<PAGE> 1
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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
EPOCH 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
/X/ 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:
<PAGE> 2
EPOCH PHARMACEUTICALS, INC.
1725 220TH STREET, S.E., NO. 104
BOTHELL, WASHINGTON 98201
(206) 485-8566
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 25, 1996
------------------------
To the Stockholders of Epoch Pharmaceuticals, Inc.:
Please take notice that the Annual Meeting of Stockholders of Epoch
Pharmaceuticals, Inc. (the "Company") will be held at the Company's corporate
offices located at 1725 220th Street, S.E., No. 104, Bothell, Washington, on
Wednesday, September 25, 1996, at 9:00 a.m. local time, for the following
purposes:
1. To elect four (4) directors to the Company's Board of Directors to
serve until the 1997 Annual Meeting of Stockholders;
2. To consider and vote upon a proposal to approve and adopt an
amendment to the Company's Restated Certificate of Incorporation to
authorize 10,000,000 shares of Preferred Stock, with such designations,
preferences, limitations and relative rights as the Board of Directors
shall determine (which amendment may be deemed to have anti-takeover
effects);
3. To consider and vote upon a proposal to approve and adopt an
amendment to the Company's Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock issuable
thereunder from 20,000,000 to 40,000,000 shares (which amendment may be
deemed to have anti-takeover effects); and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Only stockholders of record on the books of the Company at the close of
business on August 27, 1996 will be entitled to notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. A majority of the outstanding shares must be represented at the Annual
Meeting in order to transact business. Consequently, if you are unable to attend
in person, please execute the enclosed proxy and return it in the enclosed
addressed envelope. Your promptness in returning the proxy will assist in the
expeditious and orderly processing of the proxies.
If you return your proxy, you may nevertheless attend the Annual Meeting
and, if you wish, vote your shares in person.
By Order of the Board of Directors,
EPOCH PHARMACEUTICALS, INC.
Sanford S. Zweifach
Secretary
Bothell, Washington
August 30, 1996
<PAGE> 3
EPOCH PHARMACEUTICALS, INC.
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 25, 1996
------------------------
PROXY STATEMENT
------------------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Epoch
Pharmaceuticals, Inc. (the "Company") for use at the Company's Annual Meeting of
Stockholders to be held at the Company's executive offices located at 1725 220th
Street, S.E., No. 104, Bothell, Washington 98201, on Wednesday, September 25,
1996 at 9:00 a.m. local time, and at any and all adjournments or postponements
thereof. All shares represented by each properly executed, unrevoked proxy
received in time for the Annual Meeting will be voted in the manner specified
therein. If the manner of voting is not specified in an executed proxy received
by the Company, the proxy will be voted FOR the election of the nominees to the
Board of Directors listed in the proxy, FOR the proposal to approve an amendment
to the Company's Restated Certificate of Incorporation to authorize 10,000,000
shares of Preferred Stock, with such designations, preferences, limitations and
relative rights as the Board of Directors shall determine, and FOR the proposal
to approve an amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 20,000,000 to
40,000,000 shares. Any stockholder has the power to revoke his proxy at any time
before it is voted. A proxy may be revoked by delivering a written notice of
revocation to the Secretary of the Company, by presenting at the Annual Meeting
a later-dated proxy executed by the person who executed the prior proxy, or by
attendance at the Annual Meeting and voting in person by the person who executed
the proxy.
This Proxy Statement is being mailed to the Company's stockholders on or
about August 30, 1996. The solicitation will be by mail and the cost will be
borne by the Company. Expenses will also include reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. Further solicitation of proxies may be made by telephone
or oral communication with some stockholders by the Company's regular employees
who will not receive additional compensation for the solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 14,266,713 shares of the Company's Common
Stock outstanding at the close of business on August 27, 1996 will be entitled
to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. On each matter to be considered at the Annual Meeting,
stockholders will be entitled to cast one vote for each share held of record on
August 27, 1996.
