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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
EPOCH BIOSCIENCES, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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EPOCH BIOSCIENCES, INC.
21720 23RD DRIVE, SE, SUITE 150
BOTHELL, WASHINGTON 98021
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 2001
TO THE STOCKHOLDERS OF EPOCH BIOSCIENCES, INC.
The 2001 Annual Meeting of Stockholders of Epoch Biosciences, Inc. (the
"Company"), will be held at the Company's offices in Bothell, Washington, on May
24, 2001, at 4:00 p.m., for the following purposes as more fully described in
the accompanying Proxy Statement:
(1) To elect the following seven nominees to serve as directors until
the next annual meeting of stockholders or until their successors
are elected and have qualified:
Frederick B. Craves, Ph.D. William G. Gerber, M.D.
Richard L. Dunning Herbert L. Heyneker, Ph.D.
Kenneth L. Melmon, M.D. Riccardo Pigliucci
Sanford S. Zweifach
(2) To approve an amendment to the Company's Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase
Plan--1993 to increase the number of shares subject thereto by
1,250,000 to a total of 2,750,000;
(3) To ratify the appointment of KPMG LLP as independent auditors of
the Company for the fiscal year ending December 31, 2001; and
(4) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on April 9, 2001
will be entitled to vote at the meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ WILLIAM G. GERBER, M.D.
William G. Gerber, M.D.
Chief Executive Officer and Director
Bothell, Washington
April 9, 2001
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. Any stockholder
present at the meeting may withdraw his or her proxy and vote personally on each
matter brought before the meeting. Stockholders attending the meeting whose
shares are held in the name of a broker or other nominee who desire to vote
their shares at the meeting should bring with them a proxy or letter from that
firm confirming their ownership of shares.
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EPOCH BIOSCIENCES, INC.
21720 23RD DRIVE, SE, SUITE 150
BOTHELL, WASHINGTON 98021
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PROXY STATEMENT
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INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Epoch Biosciences, Inc. a
Delaware corporation (the "Company"), for use at its 2001 Annual Meeting of
Stockholders ("Annual Meeting") to be held on May 24, 2001, at 4:00 p.m., at the
Company's offices in Bothell, Washington. This Proxy Statement and the
accompanying proxy are being mailed to stockholders on or about April 12, 2001.
It is contemplated that this solicitation of proxies will be made primarily by
mail; however, if it should appear desirable to do so in order to ensure
adequate representation at the meeting, directors, officers and employees of the
Company may communicate with stockholders, brokerage houses and others by
telephone, telegraph or in person to request that proxies be furnished and may
reimburse banks, brokerage houses, custodians, nominees and fiduciaries for
their reasonable expenses in forwarding proxy materials to the beneficial owners
of the shares held by them. All expenses incurred in connection with this
solicitation shall be borne by the Company.
Holders of shares of common stock of the Company ("stockholders") who
execute proxies retain the right to revoke them at any time before they are
voted. Any proxy given by a stockholder may be revoked or superseded by
executing a later dated proxy, by giving notice of revocation to the Secretary,
Epoch Biosciences, Inc., 21720 23rd Drive, S.E., Suite 150, Bothell, Washington
98021, in writing prior to or at the meeting or by attending the meeting and
voting in person. A proxy, when executed and not so revoked, will be voted in
accordance with the instructions given in the proxy. If a choice is not
specified in the proxy, the proxy will be voted "FOR" the nominees for election
of directors named in this Proxy Statement, "FOR" the amendment to the Company's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan to increase the number of shares subject thereto, and "FOR" the
ratification of KPMG LLP as the Company's independent auditors.
VOTING SECURITIES
The shares of Common Stock, $.01 par value, constitute the only
outstanding class of voting securities of the Company. Only the stockholders of
the Company of record as of the close of business on April 9, 2001 (the "Record
Date"), will be entitled to vote at the meeting or any adjournment or
postponement thereof. As of the Record Date, there were 25,610,117 shares of
Common Stock outstanding and entitled to vote. No shares of the Company's
preferred stock, $.01 par value, were outstanding. A majority of shares entitled
to vote represented in person or by proxy will constitute a quorum at the
meeting. Each stockholder is entitled to one vote for each share of Common Stock
held as of the Record Date. In Proposal 1, the election of directors, the seven
candidates receiving the highest number of affirmative votes will be elected as
directors. Proposals 2 and 3 each require for approval (i) the affirmative vote
of a majority of the shares "represented and voting" and (ii) the affirmative
vote of a majority of the required quorum. Abstentions and broker non-votes are
each included in the determination of the number of shares present and voting
for the purpose of determining whether a quorum is present. Abstentions will be
treated as shares present and entitled to vote for purposes of any matter
requiring the affirmative vote of a majority or other proportion of the shares
present and entitled to vote. With respect to shares relating to any proxy as to
which a broker non-vote is indicated on a proposal, those shares will not be
considered present and entitled to vote with respect to any such proposal.
Abstentions or broker non-votes or other failures to vote will have no effect in
the election of directors, who will be elected by a plurality of the affirmative
votes cast. With respect to any matter brought before the Annual Meeting
requiring the affirmative vote of a majority or other proportion of the
outstanding shares, an abstention or broker non-vote will have the same effect
as a vote against the matter being voted upon.
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This proxy statement contains three proposals requiring stockholder
action. Proposal 1 requests the election of directors to the Company's Board.
Proposal 2 requests that the stockholders approve an amendment to the Company's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan--1993 to increase the number of shares reserved for issuance thereunder by
1,250,000 shares. Proposal 3 requests ratification of the Company's independent
auditors. Each of the proposals is discussed in more detail in the pages that
follow.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Bylaws, as amended, authorize a total of nine (9)
directors. Currently, there are seven (7) members of the Board of Directors. The
election of directors shall be by the affirmative vote of the holders of a
plurality of the shares voting in person or by proxy at the annual meeting.
Broker non-votes and proxies marked "withheld" as to one or more nominees will
result in the respective nominees receiving fewer votes. However, the number of
votes otherwise received by the nominee will not be reduced by such action.
Unless otherwise instructed, the proxy holders named in the enclosed proxy will
vote the proxies received by them for the seven (7) nominees named below. All of
the nominees are presently directors of the Company. If any nominee becomes
unavailable for any reason before the election, the enclosed proxy will be voted
for the election of such substitute nominee or nominees, if any, as shall be
designated by the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will be unavailable to serve.
