PROXY STATEMENT
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Section 240.14a-12
ENCYSIVE PHARMACEUTICALS INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
_______________________________________
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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ENCYSIVE PHARMACEUTICALS INC.
6700 WEST LOOP SOUTH, 4TH FLOOR
BELLAIRE, TEXAS 77401
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 11, 2004
You are cordially invited to attend the annual meeting of the
stockholders of Encysive Pharmaceuticals Inc. which will be held at 9:00 a.m.
(Houston time) on May 11, 2004 at The Hilton Houston Plaza Hotel, 6633 Travis
Street, Houston, Texas 77030. At the meeting we will:
1. elect ten directors;
2. consider and act on a proposal to amend the Amended and
Restated 1999 Stock Incentive Plan; and
3. consider and act on such other business as may properly come
before the meeting or any adjournment of the meeting.
If you were a stockholder at the close of business on March 29, 2004,
you are entitled to notice of and to vote at the meeting. A stockholders' list
will be available at our offices, 6700 West Loop South, 4th Floor, Bellaire,
Texas 77401, for a period of ten days prior to the meeting, or any adjournment
of the meeting.
Your vote is important. Whether or not you expect to attend the
meeting, please sign and date the enclosed proxy card and return it to us
promptly. A stamped envelope has been provided for your convenience. The prompt
return of proxies will ensure a quorum and save us the expense of further
solicitation.
By Order of the Board of Directors,
/s/ Stephen L. Mueller
STEPHEN L. MUELLER,
Vice President, Finance and Administration,
Secretary and Treasurer
April 7, 2004
ENCYSIVE PHARMACEUTICALS INC.
6700 WEST LOOP SOUTH, 4TH FLOOR
BELLAIRE, TEXAS 77401
PROXY STATEMENT
Our Board of Directors is soliciting proxies for the annual meeting of
our stockholders to be held at The Hilton Houston Plaza Hotel, 6633 Travis
Street, Houston, Texas 77030 on May 11, 2004, and at any adjournment or
postponement thereof, for the purposes set forth in the accompanying notice.
This proxy statement and the accompanying proxy card are first being mailed to
stockholders on or about April 7, 2004. Because many stockholders are unable to
attend the meeting, the Board of Directors solicits proxies to ensure that each
stockholder has an opportunity to vote on all matters scheduled to come before
the meeting. Stockholders are urged to read carefully the material in this proxy
statement.
QUESTIONS AND ANSWERS
Q: Who can attend and vote at the meeting?
A: You can attend and vote at the meeting if you were a stockholder at the
close of business on the record date, March 29, 2004. On that date,
there were 52,706,020 shares of common stock outstanding and entitled
to vote at the meeting.
Q: What am I voting on?
A: You are voting on:
- The election of directors; and
- The approval of an amendment to the Amended and Restated 1999
Stock Incentive Plan.
Q: How do I cast my vote?
A: If you hold your shares as a stockholder of record, you can vote in
person at the annual meeting or you can vote by mail. The enclosed
proxy card contains instructions for voting by mail. If you are a
street-name stockholder, you will receive instructions from your bank,
broker or other nominee describing how to vote your shares. If you
provide specific voting instructions, your shares will be voted as you
have instructed.
If you hold shares in your name, and you sign and return a proxy card
without giving specific voting instructions, your shares will be voted
as recommended by our Board of Directors on all matters. If you hold
your shares through a broker, bank or other nominee and you do not
provide instructions on how to vote, your broker may have authority to
vote your shares. The New York Stock Exchange, or NYSE, issued new
regulations prohibiting brokers or other nominees that are NYSE member
organizations from voting in favor of proposals relating to equity
compensation plans unless they receive specific instructions from the
beneficial
owner of the shares to vote in that manner. In addition, the National
Association of Securities Dealers, Inc., or NASD, member brokers are
also prohibited from voting on such proposals without specific
instructions from beneficial holders. Accordingly, all shares that you
hold through a broker or other nominee who is a NYSE or NASD member
organization will only be voted on Proposal 2 if you have provided
specific voting instructions to your broker or other nominee to vote
your shares on that proposal. See "Vote Required" following each
proposal for further information.
Q: How does the Board recommend I vote on the proposals?
A: The Board recommends you vote "FOR" each of the nominees to the Board
of Directors and "FOR" the amendment to the Amended and Restated 1999
Stock Incentive Plan.
Q: Can I revoke my proxy?
A: Yes. You can revoke your proxy at any time before it is exercised by:
- submitting a properly signed proxy card with a more recent
date;
- giving written notice of your revocation before the meeting to
our Secretary, Mr. Mueller, at our offices, 6700 West Loop
South, 4th Floor, Bellaire, Texas 77401; or
- attending the meeting and voting your shares in person.
Q: Who will count the vote?
A: A representative of our transfer agent, The Bank of New York, will act
as the inspector of the election and will count the vote.
Q: What is a "quorum?"
A: A quorum is the presence at the meeting, in person or by proxy, of the
holders of a majority of the outstanding shares as of the record date.
There must be a quorum for the meeting to be held. If you submit a
valid proxy card or attend the meeting, your shares will be counted to
determine whether there is a quorum. Abstentions and broker non-votes
will be counted toward the quorum. "Broker non-votes" occur when
nominees (such as banks and brokers) that hold shares on behalf of
beneficial owners do not receive voting instructions from the
beneficial owners before the meeting and do not have discretionary
voting authority to vote those shares.
Q: What vote is required to approve each item?
A: Election of Directors
The ten nominees for election as directors at the annual meeting who
receive the greatest number of votes cast by the stockholders, a
plurality, will be elected as our directors. In the election of
directors, you may vote "FOR" all nominees, "AGAINST" all nominees or
withhold your vote for any one or more of the
2
nominees. Broker non-votes and abstentions will not affect the outcome
of the election of directors.
Amendment to the Amended and Restated 1999 Stock Incentive Plan
The approval of the amendment to the Amended and Restated 1999 Stock
Incentive Plan, or the 1999 Plan, requires the affirmative vote of a
majority of the shares entitled to vote and present in person or by
proxy at the meeting. For the approval of the amendment to the 1999
Plan, you may vote "FOR" or "AGAINST" or abstain from voting.
Abstentions have the effect of a vote against the amendment to the 1999
Plan. Broker non-votes will not affect the outcome of the vote on the
amendment to the 1999 Plan.
Q: What shares are included on my proxy card?
A: Your proxy card represents all shares registered to your account in the
same social security number and address.
Q: What does it mean if I get more than one proxy card?
A: Your shares are probably registered in more than one account. You
should vote each proxy card you receive. We encourage you to
consolidate all your accounts by registering them in the same name,
social security number and address.
Q: How many votes can I cast?
A: On all matters you are entitled to one vote per share of common stock.
Q: When are stockholder proposals due for the 2005 Annual Meeting of
Stockholders?
A: If you want to present a proposal from the floor at the 2005 Annual
Meeting, you must give us written notice of your proposal no later than
February 21, 2005. If instead of presenting your proposal at the
meeting you want your proposal to be considered for inclusion in next
year's proxy statement, you must submit the proposal in writing to the
Secretary so that it is received at the above address by December 8,
2004. Your notice should be sent to the Secretary, Encysive
Pharmaceuticals Inc., 6700 West Loop South, 4th Floor, Bellaire, Texas
77401. See "Stockholder Proposal Information."
Q: Where can I find the voting results of the meeting?
A: The preliminary voting results will be announced at the meeting. The
final results will be published in our quarterly report on Form 10-Q
for the second quarter of fiscal 2004.
3
TABLE OF CONTENTS
Page
ELECTION OF DIRECTORS................................................................................. 5
Nominees..................................................................................... 5
Vote Required................................................................................ 9
Communicating with the Board of Directors.................................................... 9
Director Compensation and Board Committees................................................... 9
APPROVAL OF THE AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN AMENDMENT.............................. 13
Vote Required................................................................................ 13
OTHER INFORMATION..................................................................................... 14
Principal Stockholders....................................................................... 14
Executive Officers........................................................................... 15
Executive Compensation....................................................................... 16
Compensation and Corporate Governance Committee Report On Executive Compensation............. 19
Audit Committee Report....................................................................... 21
Performance Graph............................................................................ 22
Executive Agreements......................................................................... 23
Independent Public Accountants............................................................... 24
Section 16(a) Beneficial Ownership Reporting Compliance...................................... 25
Stockholder Proposal Information............................................................. 26
Other Matters................................................................................ 26
A copy of the Annual Report which includes the Form 10-K of Encysive
Pharmaceuticals Inc. for the fiscal year ended December 31, 2003 is
being mailed with this proxy statement. You may receive an additional
copy of the Form 10-K, our Quarterly Reports on Form 10-Q and other
information at no charge upon request directed to: Ann Tanabe, Encysive
Pharmaceuticals Inc., 6700 West Loop South, 4th Floor, Bellaire, Texas
77401.
4
PROPOSAL 1
ELECTION OF DIRECTORS
At the annual meeting, ten directors are to be elected. Each director
is to hold office until the next annual meeting of stockholders or until his
successor is elected and qualified. The persons designated as proxies on the
accompanying proxy card intend, unless authority is withheld, to vote for the
election of the nominees named below to the Board of Directors. All of the
nominees have been elected previously as directors by our stockholders. If any
nominee should become unavailable for election, the proxy may be voted for a
substitute nominee as the Compensation and Corporate Governance Committee may
recommend and the independent members of the Board of Directors may nominate, or
the Board of Directors may be reduced accordingly. The committee, which consist
solely of directors that are independent within the meaning of Rule 4200 of the
NASD, recommended the nomination of the ten directors to the Board of Directors.
Based on that recommendation, the independent members of the Board nominated
such directors for election at the annual meeting. The nominees have consented
to be nominated and have expressed their intention to serve if elected. We have
no reason to believe that any of the nominees will be unable to serve if elected
to office and, to our knowledge, the nominees intend to serve the entire term
for which election is sought. Only the nominees or substitute nominees
designated by the independent members of the Board of Directors will be eligible
to stand for election as directors at the meeting. See "Stockholder Proposal
Information."
