1
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
EPOHC PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(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:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(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):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] 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:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
2
EPOCH PHARMACEUTICALS, INC.
12277 134TH COURT NE, SUITE 110
REDMOND, WASHINGTON 98052
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 17, 2000
TO THE STOCKHOLDERS OF EPOCH PHARMACEUTICALS, INC.
The 2000 Annual Meeting of Stockholders of Epoch Pharmaceuticals, Inc.
(the "Company"), will be held at the Hyatt Regency Bellevue, 900 Bellevue Way
NE, Bellevue, Washington 98004 on August 17, 2000, at 2:00 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. Richard L. Dunning
William G. Gerber, M.D. Herbert L. Heynecker, 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 1,000,000 to a total of 1,500,000;
(3) To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to change the name of the Company
from Epoch Pharmaceuticals, Inc. to Epoch Biosciences, Inc.;
(4) To ratify the appointment of KPMG LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000;
and
(5) 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 July 17, 2000
will be entitled to vote at the meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
William G. Gerber, M.D.
Chief Executive Officer
Redmond, Washington
July _____, 2000
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.
3
EPOCH PHARMACEUTICALS, INC.
12277 134TH COURT NE, SUITE 110
REDMOND, WASHINGTON 98052
---------------
PROXY STATEMENT
---------------
INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Epoch Pharmaceuticals, Inc.
a Delaware corporation (the "Company"), for use at its 2000 Annual Meeting of
Stockholders ("Annual Meeting") to be held on August 17, 2000, at 2:00 p.m., at
the Hyatt Regency Bellevue, 900 Bellevue Way NE, Bellevue, Washington 98004.
This Proxy Statement and the accompanying proxy are being mailed to stockholders
on or about July 20, 2000. 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 Pharmaceuticals, Inc., 12277 134th Court NE, Suite 110, Redmond,
Washington 98052, 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, "FOR" the amendment to
the Company's Amended and Restated Certificate of Incorporation to change the
name of the Company to Epoch Biosciences, Inc. 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 July 17, 2000 (the "Record
Date"), will be entitled to vote at the meeting or any adjournment or
postponement thereof. As of the Record Date, there were _____ 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 the election of directors, the seven candidates receiving
the highest number of affirmative votes will be elected as directors. Proposals
2 and 4 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. Proposal 3 requires for approval the affirmative vote of a
majority of the shares of Common Stock of the Company outstanding as of the
Record Date. 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
4
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.
This Proxy Statement contains four proposals requiring stockholder
action. Proposal No. 1 requests the election of seven directors to the Company's
Board. Proposal No. 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 1,000,000 shares. Proposal No. 3 requests that the stockholders
approve an amendment to the Company's Amended and Restated Certificate of
Incorporation which would, if approved, change the name of the Company from
Epoch Pharmaceuticals, Inc. to Epoch Biosciences, Inc. Proposal No. 4 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 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 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 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 of Directors.
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. 54 Chairman of the Board of Directors
Richard L. Dunning 54 Director
William G. Gerber, M.D. 53 Chief Executive Officer and Director
Herbert L. Heynecker, Ph.D. 56 Director
Kenneth L. Melmon, M.D. 65 Director
Riccardo Pigliucci 53 Director
Sanford S. Zweifach 44 President, Chief Financial Officer, 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.
2
5
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 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 and Medarex, Inc.
Mr. Dunning has been a Director of Epoch since October 1996. Since
April 1996, Mr. Dunning has served as the President and Chief Executive Officer
of Nexell Pharmaceuticals, Inc., and was elected to the board of directors of
Nexell in May 1999. 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.
Dr. Gerber has served as Chief Executive Officer of Epoch
Pharmaceuticals, 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 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, 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.
Dr. Heyneker is the Chief Technology Officer and a founder of EOS
Biotechnology, Inc., a company focused on drug target discovery, where he has
been since its inception in 1997. Prior to joining EOS, Dr. Heyneker was
involved with Array Technologies, Inc., a company devoted to the development of
oligonucleotide and cDNA arrays, which he co-founded in 1996. 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 Genecor International, Inc., a
joint venture between Genetech and Corning, after joining Genetech as a senior
scientist in 1978. He is a Director of IntroGene, B.V., Chairman of the
scientific advisory board of Pharming, B.V., and as advisor for Genencor and
Energy Biosystems Corp. 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. Dr. Melmon
is Professor of Medicine at Stanford University School of Medicine, where he
joined the faculty in 1978. 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.