The names and certain information concerning the seven (7) nominees for
election as directors are set forth below. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW. IT IS INTENDED THAT
SHARES REPRESENTED BY THE PROXIES WILL BE VOTED "FOR" THE ELECTION TO THE BOARD
OF DIRECTORS OF THE PERSONS NAMED BELOW UNLESS AUTHORITY TO VOTE FOR NOMINEES
HAS BEEN WITHHELD IN THE PROXY. THE FOLLOWING INFORMATION REGARDING THE NOMINEES
IS RELEVANT TO YOUR CONSIDERATION OF THE SLATE PROPOSED BY THE BOARD.
DIRECTORS
All members of the Company's Board of Directors hold office until the
next annual meeting of stockholders or until their successors are elected and
have qualified. Officers serve at the discretion of the Board of Directors.
The director nominees of the Company are as follows:
NAME AGE POSITION
--------------------------------- --- -------------------------------------
Frederick B. Craves, Ph.D. 55 Chairman of the Board of Directors
William G. Gerber, M.D. 54 Chief Executive Officer and Director
Richard L. Dunning 55 Director
Herbert L. Heyneker, Ph.D. 57 Director
Kenneth L. Melmon, M.D. 66 Director
Riccardo Pigliucci 54 Director
Sanford S. Zweifach 45 President, Secretary and Director
Dr. Craves joined Epoch as Chairman of the Board of Directors in July
1993 and became Chief Executive Officer in April 1994. In September 1999, Dr.
Craves turned over the duties of Chief Executive Officer to Dr. Gerber, who
joined Epoch in September 1999. Dr. Craves will continue as the Chairman of the
Board of Directors. Since January 1997, Dr. Craves has been Chairman of Bay City
Capital, a merchant bank specializing in life sciences. From January 1994 until
January 1997, Dr. Craves was a principal of the consulting firm, Burrill &
Craves. From January 1991 to May 1993, he was President and Chief Executive
Officer of Berlex Biosciences, a division of Schering A.G., and Vice President
of Berlex Laboratories, Inc., the U.S. subsidiary of Schering A.G. From 1981 to
1982, Dr. Craves was Chief Executive Officer and, from 1982 to June 1990, was
Chairman, Chief
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Executive Officer and President of Codon, a biotechnology company. Following
Codon's acquisition by Schering A.G., Dr. Craves was President and Chief
Executive Officer of Codon from June 1990 to December 1990. From 1981 to 1983,
Dr. Craves was also a co-founder and director of Creative BioMolecules. From
1979 to 1981, he was a sales and marketing representative for Millipore
Corporation. Dr. Craves received his Ph.D. in Pharmacology and Experimental
Toxicology from the University of California, San Francisco. Dr. Craves is also
Chairman of the Board of Directors of NeoRx Corporation and a director of Incyte
Pharmaceuticals, Inc, EOS Biotechnology and Medarex, Inc.
Dr. Gerber has served as Chief Executive Officer of Epoch Biosciences,
Inc. since September 1999. From April 1998 until July 1999, Dr. Gerber served as
President and Chief Executive Officer of diaDexus LLC, a joint venture
established by Incyte Pharmaceuticals, Inc. and SmithKline Beecham to apply
genomic information and technologies to the discovery of novel diagnostic
products. Dr. Gerber served as Vice President and Chief Operating Officer of
Onyx Pharmaceuticals, Inc., a biotechnology firm involved in the discovery of
novel cancer therapeutics from June 1995 until April 1998 and as President of
Chiron Diagnostics from December 1991 until June 1995. Previously, he was Senior
Vice President and General Manager of the PCR Division with Cetus Corporation.
Dr. Gerber also has medical practice and managerial experience in emergency
medicine and founded an urgent care center management company. He served on and
was President of the Board of Medical Quality Assurance, State of California. He
received his M.D. and B.S. from the University of California, San Francisco
Medical Center after attending Dartmouth College. Dr. Gerber is also on the
Board of Directors of Sangamo BioSciences, Inc.
Mr. Dunning has been a Director of Epoch since October 1996. From April
1996 through February 2001, Mr. Dunning served as the President, Chief Executive
Officer and Director of Nexell Therapeutics, Inc. He was elected Chairman of the
Board of Directors of Nexell in May 1999 and continues to serve in that
capacity. From 1991 to 1996, Mr. Dunning served as Executive Vice President and
Chief Financial Officer of the Dupont Merck Pharmaceutical Company. Mr. Dunning
also serves as a director of Endorex Corp. and Centaur Pharmaceuticals, Inc.
Dr. Heyneker has been a Director of Epoch since October 1999. He is the
Chief Technology Officer and a founder of EOS Biotechnology, Inc., a company
focused on identification of antibodies for cancer therapy, where he has been
since its inception in 1997. From 1994 to 1996, Dr. Heyneker served as Chairman
of the Board of ProtoGene Laboratories, Inc. which he co-founded. Dr. Heyneker
was also a founder and Chief Executive Officer of GlycoGen, Inc., which later
merged with Cytel Corporation. Dr. Heyneker became the first Vice President of
Research of Genencor International, Inc., a joint venture between Genentech and
Corning Glass Works, after joining Genentech as a senior scientist in 1978. He
is Chairman of the Scientific Advisory Board of Pharming, B.V., and of Guava
Technologies. He is an advisor for Abingworth Management, a venture capital firm
out of London, England. He is an advisor for Genencor. Dr. Heyneker received his
undergraduate degree and Ph.D. from the University of Leiden, The Netherlands.
Dr. Melmon has been a Director of Epoch since November 1991. Since June,
2000, Dr. Melmon has been the Chief Medical Officer of Stanford Skolar, M.D., an
Internet-based knowledge service for medical professionals. He was a Professor
of Medicine at Stanford University School of Medicine from 1978 to 2000. He was
previously on the faculty at the University of California, San Francisco,
specializing in clinical pharmacology. He is a member of the Institute of
Medicine-National Academy of Sciences, and a past president of the American
Federation for Clinical Research and the American Association of Clinical
Investigation. He holds an M.D. from the University of California Medical
Center. He is also on the Board of Directors of Vysis, Inc.
Mr. Pigliucci became a Director of Epoch in February 2000. Mr. Pigliucci
is Chairman and Chief Executive Officer of Discovery Partners International,
Inc. a San Diego, California-based corporation providing platforms, services,
and information to augment the internal drug discovery efforts of pharmaceutical
and biopharmaceutical companies. Before joining Discovery Partners, Mr.
