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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.
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(Name of Registrant as Specified In Its Charter)
EPOCH PHARMACEUTICALS, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] 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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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EPOCH PHARMACEUTICALS, INC.
1725 220TH STREET, S.E., NO. 104
BOTHELL, WASHINGTON 98021
(425) 485-8566
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Epoch
Pharmaceuticals, Inc. (the "Company") will be held on Wednesday, April 29, 1998,
at 12:00 P.M. Pacific Time, at the principal offices of the Company, 1725 220th
Street, S.E., No. 104, Bothell, Washington 98021, for the following purposes
which are more fully described on the accompanying Proxy Statement:
1. To consider and vote upon a proposal to approve an amendment to the
Company's Restated Certificate of Incorporation, as amended, to increase
the authorized number of shares of the Company's Common Stock from
30,000,000 to 50,000,000 (which amendment may be deemed to have
anti-takeover effects) (Proposal 1);
2. To consider and vote upon a proposal to approve an amendment to the
Company's Restated Certificate of Incorporation to include a provision
pursuant to which the Company will be governed by Section 203 of the
General Corporation Law of the State of Delaware (which amendment may be
deemed to have anti-takeover effects) (Proposal 2);
3. To elect four (4) directors to serve until the next Annual Meeting
of Stockholders or until their successors are elected and duly qualified
(Proposal 3); and
4. To transact such other business as may properly come before the
Annual Meeting of Stockholders and adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 20, 1998,
as the record date for determination of the stockholders entitled to notice of
and to vote at the Annual Meeting of Stockholders.
By Order of the Board of Directors,
Sanford S. Zweifach,
President and Secretary
Bothell, Washington
Dated: April 14, 1998
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WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
THIS PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
IF YOU ATTEND THE ANNUAL MEETING.
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EPOCH PHARMACEUTICALS, INC.
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PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 29, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders (the "Meeting") of Epoch
Pharmaceuticals, Inc., a Delaware corporation ("Epoch" or the "Company"), to be
held at the principal offices of the Company, 1725 220th Street, S.E., No. 104,
Bothell, Washington 98021, at 12:00 P.M. Pacific Time, on Wednesday, April 29,
1998, and at any and all adjournments or postponements thereof, at which
stockholders of record at the close of business on March 20, 1998 (the "Record
Date") shall be entitled to vote.
REVOCABILITY OF PROXIES
A form of proxy for voting your shares at the Meeting is enclosed. Any
stockholder who executes and delivers a proxy has the right to revoke it at any
time before it is exercised by (i) filing an instrument revoking the proxy with
the Secretary of the Company, (ii) executing and returning a proxy bearing a
later date or (iii) appearing and voting in person at the Meeting. Subject to
such revocation, shares represented by a properly executed proxy received by the
Company in time for the Meeting will be voted in accordance with the
instructions on the proxy. If no instruction is specified, the shares
represented by the proxy will be voted FOR the approval of an amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
number of shares of Common Stock from 30,000,000 to 50,000,000, FOR the approval
of an amendment to the Company's Restated Certificate of Incorporation to
include a provision pursuant to which the Company will be governed by Section
203 of the General Corporation Law of the State of Delaware (the "DGCL") and FOR
the election as directors of the nominees proposed by the Board of Directors. If
any other business is properly presented at the Meeting, the proxy will be voted
in accordance with the recommendations of the Board of Directors.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is being made by the Board of Directors of the
Company. It is contemplated that proxies will be solicited through the mails,
but officers and regular employees of the Company may solicit proxies personally
or by telephone, telegram or facsimile without receiving special compensation
therefor. The Company will bear the entire cost of solicitation of proxies
including costs associated with the preparation, assembly, printing and mailing
of this Proxy Statement and any other materials used in the solicitation of
proxies or furnished to stockholders for the Meeting. Although there is no
formal agreement to do so, the Company may reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to the beneficial owners of the shares held of
record by such entities. In addition, the Company may use the services of
individuals or companies it does not regularly employ in connection with the
solicitation of proxies, if management determines that it is advisable.
VOTING AT THE MEETING
The shares of common stock of the Company, $.01 par value (the "Common
Stock"), constitute the only outstanding class of voting securities of the
Company. A total of 14,814,793 shares of Common Stock were outstanding on the
Record Date. Each stockholder will be entitled to one vote, in person or by
proxy, for each share of Common Stock held of record on 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
<PAGE> 4
whether a quorum is present, and each is tabulated separately. The effect of
proxies marked "withheld" as to any director nominee or "abstain" as to a
particular proposal and broker non-votes on Proposal Nos. 1, 2 and 3 is
discussed under each respective Proposal.