NOMINEES
Certain information regarding the nominees is set forth below:
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
John M. Pietruski (1) 71 Chairman of the Board of Directors 1990
Bruce D. Given, M.D. (1) 49 President, Chief Executive Officer
and Director 2002
Richard A. F. Dixon, Ph.D. (1) 50 Senior Vice President, Research,
Chief Scientific Officer and
Director 1990
James T. Willerson, M.D. (1)(3) 64 Chairman of the Scientific
Advisory Board and Director 1990
Ron J. Anderson, M.D. (2) 57 Director 1997
Frank C. Carlucci (2) 73 Director 1990
Robert J. Cruikshank (3) 73 Director 1993
Suzanne Oparil, M.D. (3) 62 Director 1999
William R. Ringo, Jr. (3) 58 Director 2001
James A. Thomson, Ph.D. (2) 58 Director 1994
- ------------
(1) Member of the Executive Committee of the Board of Directors
(2) Member of the Compensation and Corporate Governance Committee of the
Board of Directors
(3) Member of the Audit Committee of the Board of Directors
5
John M. Pietruski has served as our Chairman of the Board of Directors
since May 1990. Mr. Pietruski has served as President of Dansara Company, a
private investment consulting firm, since 1988. He served as Chairman of the
Board of Directors and Chief Executive Officer of Sterling Drug Inc., a
pharmaceutical company, from 1985 to 1988 and as President and Chief Operating
Officer from 1983 to 1985. Mr. Pietruski currently serves as a director of
First Energy Corporation and PDI, Inc. Mr. Pietruski received a B.S. degree with
honors in business administration from Rutgers University, where he graduated
Phi Beta Kappa.
Bruce D. Given, M.D. has served as our President and Chief Executive
Officer and as a member of the Board of Directors since March 2002. Dr. Given
joined us after serving as President, International of Ortho-Clinical
Diagnostics of Johnson & Johnson from May 2000 to March 2002. He was also
General Manager of Transfusion Medicine Worldwide of Ortho-Clinical Diagnostics
from November 1999 to May 2000. Dr. Given served as Group Vice President, head
of Worldwide Clinical and Regulatory Affairs of Biosense Webster, an affiliate
of Johnson & Johnson from July 1998 to November 1999. He was also Group Vice
President, head of U.S. Marketing & Sales, Research & Development for Janssen
Pharmaceutica from April 1995 to July 1998. He has held various executive and
senior management positions with Sandoz Pharma Ltd., Sandoz Research Institute
and Schering-Plough Corporation. Dr. Given received a B.S. from Colorado State
University, graduating Phi Beta Kappa, an M.D. with honors from the University
of Chicago and was a Clinical Fellow at Harvard Medical School.
Richard A.F. Dixon, Ph.D. has served as our Senior Vice President,
Research and Chief Scientific Officer since March 2000, and as a member of the
Board of Directors since July 1990. Dr. Dixon served as our Vice President,
Research from December 1992 to March 2000 and as Scientific Director and
Director of Molecular Biology from July 1990 to December 1992. Dr. Dixon joined
us after serving as a Director and Head of Molecular Biology at Merck Sharp &
Dohme Research Laboratories, a division of Merck & Co. from 1988 to July 1990.
In addition, Dr. Dixon serves as a Professor of the Department of Internal
Medicine at The University of Texas Medical School at Houston. Dr. Dixon is the
author or co-author of more than 100 scientific papers and has invented twelve
patented therapeutic technologies. He received a B.S. degree from Texas A & M
University, graduating cum laude, and received a Ph.D. in virology from the
Baylor College of Medicine.
James T. Willerson, M.D. has served as Chairman of our scientific
advisory board since January 1990 and has been a member of the Board of
Directors since May 1990. Dr. Willerson was appointed in March 2001 to serve as
President of The University of Texas - Houston Health Science Center and is also
a professor at this institution. He served as the Chairman of the Department of
Internal Medicine at The University of Texas Medical School at Houston from 1989
to 2001. In 1995, he was appointed Medical Director of the Texas Heart
Institute, Houston, Texas. He was Chief of Cardiology of Parkland Memorial
Hospital in Dallas, Texas from 1975 to 1989, director and principal investigator
of The University of Texas Southwestern Medical School Ischemic Heart Disease,
Specialized Center of Research, in Dallas from 1975 to 1989, director of the
6
cardiology division at The University of Texas Southwestern Medical School from
1977 to 1989, and professor of medicine and professor of radiology from 1979 to
1989. He also served as co-director of the Bugher Molecular Biology and
Cardiology Research Center at The University of Texas Health Science Center in
Dallas from 1986 to 1989. Dr. Willerson has published nearly 700 manuscripts and
has been editor or co-editor of 18 textbooks. He was selected for membership in
the Institute of Medicine of the National Academy of Science in 1998 and named
"Distinguished Scientist" of the American College of Cardiology for 2000. In
1961, Dr. Willerson received a B.A. from The University of Texas at Austin,
graduating Phi Beta Kappa. In 1965, he received an M.D. from the Baylor College
of Medicine, graduating as a member of Alpha Omega Alpha. Dr. Willerson's
medical and cardiology training was undertaken at the Massachusetts General
Hospital, Boston, Massachusetts.
Ron J. Anderson, M.D. has served as a member of the Board of Directors
since December 1997. He has been President and Chief Executive Officer of
Parkland Health & Hospital System since 1982. Parkland is the general public
hospital for Dallas County, Texas and the primary teaching hospital for The
University of Texas Southwestern Medical Center at Dallas. He previously served
as Parkland's Medical Director for Ambulatory Care and Emergency Services. He
served concurrently as head of the Division of Ambulatory Care, which became the
Division of General Internal Medicine under his guidance in the Department of
Internal Medicine at Southwestern. Dr. Anderson has remained on the faculty of
the Medical School as Professor of Internal Medicine. Dr. Anderson is also a
director of Parkland Foundation and Texans Care for Children. He is the Chief
Executive Officer and serves on the Board of Directors of Parkland Community
Health Plan and is an advisory board member of Texas Health Choice. Dr. Anderson
is also the Chairman of the Texas Hospital Association, a member of the board of
directors of the National Association of Public Hospitals and National Public
Health and Hospital Institute. In 1997, he was elected to the Institute of
Medicine of the National Academy of Sciences. He has authored and co-authored
more than 200 articles on medicine, ethics, and health policy. Dr. Anderson
received his medical degree from the University of Oklahoma and his pharmacy
degree from Southwestern Oklahoma State University where he was selected as a
Distinguished Alumnus in 1987.
Frank C. Carlucci has served as a member of the Board of Directors
since May 1990. He has been principally employed as Chairman Emeritus and a
Partner in The Carlyle Group, a Washington, D. C. based merchant bank since
1989. Mr. Carlucci served as Secretary of Defense from 1987-1989 and as
President Reagan's National Security Advisor in 1987. Prior to returning to
Government service, Mr. Carlucci was Chairman and Chief Executive Officer of
Sears World Trade, a business he joined in 1983. His government service included
positions as Deputy Secretary of Defense (1980-82), Deputy Director of Central
Intelligence (1978-80), Ambassador to Portugal (1975-78), Under Secretary of
Health Education and Welfare (1973-75), Deputy Director of OMB (1970-72), and
Director of the Office of Economic Opportunity (1969). Mr. Carlucci was a
Foreign Service Officer from 1956 to 1980. Mr. Carlucci is the Chairman of the
Neurogen Corporation board of directors and is also a director of SunResorts,
Ltd., N.V. and United Defense, L.P. Mr. Carlucci graduated from Princeton
University and also attended Harvard Business School.
7
Robert J. Cruikshank has served as a member of the Board of Directors
since May 1993. Mr. Cruikshank was a senior partner at Deloitte & Touche LLP
from 1989 until retiring in March 1993. Mr. Cruikshank was a partner, office
managing partner and member of the board of directors of the predecessor firms
to Deloitte & Touche LLP in Houston from 1968 until 1989. He is a trustee of the
Ray C. Fish Foundation and Texas Medical Center. He also serves as a director of
MAXXAM Incorporated, Kaiser Aluminum Corporation, Weingarten Realty Investors,
Texas Genco Holdings, Inc. and as an advisory board member of Compass Bank of
Houston. Mr. Cruikshank is a past Chairman of the American Heart Association, is
active at the affiliate levels and is a past Regent of the University of Texas
System. Mr. Cruikshank received a B.A. in economics and accounting from Rice
University and completed the Advanced Management Program at Harvard University.
Suzanne Oparil, M.D. has served as a member of the Board of Directors
since May 1999. She has been a professor of medicine since 1981, Director of
Vascular Biology and Hypertension since 1985, and professor of physiology and
biophysics since 1993, in the Division of Cardiovascular Disease at The
University of Alabama at Birmingham. She has served as President of the American
Federation of Clinical Research. Dr. Oparil is also a member of the American
Society of Clinical Investigation, the Association of American Physicians, and
of the Institute of Medicine of the National Academy of Sciences. In addition,
she has held advisory positions with the National Institutes of Health,
including membership on a number of task forces, advisory committees and peer
review committees. Dr. Oparil was a past President of the American Heart
Association and is an active volunteer at both the national and affiliate
levels. She was a recipient of the University of Alabama President's Achievement
Award. Dr. Oparil has an extensive bibliography in clinical cardiology and
hypertension, including over 500 journal articles, books and book chapters. Dr.
Oparil received her medical degree from Columbia University, College of
Physicians and Surgeons in 1965.
William R. Ringo, Jr. has served as a member of the Board of Directors
since October 2001. Since March 2001, he has been a privately employed health
care consultant. Mr. Ringo joined Eli Lilly and Company in 1973 and served in
various capacities for Eli Lilly, including President of Oncology and Critical
Care products from June 1999 until his retirement in February 2001, President of
Internal Medicine products from January 1998 until June 1999, and President of
its Infectious Diseases business unit from September 1995 until January 1998.
Mr. Ringo is also a director of Praecis Pharmaceuticals, Inc., LaJolla
Pharmaceutical Company, and Intermune, Inc. and is a founding member of Barnard
Life Sciences Healthcare Consulting. He is past Chairman of Community Health
Network, Indianapolis. Mr. Ringo received a B.S. degree in management and an
M.B.A. degree from the University of Dayton.