An automated system administered by the Company's transfer agent will
tabulate votes cast at the Annual Meeting. A majority of the shares entitled to
vote, represented in person or by proxy, will constitute a quorum at the Annual
Meeting. 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, and each is tabulated separately. With regard to
the election of directors, votes may be cast in favor of or withheld from each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect. In determining whether the proposal to amend the Company's
Restated Certificate of Incorporation to authorize Preferred Stock or the
proposal to amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock has been approved,
abstentions and broker non-votes will have the same effect as votes against the
proposal.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 6, 1996 certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of its Common Stock, (ii) each director and nominee as a director, (iii) each of
the executive officers named in the Summary Compensation Table, and (iv) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OWNED(1) OUTSTANDING SHARES
- ---------------- ---------------- ------------------
<S> <C> <C>
Grace Brothers Ltd.......................................... 3,786,193 26.5%
1000 W. Diversey Parkway
Chicago, Illinois 60614
Entities and Persons affiliated with
Biotechnology Investment Group, L.L.C.(2)................. 2,944,799 19.6%
c/o Schroeder Venture Advisers, Inc.
1055 Washington Boulevard
Stamford, Connecticut 06901
The Edward Blech Trust(3)................................... 1,400,000 9.4%
c/o Rabbi Mordechai Jofen
418 Avenue I
Brooklyn, New York 11230
United Equities Commodities Company(4)...................... 1,000,000 6.8%
c/o Phillippe D. Katz
160 Broadway
New York, New York 10038
Fred Craves(5).............................................. 558,325 3.9%
Kenneth L. Melmon(6)........................................ 69,532 *
Rich B. Meyer, Jr., Ph.D.(7)................................ 165,791 1.2%
Roy C. Page(8).............................................. 43,955 *
Gregory Sessler(9).......................................... 7,500 *
Sanford Zweifach(10)........................................ 30,000 *
All executive officers and directors as a group (6
persons)(11).............................................. 875,103 5.9%
</TABLE>
- ---------------
* Less than one percent.
(1) 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.
(2) According to a Schedule 13D filed with the Securities and Exchange
Commission in February 1995, Biotechnology Investment Group, L.L.C. ("BIG")
shares voting and dispositive power with respect to such shares with (i)
Schroeder Venture Advisers, Inc., the managing member of BIG, (ii) Edward
Blech Trust, a member of BIG, (iii) Jeffrey J. Collinson, president and
sole director of Schroeder Venture Advisers, Inc. and (iv) BIO Holding,
L.L.C. ("BIO"), a member of BIG. In addition, Wilmington Trust Company
("WTC"), as the voting trustee under the Company Voting Trust Agreement
dated as of January 19, 1995 among WTC, BIG and BIO, and as the holder of a
majority interest in BIO, has the right to direct the actions of BIO,
including any voting or dispositive power that BIO may have over such
shares by virtue of its membership in BIG. Further, Citibank, N.A. has the
right to direct the actions of WTC with respect to any rights that WTC may
have to direct the actions of BIO pursuant to the Company Voting Trust
Agreement. Each of BIG, Schroeder Venture Advisers, Inc., Edward Blech
Trust, Jeffrey J. Collinson and BIO disclaim beneficial ownership of such
shares except to the extent, if any, of each such reporting person's actual
pecuniary interest therein. In addition, according to a Schedule 13D filed
with the Securities and Exchange Commission in February 1995 on
2
<PAGE> 5
behalf of David Blech, a former principal stockholder of the Company, Mr.
Blech may be deemed to beneficially own such shares by virtue of the fact
that Mr. Blech may obtain the right to direct the actions of WTC with
respect to any rights that WTC may have to direct the actions of BIO,
pursuant to the terms of a Restructuring Agreement, dated as of January 19,
1995 among Citibank, N.A., Mr. Blech, Mr. Blech's mother and Schroeder
Venture Advisers, Inc., if Mr. Blech repays his indebtedness to Citibank,
N.A. However, Mr. Blech currently has no voting or dispositive power over
such shares. Such shares include 735,721 shares subject to warrants
exercisable within 60 days.
(3) Includes 700,000 shares subject to warrants exercisable within 60 days.
(4) Includes 500,000 shares subject to warrants exercisable within 60 days.
(5) Includes 204,462 shares subject to warrants and options exercisable within
60 days, including warrants to purchase 83,325 shares which are held by
Burrill & Craves, of which Fred Craves is a general partner. Fred Craves
disclaims beneficial ownership of such warrants and the shares underlying
such warrants except to the extent of his pecuniary interest in Burrill &
Craves.