PROPOSAL ONE
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has directed that there be submitted to the
stockholders of the Company at the Meeting a proposed amendment to Article 4 of
the Company's Restated Certificate of Incorporation, as amended, to increase the
number of authorized shares of Common Stock of the Company from 30,000,000 to
50,000,000. Such amendment was unanimously approved by the Company's Board of
Directors on February 13, 1998. As more fully set forth below, the proposed
amendment is intended to enable the Company to have sufficient shares of Common
Stock to be issued or reserved for issuance pursuant to the rights offering (the
"Rights Offering") described below and other opportunities which may arise from
time to time. However, and while this is not the intent of the proposal, in
addition to the Rights Offering and general corporate purposes, the proposed
amendment can be used to make more difficult a change in control of the Company.
Pursuant to Article 4 of its Restated Certificate of Incorporation, as
amended (the "Restated Certificate of Incorporation"), the Company is presently
authorized to issue 30,000,000 shares of Common Stock, of which on the Record
Date, 14,814,793 shares of Common Stock were issued and outstanding, and
7,593,666 shares of Common Stock were committed for issuance pursuant to
outstanding stock options and warrants and upon exercise of a Unit Purchase
Option granted to the underwriter of the Company's initial public offering. The
Company is also presently authorized to issue 10,000,000 shares of Preferred
Stock, par value $.01 per share, of which no shares are issued and outstanding.
The authorized number of shares of Preferred Stock will not be changed as a
result of the Proposal.
The Company will require additional funds to continue its operations and,
over the longer term, will require substantial additional funds to maintain and
expand its research and development activities and to ultimately commercialize,
with or without the assistance of corporate partners, any of its proposed
products. Commencing in December, 1997, the Company entered into discussions
with potential investors with respect to both short and long term financing for
the Company. The Board of Directors determined to offer to the stockholders of
the Company the opportunity to participate in the financing and, accordingly,
the Company decided to undertake a Rights Offering in which the Company would
seek to raise between $4,000,000 and $5,000,000.
On February 26, 1998, the Company and Bay City Capital LLC, a merchant
banking partnership that was formed by The Craves Group and the Pritzker Family
business interests ("Bay City Capital"), entered into a Bridge Financing
Agreement (the "Bridge Loan") pursuant to which Bay City Capital loaned
$3,000,000 to the Company as a bridge to the consummation of the Rights Offering
or other long term financing. The outstanding principal amount of the Bridge
Loan bears interest at the rate of 8% per annum. The Bridge Loan is due and
payable on the first to occur of (i) February 25, 2000, (ii) the completion of a
Rights Offering, or other equity offering, the net proceeds of which exceed $4.0
million and (iii) the closing of an acquisition of the Company (whether by way
of merger, purchase of all or a controlling interest in stock, purchase of
substantially all assets or otherwise). The founding partner of The Craves
Group, Fred Craves, Ph.D., is the Chairman and Chief Executive Officer of the
Company. Sanford Zweifach, the President, Chief Financial Officer, Secretary and
a director of the Company, is also the Chief Financial Officer of Bay City
Capital.
The Company will seek to raise between $4,000,000 and $5,000,000 pursuant
to the Rights Offering by issuing to each holder of Common Stock of record as of
the close of business on a date to be determined by the Board of Directors (the
"Rights Offering Record Date") one non-transferable right (the "Right") for each
share of Common Stock held on the Rights Offering Record Date, with each such
Right entitling the holder to
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subscribe for and purchase one share of Common Stock (the "Basic Subscription
Privilege") for a price per share calculated at a certain discount to be
determined to the then current market price, which price will be the average
closing bid price of the Common Stock over the 20 trading days ending on the day
prior to the closing of the Rights Offering (the "Subscription Price").
If shares of Common Stock are not purchased by the holders of Common Stock
pursuant to the Basic Subscription Privilege (such shares, in the aggregate, are
sometimes hereinafter referred to as the "Excess Shares"), any holder purchasing
all of the shares of Common Stock available to it pursuant to the Basic
Subscription Privilege may purchase the Excess Shares, subject to proration (the
"Oversubscription Privilege"). Pursuant to the Bridge Loan, Bay City Capital has
agreed, subject to certain conditions, to purchase any Excess Shares remaining
after the exercise of the Basic Subscription Privilege and the Oversubscription
Privilege granted to existing stockholders in the Rights Offering. In lieu of
paying the Subscription Price in cash, Bay City Capital will cancel a like
amount of indebtedness under the Bridge Loan. All other stockholders of the
Company subscribing for shares of Common Stock in the Rights Offering will be
required to make payment of the Subscription Price in cash.