James A. Thomson, Ph.D. has served as a member of the Board of
Directors since May 1994. He has been President and Chief Executive Officer of
the RAND Corporation since 1989 and has served the institution in a variety of
roles beginning in 1981. The RAND Corporation is a non-profit institution that
seeks to improve public policy through research analysis in such areas as
national defense, education and health. He also serves as a director of AK Steel
Holding Co. From 1977 until 1981, he served on the National Security Council, at
the White House. From 1974 until 1977, Dr. Thomson served as an
8
operations research analyst in the Office of the Secretary of Defense, the
Pentagon. Dr. Thomson is the author of numerous scholarly articles and reports
on defense and scientific subjects. Dr. Thomson graduated from the University of
New Hampshire in 1967 and received an M.S. and Ph.D. in Physics from Purdue
University.
VOTE REQUIRED
The ten nominees for election as directors at the annual meeting who
receive the greatest number of votes cast for election by the stockholders, a
plurality, will be elected as our directors. Broker non-votes and abstentions
will not affect the outcome of the election of directors. If you hold your
shares through a broker, bank or other nominee and you do not instruct them how
to vote on this proposal, your broker may have authority to vote your shares.
You may vote "FOR" all nominees, "AGAINST" all nominees or withhold your vote
for any one or more of the nominees. The proxy holders intend to vote the shares
represented by proxies to elect the ten nominees to the Board of Directors set
forth in Proposal 1.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE TO OUR BOARD
OF DIRECTORS.
COMMUNICATING WITH THE BOARD OF DIRECTORS
Historically, we have not adopted a formal process for stockholder
communications with the Board of Directors. Nevertheless, every effort has been
made to ensure that the views of stockholders are heard by the Board or
individual directors, as applicable, and that appropriate responses are provided
to stockholders in a timely manner. We believe our responsiveness to stockholder
communications to the Board has been excellent. Nevertheless, during the
upcoming year the Compensation and Corporate Governance Committee will give full
consideration to the adoption of a formal process for stockholder communications
with the Board and, if adopted, publish it promptly and post it to our website.
Although we do not have a formal policy regarding attendance by members
of the Board of Directors at our annual meeting of stockholders, we encourage
directors to attend and historically more than a majority have done so. For
example, 80% and 100% of the directors attended the 2002 and 2003 Annual
Meetings, respectively. The Compensation and Corporate Governance Committee will
give consideration during the upcoming year of formalizing this excellent
attendance record into a formal policy, so as to maximize attendance by
directors, taking into account the directors' schedules and the timing
requirements of applicable law.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
During 2003, the Board of Directors held eleven meetings. All
directors, except for Dr. James T. Willerson, attended at least 75% of the total
meetings of the Board and the committees on which they serve. We believe that
attendance at meetings of the Board is only one criterion for judging the
contribution of individual directors, and that all directors have made
substantial and valuable contributions.
9
The Board of Directors has determined that the following members of the
Board are independent within the meaning of Rule 4200 of the NASD: James T.
Willerson, Ron J. Anderson, Frank C. Carlucci, Robert J. Cruikshank, Suzanne
Oparil, William R. Ringo and James A. Thomson.
Director Compensation. During the year ended December 31, 2003, each
non-employee director received a retainer of $2,500 per quarter and the
committee chair received a retainer of $250 per quarter, fees of $1,000 for each
meeting of the Board of Directors attended in person and $500 for each meeting
conducted by telephone. Non-employee directors received a fee of $500 for each
committee meeting attended in person and a fee of $500 for each committee
meeting conducted by telephone. Dr. Willerson, however, has declined all
retainer or meeting fees. In addition, directors are reimbursed for expenses
incurred in attending meetings of the Board and its committees. Non-employee
directors may elect to receive part or all of the quarterly retainer and fees in
common stock. Each non-employee director also receives options to purchase
15,000 shares of common stock on their initial election to the Board and options
to purchase 7,500 shares of common stock on each subsequent election to the
Board.
Executive Committee. The executive committee met once during 2003. The
current members of the executive committee are Bruce D. Given (Chair), Richard
A.F. Dixon, James T. Willerson and John M. Pietruski. The executive committee
may act on behalf of the Board on all matters permitted by Delaware corporate
law except as limited by our Certificate of Incorporation and Bylaws. All
actions taken by the executive committee must be reported at the Board's next
meeting.
Audit Committee. During the year ended December 31, 2003, the members
of the committee were Robert J. Cruikshank (Chair), James T. Willerson, William
R. Ringo, and Suzanne Oparil. The Board of Directors has determined that Robert
J. Cruikshank is an audit committee financial expert under the SEC rules, and
independent, as that term is used in Item 7(d)(3)(iv) of Schedule 14A. Under
Rule 4200 of the NASD, all of the members of the committee were, and are,
independent. The committee operates under a written charter adopted by the Board
of Directors, and attached as Appendix A to this proxy statement. The committee
met five times during 2003.
The committee's primary function is to assist the Board in fulfilling
its oversight responsibilities by: reviewing the financial reports and other
financial information provided by us to any governmental body or the public;
reviewing our system of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and our
auditing, accounting and financial reporting processes generally; reviewing the
independence and performance of our independent auditors; and providing an open
avenue of communication among the independent auditors, financial and senior
management, and the Board. The committee also has the sole authority and
responsibility to appoint, select, evaluate, and, where appropriate, replace our
independent auditors.
Compensation and Corporate Governance Committee. During the year ended
December 31, 2003, the members of the committee were James A. Thomson (Chair),
10
Frank C. Carlucci, and Ron J. Anderson. All of the members of the committee are
independent directors within the meaning of Rule 4200 of the NASD. The committee
operates under a written charter adopted by the Board of Directors, and attached
as Appendix B to this proxy statement. The committee met four times during 2003.
The committee is primarily responsible for providing oversight on the
broad range of matters surrounding the compensation of management, and the
composition and operation of the Board, including recommending to the Board the
compensation for our Chief Executive Officer, approving the compensation and
employee benefits for our other executive officers and employees, identifying
individuals qualified to become Board members, recommending to the Board
director nominees, and recommending to the Board a set of corporate governance
principles applicable to us.
Director Nominations Process. As indicated above, nominating functions
are handled by the Compensation and Corporate Governance Committee pursuant to
its charter. The charter is available at the "Investor Relations" section of our
website at www.encysive.com.
Our Bylaws contain provisions that address the process by which a
stockholder may nominate an individual to stand for election to the Board of
Directors at our annual meeting of stockholders. Historically, we have not had a
formal policy concerning stockholder recommendations to the committee (or its
predecessors). To date, we have not received any recommendations from
stockholders requesting that the committee (or any predecessor) consider a
candidate for inclusion among the committee's slate of nominees in our proxy
statement. The absence of such a policy does not mean, however, that a
recommendation would not have been considered had one been received. The
committee will consider this matter fully during the upcoming year with a view
to adopting and publishing a policy on stockholder recommendations for director
nominees prior to the 2005 Annual Meeting.
In evaluating director nominees, the committee considers the following
factors:
- the appropriate size of Encysive's Board of Directors;
- the needs of Encysive with respect to the particular talents
and experience of its directors;
- the knowledge, skills and experience of nominees, including
experience in technology, business, finance, administration or
public service, in light of prevailing business conditions and
the knowledge, skills and experience already possessed by
other members of the Board;
- familiarity with the healthcare industry;
- experience with accounting rules and practices; and
- the desire to balance the considerable benefit of continuity
with the periodic injection of the fresh perspective provided
by new members.
The committee's goal is to assemble a Board that brings to Encysive a
variety of perspectives and skills derived from high quality business and
professional experience.
11
Other than the foregoing there are no stated minimum criteria for
director nominees, although the committee may also consider such other factors
as it may deem are in the best interests of Encysive and its stockholders. The
committee does, however, believe it appropriate for at least one member of the
Board to meet the criteria for an "audit committee financial expert" as defined
by SEC rules, and that a majority of the members of the Board meet the
definition of "independent director" under NASD rules. The committee also
believes it appropriate for certain key members of Encysive's management to
participate as members of the Board.
The committee identifies nominees by first evaluating the current
members of the Board of Directors willing to continue in service. Current
members of the Board with skills and experience that are relevant to Encysive's
business and who are willing to continue in service are considered for
re-nomination, balancing the value of continuity of service by existing members
of the Board with that of obtaining a new perspective. If any member of the
Board does not wish to continue in service or if the committee or the Board
decides not to re-nominate a member for re-election, the committee identifies
the desired skills and experience of a new nominee in light of the criteria
above. Current members of the committee and Board of Directors are polled for
suggestions as to individuals meeting the criteria of the committee. Research
may also be performed to identify qualified individuals. We have also engaged
third parties to identify or evaluate or assist in identifying potential
nominees.
Our Bylaws provide that nominations for the election of directors may
be made by any stockholder entitled to vote in the election of directors;
provided, however, that a stockholder may nominate a person for election as a
director at a meeting only if written notice of such stockholder's intent to
make such nomination has been given to our Secretary as described in
"Stockholder Proposal Information" in this proxy statement. Each notice must set
forth: (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on Encysive's books, of such stockholder and
(ii) the class and number of shares of Encysive that are beneficially owned by
such stockholder and that are owned of record by such stockholder.
Code of Ethics. We have adopted a Business Ethics Policy that applies
to all of our employees, as well as each member of the Board of Directors. The
Business Ethics Policy is available at the "Investor Relations" section of our
website at www.encysive.com. We intend to post amendments to or waivers from the
Business Ethics Policy (to the extent applicable to our chief executive officer,
principal financial officer or principal accounting officer) at this location on
our website.
12
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED
1999 STOCK INCENTIVE PLAN AMENDMENT
The 1999 Plan provides for the grant of incentive and non-qualified
stock options, shares of restricted stock and stock bonuses. Currently, the 1999
Plan provides that the maximum amount of shares subject to the plan is
4,750,000. As of March 4 2004, 941,981 shares remained available for grant under
the 1999 Plan. Because of this, the Compensation and Corporate Governance
Committee adopted this amendment, subject to stockholder approval, to increase
the number of shares available for grant under the 1999 Plan and to assure that
adequate shares will be available for future grants. The amendment to the 1999
Plan is intended to (i) further our efforts in attracting, retaining and
motivating key employees, consultants, and non-employee directors and (ii)
continue to closely align the interests of participants in the 1999 Plan with
those of stockholders by encouraging stock ownership and by tying compensation
to the long term growth of our business and the performance of our common stock.