Pigliucci was Chief Executive Officer of Life Sciences International PLC from
1996 to 1997, a global supplier of scientific equipment and consumables to
research, clinical and industrial markets based in London, England. Prior to
that, during a 23-year career at the Perkin-Elmer Corporation, he held numerous
management positions including President and Chief Operating Officer. Mr.
Pigliucci received his degree in Chemistry in Milan, Italy and is a graduate of
the Management Program of Northeastern University, Boston, Massachusetts. Mr.
Pigliucci is a director of Biosphere Medical, Inc. and Dionex Corporation and a
trustee of The Worcester Foundation for Biomedical Research.
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Mr. Zweifach joined Epoch in January 1995 as President and also served
as Chief Financial Officer from January 1995 to February 2001. From July 1994 to
September 1994, and since September 1996, Mr. Zweifach also served as a director
of Epoch. Mr. Zweifach has served as the Chief Financial Officer since 1997, and
as a Managing Director since January of 1999, of Bay City Capital. Mr. Zweifach
previously served as a Managing Director of The Olmsted Group, L.L.C., a
merchant-banking firm, from 1995 to 1997. Mr. Zweifach was a Managing Director
of D. Blech & Co. from 1991 to September 1994, and prior to 1991, he was a Vice
President of J.S. Frelinghuysen & Co., Inc., a risk capital and merchant banking
firm. He is a Certified Public Accountant and holds an M.S. in Human Physiology
from the University of California, Davis.
BOARD MEETINGS AND ATTENDANCE
The Board of Directors of the Company held eight meetings during the
fiscal year ended December 31, 2000. Each incumbent Director attended at least
seventy-five percent (75%) of the aggregate number of meetings of the Board and
the number of meetings held by all committees of the Board on which he or she
served except Mr. Dunning, who attended five of the eight meetings of the Board
and all meetings of committees of the Board on which he served. There are no
family relationships among any of the directors or executive officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Board of Directors has an Audit Committee and a
Compensation Committee. The Audit Committee is comprised of three directors
selected by the Board of Directors of the Company. The current members of the
Audit Committee are Richard L. Dunning, Herbert L. Heyneker, Ph.D., and Riccardo
Pigliucci. The Audit Committee is authorized to handle all matters which it
deems appropriate regarding the Company's independent auditors and to otherwise
communicate and act upon matters relating to the review and audit of the
Company's books and records, including the scope of the annual audit and the
accounting methods and systems to be utilized by the Company. In addition, the
Audit Committee also makes recommendations to the Board of Directors with
respect to the selection of the Company's independent auditors. The Audit
Committee held one meeting during the fiscal year ended December 31, 2000.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board reviews the financial reporting
process, the system of internal controls, the audit process and the process for
monitoring compliance with laws and regulations. Each of the Audit Committee
members satisfies the definition of independent director under the applicable
rules of The NASDAQ National Market. The Board adopted a written charter for the
Audit Committee on May 2, 2000, which is attached to this proxy statement as
Appendix I. The Company operates with a January 1 to December 31 fiscal year.
The Audit Committee met one time during the 2000 fiscal year.
The Audit Committee has reviewed the Company's audited financial
statements and discussed such statements with management. The Audit Committee
has discussed with KPMG LLP, the Company's independent auditors during the 2000
fiscal year and in early 2001, the matters required to be discussed by Statement
of Auditing Standards No. 61 (Communication with Audit Committees, as amended).
The Audit Committee received from KPMG LLP the written disclosures
required by Independence Standards Board Standard No. 1 and discussed with them
their independence. Based on the review and discussions noted above, the Audit
Committee recommended to the Board that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2000, and be filed with the U.S. Securities and
Exchange Commission.
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This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Submitted by:
Audit Committee
Richard L. Dunning
Herbert L. Heyneker, M.D.
Riccardo Pigliucci
COMPENSATION COMMITTEE. During the year ended December 31, 2000, the
Company's Board of Directors established the levels of compensation for the
Company's executive officers, provided, however, Dr. Gerber, Dr. Craves and Mr.
Zweifach, have consulting or employment agreements with the Company and their
compensation is determined in accordance with the terms and conditions of such
agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. No
executive officer of Epoch served on the board of directors or compensation
committee of any entity which has one or more executive officers serving as
members of Epoch's Board of Directors or Compensation Committee.
The Company does not have a nominating committee. Instead, the Board of
Directors, as a whole, identifies and screens candidates for membership on the
Company's Board of Directors.
OTHER EXECUTIVE OFFICERS
The other current executive officers of the Company who joined the
Company in 2001, are as follows:
Bert W. Hogue, 43, joined Epoch in February of 2001 as Vice President,
Finance and Chief Financial Officer. Prior to joining Epoch, from May 1999 to
October 2000, Mr. Hogue served as Chief Financial Officer and Secretary for Apex
Learning Inc., a privately held online learning company based in Bellevue,
Washington. From January 1998 to May 1999, he served as Vice President --
Finance and Administration for Verio West, an Internet service and web hosting
provider and wholly owned subsidiary of Verio, Inc. From December 1994 to
January 1998, Mr. Hogue served as Chief Financial Officer and Secretary of
NorthWestNet, Inc., an Internet service provider purchased by Verio. From 1980
to 1994 Mr. Hogue worked for KPMG LLP, an international public accounting firm,
in its Seattle and New York offices. Mr. Hogue received his B.A. in Business
Administration from the University of Puget Sound.
