or to the Indemnitee in reimbursement of any amount
theretofore required to be paid by the Indemnitee, the amount so
determined by final judgment, determination, settlement or compromise.
Upon the payment in full by the Indemnifying Party of such amount, the
Indemnifying Party shall succeed to the rights of such Indemnitee to
the extent not waived in settlement, against the third party who made
such Third Party Claim and any other person who may have been liable to
the Indemnitee with respect to the indemnified matter.
(f) In connection with defending against Third Party Claims,
the parties shall cooperate with and assist each other by making
available all employees, books, records, communications, documents,
items and matters within their knowledge, possession or control that
are necessary, appropriate or reasonably deemed relevant with respect
to defense of such claims; provided, however, that nothing in this
subparagraph (f) shall be deemed to require the waiver of any
privilege, including the attorney-client privilege, or protection
afforded by the attorney work product doctrine. In addition, regardless
of the party actually defending a Third Party Claim for which there is
an indemnity obligation under Section 4.1 or 4.2 hereof, the parties
shall give each other regular status reports relating to such action
with detail sufficient to permit the other party to assert and protect
its rights and obligations under this Agreement.
4.5 Other Claims. Any claim for an Indemnifiable Loss which
does not result from a Third Party Claim shall be asserted by written notice
from the Indemnitee to the Indemnifying Party within 120 days of first learning
thereof. All such claims that are not timely asserted pursuant to this section
shall be deemed to be forever waived. The Indemnitee's written notice shall
contain such information as the Indemnitee has regarding the alleged breach.
Such Indemnifying Party shall have a period of 120 days (or such shorter time
period as may be required by law as indicated by the Indemnitee in the written
notice) within which to respond thereto. If such Indemnifying Party does not
respond within such 120-day period (or lesser period), such Indemnifying Party
shall be deemed to have accepted responsibility to make payment for the amount
of Indemnifiable Loss and shall have no further right to contest the validity of
such claim. If such Indemnifying Party does respond within such 120-day (or
lesser) period and rejects such claim in whole or in part, such Indemnitee shall
be free to pursue such remedies as may be available under applicable law or
under this Agreement.
4.6 Contribution in Respect of Certain Indemnifiable Losses.
If the indemnification provided for in this Article 4 is unavailable to an
Indemnitee in respect of any Indemnifiable Loss arising out of, or related to,
information contained in the Distribution Prospectus or the related Form S-1 or
used in connection with the Private Placement, the Indemnifying Party, in lieu
of indemnifying such Indemnitee, shall contribute to the amount paid or payable
by such Indemnitee as a result of such Indemnifiable Loss, in such proportion as
is appropriate to reflect the relative fault of Agritope, its directors,
officers,
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employees or agents, on the one hand, and Epitope, its directors, officers,
employees or agents, on the other hand, in connection with the statements or
omissions which resulted in such Indemnifiable Loss. The relative fault of such
respective groups shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by either such group.
4.7 No Beneficiaries. Except to the extent expressly provided
otherwise in this Article 4, the indemnification provided for by this Article 4
shall not inure to the benefit of any third party or parties and shall not
relieve any insurer who would otherwise be obligated to pay any claim of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any such subrogation rights with respect thereto and
each party agrees to waive such rights against the other to the fullest extent
permitted.
ARTICLE 5
CERTAIN ADDITIONAL MATTERS
5.1 Construction of Agreements. Notwithstanding any other
provisions in this Agreement to the contrary, in the event and to the extent
that there is a conflict between the provisions of this Agreement and the
provisions of any Related Agreement, the provisions of such Related Agreement
shall control.
5.2 Consents and Assignments. Epitope and Agritope shall use
reasonable efforts to obtain, either before or after the Distribution Date, any
consent, approval or amendment required to novate and/or assign to an Agritope
Unit or to Epitope, as appropriate, all agreements, leases, licenses and other
rights of any nature whatsoever relating solely to that party's business.
5.3 No Representations or Warranties. Agritope understands and
agrees that Epitope is not, in this Agreement, or in any Related Agreement or
any other agreement or document contemplated by this Agreement, representing or
warranting in any way as to the businesses and Liabilities retained, transferred
or assumed in connection with the Distribution, or that the obtaining of the
consents or approvals, the execution and delivery of any ancillary or amendatory
agreements or the making of the filings and applications contemplated by this
Agreement will satisfy the provisions of all applicable agreements or the
requirements of all applicable laws or judgments, it being understood and agreed
that, subject to Section 5.2 hereof, Agritope shall bear the economic and legal
risk of the business and Liabilities retained or assumed hereunder by Agritope,
and the legal and economic risk that any necessary consents or approvals are not
obtained or that any requirements of law or judgments are not complied with or
satisfied.
5.4 Officers and Directors. Agritope and Epitope shall take
all necessary actions to elect or otherwise appoint, as of the Distribution
Date, individuals to be directors or officers (or both) of Agritope, as set
forth in the Form S-1, and to cause the resignation of
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individuals as officers and directors of each so that there are only two common
directors of Agritope and Epitope as of the Distribution Date and no common
officers.
5.5 Existing Intercompany Arrangements. Except as otherwise
provided in this Agreement, any and all agreements, arrangements, commitments or
understandings, whether or not in writing, between Epitope and Agritope will be
terminated and of no further force and effect as of the Distribution Date.
Following the Distribution Date, the parties shall discuss in good faith the
provision of any services and products to be provided by the other, but which
inadvertently were not the subject of this Agreement or any other Related
Agreement.
5.6 Termination of Intercompany Accounts. Except as described
in Section 9.2, any intercompany receivable, payable or loan between Epitope and
Agritope outstanding on the Distribution Date will be deemed terminated as a
result of the consummation of the transactions contemplated in this Agreement
and will be treated as a capital contribution.
ARTICLE 6
ACCESS TO INFORMATION AND SERVICES; TECHNOLOGY
6.1 Provision of Corporate Records. Following the Distribution
Date, all Books and Records will remain the property of Epitope but will be made
available upon reasonable notice and during normal business hours to Agritope
for review and duplication until the earlier of (i) notice from Agritope that
such Books and Records are no longer needed by Agritope, or (ii) the seventh
anniversary of the Distribution Date.
6.2 Access to Information. From and after the Distribution
Date, Epitope and Agritope will afford to each other and to each other's
authorized accountants, legal counsel and other designated representatives
reasonable access and duplicating rights (with copying costs to be borne by the
requesting party) during normal business hours to all Books and Records and
documents, communications, items and matters, including computer data
(collectively, "Information") within each other's knowledge, possession or
control, relating to the Agritope Units or Agritope Employees, insofar as such
access is reasonably required by Epitope or Agritope (and shall use reasonable
efforts to cause persons or firms possessing Information to give similar
access). Information may be requested under this Article 6 for any legitimate
business purpose including, without limitation, audit, accounting, claims,
Actions, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations, but not for competitive purposes.
6.3 Production of Witnesses and Individuals. From and after
the Distribution Date, Epitope and Agritope will use reasonable efforts to make
available to each other, upon written request, their respective officers,
directors, employees and agents for fact finding, consultation and interviews
and as witnesses to the extent that any such person may reasonably be required
in connection with any Actions in which the requesting party may
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from time to time be involved. Epitope and Agritope agree to reimburse each
other for reasonable out-of-pocket expenses (but not labor charges or salary
payments) incurred by the other in connection with providing individuals and
witnesses pursuant to this Section 6.3.
6.4 Retention of Records. Except when a longer retention
period is otherwise required by law or agreed to in writing, Epitope and
Agritope will retain, for seven years following the Distribution Date, all
material Information relating to Agritope. Notwithstanding the foregoing, in
lieu of retaining any specific Information, Epitope or Agritope may offer in
writing to deliver such Information to the other and, if such offer is not
accepted within 90 days, the offered Information may be destroyed or otherwise
disposed of at any time. If a recipient of such offer requests in writing that
any of the Information proposed to be destroyed or disposed of be delivered to
such requesting party, the party proposing the destruction or disposal will
promptly arrange for the delivery of the requested Information (at the cost of
the requesting party).
6.5 Confidentiality. During the period that Agritope has been
a wholly owned subsidiary of Epitope, employees of both Epitope and Agritope
have become aware of a wide variety of otherwise confidential business and
technical information of the other party. Such information of Epitope or the
Agritope Units (the "Disclosing Party") shall be protected by the other party
(the "Recipient") as follows:
(a) "Confidential Information" means nonpublic information
concerning the Disclosing Party's business, business plans, products,
or technology, whether disclosed before or after the Distribution Date,
including but not limited to strategic and long-range plans, financial
and operating results, identities of principal customers and suppliers,
plans for capital expenditures, plans for expansion into new markets,
research projects and results, and trade secrets.
(b) "Confidential Information" for purposes of this agreement
excludes:
(i) information which is or becomes publicly
available through no act of the Recipient, from and after the
date of public availability;
(ii) information disclosed to the Recipient by a
third party, provided: (A) under the circumstances of
disclosure the Recipient does not have a duty of
non-disclosure owed to such third party; (B) the third party's
disclosure does not violate a duty of non-disclosure owed to
another, including the Disclosing Party; and (C) the
disclosure by the third party is not otherwise unlawful; and
(iii) information developed by the Recipient
independent of any confidential information of the Disclosing
Party which is known by the Recipient on the Distribution Date
and/or disclosed by the Disclosing Party thereafter.
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(c) The Recipient will hold, and will cause its officers,
employees, agents, consultants, advisors and Affiliates to hold, in
strict confidence, and not to disclose, unless compelled to disclose by
judicial or administrative process or, in the opinion of its
independent legal counsel, by other requirements of law, all
Confidential Information of the Disclosing Party.
(d) The Recipient shall protect Confidential Information of
the Disclosing Party by using the same degree of care, but no less than
a reasonable degree of care, to prevent unauthorized disclosure as the
Recipient uses to protect its own confidential information of a like
nature.
(e) The Recipient may disclose Confidential Information of the
Disclosing Party to its employees, Affiliates, sublicensees, agents and
advisors (such as attorneys, accountants and other consultants) who
need to know the information and are obligated by policy, agreement or
otherwise to avoid unauthorized use and disclosure of Confidential
Information.
(f) The foregoing restrictions shall expire ten years after
the later of the Distribution Date or the date of disclosure, unless
and to the extent Epitope and Agritope agree to a longer period for the
foregoing restrictions with respect to specific categories of
Confidential Information.
6.6 Privileged Matters.
(a) Epitope and Agritope will each maintain, preserve and
assert all privileges, including, without limitation, any privilege or
protection arising under or relating to any attorney-client
relationship (including, without limitation, the attorney-client and
work product privileges), that existed prior to the Distribution Date
in favor of the other party ("Privilege" or "Privileges"). Neither
party will waive any Privilege that could be asserted under applicable
law by the other party (the "Privileged Party") without the prior
written consent of the Privileged Party. The rights and obligations
created by this paragraph apply to all information as to which, but for
the Distribution, a party would have been entitled to assert or did
assert the protection of a Privilege ("Privileged Information").
(b) Upon receipt by either party or any of its Affiliates of
any subpoena, discovery or other request that arguably calls for the
production or disclosure of Privileged Information of the other party,
or if a party obtains knowledge that any of its current or former
employees has received any subpoena, discovery or other request which
arguably calls for the production or disclosure of Privileged
Information of the other party, the party will promptly notify the
Privileged Party of the existence of the request and will provide the
Privileged Party a reasonable opportunity to review the information and
to assert any rights it may have under this Section 6.6 or otherwise to
prevent the production or disclosure of Privileged Information. Neither
party will produce or disclose any information it should reasonably
expect to be covered by a
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Privilege under this Section 6.6 unless (i) the Privileged Party has
provided its express written consent to such production or disclosure;
or (ii) a court of competent jurisdiction has entered a final,
non-appealable order finding that the information is not entitled to
protection under any applicable privilege.
(c) Either party's provision of information to the other
party, and either party's agreement to permit the other party to
possess copies of Privileged Information occurring or generated prior
to the Distribution Date, are made in reliance on the agreement, as set
forth in this Section 6.6, to maintain the confidentiality of
Privileged Information and to assert and maintain all applicable
Privileges. Any actions taken by either party in connection with the
Distribution and this Separation Agreement shall not be deemed a waiver
of any Privilege that has been or may be asserted by either party nor
shall they operate to reduce, minimize or condition the rights granted
to either party in, or the obligations imposed upon either party by,
this Section 6.6.
(d) Agritope shall cause the Core Companies to comply with the
restrictions imposed on it under this Section 6.6.
6.7 Technology.
(a) On or before the Distribution Date, Epitope shall assign
to Agritope, or as applicable Agritope shall assign to Epitope, those
patents, patent applications, trademarks or service marks and related
applications, copyrights, trade secrets, licenses, or agreements listed
on Schedule 1, which specifies the current owner or named party and the
party to which they are to be assigned. Epitope and Agritope shall
cooperate fully with each other to effect the assignments and cause
them to be made of record. The assignee shall pay any recording costs,
counsel fees, or similar charges incurred to cause the assignment to be
made of record.
(b) After the Distribution Date, Epitope, on the one hand, and
the Agritope Units, on the other, may use the patented inventions,
trademarks, service marks, copyrighted works, trade secrets, or
internally developed or licensed technology of the Agritope Units and
of Epitope, respectively, only to the extent permitted by this or
another written agreement.
(c) For a period not to exceed two years after the
Distribution Date, Agritope may continue to use the E design registered
trademark, Reg. Nos. 1,770,765 and 1,805,488, in connection with goods
and services of a quality comparable to those it provides as of the
Distribution Date. Agritope shall use reasonable efforts to adopt a
substitute corporate logo within six months after the Distribution
Date, and shall phase out use of the E design trademark as soon as
practicable.
(d) Epitope and Agritope will each make their employees (and
employees of the Core Companies) reasonably available to cooperate with
the other party in
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connection with any patent application filed after the Distribution
Date if such employees have knowledge relevant to the application. If
an employee of Epitope, on the one hand, or the Agritope Units, on the
other, is an inventor of an invention assigned to an Agritope Unit or
to Epitope, respectively, the employer will make the employee
reasonably available to sign patent applications or related documents,
testify in connection with patent interference or similar proceedings,
and take other actions reasonably requested by the assignee to obtain
or maintain patent or other rights in the invention. Nothing in this
paragraph requires the assignment of any invention to Epitope or the
Agritope Units.
ARTICLE 7
INSURANCE
7.1 Transition. Agritope shall use reasonable efforts to
obtain by and after the Distribution Date such insurance policies for the
Agritope Business as the Agritope board of directors deems advisable, and shall
keep Epitope informed of all new insurance policies obtained by Agritope that
replace Shared Policies. Epitope may have the Agritope Units removed as named
insureds from each Shared Policy covering losses of a type for which Agritope
obtains its own insurance policy, regardless of differences in the limits under
the Shared Policy and the policy obtained by Agritope. Epitope may have the
Agritope Units removed as named insureds on each Shared Policy at the time the
Shared Policy next comes due for renewal. For any period after the Distribution
Date during which an Agritope Unit remains a named insured under a Shared
Policy, Agritope shall pay Epitope a pro rata portion of the premiums
attributable to the period.
7.2 Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person, corporation, firm or entity shall assert a claim
against an Agritope Unit with respect to any injury, loss, liability, damage or
expense incurred or claimed to have been incurred in, or in connection with, the
conduct of the Agritope Business or, to the extent any claim is made against
Agritope, Epitope's business, and which injury, loss, liability, damage or
expense may arise out of insured or insurable occurrences or events under one or
more of the Shared Policies, Epitope shall at the time such claim is asserted be
deemed to assign, without need of further documentation, to Agritope any and all
rights of an insured party under the applicable Shared Policy(ies) with respect
to such asserted claim, specifically including rights of indemnity and the
right(s) to be defended by or at the expense of the insurer(s); provided,
however, that nothing in this sentence is intended to effectuate or shall be
deemed to constitute or reflect the assignment of the Shared Policies, or any of
them, to Agritope.
7.3 Allocation of Insurance Proceeds. Insurance Proceeds
received with respect to claims, costs and expenses under the Shared Policies
shall be paid to Agritope with respect to Agritope's Liabilities and to Epitope
with respect to Epitope's Liabilities. Payment of the allocable portions of
indemnity costs of Insurance Proceeds resulting from the liability policies will
be made to the appropriate party upon receipt from the insurance carrier. In the
event that the aggregate limits on any of the Shared Policies are exceeded, the
parties agree
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to provide an equitable allocation of Insurance Proceeds received after the
Distribution Date based upon their respective bona fide claims. The parties
shall use their best efforts to cooperate with respect to insurance matters.
ARTICLE 8
DISPUTE RESOLUTION
8.1 Negotiation and Binding Arbitration. Except with respect
to matters involving Section 6.6 hereof (Privileged Matters) and except as may
expressly be provided in any other agreement between the parties entered into
pursuant hereto, if a dispute, controversy or claim (collectively, a "Dispute")
between Epitope and Agritope arises out of or relates to this Agreement, a
Related Agreement or any other agreement entered into pursuant hereto or
thereto, including, without limitation, the breach, interpretation or validity
of any such agreement or any matter involving an Indemnifiable Loss, Epitope and
Agritope agree to use the following procedures, in lieu of either party pursuing
other available remedies and as the sole remedy (except as provided in Section
8.4 below), to resolve the Dispute.
8.2 Initiation. A party seeking to initiate the procedures
will give written notice to the other party, briefly describing the nature of
the Dispute. A meeting will be held between the parties within 30 days of the
receipt of such notice, attended by individuals with decision-making authority
regarding the Dispute, to attempt in good faith to negotiate a resolution of the
Dispute.
8.3 Submission to Arbitration. If, not later than 30 days
after such meeting, the parties have not succeeded in negotiating a resolution
of the Dispute, they will agree to submit the Dispute to binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, by a sole arbitrator selected by the parties. The arbitration will
be held in Portland, Oregon, and governed by the Federal Arbitration Act, 9
U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitrator may
be entered by any court having jurisdiction thereof. The costs of arbitration
will be apportioned between Epitope and Agritope as determined by the arbitrator
in such manner as the arbitrator deems reasonable, taking into account the
circumstances of the Dispute, the conduct of the parties during the proceeding,
and the result of the arbitration.
8.4 Equitable Relief. Nothing herein will preclude either
party from seeking equitable relief to prevent any immediate, irreparable harm
to its interests, including multiple breaches of this Agreement or the relevant
Related Agreement by the other party. Otherwise, these procedures are exclusive
and will be fully exhausted prior to the initiation of any litigation. Either
party may seek specific enforcement of any arbitrator's decision under this
Article. The arbitrator may consolidate an arbitration under this Agreement with
any arbitration arising under or relating to the Related Agreements or any other
agreement between the parties entered into pursuant hereto, as the case may be,
if the subjects of the Disputes thereunder arise out of or relate essentially to
the same set of facts or transactions. The determination of issues relating to
consolidation and the determination of any such
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consolidated arbitration will be determined by the arbitrator appointed for the
arbitration proceeding that was commenced first in time.
ARTICLE 9
MISCELLANEOUS
9.1 Entire Agreement. This Agreement, including the Exhibits
and the agreements and other documents referred to herein, shall constitute the
entire agreement between Epitope and Agritope with respect to the subject matter
hereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter.
9.2 Expenses. Except as otherwise expressly provided in this
Agreement, any Related Agreement or any other agreement being entered into
between Epitope and Agritope in connection with this Agreement, Epitope and
Agritope shall each pay their own costs and expenses incurred in connection with
the Distribution and the consummation of the transactions contemplated by this
Agreement. Agritope shall also pay the expenses of the Private Placement and the
expenses described on Schedule 2. Beginning December 1, 1997, Agritope shall pay
all costs and expenses incurred in the course of the Agritope Business. In
addition, commencing December 1, 1997, Epitope shall furnish services to
Agritope, and Agritope shall pay Epitope for such services, pursuant to the
Transition Services and Facilities Agreement and "Shared Services" shall no
longer be allocated by Epitope to Agritope. To the extent expenses that are to
be borne by Agritope are advanced by Epitope, Agritope shall reimburse Epitope
for such expenses, without interest, within five business days after the
Distribution.
9.3 Governing Law. This Agreement, the Related Agreements and
any other agreement entered into in connection with the Distribution, shall be
governed by, and construed and enforced in accordance with, the laws of the
state of Oregon (regardless of the laws that might otherwise govern under
applicable principles of conflict of laws).
9.4 Jurisdiction and Venue. Subject to the arbitration
provisions of this Agreement, each party consents to the personal jurisdiction
of the state and federal courts located in the state of Oregon and hereby waives
any argument that venue in any such forum is not convenient or proper.
9.5 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is given; (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(iii) on the business day after delivery to an overnight courier service or the
express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed; or (iv) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by registered or
- 18 -
<PAGE>
certified mail, postage prepaid, properly addressed and return-receipt
requested, to the party as follows:
If to Epitope: Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attn: President
Facsimile No. (503) 641-8665
If to Agritope: Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attn: President
Facsimile No. (503) 520-6196
Any party may change its address and facsimile number by giving the other party
written notice of its new address and facsimile number in the manner set forth
above.
9.6 Modification of Agreement. No modification, amendment or
waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto and then such
modification, amendment or waiver shall be effective only in the specific
instance and for the purpose for which given.
9.7 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Record Date by, and in the sole
discretion of, Epitope without the approval of Agritope. In the event of such
termination, neither party (or any of its directors of officers) shall have any
liability of any kind to the other party.
9.8 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party,
and such consent shall not be unreasonably withheld.
9.9 No Third Party Beneficiaries. Except for certain parties
entitled to indemnification under Sections 4.1 and 4.2 hereof and listed
therein, this Agreement is solely for the benefit of the parties hereto and is
not intended to confer upon any other person except the parties hereto any
rights or remedies hereunder.
9.10 Titles and Headings; Interpretation. The titles and
headings to articles and sections herein are inserted for convenience of
reference only and are not intended to constitute a part of or to affect the
meaning or interpretation of this Agreement.
- 19 -
<PAGE>
9.11 Exhibits. The exhibits and schedules to this Agreement
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
9.12 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
9.13 No Waiver. Neither the failure nor any delay on the part
of any party hereto to exercise any right under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any right preclude
any other or further exercise of the same or any other right, nor shall any
waiver of any right with respect to any occurrence be construed as a waiver of
such right with respect to any other occurrence.
9.14 Survival. All covenants and agreements of the parties
contained in this Agreement will survive for ten years following the
Distribution Date, except for the covenants and agreements contained in Section
6.6, which shall continue indefinitely.
9.15 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement,
and shall become a binding agreement when a counterpart has been signed by each
party and delivered to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed delivered on their behalf as of the date first written
above.
EPITOPE, INC.
By /s/ John W. Morgan
Title President and CEO
AGRITOPE, INC.
By /s/ Adolph J. Ferro
Title Chairman, President and CEO
- 20 -
<PAGE>
The undersigned consent to and agree to be bound by the terms
of this Agreement.
VINIFERA, INC.
By /s/ Gilbert N. Miller
Title Exec Vice President
AGRIMAX FLORAL PRODUCTS, INC.
By /s/ Gilbert N. Miller
Title Exec Vice President
- 21 -
<PAGE>
SCHEDULE 1
INTELLECTUAL PROPERTY TO BE ASSIGNED
NONE
- 22 -
<PAGE>
SCHEDULE 2
CERTAIN AGRITOPE EXPENSES
1. Miller Nash fees and expenses for Agritope Stock Purchase and R&D
Agreements of $12,408.
2. All Tonkon Torp fees and expenses
3. Travel expenses for Dr. Ferro and Mr. Miller for June, September,
and November trips to Europe made in connection with private placement of
Agritope Stock Purchase and R&D Agreements.
4. Capital Asset Acquisitions
- Precision Computers -- Pentium PC $ 2,734
- Computer System, CD Player 699
- HP Gas Chromatograph 21,208
- APCO Technologies Grafting Machine 10,000
5. Prepaid rent on new Agritope facility $ 21,445
== ========
- 23 -
<PAGE>
EXHIBIT A
[EMPLOYEE BENEFITS AGREEMENT]
EXHIBIT B
[TAX ALLOCATION AGREEMENT]
EXHIBIT C
[TRANSITION SERVICES AND FACILITIES AGREEMENT]
- 24 -
RESTATED BYLAWS
OF
EPITOPE, INC.
ARTICLE I
Shareholders
------------
Section 1. Annual Meeting. The annual meeting of the shareholders of
the corporation shall be held each year on a date designated by the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. In case of incomplete financial
or other information, unavailability of shareholders, directors, officers or
other persons whose attendance at the annual meeting would be desirable, or
other similar circumstances, the president in his discretion may postpone the
annual meeting. If the annual meeting is postponed, or if the election of
directors shall not be held on the day designated herein for any annual meeting
of the shareholders, or at any adjournment thereof, a special meeting shall be
held as soon as may be convenient as determined by the president, either in lieu
of the annual meeting if the annual meeting was postponed or for the election of
directors if the election was not held at the annual meeting or at any
adjournment thereof. Written or printed notice, stating the place, day, hour and
purpose of the special meeting shall be delivered not less than ten nor more
than sixty days before the date of the special meeting, either personally or by
mail, by the president or, at the direction of the president, by the secretary
to each shareholder of record entitled to vote at the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mails
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 2. Special Meetings. Special meetings of the shareholders may
be called for any purpose or purposes by the president, the Board of Directors,
the holders of not less than one-tenth (1/10) of all the shares entitled to vote
at the meeting or as provided in the Oregon Business Corporation Act. Notice of
special meetings shall be given by the president or, at the direction of the
president, by the secretary or assistant secretary to each shareholder of record
entitled to vote at such meetings in the same manner as hereinabove provided in
Section 1 of this Article.
Section 3. Place of Meeting. Meetings, annual or special, of the
shareholders shall be held at such place either within or without the state of
Oregon as shall be designated by the Board of Directors, or in the absence of
such a designation, at the main office of the corporation.
Section 4. Quorum; Waiver of Notice. A proposal voted upon by the
shareholders, other than the election of directors, shall be approved if the
votes cast favoring the matter exceed the votes cast opposing the matter, unless
the corporation's articles of incorporation, bylaws, or
- 1 -
<PAGE>
applicable provisions of the Oregon Business Corporation Act require a greater
number of affirmative votes. If a quorum be not present at any annual or special
meeting, a majority of the shareholders present, either in person or by proxy,
may adjourn to such time and place as may be decided upon by the holders of the
majority of the shares present, and notice of such adjournment shall be given in
accordance with Section 4 of this Article; but if a quorum be present,
adjournment may be taken from day to day or to such time and place as may be
decided by the holders of the majority of the shares present, and no notice of
such adjournment need be given. No business shall be transacted at an adjourned
meeting that could not have been transacted at the meeting from which the
adjournment was taken. Whenever any notice is required to be given pursuant to
statute, to the articles of incorporation, or to these bylaws, a waiver thereof
signed by the shareholder entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Any shareholder attending a
meeting without objection thereof shall be deemed to have waived notice of such
meeting. Notice otherwise complying with the terms hereof may be given by
prepaid telegram as the equivalent of notice by mail.
Section 5. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
11 months from the date of its execution, unless otherwise provided in the
proxy.
ARTICLE II
Board of Directors
------------------
Section 1. Board of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors.
Section 2. Meetings. A regular annual meeting of the Board of Directors
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. No notice of the annual meeting other than this bylaw need be
given unless the meeting is to be held at a place other than the main office of
the corporation, in which case the notice shall be given in the manner provided
in Section 1 of Article I of these restated bylaws. The Board of Directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution. Special meetings of the
Board of Directors may be called by or at the request of the president or any
director. Notice of any special meeting shall be given at least three (3) days
prior thereto by oral notice given in person, by telephone, or by other means of
oral electronic two-way communication, or by written notice delivered personally
or sent by mail, courier, fax, or similar means to the director's residential or
business address. Directors may waive notice of meetings of the Board of
Directors, and a waiver thereof signed by the director entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where the director attends the meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
- 2 -
<PAGE>
Section 3. Quorum and Voting. A majority of the elected and acting
directors shall constitute a quorum for the transaction of business. If at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of the directors present may adjourn to such time and place as may be
decided upon by the majority of the directors present, and notice of such
adjournment shall be given in accordance with Section 2 of this Article; but if
a quorum be present, adjournment may be taken from day to day or to such time
and place as may be decided by the majority of the directors present, and no
notice of such adjournment need be given. When a quorum exists, action may be
taken by a majority vote of the directors present.