If this amendment is approved, the authorized shares available for grant under
the 1999 Plan will be increased from 4,750,000 to 6,750,000 If approved, this
amendment will not change any other term of the 1999 Plan.
The amendment to the 1999 Plan appears as Appendix C, entitled the
Amended and Restated 1999 Stock Incentive Plan Amendment, to this proxy
statement.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
common stock outstanding, entitled to vote and represented at the annual
meeting, in person or by proxy, is required to approve the amendment to the 1999
Plan. If you hold your shares in your own name and abstain from voting on this
matter, your abstention will have the effect of a negative vote. If you hold
your shares through a broker, bank or other nominee and you do not instruct them
on how to vote on this proposal, your broker will not have authority to vote
your shares if your broker is a NASD or NYSE member organization. Broker
non-votes will not affect the outcome of the vote on the amendment to the 1999
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
TO THE 1999 PLAN.
13
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of March 29, 2004 by:
- each person who is known by us to be the beneficial owner of
more than 5% of our outstanding common stock;
- each of our executive officers and directors; and
- all of our directors and executive officers as a group.
Unless otherwise noted, each person has sole investment and voting
power of the shares listed. The information in the following table is based on
information supplied by officers, directors and principal stockholders and
filings, if any, filed with the Securities and Exchange Commission by each
person.
NUMBER OF SHARES
-----------------------------------------------
EXERCISABLE
OPTIONS TO
PURCHASE SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES WITHIN 60 DAYS TOTAL CLASS
- ---------------------------------------- ------ -------------- ----- ----------
Wellington Management Company, LLP (2) ...... 4,414,454 0 4,414,454 8.4%
Ron J. Anderson, M.D. ....................... 0 52,250 52,250 *
Frank C. Carlucci ........................... 54,327 60,754 115,081 *
Terrance C. Coyne, M.D. ..................... 11,523(3) 0 11,523 *
Robert J. Cruikshank ........................ 22,131 60,754 82,885 *
Richard A. F. Dixon, Ph.D. .................. 174,889(3) 693,729 868,618 1.6%
Bruce D. Given, M.D. ........................ 214,982(3) 325,001 539,983 1.0%
Derek Maetzold .............................. 27,369(3) 0 27,369 *
Stephen L. Mueller .......................... 61,912(3)(4) 273,274 335,186 *
Suzanne Oparil, M.D. ........................ 12,106 38,750 50,856 *
John M. Pietruski ........................... 73,459(5) 53,213 126,672 *
William R. Ringo, Jr. ....................... 3,501 23,750 27,251 *
James A. Thomson, Ph.D. ..................... 7,901(6) 62,957 70,858 *
James T. Willerson, M.D. .................... 99,999(7) 64,122 164,121 *
All directors and executive officers
as a group (13 persons) ................ 764,099 1,708,554 2,472,653 4.5%
- --------------
* Less than 1%
(1) Unless otherwise indicated, the address of all persons above is
6700 W. Loop So., 4th Flr, Bellaire, TX 77401.
(2) As of December 31, 2003, Wellington Management Company, LLP
("Wellington Management"), in its capacity as investment adviser,may be
deemed to have beneficial ownership of 4,414,454 shares of common stock
that are owned by numerous investment advisory clients, one of which is
known to have such interest with respect to more than five percent of
the class of shares. Wellington Management has shared voting authority
over 2,804,854 shares and no voting authority over 1,609,600 shares.
Wellington Management is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. The address of Wellington
Management is 75 State Street, Boston, Massachusetts 02109.
(3) Includes the following shares of restricted common stock: Dr. Coyne -
11,523; Dr. Dixon - 71,581; Dr. Given - 189,982; Mr. Maetzold - 17,369
and Mr. Mueller - 44,902. The shares of restricted common stock vest in
three equal annual amounts beginning on the one year anniversary at the
grant date.
(4) Does not include 1,000 shares held by Mr. Mueller's daughter for which
he disclaims beneficial ownership.
(5) Includes 42,857 shares held by the Pietruski Family Partnership, of
which Mr. Pietruski is the general partner.
(6) Includes 200 shares held by Dr. Thomson's granddaughter.
(7) Includes 14,285 shares owned by The James T. Willerson Fund, Inc., a
not-for-profit corporation, of which Dr. Willerson is the Chairman of
the Board of Directors.
14
EXECUTIVE OFFICERS
Our executive officers serve at the pleasure of the Board of Directors
and are subject to annual appointment by the Board. All of our executive
officers are listed in the following table, and certain information concerning
these officers, except for Drs. Given and Dixon who are also members of the
Board of Directors, follows the table:
NAME AGE POSITION
---- --- --------
Bruce D. Given, M.D. 49 President, Chief Executive Officer and Director
Richard A. F. Dixon, Ph.D. 50 Senior Vice President, Research, Chief Scientific
Officer and Director
Stephen L. Mueller 56 Vice President, Finance and Administration, Secretary
and Treasurer
Terrance C. Coyne, M.D. 58 Vice President, Clinical Development and Chief
Medical Officer
Derek Maetzold 42 Vice President, Marketing and Sales
Stephen L. Mueller has served as Vice President, Finance and
Administration since March 1998, as Vice President of Administration since March
1995, as Secretary since May 1994 and as Treasurer since December 1991. From
September 1991 to March 1995, Mr. Mueller served as Director of Finance and
Administration. Prior to joining us, Mr. Mueller was a financial consultant for
wholesale distribution and oil and gas companies. Mr. Mueller was Vice President
and Controller of Bado Equipment Co., Inc. in Houston, Texas from 1976 to 1990.
He was associated with Deloitte & Touche, Certified Public Accountants in
Houston, Texas from 1973 to 1976. Mr. Mueller received a B.B.A. from The
University of Texas at Austin in accounting and is a Certified Public Accountant
in the State of Texas.
Terrance C. Coyne, M.D. has served as Vice President, Clinical
Development and Chief Medical Officer since September 2003. Dr. Coyne joined as
after serving as Senior Vice President, Chief Medical and Regulatory Officer for
Metaphore Pharmaceuticals, Inc. in St. Louis, Missouri from November 2001 to
September 2003. He was also Managing Director for Ferghana Partners, Inc. in New
York, New York for 2001. Dr. Coyne also served as Vice President Business
Development, Medical and Scientific Affairs for Celltech-Medeva Pharmaceuticals
in Rochester, New York from 1993 to 2000. Dr. Coyne received both his bachelor's
degree and medical degree from the University of Wisconsin.
Derek Maetzold has served as Vice President, Sales and Marketing since
June 2003. Before joining us, Mr. Maetzold served in various capacities for
Schering-Plough Corporation from 1999 to June 2003, including Senior Director -
Business Development, Director - Marketing, Allergy Business Unit and Director -
Marketing Planning, Ezetimibe and Clarinex. From 1998 to 1999, he served as
Account Supervisor for Integrated Communications Corporation, a healthcare
focused advertising company. Mr. Maetzold received his bachelor's degree in
Biology from George Mason University.
15
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides information
concerning compensation paid or accrued during the fiscal years ended December
31, 2003, 2002 and 2001 to our Chief Executive Officer and each of the other
four most highly-paid executive officers of the company whose salary and bonus
exceeded $100,000, collectively referred to as the Named Executive Officers,
determined at the end of the last fiscal year:
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ----------------------------
RESTRICTED SHARES
STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2) COMPENSATION
- --------------------------- ---- ---------- ---------- ------------ ----------- -------------
Bruce D. Given, M.D. ............... 2003 $ 340,792 $ 208,330 $ 86,670 -- $ 5,641(3)
President and Chief 2002 $ 247,055 $ 122,000 $ 430,500 550,000 $ 103,917(4)
Executive Officer 2001 -- -- -- -- --
Richard A.F. Dixon, Ph.D. .......... 2003 $ 296,070 $ 132,342 $ 51,003 96,300 $ 6,000(5)
Senior Vice President, 2002 $ 281,121 $ 72,205 $ 55,524 60,300 $ 5,500
Research, Chief 2001 $ 263,504 $ 33,883 $ 33,887 141,300 $ 5,100
Scientific Officer
Stephen L. Mueller ................. 2003 $ 184,095 $ 96,978 $ 32,003 31,600 $ 5,656(5)
Vice President, Finance and 2002 $ 177,897 $ 51,456 $ 34,775 30,800 $ 5,359
Administration, Secretary 2001 $ 168,466 $ 21,459 $ 21,462 75,500 $ 4,636
and Treasurer
Terrance C. Coyne, M.D. ............ 2003 $ 90,243 $ 39,165 $ 64,002 50,000 $ 16,865(6)
Vice President, Clinical 2002 -- -- -- -- --
Development, Chief 2001 -- -- -- -- --
Medical Officer
Derek Maetzold ..................... 2003 $ 108,341 $ 75,665 $ 63,985 70,000 $ 117,791(6)
Vice President, Sales 2002 -- -- -- -- --
and Marketing 2001 -- -- -- -- --
- ----------------
(1) Represents restricted shares of common stock issued under bonus plans
for executive officers and other key personnel. The restricted shares
vest in three equal annual installments over three years beginning on
the first anniversary of the date of grant except for 50,000 of Dr.
Given's restricted shares, which vest on the third anniversary of the
date of grant. The restricted shares are eligible for dividend
distributions should any dividends be declared. The number and value of
restricted shares held as of December 31, 2003, respectively, were as
follows: Dr. Given - 181,183/$1,621,588; Dr. Dixon - 66,403/$594,307;
Mr. Mueller - 41,653/$372,794; /Dr. Coyne - 10,000/$89,500; Mr.
Maetzold - 15,000/$134,250. The shares awarded under the bonus plan for
fiscal 2003 were: Dr. Given - 8,799; Dr. Dixon - 5,178; Mr. Mueller -
3,249; Dr. Coyne - 1,523; and Mr. Maetzold - 2,369. The dollar amounts
reported in the table represent the value of the restricted shares on
the date of grant.