Mr. Pigliucci became a director of Epoch in February 2000. Mr.
Pigliucci is Chairman and Chief Executive Officer of Discovery Partners
International, 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
3
6
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 director of
Biosphere Medical and Dionex Corporation and a trustee of The Worcester
Foundation for Biomedical Research.
Mr. Zweifach joined Epoch in January 1995 as President and Chief
Financial Officer. 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 the 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 since January
1995. 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 one meeting during the
fiscal year ended December 31, 1999, which was attended by all incumbent
Directors except Dr. Melmon who was unavailable and Mr. Pigliucci who did not
become a member of the Board until February 2000. There are no family
relationships among any of the directors or executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
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 accountants 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 accountants. The Audit Committee was recently formed
in the year 2000 and has not held its first meeting.
The Compensation Committee is comprised of two directors selected by
the Board of Directors of the Company. The current members of the Compensation
Committee are Frederick B. Craves, Ph.D. and William G. Gerber, M.D. The
functions of the Compensation Committee include advising the Board of Directors
on officer and employee compensation. The Board of Directors, based on input
from the Compensation Committee, establishes the annual compensation rates for
the Company's executive officers. The Compensation Committee was recently formed
in the year 2000 and has not held its first meeting.
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.
4
7
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation earned during the years
ended December 31, 1997, 1998 and 1999 by the Company's Chief Executive Officer
and the two other executive officers whose total salary and bonus during 1999
exceeded $100,000 (collectively, the "Named Executive Officers"). Fred Craves
served as Epoch's Chief Executive Officer until September 1999, at which time
Dr. Gerber joined Epoch and assumed those duties.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Annual Compensation ------------
--------------------------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ---- -------- ----- ------------ ------------ ------------
Fred Craves 1999 $100,000 $ -- $ -- $ -- $ --
Chairman of the Board of 1998 $100,000 -- -- -- --
Directors 1997 $100,000 -- -- -- --
William G. Gerber 1999 78,688 -- -- 100,000 --
Chief Executive Officer
Sanford S. Zweifach 1999 135,000 -- -- -- --
President and 1998 135,000 -- -- -- --
Chief Financial Officer 1997 140,625 -- -- -- --
OPTION MATTERS
The following table sets forth the options granted to those persons
listed in the summary compensation table above. Options granted have a term of
10 years, and are subject to earlier termination in some situations related to
termination of employment.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Number of Securities % of Total Options Granted Exercise Price Expiration
NAME Underlying Options Granted to Employees in Fiscal Year ($/Share) Date
- ---- -------------------------- --------------------------- -------------- ----------
William G. Gerber 100,000 14.3% $1.87 9/8/2009
Dr. Gerber was granted options to purchase 100,000 shares of common
stock in September 1999 when he accepted the position of Chief Executive
Officer. The shares vest monthly over 12 months and have an exercise price of
$1.87.
Dr. Gerber was granted options to purchase 100,000 shares of common
stock in May 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, 1999. Also
reported are the values for "in the money" options which represent the positive
spread between the exercise prices of any of the existing stock options and the
fiscal year end price of our common stock at $3.25 per share.
5
8
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of securities Value of unexercised
underlying unexercised in-the-money
options/warrants/SARs options/warrants/SARs
at fiscal year-end at fiscal year-end
---------------------- ---------------------
Shares acquired Value Exercisable/ Exercisable/
Name on exercise realized Unexercisable Unexercisable
- ---- --------------- -------- ---------------------- ---------------------
Fred Craves 160,741 $ 246,482 616,666 / 0 $ 458,332 / 0
William G. Gerber -- -- 33,333 / 66,667 $ 43,666 / 87,334
Sanford S. Zweifach -- -- 101,250 / 0 $ 278,438 / 0
Dr. Craves exercised 160,741 warrants in December 1999 at a total price
of $75,000.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In July 1993, Epoch entered into a one-year consulting agreement with
Dr. Craves. The agreement has been extended for successive one year periods and
the agreement is currently in effect through February 28, 2001 at a rate of
$7,500 per month.
