SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
Amendment No. 1
FORM 10-K/A
(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 93-07479127
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
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(g) of the Act:
Common Stock, no par value
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 voting stock 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:
None
<PAGE>
Table of Contents for Revised Sections
PART I
<TABLE>
Page
----
None.
PART II
<S> <C> <C>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 3
PART III
None.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 6
</TABLE>
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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.
T A R G E T E D S T O C K A N D A G R I T O P E S P I N - O F F
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. Epitope has distributed all of its ownership interest in Agritope to
Epitope's shareholders through a stock dividend. Epitope no longer owns or
controls any shares of Agritope stock.
D I S C O N T I N U E D O P E R A T I O N S
AGRITOPE. Agritope was 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
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<PAGE>
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 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.
R E S U L T S O F O P E R A T I O N S
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 one 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 discussions with SB and SB's decision to discontinue
pursuit of a plan to develop and market over-the-counter products for disease
detection, the parties terminated the development, license and supply agreement
between SB and 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
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<PAGE>
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.
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 transition
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 offset the
reduction in allocations to Agritope.
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<PAGE>
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.
L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S
<TABLE>
(IN THOUSANDS) 9/30/97 9/30/96
<S> <C> <C>
Cash and cash equivalents.............................................. $1,934 $ 5,223
Marketable securities.................................................. 7,142 18,818
Working capital........................................................ 9,532 24,793
</TABLE>
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) Consolidated Financial Statements and Schedules.
<TABLE>
INDEX TO FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Accountants.................................................................................7
Consolidated Balance Sheets at September 30, 1997 and 1996........................................................8
Consolidated Statements of Operations for years ended
September 30, 1997, 1996, and 1995.............................................................................9
Consolidated Statements of Changes in Shareholders' Equity for years ended
September 30, 1997, 1996, and 1995............................................................................11
Consolidated Statements of Cash Flows for years ended
September 30, 1997, 1996, and 1995............................................................................13
Notes to Consolidated Financial Statements.......................................................................15
</TABLE>
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<PAGE>
R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S
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
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<PAGE>
C O N S O L I D A T E D B A L A N C E S H E E T S
<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.
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<PAGE>
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
<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.
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<PAGE>
C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S
I N S H A R E H O L D E R S' E Q U I T Y
<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.
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<PAGE>
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30 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 1,045,632 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.......................................... (7,682,710) - -
----------- ----------- -----------
Net cash (used in) provided by financing activities....... (6,014,499) 5,845,914 20,286,898
Net (decrease) increase in cash and cash equivalents...... (3,764,783) 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.
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<PAGE>
N O T E S T O C O N S O L I D A T E D F I N A N C I A L
S T A T E M E N T S
N O T E 1 T H E C O M P A N Y
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.
N O T E 2 S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G
P O L I C I E S
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
- 14 -
<PAGE>
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.
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.
- 15 -
<PAGE>
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.
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.
- 16 -
<PAGE>
N O T E 3 D I S C O N T I N U E D O P E R A T I O N S
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 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
- 17 -
<PAGE>
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>
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.
N O T E 4 P R O P E R T Y A N D E Q U I P M E N T
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>
N O T E 5 S H A R E H O L D E R S' E Q U I T Y
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:
- 18 -
<PAGE>
<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>
COMMON STOCK WARRANTS. As of September 30, 1997, the following warrants to
purchase shares of common stock were outstanding:
<TABLE>
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
- 19 -
<PAGE>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
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>
<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
- 20 -
<PAGE>
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.
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.
N O T E 6 I N C O M E T A X E S
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.
- 21 -
<PAGE>
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
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>
N O T E 7 R E S E A R C H A N D D E V E L O P M E N T
A R R A N G E M E N T S
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."
N O T E 8 D I S T R I B U T I O N A N D S U P P L Y
C O N T R A C T S
The Company has entered into several contractual arrangements, including those
discussed in the following paragraphs, for distribution of certain of its
products to customers.
- 22 -
<PAGE>
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.
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.
N O T E 9 C O M M I T M E N T S
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.
N O T E 1 0 P R O F I T S H A R I N G A N D S A V I N G S P L A N
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
- 23 -
<PAGE>
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.
N O T E 1 1 G E O G R A P H I C A R E A I N F O R M A T I O N
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 States....
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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.
- 24 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 2, 1998.
EPITOPE, INC.
By /s/ Charles E. Bergeron
Charles E. Bergeron
Chief Financial Officer
- 25 -
<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.
- 26 -
<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.
- 27 -
<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 Employment Agreement dated January 19, 1998, between Charles
E. Bergeron and Registrant.*
10.22 Employment Agreement dated January 13, 1998, 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 owns a 60 percent interest in Epitope KK, a
Japanese limited liability company.
23. Consent of Price Waterhouse LLP.
24.** Powers of Attorney.
27.** Financial Data Schedule.
* Management contract or compensatory plan or arrangement
** Previously filed.
- 28 -
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of January 19,
1998, between Charles E. Bergeron ("Employee") and Epitope, Inc., an Oregon
corporation (the "Company").
1. SERVICES.
1.1 EMPLOYMENT. The Company agrees to employ Employee
as Chief Financial Officer 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. Such consent will not be
unreasonably withheld.
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 or the board of directors
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 has granted 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 and continuous refusal or failure to comply with
the policies or standards of the Company or to perform any material 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 reasonably has the right to expect of an
employee.
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 reduction in Employee's salary below
the amount being paid on the date of this Agreement (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.
7.4.2 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.
7.4.3 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
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<PAGE>
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 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, 7.4.2, or
7.4.3 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.
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<PAGE>
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
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
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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 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
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<PAGE>
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 (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.
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<PAGE>
The parties have executed this Employment Agreement as of the
date stated above.
EPITOPE, INC.
/s/ C. E. Bergeron By: /s/ John W. Morgan
Charles E. Bergeron
Title: Pres. & CEO
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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.
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.
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<PAGE>
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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EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of January 13,
1998, 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 Chief Scientific Officer, 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
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<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.
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<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.
/s/ J. Richard George By: /s/ John W. Morgan
J. Richard George, Ph.D.
Title: President and C.E.O.
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<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
SPECIFIC DUTIES OF EMPLOYEE AS VICE PRESIDENT OF
SCIENTIFIC AFFAIRS - EPITOPE MEDICAL PRODUCTS
Responsible for Research and Development efforts and Product Development; other
duties and responsibilities as assigned by the President and Chief Executive
Officer.
<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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<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 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: ------------------------------------
/s/ J. Richard George
Date: Jan. 13, 1998 Title: ---------------------------------
Date: ----------------------------------
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EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
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 7 of this Form 10-K/A.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Portland, Oregon
January 30, 1998