(2) See "Option Grants in Last Fiscal Year" for certain information with
respect to options granted during the fiscal year ended December 31,
2003.
(3) Includes $495 for insurance premiums for term life insurance, and
$5,146 for employer contributions pursuant to our 401(k) plan.
(4) Includes $495 for insurance premiums for term life insurance, $4,755
for employer contributions pursuant to our 401(k) plan and $98,667 for
reimbursement of relocation expenses.
(5) Represents amounts for employer contributions pursuant to our 401(k)
plan.
(6) Represents amounts paid for relocation expenses.
16
Option Grants in Last Fiscal Year. The following table provides
information concerning stock options granted to the Named Executive Officers
during the year ended December 31, 2003:
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION FOR OPTION TERM(2)
NAME GRANTED FISCAL YEAR PRICE DATE(1) 5% 10%
- ---------------------------- ---------- ------------ -------- ---------- ----------- -----------
Richard A.F. Dixon, Ph.D.... 96,300 13.96 $ 0.93 03/21/13 $ 56,323 $ 142,734
Stephen L. Mueller.......... 31,600 4.58 $ 0.93 03/21/13 $ 18,482 $ 46,837
Terrance C. Coyne, M.D. .... 50,000 7.25 $ 4.90 09/01/13 $ 153,599 $ 388,975
Derek Maetzold.............. 70,000 10.15 $ 2.71 06/02/13 $ 119,301 $ 302,333
- -------------
(1) These stock options vest and become exercisable in approximately three
equal annual installments beginning on the first anniversary of the
date of grant.
(2) Potential Realizable Value is based on the assumed annual growth rates
for each of the grants shown over their ten-year option term. Actual
gains, if any, on option exercises are dependent on the future
performance of the common stock. Because the exercise price of options
granted is equal to the fair market value of the common stock a zero
percent appreciation in stock price will result in no gain.
Aggregated Option Exercises In Last Fiscal Year and Year-End Option
Values. The following table provides information concerning the number of
unexercised options and the value of in-the-money options held by the Named
Executive Officers as of December 31, 2003:
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FY-END IN-THE-MONEY OPTIONS (1)
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
Bruce D. Given, M.D. ....... 0 0 141,667 408,333 $ 393,834 $ 1,120,166
Richard A.F. Dixon, Ph.D. .. 59,244 100,505 594,429 183,600 $ 2,220,120 $ 1,067,814
Stephen L. Mueller ......... 18,426 31,474 227,307 77,299 $ 701,193 $ 408,173
Terrance C. Coyne, M.D. .... 0 0 0 50,000 $ 0 $ 202,500
Derek Maetzold ............. 0 0 0 70,000 $ 0 $ 436,800
- ------------
(1) Value of in-the-money options calculated based on the closing price of
$8.95 per share of common stock on December 31, 2003, as reported by
the Nasdaq National Market.
17
Securities Authorized For Issuance Under Equity Compensation Plans. The
following table sets forth information regarding our equity compensation plans
as of December 31, 2003:
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------------------------------------------
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO BE REMAINING AVAILABLE FOR
ISSUED UPON WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
EXERCISE OF EXERCISE EQUITY COMPENSATION
OUTSTANDING PRICE OF OUTSTANDING PLANS (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED IN
AND RIGHTS AND RIGHTS COLUMN (a))
PLAN CATEGORY (a) (b) (c)
------------- ------------------ -------------------- -----------------------
Equity compensation
plans approved by
security holders (1)......... 4,750,352 $6.33 2,093,929
Equity compensation
plans not approved by
security holders............. -- -- --
--------- ----- ---------
Total 4,750,352 $6.33 2,093,929
--------- ----- ---------
- ---------------
(1) Consists of the Amended and Restated 1990 Incentive Stock Option Plan,
the Amended and Restated 1992 Incentive Stock Option Plan, the Amended
and Restated Stock Option Plan for Non-Employee Directors, the Amended
and Restated 1995 Stock Option Plan, the Amended and Restated 1995
Non-Employee Director Stock Option Plan and the Amended and Restated
1999 Stock Incentive Plan.
Compensation Committee Interlocks and Insider Participation. In January
1992, we entered into a consulting agreement with John M. Pietruski, Chairman of
our Board of Directors. Under the terms of the agreement, Mr. Pietruski is
expected to devote an average of one day per week of his consulting services to
us. In 2002 the agreement was amended to extend the term for an additional
two-year period, effective January 1, 2003. During 2003 Mr. Pietruski received,
and will receive over the remaining term of the agreement, an annual fee of
$60,000.
18
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our compensation program for officers (including the Chief Executive
Officer and the other executive officers) is administered by the Compensation
and Corporate Governance Committee, which is composed of three independent
directors pursuant to Rule 4200 of the listing standards of the NASD. The
committee is primarily responsible for providing oversight on the broad range of
matters surrounding the compensation of management, and the composition and
operation of the Board, including recommending to the Board the compensation for
our Chief Executive Officer, approving the compensation and employee benefits
for our other executive officers and employees, identifying individuals
qualified to become Board members, recommending to the Board director nominees,
and recommending to the Board a set of corporate governance principles
applicable to us.
The policies of the committee with respect to executive officers,
including the Chief Executive Officer, are to provide compensation sufficient to
attract, motivate and retain executives of outstanding ability and potential and
to establish an appropriate relationship between executive compensation and the
creation of shareholder value. To meet these goals, the committee has adopted a
mix among various compensation elements including, salary, bonus and stock
options.
Base salaries for management employees are determined initially by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for management
talent, including a comparison of salaries for comparable positions at
comparable companies within the biotechnology industry and reference to broad
based industry surveys of pharmaceutical and biotechnology companies. In
furtherance of these goals, we have entered into agreements with certain of our
key management personnel, including Dr. Given, our Chief Executive Officer. See
"Executive Agreements." The agreements with key personnel establish annual base
salary amounts that the committee, may increase from time to time. Increases in
Dr. Given's salary require approval of the independent members of the full
Board. During the year 2003, Dr. Given received an annualized base salary of
$350,000 based on a review of his performance during 2002 by the committee.
Annual salary adjustments are determined by evaluating the competitive
marketplace, our performance, the performance of the executive, and any
increased responsibilities assumed by the executive. We attained a number of
important milestones during the year 2003, including the expansion of the sales
effort and increase in sales of Argatroban by our marketing partner
GlaxoSmithKline, acquisition of 100% of the commercial benefit for Thelin(TM)
through full ownership of Encysive, L.P., initiation of the final Phase III
clinical program for Thelin(TM), initiation and completion of clinical trials by
Revotar, our German affiliate and progress in research and clinical development
of certain compounds. Based on a review of these factors and Dr. Given's
performance during 2003, the committee recommended and the independent directors
of the full Board approved an increase in Dr. Given's annualized base salary to
$367,500 effective March 1, 2004.
19
Section 162(m) of the Internal Revenue Code restricts the ability of a
publicly held corporation to deduct compensation in excess of $1,000,000 paid to
its chief executive officer and each of the four most highly compensated
officers. The committee intends to maintain executive compensation packages
below this threshold, and based on its current compensation structure, we do not
anticipate that any of our officers will reach the $1,000,000 threshold in the
near future.
The principal methods for long-term incentive compensation are our
incentive stock plans. Compensation under these plans principally takes the form
of incentive and non-qualified stock options that have an exercise price equal
to the market price of our common stock at time of grant and restricted stock
grants. In this manner, key individuals are rewarded commensurate with increases
in stockholder value. Moreover, our incentive stock plans provide a non-cash
form of compensation, which is intended to benefit us by enabling us to continue
to attract and to retain qualified personnel. Pursuant to the terms of his
agreement, on the commencement of his employment, Dr. Given was granted options
to purchase an aggregate of 550,000 shares of common stock and 50,000 shares of
restricted common stock in March 2002. For his performance in 2003, on March 4,
2004, Dr. Given was granted a stock option to purchase 118,750 shares of our
common stock at the exercise price of $9.85. The exercise price of the stock
option was set at fair market value on the grant date. Subject to the terms
applicable to his grant, the stock option becomes exercisable in equal
installments on the first, second and third anniversaries of the grant date and
expires ten years from the grant date.
During 1998, the Board of Directors instituted a bonus plan for
executive officers and certain other key personnel. Generally, bonuses are paid
based upon attainment of annual corporate goals as approved by the Board of
Directors. Payments are made two thirds in cash and one third in restricted
common stock that vests in equal installments on the first, second and third
anniversaries of the grant date. Pursuant the terms of his agreement, Dr. Given
received a bonus of $295,000 for his performance in 2003, consisting of $208,330
in cash and 8,799 shares of restricted common stock.
The committee is authorized to make incentive awards under the stock
plans mentioned above to key employees, including our officers. In determining
incentive awards for management, the committee considers management's ability to
implement our research and clinical development programs, successful completion
of corporate partnering agreements, financing activities, and control of
expenses. The committee utilizes incentive awards as a key element to provide
incentives for employees and officers consistent with the goal of increasing
stockholder value.
James A. Thomson, Chair
Ron J. Anderson
Frank C. Carlucci
20
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of four directors, each of whom has
been determined to be independent in accordance with the requirements of the
NASD and the SEC.
Management is responsible for Encysive's financial reporting process
and systems of internal controls. The independent auditors are responsible for
performing an independent audit of Encysive's consolidated financial statements
in accordance with generally accepted auditing standards and to issue a report
thereon. The committee's responsibility is to monitor and oversee these
processes and the engagement, independence and performance of Encysive's
independent auditor. We are not professionally engaged in the practice of
accounting or auditing and, accordingly, we rely, without independent
verification, on the information provided to us and on the representations made
by management and the independent accountants. The committee's specific
responsibilities are set forth in the Audit Committee Charter, which is attached
as Appendix A hereto.
We have met with Encysive's independent accountants, KPMG LLP, and
discussed the overall scope and plans for their audit. We have also met with the
independent accountants, with and without management present, to discuss the
results of their examinations and their evaluations of Encysive's internal
controls. We also discussed with the independent accountants matters required to
be discussed with audit committees under generally accepted auditing standards,
including, among other things, matters related to the conduct of the audit of
Encysive's consolidated financial statement and the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended.