In consideration of Bay City Capital committing to make the Bridge Loan and
agreeing to purchase any Excess Shares remaining after the exercise of the Basic
Subscription Privilege and the Oversubscription Privilege granted to existing
stockholders pursuant to the Rights Offering, the Company issued to Bay City
Capital a warrant to subscribe for and purchase, at an exercise price of $.90
per share, 2,000,000 shares of the Company's Common Stock.
Stockholders of the Company will not separately vote on the Rights
Offering; however, the Company's ability to consummate the Rights Offering is
dependent upon the stockholders' approval of an amendment to the Company's
Restated Certificate of Incorporation to increase the authorized number of
shares of Common Stock. Pursuant to the Restated Certificate of Incorporation of
the Company, stockholders of the Company have no preemptive rights with respect
to the additional shares being authorized. The Restated Certificate of
Incorporation does not require further approval by stockholders prior to the
issuance of any additional shares of Common Stock or Preferred Stock.
If approved, the increased number of authorized shares of Common Stock will
be available for issue in connection with the Rights Offering, from time to time
upon the exercise of outstanding stock options and warrants, as well as for such
other purposes and consideration as the Board of Directors may approve, and no
further vote of stockholders of the Company will be required, except as provided
under Delaware law or under the rules of any national securities exchange or
market on which shares of Common Stock of the Company are at the time listed.
The availability of additional shares for issuance, without the delay and
expense of obtaining the approval of stockholders at a special meeting, will
afford the Company greater flexibility in acting upon proposed transactions,
including the Rights Offering. The increase in the authorized Common Stock may
facilitate certain anti-takeover devices that may be advantageous to management
if management attempts to prevent or delay a change of control. Employing such
devices may adversely impact stockholders who desire a change in management or
who desire to participate in a tender offer or other sale transaction involving
the Company. By use of anti-takeover devices, the Board of Directors may thwart
a merger or tender offer even though stockholders might be offered a substantial
premium over the then current market price of the Common Stock. At the present
time, the Company is not aware of any contemplated mergers, tender offers or
other plans by a third party to attempt to effect a change in control of the
Company, and this Proposal is not being made in response to any such attempts.
In addition, under certain circumstances, the Board of Directors could
create impediments to, or frustrate persons seeking to effect, a takeover or
transfer of control of the Company, by causing such additional authorized shares
to be issued to a holder or holders who might side with the Board in opposing a
takeover bid. In this connection, the Board could issue shares of Common Stock
to a holder that would thereby have sufficient voting power to assure that
certain types of proposals would not receive the requisite stockholder vote,
including any proposal to remove directors, to accomplish certain business
combinations opposed by the Board, or to alter, amend or repeal provisions in
the Company's Restated Certificate of Incorporation or Bylaws relating to any
such action. Furthermore, the existence of such shares might have the effect of
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discouraging any attempt by a person or entity, through the acquisition of a
substantial number of shares of Common Stock, to acquire control of the Company,
since the issuance of such shares could dilute the Common Stock ownership of
such person or entity.
In addition, if the stockholders approve Proposal 2, then the Company will
be governed by Section 203 of the Delaware General Corporation Law (the
"Delaware anti-takeover law"), which provides that certain "business
combinations" between a Delaware corporation and an "interested stockholder"
(generally defined as a stockholder who beneficially owns 15% or more of a
Delaware corporation's voting stock) are prohibited for a three-year period
following the date that such stockholder became an "interested stockholder",
unless certain exceptions apply. The term "business combination" is defined
generally to include, among other transactions, mergers, tender offers and
transactions which increase an "interested stockholder's" percentage ownership
of stock in a Delaware corporation.
As set forth above, such devices may adversely impact stockholders who
desire a change in management and/or the Board of Directors or to participate in
a tender offer or other sale transaction involving a change in control of the
Company. While it may be deemed to have potential anti-takeover effects, the
proposed amendment to increase the authorized Common Stock is not prompted by
any specific effort or takeover threat currently perceived by the Board of
Directors. Moreover, the Board of Directors does not currently intend to propose
additional anti-takeover measures in the foreseeable future.
The additional authorized shares of Common Stock will provide the Company
with flexibility to issue Common Stock to a level that the Board of Directors
believes is advisable. Except for the Rights Offering, the Company currently has
no plans to issue any additional shares of Common Stock other than the shares
that previously have been reserved for issuance as described above. However, the
additional shares of Common Stock for which authorization is sought would be
available for issuance by the Company by action of the Board of Directors and
could be used for such purposes as stock dividends, acquisitions, offerings of
stock or additional compensation plans.