Merl Hoekstra, 41, joined Epoch as Vice President, Corporate Development
in March of 2001. Prior to joining Epoch, Dr. Hoekstra served as Chief Science
Officer and General Manager of Qbiogene, Inc., a global biotechnology company
based in San Diego, California. From 1998 to the spring of 2000, Dr. Hoekstra
was Vice President of Target Discovery at Signal Pharmaceuticals, Inc. From 1992
to 1998, Dr. Hoekstra was Senior Director at Icos Corporation, where he
developed the operating plan for a spin-off company, Ceptyr, Inc. Prior to
entering the biotechnology industry in 1992, Dr. Hoekstra served as Assistant
Professor, Molecular Biology and Virology Labs at the Salk Institute. He is
currently an Adjunct Professor of Pharmacology at University of California, San
Diego. Dr. Hoekstra has published more than 65 manuscripts in journals such as
Cell, Nature Genetics, Science and Current Biology and has made more than 75
scientific presentations worldwide on topics ranging from genetics and molecular
biology to drug discovery and inhibitor development. Dr. Hoekstra has previously
been a co-founder and Scientific Advisory Board member for Ceptyr, Cascade
Oncogenics, Inc. and MycoGenetics, Inc. Dr. Hoekstra holds ten issued patents
and six pending patent applications. He received a Ph.D. from Loyola
University's Stritch School of Medicine and a B.S. from the University of
British Columbia.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation earned during the three
fiscal years ended December 31, 1998, 1999 and 2000 by the Company's Chief
Executive Officer and the other most highly compensated executive officers whose
total salary and bonus during 2000 exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- --------------------------- ---- ---------- ---------- ------------ ------------- ---------------
Fred Craves(2) 2000 $ 58,750 $ -- $ -- $ -- $ --
Chairman of the Board 1999 100,000 -- -- -- --
of Directors 1998 100,000 -- -- -- --
William G. Gerber(3) 2000 256,260 75,142 -- 100,000 --
Chief Executive Officer 1999 78,688 -- -- 100,000 --
1998 -- -- -- -- --
Sanford S. Zweifach 2000 135,000 -- -- -- --
President, Secretary and 1999 135,000 -- -- -- --
Chief Financial Officer(4) 1998 135,000 -- -- -- --
- --------------
(1) Does not reflect certain personal benefits, which in the aggregate are
less than 10% of each Named Executive Officer's salary and bonus.
(2) Dr. Craves also served as the Company's Chief Executive Officer through
September 1999, at which time the duties were turned over to Dr. Gerber.
(3) Dr. Gerber was hired in September, 1999.
(4) Mr. Zweifach served as Chief Financial Officer through February 2001, at
which time the duties were turned over to Bert W. Hogue. Mr. Zweifach
continues to serve as President and Secretary.
OPTION MATTERS
The following table sets forth the options granted to those persons
listed in the summary compensation table above. Options granted have a term of
ten (10) years, and are subject to earlier termination in some situations
related to termination of employment.
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OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR(1) ($/SHARE) DATE
- ---------------------- ---------- --------------- --------- -----------
William G. Gerber(2) 100,000 32.2% $ 7.25 4/27/10
- -----------------
(1) Options to purchase an aggregate of 310,500 shares of Common Stock were
granted to employees, including the Named Executive Officers during the
fiscal year ended December 31, 2000.
(2) Dr. Gerber was granted options to purchase 100,000 shares of common
stock in April 2000. The shares vest monthly over 24 months and have an
exercise price of $7.25.
The following table includes the number of shares covered by both
exercisable and unexercisable stock options as of December 31, 2000. Also
reported are the values for "in the money" options which represent the positive
spread between the exercise prices of any such existing stock options and the
fiscal year end price of our common stock at $6.56 per share.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS/SARS OPTIONS/WARRANTS/SARS
AT FISCAL YEAR END AT FISCAL YEAR END
--------------------- ---------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------- ----------- -------------- --------------- -------------
Fred Craves -- $ -- 616,666/0 $3,738,538/0
William G. Gerber -- $ -- 133,333/66,667 $ 462,550/0
Sanford S. Zweifach 15,000 $ 82,020 86,250/0 $ 522,891/0
EMPLOYMENT AND SEVERANCE AGREEMENTS
In 1993, Epoch entered into a consulting agreement with Dr. Craves under
which Dr. Craves received $100,000 per year for his services as Chairman of the
Board of Directors and Chief Executive Officer. In 1995, Epoch entered into a
consulting agreement with Mr. Zweifach under which Mr. Zweifach received
$135,000 per year for his services as President and Chief Financial Officer. Dr.
Craves subsequently formed Bay City Capital, where Mr. Zweifach is employed as a
Managing Director and the Chief Financial Officer, and these agreements were
combined into a single arrangement under which Bay City Capital would provide
the services of Dr. Craves and Mr. Zweifach in their respective roles in
exchange for the combined stipend of $235,000 per year. In April of 2000, the
fee was reduced to $180,000 per year in recognition of Dr. Craves turning over
the duties of Chief Executive Officer to Dr. Gerber. Beginning April 1, 2001,
this fee was again reduced, to $120,000 per year, in
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recognition of Mr. Zweifach turning over the duties of Chief Financial Officer
to Mr. Hogue. The arrangement is reviewed annually by the outside directors of
the Company.
In September 1999, Epoch entered into an employment agreement with Dr.
Gerber. In April 2000, the agreement was amended and restated to provide for a
two year period at a rate of $275,000 per year and is currently in effect
through April 2002. Under the terms of the employment agreement, Dr. Gerber is
also eligible for an incentive bonus equal to 40% of his base compensation based
on the achievement of performance goals as established by the Board of
Directors.
In February 2001, Epoch entered into an employment offer letter
agreement with Bert W. Hogue, the Company's Vice President of Finance and Chief
Financial Officer, for employment at a rate of $160,000 per year, at-will, with
no defined term. Under the terms of the agreement, Mr. Hogue is also eligible
for an incentive bonus equal to 25% of his base compensation based on the
achievement of performance goals as established by the Board of Directors, and
he received options to purchase 100,000 shares of the Company's common stock in
accordance with the Company's employee stock option plan. Upon a change in
control of the Company, if Mr. Hogue is not retained by the Company in his
current position, he will receive severance pay equal to one year of salary, and
any of his unvested stock options will immediately become exercisable. The
Company intends to enter into a formal employment agreement with Mr. Hogue upon
substantially the same terms as the employment offer letter agreement described
above.
In December 2000, Epoch entered into an employment offer letter
agreement with Merl Hoekstra, the Company's Vice President, Corporate
Development, for employment beginning in March 2001, at a rate of $198,000 per
year, at-will, with no defined term. Under the terms of the agreement, Dr.
Hoekstra is also eligible for an incentive bonus equal to 25% of his base
compensation based on the achievement of performance goals as established by the
Board of Directors, and he received options to purchase 100,000 shares of the
Company's common stock in accordance with the Company's employee stock option
plan. Upon a change in control of the Company, if Dr. Hoekstra is not retained
by the Company in his current position, he will receive severance pay equal to
one year of salary, and any of his unvested stock options will immediately
become exercisable. The Company intends to enter into a formal employment
agreement with Dr. Hoekstra upon substantially the same terms as the employment
offer letter agreement described above.