The independent accountants also provided to us the written disclosures
and the letter required by Independence Standards Board Standard No. 1, and we
discussed with the independent accountants their independence from Encysive. In
this area we also considered the non-audit services provided by the independent
accountants and concluded that such services are compatible with maintaining
their independence.
We have reviewed and discussed the audited consolidated financial
statements for the fiscal year ended December 31, 2003 with management and KPMG.
Based on our review of the audited consolidated financial statements and the
meetings and discussions with management and the independent accountants, and
subject to the limitations on our role and responsibilities referred to above
and in our committee charter, we recommended to the Board of Directors that
Encysive's audited consolidated financial statements be included in the
Encysive's Annual Report on Form 10-K filed with the SEC.
Robert J. Cruikshank, Chair
Suzanne Oparil
William R. Ringo, Jr.
James T. Willerson
21
PERFORMANCE GRAPH
The following is a line graph presentation comparing our common stock's
cumulative five year return with various indices, including broad market
indices. In May 2003, our name changed from Texas Biotechnology Corporation to
Encysive Pharmaceuticals Inc. As a result, our common stock traded on The Nasdaq
National Market System as "TXBI" until May 18, 2003 when it began trading as
"ENCY." In the prior year's proxy statement our peer group included Sicor, Inc.,
Corvas International, Inc., and Vertex Pharmaceuticals, Incorporated. Corvas
International, Inc. and Sicor, Inc. were acquired by other pharmaceutical
companies on July 30, 2003 and January, 22, 2004, respectively, and we believe
Vertex Pharmaceuticals, Incorporated is no longer a peer. We believe it would be
more appropriate to compare our common stock return with the Nasdaq
Biotechnology Index and have included such comparison in the graph below. We
have omitted a comparison to the historical peer group since the group would
only include two peers as of December 31, 2003 and therefore would not reflect
an adequate comparison.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
VALUE OF INVESTMENT OF $100 ON DECEMBER 31, 1998
[PERFORMANCE GRAPH]
YEAR ENDING
-----------------------------------------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Encysive Pharmaceuticals Inc.................................. 100 160.8 174.0 131.7 28.4 181.3
Nasdaq Market Index........................................... 100 176.4 110.9 88.4 61.6 92.7
Nasdaq Biotechnology Index.................................... 100 134.9 428.2 223.8 185.3 241.4
22
EXECUTIVE AGREEMENTS
We entered into an agreement with Dr. Bruce D. Given effective as of
March 25, 2002, and amended on March 21, 2003, whereby he agreed to serve as our
President and Chief Executive Officer. Upon the expiration of the initial
one-year term, the agreement automatically renews for successive one-year
periods unless either party provides notice at least sixty days before the
scheduled expiration. The agreement provides Dr. Given with an annual base
salary subject to increase by the Compensation and Corporate Governance
Committee and approved by the independent members of the Board of Directors in
accordance with our practices based upon Dr. Given's performance. Effective
March 1, 2004, the committee increased Dr. Given's annual salary to $367,500.
Under the agreement, Dr. Given was also granted options to purchase 425,000
shares of common stock and 125,000 shares of common stock, which will vest in
equal installments of one-third on the first, second and third anniversaries of
the date of grant and the second, third and fourth anniversaries of the date of
grant, respectively. In addition, we granted Dr. Given 50,000 restricted shares
of common stock, 10 shares for each share he purchased on the open market or
from us. He is also entitled to annual bonuses to be recommended by the
committee and approved by the independent members of the Board of Directors and
to participate in all retirement or other benefit plans, policies and programs
maintained or provided by us for our officers.
In March 2003, we entered into agreements with Richard A.F. Dixon,
Senior Vice President, Research, Chief Scientific Officer and Director, and
Stephen L. Mueller, Vice President, Finance Administration, Secretary and
Treasurer. Those agreements provide for a one year initial term, and the
agreements automatically renew for successive one year periods unless the other
party provides notice at least sixty days before the scheduled expiration. The
agreements provide for an annual base salary subject to increase by the
Compensation and Corporate Governance Committee in accordance with our practices
based on their performance. In addition they will also receive bonuses to be
determined by the committee in its sole discretion, and are entitled to
participate in all retirement or other benefit plans, policies and programs
maintained or provided by us for executive officers. Effective March 1, 2004,
the committee increased Dr. Dixon and Mr. Mueller's annual salary to $315,588
and $210,000, respectively.
We entered into agreements with Derek Maetzold, Vice President, Sales
and Marketing, and Terrance C. Coyne, Vice President, Clinical Development, and
Chief Medical Officer in June 2003 and September 2003, respectively. The
agreements provide for a one year initial term, and the agreements automatically
renew for successive one year periods unless the other party provides notice at
least sixty days before the scheduled expiration. The agreements provide for an
annual base salary subject to increase by the Compensation and Corporate
Governance Committee in accordance with our practices based on their
performance. In addition they will also receive bonuses to be determined by the
committee in its sole discretion, and are entitled to participate in all
retirement or other benefit plans, policies and programs maintained or provided
by us for executive officers. Effective March 1, 2004, the committee increased
Mr. Maetzold and Dr. Coyne's annual salary to $196,650 and $283,250,
respectively.
23
The agreements with Dr. Given, Dr. Dixon, Mr. Mueller, Dr. Coyne, and
Mr. Maetzold may be terminated by us with or without "cause," as defined in the
agreements. The executives can terminate the agreements with or without "good
reason," as defined in the agreements. In the event of termination by us without
"cause," or by the executives for "good reason," the executives will receive in
a lump sum their one-year's base salary and, only in the case of Dr. Given, a
prorata bonus, and will receive other benefits and rights under the agreements
for the twelve months following their termination. During the twelve-month
period after the date of termination, all stock options and restricted stock
held by the executives will continue to vest and be exercisable in accordance
with their terms in effect on the date of termination. On the conclusion of this
twelve-month period, all unexpired, unexercised options will be fully vested and
all restricted stock will be fully vested. Thereafter, all such fully vested
stock options will be exercisable by the executives until the earlier to occur
of the expiration of the term of each stock option or twelve months after the
date they become fully vested. However, in the event of termination by us for
"cause" or their termination without "good reason," the executives are only
entitled to receive that portion of their base salary that has been earned but
not paid through the termination date. In addition, the agreements provide
certain benefits in the event of a termination within two years of a "change of
control," as defined in the agreements. The agreements provide for a lump-sum
payment in cash of three years of annual base salary and annual bonus if any for
Dr. Given and Dr. Dixon, and 18 months of annual base salary and annual bonuses
if any for Mr. Mueller, Dr. Coyne and Mr. Maetzold. In addition, the agreements
provide for gross-up for certain taxes on the lump-sum payment, continuation of
certain insurance and other benefits for periods of 18 months to three years and
reimbursement of certain legal expenses in conjunction with the agreements.
During the term of the agreements, and for the twelve months following the
termination of the agreements, Dr. Given, Dr. Dixon, Dr. Coyne and Mr. Maetzold
may not engage, directly or indirectly, in any business or enterprise which is
in competition with us or induce any of our employees to accept employment with
any of our competitors.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has served as our independent auditors for a number of years.
Although we anticipate that this relationship will continue to be maintained
during fiscal 2004, we have not proposed any formal action be taken at the
meeting concerning the continued employment of KPMG, because no such action is
legally required. Representatives of KPMG plan to attend the annual meeting and
will be available to answer appropriate questions. These representatives will be
able to make a statement at the meeting if they wish, although we do not expect
them to do so.
24
Independent Public Accountant Fees. In 2002 and 2003, KPMG LLP provided
services in the following categories and amounts. Certain amounts for 2002 have
been reclassified to conform to the 2003 presentation.
2002 2003
---------- ----------
Audit Fees $ 133,000 $ 281,035(1)
Audit Related Fees $ 0 $ 7,000
Tax Fees $ 15,000 $ 15,000
All Other Fees $ 0 $ 0
- -------------
(1) Includes $84,500 of fees incurred by us in connection with the review of
registration statements filed in 2003.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services
of Independent Auditor. The Audit Committee's policy is to pre-approve all audit
and non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The committee has delegated pre-approval authority
with respect to non-audit services to its chairman, provided that the total
anticipated cost of the project is less than $3,000, and the total anticipated
costs of all such projects pre-approved by the chairman during any calendar year
does not exceed $12,000. The committee has also pre-approved the provision of
isolated tax questions or other miscellaneous tax services that do not
constitute discrete and separate projects, provided that the aggregate cost of
responding to all such questions and providing all such miscellaneous services
does not exceed $2,000 per calendar quarter. The chairman and management are
required to periodically report to the full committee the scope and anticipated
cost of all projects pre-approved by the chairman, and the cost of all
miscellaneous tax services described above. None of the fees paid to the
independent auditors under the categories Audit-Related, Tax and All Other fees
described above were approved by the committee after services were rendered
pursuant to the de minimis exception established by the SEC.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who own more than 10%
of our equity securities to file initial reports of ownership and reports of
changes in ownership of our common stock with the Securities and Exchange
Commission and to furnish us a copy of each filed report.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 2003, our officers, directors and
greater than 10% beneficial owners timely filed all required Section 16(a)
reports.
25
STOCKHOLDER PROPOSAL INFORMATION
If you want to present a proposal from the floor at the 2005 Annual
Meeting or nominate a person for election to the Board at such meeting, you must
give us written notice no later than February 21, 2005 and follow the procedures
outlined in our Bylaws. If the date of the 2005 Annual Meeting is more than 30
days from the 2004 Annual Meeting, your notice of a proposal will be timely if
we receive it a reasonable time before we mail our proxy materials for the 2005
Annual Meeting. If we do not receive notice of your proposal within this time
frame, our management will use its discretionary authority to vote the shares it
represents as the Board of Directors may recommend. Your notice should be sent
to our Secretary at 6700 West Loop South, 4th Floor, Bellaire, Texas 77401. You
may request a copy of the by-law provisions governing the requirements for
notice from our Secretary at the above address.
If instead of presenting your proposal at the meeting you want your
proposal to be considered for inclusion in next year's proxy statement, you must
submit the proposal in writing to our Secretary so that it is received at the
above address by December 8, 2004.