VOTE REQUIRED; BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required to authorize the proposed increase in
the authorized number of shares of Common Stock. Abstentions and broker
non-votes will have the same effect as votes against the proposal.
If the amendment is authorized, the text of paragraph 1 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 sixty million (60,000,000) shares,
consisting of a class of ten million (10,000,000) shares of Preferred
Stock, par value $.01 per share, and a class of fifty million (50,000,000)
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."
The Board of Directors recommends that stockholders vote FOR the proposal
to amend the Restated Certificate of Incorporation to increase the authorized
number of shares of Common Stock. Proxies solicited by management will be voted
FOR the proposal unless a vote against the proposal or abstention is
specifically indicated.
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PROPOSAL TWO
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO ELECT TO BE
GOVERNED BY SECTION 203 OF THE DGCL
The Board of Directors has approved and recommended for stockholder
approval an amendment to the Company's Restated Certificate of Incorporation to
add a new Article 11 providing that the Company will be governed by Section 203
of the DGCL. In general, Section 203 prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for the
three years following the date that a person becomes an interested stockholder
unless: (i) prior to such date the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
The restrictions contained in Section 203 applies to all Delaware
corporations which meet certain requirements unless the stockholders of the
corporation adopt an amendment to the corporation's bylaws or certificate of
incorporation expressly electing not to be governed by Section 203.
An "interested stockholder," as defined in Section 203(c)(5) of the
statute, is a person (or an affiliate or associate of such person) who either
owns 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation, and owned 15% or more of its
outstanding voting stock in the previous three years. "Affiliates" include
persons that directly, or indirectly through one or more intermediaries,
control, or are controlled by, or are under common control with, another person.
Under a separate definition of "control" in the statute, ownership of 20% of a
corporation's voting stock gives rise to a rebuttable presumption of control of
a corporation, unless the person holds the shares in good faith as an agent,
bank, broker, nominee, custodian or trustee for a person or persons who do not
have control. "Associates" of a person include other organizations for which a
person serves as an officer, director or partner or in which a person holds 20%
or more of any class of voting stock; a trust or estate in which a person has a
20% beneficial interest or serves as trustee or in a fiduciary capacity; and any
relative or spouse of a person who lives with that person. A person "owns" stock
when the person individually or with or through its affiliates or associates
directly or indirectly beneficially owns such stock or has the right to acquire
such stock pursuant to any agreement, arrangement or understanding or upon
exercise of rights, warrants or options; or has the right to vote such stock; or
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of such stock with any other person who
beneficially owns such stock.
The statute exempts from the definition of an "interested stockholder"
stockholders who (i) owned shares in excess of 15% of a corporation's voting
stock prior to December 23, 1987, (ii) acquired such shares from a person
described in the previous clause by gift, inheritance or any transaction in
which no consideration was exchanged, or (iii) any person whose ownership of
shares in excess of 15% of a corporation's voting stock is the result of action
taken solely by the corporation; provided that such persons shall be interested
stockholders if thereafter they acquire additional shares of voting stock of the
corporation, except as a result of further corporate action not caused, directly
or indirectly, by such persons. Section 203 also exempts from its provisions
transactions between a corporation and an interested stockholder if such
interested stockholder acquired 15% or more of the corporation's voting stock
prior to the effective date of an amendment to the corporation's certificate of
incorporation whereby the corporation elected to be governed by Section 203 of
the DGCL. Therefore, if the stockholders of the Company approve Proposal 2, then
Grace Brothers Ltd. will be exempted from the provisions of Section 203 since it
acquired 15% or more of the Company's voting stock prior to the effective date
of the amendment to the Company's Restated Certificate of Incorporation.
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The statute's definition of "business combination" includes mergers by the
corporation or a directly or indirectly majority-owned subsidiary of the
corporation with or caused by an interested stockholder, and the sale, lease,
exchange, mortgage, pledge, transfer or other disposition of assets of the
corporation or of a subsidiary equal to 10% or more of the market value of the
corporation's consolidated assets or its outstanding stock to the interested
stockholder, except for proportionate dispositions to stockholders. Also defined
as "business combinations" are issuances or transfers of stock of the
corporation or of a subsidiary to the interested stockholder, except for
conversions or exchanges of pre-existing shares or the exercise of pre-existing
rights or, after the interested stockholder achieved that status, the conversion
or exercise of shares or rights distributed pro rata or the payment of dividends
pro rata or exchange offers, so long as any of the foregoing do not increase the
interested stockholder's proportionate ownership of a class of stock. The
definition of "business combination" also includes any receipt by the interested
stockholder (except proportionately as a stockholder) of the benefit of any
loans, advances, guarantees, pledges or other financial benefits. Finally, the
definition includes any transaction which increases the interested stockholder's
proportionate share of the stock of any class or series of the corporation
unless the increase is due to a purchase or redemption not caused by the
interested stockholder.