Section 4. Notification of Nominations. Nominations for the election of
directors may be made by the Board of Directors or a proxy committee appointed
by the Board of Directors or by a shareholder entitled to vote in the election
of directors generally. However, any shareholder entitled to vote in the
election of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the secretary of the corporation
not later than (a) with respect to an election to be held at an annual meeting
of shareholders, 60 days in advance of the date of the previous year's annual
meeting of shareholders, and (b) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders. Each such notice shall set forth: (i) the name
and address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (ii) a representation that the shareholder is
a holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made; (iv) such other information regarding
each nominee proposed by such shareholder as would be required to be included in
a proxy statement filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, and the related proxy regulations of the
Securities and Exchange Commission promulgated thereunder, had the nominee been
nominated, or intended to be nominated, by the Board of Directors; and (v) the
consent of each nominee to serve as a director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
ARTICLE III
Executive Committee
-------------------
The majority of the Board of Directors may designate two or more
directors to constitute an executive committee, which committee between meetings
of the Board of Directors shall have and may exercise all of the authority and
powers of the Board of Directors in the management of the business and affairs
of the corporation, except that the committee may not: (a) authorize
distributions, except as permitted by clause (g) below; (b) approve or propose
to shareholders
- 3 -
<PAGE>
actions that the Oregon Business Corporation Act requires to be approved by
shareholders; (c) fill vacancies on the board of directors or on any of its
committees; (d) amend the articles of incorporation, except as permitted by the
Oregon Business Corporation Act; (e) adopt, amend, or repeal bylaws; (f) approve
a plan of merger not requiring shareholder approval; (g) authorize or approve
reacquisition of shares, except within limits prescribed by the board of
directors; (h) authorize or approve the issuance or sale or contract for sale of
shares or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except as permitted by the Oregon
Business Corporation Act; or (i) appoint or remove officers of the corporation.
ARTICLE IV
Officers and Agents
-------------------
Section 1. Executive Officers.
(a) Number: The officers of the corporation shall consist of a
chairman of the board, president, chief executive officer, that number
of vice presidents which the Board of Directors may from time to time
determine and with such designations and seniority as the directors may
assign, a secretary and a treasurer. Any two or more offices may be
held by one person.
(b) Election and Tenure: The officers of the corporation shall
be elected at the organizational meeting and thereafter at each regular
annual meeting. In the event of a failure to hold the annual meeting as
herein provided, officers may be elected at any time thereafter at a
special meeting of directors called for that purpose. Each officer
shall hold office for the term of one year and until his successor
shall be elected except where expressly provided to the contrary in a
contract authorized by the Board of Directors. All officers and agents
shall be subject to removal at any time by the vote of a majority of
the entire Board of Directors whenever in the judgment of the directors
the best interests of the corporation will be served by such removal,
without prejudice, however, to any contract rights of the person so
removed.
(c) Vacancies: A vacancy in any office shall be filled by the
Board of Directors at any regular meeting, or at any special meeting
called for that purpose.
(d) Additional Officers and Agents: The Board of Directors may
also elect one or more assistant secretaries, one or more assistant
treasurers, and such other officers or agents as it may deem necessary,
with such authority and duties as from time to time may be prescribed
by the Board of Directors.
Section 2. Chairman of the Board. The chairman of the board, if one is
elected by the Board of Directors, shall preside at and conduct all meetings of
the shareholders and
- 4 -
<PAGE>
directors. The chairman of the board may designate another officer to preside at
and conduct any such meeting in his absence. The chairman of the board shall
exercise such other powers and perform such other duties as shall be prescribed
by the directors from time to time.
Section 3. Chief Executive Officer. The chief executive officer shall
have general and active charge of the business and management of the
corporation, subject to control by the Board of Directors. In the absence of the
chairman of the board or another officer designated by the chairman of the board
at any meeting of the shareholders or the directors, the chief executive officer
or another officer designated by the chief executive officer shall preside at
the meeting. The chief executive officer is authorized to sign all certificates
of stock, and all deeds, leases, notes, mortgages and contracts, including those
in any way affecting real property or interests therein, as the same may be
required in the regular course of the corporation's business. He shall have the
power to appoint and discharge agents and employees, subject to approval of the
Board of Directors.
Section 4. President. The president shall exercise such powers and
perform such duties as may be prescribed by the Board of Directors or by the
chief executive officer. In the absence or incapacity of the chief executive
officer, and at the direction of the Board of Directors, he is authorized to
sign all certificates of stock, and all deeds, leases, notes, mortgages and
contracts, including those in any way affecting real property or interests
therein, as the same may be required in the regular course of the corporation's
business.
Section 5. Vice Presidents. The vice presidents, in the order of
seniority as designated by the Board of Directors, shall in the absence or
disability of the president exercise the powers and perform the duties of the
president. Each vice president shall also exercise such other powers and perform
such other duties as shall be prescribed by the directors, and such powers and
duties of the president as may be designated by the president.
Section 6. Secretary. The secretary shall give such notices of meetings
of the shareholders and of the Board of Directors as required by these restated
bylaws, and shall keep a record of the proceedings of all such meetings. Such
record shall be kept at the principal or registered office of the corporation.
He shall have custody of all books and records and papers of the company except
those which are in the care of the treasurer or some other person authorized to
have custody and possession thereof by resolution of the Board of Directors. He
shall, with the president, sign all certificates of stock of the corporation and
shall affix the seal of the corporation to such certificates of stock. He is
authorized to sign with the president or vice president in the name of the
corporation all deeds, notes, mortgages and contracts including those in any way
affecting real property or interests therein and shall affix the seal of the
corporation thereto when required in the regular course of business. He shall
submit such reports to the Board of Directors as may be requested by them from
time to time.
Section 7. Assistant Secretary. The assistant secretary shall, in the
absence or disability of the secretary, exercise the powers and perform the
duties of the secretary. He shall also exercise such other powers and perform
such other duties as may be prescribed by the
- 5 -
<PAGE>
Board of Directors and such powers and duties of the secretary as may be
designated by the president or secretary.
Section 8. Treasurer. The treasurer shall from time to time make such
reports to the officers, Board of Directors and shareholders as may be required,
and shall perform such other duties as the Board of Directors shall from time to
time delegate to him.
Section 9. Assistant Treasurer. The assistant treasurer shall, in the
absence or disability of the treasurer, exercise the powers and perform the
duties of the treasurer. He shall also exercise such other powers and perform
such other duties as may be prescribed by the Board of Directors and such powers
and duties of the treasurer as may be designated by the president or treasurer.
ARTICLE V
Section 1. Right to Indemnification. The corporation shall indemnify
any director or former director of the corporation or any person who may have
served at its request as a director of another corporation in which it owns
shares of capital stock or of which it is a creditor against expenses and
liability actually and necessarily incurred by such director in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, in
which such director is a party by reason of being or having been such director,
except in relation to matters as to which indemnification is prohibited by the
Oregon Business Corporation Act as it shall be amended from time to time (the
"Act"); but such indemnification shall not be deemed exclusive of any other
rights to which such director may be entitled, under any bylaw, agreement,
general or specific action of the Board of Directors, vote of shareholders or
otherwise. As used herein, "expenses" shall include, without limitation,
expenses of investigations, arbitrations, mediations, judicial or administrative
proceedings or appeals, attorney fees and disbursements and any expenses of
establishing a right to indemnification. "Liability" shall include 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 an arbitration, mediation, action, suit or proceeding
in which a director is entitled to indemnification hereunder.
Section 2. Procedure for Indemnification. After the final disposition
of any threatened, pending or completed arbitration, mediation, action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, in which a director may be entitled to indemnification, such
director may send to the corporation a written request for indemnification. The
corporation shall, in accordance with the provisions of the Act regarding the
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 corporation of such request. The
corporation shall cause the indemnification requested to be authorized and paid
unless the corporation finds that the indemnification requested is not so
permitted. The director shall be given an opportunity to be heard and to present
evidence in connection with the consideration of the party or parties
determining the right to indemnification under the Act. If the corporation does
not authorize
- 6 -
<PAGE>
indemnification hereunder, the director shall have the right to seek
court-ordered 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 corporation that indemnification of the director is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the director has not met the standard of conduct required by the Act. In making
its determination and in any court proceeding, the corporation shall have the
burden of proving that the director has not met the standards of conduct
required by the Act to authorize indemnification.
Section 3. Procedure for Advancement of Expenses. The corporation shall
pay for or reimburse the reasonable expenses incurred by a director as a result
of being party to a threatened, pending or completed arbitration, mediation,
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in advance of final disposition of
such arbitration, mediation, action, suit or proceeding promptly upon receipt of
a written request for payment of such expenses that is in accordance with
requirements of the Act for such written statement. Such written statement shall
also include or be accompanied by documentation of the expenses incurred and,
when available, such documentation of expenses shall include copies of bills or
statements evidencing the expenses incurred. If the requirements of this
provision are met, the corporation shall pay the amount requested promptly
notwithstanding the absence of a final disposition of the arbitration,
mediation, action, claim or proceeding.
Section 4. Indemnification of Officers, Employees and Agents. The
corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to officers, employees and agents of the corporation to the same
extent and effect as provided in this Article with respect to the
indemnification and advancement of expenses of directors of the corporation or
pursuant to rights granted pursuant to, or provided by, the Act or otherwise.
Section 5. Insurance. The corporation may, but shall not be required
to, purchase and keep in force a policy or policies of liability insurance on
behalf of its officers and directors against liability and expenses incurred in
any arbitration, mediation, action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal.
Section 6. Nonexclusivity; Nature of Rights. The indemnification
provided herein shall not be deemed exclusive of any other rights consistent
with the laws of the state of Oregon to which a director may be entitled under
the corporation's articles of incorporation, bylaws or any other agreement, vote
of shareholders, or otherwise, both as to action in the director's official
capacity and as to action in another capacity while holding office, and shall
continue notwithstanding that the director may have ceased to be connected with
the corporation. The right of indemnification provided for herein shall be
deemed to create contractual rights in favor of directors entitled to
indemnification hereunder and shall be applicable to claims commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof. The right of indemnification provided for herein may
not be amended or
- 7 -
<PAGE>
repealed so as to limit in any way the indemnification provided for herein with
respect to any acts or omissions occurring prior to any such amendment or
repeal.
ARTICLE VI
Action Without a Meeting
------------------------
Section 1. Written Consent. Any action required to be taken or which
may be taken at a meeting of the shareholders or directors may be taken without
a meeting if a consent in writing setting forth the action so taken shall be
signed by all of the shareholders or directors entitled to vote; and such
consent shall have the same force and effect as a unanimous vote of such
shareholders or directors.
Section 2. Electronic Communications. The Board of Directors, or any
committee designated by the directors, may hold any meeting of the directors or
committee, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
simultaneously hear each other. Participation in such a meeting shall constitute
presence in person at the meeting.
ARTICLE VII
Section 1. Certificates. Shares of stock of the corporation shall be
represented by stock certificates which shall be in a form adopted by the Board
of Directors, provided all such stock certificates within one series of the same
class of stock shall be consecutively numbered, and shall express upon their
face the number thereof, the date of issuance, the number of shares for which
and the person to whom issued and the class and series, if any, thereof, and all
such stock certificates shall be signed by the president or a vice president and
by the secretary or assistant secretary and may be sealed with the corporate
seal, if any. In addition, each certificate shall express upon its face that the
corporation is organized under the laws of the state of Oregon and shall also
express the par value of the shares represented by the certificate, or shall
state that the shares are without par value, as may be appropriate. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the designations, preferences, limitations, restrictions on transfer and
relative rights of the shares of each class and series authorized to be issued,
or shall indicate where such information may be found.
Section 2. Subscriptions. Subscriptions for shares of stock of the
corporation shall be paid in full at such time, or in such installments and at
such times, as the Board of Directors may determine. In case of default in the
payment of any installment or call when such payment is due, the Board of
Directors may declare the shares and all previous payments thereon forfeited for
the use of the corporation, in the manner prescribed by the Oregon Business
Corporation Act.
Section 3. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney
- 8 -
<PAGE>
thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the corporation shall be deemed by the corporation to be owner thereof for
all purposes. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board of
Directors may prescribe. The record of shareholder and stock transfer books
shall be kept at the principal or registered office of the corporation or at the
office of its transfer agent or registrar, if any.
ARTICLE VIII
Amendments
----------
Bylaws may be adopted, altered, amended or repealed, in whole or in
part, at any regular or special meeting of the Board of Directors.
Approved by the Board of Directors December 17, 1996.
Amended April 28, 1997.
- 9 -
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 17. 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.
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"CODE" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, or any successor thereto, together with rules,
regulations, and interpretations promulgated thereunder. Where the context so
requires, any reference to a particular Code section shall be construed to refer
to the successor provision to such Code section.
"COMMITTEE" means the committee appointed by the Board to
administer the Plan as provided in Article 3 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 7.9 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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"OTHER STOCK-BASED AWARD" means an Award as defined in Section
11.1.
"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 10 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 10.3 of the Plan.
"PERFORMANCE GOAL" means a designated performance objective
pursuant to the provisions of Section 10.4 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 9 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.
"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.
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"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 2.1 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.
3.2 Composition of the Committee. The Committee shall be
appointed by the Board from among its members in a number and with such
qualifications as will meet the requirements for approval by a committee
pursuant to Rule 16b-3 under the Exchange Act. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board. The initial members of
the Committee shall be the members of Corporation's existing Executive
Compensation Committee. The Board may at any time replace the Executive
Compensation Committee with another Committee. In the event that the Executive
Compensation Committee shall cease to satisfy the requirements of Rule 16b-3,
the Board shall appoint another Committee satisfying such requirements.
3.3 Authority of the Committee. The Committee shall have full
power and authority (subject to such orders or resolutions as may be issued or
adopted from time to time by the Board) to administer the Plan in its sole
discretion, including the authority to:
(a) Construe and interpret the Plan and any Award Agreement;
(b) Promulgate, amend, and rescind rules and procedures
relating to the implementation of the Plan;
(c) With respect to employees and Advisors:
(i) Select the employees and Advisors who shall be
granted Awards;
(ii) Determine the number and types of Awards to be
granted to each such Participant;
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(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 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
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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 7 of the Plan;
(b) Stock Appreciation Rights governed by Article 8 of the
Plan;
(c) Restricted Awards governed by Article 9 of the Plan;
(d) Performance Awards governed by Article 10 of the Plan; and
(e) Other Stock-Based Awards or combination awards governed by
Article 11 of the Plan.
In the discretion of the Committee, any Award may be granted alone, in addition
to, or in tandem with other Awards under the Plan.
6.2 General. Subject to the limitations of the Plan, the
Committee may cause Corporation to grant Awards to such Participants, at such
times, of such types, in such amounts, for such periods, with such option
prices, purchase prices, or base prices, and subject to such terms, conditions,
limitations, and restrictions as the Committee, in its discretion, shall deem
appropriate. Awards may be granted as additional compensation to a Participant
or in lieu of other compensation to such Participant. A Participant may receive
more than one Award and more than one type of Award under the Plan.
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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
(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:
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(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 6.5(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 6 and this Article 7 and shall contain such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
7.3 Option Price. Each Award Agreement for Options shall state
the option exercise price per Share of Common Stock purchasable under the
Option, which shall not be less than:
(a) $1 per share in the case of a Deferred Compensation
Option;
(b) 75 percent of the Fair Market Value of a Share on the date
of grant for all other Nonqualified Options; or
(c) 100 percent of the Fair Market Value of a Share on the
date of grant for all Incentive Stock Options.
7.4 Option Term. The Award Agreement for each Option shall
specify the term of each Option, which may be unlimited or may have a specified
period during which the Option may be exercised, as determined by the Committee.
7.5 Time of Exercise. The Award Agreement for each Option
shall specify, as determined by the Committee:
(a) The time or times when the Option shall become exercisable
and whether the Option shall become exercisable in full or in graduated
amounts over a period specified in the Award Agreement;
(b) Such other terms, conditions, and restrictions as to when
the Option may be exercised as shall be determined by the Committee;
and
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(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 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
7.3(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
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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 6 and this Article 8 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.
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
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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 6 and this Article 9 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 10 shall usually
Vest based on attainment of Performance Goals, the Committee, in its discretion,
may condition Vesting of Restricted Awards on attainment of Performance Goals as
well as continued employment (or service as an Advisor). In such case, the
Restriction Period for such a Restricted Award shall include the period prior to
satisfaction of the Performance Goals.
9.4 Forfeiture. If a Participant ceases to be an employee or
Advisor of Corporation or a Subsidiary during the Restriction Period for any
reason other than reasons which may be specified in an Award Agreement (such as
death, Disability, or Retirement) the Award Agreement may require that all
non-Vested Restricted Awards previously granted to the Participant be forfeited
and returned to Corporation.
9.5 Settlement of Restricted Awards.
(a) Restricted Shares. Upon Vesting of a Restricted Share
Award, the legend on such Shares will be removed and the Participant's stock
power will be returned and the Shares will no longer be Restricted Shares. The
Committee may also, in its discretion, permit a Participant to receive, in lieu
of unrestricted Shares at the conclusion of the Restriction Period, payment in
cash, installments, or by issuance of a Deferred Compensation Option equal to
the Fair Market Value of the Restricted Shares as of the date the Restrictions
lapse.
(b) Restricted Units. Upon Vesting of a Restricted Unit Award,
a Participant shall be entitled to receive payment for Restricted Units in an
amount equal to the aggregate Fair Market Value of the Shares covered by such
Restricted Units at the expiration of the Applicable Restriction Period. Payment
in settlement of a Restricted Unit shall be made as soon as practicable
following the conclusion of the applicable Restriction Period in cash, in
installments, in Shares equal to the number of Restricted Units, by issuance of
a Deferred Compensation Option, or in any other manner or combination of such
methods as the Committee, in its sole discretion, shall determine.
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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 6 and this Article 10 and shall contain such
other terms and conditions not inconsistent with the express provisions of the
Plan, as the Committee (or the Board with respect to Awards to Non-Employee
Directors) shall deem desirable.
10.2 Nature of Performance Awards. A Performance Award is an
Award of units (with each unit having a value equivalent to one Share) granted
to a Participant subject to such terms and conditions as the Committee deems
appropriate, including, without limitation, the requirement that the Participant
forfeit such Performance Award or a portion thereof in the event specified
performance criteria are not met within a designated period of time.
10.3 Performance Cycles. For each Performance Award, the
Committee shall designate a performance period (the "Performance Cycle") with a
duration to be determined by the Committee in its discretion within which
specified Performance Goals are to be attained. There may be several Performance
Cycles in existence at any one time and the duration of Performance Cycles may
differ from each other.
10.4 Performance Goals. The Committee shall establish
Performance Goals for each Performance Cycle on the basis of such criteria and
to accomplish such objectives as the Committee may from time to time select.
Performance Goals may be based on performance criteria for Corporation, a
Subsidiary, or an operating group, or based on a Participant's individual
performance. Performance Goals may include objective and subjective criteria.
During any Performance Cycle, the Committee may adjust the Performance Goals for
such Performance Cycle as it deems equitable in recognition of unusual or
nonrecurring events affecting Corporation, changes in applicable tax laws or
accounting principles, or such other factors as the Committee may determine.
10.5 Determination of Awards. As soon as practicable after the
end of a Performance Cycle, the Committee shall determine the extent to which
Performance Awards have been earned on the basis of performance in relation to
the established Performance Goals.
10.6 Timing and Form of Payment. Settlement of earned
Performance Awards shall be made to the Participant as soon as practicable after
the expiration of the Performance Cycle and the Committee's determination under
Section 10.5, 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
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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.
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
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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 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
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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.
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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AWARD AGREEMENT
UNDER THE
AGRITOPE, INC.,
1992 STOCK AWARD PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
Dated July 26, 1997
Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008 ("Corporation")
- ----------------- ("Participant")
- -----------------
- -----------------
RECITALS
A. Participant is an employee of Corporation. Corporation
desires to have Participant remain in his or her capacity with Corporation or
Epitope, and to afford Participant the opportunity to obtain stock ownership in
Corporation so that Participant may have a significant proprietary interest in
Corporation's success.
B. The board of directors of Corporation (the "Board") has
granted to Participant a nonqualified stock option pursuant to Corporation's
1992 Stock Award Plan (the "Plan"), subject to the terms and conditions of this
Agreement.
C. Capitalized terms not otherwise defined have the meanings
given in Section 11.
AGREEMENT
In consideration of services rendered and to be rendered by
Participant to Corporation and of the agreements set forth below, the parties
agree as follows:
1. Grant of Option. Subject to the terms and conditions of
this Agreement, Corporation grants to Participant, as of the date of this
Agreement (the "Effective Date"), an option (the "Option") to purchase ------
shares ("Shares") of Corporation's common stock, no par value (the "Stock").
2. Terms of Option.
2.1 Price. The Option price per share shall be $2.98 (the
"Option Price"). If any reduction (the "Epitope Option Reduction") is made to
the exercise prices of options outstanding under the Epitope, Inc. 1991 Stock
Award Plan in
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connection with the Spin-Off, as defined below, the Option price hereunder shall
be reduced by an amount equal to the product of the Epitope Option Reduction and
a factor of .411, without further action of the Corporation.
2.2 Term. The term of the Option shall be unlimited; provided,
however, that to the extent not previously exercised, the Option shall terminate
upon the earlier of the following dates:
(a) One year after Participant ceases to be a director,
officer, or employee of Corporation, Epitope, or their respective
Subsidiaries (including with respect to periods after the effective
date of the Spin-Off described in Section 2.4) for any reason other
than Participant's Retirement; or
(b) Five years after Participant ceases to be a director,
officer, or employee of Corporation, Epitope, or their respective
Subsidiaries as a result of Participant's Retirement.
2.3 Time of Exercise. Unless the Option is terminated as
provided in Section 2.2, the Option shall vest and accordingly may be exercised
from time to time to purchase a cumulative total of up to the following
percentage of the Shares:
[For each Replacement Option, the exercisability schedule will
be the same as the replaced Out-of-the-Money Option.]
2.4 Effect of Spin-Off. In the event the stock of Corporation
is distributed by Epitope to its shareholders in a spin-off transaction or sale
or other disposition as a result of which the Corporation is no longer a wholly
owned subsidiary of Epitope (a "Spin-Off"), unless Participant is, after the
effective date of the Spin-Off, an employee of Epitope, the Option will be
exercisable only to the extent the Option had become exercisable pursuant to
Section 2.3 as of the 90th day after the effective date of the Spin-Off. (If
Participant is an Epitope employee after the effective date of the Spin-Off, the
Option will continue to vest pursuant to Section 2.3 so long as Participant
remains an employee of Epitope or its Subsidiaries and for 90 days thereafter.)
2.5 Acceleration of Exercisability. Notwithstanding the
provisions of Sections 2.2 and 2.3, the exercisability of the Option shall be
accelerated upon a Change in Control Date occurring after the Registration Date.
Upon such a Change in Control Date, the Option shall become immediately and
fully exercisable as to all Shares covered by the Option.
2.6 Method of Exercise; Payment. The Option shall be exercised
by delivery of a written notice to Corporation, signed by Participant,
specifying the
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number of Shares that Participant then desires to purchase, together with cash,
certified check, or bank draft payable to the order of Corporation, or other
form of payment acceptable to Corporation, for an amount of United States
dollars equal to the aggregate Option Price of such Shares. If Corporation, in
its sole discretion, elects to allow payment of all or a portion of the Option
Price in installments, Participant shall also deliver a promissory note, in form
satisfactory to Corporation, for the deferred portion of the Option Price
secured by a pledge, also in form satisfactory to Corporation, of the Shares of
Stock purchased by such exercise of the Option. Following any Spin-off the
notice of exercise and the exercise price shall be delivered to, and any check
or bank draft shall be made payable to, Epitope unless otherwise requested by
Corporation by notice to Participant.
2.7 Stock Certificates. Promptly after any exercise in whole
or in part of the Option by Participant, Corporation shall deliver to
Participant a certificate or certificates, registered in Participant's name, for
the number of shares of Stock for which the Option was so exercised.
3. Nontransferability.
3.1 Restriction.
(a) The Option is not transferable by Participant other than
by testamentary will or the laws of descent and distribution and,
during Participant's lifetime, may be exercised only by Participant or
Participant's guardian or legal representative;
(b) No assignment or transfer of the Option, whether
voluntary, involuntary, or by operation of law or otherwise, except by
testamentary will or the laws of descent and distribution, shall vest
in the assignee or transferee any interest or right; and
(c) Immediately upon any attempt to assign or transfer the
Option, the Option shall terminate and be of no force or effect.
3.2 Exercise in the Event of Death or Disability. Whenever the
word "Participant" is used in any provision of this Agreement under
circumstances when the provision should logically be construed to apply to
Participant's guardian, legal representative, executor, administrator, or the
person or persons to whom the Option may be transferred by testamentary will or
by the laws of descent and distribution, the word "Participant" shall be deemed
to include such person or persons.
4. No Rights as Shareholder Prior to Exercise. Participant
shall not be deemed for any purpose to be a shareholder of Corporation with
respect to any
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shares subject to the Option under this Agreement as to which the Option shall
not have been exercised.
5. Adjustments.
5.1 No Effect on Changes in Corporation's Capital Structure.
The existence of the Option shall not affect in any way the right or power of
Corporation or its shareholders to make or authorize (a) any adjustments,
recapitalizations, reorganization, or other changes in Corporation's capital
structure or its business, (b) any merger or consolidation of Corporation, (c)
any issue of bonds, debentures, preferred, or preference stocks ahead of or
affecting the Shares, (d) the dissolution or liquidation of Corporation, (e) any
sale or transfer of all or any part of its assets or business, or (f) any other
corporate act or proceeding, whether of a similar character or otherwise.
5.2 Adjustment to Option Shares. The Shares subject to the
Option are Stock as constituted on the date of this Agreement, but in the event
of any stock split or payment of a dividend on Stock payable in shares of Stock,
the Shares of Stock then subject to the Option shall be increased
proportionately without any change in the aggregate Option Price. If all the
outstanding shares of Stock shall be changed into or exchanged for a different
number or class of shares of Corporation, or of another corporation, through
reorganization, recapitalization, stock split-up, combination of shares, merger,
consolidation, or otherwise, then there shall be substituted for each share of
Stock then subject to the Option the number and class of shares into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate Option Price for the shares then subject to the Option. In connection
with any adjustment under this Section 5.2 resulting in a fractional share
interest, such interest shall, if less than 0.5 share, be rounded down to the
nearest whole share, and otherwise be rounded up to the nearest whole share. No
adjustment shall be made under this Section in connection with any stock split,
stock dividend, or other event described in this Section that occurs in
connection with a Spin-Off. In case of any adjustment under this Section, a
corresponding adjustment shall be made to the Exchange Ratio, as defined in
Section 9.1.
6. Compliance with Securities Laws.
6.1 No Exercise Until Compliance. If Corporation at any time
determines that registration or qualification of the Shares, the Stock, or the
Option under state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable, then the Option may not
be exercised, in whole or in part, until such registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to Corporation.
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<PAGE>
6.2 Investment Interest. If required by Corporation at the
time of any exercise of the Option, as a condition to such exercise, Participant
shall enter into an agreement with Corporation in form satisfactory to counsel
for Corporation by which Participant (a) shall represent that the Shares are
being acquired for Participant's own account for investment and not with a view
to, or for sale in connection with, any resale or distribution of such Shares,
and (b) shall agree that, if Participant should decide to sell, transfer, or
otherwise dispose of any of such Shares, Participant may do so only if the
Shares are registered under the Securities Act of 1933 and applicable state
securities laws, unless, in the opinion of counsel for Corporation, such
registration is not required.
7. Termination for Cause: Competition.
7.1 The grant of the Option governed by this Agreement is
provisional until Participant becomes entitled to a certificate for Shares in
settlement thereof. In the event Participant's employment or service as a
director is terminated for cause (as defined below), any portion of the Option
that is provisional shall be annulled as of the date of such termination for
cause. For the purpose of this Section 7.1, the term "for cause" shall have the
meaning set forth in Participant's employment agreement, if any, or otherwise
means any discharge (or removal) for material or flagrant violation of corporate
policies and procedures or for other job performance or conduct that is
materially detrimental to the best interests of the employer, as determined by
its board of directors.
7.2 If Participant ceases to be a director or employee of
Corporation, Epitope, or their respective Subsidiaries, for any reason
whatsoever, and within 18 months after the date thereof accepts employment with
any competitor of (or otherwise engages in competition with) the employer or
corporation of which Participant was a director, its board of directors, in its
sole discretion, may require Participant to return to Corporation the economic
value of this Option that is realized or obtained (measured at the date of
exercise, vesting, or payment) by Participant at any time during the period
beginning on the date that is six months prior to the date of Participant's
termination of employment with or service as a director.
8. Service Periods. The periods of service as an employee or
director in connection with the grant of the Option are as follows:
[Conform to the replaced Out-of-the-Money Option.]