(6) Includes 60,999 shares subject to warrants and options exercisable within
60 days.
(7) Includes of 98,140 shares subject to options exercisable within 60 days.
(8) Includes 31,435 shares subject to warrants and options exercisable within
60 days.
(9) Consists of 2,500 shares subject to options exercisable within 60 days.
(10) Consists of 30,000 shares subject to warrants exercisable within 60 days.
(11) Includes directors' and executive officers' shares listed above, including
432,536 shares subject to warrants and options exercisable within 60 days.
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect the four (4)
proposed nominees named below unless contrary instructions are given in the
proxy. 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.
Each director is to hold office until the next annual meeting and until his
successor is elected and qualified.
The names and certain information concerning the persons nominated by the
Board of Directors to become directors at the meeting are set forth below. THE
COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT YOU 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. Although each of the persons named below has consented to serve as a
director if elected and the Board of Directors has no reason to believe than any
of the nominees named below will be unable to serve as a director, if any
nominee withdraws or otherwise becomes unavailable to serve, the persons named
as proxies will vote for any substitute nominee designated by the Board of
Directors. The following information regarding the nominees is relevant to your
consideration of the slate proposed by the Board of Directors.
3
<PAGE> 6
NOMINEES
The following table and paragraphs set forth the names of and certain
information regarding the nominees for election as directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -------------------------------------------
<S> <C> <C>
Fred Craves, Ph.D. 51 Chairman of the Board of Directors and
Chief Executive Officer
Sanford S. Zweifach 40 President, Therapeutics and Chief Financial
Officer
Kenneth L. Melmon, M.D. 62 Director
Gregory Sessler 43 Director
</TABLE>
Dr. Craves joined the Company as Chairman of the Board of Directors in July
1993 and became Chief Executive Officer in April 1994. Since January 1994, Dr.
Craves has been 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.
Mr. Zweifach joined the Company in January 1995 as President-Therapeutics
and Chief Financial Officer. Mr. Zweifach is a principal of The Olmsted Group,
L.L.C., a merchant banking firm. Mr. Zweifach served as a director of the
Company from July 1994 to September 1994. 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.
Dr. Melmon has been a Director of the Company 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 ImmuLogic
Pharmaceutical Corporation.
Mr. Sessler became a Director in July 1994. Mr. Sessler is Chief Financial
Officer of Sonus Pharmaceuticals, Inc. From October 1990 until January 1995 he
served as Vice President, Chief Financial Officer and Secretary of Epoch. From
1986 to 1990, he was Chief Financial Officer and Secretary of Molecular Devices
Corporation and from 1981 to 1986 he was Vice President, Finance for Monoclonal
Antibodies, Inc. Before joining Monoclonal Antibodies, Inc., Mr. Sessler was
employed by Price Waterhouse & Co. Mr. Sessler received his M.B.A. from Stanford
University and is a Certified Public Accountant.
Dr. Craves and Mr. Zweifach are also employed by other entities and,
although they devote a substantial portion of their time to the Company, they
also devote a portion of their time to their positions at the other entities.
Both Dr. Craves and Mr. Zweifach have been engaged by the Company pursuant to
Consulting Agreements.