The three-year moratorium imposed on business combinations by Section 203
can be avoided in one of three ways. First, if, prior to a person's becoming an
interested stockholder, the board of directors approves the business combination
or the transaction which results in the person becoming an interested
stockholder, the moratorium does not apply. An interested stockholder also can
avoid the moratorium imposed by Section 203 by acquiring 85% of the
corporation's voting stock in the same transaction that makes him an interested
stockholder (excluding from the 85% calculation shares owned by directors who
are also officers and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept the tender offer). Finally,
if, on or after the date a person becomes an interested stockholder, the board
approves the business combination and such business combination also is approved
at an annual or special meeting of stockholders, and not by written consent, by
two-thirds of the voting stock not owned by the interested stockholder, the
moratorium does not apply to such business combination.
Any amendment, alteration or repeal of proposed Article 11 after it is
adopted by the stockholders of the Company will require the affirmative vote of
the holders of at least 66 2/3% of the combined voting power of all issued and
outstanding shares of voting stock of the Company, voting together as a single
class.
The provisions of Section 203 are designed to discourage or make more
difficult a takeover or acquisition of control by interested stockholders
without obtaining the consent of the Company's Board of Directors and its
stockholders. This provision, however, also could deprive stockholders of
possible opportunities to realize a premium for their shares and reduce the risk
to management that it might be displaced by a takeover.
Upon approval of the proposal to amend the Company's Restated Certificate
of Incorporation in accordance with Section 203(b) of the Delaware General
Corporation Law, "business combinations" with "interested stockholders" after
the amendment becomes effective will be conditioned upon satisfaction of the
provisions of Section 203 of the Delaware General Corporation Law. "Business
combinations" between the Company and any person who became an "interested
stockholder" of the Company on or prior to the date of the effectiveness of the
amendment to the Restated Certificate of Incorporation, however, will not be
conditioned upon satisfaction of the provisions of Section 203 of the Delaware
General Corporation Law. Therefore, if the stockholders of the Company approve
Proposal 2, any "business combination" with Grace Brothers Ltd., which acquired
15% or more of the Company's voting stock prior to the effectiveness of Article
11, would be exempt from the provisions of Section 203.
The Company, by action of its Board of Directors, previously voted to opt
out of Section 203 by an amendment to its Bylaws. Now, however, the Board of
Directors has carefully considered the potential adverse effects of being
subject to the provisions of Section 203 described above and has unanimously
concluded that the adverse effects are substantially outweighed by the increased
protection which the statute will afford the Company and its stockholders. The
Company believes that the protections that Section 203 would provide to the
Company would be beneficial to the stockholders because they would enhance the
Board of Directors' capacity to defend against undesirable takeover attempts
and, in the event of the sale of the Company,
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enhance the Board of Directors' ability to negotiate a transaction that is in
the stockholders' best interest and maximizes value for all stockholders. In the
past, there have been a number of surprise takeovers of publicly-owned
corporations which have occurred through tender offers or other sudden purchases
of a substantial number of outstanding shares. Such tender offers and other
share purchases are often followed by a merger or acquisition of the target
corporation by the purchaser without any negotiations with the Board of
Directors of the target corporation. Such a "two-tiered" business combination
automatically eliminates minority interests in the target corporation, often for
less valuable consideration per share than was paid in the purchaser's original
tender offer or market purchases. In other instances, a purchaser has used its
controlling interest to effect other transactions having an adverse impact on
the target corporation and its stockholders. The protections afforded by Section
203 will increase the likelihood that anyone contemplating a transaction with
the Company would negotiate directly with the Company in advance. The Board
believes that it is in a better position than the individual stockholders of the
Company to negotiate effectively for an adequate price for all the stockholders,
since the Board is likely to be more knowledgeable than any individual
stockholder in assessing the business and prospects of the Company. The proposed
amendment to the Company's Restated Certificate of Incorporation to make the
protections of section 203 available to the Company is not being recommended in
response to a pending or threatened attempt to acquire control of the Company.
If stockholders approve the proposal electing to be governed by Section 203, the
Company's Restated Certificate of Incorporation will supersede any contrary
provision in the Company's Bylaws.