9. Epitope Shares.
9.1 Mandatory Issuance. Upon any exercise of all or any
portion of the Option, Participant shall receive, in lieu of shares of Stock
otherwise issuable pursuant to this Option, fully paid and nonassessable shares
(the "Exchange
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Shares") of Common Stock, no par value, of Epitope (the "Epitope Common Stock"),
based upon a ratio of 2.433 shares of Stock for each share of Epitope Common
Stock (the "Exchange Ratio"). In connection with any issuance under this Section
9.1 resulting in a fractional share interest of Epitope Common Stock, such
interest shall, if less than 0.5 share, be rounded down to the nearest whole
share, and otherwise be rounded up to the nearest whole share. Corporation shall
purchase the Exchange Shares from Epitope pursuant to a separate agreement.
Epitope's obligation to issue the Exchange Shares pursuant to such agreement
shall be a condition precedent to Participant's obligation to accept the
Exchange Shares pursuant to this Section 9.1.
9.2 Procedure. Upon exercise of the Option, Corporation shall
cause Epitope, pursuant to the separate agreement between Corporation and
Epitope described above, to issue a certificate or certificates for the Exchange
Shares in Participant's name. As promptly as practicable after exercise of the
Option, Corporation at its expense shall cause to be delivered to Participant:
(a) A certificate or certificates for the Exchange Shares;
(b) A copy of the prospectus deliverable in connection with
the registration of the Exchange Shares pursuant to Section 10.2 below,
if applicable; and
(c) A statement setting forth (A) the aggregate amount of the
Stock for which the Option is exercised and (B) the calculation of the
number of shares of Epitope Common Stock to be issued.
9.3 Reservation of Stock Issuable Upon Exchange. Epitope shall
at all times reserve and keep available out of its authorized but unissued
shares of Epitope Common Stock, such number of its shares of Epitope Common
Stock as shall from time to time be sufficient to effect the provisions of this
Section 9; and if at any time the number of authorized but unissued shares of
Epitope Common Stock shall not be sufficient to do so, in addition to such other
remedies as shall be available to Participant, Epitope shall use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Epitope Common Stock
to such number of shares as shall be sufficient for such purposes.
9.4 Ratio Adjustment.
(a) Adjustments for Stock Splits and Subdivisions. If Epitope
should at any time or from time to time fix a record date for a split or
subdivision of the outstanding shares of Epitope Common Stock or the
determination of holders of Epitope Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Epitope Common Stock or
other securities or rights
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convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Epitope Common Stock ("Epitope Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Epitope Common Stock or the Epitope Common Stock
Equivalents (including the additional shares of Epitope Common Stock issuable
upon conversion or exercise thereof), then, as of such record date (or the date
of such dividend, distribution, split or subdivision if no record date is
fixed), the Exchange Ratio shall be appropriately adjusted so that the number of
shares of Epitope Common Stock issuable upon exercise of the Option shall be
increased in proportion to such increase of outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number of
shares of Epitope Common Stock outstanding at any time is decreased by a
combination of the outstanding shares of Epitope Common Stock, then, as of the
record date for such combination (or the date of such combination if no record
date is fixed), the Exchange Ratio shall be appropriately adjusted so that the
number of shares of Epitope Common Stock issuable on exercise of the Option
shall be decreased in proportion to such decrease in outstanding shares.
9.5 Holdback Agreements. Participant hereby agrees, if
requested by Epitope and an underwriter of an offering of Epitope securities,
that it shall not sell any Epitope Common Stock for a period of time specified
by the underwriter (not to exceed 90 days) following the effective date of a
registration statement pursuant to which Epitope proposes to sell its securities
to the public generally; provided, however, that all executive officers and
directors of Epitope enter into similar agreements. Participant agrees that
Epitope shall have sole discretion to determine whether and on what terms to
undertake any public offering of its securities.
9.6 Restriction on Transfer of Shares Issued. In the event
that the registration statement provided for in Section 10.2 below covering the
Exchange Shares has not been declared effective at the time any Exchange Shares
are issued under this Section 9, any such Exchange Shares shall bear a legend
stating that the Exchange Shares have not been registered under the 1933 Act and
may not be offered, sold, transferred, pledged, or otherwise disposed of, in
whole or in part, unless the transaction is registered under the 1933 Act and
applicable state securities laws, unless, in the opinion of counsel for Epitope,
such registration is not required. Prior to the effectiveness of the
registration statement covering the Exchange Shares, Epitope shall refuse to
register on its books any purported transfer of Exchange Shares not made in
accordance with the 1933 Act and this Agreement, and any such purported transfer
shall be void.
9.7 No Shareholder Rights. Nothing contained in this Agreement
shall be construed as conferring upon Participant or any other person the right
to vote on or consent to matters submitted to shareholders, to receive notice as
a shareholder in respect of meetings of shareholders, to receive dividends, or
to exercise any
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other rights whatsoever as a shareholder of Epitope, until, and only to the
extent that, Participant shall have received shares of Epitope Common Stock.
9.8 Condition Precedent. The Company will use its best efforts
to obtain approval by Epitope of its obligations under this Agreement and the
agreement described in Section 9.1 pursuant to which the Exchange Shares will be
obtained from Epitope. If the Company determines that such approval cannot be
obtained or that such agreement cannot be entered into with Epitope, the Option
shall terminate on notice to Participant to that effect.
10. Registration Rights.
10.1 Definitions.
(a) The terms "register," "registered, and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act and the
declaration or ordering of effectiveness of such registration statement or
document.
(b) The term Registrable Securities means the Exchange Shares.
As to any particular Registrable Securities, such securities will cease to be
Registrable Securities when (i) they have been effectively registered under the
1933 Act and disposed of in accordance with the registration statement covering
them, or (ii) they are transferred pursuant to Rule 144 (or any similar
provision that is in force) under the 1933 Act.
10.2 Epitope Registration. As soon as practicable after the
delivery of this Agreement to Participant, Epitope shall file a registration
statement on Form S-3 or S-8 or other applicable form (the "Epitope Registration
Statement") covering the Epitope Common Stock for which the Stock may be
exchanged unless such stock is already registered, and prepare and file such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the provisions
of the 1933 Act with respect to disposition of all securities covered by such
registration statement. Epitope shall use its best efforts to cause the Epitope
Registration Statement to become effective under the 1933 Act and to maintain
the effectiveness of the Epitope Registration Statement for a period ending on
the earlier of (i) one year after the date by which all Stock issuable pursuant
to the Plan has been exchanged for Epitope Common Stock, and (ii) such other
date by which the holders of Registrable Securities have sold all the Epitope
Common Stock into which the Stock is exchangeable or by and after which the
holders of Registrable Securities may sell the Epitope Common Stock without
registration under the 1933 Act. If required by applicable law, Epitope shall
furnish to the holders of Registrable Securities such reasonable number of
copies of a prospectus, in conformity with the requirements of the 1933 Act, and
any amendments or supplements thereto and such other
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<PAGE>
documents as the holders of Registrable Securities may reasonably request in
order to facilitate the disposition of the Registrable Securities after the
Epitope Registration Statement has been declared effective. Epitope shall use
reasonable efforts to notify the holders of Registrable Securities when a
prospectus relating to Registrable Securities is required to be delivered under
the 1933 Act, to notify the holders of Registrable Securities of the happening
of any event as a result of which the prospectus included in the Epitope
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, to promptly file such amendments and supplements as
may be required on account of such event, and to use its best efforts to cause
each such amendment to become effective. The holders of Registrable Securities
shall not effect sales of Registrable Securities after receipt of notice from
Epitope that any such amendment or supplement is required on account of any such
event, until the amendment becomes effective or the supplement has been filed.
Epitope's obligations under this Section 10.2 shall expire at such time as it is
no longer required to maintain the effectiveness of the Epitope Registration
Statement as provided for above.
10.3 Preparation; Information; Reasonable Investigation.
(a) Furnish Information. It shall be a condition precedent to
Epitope's obligations under Section 10.2 that the holders of Registrable
Securities shall furnish to Epitope such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities, and shall agree to be bound by the terms of this Section
10 if such holders are not already parties to this Agreement.
(b) Preparation; Reasonable Investigation. In connection with
the preparation and filing of any registration statement under the 1933 Act
pursuant to Section 10.2 above, Epitope shall give the holders of Registrable
Securities registered under such registration statement, their underwriters, and
their respective counsel and accountants the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the SEC, and each amendment thereof or supplement thereto, and shall
give each of them such access to its books and records and such opportunities to
discuss Epitope's business with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the 1933 Act.
10.4 Expenses of Registration. All expenses relating to
Registrable Securities (other than underwriting discounts and commissions,
transfer taxes, if any, and fees and disbursements of counsel to the holders of
Registrable
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Securities) incurred in connection with the registrations, filings or
qualifications pursuant to Section 10.2 above, including without limitation all
registration, filing and qualification fees, printing and accounting fees, and
fees and disbursements of counsel for Epitope, shall be borne by Epitope.
10.5 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 10:
(a) Registering Corporation Indemnification. To the extent
permitted by law, Epitope shall indemnify and hold harmless each holder
of Registrable Securities, the officers, directors, partners, agents,
and employees of each holder or any underwriter (as defined in the 1933
Act) for such holder, and each person, if any, who controls such holder
or underwriter within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may
become subject under the 1933 Act, the 1934 Act, or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"):
(i) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by Epitope
of the 1933 Act, the 1934 Act, any state securities law, or
any rule or regulation promulgated under the 1933 Act, the
1934 Act, or any state securities law.
Epitope shall reimburse each such holder, officer, director, partner,
agent, employee, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action. The indemnity agreement contained in this section 10.5(a) shall
not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without Epitope's
consent (which consent shall not be unreasonably withheld),
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<PAGE>
nor shall Epitope be liable to a holder in any such case for any such
loss, claim, damage, liability, or action (A) to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of such
holder, underwriter or controlling person or (B) in the case of a sale
directly by a holder of Registrable Securities (including a sale of
such Registrable Securities through any underwriter retained by such
holder to engage in a distribution solely on behalf of such holder), if
such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and such holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the person
asserting any such loss, claim, damage or liability in any case where
such delivery is required by the 1933 Act.
(b) Holder Indemnification. To the extent permitted by law,
each holder of Registrable Securities shall indemnify and hold harmless
Epitope, each of its directors, each of its officers who have signed
the registration statement, each person, if any, who controls Epitope
within the meaning of the 1933 Act, each agent and any underwriter for
Epitope, and any other holder of Registrable Securities selling
securities in such registration statement or any of its directors,
officers, partners, agents, or employees or any person who controls
such holder or underwriter, against any losses, claims, damages, or
liabilities (joint or several) to which Epitope or any such director,
officer, controlling person, agent, or underwriter or other such
holder, director, officer or controlling person may become subject,
under the 1933 Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by or on behalf of such holder expressly for use in connection with
such registration; and each such holder shall reimburse any legal or
other expenses reasonably incurred by Epitope or any such director,
officer, controlling person, agent or underwriter or other holder,
officer, director, partner, agent, employee or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 10.5(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the
holder, which consent shall not be unreasonably withheld nor, in the
case of a sale directly by Epitope of
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<PAGE>
its securities (including a sale of such securities through any
underwriter retained by Epitope to engage in a distribution solely on
behalf of Epitope), shall the holder be liable to Epitope in any case
in which such untrue statement or alleged untrue statement or omission
or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and Epitope failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any
such loss, claim, damage or liability in any case where such delivery
is required by the 1933 Act; and provided, further, that the
indemnification obligation of each holder shall be limited to the
aggregate public offering price of the Registrable Securities sold by
such holder pursuant to such registration.
(c) Notice, Defense, and Counsel. Promptly after receipt by an
indemnified party under this Section 10.5 of notice of the commencement
of any action (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 10.5, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume and control the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 10.5 to the
extent of such prejudice, but the omission so to deliver written notice
to the indemnifying party shall not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section
10.5.
(d) Survival of Rights and Obligations. The obligations of
Epitope and the holders of Registrable Securities under this Section
10.5 shall survive the completion of any offering of Registrable
Securities in a registration statement whether under this Section 10.5
or otherwise.
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<PAGE>
11. Defined Terms.
When used in this Agreement, the following terms shall have
the meanings specified below:
11.1 "Acquiring Person" shall mean, from and after the
Registration Date, any person or related person or related persons which
constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under the 1934
Act, as such Section and Rule are in effect as of the date of this Agreement;
provided, however, that the term Acquiring Person shall not include (a) Epitope
or any of its Subsidiaries, (b) any employee benefit plan of Epitope or any of
its Subsidiaries, (c) any entity holding voting capital stock of Epitope or of
any its Subsidiaries for or pursuant to the terms of any such employee benefit
plan, or (d) any person or group solely because such person or group has voting
power with respect to capital stock of Corporation or Epitope arising from a
revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to the 1934 Act.
11.2 "Change in Control" shall mean:
(a) A change in control of Epitope of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A as in effect on the date of this Agreement pursuant to
the 1934 Act; provided that, without limitation, such a change in
control shall be deemed to have occurred at such time as any Acquiring
Person hereafter becomes the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 30 percent or
more of the combined voting power of Voting Securities; or
(b) During any period of 12 consecutive calendar months,
individuals who at the beginning of such period constitute the Epitope
board of directors cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election,
by Corporation's shareholders of each new director was approved by a
vote of at least a majority of the directors then still in office who
were directors at the beginning of the period; or
(c) There shall be consummated (i) any consolidation or merger
of Epitope in which Epitope is not the continuing or surviving
corporation or pursuant to which Voting Securities would be converted
into cash, securities, or other property, other than a merger of
Epitope in which the holders of Voting Securities immediately prior to
the merger have the same, or substantially the same, proportionate
ownership of common stock of the surviving corporation immediately
after the merger, or (ii) any sale, lease, exchange, or other transfer
(in
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<PAGE>
one transaction or a series of related transactions) of all, or
substantially all, of the assets of Epitope; or
(d) Approval by the shareholders of Epitope of any plan or
proposal for the liquidation or dissolution of Epitope.
11.3 "Change in Control Date" shall mean the first date
following the date of this Agreement on which a Change in Control has occurred.
11.4 "Effective Date" has the meaning assigned in Section 1.
11.5 "Epitope" means Epitope, Inc., an Oregon corporation.
11.6 "Option" has the meaning assigned in Section 1.
11.7 "Voting Securities" shall mean Epitope's issued and
outstanding securities ordinarily having the right to vote at elections for
Epitope's board of directors.
11.8 Capitalized terms not otherwise defined in this Agreement
have the meanings given them in the Plan.
12. Miscellaneous.
12.1 Violation. Notwithstanding any provision of this
Agreement to the contrary, the Option shall not be exercisable at any time, in
whole or in part, if issuance and delivery of the Stock or Exchange Shares would
violate any law or regulation.
12.2 Tax Reimbursement. In the event any withholding or
similar tax liability is imposed on Corporation or Epitope in connection with or
with respect to the exercise of the Option, Participant agrees to pay to
Corporation or Epitope an amount sufficient to provide for such tax liability.
12.3 Disputes. Any dispute or disagreement that may arise
under or as a result of this Agreement, or any question as to the interpretation
of this Agreement, may be determined by Corporation in its absolute and
uncontrolled discretion, and any such determination shall be final, binding, and
conclusive on all affected persons.
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<PAGE>
12.4 Notices. Any notice that a party may be required or
permitted to give to the other shall be in writing, and may be delivered
personally or by certified or registered mail, postage prepaid, at the address
set forth above, or at such other address as either party may designate by
AGRITOPE, INC.
By ----------------------------------
Title: ------------------------------
-------------------------------------
Participant
Agreed to for purposes
of Sections 9.3 and 10
EPITOPE, INC.
By -----------------------------------
Title:
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August 19, 1997
Mr. Roger L. Pringle
Chairman of the Board
Epitope, Inc.
8505 SW Creekside Place
Beaverton, OR 97008
Dear Roger:
This will confirm my agreement with Epitope, Inc. (the "Company") made
in connection with recent management and strategic changes at the Company:
1. Effective May 30, 1997, I was removed as President and Chief
Executive Officer of the Company by action of the Board of Directors. This
action substantially diminished my duties and title and constituted a
"termination without cause" by the Company within the meaning of Section 5.2.1
of the Amended and Restated Employment Agreement dated as of January 8, 1991
between the Company and me (the "Employment Agreement").
2. As a result of such termination, the Company is obligated to pay me
24 months of my regular salary as President and Chief Executive Officer of the
Company, as extraordinary compensation under Section 2.3 and Schedule 2.3 of the
Employment Agreement. Because I have agreed to serve as President and Chief
Executive Officer of the Company's Agritope, Inc. subsidiary ("Agritope"), we
have agreed that payment of the extraordinary compensation will commence in the
first month following the earlier of (i) termination of my employment with
Agritope for any reason, (ii) the closing of a transaction by which the Company
no longer controls Agritope (an "Agritope Disposition"), or (iii) the 90th day
(the "Cut-Off Date") after the Company's first public announcement of its intent
to proceed with a specific Agritope Disposition which is subsequently closed. If
payment of extraordinary compensation is to commence under clause (iii), any
salary paid me by the Company or any subsidiary for the period between the
Cut-Off Date and the closing of the Agritope Disposition shall be credited
against the obligation to pay me extraordinary compensation.
<PAGE>
Mr. Roger L. Pringle
August 19, 1997
Page 2
3. My services as President and Chief Executive Officer of Agritope
shall include the primary responsibility for arranging a transaction by which
Agritope can become a corporation separate from the Company through a sale,
spin-off, initial public offering or other corporate transaction.
4. Section 3.1 of the Employment Agreement shall not apply to
Confidential Information (as defined in Section 3.1) of Agritope to which I have
had access during my employment with the Company and Agritope.
5. Section 4.1 of the Employment Agreement shall not apply to services
that I perform for or on behalf of Agritope either during the time in which
Agritope is owned by the Company or after it is no longer controlled by the
Company.
6. Termination of my employment as President and Chief Executive
Officer of the Company shall not constitute a termination of employment for
purposes of any of the stock option or stock award plans of the Company or
Agritope under which I now hold options. Any stock options held by me under such
plans, which by their terms are slated to expire in 1997, shall be extended or
exchanged for new stock options with terms consistent with the Company's
policies for executive compensation.
7. The Indemnification Agreement dated June 14, 1989 between the
Company and me shall be amended or replaced by a new agreement to provide that
it applies to services performed by me as a director, officer and key employee
of Agritope through the date of an Agritope Disposition.
8. The Company will pay my reasonable attorneys' fees related to these
changes in my employment arrangements not to exceed $2,500.
9. This Agreement constitutes an amendment to the Employment
Agreement. Except as so amended, the terms of the Employment Agreement remain in
full force and effect.
<PAGE>
Mr. Roger L. Pringle
August 19, 1997
Page 2
Please sign below to indicate the agreement of the Company to these
terms.
Very truly yours,
/s/ Adolph J. Ferro
Adolph J. Ferro
The above terms are agreed to as of the above date:
EPITOPE, INC.
By: /s/ Roger L. Pringle
Roger L. Pringle
Chairman of the Board
By: /s/ W. Charles Armstrong
W. Charles Armstrong
President and Chief Executive
Officer
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of October 6,
1997, between John W. Morgan ("Employee") and Epitope, Inc., an Oregon
corporation (the "Company").
1. SERVICES.
1.1 EMPLOYMENT. The Company agrees to employ Employee
as President and Chief Executive Officer of the Company, and Employee hereby
accepts such employment in accordance with the terms and conditions of this
Agreement. Employment shall continue until terminated pursuant to the terms of
this Agreement.
1.2 DUTIES. Employee shall have the position named in
Section 1.1 with such powers and duties appropriate to that office (a) as may be
provided by the bylaws of the Company, (b) as otherwise set forth in Exhibit A
attached to this Agreement, and (c) as determined by the board of directors from
time to time. Subject to the provisions of Section 7.4 hereof, Employee's
position and duties may be changed from time to time during the term of this
Agreement, and Employee's place of work may be relocated at the sole discretion
of the board of directors.
1.3 OUTSIDE ACTIVITIES. Employee shall obtain the
consent of the board of directors before he engages, either directly or
indirectly, in any other professional or business activities that may require an
appreciable portion of Employee's time or effort to the detriment of the
Company's business.
1.4 DIRECTION OF SERVICES. Employee shall at all
times discharge his duties in consultation with and under the supervision and
direction of the board of directors.
2. COMPENSATION AND EXPENSES.
2.1 SALARY. As compensation for services under this
Agreement, the Company shall pay to Employee a regular salary of $20,416.67 per
month. Subject to the provisions of Section 7.4 hereof, such salary may be
adjusted from time to time in the discretion of the board of directors. Payment
shall be made on a bi-weekly basis, less all amounts required by law or
authorized by Employee to be withheld or deducted, at such times as shall be
determined by the board of directors. The board of directors may also authorize
payment to Employee of bonuses at such times and in such amounts as may be
determined by the board of directors.
2.2 ADDITIONAL EMPLOYEE BENEFITS. The Company shall
provide for Employee life insurance in the amount of $1 million payable to
Employee's designated beneficiary, provided the cost to the Company does not
exceed $10,000 per year. To the extent otherwise eligible, Employee shall also
be entitled to receive or participate in any additional
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<PAGE>
benefits, including without limitation medical and dental insurance programs,
profit sharing or pension plans, and medical reimbursement plans, which may from
time to time be made available by the Company to corporate officers. The Company
may change or discontinue such benefits at any time in its sole discretion.
2.3 EXPENSES. The Company shall reimburse Employee
for all reasonable and necessary expenses incurred in carrying out his duties
under this Agreement. The Company shall further reimburse Employee for
reasonable and necessary expenses incurred as follows: (a) Employee's reasonable
expenses incurred in moving himself, his family, and his household goods from
Alpharetta, Georgia to the Portland, Oregon metropolitan area; (b) up to two
months (which time period may be extended by the Company in its discretion at
Employee's request) of temporary housing at a cost of up to $1,000 per month;
(c) one round-trip, coach airline ticket per month for Employee for travel
between Atlanta, Georgia and Portland, Oregon until Employee has relocated his
residence to the Portland, Oregon metropolitan area; and (d) one round-trip,
coach airline ticket for Employee's spouse for travel between Atlanta, Georgia
and Portland, Oregon for purposes of locating and obtaining a new residence in
the Portland, Oregon metropolitan area. Employee shall present to the Company
from time to time an itemized account of such expenses in such form as may be
required by the Company. In addition, regarding the expenses listed as (a)
above, Employee shall obtain bids from at least two national moving companies
and select the company with the lowest bid. To the extent the reimbursement
payments under this section are includable in Employee's net taxable income, the
Company shall pay Employee an additional amount so that the amount paid to him
under this section, less taxes at Employee's effective marginal tax rate, equals
the expenses to be reimbursed.
2.4 FEES. All compensation earned by Employee, other
than pursuant to this Agreement, as a result of services performed on behalf of
the Company or as a result of or arising out of any work done by Employee in any
way related to the scientific or business activities of the Company shall belong
to the Company. Employee shall pay or deliver such compensation to the Company
promptly upon receipt. For the purposes of this provision, "compensation" shall
include, but is not limited to, all professional and nonprofessional fees,
lecture fees, expert testimony fees, publishing fees, royalties, and any related
income, earnings, or other things of value; and "scientific or business
activities of the Company" shall include, but not be limited to, any project or
projects in which the Company is involved and any subject matter that is
directly or indirectly researched, tested, developed, promoted, or marketed by
the Company.
3. STOCK OPTIONS. Employee has been granted a non-qualified
option to purchase 350,000 shares of common stock of the Company at an exercise
price equal to 75 percent of the fair market value of the stock on the date of
grant.
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<PAGE>
4. CONFIDENTIAL INFORMATION.
4.1 DEFINED. "Confidential Information" is all
nonpublic information relating to the Company or its business that is disclosed
to Employee, that Employee produces, or that Employee otherwise obtains during
employment. "Confidential Information" also includes information received from
third parties that the Company has agreed to treat as confidential. Examples of
Confidential Information are:
4.1.1 Marketing plans.
4.1.2 Customer lists.
4.1.3 Product design and manufacturing information.
4.1.4 Financial information.
"Confidential Information" does not include information which (a) is or becomes
generally available to the public other than as a result of a disclosure by
Employee; (b) becomes available to Employee on a nonconfidential basis from a
source other than the Company or its representatives, provided that such source
is not known by Employee to be bound by a confidentiality agreement with the
Company or its representatives or otherwise prohibited from transmitting the
information to Employee by a contractual, legal, or fiduciary obligation; (c)
can be demonstrated by written evidence or other convincing evidence to have
been known by Employee on a nonconfidential basis prior to its disclosure to
Employee by the Company or one of its representatives; or (d) can be
demonstrated by written or other convincing evidence to have been developed by
Employee in good faith and independent of Confidential Information.
4.2 ACCESS TO INFORMATION. Employee acknowledges that
in the course of his employment he will have access to Confidential Information,
that such information is a valuable asset of the Company, and that its
disclosure or unauthorized use will cause the Company substantial harm.
4.3 OWNERSHIP. Employee acknowledges that all
Confidential Information shall continue to be the exclusive property of the
Company (or the third party that disclosed it to the Company), whether or not
prepared in whole or in part by Employee and whether or not disclosed to
Employee or entrusted to his custody in connection with his employment by the
Company.
4.4 NONDISCLOSURE AND NONUSE. Unless authorized or
instructed in writing by the Company, or required by legally constituted
authority, Employee will not, except as required in the course of the Company's
business, during or after his employment, disclose to others or use any
Confidential Information, unless and until, and then only to the extent that,
such items become available to the public through no fault of Employee.
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<PAGE>
4.5 RETURN OF CONFIDENTIAL INFORMATION. Upon request
by the Company during or after his employment, and without request upon
termination of employment pursuant to this Agreement, Employee will deliver
immediately to the Company all written or tangible materials containing
Confidential Information without retaining any excerpts or copies.
4.6 DURATION. The obligations set forth in this
Section 4 will continue beyond the term of employment of Employee by the Company
and for so long as Employee possesses Confidential Information.
5. MATERIALS PREPARED AND INVENTIONS MADE DURING EMPLOYMENT.
The Company shall be the exclusive owner of all materials, concepts, and
inventions Employee prepares, develops, or makes (whether alone or jointly with
others) within the scope of his employment, and of all related rights (including
copyrights, trademarks, and patents) and proceeds. Without limitation,
materials, concepts, and inventions that (a) relate to the Company's business or
actual or demonstrably anticipated research or development, or (b) result from
any work performed by Employee for the Company, shall be considered within the
scope of Employee's employment. Employee shall promptly disclose all such
materials, concepts, and inventions to the Company. Employee shall take all
action reasonably requested by the Company to vest ownership of such materials,
consents, and inventions in the Company and to permit the Company to obtain
copyright, trademark, patent, or similar protection in its name.
6. NONCOMPETITION.
Employee covenants that Employee will not, throughout
the United States, either individually or as a director, officer, partner,
employee, agent, representative, or consultant with any business, directly or
indirectly during the term of employment and for one year thereafter:
6.1 Engage or prepare to engage in any business that
sells products or services competing with those sold by the Company as of the
date of Employee's termination of employment with the Company;
6.2 Induce or attempt to induce any person who is an
employee of the Company during the term of this covenant to leave the employ of
the Company; or
6.3 Solicit, divert, or accept orders for products or
services that are substantially competitive with the products or services sold
by the Company from any customer of the Company.
7. TERMINATION.
7.1 TERMINATION UPON DEATH. This Agreement shall
terminate immediately upon Employee's death.
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7.2 TERMINATION BY EMPLOYEE. Employee may terminate
his employment under this Agreement by 60 days' written notice to the Company.
7.3 TERMINATION BY THE COMPANY FOR CAUSE. The Company
may terminate Employee's employment under this Agreement for cause at any time,
with or without advance notice. For purposes of this Agreement, "cause" means:
(a) a material breach of this Agreement by Employee; (b) any willful or grossly
negligent act by Employee which causes material harm to the Company; (c)
Employee's refusal, failure, or inability to perform any material job duties of
Employee; (d) any act of fraud on the Company, any criminal act, or any act
involving moral turpitude by Employee; (e) the commission of any act in direct
competition with or materially detrimental to the best interests of the Company;
or (f) excessive absenteeism by Employee. The Company reserves the right to
determine the facts giving rise to cause for termination and whether those facts
constitute cause for termination. Notwithstanding the foregoing, Employee shall
not be deemed to have been terminated for cause unless and until there shall
have been delivered to Employee a copy of a resolution duly adopted by the board
of directors at a meeting of the board of directors (after reasonable notice to
Employee and an opportunity for Employee to be heard before the board of
directors) called and held for the purpose of finding whether in the good faith
opinion of the board of directors Employee has engaged in conduct constituting
cause as defined in this section.
7.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. The
Company may terminate Employee's employment under this Agreement without cause
by written notice to Employee. Employee may (but shall not be required to) elect
to treat any of the following events as a termination without cause, provided
Employee acts within 60 days of the event:
7.4.1 A material breach of this Agreement by
the Company and a failure by the Company to cure the breach within 30 days after
Employee has given written notice of the breach to the board of directors.