4
<PAGE> 7
EXECUTIVE OFFICER
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- ----------------------------------
<S> <C> <C>
Rich B. Meyer, Jr., Ph.D. 52 Vice President, Research and
Development -- Therapeutics, Chief
Scientific Officer
</TABLE>
Dr. Meyer joined Epoch in October 1986 as Director of Nucleic Acid
Chemistry. He has been Vice President, Research and Development, Therapeutics of
the Company since August 1991 and was appointed Chief Scientific Officer in June
1993. From 1985 to 1986, Dr. Meyer was a group leader at the Nucleic Acid
Research Institute, a joint venture of ICN Pharmaceuticals, Inc. and Eastman
Kodak Company. From 1980 to 1985 he was Associate Professor of Medicinal
Chemistry and in 1985, Acting Associate Dean for Research of the Graduate School
at Washington State University. From 1975 to 1980, he was Assistant Professor in
the Department of Pharmaceutical Chemistry at the University of California, San
Francisco. Dr. Meyer received his Ph.D. in Chemistry from the University of
California, Santa Barbara.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered during the fiscal years
ended December 31, 1995 and December 31, 1994 (the Company did not become a
reporting Company pursuant to Section 13(a) of the Securities Exchange Act of
1934 until October 1993), to the Company's Chief Executive Officer as of
December 31, 1995, and the Company's three other most highly compensated
executive officers as of December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION
- --------------------------------- ---- ------------ -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fred Craves...................... 1995 $100,000 $ -- $ -- -- $ --
Chief Executive Officer(2) 1994 100,000(3) -- -- -- --
Sanford S. Zweifach.............. 1995 126,750 21,871 -- -- --
President and
Chief Financial Officer
Allan G. Cochrane................ 1995 160,006 6,667 -- -- --
President, Chief Operating 1994 160,006 15,750 -- 120,000(5) --
Officer and President --
Diagnostics(4)
Rich B. Meyer, Jr., Ph.D......... 1995 135,000 5,625 -- -- --
Vice President, Research and 1994 135,000 -- -- 119,999(5) 4,765(6)
Development -- Therapeutics and
Chief Scientific Officer
</TABLE>
- ---------------
(1) Includes amounts deferred during 1994 and 1995 under the Company's 401(k)
employee savings and retirement plan. To date, the Company has not made any
matching contributions under that plan.
(2) Dr. Craves became Chief Executive Officer in April 1994.
(3) Includes amounts deferred during 1994.
(4) Mr. Cochrane served as President and Chief Operating Officer from June 1993
until January 1995. Mr. Cochrane served as President, Diagnostics until
March 1996.
(5) The reported grant reflects the repricing of existing options to purchase
the number of shares of Common Stock indicated.
(6) Represents the cancellation of indebtedness owed by Dr. Meyer to the
Company.
5
<PAGE> 8
OPTION MATTERS
Option Grants. No options were granted to any of the Company's executive
officers during the fiscal year ended December 31, 1995.
Option Exercises. None of the Company's executive officers exercised
options during the fiscal year ended December 31, 1995.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Employment Agreements. Effective August 30, 1994, the Company entered into
one-year employment agreements with all of the executive officers of the
Company, except Dr. Craves and Mr. Zweifach. Upon termination of an executive's
services for reasons other than cause during the one-year term, the executive
will be entitled to either notice or severance pay at the executive's then
current salary, equal to the greater of the balance of the one-year term or six
months, subject to reduction in certain circumstances. In the event of death or
disability during the one-year term, the executive will be entitled to six
months salary (less any amounts received from disability insurance). In
addition, upon termination, the executives are subject to a five-year
non-disclosure obligation and a six-month non-competition obligation. The
contracts have been extended to December 31, 1996.
Consulting Agreements. In July 1993, the Company entered into a one-year
consulting agreement with Dr. Craves under which he received $100,000 per year
for his services. This is the amount reflected as salary in the Summary
Compensation Table. The Company has extended the term of Dr. Craves' consulting
agreement for an additional term. The current extension runs to December 31,
1996.
In January 1995, the Company entered into a three-month consulting
agreement with Mr. Zweifach under which he received a monthly payment of
$11,250. This is the amount reflected as salary in the Summary Compensation
Table. The Company has extended the term of the contract to December 31, 1996.
Dr. Melmon also serves as a consultant to the Company and as a member of
the Company's Scientific Advisory Board and receives compensation in those
capacities.
DIRECTORS' COMPENSATION
The Company pays all non-employee directors a fee of $1,000 for each Board
of Directors meeting attended in person. In July 1993, the Company adopted a
Non-Employee Directors Option Plan (the "Directors Plan") pursuant to which the
Company granted each non-employee director (except Dr. Craves) 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 will receive fully-vested 10-year
options to purchase 5,000 shares of Common Stock at the then current fair market
value. Non-employee directors who subsequently join the Board of Directors will
receive, upon each anniversary of joining the Board of Directors, fully-vested
10-year options to purchase 5,000 shares of Common Stock at the then current
fair market value. In April 1995 Mr. Sessler's options were extended from April
30, 1995 to July 31, 1995. None of these options were exercised before their
expiration.