In January 1995, Epoch entered into a consulting agreement with Mr.
Zweifach. The agreement has been extended for successive one year periods and
the agreement is currently in effect through February 28, 2001 at a rate of
$7,500 per month.
Dr. Melmon also serves as a consultant to Epoch and as a member of our
Scientific Advisory Board and receives compensation in those capacities.
In September 1999, Epoch entered into an employment agreement with Dr.
Gerber. The agreement is for an eighteen month period and is currently in effect
through March 2001 at a rate of $250,000 per year. 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.
DIRECTORS' FEES
Epoch pays all non-employee directors a fee of $1,000 for each board of
directors meeting attended in person. In July 1993, we adopted a Non-Employee
Directors Option Plan pursuant to which each non-employee director (except Dr.
Craves) was granted a fully-vested 10-year option to purchase 10,000 shares of
common stock at an exercise price of $4.00 per share. In addition, upon each
anniversary of the inception of the Directors Plan each non-employee director
receives a fully-vested 10-year option to purchase 5,000 shares of common stock
at the then current fair market value. Non-employee directors who join the board
of directors will receive, upon each anniversary of joining the board of
directors, a fully-vested 10-year option to purchase 5,000 shares of common
stock at the then current fair market value.
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
6
9
holding ten percent or more of the Company's Common Stock were made with respect
to the Company's fiscal year ended December 31, 1999.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of June 28, 2000 about
the beneficial ownership of Epoch's common stock by each stockholder known by us
to be the beneficial owner of more than 5% of Epoch's common stock, as well as
each director, each of the executive officers named in the summary compensation
table, and all executive officers and directors as a group. Except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, the persons named in this table have sole voting and investment power with
respect to all shares of common stock.
NUMBER OF SHARES
BENEFICIALLY OWNED, SUBJECT
TO WARRANTS OR OPTIONS
EXERCISABLE WITHIN 60 DAYS NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF JUNE 28, 2000 BENEFICIALLY OWNED OUTSTANDING SHARES
- ---------------- --------------------------- ------------------ ------------------
Grace Brothers Ltd. -- 5,332,693 21.5%
1560 Sherman Avenue
Evanston, Illinois 60201
Fred Craves, Ph.D.(1) 700,000 3,868,241 15.1%
Bay City Capital, LLC(2) -- 2,880,000 11.6%
750 Battery Street, Suite 600
San Francisco, CA 94111
Richard L. Dunning(3) 15,000 472,143 1.9%
Nexell Therapeutics, Inc. -- 457,143 1.8%
9 Parker
Irvine CA 92618
Sanford S. Zweifach(4) 101,250 126,250 *
William G. Gerber, M.D. 104,168 104,168 *
Kenneth L. Melmon, M.D. 85,999 85,999 *
Herbert L. Heyneker, Ph.D. -- 602 *
All executive officers and directors 1,006,417 1,320,260 5.1%
as a group (6 persons)(5)
- ----------
* Less than one percent
(1) Includes warrants to purchase 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 Pritzer 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
7
10
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 and CEO.
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 15,000 warrants with a strike price of $.50 were exercised on
January 18, 2000.
(5) 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the Company's Board of
Directors established the levels of compensation for the Company's executive
officers, provided, however, Dr. Craves, Dr. Gerber 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.
CERTAIN 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.
Bay City Capital, which manages BCC Fund I, is a merchant banking
partnership that was formed by The Craves Group and The Pritzker Family business
interests. The founding partner of The Craves Group, Fred Craves, Ph.D., is the
Chairman of Epoch. Sanford S. Zweifach, Epoch's President and Chief Financial
Officer, is also a Managing Director and Chief Financial Officer of Bay City
Capital.
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 Board of
Directors amended the 1993 Plan on December 20, 1999 to increase the authorized
number of shares of Common Stock issuable thereunder by 1,000,000 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 1,500,000.
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.
At June 28, 2000 the shares granted under these plans exceeded the
number reserved for grants by 200,127 shares, therefore those grants in excess
of the authorized amount are subject to stockholder approval at the next annual
meeting.