VOTE REQUIRED; BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of the majority of the issued and outstanding shares
of the Company's Common Stock is required for approval of the amendment to the
Company's Restated Certificate of Incorporation to provide that Section 203 of
the DGCL shall be applicable to the Company. Abstentions and broker non-votes
will have the same effect as votes against the proposal.
If the amendment is authorized, a new Article 11 will be added to the
Company's Restated Certificate of Incorporation as follows:
"ARTICLE 11: The corporation expressly elects to be governed by
Section 203 of the General Corporation Law of the State of Delaware."
The Board of Directors recommends that stockholders vote FOR the proposal
to amend the Restated Certificate of Incorporation to provide that the Company
will be governed by Section 203 of the DGCL. Proxies solicited by management
will be voted FOR the proposal unless a vote against the proposal or abstention
is specifically indicated.
PROPOSAL THREE
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 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. Each
director is to hold office until the next annual meeting and until his or her
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
7
<PAGE> 10
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.
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. 52 Chairman of the Board of Directors and
Chief Executive Officer
Sanford S. Zweifach 42 President, Chief Financial Officer,
Secretary and Director
Kenneth L. Melmon, M.D 63 Director
Richard Dunning 52 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 1997, Dr.
Craves has been a principal of the consulting firm of The Craves Group, which,
together with the Pritzker Family business interest, founded Bay City Capital, a
merchant banking firm. 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.
Mr. Zweifach joined the Company in January 1995 as President and Chief
Financial Officer. From July 1994 to September 1994, and since September 1996,
Mr. Zweifach also has served as a director of the Company. Since July 1997, Mr.
Zweifach has served as the Chief Financial Officer of Bay City Capital and,
since January 1995, Mr. Zweifach has served as a Managing Director of The
Olmsted Group, L.L.C., a merchant banking firm. 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 Uysis.
Mr. Dunning has been a Director of the Company since October 1996. Since
April 1996, Mr. Dunning has served as a director, the President and Chief
Executive Officer of VIMRx Pharmaceuticals, Inc. From 1991 to 1996, Mr. Dunning
served as Executive Vice President and Chief Financial Officer of the Dupont
Merck Pharmaceutical Company. Mr. Dunning currently serves as a director of
several other companies, including Innovir Laboratories, Inc. and Endorex Corp.
Dr. Craves and Mr. Zweifach are also employed by other entities, including
Bay City Capital, and, although they devote a substantial portion of their time
to the Company, they also devote a portion of their
8
<PAGE> 11
time to their positions at the other entities. Both Dr. Craves and Mr. Zweifach
have been engaged by the Company pursuant to Consulting Agreements and, pursuant
to the terms of the Bridge Loan, the Company extended the terms of their
Consulting Agreements until the earlier of (i) February 24, 2000 or (ii) the
closing of an acquisition of the Company.
EXECUTIVE COMPENSATION
The following table sets forth compensation received for the three fiscal
years ended December 31, 1997 by the Company's Chief Executive Officer and the
other most highly compensated executive officers (collectively, the "Named
Executive Officers") whose aggregate salary and bonus exceeded $100,000 for the
fiscal year ended December 31, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION
- --------------------------- ---- ------------ -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fred Craves, Ph.D........... 1997 $100,000 $ -- $-- -- $--
Chief Executive 1996 125,000
Officer(2) 1995 100,000
Sanford S. Zweifach......... 1997 140,625 -- -- -- --
President and 1996 135,000 5,625
Chief Financial Officer 1995 126,750 21,871
Rich B. Meyer, Jr........... 1997 145,008 2,789 -- -- --
Vice President, Research 1996 140,016 2,693
and Development 1995 135,000
Robert Wydro................ 1997 140,016 2,693 -- -- --
Vice President, Research 1996 52,506 2,693
Management
</TABLE>
- ---------------
(1) Includes amounts deferred during each of 1997, 1996 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) Includes $25,000 payment earned in 1993.
OPTION MATTERS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) EXPIRATION DATE(2)
---- ------------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Rich B. Meyer, Jr.................... 14,900 5.5% $.75 02/25/07
Robert Wydro......................... 5,000 1.8% .75 02/25/07
</TABLE>
- ---------------
(1) The options vest 25% on February 26, 1998 and 2.083% on the 26th day of each
month thereafter until February 26, 2001.
(2) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
Option Exercises. None of the Company's Executive Officers exercised
options during the fiscal year ended December 31, 1997.