ATTENDANCE AT MEETINGS AND BOARD COMMITTEES
During the fiscal year ended December 31, 1995, the Board of Directors held
a total of four (4) meetings. No member of the Board of Directors attended fewer
than 75% of the meetings of the Board. The Board of Directors has no committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 12, 1994 the Company entered into a bridge financing agreement
with certain investors under which the Company received $1,200,000 in operating
funds and issued secured notes in the principal amount of $1,200,000 and
warrants to purchase 2,400,000 shares of Common Stock at an exercise price $0.50
per share. Of such amount, $1,000,000 was loaned by Grace Brothers Ltd. On May
22, 1995 the Company and the
6
<PAGE> 9
investors agreed to amend the bridge financing agreement by extending the
payment due date of the secured notes to March 31, 1996, adding the interest
accrued through that date ($56,000) to the principal balance, and adjusting the
warrant exercise price to $0.30 per share. On March 29, 1996 the Company and the
investors agreed to further amend the bridge financing agreement by extending
the payment due date of the secured notes to April 30, 1996. On April 30, 1996,
the Company repaid $736,000 in principal and interest on these notes and
extended the due date on $660,000 in principle to June 30, 1996 at which time
such amount was repaid in full. In June 1996, these lenders, including Grace
Brothers Ltd., elected to exercise warrants to purchase 2,200,000 shares of
Common Stock at an exercise price of $0.30 per share.
In December 1994 the Company authorized the issuance of 5-year warrants to
purchase 150,000 shares of Common Stock at an exercise price of $0.50 per share
to Burrill & Craves, a consulting firm of which Dr. Craves is a principal. Such
warrants are to be issued to Burrill & Craves in connection with the renewal of
Dr. Craves' Consulting Agreement with the Company. Pursuant to the terms of
these warrants, Burrill & Craves shall have registration rights with respect to
the shares of Common Stock issuable upon exercise of such warrants.
On January 16, 1996 the Company issued five year warrants to purchase
250,000 shares of Common Stock to Burrill & Craves, a consulting firm of which
Dr. Craves is a principal, and 345,000 shares of Common Stock to the Olmsted
Group, L.L.C., a merchant banking firm of which Mr. Zweifach is a principal, at
an exercise price of $0.50 per share, in consideration for the services
performed by Burrill & Craves and The Olmsted Group, L.L.C., respectively, in
connection with the sale of the Corporation's diagnostics division and other
corporate matters. The warrants vest as follows: (i) 33 1/2% at issuance; (ii)
33 1/2% upon the earlier of (1) June 30, 1997, or (2) the date on which the
Corporation enters into an agreement with a corporate partner; and (iii) 33 1/2%
on January 1, 1999. All such warrants shall vest, to the extent not already
vested upon a change of control.
PROPOSAL 2
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO AUTHORIZE PREFERRED STOCK
The Board of Directors has directed that there be submitted to the
stockholders of the Company at the Annual Meeting a proposed amendment to
Article 4 of the Company's Restated Certificate of Incorporation. The proposed
amendment can be used to make more difficult a change in control of the Company.
Currently, Article 4 authorizes the Company to issue up to 20,000,000
shares of Common Stock, $.01 per share par value (stockholders are being asked
to vote on a separate proposal to increase the number of authorized shares of
Common Stock -- See "Proposal 3" below). The proposed amendment, which was
unanimously approved by the Company's Board of Directors, will authorize the
Company to issue up to 10,000,000 shares of Preferred Stock, $.01 per share par
value (the "Preferred Stock"), and will expressly authorize the Board of
Directors to provide for the issuance of the Preferred Stock in one or more
series, to establish the number of shares to be included in each such series and
to fix the designations, powers, preferences and relative, participating,
optional or other special rights of such series, along with any other
qualifications, limitations and restrictions thereon. Holders of Common Stock
have no pre-emptive rights to purchase or otherwise acquire any Preferred Stock
that may be issued in the future.