DIRECTORS' FEES
We pay all non-employee directors a fee of $1,000 for each board of
directors meeting attended. Non-employee directors who join the board of
directors receive a 10-year option to purchase 5,000 shares of common stock
under Epoch's Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan--1993, at the then current fair market value which vests one
year from the date of issuance. Upon each anniversary of joining the board of
directors, which is deemed to be November of each year for all existing
Directors, non-employee directors receive an additional 10-year option to
purchase 5,000 shares of common stock at the then current fair market value
which vests one year from the date of issuance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership of, and transactions in, the
Company's securities with the Securities and Exchange Commission and The Nasdaq
Stock Market. Such directors, executive officers and 10% stockholders are also
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon its review of the copies of Forms 3 and 4 and
amendments thereto furnished to the Company, or written representations that no
annual Form 5 reports were required, the Company believes that all filing
requirements under Section 16(a) of the Exchange Act applicable to its
directors, officers and any persons holding ten percent or more of the Company's
Common Stock were made with respect to the Company's fiscal year ended December
31, 2000. However, with respect to the time period between 1993 and 1999:
Frederick Craves
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missed timely filing a Form 4 covering the exercise of a warrant to purchase
shares of common stock and on two occasions missed timely filing a Form 5, one
covering an option grant to purchase shares of common stock and one covering two
option grants to purchase shares of common stock; Richard Dunning missed timely
filing a Form 5 on three occasions, each covering option grants to purchase
shares of common stock; Kenneth L. Melmon missed timely filing a Form 5 on three
occasions, each covering option grants to purchase shares of common stock; and
William G. Gerber missed timely filing a Form 3 upon his entry into the Section
16 reporting system. Reports with respect to each transaction or filing
described above have subsequently been filed.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 31, 2001 about
the beneficial ownership of Epoch's common stock by each stockholder known by us
to be the beneficial owner of more than five percent (5%) of Epoch's common
stock, as well as each director, each of the named executive officers in the
summary compensation table and the executive officers hired in 2001, and all
directors and executive officers as a group. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock.
NUMBER OF SHARES BENEFICIALLY
OWNED, SUBJECT TO WARRANTS PERCENTAGE OF
OR OPTIONS EXERCISABLE WITHIN NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS 60 DAYS OF MARCH 31, 2001 BENEFICIALLY OWNED SHARES
- --------------------------------- ------------------------------- -------------------- ---------------
Grace Brothers Ltd. -- 4,775,993 18.6%
1560 Sherman Avenue
Evanston, Illinois 60201
Fred Craves, Ph.D.(1) 450,000 3,868,241 14.8%
Bay City Capital, LLC(2) -- 2,880,000 11.2%
750 Battery Street, Suite 600
San Francisco, CA 94111
Franklin Resources, Inc. -- 1,567,900 6.1%
777 Mariners Island Blvd
P.O. Box 7777
San Mateo, CA 94403-7777
Richard L. Dunning(3) 20,233 477,376 1.9%
Nexell Therapeutics, Inc. -- 457,143 1.8%
9 Parker
Irvine CA 92618
Sanford S. Zweifach -- 126,250 *
William G. Gerber, M.D. 154,166 154,166 *
Kenneth L. Melmon, M.D. 36,534 92,533 *
Herbert L. Heyneker, Ph.D. 5,479 5,479 *
Riccardo Pigliucci 3,781 3,781 *
Bert W. Hogue -- -- *
Merl Hoekstra -- -- *
All executive officers and directors 670,193 1,390,683 5.3%
as a group (9 persons)(4)
* Less than one percent
- ---------------
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(1) Includes 83,334 shares which are held by Burrill & Craves, of which Fred
Craves is a general partner. Also includes 2,880,000 shares which are held
by Bay City Capital, LLC. See footnote (2). Fred Craves disclaims beneficial
ownership of the Bay City Capital shares except to the extent of his
pecuniary interest in Bay City Capital, LLC.
(2) Represents 2,880,000 shares held by Bay City Capital Fund I, L.P. Bay City
Capital, LLC, the general partner of Bay City Capital Fund I, L.P., is a
merchant banking partnership formed by The Craves Group and The Pritzker
Family business interest. Fred Craves, Ph.D., the chairman of Epoch, is the
majority owner and controlling person of The Craves Group. By virtue of
their status as members of Bay City Capital, LLC, each of The Craves Group
and The Pritzker Family may be deemed the beneficial owner of all of the
shares held of record by Bay City Fund I, L.P. (the "Bay City Shares"). By
virtue of his status as the majority owner and controlling person of The
Craves Group, Fred Craves may also be deemed a beneficial owner of the Bay
City Shares. Each of The Craves Group, The Pritzker Family and Fred Craves
disclaims beneficial ownership of any Bay City Shares except to the extent,
if any, of their actual pecuniary interest in those shares.
(3) Includes 457,143 shares of common stock which are held by Nexell
Therapeutics, Inc., of which Richard L. Dunning is the Chairman. Richard L.
Dunning disclaims beneficial ownership of these shares of common stock
except to the extent of his pecuniary interest in Nexell Therapeutics, Inc.
(4) Includes directors' and executive officers' shares listed above. Excludes
2,880,000 warrants and the shares underlying these warrants held by Bay City
Capital LLC. Excludes 457,143 shares of common stock held by Nexell
Therapeutics, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1999, Epoch concluded $7 million of private equity
financing. Bay City Capital LLC, ("Bay City Capital"), San Francisco,
California, participated in the financing by paying $1 million in cash and
converting their $3 million note to equity.
In November 2000, we issued a fully vested five year warrant to purchase
40,000 shares of common stock at $10.19 per share issued to Bay City Capital BD
LLC ("Bay City") in lieu of cash fees for investment banking and consulting
services. Under the agreement, Bay City will provide advisory services on
business opportunities, including mergers and acquisitions, which are
complimentary to our existing business, and will serve as the investment banker
on transactions. The warrant was valued using the Black Scholes option pricing
model.
Under this agreement, Bay City advised us on the acquisition of
Synthetic Genetics and received a cash payment of $250,000 for their investment
banking services.
Bay City Capital, a merchant banking partnership that was formed by The
Craves Group and The Pritzker Family business interests, has an 11.2% equity
interest in Epoch at March 31, 2001. The founding partner of The Craves Group,
Fred Craves, Ph.D., is the Chairman of Epoch's Board of Directors. Sanford S.
Zweifach, Epoch's President and a Director, is a Managing Director and Chief
Financial Officer of Bay City Capital.