9
<PAGE> 12
EMPLOYMENT AND SEVERANCE AGREEMENTS
Employment Agreements. Effective August 30, 1994, the Company entered into
a one-year employment agreement with Dr. Meyer. The Company and Dr. Meyer have
extended the agreement from time to time and, most recently, the agreement has
been extended to December 31, 1998. Upon termination of Dr. Meyer's services for
reasons other than cause during the term, he 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 term or six months, subject to reduction in certain
circumstances. In the event of death or disability during the 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.
Consulting Agreements. In July 1993, the Company entered into a 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. Pursuant to the terms of the Bridge Loan, the Company has extended the
term of Dr. Craves' consulting agreement until the earlier of (i) February 24,
2000 or (ii) the closing of an acquisition of the Company.
In January 1995, the Company entered into a 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. Pursuant to the
terms of the Bridge Loan, the Company has extended the consulting agreement
until the earlier of (i) February 24, 2000 or (ii) the closing of an acquisition
of the Company.
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.
ATTENDANCE AT MEETINGS AND BOARD COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors held
a total of two 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, certain information
regarding 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,
10
<PAGE> 13
(iii) each of the Named Executive Officers named in the Summary Compensation
Table, and (iv) all executive officers and current directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) OUTSTANDING SHARES
---------------- --------------------- ------------------
<S> <C> <C>
Grace Brothers Ltd................................. 5,121,193 34.6%
1000 W. Diversey Parkway
Chicago, Illinois 60614
Entities and Persons affiliated with Biotechnology
Investment Group, L.L.C.(2)...................... 1,089,900 7.4%
c/o Schroeder Venture Advisers, Inc.
1055 Washington Boulevard
Stamford, Connecticut 06901
The Edward Blech Trust(3).......................... 925,000 6.2%
c/o Rabbi Mordechai Jofan
418 Avenue I
Brooklyn, New York 11230
VIMRx Pharmaceuticals, Inc.(4)..................... 907,143 6.1%
2751 Centerville Road, Suite 210
Little Falls II
Wilmington, DE 19808
Fred Craves, Ph.D.(5).............................. 852,500 5.8%
United Equities Commodities Company(6)............. 750,000 5.1%
c/o Phillippe D. Katz
160 Broadway
New York, New York 10038
The Olmsted Group(7)............................... 345,000 2.3%
81 Main Street
White Planes, New York 10601
Rich B. Meyer, Jr., Ph.D.(8)....................... 190,565 1.3%
Kenneth L. Melmon(9)............................... 75,999 *
Sanford Zweifach(10)............................... 55,000 *
Richard Dunning(11)................................ 5,000 *
All executive officers and directors
as a group (5 persons)(12)....................... 1,152,064 7.8%
</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) 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.
Mr. Blech, a former principal stockholder of the Company, 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
11
<PAGE> 14
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
350,000 shares subject to warrants exercisable within 60 days of March 20,
1998.
(3) Includes 425,000 shares subject to warrants exercisable within 60 days of
March 20, 1998.
(4) Includes 450,000 shares subject to warrants exercisable within 60 days of
March 20, 1998.
(5) Includes 408,325 shares subject to warrants and options exercisable within
60 days of March 20, 1998, 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 250,000 shares subject to warrants exercisable within 60 days of
March 20, 1998.
(7) Includes 166,666 shares subject to warrants exercisable within 60 days of
March 20, 1998.
(8) Includes 133,894 shares subject to warrants exercisable within 60 days of
March 20, 1998.
(9) Includes 75,999 shares subject to warrants and options exercisable within
60 days of March 20, 1998.
(10) Includes 30,000 shares subject to options and warrants exercisable within
60 days of March 20, 1998.
(11) Excludes 907,143 shares, including 450,000 warrants to purchase common
stock held by VIMRx Pharmaceutics, Inc. Mr. Dunning is the President and
Chief Executive Officer of VIMRx Pharmaceuticals, Inc. and disclaims
beneficial ownership of all such shares. Includes 5,000 shares subject to
options exercisable within 60 days of March 20, 1998.