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"
8
11
the amendment of the 1993 Plan to add 1,000,000 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
Pharmaceuticals, Inc., 12277 134th Court NE, Suite 110, Redmond, Washington
98052.
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 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 July 17, 2000,
approximately one (1) executive officer and director of the Company and
approximately twenty five (25) 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 serves as the "Administrator" for the 1993 Plan. 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. 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 (except death or disability, in which case the options may be
exercised within one year by the optionee or the optionee's estate), 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,
9
12
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 June 28, 2000, options to purchase an aggregate of 1,694,916
shares of Common Stock (net of canceled options) have been granted under the
1991 and 1993 Plans to the following persons or groups: (i) consultants, 55,000
shares; (ii) all current executive officers and directors (as a group), 695,000
shares; and (iii) all other employees who are not executive officers (as a
group), 944,916 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.
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.
10
13
PROPOSAL THREE
APPROVAL OF AMENDMENT TO EFFECT
A CORPORATE NAME CHANGE TO
EPOCH BIOSCIENCES, INC.
The Company is asking stockholders to vote on a proposal to amend and
restate the Company's Amended and Restated Certificate of Incorporation in order
to change the name of the Company from Epoch Pharmaceuticals, Inc. to Epoch
Biosciences, Inc.
The Company desires to change the name of the Company because
management believes the name Epoch Biosciences, Inc. more adequately reflects
the Company's business operations. The Company's focus previously was on
developing a therapeutic gene modification program. With the recognition that
the technologies could be adapted to the developing fields of molecular
diagnostics and genomics, including genetic analysis, the Company has shifted
its focus away from gene therapy. With the Company's new broader focus on
diagnostics, the Company feels the Biosciences name is more descriptive of the
Company. The Company began doing business as Epoch Biosciences on April 28,
2000, and the Company desires to change the corporate name to Epoch Biosciences,
Inc.
Accordingly, the Board of Directors recommends adoption by the
stockholders of the following amended Article I of the Amended and Restated
Certificate of Incorporation:
"ARTICLE 1. NAME
FIRST: The name of the corporation is Epoch Biosciences, Inc."
Approval of the amendment to the Amended and Restated Certificate of
Incorporation will require the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock outstanding as of the Record Date.
Proxies solicited by management for which no specific direction is included will
be voted "FOR" the amendment of the Amended and Restated Certificate of
Incorporation to change the Company name to Epoch Biosciences, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND ARTICLE I
OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY NAME TO EPOCH BIOSCIENCES, INC.
PROPOSAL FOUR
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, 2000, 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 stockholder and titled 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.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS
THE COMPANY'S INDEPENDENT AUDITORS.
11
14
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the
Company's 2001 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
April 1, 2001 in order to be considered for inclusion in the Company's proxy
statement relating to 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.
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of
its discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at least
45 days prior to the current year's anniversary of the date of mailing of the
prior year's proxy statement, then the Company will be allowed to use its
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Stockholders, if
the Company was not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by June 15, 2000, the Company will be allowed to use its voting
authority as outlined.
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
July __, 2000 William G. Gerber, M.D.
Chief Executive Officer
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, 1999 are
being mailed concurrently with this Proxy Statement to all stockholders of
record as of July 17, 2000. 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.
12
15
PROXY EPOCH PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS - AUGUST 17, 2000
The undersigned hereby nominates, constitutes and appoints Frederick B.
Craves, Ph.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 PHARMACEUTICALS, INC. which the undersigned is
entitled to represent and vote at the 2000 Annual Meeting of Stockholders of the
Company to be held at the Hyatt Regency Bellevue, 900 Bellevue Way NE, Bellevue,
Washington 98004 on August 17, 2000, at 2:00 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, 3 AND 4.
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.,
Richard L. Dunning, William G. Gerber, M.D., Herbert L. Heynecker, 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 1,000,000 TO A TOTAL OF 1,500,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY FROM EPOCH PHARMACEUTICALS, INC. TO EPOCH
BIOSCIENCES, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
16
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, "FOR" THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO EPOCH BIOSCIENCES, INC.
AND "FOR" RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS.
Date ____________________, 2000
________________________________________
(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.