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PROPOSAL TWO
AMENDMENT TO THE 1993 PLAN TO INCREASE THE TOTAL
NUMBER OF SHARES ISSUABLE THEREUNDER
INTRODUCTION
The Board of Directors adopted and the stockholders of the Company
originally approved the Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan--1993 (the "1993 Plan") in 1993. The 1993 Plan
was amended to increase the number of shares of Common Stock issuable thereunder
by 1,000,000 shares, by the Board of Directors on December 20, 1999 and approved
by the stockholders on August 17, 2000. The Board of Directors further amended
the 1993 Plan on April 2, 2001 to increase the authorized number of shares of
Common Stock issuable thereunder by 1,250,000 shares and to reserve the
additional shares for issuance under the 1993 Plan, bringing the total number of
shares of Common Stock subject to the 1993 Plan to 2,750,000.
The Company also has an Incentive Stock Option, Nonqualified Stock
Option and Restricted Stock Purchase Plan--1991 (the "1991 Plan") which was
implemented in 1991. Under the 1991 Plan, 1,436,470 shares of the Company's
Common Stock were authorized to be issued as incentives.
Approval of the amendments to the 1993 Plan will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
present or represented at the annual meeting of stockholders and entitled to
vote thereat. Proxies solicited by management for which no specific direction is
included will be voted "FOR" the amendment of the 1993 Plan to add 1,250,000
shares of Common Stock to the pool of shares reserved for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1993 PLAN.
The principal features of the 1993 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1993 Plan itself.
Copies of the 1993 Plan can be obtained by writing to the Secretary, Epoch
Biosciences, Inc., 21720 23rd Drive, S.E., Suite 150, Bothell, Washington 98021.
1993 PLAN TERMS
The 1993 Plan provides for the grant by the Company of options and/or
rights to purchase up to an aggregate of 1,500,000 shares of Common Stock of the
Company to its officers, directors, key employees, consultants and other
business persons having important business relationships with the Company, or
any parent or subsidiary corporation of the Company. As of March 31, 2001,
approximately nine (9) executive officers and directors of the Company and
approximately fifty-four (54) other employees were eligible to participate. The
purpose of the 1993 Plan is to enable the Company to attract and retain persons
of ability as employees, officers, directors and consultants and to motivate
such persons by providing them with an equity participation in the Company. The
Company does not expect to grant directors options in excess of those granted
under the Company's Directors' Plan, but reserves the right to grant such
options if necessary to attract or retain qualified directors. The 1993 Plan
expires July 27, 2003 unless terminated earlier by the Board of Directors.
The 1993 Plan provides that it is to be administered by the Board of
Directors or a committee appointed by the Board. Presently, the Company's Board
of Directors administers the 1993 Plan (the "Administrator"). The Administrator
has broad discretion to determine the persons entitled to receive options and/or
rights to purchase under the 1993 Plan, the terms and conditions on which
options and/or rights to purchase are granted and the number of shares subject
thereto. The Administrator also has discretion to determine the nature of the
consideration to be paid upon the exercise of an option and/or right to purchase
granted under the 1993 Plan. Such consideration may generally consist of cash or
shares of Common Stock of the Company or, in the case of rights to purchase, a
promissory note.
Options granted under the 1993 Plan may be either "incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code, or
"nonqualified stock options," as determined by the Administrator.
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Options may be granted under the 1993 Plan for terms of up to ten (10) years.
The exercise price of incentive stock options must be at least equal to the fair
market value of the Common Stock of the Company as of the date of grant. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of the Common Stock of the Company as of the date of
grant. No optionee may be granted incentive stock options under the 1993 Plan to
the extent that the aggregate fair market value (determined as of the date of
grant) of the shares of Common Stock with respect to which incentive options are
exercisable for the first time by the optionee during any calendar year would
exceed $100,000. Options granted under the 1993 Plan to officers, employees,
directors, or consultants of the Company may be exercised only while the
optionee is employed or retained by the Company or within three months after
termination for any reason, with the exact date of expiration to be determined
by the Administrator.
Upon the occurrence of a consolidation or merger in which the Company is
not the surviving corporation, the sale of substantially all of the Company's
assets and certain other similar events (a "Change-of-Control Event"), the 1993
Plan provides that the 1993 Plan itself and all outstanding options shall
terminate unless provision is made in writing for the continuance of the 1993
Plan and for the assumption of outstanding options and rights to purchase
previously granted. If provision for the assumption of outstanding options and
rights to purchase is not made in connection with a Change-of-Control Event,
then notice shall be provided to all participants and all outstanding options
and rights to purchase shall be accelerated. In the event that the outstanding
shares of Common Stock while the 1993 Plan is in effect are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of merger, consolidation or
reorganization in which the Company is the surviving corporation, or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend (in excess of 2%) or of another change in the
corporate structure of the Company, appropriate adjustments will be made by the
Board of Directors to the aggregate number and kind of shares subject to the
1993 Plan and the number and kind of shares and the price per share subject to
outstanding incentive options, nonqualified options and rights to purchase in
order to preserve, but not to increase, the benefits to persons then holding
incentive options, nonqualified options or rights to purchase.
Payment for shares upon exercise of an option or upon issuance of
restricted stock must be made in full at the time of exercise, or issuance with
respect to restricted stock. The form of consideration payable upon exercise of
an option or purchase of restricted stock shall, at the discretion of the
Administrator, be (i) by tender of United States dollars in cash, check or bank
draft; (ii) subject to any legal restriction against the Company's acquisition
or purchase of the Company's shares of Common Stock, shares of Common Stock,
which shall be deemed to have a value equal to the aggregate fair market value
of such shares determined on the date of exercise or purchase, (iii) by the
issuance of a promissory note acceptable to the Administrator; or (iv) pursuant
to other methods described in the 1993 Plan.
As of March 31, 2001, options to purchase an aggregate of 2,123,194
shares of Common Stock (net of canceled options) have been granted and are
outstanding under the 1991 and 1993 Plans to the following persons or groups:
(i) consultants, 50,000 shares; (ii) all current executive officers (as a
group), 400,000 shares; and (iii) all other employees and directors who are not
executive officers (as a group), 1,673,194 shares.
FEDERAL TAX CONSEQUENCES
The following is a brief summary of the tax effects under the Code that
may accrue to participants in the 1993 Plan.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by an
optionee under the 1993 Plan upon either the grant or the exercise of an
incentive stock option provided the optionee holds the stock for at least two
years after the grant of the options and one year after the exercise of the
option. If an incentive stock option is exercised more than three months after
termination of employment, or one year in the case of death or disability, it
will be treated as the exercise of a nonqualified stock option as described
below. The Company receives no tax deduction from the exercise of incentive
stock options granted unless the optionee fails to meet the holding period
requirements set forth above. If the holding period requirements set forth above
are met, any gain or loss as a result of a sale or other disposition of shares
acquired upon the exercise of an incentive stock option will be treated as a
capital gain or loss, respectively.