(12) Includes directors' and executive officers' shares listed above, including
731,543 shares subject to warrants and options exercisable within 60 days
of March 20, 1998. Excludes 907,143 shares, including 450,000 warrants to
purchase Common Stock, held by VIMRx Pharmaceuticals, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 26, 1998, the Company and Bay City Capital, a merchant banking
firm that was formed by The Craves Group and the Pritzker Family business
interests, entered into the Bridge Loan pursuant to which (i) the Company issued
and sold to Bay City Capital a $3,000,000 principal amount secured note (the
"Note") bearing interest at the rate of eight percent (8%) per annum and a
warrant to purchase 2,000,000 shares of Common Stock at an exercise price of
$0.90 per share, and (ii) Bay City Capital agreed to subscribe for 100% of the
Excess Shares, if any, under the Rights Offering, by reducing the principal
amount due under the Note by an amount equal to the price it would otherwise pay
for such Excess Shares. The founding partner of The Craves Group, Fred Craves,
Ph.D., is the Chairman and Chief Executive Officer of the Company. Sanford
Zweifach, the President, Chief Financial Officer, Secretary and a director of
the Company, is also the Chief Financial Officer of Bay City Capital. The Bridge
Loan was approved by the affirmative vote of a majority of the disinterested
directors of the Company after the disclosure of the material facts as to the
relationship of Bay City Capital and certain directors of the Company and the
transactions contemplated by the Bridge Loan.
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 was 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 each of Burrill & Craves and The Olmsted Group, L.L.C. in
connection with the sale of the Corporation's diagnostics division and other
corporate matters. The warrants vest as follows: (i) 33 1/3% at issuance; (ii)
33 1/3% on June 30, 1997; and (iii) 33 1/3% on January 1, 1999. All such
warrants shall vest, to the extent not already vested upon a change of control
of the Company.
In June 1996, the Company completed a private placement of Units (the
"Private Placement"), with each Unit consisting of one share of Common Stock and
one warrant to purchase 0.5 shares of Common Stock. The Company sold a total of
5 million Units, for an aggregate purchase price of $5 million, to institutional
and accredited individual investors. The term of the warrants is five years, and
each warrant is exercisable at $2.50 per share (or $1.25 per 0.5 shares). Each
warrant is redeemable by the Company at any
12
<PAGE> 15
time after eighteen months from the date that they are issued at $0.05 per
warrant, provided that the closing trading price per share of Common Stock is at
least $3.75 for twenty (20) consecutive trading days. In connection with the
Private Placement, pursuant to an agreement with its financial advisor, David
Blech, the Company paid fees of $350,000 to Mr. Blech. In addition, the Company
cancelled fifty percent (50%) of the obligations of Mr. Blech arising in
connection with a prior transaction. The aggregate amount cancelled was
$1,635,588. The balance is accruing interest at the minimum applicable federal
rate. As the obligation had been fully reserved, and the remaining balance is
fully reserved, neither the cancellation nor the remaining obligation is
reflected in the Company's financial statements. The Company also issued to Mr.
Blech five-year warrants to purchase 500,000 shares of Common Stock at $1.00 per
share. The warrants are held in escrow by the Company until the balance of the
Ribonetics debt is satisfied.
LEGAL PROCEEDINGS
The Company has received from time to time written notices from other
parties alleging that the Company's products and proposed products infringe the
proprietary rights of such parties. The Company believes that such notices are
common in its industry and believes it is not infringing. However, there can be
no assurance that such parties will not ultimately bring legal proceedings
against the Company.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP were the Company's auditors for fiscal 1997 and have
been appointed by the Company's Board of Directors to serve as the Company's
auditors for fiscal 1998. 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 1999 ANNUAL MEETING
Any stockholders desiring to submit a proposal for action at the 1999
Annual Meeting of Stockholders, which the Company anticipates will be held in
April 1999, 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 January 30,
1999. 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.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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, 1997, were satisfied.
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
April 14, 1998
13
<PAGE> 16
PROXY
EPOCH PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE STOCKHOLDERS
APRIL 29, 1998
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 1998 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 April 29, 1998, at 12:00 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" ITEM 1
1. Amendment to the Company's Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Amendment to the Company's Restated Certificate of Incorporation to elect
to be governed by Section 203 of the DGCL.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<TABLE>
<S> <C> <C>
3. ELECTION OF DIRECTORS FOR WITHHOLD AUTHORITY
Nominees: all nominees listed (except as marked to to vote for all nominees listed
Fred Craves, Ph.D Kenneth L. Melmon, the contrary below) [ ]
M.D. [ ]
Sanford S. Zweifach Richard L.
Dunning
</TABLE>
(INSTRUCTION: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
4. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.
- --------------------------------------------------------------------------------
<PAGE> 17
- --------------------------------------------------------------------------------
IMPORTANT -- PLEASE SIGN AND DATE 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
APPROVAL OF THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK, "FOR" THE APPROVAL
OF THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO ELECT
TO BE GOVERNED BY SECTION 203 OF THE DGCL, AND "FOR" THE ELECTION OF THE
DIRECTORS NAMED ON THIS PROXY.
- --------------------------------------------------------------------------------
Date:
(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.