OTHER MATTERS
We have included a copy of our 2003 Annual Report to Stockholders,
which includes our Form 10-K covering the fiscal year ended December 31, 2003.
We will bear the cost of soliciting proxies in the accompanying form. We have
engaged Georgeson Shareholder Communications, Inc. to assist in the solicitation
of proxies for a fee of $5,000, plus out-of-pocket expenses. Additional fees may
be incurred in order to facilitate adoption of the proposal to amend the Amended
and Restated 1999 Stock Incentive Plan. Employees, officers and directors of the
Company may also solicit proxies In addition to solicitation by mail and by
Georgeson Shareholder Communications, our officers and regular employees may
solicit your proxy by telephone, by facsimile transmission or in person, for
which they will not be compensated.
By Order of the Board of Directors,
/s/ Stephen L. Mueller
------------------------------------------
STEPHEN L. MUELLER,
Vice President, Finance and Administration
Secretary and Treasurer
26
Appendix A
ENCYSIVE PHARMACEUTICALS INC.
CHARTER
OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
I. PURPOSE
The Audit Committee is a standing committee of the Board of Directors
(the "Board") of Encysive Pharmaceuticals Inc., a Delaware corporation
(the "Company"). Its primary function is to assist the Board in
fulfilling its oversight responsibilities by:
- Reviewing the financial reports and other financial
information provided by the Company to any governmental body
or the public;
- Reviewing the Company's system of internal controls regarding
finance, accounting, legal compliance and ethics that
management and the Board have established; and the Company's
auditing, accounting and financial reporting processes
generally;
- Reviewing the independence and performance of the Company's
independent auditors; and
- Providing an open avenue of communication among the
independent auditors, financial and senior management, and the
Board.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
The Audit Committee has direct access to the Company's independent
auditors and anyone in the Company. The Audit Committee has authority
to retain, at the Company's expense, special legal, accounting, or
other consultants or experts it deems necessary in the performance of
its duties.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements
and disclosures are complete and accurate and are in accordance with
generally accepted accounting principles and applicable rules and
regulations. These are the responsibilities of management and the
independent auditor.
II. COMPOSITION
The Audit Committee shall be comprised of at least three directors who
shall be appointed by the Board. The Audit Committee shall only include
directors who
A-1
satisfy the independence requirements of the U.S. Securities and
Exchange Commission (the "SEC") and The Nasdaq Stock Market, Inc.
("Nasdaq") applicable to the Company and are free of any relationship
that, in the opinion of the Board, would interfere with their exercise
of independent judgment as an Audit Committee member.
Notwithstanding the foregoing, one director who (i) is not independent
as defined in Rule 4200 of the listing standards of the National
Association of Securities Dealers (the "NASD"), (ii) meets the criteria
for independence set forth in Section 10A(m)(3) of the Securities
Exchange Act of 1934, as amended, and (iii) is not a current officer or
employee or a Family Member (as defined in Rule 4200 of the listing
standards of the NASD) of such officer or employee, may be appointed to
the Audit Committee, if the Board, under exceptional and limited
circumstances, determines that membership on the Audit Committee by the
individual is required by the best interests of the Company and its
stockholders, and the Board discloses, in the next annual proxy
statement subsequent to such determination (or, if the Company does not
file a proxy statement, in its Form 10-K), the nature of the
relationship and the reasons for that determination. A member appointed
under this exception may not serve longer than two years and may not
chair the Audit Committee.
Audit Committee members must be able to read and understand fundamental
financial statements, including the Company's balance sheet, income
statement and cash flow statement. One member of the Audit Committee
shall have accounting or related financial management expertise and
qualify as a "financial expert" in accordance with the requirements of
the SEC and Nasdaq (as may be modified or supplemented). The role of
the financial expert will be that of assisting the Audit Committee in
overseeing the audit process, not auditing the Company.
The members of the Audit Committee shall be appointed by the Board at
the annual meeting of the Board, and shall serve on the Audit Committee
for a term coinciding with their Board term. If a Chair of the Audit
Committee is not appointed by the Board, the Audit Committee shall
itself designate a Chair.
III. MEETINGS
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee should meet at least annually with
management and the independent auditors in separate executive sessions
to discuss any matters that the Audit Committee and each of these
groups believe should be discussed privately.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports and Review Procedures
A-2
1. Review and reassess the adequacy of this Charter annually and
report to the Board any recommended changes to this Charter.
The Audit Committee shall submit the Charter to the full Board
for approval and have the document published at least every
three years in accordance with the Regulations of the SEC.
2. Review the Company's annual financial results prior to the
release of results and/or the Company's annual audited
financial statements prior to filing with, or distribution to,
the SEC, any governmental body, or the public, including any
certification, report, opinion, or review rendered by the
independent auditors. The review should include discussion
with management and independent auditors of significant issues
regarding accounting principles, practices, estimates and
judgments.
3. In consultation with management and the independent auditors,
consider the integrity of the Company's financial reporting
processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor,
control and report such exposures. The Audit Committee should
also review significant findings prepared by the independent
auditors, with management's responses, the status of
management's responses to previous recommendations from the
independent auditors and the status of any previous
instructions to management from the Audit Committee.
4. Review the Company's quarterly financial results prior to the
release of results and/or the Company's quarterly financial
statements prior to filing with the SEC. In connection with
such review, discuss with financial management and the
independent auditors, the results of the independent auditors'
review of the quarterly financial statements, any significant
changes to the Company's accounting principles and any items
required to be communicated by the independent auditors in
accordance with AICPA SAS 61 (see item 11). The Committee may
authorize the Chair of the Audit Committee to represent the
entire Audit Committee for purposes of these reviews and
discussions.
5. Review with management all significant deficiencies and
material weaknesses, if any, in the design or operation of
internal controls, and any fraud, without regard to
materiality, that involves management or any other employee
who has a significant role in the Company's internal controls.
6. Review with independent auditors the recommendations included
in their management letter, if any, and their informal
observations regarding the competence and adequacy of
financial and accounting procedures of the Company. On the
basis of this review, make recommendations to the Board for
any changes that seem appropriate.
A-3
7. Periodically review with, and receive reports from, the
independent auditors regarding (i) critical accounting
policies and practices to be used in the audit, (ii) all
alternative treatments of financial information within GAAP
discussed with management, including the ramification of such
treatment and the treatment preferred by the auditors, and
(iii) all other material written communication between the
auditor and management.
Independent auditors
8. Have the sole authority and responsibility to appoint, select,
evaluate, and, where appropriate replace the independent
auditors, thus making the independent auditors ultimately
accountable to the Audit Committee.
9. Review the performance of, and approve the fees and other
significant compensation to be paid to, the independent
auditors' firm.
10. On an annual basis, ensure its receipt from the independent
auditors of a formal written statement delineating all
relationships between the independent auditors and the Company
consistent with Independence Standards Board Standard 1, and
actively engage in a dialogue with the independent auditors
with respect to any disclosed relationships or services that
may impact the auditors' objectivity and independence.
11. Take appropriate action to oversee the independence of the
independent auditors.
12. Review the independent auditors audit plan - discuss scope,
staffing, locations, reliance upon management, and internal
audit and general audit approach.
13. Prior to releasing the year-end results, discuss the results
of the audit with the independent auditors. Discuss certain
matters required to be communicated to audit committees in
accordance with AICPA SAS 61.
14. Consider the independent auditors' judgments about the quality
and appropriateness of the Company's accounting principles as
applied in its financial reporting.
Legal Compliance
15. On at least an annual basis, review with the Company's counsel
any legal matters that could have a material impact on the
Company's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
A-4
Other Matters
16. Establish procedures, and be responsible, for the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal controls, or auditing matters,
and the confidential, anonymous submissions by employees of
concerns regarding questionable accounting or auditing
matters.
17. Annually prepare a report to stockholders as required by the
SEC. The report should be included in the Company's annual
proxy statement.
18. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Audit Committee
or the Board deems necessary or appropriate.
19. Review financial and accounting personnel succession planning
with the Company.
20. Pre-approve the retention of the independent auditor for any
permitted non-audit service and the fee for such service. The
Audit Committee may delegate the authority to pre-approve the
retention of the independent auditor for permitted non-audit
services to one or more members of the committee. Those
members, if any, who have authority to pre-approve permitted
non-audit services shall present the pre-approval of any
permitted non-audit service to the Audit Committee at the next
meeting following any such pre-approval.
21. Permitted non-audit services shall include all non-audit
services other than the following:
- bookkeeping and other services related to accounting
records or financial statements;
- financial information systems design and
implementation;
- appraisal or valuation services, fairness opinions,
or contributions-in-kind reports;
- actuarial services;
- internal audit outsourcing services;
- management functions or human resources;
- broker or dealer, investment adviser or investment
banking services; and
- legal services and expert services unrelated to the
audit.
A-5
22. Review and approve all related party transactions.
23. Annually review policies and procedures as well as audit
results associated with directors' and officers' expense
accounts and perquisites. Annually review a summary of
directors' and officers' related party transactions and
potential conflicts of interest.
24. Annually consult with the independent auditors out of the
presence of management about internal controls and the
fullness and accuracy of the organization's financial
statements.
25. Maintain minutes of meetings and periodically report to the
Board on significant results of the foregoing activities.
A-6
Appendix B
ENCYSIVE PHARMACEUTICALS INC.
CHARTER
OF THE
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
OF THE
BOARD OF DIRECTORS
I. PURPOSE
The Compensation and Corporate Governance Committee (the "Committee")
is a standing committee of the Board of Directors (the "Board") of
Encysive Pharmaceuticals Inc., a Delaware corporation (the "Company").
The primary purpose of the Committee is to provide oversight on the
broad range of matters surrounding the compensation of management, and
the composition and operation of the Board. These matters include
recommending to the Board the compensation for the Company's chief
executive officer, approving the compensation and employee benefits for
the Company's other executive officers(1) and employees, identifying
individuals qualified to become Board members, recommending to the
Board director nominees, and recommending to the Board a set of
corporate governance principles applicable to the Company.
The Committee will primarily fulfill its purpose by carrying out the
activities enumerated in Section IV of this Charter. The Committee has
the authority to retain and terminate, at the Company's expense, and
approve the fees and other retention terms of, compensation, director
search, legal and other advisors it deems necessary for the fulfillment
of its responsibilities.