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NONQUALIFIED STOCK OPTIONS. No taxable income is recognized by an
optionee upon the grant of a nonqualified stock option. Upon exercise, however,
the optionee will recognize ordinary income in the amount by which the fair
market value of the shares purchased, on the date of exercise, exceeds the
exercise price paid for such shares. The income recognized by the optionee will
be subject to income tax withholding by the Company out of the optionee's
current compensation. If such compensation is insufficient to pay the taxes due,
the optionee will be required to make a direct payment to the Company for the
balance of the tax withholding obligation. The Company will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the optionee,
provided certain reporting requirements are satisfied.
RESTRICTED STOCK. The receipt of restricted stock will not result in a
taxable event until the applicable period(s) of restriction lapse, unless the
participant makes an election under Section 83(b) of the Code to be taxed as of
the date of grant. If a Section 83(b) election is made, the participant will
recognize ordinary income in an amount equal to the excess of the fair market
value of such shares on the date of grant over the amount paid for such shares.
If no amount is paid for such shares, the participant will recognize ordinary
income in an amount equal to the fair market value of such shares on the date of
the grant. Even if the amount paid and the fair market value of the shares are
the same (in which case there would be no ordinary income), a Section 83(b)
election must be made to avoid deferral of the date ordinary income is
recognized. If no Section 83(b) election is made, a taxable event will occur on
each date the participant's ownership rights vest (i.e., when the period(s) of
restriction lapse) as to the number of shares that vest on that date, and the
holding period for long-term capital gain purposes will not commence until the
date the shares vest. The participant will recognize ordinary income on each
date shares vest in an amount equal to the excess of the fair market value of
such shares on that date over the amount paid for such shares.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP, independent auditors, to
audit the financial statements of the Company for the fiscal year ending
December 31, 2001, and recommends that stockholders vote for ratification of
such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection.
The affirmative vote of a majority of the outstanding shares of common
stock present or represented at the annual meeting of stockholders and entitled
to vote thereat will be required to approve this proposal.
KPMG LLP has audited the Company's financial statements annually since
its fiscal year ended December 31, 1992. Its representatives are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
AUDIT FEES
The total fees billed for professional services rendered for the audit
of the Company's annual financial statements included in the Company's 10-KSB
and the reviews of the financial statements included in the Company's 10-QSBs
were $52,035 for the year ended December 31, 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
KPMG LLP did not perform any services or bill any fees for direct or
indirect operation and/or supervision of the operation of the Company's
information systems, management of the Company's local area network, and/or
designing or implementing a hardware or software system that aggregates source
data underlying the financial statements or generates information that is
significant to the Company's financial statements taken as a whole for the year
ended December 31, 2000.
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ALL OTHER FEES
The total fees billed for all other services rendered were $27,161 for
the year ended December 31, 2000.
The audit committee has considered whether the provision of these other
services is compatible with maintaining KPMG LLP's independence.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF
KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the
Company's 2002 Annual Meeting of Stockholders and presentation in the Company's
Proxy Statement with respect to such meeting should arrange for such proposal to
be delivered to the Company at its principal place of business no later than
December 13, 2001, which is 120 calendar days prior to the anniversary of this
year's mailing date in order to be considered for possible inclusion in the
proxy statement for that meeting. Matters pertaining to such proposals,
including the number and length thereof, eligibility of persons entitled to have
such proposals included and other aspects are regulated by the Securities
Exchange Act of 1934, Rules and Regulations of the Securities and Exchange
Commission and other laws and regulations to which interested persons should
refer.
SEC rules also establish a different deadline for submission of
stockholder proposals that are not intended to be included in the Company's
proxy statement with respect to discretionary voting (the "Discretionary Vote
Deadline"). The Discretionary Vote Deadline for the year 2001 annual meeting is
February 26, 2002 (45 calendar days prior to the anniversary of the mailing date
of this proxy statement). If a stockholder gives notice of such a proposal after
the Discretionary Vote Deadline, the Company's proxy holders will be allowed to
use their discretionary voting authority to vote against the stockholder
proposal when and if the proposal is raised at the Company's year 2002 annual
meeting.
The Company was not notified of any stockholder proposals to be
addressed at the 2001 Annual Meeting of Stockholders. Because the Company was
not provided notice of any stockholder proposal to be included in the proxy
statement within a reasonable time before mailing, the Company will be allowed
to use its voting authority if any stockholder proposals are raised at the
meeting.
OTHER MATTERS
Management is not aware of any other matters to come before the meeting.
If any other matter not mentioned in this Proxy Statement is brought before the
meeting, the proxy holders named in the enclosed Proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
By Order of the Board of Directors
/s/ WILLIAM G. GERBER, M.D.
April 9, 2001 William G. Gerber, M.D.
Chief Executive Officer and Director
Copies of the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended December 31, 2000 are
being mailed concurrently with this Proxy Statement to all stockholders of
record as of April 9, 2001. The Annual Report is not to be regarded as proxy
soliciting material or as a communication by means of which any solicitation is
to be made.
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APPENDIX I
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF
EPOCH BIOSCIENCES, INC.
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
- Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting and
legal compliance.
- Monitor the Company's compliance with regulatory requirements.
- Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
- Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditor. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and the
independent auditor or to assure compliance with laws and regulations and
the Company's Code of Conduct.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the independence and experience
requirements of the requirements of the NASDAQ National Market (attached
hereto as Exhibit A). The Audit Committee shall be comprised of three or
more directors as determined by the Board, each of whom shall be independent
nonexecutive directors, free from any relationship that would interfere with
the exercise of his or her independent judgment. All members of the
Committee shall have a basic understanding of finance and accounting and be
able to read and understand fundamental financial statements, at least one
member of the Committee shall have accounting or related financial
management expertise and at least one member shall have an understanding and
prior experience with the regulatory requirements of the Company's industry.
Audit Committee members shall be appointed by the Board on recommendation of
the Nominating Committee. If an Audit Committee Chair is not designated or
present, the members of the Committee may designate a Chair by majority vote
of the Committee membership.