The proposed amendment will give the Company increased financial
flexibility as it will allow Preferred Stock to be available for issuance from
time to time as determined by the Board for any proper corporate purpose. Such
purposes could include, without limitation, issuance for cash as a means of
obtaining capital for use by the Company, issuance as part or all of the
consideration required to be paid by the Company for acquisitions of other
businesses or properties, and issuance under employee benefit plans.
The Company does not presently have any plans, agreements, understandings
or arrangements that will or could result in the issuance of any Preferred
Stock.
7
<PAGE> 10
For a discussion of certain anti-takeover aspects of the Proposal and
existing anti-takeover measures currently affecting stockholders of the Company,
see "Certain Anti-takeover Matters" below.
While the amendment may have anti-takeover ramifications, the Board of
Directors believes that financial flexibility offered by the amendment outweighs
any disadvantages. To the extent that it may have anti-takeover effects, the
amendment may encourage persons seeking to acquire the Company to negotiate
directly with the Board of Directors, enabling the Board to consider the
proposed transaction in a nondisruptive atmosphere and to discharge effectively
its obligation to act on the proposed transaction in a manner that best serves
the stockholders' interests.
The affirmative vote of the holders of the majority of the outstanding
shares of Common Stock is required to authorize the proposed amendment regarding
the issuance of Preferred Stock. THE BOARD OF DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF
PREFERRED STOCK.
PROPOSAL 3
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has directed that there be submitted to the
stockholders of the Company a proposed amendment to Article 4 of the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock of the Company from 20,000,000 shares to 40,000,000
shares (stockholders are being asked separately to vote on a proposal to
authorize a new class of Preferred Stock -- see "Proposal 2" above). The
proposed amendment can be used to make more difficult a change in control of the
Company.
As of the close of business on August 27, 1996, 14,266,713 shares of Common
Stock of the Company were issued and outstanding, and 2,424,827 shares of Common
Stock were committed for issuance pursuant to outstanding stock options. In
addition, as of August 27, 1996, 7,700,023 shares of Common Stock of the Company
were committed for issuance upon the exercise of outstanding warrants, including
warrants sold in the Company's recent private placement.
The proposed amendment will enable the Company to meet its requirements for
the issuance of Common Stock upon the exercise of outstanding stock options and
warrants. In addition, the proposed amendment will give the Company increased
financial flexibility as it will allow additional shares of Common Stock to be
available for issuance from time to time as determined by the Board for any
proper corporate purpose. Such purposes could include, without limitation,
issuance for cash as a means of obtaining capital for use by the Company,
issuance as part or all of the consideration required to be paid by the Company
for acquisitions of other businesses or properties, and issuance under employee
benefit plans and upon exercise of a Unit Purchase Option granted to the
underwriter of the Company's initial public offering.
The Company does not presently have any plans, agreements, understandings
or arrangements that will or could result in the issuance of any Common Stock,
other than the issuance of Common Stock upon the exercise of outstanding
warrants and outstanding stock options granted under the Company's stock option
plans.
For a discussion of anti-takeover aspects of the Proposal and existing
anti-takeover measures currently affecting stockholders of the Company, see
"Certain Anti-takeover Matters" below.
While the amendment may have anti-takeover ramifications, the Board of
Directors believes that financial flexibility offered by the amendment outweighs
any disadvantages. To the extent that it may have anti-takeover effects, the
amendment may encourage persons seeking to acquire the Company to negotiate
directly with the Board of Directors, enabling the Board to consider the
proposed transaction in a nondisruptive atmosphere and to discharge effectively
its obligation to act on the proposed transaction in a manner that best serves
the stockholders' interests.
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The affirmative vote of the holders of the majority of the outstanding
shares of Common Stock is required to authorize the proposed amendment regarding
the increase in number of shares of authorized Common Stock.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock of the Company now authorized.
Holders of Common Stock do not have preemptive rights to subscribe for
additional securities which may be issued by the Company, which means that
current stockholders do not have a prior right to purchase any new issue of
capital stock of the Company in order to maintain their proportionate ownership
thereof. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
CERTAIN ANTI-TAKEOVER MATTERS
In deciding how to vote on Proposal 2 to authorize Preferred Stock and
Proposal 3 to increase the number of authorized shares of Common Stock,
stockholders should consider the following potential impediments to an
acquisition of the Company which may be adopted in the future by the Board of
Directors or which currently exist.