7.4.2 A reduction in Employee's salary below
the amount stated in Section 2.1 (except as part of and in proportion to a
reduction in all executive officers' salaries) or a substantial diminution in
Employee's duties or title below those or that stated in this Agreement.
7.4.3 A requirement by the Company that
Employee regularly report other than to the board of directors or the chairman
of the board.
7.4.4 A relocation by the Company of the
principal place where Employee's duties are to be performed to a place outside
of the Portland metropolitan area.
7.4.5 A "Change of Control" of the Company.
For purposes of this Agreement, a "Change of Control" shall mean a change of
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A as in effect on the date hereof pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a change of control shall be deemed to have occurred at
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such time as (i) any Acquiring Person hereafter becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30
percent or more of the combined voting power of Voting Securities; (ii) during
any period of 12 consecutive calendar months, individuals who at the beginning
of such period constitute the board of directors cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election, by the Company's shareholders of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of the period; (iii) there shall be consummated (a)
any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which Voting Securities would
be converted into cash, securities, or other property, other than a merger of
the Company in which the holders of Voting Securities immediately prior to the
merger have the same, or substantially the same, proportionate ownership of
common stock of the surviving corporation immediately after the merger, or (b)
any sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company; or (iv) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company. For purposes of this
Agreement, "Acquiring Person" means any person or related persons which
constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under the
Exchange Act, as such Section and Rule are in effect as of the date of this
Agreement; provided, however, that the term Acquiring Person shall not include:
(i) the Company or any of its subsidiaries; (ii) any employee benefit plan of
the Company or any of its subsidiaries; (iii) any entity holding voting capital
stock of the Company for or pursuant to the terms of any such employee benefit
plan; or (iv) any person or group solely because such person or group has voting
power with respect to capital stock of the Company arising from a revocable
proxy or consent given in response to a public proxy or consent solicitation
made pursuant to the Exchange Act. For purposes of this Agreement, "Voting
Securities" means the Company's issued and outstanding securities ordinarily
having the right to vote at elections for the Company's board of directors.
7.5 COMPENSATION UPON TERMINATION.
7.5.1 TERMINATION UNDER SECTION 7.1, 7.2, OR
7.3. In the event of a termination of Employee's employment under Sections 7.1,
7.2, or 7.3, Employee's regular compensation pursuant to Section 2.1 shall be
prorated and payable until the date of termination.
7.5.2 TERMINATION UNDER SECTION 7.4. In the
event of a termination of Employee's employment by the Company without cause as
provided in Section 7.4, Employee shall continue to be paid the salary provided
in Section 2.1 for 12 months from the date of notice of such termination of
employment, in the manner and at the times at which regular compensation was
paid to Employee during the term of his employment under this Agreement, except
that if Employee elects to treat an event described in Sections 7.4.1, 7.4.2,
7.4.3, 7.4.4, or 7.4.5 as a termination without cause but continues to work for
the Company or any of its subsidiaries, then any amounts Employee receives as
compensation during the 12- month period shall be credited against the amounts
payable to Employee under this section. Unless Employee elects to continue
working for the Company or any of its subsidiaries, as a condition to receipt of
the compensation described in the preceding sentence Employee shall sign
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and deliver a release agreement, in form and substance satisfactory to the
Company, releasing all claims related to Employee's employment. The Company's
obligation to pay the amounts stated in this section shall terminate if Employee
engages, either individually or as a director, officer, partner, employee,
agent, representative, or consultant with any business, directly or indirectly
in any of the activities listed in Section 6.1, 6.2, or 6.3 anywhere in the
United States within one year after termination of employment.
8. REMEDIES. The respective rights and duties of the Company
and Employee under this Agreement are in addition to, and not in lieu of, those
rights and duties afforded to and imposed upon them by law or at equity.
Employee acknowledges that breach of Sections 4 or 6 of this Agreement will
cause irreparable harm to the Company and agrees to the entry of a temporary
restraining order and permanent injunction by any court of competent
jurisdiction to prevent breach or further breach of Sections 4 or 6 of this
Agreement. Such remedy shall be in addition to any other remedy available to the
Company at law or in equity.
9. SEVERABILITY OF PROVISIONS. The provisions of this
Agreement are severable, and if any provision hereof is held invalid or
unenforceable, it shall be enforced to the maximum extent permissible, and the
remaining provisions of the Agreement shall continue in full force and effect.
10. ATTORNEY FEES. In the event a suit or action is filed to
enforce Sections 4 or 6 of this Agreement, the prevailing party shall be
reimbursed by the other party for all costs and expenses incurred in connection
with the suit or action, including without limitation reasonable attorney fees
at trial or on appeal.
11. NONWAIVER. Failure of the Company at any time to require
performance of any provision of this Agreement shall not limit the right of the
Company to enforce the provision. No provision of this Agreement or breach
thereof may be waived by either party except by a writing signed by that party.
A waiver of any breach of a provision of this Agreement shall be construed
narrowly and shall not be deemed to be a waiver of any succeeding breach of that
provision or a waiver of that provision itself or of any other provision.
12. ARBITRATION.
12.1 CLAIMS COVERED. All claims or controversies,
except for those excluded by Section 12.2 ("claims"), whether or not arising out
of Employee's employment (or its termination), that the Company may have against
the Employee or that Employee may have against the Company or against its
officers, directors, employees or agents, in their capacity as such or
otherwise, shall be resolved as provided in this Section 12. Claims covered by
this Section 12 include, but are not limited to, claims for wages or other
compensation due; claims for breach of any contract or covenant (express or
implied); tort claims; claims for discrimination (including, but not limited to,
race, sex, sexual orientation, religion, national origin, age, marital status,
or disability); claims for benefits (except where an employee benefit or pension
plan specifies that its claims procedure shall culminate in an arbitration
procedure
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different from this one), and claims for violation of any federal, state, or
other governmental law, statute, regulation, or ordinance, except as provided in
Section 12.2.
12.2 NON-COVERED CLAIMS. Claims arising out of
Sections 4 or 6 of this Agreement and workers' compensation or unemployment
compensation benefits are not covered by this Section 12. Non-covered claims
include but are not limited to claims by the Company for injunctive and/or other
equitable relief for unfair competition and/or the use and/or unauthorized
disclosure of trade secrets or confidential information, as to which Employee
understands and agrees that the Company may seek and obtain relief from a court
of competent jurisdiction.
12.3 REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF
LIMITATIONS. Company and Employee agree that the aggrieved party must give
written notice of any claim to the other party within one year of the date the
aggrieved party first has knowledge of the event giving rise to the claim;
otherwise the claim shall be void and deemed waived even if there is a federal
or state statute of limitations which would have given more time to pursue the
claim. The written notice shall identify and describe the nature of all claims
asserted and the facts upon which such claims are based.
12.4 HEARING OR MEDIATION. Prior to any arbitration
proceeding taking place pursuant to this section, Company or Employee may, at
its respective option, elect to submit the claim to non-binding mediation before
a mutually agreeable mediation tribunal or mediator, in which event both parties
shall execute a suitable confidentiality agreement and abide by the procedures
specified by the mediation tribunal or mediator.
12.5 ARBITRATION PROCEDURES. Any arbitration shall be
conducted in accordance with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA"), modified to
substitute for AAA actions, the United States Arbitration and Mediation Service
("USA&MS"), before an arbitrator who is licensed to practice law in the state of
Oregon (the "Arbitrator"). The arbitration shall take place in or near Portland,
Oregon.
12.5.1 SELECTION OF ARBITRATOR. The USA&MS
shall give each party a list of 11 arbitrators drawn from its panel of
labor-management dispute arbitrators. Each party may strike all names on the
list it deems unacceptable. If only one common name remains on the lists of all
parties, that individual shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties shall strike names
alternately until only one remains. The party who did not initiate the claim
shall strike first. If no common name remains on the lists of all parties, the
USA&MS shall furnish an additional list or lists until an Arbitrator is
selected.
12.5.2 APPLICABLE LAW. The Arbitrator shall
apply the substantive law (and the law of remedies, if applicable) specified in
this Agreement or federal law, or both, as applicable to the claim(s) asserted.
The Oregon Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive
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authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
12.5.3 AUTHORITY. The Arbitrator shall have
jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold
pre-hearing conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
Arbitrator shall render an award and opinion in the form typically rendered in
labor arbitrations.
12.5.4 REPRESENTATION. Any party may be
represented by an attorney or other representative selected by the party.
12.5.5 DISCOVERY. Each party shall have the
right to take the deposition of one individual and any expert witness designated
by another party. Each party also shall have the right to make requests for
production of documents to any party. The subpoena right specified below shall
be applicable to discovery pursuant to this paragraph. Additional discovery may
be had only where the Arbitrator selected pursuant to this Agreement so orders,
upon a showing of substantial need. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any experts, and copies of
all exhibits intended to be used at the arbitration. Each party shall have the
right to subpoena witnesses and documents for the arbitration.
12.5.6 REPORTER. Either party, at its
expense, may arrange for and pay the cost of a court reporter to provide a
stenographic record of proceedings.
12.5.7 POST-HEARING BRIEFS. Either party,
upon request at the close of hearing, shall be given leave to file a
post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
12.6 ENFORCEMENT. Either party may bring an action in
any court of competent jurisdiction to compel arbitration under this Agreement
and to enforce an arbitration award. Except as otherwise provided in this
Agreement, both the Company and Employee agree that neither shall initiate or
prosecute any lawsuit or administrative action (other than for a non-covered
claim) in any way related to any claim covered by this Agreement. A party
opposing enforcement of an award may not do so in an enforcement proceeding, but
must bring a separate action in any court of competent jurisdiction to set aside
the award, where the standard of review will be the same as that applied by an
appellate court reviewing a decision of a trial court sitting without a jury.
12.7 ARBITRATION FEES AND COSTS. Company and Employee
shall equally share the fees and costs of the Arbitrator. Each party will
deposit funds or post other
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appropriate security for its share of the Arbitrator's fee, in an amount and
manner determined by the Arbitrator, 10 days before the first day of hearing.
Each party shall pay for its own costs and attorneys' fees, if any, provided
that the Arbitrator, in its sole discretion, may award reasonable fees to the
prevailing party in a proceeding.
13. GENERAL TERMS AND CONDITIONS. This Agreement constitutes
the entire understanding of the parties relating to the employment of Employee
by the Company, and supersedes and replaces all written and oral agreements
heretofore made or existing by and between the parties relating thereto. This
Agreement shall be construed in accordance with the laws of the state of Oregon,
without regard to any conflicts of laws rules thereof. This Agreement shall
inure to the benefit of any successors or assigns of the Company. All captions
used herein are intended solely for convenience of reference and shall in no way
limit any of the provisions of this Agreement. Employee acknowledges that he
signed this Agreement upon his initial employment with the Company.
The parties have executed this Employment Agreement as of the
date stated above.
EPITOPE, INC.
/s/ John W. Morgan By: /s/ Roger L. Pringle
JOHN W. MORGAN
Title: Chairman, Board of Directors
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EXHIBIT A TO EMPLOYMENT AGREEMENT
SPECIFIC DUTIES OF EMPLOYEE AS PRESIDENT AND CHIEF EXECUTIVE OFFICER
Employee as the President and Chief Executive Officer of the
Company shall be responsible for directing all phases of the operations and the
overall management of the Company, subject to direction by the board of
directors, as such positions are more particularly described in Article IV of
the bylaws of the Company. As President and Chief Executive Officer, Employee
shall report directly to the Chairman of the Board. In such capacities, Employee
shall be the key executive responsible for formulating and directing execution
of Company strategy in all phases of operations, development, and planning. As
Chief Executive Officer, Employee shall be the Company's principal spokesperson
and will serve as a director on the board of directors and as operating
management's principal liaison to the board of directors.
Pending the spin-off of the Company's subsidiary Agritope,
Inc. ("Agritope"), the President and Chief Executive Officer of Agritope shall
report to the Chairman of the Board of the Company, rather than to Employee.
NONQUALIFIED STOCK OPTION AWARD
GENERAL TERMS AND CONDITIONS
- EXECUTIVE OFFICER -
The Epitope, Inc. 1991 Stock Award Plan ("Plan") is administered by the
executive compensation committee (the "Committee") of the board of directors of
Epitope. Capitalized terms not otherwise defined shall have the definitions
assigned thereto in Section 13 of these Nonqualified Stock Option Award General
Terms and Conditions ("Agreement Terms").
1 OPTION TYPE AND TERM.
1.1 TYPE OF OPTION. The Option is not intended to be an
incentive stock option as described in Internal Revenue Code
Section 422.
1.2 TERM. The term of the Option shall be ten years from
the Grant Date unless otherwise terminated pursuant to the
terms of these Agreement Terms.
1.3 VESTING. Except as otherwise provided in these
Agreement Terms, the Option shall be vested as to, and
accordingly may be exercised from time to time during the term
to purchase, Shares up to the following limits during the
periods indicated following the Grant Date:
(a) During the period from the Grant Date to the first
anniversary of the Grant Date (the "First Anniversary") no
portion of the Option will be vested;
(b) Effective as of the First Anniversary, the Option will
become vested as to one-third (1/3) of the total number of
Shares covered by the Option (the "Option Shares"); and
(c) Effective as of the day corresponding to the First
Anniversary in the calendar month following the month in which
the First Anniversary occurs, and on the corresponding day of
each succeeding calendar month, the Option will become vested
as to one-twenty-fourth (1/24) of the Option Shares that did
not become vested pursuant to the foregoing paragraph (b).
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2 EMPLOYMENT REQUIREMENT.
2.1 GENERAL. Except as provided in Sections 3 and 4 of
these Agreement Terms, the Option shall not be vested unless
the recipient of the Option (the "Participant") is employed by
Epitope and/or one or more of its Subsidiaries (an "Employer")
continuously for at least one year after the Grant Date,
unless employment is terminated by death, Disability,
Retirement, or without "cause" (as defined in Participant's
employment agreement with Epitope). "Employment" for purposes
of the Option shall include periods of illness or other leaves
of absence authorized by Employer.
2.2 NO EMPLOYMENT CONTRACT. Neither the Plan nor the
Option shall constitute a contract of employment of
Participant by any Employer.
2.3 EXPIRATION AFTER TERMINATION OF EMPLOYMENT. If
Participant ceases to be an active employee, the right to
exercise the Option shall expire at the end of the following
periods:
After Termination
On Account Of Period
----------------- ------
Death 1 year
Retirement 5 years
Disability 1 year
Any other reason 1 year
2.4 EFFECT OF TERMINATION ON VESTING. The Shares as to which the
Option is exercisable under Section 2.3 shall be those as to
which the Option is vested as of termination of employment;
provided, however, that upon Participant's termination of
employment by the Company without "cause" (as defined in
Participant's employment agreement with Epitope), Participant
shall be credited with vesting during the period of salary
continuation paid by the Company.
3 ACCELERATION OF EXERCISABILITY. Upon a Change in Control Date,
the Option shall become immediately and fully vested and exercisable as
to all Shares covered by the Option.
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4 EXERCISE PRIOR TO VESTING PERMITTED
4.1 CONDITIONS OF EARLY EXERCISE. Subject to the
provisions of this Section 4, Participant may elect, at any
time prior to termination of Employment with an Employer,
including without limitation a time prior to the date(s) the
Option becomes vested pursuant to Section 1.3 of these
Agreement Terms, to exercise the Option (an "Early Exercise")
as to all or any portion of the Shares covered by the Option,
provided, however, that:
(a) A partial exercise of the Option shall be deemed to cover
first any vested Shares and then the earliest vesting
installment of unvested Shares;
(b) Participant must enter into an Early Exercise Stock
Purchase Agreement (a "Purchase Agreement") in the form
attached to these Agreement Terms with a vesting schedule that
will result in the same vesting as to the Shares purchased
pursuant to the Early Exercise as if no Early Exercise had
occurred; and
(c) Any Shares purchased pursuant to Early Exercise from
installments that have not vested as of the time of exercise
shall be subject to a purchase option in favor of Epitope as
described in the Purchase Agreement.
4.2 EXPIRATION OF EARLY EXERCISE ELECTION. The election
provided by this Section 4 to purchase Shares upon an Early
Exercise shall cease upon Participant's termination of
Employment with an Employer and may not be exercised after
such termination.
5 SERVICE PERIODS. The periods of service as an employee in
connection with the grant of the Option are as follows:
5.1 FIRST YEAR. The portion of the Option vesting
pursuant to Section 1.3(b) is in connection with services to
be performed in the one-year period commencing on the Grant
Date.
5.2 ADDITIONAL YEARS. The portions of the Option vesting
in monthly installments pursuant to Sections 1.3(c) are
respectively in connection with services to be performed in
the consecutive monthly
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periods ending immediately before each monthly vesting
date.
6 METHOD OF EXERCISE.
6.1 EXERCISE OF OPTION. The Option, or a portion thereof,
may be exercised, to the extent it has become exercisable
pursuant to the terms of these Agreement Terms, by delivery of
written notice to Epitope in the form attached hereto stating
the number of Shares, form of payment, and proposed date of
closing.
6.2 OTHER DOCUMENTS. Participant shall furnish Epitope,
before closing of any exercise of the Option, such other
documents or representations as Epitope may require to assure
compliance with applicable laws and regulations.
6.3 PAYMENT. The exercise price for the Shares purchased
upon exercise of the Option shall be paid in full at or before
closing by one or a combination of the following:
(a) Payment in cash;
(b) 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
Epitope in payment of all or a part of the exercise
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 Epitope in payment of
all or a part of the exercise price and withholding
taxes due; or
(c) Delivery of previously acquired Shares having a Fair
Market Value at least equal to the exercise price.
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<PAGE>
6.4 PREVIOUSLY ACQUIRED SHARES. Delivery of previously
acquired Shares surrendered in full or partial payment of the
exercise price of the Option, or any portion thereof, shall be
subject to the following conditions:
(a) The Shares tendered shall be in good delivery form;
(b) The Fair Market Value of the Shares, together with the
amount of cash, if any, tendered shall equal or exceed the
exercise price of the Option;
(c) Any Shares remaining after satisfying payment of the
exercise price shall be reissued in the same manner as the
Shares tendered; and
(d) No fractional Shares will be issued and cash will not be
paid to Participant for any fractional Share value not used to
satisfy payment of the exercise price.
7 TRANSFERABILITY.
7.1 RESTRICTION. Except for Permitted Transfers, as
defined in Section 7.2:
(a) The Option is not transferable by Participant other than
by testamentary will or the laws of descent and distribution
and, during Participant's lifetime, may be exercised only by
Participant or Participant's guardian or legal representative;
(b) No assignment or transfer of the Option, whether
voluntary, involuntary, or by operation of law or otherwise,
except by testamentary will or the laws of descent and
distribution, shall vest in the assignee or transferee any
interest or right; and
(c) Immediately upon any attempt to assign or transfer the
Option, the Option shall terminate and be of no force or
effect.
7.2 PERMITTED TRANSFERS. Participant may transfer all or
any portion of the Option, without payment of consideration,
to Participant's family members, trusts for such family
members, or a partnership or limited liability
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company of which Participant and members of participant's
family are the only partners or members.
7.3 EXERCISE IN THE EVENT OF DEATH OR DISABILITY.
Whenever the word "Participant" is used in any provision of
this Agreement under circumstances when the provision should
logically be construed to apply to Participant's guardian,
legal representative, executor, administrator, or the person
or persons to whom the Option may be transferred by
testamentary will or by the laws of descent and distribution,
the word "Participant" shall be deemed to include such person
or persons.
8 SECURITIES LAWS. Epitope shall not be required to distribute
any Shares upon exercise of the Option, or any portion thereof, until
Epitope shall have taken any action required to comply with the
provisions of the Securities Act of 1933 or any other then applicable
federal or state securities laws.
9 TAX REIMBURSEMENT. In the event any withholding or similar tax
liability is imposed on Epitope in connection with or with respect to
the exercise of the Option governed by these Agreement Terms or the
disposition by Participant of the Shares acquired upon exercise of the
Option, Participant agrees to pay to Epitope an amount sufficient to
satisfy such tax liability.
10 CONDITIONS PRECEDENT. Epitope will use its best efforts to
obtain any required approvals of the Plan and the Option by any state
or federal agency or authority that Epitope determines has
jurisdiction. If Epitope determines that any required approval cannot
be obtained, all Awards to Participant shall terminate on notice to
Participant to that effect (provided that nothing contained in this
Section 10 shall impair any rights Participant may have with respect to
the Option pursuant to Participant's employment agreement with
Epitope).
11 TERMINATION FOR CAUSE; COMPETITION.
11.1 ANNULMENT OF AWARDS. The grant of the Option governed
by these Agreement Terms is provisional until Participant
becomes entitled to a certificate for Shares in settlement
thereof. In the event the employment of Participant is
terminated for cause (as defined below), any portion of the
Option which is provisional shall be annulled as of the date
of such termination for cause. For the purpose of this Section
11.1, the term "for
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cause" shall have the meaning set forth in Participant's
employment agreement with Epitope.
11.2 ENGAGING IN COMPETITION WITH EPITOPE. If Participant
terminates employment with Epitope or a Subsidiary for any
reason whatsoever, and within 12 months after the date thereof
accepts employment with any competitor of (or otherwise
engages in competition with) Epitope, the Committee, in its
sole discretion, may require Participant to return to Epitope
the economic value of any Award that is realized or obtained
(measured at the date of exercise) by Participant at any time
during the period beginning on the date that is six months
prior to the date of Participant's termination of employment
with Epitope.
12 SUCCESSORSHIP. Subject to the restrictions on transferability
of the Option set forth in these Agreement Terms and in the Plan, these
Agreement Terms shall be binding upon and benefit the parties, their
successors, and assigns.
13 DEFINED TERMS. When used in these Agreement Terms, the
following terms shall have the meanings specified below:
13.1 "ACQUIRING PERSON" shall mean any person or related
person or related persons which constitute a "group" for
purposes of Section 13(d) and Rule 13d-5 under the Securities
Exchange Act of 1934 (the "Exchange Act"), as such Section and
Rule are in effect as of the date of the Agreement; provided,
however, that the term Acquiring Person shall not include:
(a) Epitope or any of its Subsidiaries;
(b) Any employee benefit plan of Epitope or any of its
Subsidiaries;
(c) Any entity holding voting capital stock of Epitope for or
pursuant to the terms of any such employee benefit plan, or
(d) Any person or group solely because such person or group
has voting power with respect to capital stock of Epitope
arising from a revocable proxy or consent given
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in response to a public proxy or consent solicitation made
pursuant to the Exchange Act.
13.2 "AGREEMENT" shall mean the agreement evidencing an
Option governed by these Agreement Terms.
13.3 "CHANGE IN CONTROL" shall mean:
(a) A change in control of Epitope of a nature that would be
required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A as in effect on the date of the
Agreement pursuant to the Exchange Act; provided that, without
limitation, such a change in control shall be deemed to have
occurred at such time as any Acquiring Person hereafter
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 30 percent or
more of the combined voting power of Voting Securities; or
(b) During any period of 12 consecutive calendar months,
individuals who at the beginning of such period constitute the
board of directors cease for any reason to constitute at least
a majority thereof unless the election, or the nomination for
election, by Epitope's shareholders of each new director was
approved by a vote of at least a majority of the directors
then still in office who were directors at the beginning of
the period; or
(c) There shall be consummated (i) any consolidation or merger
of Epitope in which Epitope is not the continuing or surviving
corporation or pursuant to which Voting Securities would be
converted into cash, securities, or other property, other than
a merger of Epitope in which the holders of Voting Securities
immediately prior to the merger have the same, or
substantially the same, proportionate ownership of common
stock of the surviving corporation immediately after the
merger, or (ii) any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of
all, or substantially all, of the assets of Epitope; or
(d) Approval by the shareholders of Epitope of any
plan or proposal for the liquidation or dissolution of
Epitope.
- 8 -
<PAGE>
13.4 "CHANGE IN CONTROL DATE" shall mean the first date following
the date of the Agreement on which a Change in Control has
occurred.
13.5 "GRANT DATE" means the date of the Agreement, which is the
date the Option is granted to Participant.
13.6 "OPTION" means the Nonqualified Stock Option granted to
Participant evidenced by the Agreement.
13.7 "VOTING SECURITIES" shall mean Epitope's issued and
outstanding securities ordinarily having the right to vote at
elections for Epitope's board of directors.
13.8 Capitalized terms not otherwise defined in these Agreement
Terms have the meanings given them in the Plan.
14 NOTICES. Any notices regarding the Option shall be in writing
and shall be effective when actually delivered personally or, if
mailed, when deposited as registered or certified mail directed to the
address maintained in Epitope's records or to such other address as a
party may certify by notice to the other party.
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<PAGE>
EARLY EXERCISE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made by and between EPITOPE, INC., an Oregon
corporation ("Epitope"), and ---------------------------- ("Purchaser").
RECITALS
A. Purchaser holds a stock option (the "Option") to purchase
shares of Epitope's common stock ("Shares") pursuant to Epitope's 1991 Stock
Award Plan (the "Plan") which Purchaser desires to exercise; and
B. Purchaser wishes to take advantage of the early exercise
provision of the Option and therefore to enter into this Agreement.
AGREEMENT
1. (a) Pursuant to an early exercise of the Option, Purchaser
agrees to purchase from Epitope, and Epitope agrees to sell to Purchaser,
- -------------- Shares for an exercise price of $------ per Share (total exercise
price: $---------) payable as follows:
Cash at Closing $------
Value of Previously
Owned Shares1 $------
Total Exercise Price $------
(b) The closing shall occur at the offices of Epitope on the
date of this Agreement or at such other time and place as the parties may
mutually agree upon in writing.
(c) At the closing, Purchaser shall deliver to Epitope a stock
assignment in the form of Exhibit B, duly endorsed (with date and number of
shares left blank) and the total exercise price (including endorsed certificates
representing the appropriate number of previously owned Shares tendered for all
or a portion of the total exercise price).
(d) At the closing or as soon thereafter as practical, Epitope
shall cause share certificates for all the Shares that are to be subject to the
Purchase Option (as defined in Section 2 below) to be issued in Purchaser's
name, and Epitope shall retain those certificates, together with the blank stock
assignments until the Purchase Option is exercised or expires
- ----------------
1 Shares tendered as part of the exercise price must meet the
requirements of the Option and the Plan.
- 1 -
<PAGE>
pursuant to this Agreement, and shall deliver share certificates to Purchaser
for all the Shares, if any, that are not to be subject to the Purchase Option.
2. The Shares to be purchased by Purchaser pursuant to this
Agreement shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser ceases to be an employee of
Epitope and/or any of its subsidiaries (an "Employer") for any reason
(including Purchaser's death), or no reason, with or without cause, the
Purchase Option may be exercised. Epitope shall have the right at any
time within the 90-day period after Purchaser's termination of
Employment (as defined in the Agreement Terms for the Option) with an
Employer or such longer period as may be agreed to by Epitope and
Purchaser (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Internal Revenue Code) to purchase from
Purchaser or his personal representative, as the case may be, at the
price per Share paid by Purchaser pursuant to this Agreement ("Option
Price"), up to but not exceeding the number of Shares set forth on
Exhibit A to this Agreement which is incorporated herein by this
reference.
(b) The Purchase Option shall lapse at the same rate as
Purchaser's Option would have vested had Purchaser not entered into
this Agreement (e.g., vesting shall accelerate upon a Change in Control
Date).
(c) This Agreement is not an employment contract and nothing
in this Agreement shall be deemed to create in any way whatsoever any
obligation on the part of Purchaser to continue in the employ of
Epitope, or of Epitope to continue Purchaser in the employ of an
Employer.
3. The Purchase Option may be exercised by giving written
notice of exercise delivered or mailed as provided in paragraph 9. Upon
providing of such notice and payment or tender of the purchase price, Epitope
shall become the legal and beneficial owner of the Shares being purchased and
all rights and interests therein or related thereto.
4. If from time to time during the term of the Purchase Option
there is any stock dividend or liquidating dividend or distribution of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of Epitope, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Shares will be immediately subject to the
Purchase Option and be included in the word "Shares" for all purposes of the
Purchase Option with the same force and effect as the Shares then subject to the
Purchase Option. While the total Option Price shall remain the same after each
such event, the Option Price per Share upon exercise of the Purchase Option
shall be appropriately adjusted.
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<PAGE>
5. Purchaser may not sell or transfer any of the Shares
subject to the Purchase Option or any interest therein so long as such Shares
are subject to the Purchase Option.
6. Epitope shall not be required (i) to transfer on its books
any Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
7. Subject to the provisions of paragraphs 5 and 6 above,
Purchaser (but not any unapproved transferee) may, during the term of this
Agreement, exercise all rights and privileges of a shareholder of Epitope with
respect to the Shares.