II. COMPOSITION
The Committee shall be comprised of at least three directors, each of
whom shall be "independent" directors under the listing standards of
NASDAQ as in effect from time to time.
Notwithstanding the foregoing, one director who is not independent by
reason of any of the NASDAQ standards, and is not a current officer or
employee or a Family Member of such employee, may be appointed to the
Committee, if the Board, under exceptional and limited circumstances,
determines that membership on the committee by the individual is
required by the best interests of the Company and its stockholders, and
the Board discloses, in the next annual proxy statement subsequent to
such determination, the nature of the relationship and the
- --------
(1) Executive officers include the chief executive officer, president,
principal financial officer, principal accounting officer, vice presidents of
principal business functions, and any other officer or employee who performs a
policy-making function.
B-1
reasons for that determination. A member appointed under this exception
may not serve longer than two years.
Additionally, the members of the Committee shall also qualify as
"non-employee directors" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, and "outside
directors" within the meaning of Section 162(m) of the Internal Revenue
Service Code of 1986, as amended.
The members of the Committee shall be appointed by the independent
directors of the Board at the meeting of the Board held in conjunction
with the Company's annual stockholders' meeting, and shall serve on the
Committee for a term coinciding with their Board term. If a Chair of
the Committee is not appointed by the Board, the Committee shall itself
designate a Chair.
III. MEETINGS
The Committee will meet at least two times annually, or more frequently
as circumstances dictate. The Committee will invite members of
management and others to attend meetings and provide pertinent
information, as necessary. Meeting agendas will be prepared and
provided in advance to Committee members, along with appropriate
briefing materials. Minutes will be prepared and the Committee will
report to the Board the results of its meetings.
IV. DUTIES AND RESPONSIBILITIES
The Committee has the following specific duties, in addition to any
other matters consistent with this Charter, the Company's by-laws,
applicable law and NASDAQ rules, as the Committee or the Board deems
necessary.
Compensation and Personnel
1. Reviews and recommends to the Board corporate goals and
objectives relevant to the Company's executive officers'
compensation (annual salary and bonus) and annually evaluates
each executive officers' performance in light of those goals
and objectives.
2. Reviews and recommends to the independent directors of the
Board for their approval the compensation and benefits for the
Chief Executive Officer and any employment agreements, or
amendments thereto, for the Chief Executive Officer.
3. Reviews and approves compensation and benefits for all
executive officers, other than the Chief Executive Officer(2).
Reviews and approves
- --------
(2) The chief executive officer's compensation will be determined in
executive session. The chief executive officer may be present during
deliberations of all other executive officers' compensation, but may not vote.
B-2
all employment agreements and all amendments to such
agreements for executive officers other than the Chief
Executive Officer.
4. Reviews and approves on an annual basis the annual
compensation pool, which includes a budget for annual salary
increases, for employees of the Company (other than the
executive officers). Once the annual compensation pool is
approved, the Committee directs the Chief Executive Officer,
with the assistance of the other executive officers, to
determine the annual compensation increases for each employee
of the Company (other than the executive officers).
5. Reviews and approves the grant of all incentive awards in
accordance with the Company's incentive plans, and administers
such incentive plans and the Company's bonus plan.
6. Reviews and recommends to the Board the Company's significant
personnel compensation policies and benefit programs and major
changes thereto, and the Company's long-range planning for
executive development and succession.
7. Reviews and recommends to the Board policies on management
perquisites, and also monitors the Company's
non-discrimination policies and practices.
Nominating
8. Establishes and articulates qualifications, desired
background, and other selection criteria for members of the
Board, which reflect the Company's best interests and are in
accordance with applicable law and NASDAQ rules.
9. Searches for, recruits, screens, interviews and recommends to
the Board candidates for new directors as necessary to fill
vacancies or the additional needs of the Board, and considers
management's and stockholder's recommendations for director
candidates.
10. Recommends to the independent directors on the Board for their
approval all nominees for Board membership, including the
re-election of existing Board members.
11. Evaluates and recommends to the independent directors of the
Board for their approval the removal of a director where
appropriate.
12. Evaluates and recommends to the independent directors of the
Board for their approval the composition of Board committees.
B-3
Corporate Governance
13. Develops, periodically reviews, and recommends to the Board a
set of corporation governance principles applicable to the
Corporation.
14. Prepares and recommends to the Board a process for the regular
review and evaluation of the performance of the members of the
Board.
15. Periodically reviews the Board's policies for director
compensation and stock ownership, and recommends to the Board
compensation programs for directors.
16. Annually prepares a report to stockholders as required by the
U.S. Securities and Exchange Commission for inclusion in the
Company's annual proxy statement.
17. Periodically reviews, in light of new legislation and other
developments, the Company's Business Ethics Policy, and
recommends to the Board any changes to such Policy as the
Committee deems appropriate.
18. Evaluates annually its performance and the adequacy of this
Charter, including compliance with applicable law and NASDAQ
rules, and recommends to the Board any changes to this Charter
as the Committee deems appropriate.
B-4
Appendix C
AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN AMENDMENT
The Amended and Restated 1999 Stock Incentive Plan (the "1999 Plan") of
Texas Biotechnology Corporation (the "Company") is hereby amended as follows
effective March 22, 2004.
1. Section 1.4 is amended to read as follows in its entirety:
Subject to adjustment under Section 5.5, there shall be
available for Incentive Awards under the Plan granted wholly or partly
in Common Stock (including rights or Stock Options that may be
exercised for or settled in Common Stock) Six Million Seven Hundred
Fifty Thousand (6,750,000) Shares of Common Stock. Six Million Seven
Hundred Fifty Thousand (6,750,000) of the Shares reserved under the
Plan shall be available for grants of Incentive Stock Options. The
number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner
such that all or some of the Shares covered by an Incentive Award are
not issued to a Grantee or are exchanged for Incentive Awards that do
not involve Common Stock, shall again immediately become available for
Incentive Awards hereunder. The Committee may from time to time adopt
and observe such procedures concerning the counting of Shares against
the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take
whatever actions are necessary to file any required documents with
governmental authorities, stock exchanges and transaction reporting
systems to ensure that Shares are available for issuance pursuant to
Incentive Awards.
During such period that the Company is a Publicly Held
Corporation, then unless and until the Committee determines that a
particular Incentive Award granted to a Covered Employee is not
intended to comply with the Performance-Based Exception, the following
rules shall apply to grants of Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in Section 5.5, the
maximum aggregate number of Shares of Common Stock (including Stock
Options, Restricted Stock, or Other Stock-Based Awards paid out in
Shares) that may be granted or that may vest, as applicable, in any
calendar year pursuant to any Incentive Award held by any individual
Covered Employee shall be Six Million Seven Hundred Fifty Thousand
(6,750,000) Shares.
(b) The maximum aggregate cash payout (including Other
Stock-Based Awards paid out in cash) with respect to Incentive Awards
granted in any calendar year which may be made to any Covered Employee
shall be Ten Million dollars ($10,000,000).
C-1
(c) With respect to any Stock Option granted to a Covered
Employee that is canceled or repriced, the number of Shares subject to
such Stock Option shall continue to count against the maximum number of
Shares that may be the subject of Stock Options granted to such Covered
Employee hereunder and, in this regard, such maximum number shall be
determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above
shall be construed and administered so as to comply with the
Performance-Based Exception.
C-2
Admin: Steve Myers
Forms Coordinator-Greg Harris Ext#6282
ENCYSIVE PHARMACEUTICALS INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL STOCK HOLDERS' MEETING TO BE HELD ON MAY 11, 2004
The undersigned stockholder of Encysive Pharmaceuticals Inc. (the
"Company") hereby appoints Bruce D. Given, Richard A.F. Dixon and Stephen L.
Mueller, or any of them, attorneys and proxies of the undersigned, each with
full power of substitution, to vote on behalf of the undersigned at the Annual
Meeting of Stockholders of the Company to be held at The Hilton Houston Plaza
Hotel, 6633 Travis Street, Houston, Texas 77030, on May 11, 2004, at 9:00 a.m.
(Houston time), and at any adjournments or postponements of said meeting, all of
the shares of common stock in the name of the undersigned or which the
undersigned may be entitled to vote.
The board of directors recommends a vote FOR the nominees listed on the
reverse side, FOR the adoption of the amendment to the Amended and Restated 1999
Stock Incentive Plan and IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES NAMED HEREIN AND FOR THE ADOPTION OF THE
AMENDMENT TO THE AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders, the Annual Report and the Proxy Statement furnished
herewith.
(Please sign the reverse side of this
card and return it promptly.)
ENCYSIVE PHARMACEUTICALS INC
P.O. BOX 11061
NEW YORK, N.Y. 10203-0061
Admin: Steve Myers
Forms Coordinator-Greg Harris Ext#6282
[ ] - DETACH PROXY CARD HERE -
SIGN, DATE AND RETURN THE [X]
PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
1. Election of Directors
FOR all nominees [ ] WITHHOLD AUTHORITY to [ ] *EXCEPTIONS [ ]
listed below vote for all
nominees listed below
Nominees: John M. Pietruski, Ron J. Anderson,
Frank C. Carlucci, Robert J. Cruikshank,
Richard A.F. Dixon, Bruce D. Given, Suzanne
Oparil, William R. Ringo, Jr.,
James A. Thomson and James T. Willerson.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*EXCEPTIONS ____________________________
FOR AGAINST ABSTAIN
2. Proposal to amend the Amended and Restated 1999
Stock Incentive Plan. [ ] [ ] [ ]
3. In their discretion, upon such other matters as
may properly come before the meeting; hereby
revoking any proxy or proxies heretofore given
by the undersigned.
To change your address, please mark this box. [ ]
To include any comments, please mark this box. [ ]
SCAN LINE
Signatures should agree with name printed
hereon. If common stock is held in the name
of more than one person, EACH joint owner
should sign. Executors, administrators,
trustees, guardians, and attorneys should
indicate the capacity in which they sign.
Attorneys should submit powers of attorney.
____________________________ _______________________
Date Share Owner sign here Co-Owner sign here
4566