With respect to the Proposal to authorize Preferred Stock, it is not
possible to state the effects of the proposed amendment upon the rights of
holders of Common Stock until the Board of Directors determines the respective
rights, including any dividend rates, conversion prices or voting rights, of the
holders of one or more series of Preferred Stock. The effects of such issuance
could include, however (i) reduction of the amount otherwise available for
payment of dividends on Common Stock, if dividends are payable on the Preferred
Stock, (ii) restrictions on dividends on Common Stock, if any dividends on the
Preferred Stock are in arrears, (iii) dilution of the voting power of Common
Stock, if the Preferred Stock has voting rights, and (iv) restrictions of the
rights of holders of Common Stock to share in the Company's assets on
liquidation until satisfaction of any liquidation preference granted to the
holders of Preferred Stock.
Shares of voting or convertible Preferred Stock could be issued, or rights
to purchase such shares could be issued, to create voting impediments or to
frustrate persons seeking to effect a takeover or otherwise gain control of the
Company. The Delaware General Corporation Law ("DGCL") permits the issuance of
classes of shares with voting rights under which a majority vote of the holders
of each class, voting separately, is required to approve a merger. Preferred
shares could be issued with such rights to make approval of a merger more
difficult. Issuance of shares of Preferred Stock or Common Stock could also
increase the absolute cost of a merger or other takeover transaction if the
price to be paid in such transaction for such additional shares, pursuant to
their terms or otherwise, exceeds the consideration received by the Company upon
issuance of such shares. The ability of the Board of Directors to issue
Preferred Stock, with rights and preferences which it deems advisable, or its
ability to issue additional shares of Common Stock, could discourage an attempt
by a person to acquire control of the Company by tender offer or other means.
Such issuances could therefore deprive stockholders of benefits that could
result from such an attempt, such as the realization of a premium over the
market price for their shares in a tender offer or the temporary increase in
market price that such an attempt could cause. Moreover, the issuance of Common
Stock or voting Preferred Stock to persons friendly to the Board of Directors
could make it more difficult to remove incumbent managers and directors from
office even if such change were to be favorable to stockholders generally.
Other potential anti-takeover measures are available to management and the
Board of Directors under the DGCL. Although the DGCL may protect stockholders
against partial takeovers and abusive takeover tactics, the effects thereof may
negatively impact stockholders desiring a change of control in the ways set
forth above.
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
If Proposal 2 and Proposal 3 are approved, the text of Article 4 of the
Company's Restated Certificate of Incorporation will be as follows:
"ARTICLE 4: The total number of shares of stock which the Corporation
shall have the authority to issue is fifty million (50,000,000) shares,
consisting of a class of ten million (10,000,000) shares of Preferred
Stock par value $.01 per share, and a class of forty million
(40,000,000) shares of Common Stock par value $.01 per share, (the
Preferred Stock, par value $.01 per share, being herein referred to as
'Preferred Stock'; and the Common Stock, par value $.01 per share, being
herein referred to as 'Common Stock'). The Board of Directors is
expressly authorized to provide for the issuance of the shares of
Preferred Stock in one or more series and, by filing a Certificate
pursuant to the applicable law of the State of Delaware, to establish
from time to time the number of shares to be included in each series,
and to fix the designations, powers, preferences and relative,
participation, optional or other special rights, if any, of the shares
of each such series and the qualifications, limitations and restrictions
thereof, if any, with respect to each such series of Preferred Stock."
If Proposal 2 is approved but Proposal 3 is not approved, the text of
Article 4 of the Company's Certificate of Incorporation will be as follows:
"ARTICLE 4: The total number of shares of stock which the Corporation
shall have the authority to issue is thirty million (30,000,000) shares,
consisting of a class of ten million (10,000,000) shares of Preferred
Stock par value $.01 per share, and a class of twenty million
(20,000,000) shares of Common Stock par value $.01 per share, (the
Preferred Stock, par value $.01 per share, being herein referred to as
'Preferred Stock'; and the Common Stock, par value $.01 per share, being
herein referred to as 'Common Stock'). The Board of Directors is
expressly authorized to provide for the issuance of the shares of
Preferred Stock in one or more series and, by filing a Certificate
pursuant to the applicable law of the State of Delaware, to establish
from time to time the number of shares to be included in each series,
and to fix the designations, powers, preferences and relative,
participation, optional or other special rights, if any, of the shares
of each such series and the qualifications, limitations and restrictions
thereof, if any, with respect to each such series of Preferred Stock."