8. The parties agree to execute such further instruments and
to take such further action as reasonably may be necessary to carry out the
intent of this Agreement.
9. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Office Box, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
10. This Agreement shall bind and inure to the benefit of the
successors and assigns of Epitope and, subject to the restrictions on transfer
herein set forth, inure to the benefit of and be binding upon Purchaser, his
heirs, executors, administrators, successors, and assigns. Without limiting the
generality of the foregoing, the Purchase Option of Epitope hereunder shall be
assignable by Epitope at any time or from time to time, in whole or in part.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the --- day of --------------, 19----.
EPITOPE, INC.
By -------------------------------------------
Address: 8505 S.W. Creekside Place
Beaverton, Oregon 97008
----------------------------------------------
Purchaser
Address: -------------------------------------
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<PAGE>
----------------------------------------------
ATTACHMENTS:
Exhibit A Vesting Schedule
Exhibit B Assignment Separate from Certificate
- 4 -
<PAGE>
EXHIBIT A
VESTING SCHEDULE
Number of Shares
Subject to
If Cessation of Employment Occurs: Purchase Option
- ---------------------------------- ----------------
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Early Exercise
Stock Purchase Agreement between the undersigned and Epitope, Inc., an Oregon
corporation ("Epitope") dated as of ---------------, 1997 (the "Agreement"), the
undersigned hereby sells, assigns and transfers unto Epitope
- ---------------------------- (------) shares of common stock of Epitope,
standing in the undersigned's name on the books of Epitope represented by
Certificate No. ------ herewith, and does hereby irrevocably constitute and
appoint ---------------- attorney to transfer the said stock on the books of
Epitope with full power of substitution in the premises. This Assignment may be
used only in accordance with and subject to the terms and conditions of the
Agreement, in connection with the repurchase of shares of Common Stock issued to
the undersigned pursuant to the Agreement and only to the extent that such
shares remain subject to Epitope's Purchase Option under the Agreement.
Dated: ----------------------------
---------------------------------------------
[Signature]
---------------------------------------------
[Print Name]
[INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable Epitope to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.]
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of December --,
1997, between Charles E. Bergeron ("Employee") and Epitope, Inc., an Oregon
corporation (the "Company").
1. SERVICES.
1.1 EMPLOYMENT. Effective upon Gilbert N. Miller's
resignation as Chief Financial Officer of the Company, the Company agrees to
employ Employee as Chief Financial Officer of the Company. Until such time,
Company agrees to employ employee as Vice President of Operations of the
Company. Employee hereby accepts such employment in accordance with the terms
and conditions of this Agreement. Employment shall continue until terminated
pursuant to the terms of this Agreement.
1.2 DUTIES. Employee shall have the position named in
Section 1.1 with such powers and duties appropriate to that office as may be
provided by the bylaws of the Company and as determined from time to time by the
President and Chief Executive Officer or the board of directors of the Company.
Subject to the provisions of Section 7.4, Employee's position and duties may be
changed from time to time during the term of this Agreement, and Employee's
place of work may be relocated at the sole discretion of the President and Chief
Executive Officer or the board of directors.
1.3 OUTSIDE ACTIVITIES. Employee shall obtain the
consent of the President and Chief Executive Officer or the board of directors
before he engages, either directly or indirectly, in any other professional or
business activities that may require an appreciable portion of Employee's time
or effort to the detriment of the Company's business.
1.4 DIRECTION OF SERVICES. Employee shall at all
times discharge his duties in consultation with and under the supervision and
direction of the President and Chief Executive Officer of the Company.
2. COMPENSATION AND EXPENSES.
2.1 SALARY. As compensation for services under this
Agreement, the Company shall pay to Employee a regular salary established by the
President and Chief Executive Officer or the board of directors. Such salary may
be adjusted from time to time in the discretion of the President and Chief
Executive Officer or the board of directors. Payment shall be made on a
bi-weekly basis, less all amounts required by law or authorized by Employee to
be withheld or deducted, at such times as shall be determined by the Company.
2.2 ADDITIONAL EMPLOYEE BENEFITS. To the extent
otherwise eligible, Employee shall also be entitled to receive or participate in
any additional benefits, including without limitation insurance programs, profit
sharing or pension plans, and medical reimbursement plans, which may from time
to time be made available by the Company to
- 1 -
<PAGE>
corporate officers. The Company may change or discontinue such benefits at any
time in its sole discretion.
2.3 EXPENSES. The Company shall reimburse Employee
for all reasonable and necessary expenses incurred in carrying out his duties
under this Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in such form as may be required by the
Company.
2.4 FEES. All compensation earned by Employee, other
than pursuant to this Agreement, as a result of services performed on behalf of
the Company or as a result of or arising out of any work done by Employee in any
way related to the scientific or business activities of the Company shall belong
to the Company. Employee shall pay or deliver such compensation to the Company
promptly upon receipt. For the purposes of this provision, "compensation" shall
include, but is not limited to, all professional and nonprofessional fees,
lecture fees, expert testimony fees, publishing fees, royalties, and any related
income, earnings, or other things of value; and "scientific or business
activities of the Company" shall include, but not be limited to, any project or
projects in which the Company is involved and any subject matter that is
directly or indirectly researched, tested, developed, promoted, or marketed by
the Company.
3. STOCK OPTIONS. The Company shall grant Employee an option
to purchase 30,000 shares of common stock of the Company at an exercise price
equal to the fair market value of the stock on the date of grant.
4. CONFIDENTIAL INFORMATION.
4.1 DEFINED. "Confidential Information" is all
nonpublic information relating to the Company or its business that is disclosed
to Employee, that Employee produces, or that Employee otherwise obtains during
employment. "Confidential Information" also includes information received from
third parties that the Company has agreed to treat as confidential. Examples of
Confidential Information are:
4.1.1 Marketing plans.
4.1.2 Customer lists.
4.1.3 Product design and manufacturing information.
4.1.4 Financial information.
4.2 ACCESS TO INFORMATION. Employee acknowledges that
in the course of his employment he will have access to Confidential Information,
that such information is a valuable asset of the Company, and that its
disclosure or unauthorized use will cause the Company substantial harm.
- 2 -
<PAGE>
4.3 OWNERSHIP. Employee acknowledges that all
Confidential Information shall continue to be the exclusive property of the
Company (or the third party that disclosed it to the Company), whether or not
prepared in whole or in part by Employee and whether or not disclosed to
Employee or entrusted to his custody in connection with his employment by the
Company.
4.4 NONDISCLOSURE AND NONUSE. Unless authorized or
instructed in writing by the Company, or required by legally constituted
authority, Employee will not, except as required in the course of the Company's
business, during or after his employment, disclose to others or use any
Confidential Information, unless and until, and then only to the extent that,
such items become available to the public through no fault of Employee.
4.5 RETURN OF CONFIDENTIAL INFORMATION. Upon request
by the Company during or after his employment, and without request upon
termination of employment pursuant to this Agreement, Employee will deliver
immediately to the Company all written or tangible materials containing
Confidential Information without retaining any excerpts or copies.
4.6 DURATION. The obligations set forth in this
Section 4 will continue beyond the term of employment of Employee by the Company
and for so long as Employee possesses Confidential Information.
5. MATERIALS PREPARED AND INVENTIONS MADE DURING EMPLOYMENT.
The Company shall be the exclusive owner of all materials, concepts, and
inventions Employee prepares, develops, or makes (whether alone or jointly with
others) within the scope of his employment, and of all related rights (including
copyrights, trademarks, and patents) and proceeds. Without limitation,
materials, concepts, and inventions that (a) relate to the Company's business or
actual or demonstrably anticipated research or development, or (b) result from
any work performed by Employee for the Company, shall be considered within the
scope of Employee's employment. Employee shall promptly disclose all such
materials, concepts, and inventions to the Company. Employee shall take all
action reasonably requested by the Company to vest ownership of such materials,
consents, and inventions in the Company and to permit the Company to obtain
copyright, trademark, patent, or similar protection in its name.
6. NONCOMPETITION. Employee confirms the noncompetition
covenant set forth in his Employment Agreement dated as of August 31, 1993 (the
"1993 Agreement"). The covenant is restated below to refer to the appropriate
sections of this Agreement.
6.1 COVENANT. Subject to the provisions of Section
6.3, Employee covenants that Employee will not, throughout the United States,
either individually or as a director, officer, partner, employee, agent,
representative, or consultant with any business, directly or indirectly during
the term of employment and for one year thereafter:
6.1.1 Engage or prepare to engage in any
business that competes with the Company;
- 3 -
<PAGE>
6.1.2 Induce or attempt to induce any person
who is an employee of the Company during the term of this covenant to leave the
employ of the Company; or
6.1.3 Solicit, divert, or accept orders for
products or services that are substantially competitive with the products or
services sold by the Company from any customer of the Company.
6.2 ENFORCEMENT. Employee acknowledges and agrees
that the time, scope, and other provisions of this Section 6 have been
specifically negotiated by sophisticated parties with the advice and
consultation of counsel and specifically hereby agrees that such time, scope,
and other provisions are reasonable under the circumstances. Employee further
agrees that if, at any time, despite the express agreement of the parties
hereto, a court of competent jurisdiction holds that any portion of this Section
6 is unenforceable for any reason, the maximum restrictions reasonable under the
circumstances, as determined by such court, will be substituted for any such
restrictions held unenforceable.
6.3 RELEASE FROM OBLIGATION. In the event that
Employee shall be entitled to extraordinary compensation pursuant to the
provisions of Section 7.5.2, Employee may elect to waive all rights to receive
such compensation from and after the date of such waiver in exchange for the
release of Employee from the obligations of Sections 6.1.1 and 6.1.3. Such
waiver shall be in writing, shall state that it is in consideration for the
release of Employee from the obligations of Sections 6.1.1 and 6.1.3 of this
Agreement, and shall be effective when delivered to Epitope. In the event of
such a waiver, the amounts payable pursuant to the provisions of Section 7.5.2
shall be prorated through the period commencing on the date of termination of
employment and ending on the date of delivery of the written notice of waiver to
Epitope. For example, if such waiver is delivered to Epitope six months after
the commencement for the 12-month-period set forth in Section 7.5.2, Employee
shall be paid one-half of the amounts otherwise payable pursuant to the
provisions of Section 7.5.2; in the event that Employee shall have received more
than such pro rata share of such compensation, it shall be a condition of
Employee's rights under this section that he shall have returned to Epitope any
amounts in excess of such pro rata share with the delivery of the waiver notice
to Epitope.
7. TERMINATION.
7.1 TERMINATION UPON DEATH. This Agreement shall
terminate immediately upon Employee's death.
7.2 TERMINATION BY EMPLOYEE. Employee may terminate
his employment under this Agreement by 90 days' written notice to the Company.
7.3 TERMINATION BY THE COMPANY FOR CAUSE. The Company
may terminate Employee's employment under this Agreement for cause at any time,
with or without advance notice. "Cause" includes, but is not limited to: (a) a
material breach of this Agreement by Employee and Employee's failure to promptly
cure such breach after receipt of written notice thereof from the President and
Chief Executive Officer or the board of directors of the
- 4 -
<PAGE>
Company; (b) Employee's willful refusal or failure, or Employee's inability, to
comply with any policies or standards of the Company or to perform any job
duties of Employee; (c) any act of fraud, dishonesty, or misconduct by Employee
in connection with Employee's employment with the Company; (d) the commission of
any act in direct competition with or materially detrimental to the best
interests of the Company; or (e) Employee's failure to otherwise comply with the
standards of behavior that an employer has the right to expect of an employee.
The Company reserves the right to determine the facts giving rise to cause for
termination and whether those facts constitute cause for termination.
7.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. The
Company may terminate Employee's employment under this Agreement without cause
by written notice to Employee. Employee may (but shall not be required to) elect
to treat either of the following events as a termination without cause, provided
Employee acts within 60 days of the event:
7.4.1 A relocation by the Company of the
principal place where Employee's duties are to be performed to a place outside
of the Portland metropolitan area.
7.4.2 A "Change of Control" of the Company.
For purposes of this Agreement, a "Change of Control" shall mean a change of
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A as in effect on the date hereof pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a change of control shall be deemed to have occurred at
such time as (i) any Acquiring Person hereafter becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30
percent or more of the combined voting power of Voting Securities; (ii) during
any period of 12 consecutive calendar months, individuals who at the beginning
of such period constitute the board of directors cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election, by the Company's shareholders of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of the period; (iii) there shall be consummated (a)
any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which Voting Securities would
be converted into cash, securities, or other property, other than a merger of
the Company in which the holders of Voting Securities immediately prior to the
merger have the same, or substantially the same, proportionate ownership of
common stock of the surviving corporation immediately after the merger, or (b)
any sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company; or (iv) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company. For purposes of this
Agreement, "Acquiring Person" means any person or related persons which
constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under the
Exchange Act, as such Section and Rule are in effect as of the date of this
Agreement; provided, however, that the term Acquiring Person shall not include:
(i) the Company or any of its subsidiaries; (ii) any employee benefit plan of
the Company or any of its subsidiaries; (iii) any entity holding voting capital
stock of the Company for or pursuant to the terms of any such employee benefit
plan; or (iv) any person or group solely because such person or group has voting
power with respect to capital stock of the Company arising from a
- 5 -
<PAGE>
revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to the Exchange Act. For purposes of this Agreement,
"Voting Securities" means the Company's issued and outstanding securities
ordinarily having the right to vote at elections for the Company's board of
directors.
7.5 COMPENSATION UPON TERMINATION.
7.5.1 TERMINATION UNDER SECTION 7.1, 7.2, OR
7.3. In the event of a termination of Employee's employment under Section 7.1,
7.2, or 7.3, Employee's regular compensation pursuant to Section 2.1 shall be
prorated and payable until the date of termination.
7.5.2 TERMINATION UNDER SECTION 7.4. In the
event of a termination of Employee's employment by the Company without cause as
provided in Section 7.4, Employee shall continue to be paid the salary provided
in Section 2.1 for 12 months from the date of notice of such termination of
employment, in the manner and at the times at which regular compensation was
paid to Employee during the term of his employment under this Agreement, except
that if Employee elects to treat an event described in Sections 7.4.1 or 7.4.2
as a termination without cause but continues to work for the Company or any of
its subsidiaries, then any amounts Employee receives as compensation during the
12-month period shall be credited against the amounts payable to Employee under
this section. Unless Employee elects to continue working for the Company or any
of its subsidiaries, as a condition to receipt of the compensation described in
the preceding sentence Employee shall sign, deliver, and abide by a Separation
Agreement and Release, substantially in the form attached as Exhibit A to this
Agreement. The Company's obligation to pay the amounts stated in this section
shall terminate if Employee engages, either individually or as a director,
officer, partner, employee, agent, representative, or consultant with any
business, directly or indirectly in any of the activities listed in Section
6.1.1, 6.1.2, or 6.1.3 anywhere in the United States within one year after
termination of employment.
8. REMEDIES. The respective rights and duties of the Company
and Employee under this Agreement are in addition to, and not in lieu of, those
rights and duties afforded to and imposed upon them by law or at equity.
Employee acknowledges that breach of Sections 4 and 6 of this Agreement will
cause irreparable harm to the Company and agrees to the entry of a temporary
restraining order and permanent injunction by any court of competent
jurisdiction to prevent breach or further breach of this Agreement. Such remedy
shall be in addition to any other remedy available to the Company at law or in
equity.
9. SEVERABILITY OF PROVISIONS. The provisions of this
Agreement are severable, and if any provision hereof is held invalid or
unenforceable, it shall be enforced to the maximum extent permissible, and the
remaining provisions of the Agreement shall continue in full force and effect.
10. ATTORNEY FEES. In the event a suit or action is filed to
enforce Sections 4 or 6 of this Agreement, the prevailing party shall be
reimbursed by the other party for all costs
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<PAGE>
and expenses incurred in connection with the suit or action, including without
limitation reasonable attorney fees at trial or on appeal.
11. NONWAIVER. Failure of the Company at any time to require
performance of any provision of this Agreement shall not limit the right of the
Company to enforce the provision. No provision of this Agreement or breach
thereof may be waived by either party except by a writing signed by that party.
A waiver of any breach of a provision of this Agreement shall be construed
narrowly and shall not be deemed to be a waiver of any succeeding breach of that
provision or a waiver of that provision itself or of any other provision.
12. ARBITRATION.
12.1 CLAIMS COVERED. All claims or controversies,
except for those excluded by Section 12.2 ("claims"), whether or not arising out
of Employee's employment (or its termination), that the Company may have against
Employee or that Employee may have against the Company or against its officers,
directors, employees or agents, in their capacity as such or otherwise, shall be
resolved as provided in this Section 12. Claims covered by this Section 12
include, but are not limited to, claims for wages or other compensation due;
claims for breach of any contract or covenant (express or implied); tort claims;
claims for discrimination (including, but not limited to, race, sex, sexual
orientation, religion, national origin, age, marital status, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state, or other
governmental law, statute, regulation, or ordinance, except as provided in
Section 12.2.
12.2 NON-COVERED CLAIMS. Claims arising out of
Sections 4 and 6 of this Agreement and workers' compensation or unemployment
compensation benefits are not covered by this Section 12. Non-covered claims
include but are not limited to claims by the Company for injunctive and/or other
equitable relief for unfair competition and/or the use and/or unauthorized
disclosure of trade secrets or confidential information, as to which Employee
understands and agrees that the Company may seek and obtain relief from a court
of competent jurisdiction.
12.3 REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF
LIMITATIONS. Company and Employee agree that the aggrieved party must give
written notice of any claim to the other party within one year of the date the
aggrieved party first has knowledge of the event giving rise to the claim;
otherwise the claim shall be void and deemed waived even if there is a federal
or state statute of limitations which would have given more time to pursue the
claim. The written notice shall identify and describe the nature of all claims
asserted and the facts upon which such claims are based.
12.4 HEARING OR MEDIATION. Prior to any arbitration
proceeding taking place pursuant to this section, Company or Employee may, at
its respective option, elect to submit the claim to non-binding mediation before
a mutually agreeable mediation tribunal or
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<PAGE>
mediator, in which event both parties shall execute a suitable confidentiality
agreement and abide by the procedures specified by the mediation tribunal or
mediator.
12.5 ARBITRATION PROCEDURES. Any arbitration shall be
conducted in accordance with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA"), modified to
substitute for AAA actions, the United States Arbitration and Mediation Service
("USA&MS"), before an arbitrator who is licensed to practice law in the state of
Oregon (the "Arbitrator"). The arbitration shall take place in or near Portland,
Oregon.
12.5.1 SELECTION OF ARBITRATOR. The USA&MS
shall give each party a list of 11 arbitrators drawn from its panel of
labor-management dispute arbitrators. Each party may strike all names on the
list it deems unacceptable. If only one common name remains on the lists of all
parties, that individual shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties shall strike names
alternately until only one remains. The party who did not initiate the claim
shall strike first. If no common name remains on the lists of all parties, the
USA&MS shall furnish an additional list or lists until an Arbitrator is
selected.
12.5.2 APPLICABLE LAW. The Arbitrator shall
apply the substantive law (and the law of remedies, if applicable) specified in
this Agreement or federal law, or both, as applicable to the claim(s) asserted.
The Oregon Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability or
formation of this Agreement, including but not limited to any claim that all or
any part of this Agreement is void or voidable. The arbitration shall be final
and binding upon the parties, except as provided in this Agreement.
12.5.3 AUTHORITY. The Arbitrator shall have
jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold
pre-hearing conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
Arbitrator shall render an award and opinion in the form typically rendered in
labor arbitrations.
12.5.4 REPRESENTATION. Any party may be
represented by an attorney or other representative selected by the party.
12.5.5 DISCOVERY. Each party shall have the
right to take the deposition of one individual and any expert witness designated
by another party. Each party also shall have the right to make requests for
production of documents to any party. The subpoena right specified below shall
be applicable to discovery pursuant to this paragraph. Additional discovery may
be had only where the Arbitrator selected pursuant to this Agreement so orders,
upon a showing of substantial need. At least 30 days before the arbitration, the
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<PAGE>
parties must exchange lists of witnesses, including any experts, and copies of
all exhibits intended to be used at the arbitration. Each party shall have the
right to subpoena witnesses and documents for the arbitration.
12.5.6 REPORTER. Either party, at its
expense, may arrange for and pay the cost of a court reporter to provide a
stenographic record of proceedings.
12.5.7 POST-HEARING BRIEFS. Either party,
upon request at the close of hearing, shall be given leave to file a
post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
12.6 ENFORCEMENT. Either party may bring an action in
any court of competent jurisdiction to compel arbitration under this Agreement
and to enforce an arbitration award. Except as otherwise provided in this
Agreement, both the Company and Employee agree that neither shall initiate or
prosecute any lawsuit (other than for a non-covered claim) in any way related to
any claim covered by this Agreement. A party opposing enforcement of an award
may not do so in an enforcement proceeding, but must bring a separate action in
any court of competent jurisdiction to set aside the award, where the standard
of review will be the same as that applied by an appellate court reviewing a
decision of a trial court sitting without a jury.
12.7 ARBITRATION FEES AND COSTS. Company and Employee
shall equally share the fees and costs of the Arbitrator. Each party will
deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, 10 days
before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any, provided that the Arbitrator, in its sole discretion,
may award reasonable fees to the prevailing party in a proceeding.
13. GENERAL TERMS AND CONDITIONS. This Agreement constitutes
the entire understanding of the parties relating to the employment of Employee
by the Company, and, except as set forth in Section 6 with respect to the
noncompetition covenant in the 1993 Agreement, supersedes and replaces all
written and oral agreements heretofore made or existing by and between the
parties relating thereto. This Agreement shall be construed in accordance with
the laws of the state of Oregon, without regard to any conflicts of laws rules
thereof. This Agreement shall inure to the benefit of any successors or assigns
of the Company. All captions used herein are intended solely for convenience of
reference and shall in no way limit any of the provisions of this Agreement.
- 9 -
<PAGE>
The parties have executed this Employment Agreement as of the
date stated above.
EPITOPE, INC.
By:
CHARLES E. BERGERON
Title:
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<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
SEPARATION AGREEMENT AND RELEASE
A. This Separation Agreement and Release ("Agreement") is made and
entered into as of this ----- day of --------------, -----, by and between
Company, Inc., an Oregon corporation ("Company"), and ----------------------
("--------------") in order to provide the terms and conditions of
- --------------'s termination of employment, to fully and completely resolve any
and all issues that -------------- may have in connection with his employment
with Company or the termination of that employment, and to promote an amicable
long-term relationship between Company and --------------.
B. In consideration of the mutual promises and conditions contained
herein, the parties agree as follows:
1. SEPARATION. -------------- has been [is currently] employed
at Company as --------------. -------------- shall have no further job
responsibilities at Company after --------------, and his employment shall be
terminated effective as of such date.
2. PAYMENT TO --------------. Pursuant to the Employment
Agreement entered into between the parties, Company agrees to provide additional
compensation to -------------- in the amount of --------------- provided
- -------------- executes and does not revoke this Agreement.
3. RELEASE OF CLAIMS. In return for the benefits conferred by
this Agreement (and described in the Employment Agreement), which --------------
acknowledges Company has no legal obligation to provide if -------------- does
not enter into this Agreement, --------------, on behalf of himself and his
heirs, executors, administrators, successors and assigns, hereby releases and
forever discharges Company and its past, present and future affiliates,
subsidiaries, predecessors, successors and assigns, and each of their past,
present and future shareholders, officers, directors, employees, agents and
insurers, from any and all claims, actions, causes of action, disputes,
liabilities or damages, of any kind, which may now exist or hereafter may be
discovered, specifically including, but not limited to, any and all claims,
disputes, actions, causes of action, liabilities or damages, arising from or
relating to --------------'s employment with Company, or the termination of such
employment, except for any claim for payment or performance pursuant to the
terms of this Agreement. This release includes, but is not limited to, any
claims that -------------- might have for reemployment or reinstatement or for
additional compensation or benefits and applies to claims that he might have
under either federal, state or local law dealing with employment, contract,
tort, wage and hour, or civil rights matters, including, but not limited to,
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Family and Medical Leave Act,
similar state laws, and any regulations under such laws. This release shall not
affect any accrued rights -------------- may have under any medical insurance,
workers' compensation or retirement plan because of his prior employment with
<PAGE>
Company. -------------- ACKNOWLEDGES AND AGREES THAT THROUGH THIS RELEASE HE IS
GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND AND NATURE WHATSOEVER, KNOWN OR
UNKNOWN, CONTINGENT OR LIQUIDATED, THAT HE MAY HAVE AGAINST Company AND THE
OTHER PERSONS NAMED ABOVE, EXCEPT FOR THE RIGHTS SPECIFICALLY EXCLUDED ABOVE.
4. CONFIDENTIALITY. -------------- agrees to keep this
Agreement and each of its terms, specifically including without limitation the
amount of the payment described in this Agreement, and the fact that he has
received payment, strictly confidential. -------------- may disclose the terms
of this Agreement only to his attorney or accountant, or as required by law.
- --------------- understands that Company may be required to publicly disclose
the terms of this Agreement.
5. NON-DISPARAGEMENT. -------------- shall not make any
disparaging or derogatory remarks of any nature whatsoever about Company, its
officers, directors or employees, or its products, either publicly or privately,
unless required by law.
6. NON-ADMISSION OF LIABILITY. This Agreement shall not be
construed as an admission of liability or wrongdoing by Company. Neither this
Agreement nor any of its terms, provisions, or conditions constitute an
admission of liability or wrongdoing or may be offered or received in evidence
in any action or proceeding as evidence of an admission of liability or
wrongdoing.
7. EMPLOYMENT AGREEMENT. -------------- acknowledges and
reaffirms his obligations under Sections 4 and 6 of the Employment Agreement
executed by him in conjunction with his employment at Company. The terms of such
Employment Agreement are hereby incorporated herein and made a part of this
Agreement. -------------- agrees to strictly comply with such terms of the
Employment Agreement.
8. RETURN OF PROPERTY. -------------- agrees to and hereby
represents that he has returned to Company all of Company's property and all
materials containing confidential information of Company, that were in his
possession or under his control.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This document constitutes the
entire, final, and complete agreement and understanding of the parties with
respect to the subject matter hereof and supersedes and replaces all written and
oral agreements and understandings heretofore made or existing by and between
the parties or their representatives with respect thereto, other than the
Employment Agreement executed between the parties. There have been no
representations or commitments by Company to make any payment or perform any act
other than those expressly stated herein.
- 2 -
<PAGE>
9.2 WAIVER. No waiver of any provision of this
Agreement shall be deemed, or shall constitute a wavier of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the parties making the
waiver.
9.3 BINDING EFFECT. All rights, remedies, and
liabilities herein given to or imposed upon the parties shall extend to, inure
to the benefit of and bind, as the circumstances may require, the parties and
their representative heirs, personal representatives, administrators, successors
and assigns.
9.4 AMENDMENT. No supplement, modification or
amendment of this Agreement shall be valid, unless the same is in writing and
signed by both parties.
9.5 RECOVERY OF ATTORNEY FEES BY PREVAILING PARTY. If
it becomes necessary to enforce this Agreement, or any part hereof, the
prevailing party shall be entitled to recover its reasonable attorney fees and
costs incurred therein, including all attorney fees and costs on appeal.
9.6 GOVERNING LAW. This Agreement and the rights of
the parties hereunder shall be governed, construed and enforced in accordance
with the laws of the state of Oregon, without regard to its conflict of law
principles. Any suit or action arising out of or in connection with this
Agreement, or any breach hereof, shall be brought and maintained in the Circuit
Court of the State of Oregon for the County of Multnomah. The parties hereby
irrevocably submit to the jurisdiction of such court for the purpose of such
suit or action and hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any claim that any such suit or action has been brought in an
inconvenient forum.
9.7 -------------- GIVEN 21 DAYS TO CONSIDER
AGREEMENT. -------------- acknowledges that Company advised him in writing to
consult with an attorney before signing this Agreement and that he has had at
least 21 days to consider whether to execute this Agreement.
9.8 REVOCATION. -------------- may revoke this
Agreement by written notice delivered to the President and Chief Executive
Officer of the Company within seven days following the date he signed the
Agreement. If not revoked under the preceding sentence, this Agreement becomes
effective and enforceable after the seven-day period has expired.
- 3 -
<PAGE>
9.9 MISCELLANEOUS. -------------- acknowledges that
he has freely and voluntarily executed this Agreement, with a complete
understanding of its terms and present and future effects.
[NAME OF EMPLOYEE] EPITOPE, INC.
By:
Date: Title:
Date:
- 4 -
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of December --,
1997, between J. Richard George, Ph.D. ("Employee") and Epitope, Inc., an Oregon
corporation (the "Company").