The Committee shall meet at least three times annually, or more frequently
as circumstances dictate. The Audit Committee Chair shall prepare and/or
approve an agenda in advance of each meeting. The Committee should meet
privately in executive session at least annually with management, the
director of the internal auditing department, the independent auditors, and
as a committee to discuss any matters that the Committee or each of these
groups believe should be discussed. In addition, the Committee, or at least
its Chair, should communicate
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with management and the independent auditors quarterly to review the
Company's financial statements and significant findings based upon the
auditors limited review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to filing
or distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and report
such exposures. Review significant findings prepared by the independent
auditors and the internal auditing department together with management's
responses.
4. Review with financial management and the independent auditors the
company's quarterly financial results prior to the release of earnings
and/or the company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's accounting
principles and any items required to be communicated by the independent
auditors in accordance with SAS 61 (see item 9). The Chair of the Committee
may represent the entire Audit Committee for purposes of this review.
INDEPENDENT AUDITORS
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to the
Board of Directors the appointment of the independent auditors or approve
any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Consider, in consultation with the independent auditor, the audit scope
and plan of the independent auditor, including staffing, locations, reliance
upon management, and internal audit and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
11. Arrange for the independent auditor to be available to the full Board of
Directors at least annually to help provide a basis for the board to
recommend the appointment of the auditor.
12. Inquire as to the auditor's independent qualitative judgments about the
appropriateness of the accounting principles and the clarity of the
financial disclosure practices used or proposed to be adopted by the
Company.
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13. Inquire as to the auditor's views about whether management's choices of
accounting principles are conservative, moderate, or aggressive from the
perspective of income, asset, and liability recognition, and whether those
principles are common practices or are minority practices.
14. Determine, as regards to new transactions or events, the auditor's
reasoning for the appropriateness of the accounting principles and
disclosure practices adopted by management.
15. Assure that the auditor's reasoning is described in determining the
appropriateness of changes in accounting principles and disclosure
practices.
16. Inquire as to the auditor's views about how the Company's choices of
accounting principles and disclosure practices may affect members and public
views and attitudes about the Company.
INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
17. Review the budget, plan, changes in plan, activities, organizational
structure, and qualifications of the internal audit department, as needed.
18. Review the appointment, performance, and replacement of the senior
internal audit executive.
19. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
20. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
21. Review all reports concerning any significant fraud or regulatory
noncompliance that occurs at the Company. This review should include
consideration of the internal controls that should be strengthened to reduce
the risk of similar events in the future.
OTHER AUDIT COMMITTEE RESPONSIBILITIES
22. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement and shall state whether the Audit Committee have:
- Reviewed and discussed the audited financial statements with
management;
- Discussed with the independent auditors the matters required to be
discussed by SAS 61; and
- Received certain disclosures from the auditors regarding their
independence as required by the ISB 1, and state whether the Audit
Committee recommended to the Board of Directors that the audited
financial statements be included in the annual report filed with the
SEC based upon such disclosure.
23. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary or
appropriate.
24. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
25. Establish, review, and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
26. Periodically perform self-assessment of Audit Committee performance.
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27. Review financial and accounting personnel succession planning within the
company.
28. Annually review policies and procedures as well as audit results
associated with directors' and officers expense accounts and perquisites.
Annually review a summary of director and officers' related party
transactions and potential conflicts of interest.
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EXHIBIT A
TO
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Summary of NASDAQ National Market Independence and Experience Requirements
INDEPENDENCE. A director is not independent if the director:
- - is an employee of the company or an affiliate, or former employee within
three years, or an immediate family member of a current or former (within
three years) executive officer;
- - has received non-director compensation exceeding $60,000 during the prior
year (excluding benefits under a tax-qualified retirement plan);
- - is an affiliate of an entity that received payments in any of the past three
years exceeding the greater of $200,000 or five percent of either the paying
or receiving company's annual gross revenues; or
- - is an executive of another entity and any of the company's executives serve
on that entity's compensation committee.
THREE MEMBERS. Audit Committee membership shall be set at a minimum of
three, with one non-independent director also allowed, under "exceptional and
limited circumstances," but the non-independent member cannot be subject to the
employee, former employee (three years) or immediate family member
disqualifications. Small business filers may continue to have only two members
on their committee, and only a "majority" (presumably, one of two) must be
independent. This is the only accommodation for NASDAQ small business issuers;
there is no distinction for NASDAQ SmallCap or Bulletin Board companies as such.
FINANCIAL LITERACY/EXPERIENCE. NASDAQ defines financial literacy as the
ability to read financial statements, etc., effectively disabling the Board from
making this determination. At least one member of the committee must have past
employment or experience in finance or accounting.
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PROXY EPOCH BIOSCIENCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS -- MAY 24, 2001
The undersigned hereby nominates, constitutes and appoints William G.
Gerber, M.D., and Sanford S. Zweifach, and each of them individually, the
attorney, agent and proxy of the undersigned, with full power of substitution,
to vote all stock of EPOCH BIOSCIENCES, INC. which the undersigned is entitled
to represent and vote at the 2001 Annual Meeting of Stockholders of the Company
to be held at the offices of the Company in Bothell, Washington on May 24, 2001,
at 4:00 p.m., and at any and all adjournments or postponements thereof, as fully
as if the undersigned were present and voting at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1, 2 AND 3.
1. ELECTION OF DIRECTORS
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed below (except to vote for all nominees
as marked to the contrary below) listed below
Election of the following nominees as directors: Frederick B. Craves, Ph.D.,
William G. Gerber, M.D., Richard L. Dunning, Herbert L. Heyneker, Ph.D.,
Kenneth L. Melmon, M.D., Riccardo Pigliucci and Sanford S. Zweifach
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, PRINT
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. AMENDMENT TO THE INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION AND
RESTRICTED STOCK PURCHASE PLAN--1993 TO INCREASE THE NUMBER OF SHARES
SUBJECT THERETO BY 1,250,000 TO A TOTAL OF 2,750,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF.
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IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE DIRECTORS NAMED ON THE REVERSE SIDE OF THIS PROXY, "FOR" THE
AMENDMENT TO THE COMPANY'S INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION AND
RESTRICTED STOCK PURCHASE PLAN - 1993 TO INCREASE THE NUMBER OF SHARES SUBJECT
THERETO AND "FOR" RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS.
Date ____________________, 2001
--------------------------------
(Signature of stockholder)
Please sign your name exactly as
it appears hereon. Executors,
administrators, guardians,
officers of corporations and
others signing in a fiduciary
capacity should state their full
titles as such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN
AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.