Epitope Inc. has agreed to settle a shareholders' class-actionsuit filed last year, the company announced Thursday, andincur a $1.4 million charge for the first quarter of 1993.

The suit alleged that the Beaverton, Ore., company (ASE:EPT)and certain officers and directors did not promptly revealpotentially negative information from the FDA regarding thesaliva-based HIV test OraSure, plaintiffs' attorney JustineFischer of Portland, Ore., said.

The settlement has been submitted to U.S. District Court inOregon for preliminary approval. Several shareholders' suitshad been consolidated and certified as class actions prior to theagreement, she said.

Under terms of the proposed settlement, the defendants willcontribute $550,000 cash to a settlement fund, together withwarrants to purchase 700,000 shares of Epitope Inc. commonstock. The company's insurance carrier will fund thedefendants' cash contribution.

The warrants will be issued to members of the shareholders'class. The exercise price for each warrant will be determinedby averaging the closing price of the common stock of Epitopefor 20 trading days, comprised of the 10 trading daysimmediately preceding the date of preliminary approval, thedate of preliminary approval and the nine trading daysimmediately following preliminary approval.

Based on the current market price of common stock, thecompany estimated that the warrants will expire not more than120 days from the date of issuance. The company will reflectsettlement expense of $1.4 million net of insurance recovery inits operating results for the quarter ended March 31.

"The company continues to deny the allegations made in theaction," Adolph Ferro, president and chief executive officer,said in a prepared statement. "Nevertheless, we believe thatthis settlement is in the best interests of the company and ourshareholders because it avoids the considerable expense,management distraction and uncertainty of continuing todefend the lawsuit."

He noted that exercise of any of the warrants issued in thesettlement would also provide additional equity capital to thecompany.

At issue in the suit, Fischer said, was whether the plaintiffs hadpaid too much for their investments. "The defendants claimedinvestors hadn't lost anything," she said. Stock prices fell froma high of $27.38 the week of Jan. 17, 1992, to $14.38 the weekof June 19, 1992. The company blamed the sharp mid-Junetumble to rumors.

Also, the FDA released an establishment inspection reportunder the Freedom of Information Act, but sent a letter to thecompany in late June saying the document was releasedprematurely, prior to completion of agency review.

In July 1991, the FDA ordered Epitope to stop distributing theOraSure kit to insurance companies. Epitope had assumed thatthe kit would not be regulated by the FDA if used as ascreening device rather than as a diagnostic.

The proposed settlement applies to investors holding Epitopestock from May 15, 1991, to June 30, 1992. As of Sept. 30,1991, there were about 1,000 shareholders altogether.

The U.S. District Court for Oregon has been asked to set afairness hearing for mid-June. People for whom the class actionmay apply can either choose to opt out, or file a claim andindicate if they oppose the settlement.

Epitope in December anticipated an FDA decision on theOraSure test by the end of March. However, under an amendedapplication received by the FDA before March 17, a decisiondoes not have to be issued for another 180 days, said investorrelations spokeswoman Mary Hagen. The amendmentaddressed issues concerning labeling, a means of confirmatorytesting, counseling and training of personnel, she said. Sheadded that the company would not comment on the proposedlegal settlement beyond its prepared statement.

Epitope's stock closed unchanged Thursday at $17.75 per share.

-- Nancy Garcia Associate Editor

(c) 1997 American Health Consultants. All rights reserved.

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