1. SERVICES.
1.1 EMPLOYMENT. The Company agrees to employ Employee
as Vice President of Scientific Affairs - Epitope Medical Products, and Employee
hereby accepts such employment in accordance with the terms and conditions of
this Agreement. Employment shall continue until terminated pursuant to the terms
of this Agreement.
1.2 DUTIES. Employee shall have the position named in
Section 1.1 with such powers and duties appropriate to that office (a) as may be
provided by the bylaws of the Company, (b) as otherwise set forth in Exhibit A
attached to this Agreement, and (c) as determined from time to time by the
President and Chief Executive Officer or the board of directors of the Company.
Employee's position and duties may be changed from time to time during the term
of this Agreement, and Employee's place of work may be relocated at the sole
discretion of the President and Chief Executive Officer or the board of
directors.
1.3 OUTSIDE ACTIVITIES. Employee shall obtain the
consent of the President and Chief Executive Officer or the board of directors
before he engages, either directly or indirectly, in any other professional or
business activities that may require an appreciable portion of Employee's time
or effort to the detriment of the Company's business.
1.4 DIRECTION OF SERVICES. Employee shall at all
times discharge his duties in consultation with and under the supervision and
direction of the President and Chief Executive Officer of the Company.
2. COMPENSATION AND EXPENSES.
2.1 SALARY. As compensation for services under this
Agreement, the Company shall pay to Employee a regular salary established by the
President and Chief Executive Officer or the board of directors. Such salary may
be adjusted from time to time in the discretion of the President and Chief
Executive Officer or the board of directors. Payment shall be made on a
bi-weekly basis, less all amounts required by law or authorized by Employee to
be withheld or deducted, at such times as shall be determined by the Company.
2.2 ADDITIONAL EMPLOYEE BENEFITS. To the extent
otherwise eligible, Employee shall also be entitled to receive or participate in
any additional benefits, including without limitation insurance programs, profit
sharing or pension plans, and medical reimbursement plans, which may from time
to time be made available by the Company to
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<PAGE>
corporate officers. The Company may change or discontinue such benefits at any
time in its sole discretion.
2.3 EXPENSES. The Company shall reimburse Employee
for all reasonable and necessary expenses incurred in carrying out his duties
under this Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in such form as may be required by the
Company.
2.4 FEES. All compensation earned by Employee, other
than pursuant to this Agreement, as a result of services performed on behalf of
the Company or as a result of or arising out of any work done by Employee in any
way related to the scientific or business activities of the Company shall belong
to the Company. Employee shall pay or deliver such compensation to the Company
promptly upon receipt. For the purposes of this provision, "compensation" shall
include, but is not limited to, all professional and nonprofessional fees,
lecture fees, expert testimony fees, publishing fees, royalties, and any related
income, earnings, or other things of value; and "scientific or business
activities of the Company" shall include, but not be limited to, any project or
projects in which the Company is involved and any subject matter that is
directly or indirectly researched, tested, developed, promoted, or marketed by
the Company.
3. STOCK OPTIONS. The Company shall grant Employee an option
to purchase 30,000 shares of common stock of the Company at an exercise price
equal to the fair market value of the stock on the date of grant.
4. CONFIDENTIAL INFORMATION.
4.1 DEFINED. "Confidential Information" is all
nonpublic information relating to the Company or its business that is disclosed
to Employee, that Employee produces, or that Employee otherwise obtains during
employment. "Confidential Information" also includes information received from
third parties that the Company has agreed to treat as confidential. Examples of
Confidential Information are:
4.1.1 Marketing plans.
4.1.2 Customer lists.
4.1.3 Product design and manufacturing information.
4.1.4 Financial information.
4.2 ACCESS TO INFORMATION. Employee acknowledges that
in the course of his employment he will have access to Confidential Information,
that such information is a valuable asset of the Company, and that its
disclosure or unauthorized use will cause the Company substantial harm.
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<PAGE>
4.3 OWNERSHIP. Employee acknowledges that all
Confidential Information shall continue to be the exclusive property of the
Company (or the third party that disclosed it to the Company), whether or not
prepared in whole or in part by Employee and whether or not disclosed to
Employee or entrusted to his custody in connection with his employment by the
Company.
4.4 NONDISCLOSURE AND NONUSE. Unless authorized or
instructed in writing by the Company, or required by legally constituted
authority, Employee will not, except as required in the course of the Company's
business, during or after his employment, disclose to others or use any
Confidential Information, unless and until, and then only to the extent that,
such items become available to the public through no fault of Employee.
4.5 RETURN OF CONFIDENTIAL INFORMATION. Upon request
by the Company during or after his employment, and without request upon
termination of employment pursuant to this Agreement, Employee will deliver
immediately to the Company all written or tangible materials containing
Confidential Information without retaining any excerpts or copies.
4.6 DURATION. The obligations set forth in this
Section 4 will continue beyond the term of employment of Employee by the Company
and for so long as Employee possesses Confidential Information.
5. MATERIALS PREPARED AND INVENTIONS MADE DURING EMPLOYMENT.
The Company shall be the exclusive owner of all materials, concepts, and
inventions Employee prepares, develops, or makes (whether alone or jointly with
others) within the scope of his employment, and of all related rights (including
copyrights, trademarks, and patents) and proceeds. Without limitation,
materials, concepts, and inventions that (a) relate to the Company's business or
actual or demonstrably anticipated research or development, or (b) result from
any work performed by Employee for the Company, shall be considered within the
scope of Employee's employment. Employee shall promptly disclose all such
materials, concepts, and inventions to the Company. Employee shall take all
action reasonably requested by the Company to vest ownership of such materials,
consents, and inventions in the Company and to permit the Company to obtain
copyright, trademark, patent, or similar protection in its name.
6. TERMINATION.
6.1 TERMINATION UPON DEATH. This Agreement shall
terminate immediately upon Employee's death.
6.2 TERMINATION BY EMPLOYEE. Employee may terminate
his employment under this Agreement by 90 days' written notice to the Company.
6.3 TERMINATION BY THE COMPANY FOR CAUSE. The Company
may terminate Employee's employment under this Agreement for cause at any time,
with or without advance notice. "Cause" includes, but is not limited to: (a) a
material breach of this Agreement by Employee; (b) Employee's refusal, failure,
or inability to comply with any policies or
- 3 -
<PAGE>
standards of the Company or to perform any job duties of Employee; (c) any act
of fraud, dishonesty, or misconduct by Employee; (d) the commission of any act
in direct competition with or materially detrimental to the best interests of
the Company; or (e) Employee's failure to otherwise comply with the standards of
behavior that an employer has the right to expect of an employee. The Company
reserves the right to determine the facts giving rise to cause for termination
and whether those facts constitute cause for termination.
6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. The
Company may terminate Employee's employment under this Agreement without cause
by written notice to Employee.
6.5 COMPENSATION UPON TERMINATION.
6.5.1 TERMINATION UNDER SECTION 6.1, 6.2, OR
6.3. In the event of a termination of Employee's employment under Section 6.1,
6.2, or 6.3, Employee's regular compensation pursuant to Section 2.1 shall be
prorated and payable until the date of termination.
6.5.2 TERMINATION UNDER SECTION 6.4. In the
event of a termination of Employee's employment by the Company without cause as
provided in Section 6.4, Employee shall continue to be paid the salary provided
in Section 2.1 for 12 months from the date of notice of such termination of
employment, in the manner and at the times at which regular compensation was
paid to Employee during the term of his employment under this Agreement. As a
condition to receipt of the compensation described in the preceding sentence,
Employee shall sign, deliver, and abide by a Separation Agreement and Release,
substantially in the form attached as Exhibit B to this Agreement. The Company's
obligation to pay the amounts stated in this section shall terminate if Employee
either individually or as a director, officer, partner, employee, agent,
representative, or consultant with any business, directly or indirectly anywhere
in the United States within one year after termination of employment (a) engages
or prepares to engage in any business that competes with the Company; (b)
induces or attempts to induce any person who is an employee of the Company to
leave the employ of the Company; or (c) solicits, diverts, or accepts orders for
products or services that are substantially competitive with the products or
services sold by the Company from any customer of the Company.
7. REMEDIES. The respective rights and duties of the Company
and Employee under this Agreement are in addition to, and not in lieu of, those
rights and duties afforded to and imposed upon them by law or at equity.
Employee acknowledges that breach of Section 4 of this Agreement will cause
irreparable harm to the Company and agrees to the entry of a temporary
restraining order and permanent injunction by any court of competent
jurisdiction to prevent breach or further breach of this Agreement. Such remedy
shall be in addition to any other remedy available to the Company at law or in
equity.
8. SEVERABILITY OF PROVISIONS. The provisions of this
Agreement are severable, and if any provision hereof is held invalid or
unenforceable, it shall be enforced to
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<PAGE>
the maximum extent permissible, and the remaining provisions of the Agreement
shall continue in full force and effect.
9. ATTORNEY FEES. In the event a suit or action is filed to
enforce Section 4 of this Agreement, the prevailing party shall be reimbursed by
the other party for all costs and expenses incurred in connection with the suit
or action, including without limitation reasonable attorney fees at trial or on
appeal.
10. NONWAIVER. Failure of the Company at any time to require
performance of any provision of this Agreement shall not limit the right of the
Company to enforce the provision. No provision of this Agreement or breach
thereof may be waived by either party except by a writing signed by that party.
A waiver of any breach of a provision of this Agreement shall be construed
narrowly and shall not be deemed to be a waiver of any succeeding breach of that
provision or a waiver of that provision itself or of any other provision.
11. ARBITRATION.
11.1 CLAIMS COVERED. All claims or controversies,
except for those excluded by Section 11.2 ("claims"), whether or not arising out
of Employee's employment (or its termination), that the Company may have against
Employee or that Employee may have against the Company or against its officers,
directors, employees or agents, in their capacity as such or otherwise, shall be
resolved as provided in this Section 11. Claims covered by this Section 11
include, but are not limited to, claims for wages or other compensation due;
claims for breach of any contract or covenant (express or implied); tort claims;
claims for discrimination (including, but not limited to, race, sex, sexual
orientation, religion, national origin, age, marital status, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state, or other
governmental law, statute, regulation, or ordinance, except as provided in
Section 11.2.
11.2 NON-COVERED CLAIMS. Claims arising out of
Section 4 of this Agreement and workers' compensation or unemployment
compensation benefits are not covered by this Section 11. Non-covered claims
include but are not limited to claims by the Company for injunctive and/or other
equitable relief for unfair competition and/or the use and/or unauthorized
disclosure of trade secrets or confidential information, as to which Employee
understands and agrees that the Company may seek and obtain relief from a court
of competent jurisdiction.
11.3 REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF
LIMITATIONS. Company and Employee agree that the aggrieved party must give
written notice of any claim to the other party within one year of the date the
aggrieved party first has knowledge of the event giving rise to the claim;
otherwise the claim shall be void and deemed waived even if there is a federal
or state statute of limitations which would have given more time to pursue the
claim. The written notice shall identify and describe the nature of all claims
asserted and the facts upon which such claims are based.
- 5 -
<PAGE>
11.4 HEARING OR MEDIATION. Prior to any arbitration
proceeding taking place pursuant to this section, Company or Employee may, at
its respective option, elect to submit the claim to non-binding mediation before
a mutually agreeable mediation tribunal or mediator, in which event both parties
shall execute a suitable confidentiality agreement and abide by the procedures
specified by the mediation tribunal or mediator.
11.5 ARBITRATION PROCEDURES. Any arbitration shall be
conducted in accordance with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA"), modified to
substitute for AAA actions, the United States Arbitration and Mediation Service
("USA&MS"), before an arbitrator who is licensed to practice law in the state of
Oregon (the "Arbitrator"). The arbitration shall take place in or near Portland,
Oregon.
11.5.1 SELECTION OF ARBITRATOR. The USA&MS shall give
each party a list of 11 arbitrators drawn from its panel of labor-management
dispute arbitrators. Each party may strike all names on the list it deems
unacceptable. If only one common name remains on the lists of all parties, that
individual shall be designated as the Arbitrator. If more than one common name
remains on the lists of all parties, the parties shall strike names alternately
until only one remains. The party who did not initiate the claim shall strike
first. If no common name remains on the lists of all parties, the USA&MS shall
furnish an additional list or lists until an Arbitrator is selected.
11.5.2 APPLICABLE LAW. The Arbitrator shall apply the
substantive law (and the law of remedies, if applicable) specified in this
Agreement or federal law, or both, as applicable to the claim(s) asserted. The
Oregon Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability or
formation of this Agreement, including but not limited to any claim that all or
any part of this Agreement is void or voidable. The arbitration shall be final
and binding upon the parties, except as provided in this Agreement.
11.5.3 AUTHORITY. The Arbitrator shall have
jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold
pre-hearing conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure. The
Arbitrator shall render an award and opinion in the form typically rendered in
labor arbitrations.
11.5.4 REPRESENTATION. Any party may be
represented by an attorney or other representative selected by the party.
11.5.5 DISCOVERY. Each party shall have the
right to take the deposition of one individual and any expert witness designated
by another party. Each party also shall have the right to make requests for
production of documents to any party. The
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<PAGE>
subpoena right specified below shall be applicable to discovery pursuant to this
paragraph. Additional discovery may be had only where the Arbitrator selected
pursuant to this Agreement so orders, upon a showing of substantial need. At
least 30 days before the arbitration, the parties must exchange lists of
witnesses, including any experts, and copies of all exhibits intended to be used
at the arbitration. Each party shall have the right to subpoena witnesses and
documents for the arbitration.
11.5.6 REPORTER. Either party, at its
expense, may arrange for and pay the cost of a court reporter to provide a
stenographic record of proceedings.
11.5.7 POST-HEARING BRIEFS. Either party,
upon request at the close of hearing, shall be given leave to file a
post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
11.6 ENFORCEMENT. Either party may bring an action in
any court of competent jurisdiction to compel arbitration under this Agreement
and to enforce an arbitration award. Except as otherwise provided in this
Agreement, both the Company and Employee agree that neither shall initiate or
prosecute any lawsuit (other than for a non-covered claim) in any way related to
any claim covered by this Agreement. A party opposing enforcement of an award
may not do so in an enforcement proceeding, but must bring a separate action in
any court of competent jurisdiction to set aside the award, where the standard
of review will be the same as that applied by an appellate court reviewing a
decision of a trial court sitting without a jury.
11.7 ARBITRATION FEES AND COSTS. Company and Employee
shall equally share the fees and costs of the Arbitrator. Each party will
deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, 10 days
before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any, provided that the Arbitrator, in its sole discretion,
may award reasonable fees to the prevailing party in a proceeding.
12. GENERAL TERMS AND CONDITIONS. This Agreement constitutes
the entire understanding of the parties relating to the employment of Employee
by the Company, and supersedes and replaces all written and oral agreements
heretofore made or existing by and between the parties relating thereto. This
Agreement shall be construed in accordance with the laws of the state of Oregon,
without regard to any conflicts of laws rules thereof. This Agreement shall
inure to the benefit of any successors or assigns of the Company. All captions
used herein are intended solely for convenience of reference and shall in no way
limit any of the provisions of this Agreement.
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<PAGE>
The parties have executed this Employment Agreement as of the
date stated above.
EPITOPE, INC.
By:
J. RICHARD GEORGE, PH.D.
Title:
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<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
SPECIFIC DUTIES OF EMPLOYEE AS VICE PRESIDENT OF
SCIENTIFIC AFFAIRS - EPITOPE MEDICAL PRODUCTS
[Specify any relevant duties.]
<PAGE>
EXHIBIT B TO EMPLOYMENT AGREEMENT
SEPARATION AGREEMENT AND RELEASE
A. This Separation Agreement and Release ("Agreement") is made and
entered into as of this ----- day of --------------, -----, by and between
Company, Inc., an Oregon corporation ("Company"), and ----------------------
("--------------") in order to provide the terms and conditions of
- --------------'s termination of employment, to fully and completely resolve any
and all issues that -------------- may have in connection with his employment
with Company or the termination of that employment, and to promote an amicable
long-term relationship between Company and --------------.
B. In consideration of the mutual promises and conditions contained
herein, the parties agree as follows:
1. SEPARATION. -------------- has been [is currently] employed
at Company as --------------. -------------- shall have no further job
responsibilities at Company after --------------, and his employment shall be
terminated effective as of such date.
2. PAYMENT TO --------------. Pursuant to the Employment
Agreement entered into between the parties, Company agrees to provide additional
compensation to -------------- in the amount of --------------- provided
- -------------- executes and does not revoke this Agreement.
3. RELEASE OF CLAIMS. In return for the benefits conferred by
this Agreement (and described in the Employment Agreement), which --------------
acknowledges Company has no legal obligation to provide if -------------- does
not enter into this Agreement, --------------, on behalf of himself and his
heirs, executors, administrators, successors and assigns, hereby releases and
forever discharges Company and its past, present and future affiliates,
subsidiaries, predecessors, successors and assigns, and each of their past,
present and future shareholders, officers, directors, employees, agents and
insurers, from any and all claims, actions, causes of action, disputes,
liabilities or damages, of any kind, which may now exist or hereafter may be
discovered, specifically including, but not limited to, any and all claims,
disputes, actions, causes of action, liabilities or damages, arising from or
relating to --------------'s employment with Company, or the termination of such
employment, except for any claim for payment or performance pursuant to the
terms of this Agreement. This release includes, but is not limited to, any
claims that -------------- might have for reemployment or reinstatement or for
additional compensation or benefits and applies to claims that he might have
under either federal, state or local law dealing with employment, contract,
tort, wage and hour, or civil rights matters, including, but not limited to,
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Family and Medical Leave Act,
similar state laws, and any regulations under such laws. This release shall not
affect any accrued rights -------------- may have under any medical insurance,
workers' compensation or retirement plan because of his prior employment with
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Company. -------------- ACKNOWLEDGES AND AGREES THAT THROUGH THIS RELEASE HE IS
GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND AND NATURE WHATSOEVER, KNOWN OR
UNKNOWN, CONTINGENT OR LIQUIDATED, THAT HE MAY HAVE AGAINST Company AND THE
OTHER PERSONS NAMED ABOVE, EXCEPT FOR THE RIGHTS SPECIFICALLY EXCLUDED ABOVE.
4. CONFIDENTIALITY. -------------- agrees to keep this
Agreement and each of its terms, specifically including without limitation the
amount of the payment described in this Agreement, and the fact that he has
received payment, strictly confidential. -------------- may disclose the terms
of this Agreement only to his attorney or accountant, or as required by law.
- --------------- understands that Company may be required to publicly disclose
the terms of this Agreement.
5. NON-DISPARAGEMENT. -------------- shall not make any
disparaging or derogatory remarks of any nature whatsoever about Company, its
officers, directors or employees, or its products, either publicly or privately,
unless required by law.
6. NON-ADMISSION OF LIABILITY. This Agreement shall not be
construed as an admission of liability or wrongdoing by Company. Neither this
Agreement nor any of its terms, provisions, or conditions constitute an
admission of liability or wrongdoing or may be offered or received in evidence
in any action or proceeding as evidence of an admission of liability or
wrongdoing.
7. EMPLOYMENT AGREEMENT. -------------- acknowledges and
reaffirms his obligations under Section 4 of the Employment Agreement executed
by him in conjunction with his employment at Company. The terms of such
Employment Agreement are hereby incorporated herein and made a part of this
Agreement. -------------- agrees to strictly comply with such terms of the
Employment Agreement.
8. RETURN OF PROPERTY. -------------- agrees to and hereby
represents that he has returned to Company all of Company's property and all
materials containing confidential information of Company, that were in his
possession or under his control.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This document constitutes the
entire, final, and complete agreement and understanding of the parties with
respect to the subject matter hereof and supersedes and replaces all written and
oral agreements and understandings heretofore made or existing by and between
the parties or their representatives with respect thereto, other than the
Employment Agreement executed between the parties. There have been no
representations or commitments by Company to make any payment or perform any act
other than those expressly stated herein.
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<PAGE>
9.2 WAIVER. No waiver of any provision of this
Agreement shall be deemed, or shall constitute a wavier of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the parties making the
waiver.
9.3 BINDING EFFECT. All rights, remedies, and
liabilities herein given to or imposed upon the parties shall extend to, inure
to the benefit of and bind, as the circumstances may require, the parties and
their representative heirs, personal representatives, administrators, successors
and assigns.
9.4 AMENDMENT. No supplement, modification or
amendment of this Agreement shall be valid, unless the same is in writing and
signed by both parties.
9.5 RECOVERY OF ATTORNEY FEES BY PREVAILING PARTY. If
it becomes necessary to enforce this Agreement, or any part hereof, the
prevailing party shall be entitled to recover its reasonable attorney fees and
costs incurred therein, including all attorney fees and costs on appeal.
9.6 GOVERNING LAW. This Agreement and the rights of
the parties hereunder shall be governed, construed and enforced in accordance
with the laws of the state of Oregon, without regard to its conflict of law
principles. Any suit or action arising out of or in connection with this
Agreement, or any breach hereof, shall be brought and maintained in the Circuit
Court of the State of Oregon for the County of Multnomah. The parties hereby
irrevocably submit to the jurisdiction of such court for the purpose of such
suit or action and hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any claim that any such suit or action has been brought in an
inconvenient forum.
9.7 -------------- GIVEN 21 DAYS TO CONSIDER
AGREEMENT. -------------- acknowledges that Company advised him in writing to
consult with an attorney before signing this Agreement and that he has had at
least 21 days to consider whether to execute this Agreement.
9.8 REVOCATION. -------------- may revoke this
Agreement by written notice delivered to the President and Chief Executive
Officer of the Company within seven days following the date he signed the
Agreement. If not revoked under the preceding sentence, this Agreement becomes
effective and enforceable after the seven-day period has expired.
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<PAGE>
9.9 MISCELLANEOUS. -------------- acknowledges that
he has freely and voluntarily executed this Agreement, with a complete
understanding of its terms and present and future effects.
[NAME OF EMPLOYEE] EPITOPE, INC.
By:
Date: Title:
Date:
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AMENDED AND RESTATED
EMPLOYEE BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EMPLOYEE BENEFITS
AGREEMENT (this "Agreement") is entered into by and between Epitope, Inc., an
Oregon corporation ("Epitope"), and Agritope, Inc., a Delaware corporation
("Agritope"), as of December 19, 1997.
RECITALS
A. The board of directors of Epitope has determined that it is
in the best interests of Epitope and its shareholders to separate the businesses
of Epitope and Agritope.
B. In furtherance of the plan to separate the businesses,
Epitope and Agritope have entered into that certain Separation Agreement dated
December 1, 1997 (the "Separation Agreement"), pursuant to which Epitope will
make a dividend distribution to its shareholders (the "Distribution") of all the
issued and outstanding shares of Agritope common stock, par value $.01 per
share, including certain preferred stock purchase rights attached thereto, held
by Epitope, on the terms and conditions contained therein.
C. In connection with the Distribution, Epitope and Agritope
desire to provide for the allocation between them of assets, liabilities and
responsibilities with respect to certain employee compensation and benefit plans
and programs following the Distribution.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Epitope and Agritope agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms shall have the meanings given below or
elsewhere in this Agreement, or as set forth in the Separation Agreement.
401(k) Retirement Plan: A defined contribution plan maintained
pursuant to Section 401(k) or 401(a) of the Code for Employees and their
beneficiaries. The following are specific 401(k) Retirement Plans:
(i) Agritope 401(k) Plan: The Agritope, Inc. 401(k)
Profit Sharing Plan to be adopted by Agritope prior
to the Distribution Date pursuant to Section (a) of
this Agreement.
(ii) Epitope 401(k) Plan: The Epitope, Inc. 401(k) Profit
Sharing Plan, in effect as of the date hereof.
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Additional Insurance Plans: Insurance plans providing
insurance benefits other than Medical/Dental Plan benefits to Employees,
including Life Insurance and Accidental Death and Dismemberment Insurance.
Agritope Board: The board of directors of Agritope.
Agritope Option Plan: The Agritope, Inc. 1997 Stock Award Plan
to be adopted pursuant to Section of this Agreement.
Agritope Stock Distribution Value: See definition in Section .
Agritope Stock Plans: The Agritope Option Plan and the
Agritope Purchase Plan. Each Agritope Stock Plan will contain substantially the
same material provisions as the corresponding Epitope Plan.
Distribution Date: The effective date of the Distribution, as
determined by the Epitope board of directors.
Distribution Ratio: The number (which may be or include a
fraction) of shares of Agritope Stock to be issued in the Distribution to
Epitope shareholders for each share of Epitope Stock as determined by the
Epitope Board.
Employee: An individual who, on the Distribution Date, is an
employee of either Epitope or Agritope or any of its subsidiaries. There will be
two categories of Employees after the Distribution:
Agritope Employee: Any individual who is an employee
of Agritope or any of its subsidiaries immediately after the
Distribution.
Epitope Employee: Any individual who is an employee
of Epitope immediately after the Distribution.
Epitope Option Plans: The Epitope, Inc. Incentive Stock Option
Plan and the Epitope, Inc. 1991 Stock Award Plan.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
Existing Agritope Option Plan: The Agritope, Inc. 1992 Stock
Award Plan.
Existing Epitope Option: Each unexercised option to purchase
Epitope Stock outstanding as of the close of business on the day before the
Distribution Date, issued pursuant to an Epitope Option Plan or the Existing
Agritope Option Plan.
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Medical/Dental Plan: A plan providing health benefits to
Employees and their dependents, including:
(i) Agritope Medical/Dental Plans: The Medical/Dental Plans
to be established by Agritope in accordance with Section hereof and
(ii) Epitope Medical/Dental Plans: The Epitope Medical/Dental
Plans in effect as of the date hereof and continued by Epitope after
the Distribution Date.
Plan: Any plan, policy, arrangement, contract or agreement
providing compensation or benefits for any group of Employees or for any
individual Employee or the dependents or beneficiaries of any such Employee,
including without limitation any employee welfare and employee pension benefit
plans (as defined in ERISA) and any employee option plans. The term "Plan" as
used in this Agreement does not include any contract, agreement or understanding
entered into by Epitope or Agritope relating to settlement of actual or
potential employee-related litigation claims.
Purchase Plan: A stock-based Plan meeting the requirements of
Section 423 of the Code. The following are specific Purchase Plans:
(i) Agritope Purchase Plan: The Agritope, Inc. 1997
Employee Stock Purchase Plan to be adopted by Agritope prior
to the Distribution Date pursuant to Section .
(ii) Epitope Purchase Plan: The Epitope, Inc. 1993
Employee Stock Purchase Plan, as amended, in effect as of the
date hereof.
Qualified Beneficiary: An individual (or dependent thereof)
who either (1) experiences a "qualifying event" (as that term is defined in Code
Section 4980B(f)(3) and ERISA Section 603) while a participant in any
Medical/Dental Plan, or (2) becomes a "qualified beneficiary" (as that term is
defined in Code Section 4980B(g)(1) and ERISA Section 607(3)) under any
Medical/Dental Plan.
Service Time: The period taken into account under any Plan for
purposes of determining length of service or plan participation to satisfy
eligibility, vesting, benefit accrual and similar requirements under such Plan.
Welfare Plan: Any Plan that provides medical, health,
disability, accident, life insurance, death, dental or any other welfare
benefit, including, without limitation, any post-employment benefit.
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<PAGE>
ARTICLE 2
EMPLOYMENT AND CREDITS
2.1 Allocation of Responsibilities on Distribution Date. On the
Distribution Date, except as otherwise agreed between the parties, Agritope
shall retain or assume, as the case may be, sole responsibility as employer for
Agritope Employees, and shall cause any Agritope Employee that is then a party
to any employment, change in control or other employment-related agreement with
Epitope to terminate such agreement effective as of the Distribution Date
(except confidentiality, indemnification, and similar agreements relating
primarily to past services to Epitope). Except as otherwise provided in this
Agreement, the fact that Agritope assumes or retains responsibility as employer
of Agritope Employees as of the Distribution Date shall not, of itself, cause
such employee to be deemed terminated under any Plan maintained by Epitope or
Agritope.
2.2 Service Time. For purposes of determining Service Time under any
Welfare Plan, Agritope shall credit each Agritope Employee with such Employee's
Service Time and original hire date as may be reflected in Epitope's employment
records as of the Distribution Date. Such Service Time and hire date shall
continue to be maintained for as long as the Employee's employment with Agritope
does not terminate. Agritope shall be free to make such determinations relating
to Service Time under any Agritope Stock Plans as Agritope, in its sole
discretion, deems appropriate. Subject to the provisions of ERISA, Agritope may,
in its sole discretion, make such decisions as it deems appropriate with respect
to determining Service Time for any Agritope Employee whose employment with
Agritope is terminated following the Distribution Date but who is subsequently
reemployed by Agritope.
ARTICLE 3
STOCK OPTIONS
3.1 Amendment of Epitope Option Plans. Prior to the Distribution Date,
Epitope shall take all action necessary and appropriate to amend the Epitope
Option Plans and, to the extent necessary and permissible without the consent of
option holders, outstanding options issued under the plans to be consistent with
the terms of this Section .