If Proposal 3 is approved but Proposal 2 is not approved, the text of
Article 4 of the Company's Certificate of Incorporation will be as follows:
"ARTICLE 4: The Corporation is authorized to issue one class of shares
of stock to be designated 'Common.' The total number of shares that the
Corporation is authorized to issue is forty million (40,000,000) shares.
The common shares shall each have a par value of $.01 per Share."
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP were the Company's auditors for fiscal 1995 and have
been appointed by the Company's Board of Directors to serve as the Company's
auditors for fiscal 1996. A representative of KPMG Peat Marwick LLP is expected
to be present at the Meeting to respond to appropriate questions from
stockholders, and will have an opportunity to make a statement if he or she so
desires.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any stockholders desiring to submit a proposal for action at the 1997
Annual Meeting of Stockholders, which the Company anticipates will be held in
September 1997, which is desired to be presented 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 May 1,
1997. Matters pertaining to such proposals, including the number and length
thereof, the 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 Commission and other laws and regulations to which interested
persons should refer.
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<PAGE> 13
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon its review of the copies of reporting forms furnished to the
Company, the Company believes that all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934 applicable to its directors, officers and
any persons holding ten percent or more of the Company's Common Stock with
respect to the Company's fiscal year ended December 31, 1995, were satisfied,
except that one Annual Statement of Changes in Beneficial Ownership on Form 5
("Form 5") was filed late by Fred Middleton, a former director of the Company
relating to one transaction, and two Forms 5 were filed late by each of Roy Page
and Kenneth Melmon, both directors of the Company, relating to two transactions.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Meeting other than those set forth above. However, if other matters come before
the Meeting, it is the intention of the persons named in the accompanying proxy
to vote the proxy in accordance with the recommendations of the Board of
Directors on such matters, and discretionary authority to do so is included in
the proxy.
By Order of the Board of Directors
Sanford S. Zweifach
August 30, 1996
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995 AND QUARTERLY REPORTS ON FORM 10-QSB FOR THE QUARTERLY
PERIODS ENDING MARCH 31, 1996 AND JUNE 30, 1996 ARE BEING DELIVERED TO
STOCKHOLDERS OF RECORD AS OF AUGUST 27, 1996 WITH THIS PROXY STATEMENT. COPIES
OF THE EXHIBITS TO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AND QUARTERLY
REPORTS ON FORM 10-QSB WILL BE PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE SECRETARY, EPOCH PHARMACEUTICALS, INC., 1725 220TH
STREET, S.E., NO. 104, BOTHELL, WASHINGTON 98201.
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<PAGE> 14
PROXY EPOCH PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS
SEPTEMBER 25, 1996
The undersigned hereby nominates, constitutes and appoints Fred 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 1996 Annual Meeting of Stockholders of the Company to be held at
the principal offices of the Company, 1725 220th Street, S.E., No. 104,
Bothell, Washington 98021, on September 25, 1996, at 9:00 a.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:
Nominees: Fred Craves, Ph.D. Kenneth L. Melmon, M.D.
Sanford S. Zweifach Gregory Sessler
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
above (except as marked to to vote for all nominees
the contrary below) listed above
(INSTRUCTION: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below)
---------------------------------------------------------
2. Amendment to the Company's Restated Certificate of Incorporation to
authorize Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Amendment to the Company's Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.
IMPORTANT--PLEASE SIGN AND DATE ON BELOW AND RETURN PROMPTLY
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE REVERSE SIDE. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL
BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NAMED ON THIS PROXY, "FOR" THE
APPROVAL OF THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO AUTHORIZE SHARES OF PREFERRED STOCK AND "FOR" THE APPROVAL OF
THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
<PAGE> 15
Date , 1996
-------------------------
--------------------------*
(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.