(a) Effect of Employment by Agritope. For purposes of
determining the period during which Existing Epitope Options remain
exercisable, employment by Agritope or any of its majority owned
subsidiaries following the Distribution Date shall be deemed employment
by Epitope, notwithstanding the fact that Agritope will no longer be a
subsidiary of Epitope after the Distribution Date. For continued or
future vesting and all other purposes relating to Existing Epitope
Options, employment by Agritope or any of its majority owned
subsidiaries after the Distribution Date shall not be deemed employment
by Epitope. Accordingly, any affected holder of an Existing Epitope
Options granted under Epitope Option Plans will be treated as a
terminated employee and options will continue to vest according to the
schedule provided in the applicable award agreement.
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<PAGE>
(b) Adjustment to Exercise Price of Existing Epitope Options.
The per share exercise price of each Existing Epitope Option issued
under the Epitope Option Plans shall be reduced one day after the
Distribution Date by subtracting the Agritope Stock Distribution Value
(as defined below) from the stated exercise price. "Agritope Stock
Distribution Value" is equal to (a) $7, being the price per share at
which foreign investors have agreed to purchase Agritope Stock,
multiplied by (b) the number of shares of Agritope Stock that are
issued in the Distribution or that investors have agreed as of the
Distribution Date to purchase, plus the 214,285 shares of Agritope
Preferred to be purchased by Vilmorin & Cie, divided by (c) the number
of shares of Epitope Stock outstanding on the Record Date.
3.2 Amendment of Existing Agritope Option Plan. Prior to the
Distribution Date, Agritope shall take all action necessary and appropriate to
amend the Existing Agritope Option Plan and/or outstanding Award Agreements (as
defined in the Existing Agritope Option Plan) entered into in connection with
the Plan to be consistent with the terms of this Section .
(a) Issuance of Epitope Stock Upon Exercise. Epitope Stock
shall be issued upon exercise of Existing Epitope Options granted
pursuant to the Existing Agritope Option Plan, notwithstanding the fact
that the options are denominated in shares of Agritope Stock. The
existing agreement between Epitope and Agritope providing for issuance
of Epitope Stock upon exercise of such options will be amended to
remain in effect following the Distribution.
(b) Effect of the Distribution. If the holder of Existing
Epitope Options granted under the Existing Agritope Option Plan is an
Agritope Employee after the Distribution, such holder shall for
continued or future vesting purposes be deemed terminated on the
Distribution Date but, for purposes of determining the period options
remain exercisable, such holder shall not be deemed terminated until
employment by Agritope is terminated. Accordingly, Existing Epitope
Options granted under the Existing Agritope Option Plan shall continue
to vest following the Distribution Date according to the vesting
schedule applicable to terminated employees set forth in the applicable
Award Agreement. If such option holder is an Epitope Employee, such
options shall continue to vest and be exercisable as set forth in the
Existing Agritope Option Plan or outstanding Award Agreements.
(c) Adjustment to Exercise Price of Options Issued Under
Existing Agritope Plan. The per share exercise price of each Existing
Epitope Option issued under the Existing Agritope Option Plan (which
price is stated in terms of Agritope Stock) shall be reduced one day
after the Distribution Date by subtracting from the stated exercise
price the product of (a) the Agritope Stock Distribution Value,
multiplied by (b) the number (which will be a fraction) of shares of
Epitope Stock to be issued in lieu of each share of Agritope Stock for
which the option is exercised.
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<PAGE>
(d) No Further Option Grants. Agritope shall not grant any
additional options under the Existing Agritope Option Plan.
3.3 Effect of the Distribution on Change in Control Provisions. Nothing
in this Agreement or in any amendment to the Epitope Option Plans, the Existing
Agritope Option Plan or to any award agreement issued under any Plan shall be
interpreted to modify the change in control provisions in any Existing Epitope
Options. Existing Epitope Options shall continue to become immediately and fully
vested and exercisable as to all shares covered by such option upon a Change in
Control Date (as defined in the terms and conditions applicable to Existing
Epitope Options).
3.4 Adoption of Agritope Option Plan. Prior to the Distribution Date,
Agritope shall take, or cause to be taken, all action necessary and appropriate
(i) to prepare and ratify the adoption of the Agritope Option Plan, and (ii) to
present the Agritope Option Plan to Epitope, as the sole shareholder of
Agritope, for approval. Agritope and Epitope shall cooperate in the adoption of
the Agritope Option Plan and the reservation for issuance under the plan of such
shares of Agritope Stock as are deemed necessary and appropriate by the Agritope
Board.
3.5 Communication Regarding Termination Of Employment. Agritope shall
notify Epitope of the termination of employment of any Agritope Employee holding
an Existing Epitope Option within ten days of such termination. Such notice with
respect to termination shall specify the date of termination, whether the
termination was for cause or came as a result of retirement, and such other
information as Epitope shall reasonably request.
ARTICLE 4
STOCK PURCHASE PLANS
4.1 Epitope Purchase Plan. The Epitope Purchase Plan will continue in
full force and effect in accordance with its terms. Participants under the
Epitope Purchase Plan will be eligible to participate in the Distribution only
to the extent that, by operation of the Epitope Purchase Plan or otherwise, they
are shareholders of record on the Record Date; provided, however, that
participants who are entitled to receive shares of Epitope Common Stock under
the Epitope Purchase Plan as of the Record Date but have not yet been
mechanically recorded as shareholders of record on the Record Date will be
treated as shareholders of record for purposes of the Distribution. Employment
by Agritope or any of its majority-owned subsidiaries following the Distribution
Date shall not be deemed employment by Epitope for purposes of the Epitope
Purchase Plan and any Agritope Employee shall be treated as a terminated
employee under the Epitope Purchase Plan. For purposes of the continuing
operation of the Epitope Purchase Plan, Epitope will adjust the Maximum Purchase
Price (as defined in the Epitope Purchase Plan) to account for the effect of the
Distribution by subtracting the Agritope Stock Distribution Value from the
Maximum Purchase Price.
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4.2 Adoption of Agritope Purchase Plan. Prior to the Distribution Date,
Agritope shall take, or cause to be taken, all action necessary and appropriate
(i) to ratify the adoption of the Agritope Purchase Plan, and (ii) to present
the Agritope Purchase Plan to Epitope, as the sole shareholder of Agritope, for
approval.
ARTICLE 5
OTHER BENEFIT PLANS
5.1 401(k) Retirement Plans.
(a) Establishment of Agritope 401(k) Plan. Effective January
1, 1998, Agritope shall establish and thereafter administer the
Agritope 401(k) Plan, in such form as may be approved by the Agritope
Board, which is intended to qualify under Sections 401(a), 501(a) and
401(k) of the Code and to be in compliance with the requirements of
ERISA. The Agritope 401(k) Plan will provide credit for services
rendered to Epitope or any of its subsidiaries prior to the
Distribution Date in determining Service Time.
(b) Continuation of Benefits. Agritope Employees shall
continue to be eligible to participate in the Epitope 401(k) Plan until
such time as the Agritope 401(k) Plan is established and becomes
effective. Effective as of the effective date of the Agritope 401(k)
Plan, which is expected to be January 1, 1998, Agritope will provide
benefits under the Agritope 401(k) Plan to all Agritope Employees who
were participants in, or otherwise entitled to benefits under, the
Epitope 401(k) Plan. All Agritope Employees who wish to participate in
the Agritope 401(k) Plan will be required to enroll in the Agritope
401(k) Plan in accordance with its terms.
(c) Vesting and Distribution of Accounts. Agritope Employees
shall become fully vested (if not already fully vested) in their
Matching Accounts, as defined under the Epitope 401(k) Plan, as of the
Distribution Date. Agritope Employees shall be entitled to distribution
from the Epitope 401(k) Plan of all of their accounts within a
reasonable time after the Distribution Date. The Agritope 401(k) Plan
shall accept a rollover contribution from any Agritope Employee who
elects that their distribution from the Epitope 401(k) Plan be rolled
over to the Agritope 401(k) Plan.
(d) Epitope to Provide Information. Epitope shall provide
Agritope, as soon as practicable after the Distribution Date, with a
list of Agritope Employees who, to the best knowledge of Epitope, were
participants in or otherwise entitled to benefits under the Epitope
401(k) Plan on the Distribution Date, together with a listing of each
participant's Service Time under the Epitope 401(k) Plan and a listing
of each such Agritope Employee's account balance thereunder. Epitope
shall provide Agritope with such additional information in the
possession of Epitope or Epitope's agent as may be reasonably requested
by Agritope related to the effective administration of the Agritope
401(k) Plan.
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(e) Cooperation. Agritope and Epitope shall, in connection
with the plan-to-plan transfer described in , use their best efforts to
cooperate in the plan-to-plan transfer of funds and in making any and
all appropriate filings required by the Commission or the Internal
Revenue Service, or required under the Code, ERISA, or any applicable
securities laws and the regulations thereunder.
(f) Effect of the Distribution. The Distribution and
subsequent transfer of account balances shall not be treated as a
termination or partial termination of the Epitope 401(k) Plan or of
Agritope Employees under the Epitope 401(k) Plan.
5.2 Medical/Dental Plan Liability and Coverage.
(a) Continuation of Coverages After the Distribution. Epitope
shall continue to provide coverage to Agritope Employees under Epitope
Medical/Dental Plans after the Distribution Date until such time as new
medical/dental plans are established by Agritope. If during the period
from the Distribution Date until the establishment of Agritope Medical
and Dental Plans, Epitope, in its reasonable discretion, determines
that continued coverage of Agritope Employees under Epitope
Medical/Dental Plans will have an adverse effect on the business plans
or strategies of Epitope, Epitope may, upon 90 days written notice to
Agritope, terminate such coverage. After the Distribution Date,
Agritope shall be responsible for all costs under the Epitope
Medical/Dental Plans attributable to Agritope Employees, as shall be
determined by Epitope in its reasonable discretion.
(b) Agritope Medical/Dental Plans. Unless the parties
otherwise agree, Agritope shall establish Agritope Medical/Dental Plans
to provide coverages to Agritope Employees substantially similar to
those available under the corresponding Epitope Medical/Dental Plans on
or before January 1, 1999. In connection with the establishment of
Agritope Medical/Dental Plans, Agritope Employees and their eligible
dependents and beneficiaries shall have no preexisting condition
limitation imposed other than that which is or was imposed under the
plan or plans in which they were enrolled before the date Agritope
Medical/Dental Plans are established and become effective (the "Cutoff
Date"), and will be credited with any expenses incurred toward
deductibles, out-of-pocket expenses, maximum benefit payments, and any
benefit usage toward plan limits that would have been applicable under
the plan or plans in which they were enrolled before the Cutoff Date.
(c) Responsibility for Coverages after the Cutoff Date.
Immediately after the Cutoff Date, Agritope shall provide coverage to
Agritope Employees under Agritope Medical/Dental Plans. Epitope
Medical/Dental Plans shall continue to be responsible for claims that
arise prior to the Cutoff Date subject to the cost reimbursement
provisions set forth in Section .
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(d) COBRA. Epitope shall be responsible for complying with the
requirement of Code Section 4980B and Part 6 of Title I of ERISA
("COBRA Requirements") with respect to any Employee in its group health
plan and their "qualified beneficiaries" whose "qualifying event" (as
such terms are defined in Code Section 4980B) occurs prior to the
Distribution Date. After the Distribution Date, Agritope shall be
responsible for compliance with COBRA Requirements with respect to
Agritope Employees whose "qualifying event" occurs on or after the
Distribution Date.
(e) No Qualifying Event. The Distribution described in the
Separation Agreement shall not, by itself, create a "qualifying event"
(as described in Code Section 4980B(f)(3) and ERISA Section 603).
(f) Refunds. In the event that subsequent to the Cutoff Date,
refunds are received from carriers providing medical or dental
insurance, such refunds will belong to Epitope, to the extent
attributable to Epitope Employees. Agritope shall receive such refunds
to the extent attributable to Agritope Employees, as shall be
determined by Epitope in its reasonable discretion.
5.3 Life Insurance/Accidental Death and Dismemberment Coverages.
(a) Continuation of Coverages After the Distribution. Epitope
shall continue to provide coverage to Agritope Employees under
Epitope's Additional Insurance Plans after the Distribution Date until
such time as Additional Insurance Plans are established by Agritope. If
during the period from the Distribution Date until the establishment by
Agritope of Additional Insurance Plans, Epitope, in its reasonable
discretion, determines that continued coverage of Agritope Employees
under Epitope's Additional Insurance Plans will have an adverse effect
on the business plans or strategies of Epitope, Epitope may, upon 90
days' written notice to Agritope, terminate such coverage. After the
Distribution Date, Agritope shall be responsible for all costs under
Epitope's Additional Insurance Plans attributable to Agritope
Employees, as shall be determined by Epitope in its reasonable
discretion.
(b) Agritope's Additional Insurance Plans. Unless the parties
otherwise agree, Agritope shall establish Additional Insurance Plans to
provide coverages to Agritope Employees substantially similar to those
available under Epitope's corresponding Additional Insurance Plans on
or before January 1, 1999.
(c) Responsibility for Coverages. Immediately after Agritope's
Additional Insurance Plans become effective, Agritope shall be solely
responsible for providing all coverages relating to Additional
Insurance Plans to Agritope Employees.
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5.4 Vacation And Sick Pay Liabilities. Effective on the Distribution
Date, Epitope shall retain, as to Epitope Employees, and Agritope shall assume
or retain, as the case may be, as to Agritope Employees, all liabilities
(whether vested or unvested, and whether funded or unfunded) for vacation and
sick leave accrued as of the Distribution Date. Agritope shall be solely
responsible for the payment of such vacation or sick leave to Agritope Employees
after the Distribution Date. Each of Epitope and Agritope shall provide to its
own Employees on the Distribution Date the same vested and unvested balances of
vacation and sick leave as credited to such Employee on the Epitope payroll
systems as of the Distribution Date. Nothing in this Agreement shall be
construed to limit the right of either Epitope or Agritope to change its
vacation or sick leave policies as it deems appropriate.
5.5 Flexible Spending Accounts. Effective as of the Distribution Date,
Agritope shall establish Flexible Spending Account Plans that are substantially
equivalent to those currently provided by Epitope. Spending account balances for
Agritope Employees will not be transferred by Epitope to the new plans
established by Agritope. Agritope Employees will have 90 days after the
Distribution Date to make claims for payment from their existing spending
account balances.
ARTICLE 6
RELATED MATTERS
6.1 Notice of Costs. Epitope and Agritope acknowledge that Epitope and
Agritope may have incurred or may incur costs and expenses, including, but not
limited to, contributions to Plans and the payment of insurance premiums arising
from or related to any of the Plans that are, as set forth in this Agreement,
the responsibility of the other party hereto. Accordingly, Epitope and Agritope
shall (i) give notice to the other party of the costs and expenses incurred or
the costs and expenses to be incurred and (ii) demand that the other party, if
it has the obligation to pay, pay or reimburse the cost and expense.
6.2 Payroll Reporting And Withholding.
(a) Agritope and Epitope hereby adopt the "standard procedure"
for preparing and filing IRS Forms W-2 (Wage and Tax Statements) and
W-3 (Transmittal of Income and Tax Statements), as described in Section
4 of Revenue Procedure 96-60 ("Rev. Proc. 96-60"). Under this procedure
Epitope must perform all reporting duties for the wages and other
compensation it has paid to Employees prior to the Distribution Date,
including the furnishing and filing of Forms W-2 and W-3. Agritope will
be responsible for all reporting duties for the wages and other
compensation it pays to Agritope Employees.
(b) Epitope will keep on file all Forms W-4 (Employee's
Withholding Allowance Certificate) and W-5 (Earned Income Credit
Advance Payment Certificate) provided by Agritope Employees. Agritope
Employees must provide Agritope with new Forms W-4 and W-5 for the year
in which the Distribution occurs.
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(c) With respect to Agritope Employees with garnishments, tax
levies, child support orders, qualified medical child support orders,
and wage assignments in effect with Epitope on the Distribution Date,
Agritope shall be responsible for honoring such payroll deduction
authorizations or court or governmental orders applicable to Agritope
Plans, and will continue to make payroll deductions and payments to any
authorized payee, as specified by the court or governmental order that
was filed with Epitope. Epitope shall provide Agritope with full
information about any such matters before the Distribution Date.
(d) Unless otherwise prohibited by law or provided by this
Agreement or another agreement entered into in connection with the
Distribution, or by a Plan document, with respect to Agritope Employees
with authorizations for payroll deductions in effect with Epitope on
the Distribution Date, Agritope as the successor employer will honor
such payroll deduction authorizations relating to each Agritope
Employee, and shall not require that such Agritope Employee submit a
new authorization to the extent that the type of deduction by Agritope
does not differ from that made by Epitope. Any such payroll deduction
in favor of Epitope shall continue to be withheld by Agritope for
Epitope's benefit.
6.3 Access to Records and Confidentiality. Epitope shall retain all
employment records, personnel files, and other information relating to Epitope
Employees and payroll records relating to Agritope Employees. Agritope shall
take possession of all personnel and employment records, except payroll records,
relating to Agritope Employees after the Distribution Date. Agritope and Epitope
will make available to the other party such records, documents, and other
information relating to employment matters involving Agritope Employees and
other matters covered in this Agreement as may be reasonably requested. The
parties shall cooperate in providing any information necessary for the
resolution of any dispute that may arise between Epitope or Agritope and any
third party arising out of subject matter covered by this Agreement after the
Distribution Date. Epitope and Agritope will each, upon adequate notice and
reasonable request, make its employees and facilities available to the other
party and shall permit the other party to copy at its own expense records
relating to Agritope Employees as necessary and appropriate. Except as required
by law or with the prior written consent of Epitope and any affected Employee,
all records, documents, and other information provided to Agritope by Epitope
related to Agritope Employees and other matters covered in this Agreement shall
be kept confidential by Agritope and its representatives and shall not be
disclosed to any other person or entity.
ARTICLE 7
EMPLOYMENT MATTERS
7.1 Separate Employers. After the Distribution Date, Epitope and
Agritope will be separate and independent employers.
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7.2 Employment Policies And Practices. Epitope and Agritope may adopt
such employment policies, compensation practices, retirement plans, welfare
benefit plans, and other employee benefit plans or policies of any kind or
description, as each may determine, in its sole discretion, are necessary and
appropriate, in addition to those required under this Agreement. Except as
otherwise expressly provided herein, no provision of this Agreement shall be
construed as a limitation on the right of Epitope or Agritope to amend or
terminate any policies, practices, or Plan.
7.3 Funding Of Plans. Any claims by or on behalf of Employees or any
federal, state or local government agency for alleged underfunding of, or
failure to make payments to, health and welfare funds based on acts or omissions
occurring on or before the Distribution Date or arising from or in connection
with the Distribution, will be the sole responsibility of each party as to its
own employees (i.e., Epitope with respect to Epitope Employees and Agritope with
respect to Agritope Employees).
7.4 Employment Tax Rates. Agritope shall comply with ORS Chapter 657 in
determining whether to assume the state unemployment tax experience of Epitope
for purposes of establishing its own unemployment tax experience rates.
ARTICLE 8
MISCELLANEOUS
8.1 Indemnification. Each party to this Agreement shall indemnify,
defend, and hold harmless the other party against losses incurred as a result of
claims relating to matters covered in this Agreement to the extent provided in
the Separation Agreement. In addition, subject to the indemnification procedures
set forth in the Separation Agreement:
(a) Indemnification by Epitope. Epitope shall indemnify,
defend, and hold harmless Agritope and its subsidiaries from and
against any liabilities incurred as a result of claims made against
Agritope by Epitope Employees relating to or arising out of employment
of Epitope Employees by Epitope after the Distribution Date, employee
benefits provided to Epitope Employees after the Distribution Date, or
termination in connection with the Distribution of any Employee who
becomes or remains an Epitope Employee on or after the Distribution
Date; and
(b) Indemnification by Agritope. Agritope shall indemnify,
defend, and hold harmless Epitope and any future subsidiary of Epitope
from and against any liabilities incurred as a result of claims made
against Epitope by Agritope Employees relating to or arising out of
employment of Agritope Employees by Agritope after the Distribution
Date, employee benefits provided to Agritope Employees after the
Distribution Date, or termination in connection with the Distribution
of any Employee who becomes or remains an Agritope Employee on or after
the Distribution Date.
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8.2 No Third-Party Beneficiaries. No provision of this Agreement shall
be construed to create a right in any Employee, or dependent or beneficiary of
such Employee, including without limitation any right under a Plan which such
person would not otherwise have under the terms of the Plan itself. This
Agreement is for the benefit of the parties hereto and is not intended to confer
upon any other person except the parties hereto any rights or remedies.
8.3 Attorney-Client Privilege. Consistent with the provisions of
Section 6.6 of the Separation Agreement, provisions requiring either party to
this Agreement to cooperate shall not be deemed to be a waiver of the
attorney/client privilege for either party nor shall they require either party
to waive its attorney/client privilege.
8.4 Dispute Resolution. Any disputes between the parties arising out of
or related to this Agreement shall be resolved or decided as set forth in the
Separation Agreement.
8.5 Relationship of the Parties. Neither party is an agent of the other
party and neither party has any authority to bind the other party, transact any
business in the other party's name or on its behalf, or make any promises or
representations on behalf of the other party unless otherwise agreed to in
writing. Each party will perform all of its respective obligations under this
Agreement as an independent contractor.
8.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior written or oral agreements between the parties with respect to the subject
matter hereof, including the Employee Benefits Agreement between the parties
dated as of December 1, 1997.
8.7 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the state of Oregon.
8.8 Jurisdiction and Venue. Subject to the arbitration provisions of
the Separation Agreement, each party consents to the personal jurisdiction of
the state and federal courts located in the state of Oregon and hereby waives
any argument that venue in any such forum is not convenient or proper.
8.9 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (i) on the date of service if served personally on the party to whom
notice is given; (ii) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(iii) on the business day after delivery to an overnight courier service or the
express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed; or (iv) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by registered or certified mail, postage prepaid, properly
addressed and return-receipt requested, to the party as follows:
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If to Epitope: Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Facsimile No. (503) 641-8665
If to Agritope: Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Facsimile No. (503) 520-6196
Any party may change its address and facsimile number by giving the other party
written notice of its new address and facsimile number in the manner set forth
above.
8.10 Modification of Agreement. No modification, amendment or waiver of
any provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties hereto and then such modification,
amendment or waiver shall be effective only in the specific instance and for the
purpose for which given.
8.11 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either party without the prior
written consent of the other party, and such consent shall not be unreasonably
withheld.
8.12 Titles and Headings. Titles and headings included are for
convenience and are not intended to constitute a part of or to affect the
meaning or interpretation of this Agreement.
8.13 Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
8.14 No Waiver. Neither the failure nor any delay on the part of any
party hereto to exercise any right under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right preclude
any other or further exercise of the same or any other right, nor shall any
waiver of any right with respect to any occurrence be construed as a waiver of
such right with respect to any other occurrence.
8.15 Survival. All covenants and agreements of the parties contained in
this Agreement will survive for five years following the Distribution Date.
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<PAGE>
8.16 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when a counterpart has been signed by each party and delivered
to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
EPITOPE, INC.
By:
Its:
AGRITOPE, INC.
By:
Its:
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TRANSITION SERVICES AND FACILITIES AGREEMENT
This TRANSITION SERVICES AND FACILITIES AGREEMENT (this "Agreement"),
dated as of December 1, 1997, is between EPITOPE, INC., an Oregon corporation
("Epitope"), and AGRITOPE, INC., a Delaware corporation ("Agritope").
Agritope desires to engage Epitope to provide certain services and
facilities for Agritope, and Epitope desires to provide such services and
facilities for Agritope, on the terms and conditions set forth herein.
Capitalized terms not otherwise defined shall have the meanings given
in Section 6.
Epitope and Agritope agree as follows:
1. Services. Agritope hereby engages Epitope to provide Services to
Agritope at such times as Agritope may reasonably request. In performing
Services, Epitope shall use the same degree of care that it uses in connection
with its own business. Nothing in this Agreement shall require Epitope to
provide Services at a time or in a manner that would interfere with the normal
conduct of Epitope's business.
2. Facilities. Epitope hereby agrees to provide Facilities to Agritope
until such time as Agritope relocates its office and research and development
operation to other leased Facilities.
3. Subcontractors. With Agritope's consent, which shall not be
unreasonably withheld, Epitope may engage third parties to provide Services
under this Agreement to Agritope. Epitope may do so without Agritope's consent
for Services usually provided to Epitope by third parties.
4. Payments for Services and Facilities.
4.1 Services Payments. Agritope shall reimburse Epitope for all
Services Costs. After the end of each month or such other period as the parties
may agree, Epitope shall submit an invoice to Agritope for Services Costs
incurred during the period. Any delay in delivering the invoice shall not
relieve Agritope of its reimbursement obligations. Agritope shall pay the amount
of each invoice within 10 days after receiving it. Amounts not paid when due
shall, at Epitope's option, accrue late charges at the rate of 1.5 percent per
month.
<PAGE>
4.2 Calculation of Services Costs. "Services Costs" are all
direct and indirect costs incurred by Epitope in providing Services, whether
paid or accrued. Services Costs shall be determined using Epitope's internal
cost accounting system. Epitope shall allocate costs of personnel who provide
services to both Epitope and Agritope, and indirect costs such as general and
administrative costs, on a reasonable basis consistent with Epitope's internal
cost accounting system. Upon reasonable notice to Epitope, Agritope personnel
shall have the right to review Epitope records to verify the determination of
Services Costs.
4.3 Facilities Payment. Agritope shall pay Epitope a monthly fee
of $15,945 for use of the Facilities on the first day of each month.
5. Term and Termination.
5.1 Initial Term and Renewals. The initial term of this Agreement
shall expire on December 31, 1997, but this Agreement shall continue in effect
for successive one-month terms thereafter unless either party gives the other
written notice of termination at least 15 days before expiration of any term.
5.2 Termination. Either party may terminate this Agreement
effective immediately upon written notice to the other party if such other party
fails to perform any of its material obligations under this Agreement and such
failure continues for a period of 60 days, or 10 days in the case of a failure
to make payment, after written notice thereof from the non-breaching party.
6. Definitions. Capitalized terms not otherwise defined in this
Agreement shall have the respective meanings set forth below:
6.1 "Affiliate" of a Person means a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person.
6.2 "Agritope Personnel" means Agritope, its successors and
assigns, and the directors, officers, employees, and agents thereof.
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6.3 "Facilities" means the portion of Epitope's office space and
research and development facilities in Beaverton, Oregon, consisting of
approximately 6,300 square feet of office, manufacturing and laboratory space
currently used by Agritope and the related fixtures and furniture.
6.4 "Force Majeure" means any act of nature, accident, explosion,
fire, storm, earthquake, flood, drought, peril of the sea, riot, embargo, war,
foreign, federal, state or municipal order of general application, seizure,
requisition, allocation, failure or delay of transportation, shortage of
supplies, equipment, fuel or labor, or other circumstance or event beyond the
reasonable control of affected party.
6.5. "Services" means the services listed in Schedule A, as
amended from time to time, and any other services requested by Agritope that
Epitope agrees to provide.
6.6. "Services Costs" has the meaning given in Section 4.2.
7. General.
7.1 Amendments. Any modification of this Agreement or waiver of
terms must be in writing and signed by the party to be bound.
7.2 Assignment. Except as provided below or in Section 3, neither
may assign its rights or delegate its obligations under this Agreement without
the written consent of the other party. Epitope may assign its rights and
delegate its obligations to an Affiliate or a successor to Epitope's business if
the Affiliate or successor assumes all of Epitope's obligations under this
Agreement.
7.3 Attorney Fees. In any litigation concerning this Agreement,
the prevailing party shall be entitled to recover all reasonable expenses of
litigation, including reasonable attorney fees at trial and on any appeal or
petition for review.
7.4 Execution in Counterparts. This Agreement may be executed in
counterparts which together shall constitute one instrument.
7.5 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes any prior agreement or understanding.
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7.6 Force Majeure. Neither party shall be liable for any failure
or delay in performing its obligations, other than payment obligations, caused
by Force Majeure. The other party may, however, terminate this Agreement as
permitted in Section 5.2 if such failure or delay continues for more than 60
days.
7.7 Governing Law. This Agreement shall be governed by and
construed in accordance with Oregon law.
7.8 Headings. Headings in this Agreement are for convenience only
and shall not affect its meaning.
7.9 No Agency. Nothing in this Agreement creates any partnership,
employment or agency relationship between the parties. Neither party shall have
the right to act on behalf of or bind the other, and neither shall take any
action that could lead a third party to believe it has the right to do so.
7.10 Notices. Notices under this Agreement shall be in writing,
shall refer specifically to this Agreement, and shall be personally delivered,
sent by electronic facsimile transmission promptly confirmed by mail, or sent by
registered or certified mail, return receipt requested, postage prepaid, in each
case to the respective address or facsimile number specified below (or such
other address or number as may be specified by notice to the other party):
Epitope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 641-8665
Agritope, Inc.
8505 S.W. Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 520-6196
Any notice or communication given in conformity with this Section 7.10 shall be
deemed to be effective when received by the addressee, if delivered by hand or
electronic facsimile transmission, or three days after mailing, if mailed.
7.11 Severability. If any provision of this Agreement is held
invalid or unenforceable in any jurisdiction, then, to the fullest extent
permitted by law, (a) the affected provision shall remain in full force and
effect in all other jurisdictions, (b) all other provisions shall remain in full
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force and effect, and (c) the parties will use their best efforts to find and
employ other means to achieve the same or substantially the same result as that
contemplated by the provision held invalid or unenforceable.
The parties have executed this Agreement as of the date first stated
above.
EPITOPE, INC.
By /s/ John W. Morgan
President and Chief
Executive Officer
AGRITOPE, INC.
By /s/ Adolph J. Ferro
Chairman, President and Chief
Executive Officer
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SCHEDULE A
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1.Management information services consisting of software support and
hardware maintenance at the rate of $1,690 per month.
2. Telephone services based on third-party billings.
3. Equipment maintenance, other than computer hardware, on call at the rate
of $25 per hour.
4. Front desk receptionist services at no charge (Agritope will provide its
own telephone receptionist services).
TAX ALLOCATION AGREEMENT
This agreement (the "Agreement") dated as of December 1, 1997, is being
entered into by Epitope, Inc., an Oregon corporation, and Agritope, Inc., a
Delaware corporation, in connection with a Separation Agreement (the "Separation
Agreement") dated as of December 1, 1997 by and between such parties.
RECITALS
A. Agritope is currently a wholly owned subsidiary of Epitope, and, as
such, Epitope and Agritope have joined in filing consolidated federal Tax
Returns (as defined below) and certain consolidated, combined or unitary state,
local, or foreign Tax Returns;
B. Pursuant to the Separation Agreement, Epitope will, among other
things, distribute to holders of its common stock all the issued and outstanding
common stock of Agritope, together with associated preferred stock purchase
rights (the "Distribution");
C. Following the Distribution, Epitope and Agritope will be operated as
independent public companies, and Agritope will no longer be a wholly owned
subsidiary of Epitope; and
D. Epitope and Agritope want to provide for the allocation between the
Epitope Group and the Agritope Group (both defined below) of all
responsibilities, liabilities, and benefits relating to or affecting Taxes
(defined below) paid or payable by either of them for all taxable periods,
whether beginning before or after the Distribution Date (defined below) and to
provide for certain other matters.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, Epitope and Agritope agree as
follows:
1. ADDITIONAL DEFINITIONS; CERTAIN TAX PERIODS.
1.1 ADDITIONAL TAX DEFINITIONS. As used in this Agreement, capitalized
terms defined immediately after their use will have the respective meanings so
provided, and the following additional terms will have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Agritope" means Agritope, Inc., a Delaware corporation, the successor
corporation in that certain merger with Agritope, Inc., an Oregon corporation,
dated December 1, 1997.
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"Agritope Group" means Agritope and all of its present and future
subsidiaries.
"Agritope Taxes" means, subject to Section 1.3, (i) all Taxes
imposed on, assessed against, collected with respect to, or measured by the net
or gross income, profits, receipts, assets, equity, or other basis related to
the Agritope Group or its respective assets or operations that arise in or are
attributable to any and all Pre-Closing Periods and Post-Closing Periods and
(ii) all Reserved Taxes.
"Agritope Tax Returns" means all Tax Returns filed or required to
be filed by or with respect to any member of the Agritope Group or its assets or
operations (including any consolidated, combined, or unitary Tax Returns).
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Distribution Date" means the date on which Epitope distributes
the stock of Agritope in accordance with the Separation Agreement.
"Epitope" means only Epitope, Inc., an Oregon corporation, as a
separate legal entity, excluding all other affiliated corporations.
"Epitope Group" means Epitope and all of its present and future
subsidiaries (excluding members of the Agritope Group).
"Epitope Taxes" means, subject to Section 1.3, all Taxes imposed
on, assessed against, collected with respect to, or measured by the net or gross
income, profits, receipts, assets, equity, or other basis related to the Epitope
Group or its respective assets or operations that arise in or are attributable
to any and all Pre-Closing Periods, excluding any Reserved Tax and excluding any
Agritope Taxes.
"Pre-Closing Periods" means all taxable periods (i) ending on or
before the Distribution Date and (ii) the portion, to and including the
Distribution Date, of any taxable period that begins on or before the
Distribution Date and ends after the Distribution Date.
"Post-Closing Periods" means all taxable periods (i) beginning
after the Distribution Date and (ii) the portion after the Distribution Date of
any taxable period that begins on or before the Distribution Date and ends after
the Distribution Date.
"Reserved Tax" means a Tax liability separately accrued or
deferred on the balance sheet of any member of the Agritope Group as of the
Distribution Date. Taxes will be accrued on such balance sheet in a manner
consistent with past practices.
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"Tax" means any and all liability for any taxes imposed on the
income or assets of a corporation, including without limitation, any liability
under the Code and all federal, state, local, and foreign income, alternative
minimum, franchise, profits, gross receipts, and unitary taxes or similar taxes
or other fees or assessments imposed with respect to such items irrespective of
the basis on which such taxes are measured and any interest, penalties, or
additions in respect of such tax.
"Tax Return" means any return, report, information return, or
other documents (including any related supporting schedules, statements or
information) filed or required to be filed with any tax authority or
governmental entity in connection with the determination, assessment, or
collection of any Taxes of any party or the administration of any laws,
regulations, or administrative requirements relating to any such Taxes.
1.2 TAX PERIODS INCLUDING PRE-CLOSING PERIOD AND POST-CLOSING PERIOD
ACTIVITY. For purposes of determining Agritope Taxes, for Tax periods that begin
on or before the Distribution Date and end after the Distribution Date, such
Taxes will be determined on the basis of an interim "closing of the books"
computation as of the end of the Distribution Date, and any net operating losses
(or other tax attributes) will be subject to Section 1.3. With respect to the
Epitope federal consolidated income tax return for the taxable year including
the Distribution Date, appropriate allocation and cutoff of income or loss will
be made as required in the federal consolidated income tax return regulations.
Any subsequent adjustments occurring with respect to such period, including the
Distribution Date, will be appropriately allocated to the Pre-Closing Period and
the Post-Closing Period based on a simulated Tax Return for each period.
1.3 PRE-CLOSING PERIOD NET OPERATING LOSSES.
(a) In accordance with Treasury Regulations Section 1.1502-11(b), net
operating losses of the Agritope Group will not be used to offset gain or income
recognized by Epitope in connection with the Distribution.
(b) Subject to the limitations of Section 1.3((a)), any net operating
losses (or other tax attributes) of a member of the Agritope Group or Epitope
Group that arise in a Pre-Closing Period will be available to offset taxable
income of members of the other group for such Pre-Closing Period under
applicable federal or state law. The provisions of this Section 1.3((b)) will
apply to any net operating losses (or other tax attributes) existing on the
Distribution Date and such net operating losses (or tax attributes) that may
arise subsequently on audit or examination of any Pre-Closing Period. No member
of a group will be liable to a member of the other group under Section 2 for
using net operating losses (or other tax attributes) generated by members of
such other group.
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2. INDEMNIFICATION AND PAYMENT
2.1 PAYMENT OF AND INDEMNIFICATION FOR TAXES.
(a) Epitope will pay when due, without setoff, and be responsible for
all Epitope Taxes assessed against it by any jurisdiction, including any Taxes
incurred by the Epitope Group in connection with the Distribution. Epitope will
indemnify and hold harmless the Agritope Group against any and all such Taxes.
(b) Agritope will pay when due, without setoff, and be responsible for
all Agritope Taxes assessed against it by any jurisdiction, including, without
limitation, any liability imposed subsequently for Agritope Taxes for
Pre-Closing Periods. Agritope will indemnify and hold harmless the Epitope Group
against any such Taxes.
(c) No member of the Epitope Group will be obligated to indemnify or
hold harmless any member of the Agritope Group for any decrease to any net
operating loss carryovers or credit (or the carryovers of any other tax
attributes) available to any member of the Agritope Group resulting from
adjustments to any item of income, deduction, credit, or exclusion on Tax
Returns for which Epitope is responsible (including the Epitope Consolidated
Returns, as defined below).
(d) No member of the Agritope Group will be obligated to indemnify or
hold harmless any member of the Epitope Group for any increase to any net
operating loss carryovers or credit (or the carryovers of any other tax
attributes) available to any member of the Agritope Group.
3. REFUNDS
3.1 EPITOPE REFUNDS. Agritope will promptly assign and remit (or cause to
be promptly assigned and remitted) to Epitope an amount equal to any refunds of
or credits against any Taxes received and realized by Agritope (including
interest, if any) to the extent attributable to Epitope Taxes, other than a
refund or credit (or the right to a refund or credit) that is reflected on the
balance sheet of Agritope as of the Distribution Date (a "Balance Sheet
Refund").
3.2 AGRITOPE REFUNDS. Epitope will promptly assign and remit (or cause to
be promptly assigned and remitted) to Agritope an amount equal to all Balance
Sheet Refunds.
3.3 CARRYBACK FROM AN AGRITOPE POST-CLOSING PERIOD RETURN TO ANY EPITOPE
SEPARATE, CONSOLIDATED OR COMBINED FEDERAL OR STATE TAX RETURN. Unless: (i)
Epitope, in its sole and absolute discretion, consents to do so or (ii) such
carryback is specifically required by law, Agritope will not carry back any
losses or credits accruing
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after the Distribution Date in any Post-Closing Period to any Epitope separate,
consolidated, or combined federal or state Tax Return. Agritope will make any
elections and take all such actions necessary to avoid and relinquish any such
carryback pursuant to Code Section 172(b)(3) and, to the extent feasible, any
similar provision of any state, local, or foreign law. Even if such carryback is
required by law, the Epitope Group will make no payment to the Agritope Group,
and the Agritope Group will be entitled to no refund to the extent that the use
of such carryback prevents the Epitope Group or its affiliates from using a
credit or loss that it would otherwise use in the year or years to which the
Agritope credit or loss is carried back. To the extent that the Epitope Group's
utilization of such loss or credit does not have such effect, however, the
Epitope Group will pay to Agritope an amount equal to the reduction in its Tax
liability for such year that is attributable to the utilization of such Agritope
Group credit or loss.
4. TAX RETURNS
4.1 PREPARATION AND FILING.
(a) Epitope will file (upon execution of such Tax Return by an
authorized officer of Agritope, which authorization will not be unreasonably
withheld) all Agritope Group Tax Returns for Pre-Closing Periods ("Agritope
Group Pre-Closing Returns"), including, without limitation, all Agritope Group
Tax Returns that are (or are a part of) a consolidated or combined Tax Return
that includes entities other than members of the Agritope Group, even if the Tax
period with respect to such other entities ends after the Distribution Date
("Epitope Consolidated Returns").
(b) Epitope will prepare the Epitope Consolidated Returns (to the
extent they relate to the Agritope Group or its assets or operations) and the
Agritope Group Pre-Closing Returns in a manner that: (i) is consistent with
prior practice (including without limitation as to Tax and accounting methods,
conventions, and elections) and (ii) apportions items equitably from period to
period consistent with Section 1.2. Epitope will cause the Epitope Consolidated
Returns to include and reflect the activities, transactions, and operations of
the Agritope Group for all Pre-Closing Periods.
(c) Agritope will file all Agritope Group Tax Returns required to be
filed for all Post-Closing Periods other than Agritope Group Pre-Closing Returns
and Epitope Consolidated Returns (the "Agritope Group Post-Closing Returns").
However, with respect to an Agritope Group Post-Closing Return that is for (i)
Taxes of Agritope and (ii) a Tax year with respect to the Agritope Group that
begins on or before the Distribution Date (an "Agritope Overlap Return"),
Agritope will (a) have a national "Big 6" accounting firm prepare the Agritope
Overlap Return consistent with prior practice, including, without limitation, as
to Tax and accounting methods, conventions, and elections and (b) provide
Epitope with an opportunity to review and comment on such Tax Return at least
four weeks before its due date, including extensions. The parties will use all
reasonable efforts to resolve any disagreements with respect to any such Tax
Return as soon as possible. If
5
<PAGE>
they cannot resolve the matter before the due date for such Agritope Overlap
Return, including extensions, Agritope may nevertheless file such Tax Return.
Subsequently, the parties will refer the matter to a mutually acceptable
accounting firm (other than the firm that prepared the returns) of nationally
recognized standing (an "Independent Firm") whose fees are to be borne by
Agritope and Epitope equally. The Independent Firm will seek to resolve the
matter as soon as practicable. Upon the Independent Firm's determination, an
amended Agritope Overlap Return will be filed in accordance with such
determination if it differs materially from the Tax Return filed originally.
(d) Agritope, upon its request, will be entitled to copies of Agritope
Group Pre-Closing Returns and Epitope Consolidated Returns following the filing
to the extent they relate to any member of the Agritope Group.
4.2 TAX RETURN PAYMENTS. Amounts shown due on any Agritope Group Tax
Returns will be timely paid by the party responsible for such Taxes as
determined in accordance with Section 2 of this Agreement (the "Responsible
Party") regardless of which party is obligated to prepare or file such Agritope
Group Tax Return under this Section 4. The party obligated to file a particular
Agritope Group Tax Return (the "Filing Party") has the right, but not the
obligation unless it is the Responsible Party, to pay the Tax shown due, in
which case the Responsible Party will immediately reimburse the Filing Party for
the payment of such Tax.
5. INFORMATION EXCHANGE AND CONFIDENTIALITY
5.1 COOPERATION. Upon the reasonable request of any party to this
Agreement, the other party will promptly provide the requesting party with such
cooperation and assistance, documents, and other information as may reasonably
be requested by such party in connection with: (i) the preparation and filing of
any original or amended Tax Return; (ii) the conduct of any audit or other
examination or any judicial or administrative proceeding involving to any extent
Taxes or Tax Returns within the scope of this Agreement; or (iii) the
verification by a party of an amount payable to or receivable from another party
under this Agreement (collectively, "Tax Data"). Such cooperation and assistance
will include, without limitation: (i) the provision on demand of books, records,
Tax Returns, documentation, or other information relating to any relevant Tax
Return; (ii) the execution of any document that may be necessary or reasonably
helpful in connection with the filing of any Tax Return or in connection with
any audit, proceeding, suit, or action of the type generally referred to in the
preceding sentence; (iii) the prompt and timely filing of appropriate claims for
refund; and (iv) the use of reasonable efforts to obtain any documentation from
a governmental authority or a third party that may be necessary or helpful in
connection with the foregoing (collectively, "Tax Documentation"). Each party
will make its employees and facilities available on a mutually convenient basis
to facilitate such cooperation.
6
<PAGE>
5.2 RETENTION. The Tax Data and the Tax Documentation will be retained
until the later of (i) 90 days after the expiration of the applicable statute of
limitations (including any waivers or extensions for any Taxes or net operating
loss carryovers available in any tax year); (ii) eight (8) years after the
Distribution Date; and (iii) any retention period required by law or pursuant to
any record retention agreement; provided, however, if an audit, examination,
investigation, or other proceeding is instituted before the expiration of the
applicable statute of limitations (or in the event of any claim under this
Agreement), such Tax Data and Tax Documentation will be retained until there is
a final determination and the time for any appeal has expired.
5.3 EXPENSES. Subject only to the provisions of Section 6, each party will
cooperate in the manner described in this Section 5 at its own expense.
5.4 NOTIFICATION OF CARRYOVERS. Epitope will undertake reasonable efforts
to notify Agritope of (i) any carryover of losses or credits that could be
partially or totally attributed to and carried over by Agritope pursuant to
Treasury Regulations Section 1.1502-79 or any similar law, rule or regulation
and (ii) any subsequent adjustment that could affect any such item.
5.5 NOTIFICATION TO SHAREHOLDERS. Epitope will undertake reasonable efforts
to provide each Epitope shareholder who receives Agritope Common Stock pursuant
to the Separation Agreement with the information necessary to permit such
shareholder to properly report the receipt of shares of Agritope stock in the
Distribution for federal income tax purposes.
5.6 CONFIDENTIALITY. Except as required by law or with the prior written
consent of the other party, all (i) Tax Returns, (ii) Tax Data, (iii) Tax
Documentation, (iv) similar documents, schedules, work papers and items, and (v)
all information contained in such items which are within the scope of this
Agreement will be kept confidential by the parties and their representatives,
will not be disclosed to any other person or entity, and will be used only for
the purposes provided in this Agreement.
6. CONTESTS AND AUDITS
6.1 NOTICE AND COOPERATION.
(a) If any claim, demand, assessment (including a notice of proposed
assessment), or other assertion, whether oral or written, is made for Taxes
("Tax Claim") against a party entitled to indemnification with respect to such
Taxes pursuant to this Agreement (an "Indemnitee"), or if the Indemnitee
receives any notice, whether oral or written, from any jurisdiction with respect
to any current or future audit, examination, investigation or other proceeding
("Proceeding"), the Indemnitee will promptly notify the party obligated to so
indemnify the Indemnitee (the "Indemnitor") of such Tax Claim or
7
<PAGE>
notice of a Proceeding. If an Indemnitor receives notice of a Tax Claim or
notice of a Proceeding, whether oral or written, for which the Indemnitor is
responsible under this Agreement, such Indemnitor will promptly notify the
Indemnitee of such claim, demand, or assessment if such Tax Claim or Proceeding
could directly or indirectly affect (adversely or otherwise) any Indemnitee,
determined without regard to this Agreement.
(b) The party controlling the defense, settlement, or compromise of
any Proceeding or any Tax Claim with respect to a Tax Return or any Tax (as
determined pursuant to Section 6.2) will keep the other party duly informed of
the progress of such Proceeding or Tax Claim to the extent such Proceeding or
Tax Claim could directly or indirectly affect (adversely or otherwise) such
other party, determined without regard to this Agreement.
(c) If the Indemnitor controls the defense, settlement or compromise
of any Proceeding or Tax Claim for which it is responsible, the Indemnitee will
nevertheless cooperate in such defense, settlement, or compromise as and to the
extent reasonably requested by Indemnitor. Such cooperation will be at
Indemnitor's expense (on a current basis), including all liabilities, costs, and
expenses (including reasonable attorney fees and accounting fees but excluding
in-house legal or tax assistance) incurred in connection with such cooperation
and authorized by the Indemnitor.
(d) If the Indemnitor does not control the defense, settlement, or
compromise of any Proceeding or Tax Claim for which it is responsible, it will
nevertheless (i) cooperate at its own expense in such defense, settlement, or
compromise to the extent reasonably requested by Indemnitee, and (ii) indemnify
(on a current basis) the Indemnitee against any reasonable liabilities, costs,
and expenses (including reasonable attorney and accounting fees but excluding
in-house legal or tax assistance) arising out of or incident to the Proceeding
or Tax Claim, including without limitation, those incurred in connection with
the defense, settlement, or compromise of such Proceeding or Tax Claim.
6.2 CONTROL.
(a) Except as otherwise provided in Section 6.2((b)) or Section 6.3,
the Indemnitor will have the right to control the defense, settlement, or
compromise of any Proceeding or Tax Claim to the extent that it may be liable
under Section 2 of this Agreement.
(b) Notwithstanding the provisions of Section 6.2((a)) (and subject to
the provisions of Section 6.3):
(1) an Indemnitee (in lieu of the Indemnitor) will have the right
(but not the obligation) to control the defense, compromise, or settlement of
any Proceeding or Tax Claim if the Indemnitor fails to do so or requests the
Indemnitee to do so;
8
<PAGE>
(2) an Indemnitee (in lieu of the Indemnitor) will have the right
(but not the obligation) to control the defense, compromise, or settlement of
any Proceeding or Tax Claim if the Indemnitor is (a) the subject of a voluntary
bankruptcy, (b) an adjudicated bankrupt, or (c) the subject of an involuntary
petition in bankruptcy that has been filed and which has not been discharged
within 90 days;
(3) Epitope will control the defense, settlement, or compromise
of any Proceeding or Tax Claim with respect to any Epitope Consolidated Return
and any Agritope Group Pre-Closing Return; and
(4) Agritope will control the defense, settlement, or compromise
of any Proceeding or Tax Claim with respect to any Agritope Group Post-Closing
Return, including any Agritope Overlap Return (but exclusive of any Agritope
Group Pre-Closing Return). With respect to Agritope Overlap Returns, Epitope
may, at its own expense, attend meetings or conferences with the Tax authorities
and receive copies of all relevant correspondence.
6.3 APPROVAL.
(a) The Indemnitee will not settle or compromise any Proceeding or Tax
Claim without the prior consent of the Indemnitor (which consent will not be
unreasonably withheld) if such settlement or compromise will result in an
obligation of the Indemnitor pursuant to this Agreement.
(b) Agritope will not settle or compromise any Proceeding or Tax Claim
with respect to an Agritope Group Post-Closing Return (including an Agritope
Overlap Return) involving a Tax period beginning before the Distribution Date
without the prior consent of Epitope, which consent will not be unreasonably
withheld.
(c) A party receiving a request for consent pursuant to this Section
6.3 will respond as soon as practicable and in no event after the tenth day
preceding the expiration of the period for appealing the assessment or claim.
The parties will seek to resolve any dispute with respect to such matter as
quickly as possible. However, if the parties are unable to resolve such dispute
promptly, the matter will be referred to an Independent Firm for resolution.
7. MISCELLANEOUS
7.1 EFFECTIVENESS AND TERM. This Agreement will be effective from and after
the Distribution Date and will survive until the later of (i) 90 days after the
expiration of any applicable statute of limitations (including any waivers or
extensions) related to any Taxes or carryovers of net operating losses or
credits to any taxable year or (ii) the final conclusion of any Proceeding,
including any applicable litigation and appeals of any liability for Taxes;
provided, however, that this Agreement will terminate immediately upon a
termination of the Separation Agreement.
9
<PAGE>
7.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the subject matter. This Agreement terminates and
supersedes, on a prospective basis only, all Tax agreements (other than this
Agreement) between the Epitope Group and the Agritope Group (or any other
predecessor). However, nothing in the preceding sentence will limit or reduce
(i) the obligation of Agritope for Reserved Taxes as separately accrued on the
balance sheet of the Agritope Group as of the Distribution Date or (ii) the
right of the Agritope Group to any Balance Sheet Refund.
7.3 GOVERNING LAW. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of Oregon (regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws) as to all matters, including, without limitation, matters of validity,
construction, effect, performance, and remedies.
7.4 JURISDICTION AND VENUE. Subject to the arbitration provisions of the
Separation Agreement, each party consents to the personal jurisdiction of the
state and federal courts located in the State of Oregon and waives any argument
that venue in any such forum is not convenient or proper.
7.5 NOTICES. Notices under this Agreement will be in writing, will refer
specifically to this Agreement, and will be personally delivered, sent by
electronic facsimile transmission promptly confirmed by mail, or sent by
registered or certified mail, return receipt requested, postage prepaid, in each
case to the respective address or facsimile number specified below (or such
other address or number as may be specified by notice to the other party):
If to Epitope:
Epitope, Inc.
8505 SW Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 641-8665
If to Agritope:
Agritope, Inc.
8505 SW Creekside Place
Beaverton, Oregon 97008
Attention: President
Fax: (503) 520-6196
Any notice or communication given in conformity with this Section
7.5 will be deemed to be effective when received by the addressee if delivered
by hand or electronic facsimile transmission, or three days after mailing if
mailed.
10
<PAGE>
7.6 MODIFICATION OF AGREEMENT. No modification, amendment, or waiver of any
provision of this Agreement will be effective unless in writing and signed by
each of the parties and then such modification, amendment, or waiver will be
effective only in the specific instance and for the purpose for which given.
7.7 SUCCESSORS AND ASSIGNS. A party's rights and obligations under this
Agreement may not be assigned or transferred without the prior written consent
of the other party. Subject to the foregoing, this Agreement will be binding
upon and inure to the benefit of the parties, the Epitope Group, the Agritope
Group, and their respective successors and permitted assigns and will survive
any acquisition, disposition, or other corporate restructuring or transaction
involving either party.
7.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties to this Agreement and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action, or other
right in excess of those existing without this Agreement.
7.9 TITLES AND HEADINGS. The titles and headings to Sections are inserted
for convenience of reference only and are not intended to constitute a part of
or to affect the meaning or interpretation of this Agreement. Unless otherwise
indicated, Section references are to the relevant Sections in this Agreement.
7.10 SEVERABILITY. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal, or unenforceable, the enforceability
of the remaining provisions will in no way be affected or impaired. If any such
term, provision, covenant, or restriction is held to be invalid, void, or
unenforceable, the parties will use their best efforts to find and employ
another means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant, or restriction.
7.11 NO WAIVER. Neither the failure nor any delay on the part of any party
to exercise any right under this Agreement will operate as a waiver, nor will
any single or partial exercise of any right preclude any other or further
exercise of the same or any other right, nor will any waiver of any right with
respect to any occurrence be construed as a waiver of such right with respect to
any other occurrence.
7.12 SURVIVAL OF OBLIGATIONS. Notwithstanding anything in this Agreement or
the Separation Agreement to the contrary, this Agreement will survive the
consummation of the transactions contemplated by the Separation Agreement and
will continue throughout the period ending on the later of (i) 90 days after the
expiration of all applicable statutes of limitation (including extensions) or
(ii) the final determination of (and the expiration of the time to appeal) any
Proceeding relating to Taxes or Tax matters covered by (or any claim under) this
Agreement and the payment of any corresponding obligation.
11
<PAGE>
7.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement, and
will become a binding agreement when one or more counterparts have been signed
by each party and delivered to the other party.
As evidence of their agreement, the parties have caused this Agreement to
be executed and delivered as of the date first written above.
EPITOPE, INC. AGRITOPE, INC.
By: /s/ John W. Morgan By: /s/ Adolph J. Ferro
Its: President and Its: Chairman, President and
Chief Executive Officer Chief Executive Officer
12
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Forms S-3 (Numbers 33-68510,
33-67618, 33-57246, 33-52920, 33-42841, 33-39166, and 33-32673), and the
Registration Statements on Forms S-8 (Numbers 33-63220, 33-63218, 33-41712,
33-13416, 33-21545, 33-82788, 33-63106, and 33-60789), of Epitope, Inc. of our
report dated October 31, 1997, except for Note 3 as to which the date is
December 1, 1997, appearing on page 24 of this Form 10-K.
Price Waterhouse LLP
Portland, Oregon
December 23, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints JOHN W. MORGAN, GILBERT N.
MILLER, and each of them his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for the undersigned and in the
undersigned's name, place, and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Epitope, Inc., for its fiscal year ended September
30, 1997, and any and all amendments to the report and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as the undersigned might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or each of them or
their or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, this power of attorney has been signed by
the following persons in the capacities indicated effective as of December 19,
1997.
<TABLE>
Name Title Name Title
---- ----- ---- -----
<S> <C> <C> <C>
/s/ W. Charles Armstrong Director /s/ Douglas Norby Director
W. Charles Armstrong R. Douglas Norby
/s/ Richard K. Donahue Director /s/ Michael J. Paxton Director
Richard K. Donahue Michael J. Paxton
/s/ Adolph J. Ferro Director /s/ Roger L. Pringle Director
Adolph J. Ferro, Ph.D. Roger L. Pringle
Director /s/ G. Patrick Schaeffer Director
Andrew S. Goldstein G. Patrick Schaeffer
Director
Margaret H. Jordan
</TABLE>
<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>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,934,480
<SECURITIES> 7,141,640
<RECEIVABLES> 960,331
<ALLOWANCES> (32,284)
<INVENTORY> 1,324,647
<CURRENT-ASSETS> 11,536,003
<PP&E> 5,470,702
<DEPRECIATION> (4,269,714)
<TOTAL-ASSETS> 17,012,303
<CURRENT-LIABILITIES> 1,998,110
<BONDS> 0
0
0
<COMMON> 110,439,726
<OTHER-SE> (95,425,533)
<TOTAL-LIABILITY-AND-EQUITY> 17,012,303
<SALES> 8,083,606
<TOTAL-REVENUES> 9,360,060
<CGS> 3,512,054
<TOTAL-COSTS> 3,512,054
<OTHER-EXPENSES> 10,811,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,165
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,081,264)
<DISCONTINUED> (18,359,007)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,440,271)
<EPS-PRIMARY> (1.67)
<EPS-DILUTED> 0
</TABLE>
