SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
-----------------------
ESSENTIAL THERAPEUTICS, INC.
(Formerly Microcide 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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[LOGO OF ESSENTIAL THERAPEUTICS]
April 23, 2002
Dear Stockholders:
It is my pleasure to invite you to the Annual Meeting of Stockholders of
Essential Therapeutics, Inc. to be held on Thursday, May 23, 2002, at 9:30 a.m.
at the Doubletree Guest Suites on 550 Winter Street in Waltham, Massachusetts
02451. The Notice of the Annual Meeting and the Proxy Statement attached
describe the business to be conducted at the meeting.
I hope you will be able to join us. If you are unable to attend this year's
meeting, you can ensure your representation by completing the enclosed Proxy
Card and returning it to us promptly.
Thank you for your interest and participation in the affairs of Essential
Therapeutics.
Sincerely,
/s/ Mark Skaletsky
Mark Skaletsky
President and Chief Executive Officer
ESSENTIAL THERAPEUTICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 23, 2002
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders of
Essential Therapeutics, Inc., a Delaware corporation, will be held on Thursday,
May 23, 2002, at 9:30 a.m. local time, at the Doubletree Guest Suites located
at 550 Winter Street, Waltham, Massachusetts 02451 for the following purposes:
1. To elect two Class III directors for a term of three years to expire at
Essential's 2005 Annual Meeting of Stockholders.
2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2002.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only stockholders of record at the close of business on April 10, 2002 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to sign
and return the enclosed Proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has returned a proxy.
By order of the Board of Directors,
/s/ Julio Vega
Julio E. Vega
Secretary
Waltham, Massachusetts
April 23, 2002
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.
ESSENTIAL THERAPEUTICS, INC.
PROXY STATEMENT FOR 2002
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Essential Therapeutics, Inc., a Delaware corporation, for use at the Annual
Meeting of Stockholders to be held on Thursday, May 23, 2002, at 9:30 a.m.,
local time, or at any adjournment thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Doubletree Guest Suites
located at 550 Winter Street, Waltham, Massachusetts 02451. The telephone
number at that address is (781) 890-6767.
These proxy solicitation materials were mailed on or about April 23, 2002,
to all stockholders entitled to vote at the meeting.
Record Date and Share Ownership
Stockholders of record at the close of business on April 10, 2002 are
entitled to notice of the meeting and to vote at the meeting. At the record
date, 18,763,578 shares of Essential's common stock were issued and outstanding
and held of record by approximately 164 stockholders. In addition, at the
record date, 60,000 shares of Essential's Series B convertible redeemable
preferred stock, which we refer to herein as our Series B preferred stock, were
issued and outstanding and held of record by 14 stockholders. Each holder of
common stock as of the record date is entitled to one vote for each share of
common stock then held by such stockholder on matters to be acted upon at the
Annual Meeting. Each holder of Series B preferred stock as of the record date
is entitled to 294.12 votes for each share of Series B preferred stock then
held by such holder on matters to be acted upon at the Annual Meeting.
Solicitation of Proxies
This solicitation of proxies is made by Essential, and all related costs
will be borne by Essential. In addition, Essential may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegraph, or personal solicitations by directors, officers, or employees of
Essential. No additional compensation will be paid for any such services.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company, at the principal office of Essential, a written notice of revocation,
or a duly executed proxy bearing a later date, or by attending the meeting and
voting in person. The address of the principal office and mailing address of
Essential is 1365 Main Street, Waltham, Massachusetts 02451.
Voting Procedure
Unless otherwise instructed, shares represented by executed proxies in the
form accompanying this proxy statement will be voted "FOR" the election of the
nominees of the Board of Directors and "FOR" the ratification of the selection
of Ernst & Young LLP as independent auditors of Essential and at the proxy
holder's discretion,
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on such other matters, if any, that may come before the Annual Meeting. Other
than the election of directors, which is described in Proposal One below, all
matters that may properly come before the annual meeting require the
affirmative vote of a majority of the voting power present in person or
represented by proxy at the annual meeting.
In the event that a broker, bank, custodian, nominee or other record holder
of Essential's stock indicates on a proxy that it does not have discretionary
authority to vote certain shares on a particular matter (a "broker non-vote"),
those shares are counted towards a quorum, but are not counted for any purpose
in determining whether a matter has been approved. Abstentions will be counted
as shares present and entitled to vote at the annual meeting for purposes of
determining the presence of a quorum. Abstentions will not affect the election
of directors, however, abstentions will be counted towards the tabulation of
votes cast on other proposals presented to the stockholders and will have the
same effect as negative votes. All votes will be tabulated by the inspector of
election appointed for the Annual Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of Essential that are intended to be presented by
such stockholders at Essential's 2003 Annual Meeting of Stockholders must be
received by Essential no later than December 24, 2002 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting, and in any event, must be received by Essential no later than
March 9, 2003, to be eligible for stockholder action in that meeting.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
Essential's Restated Certificate of Incorporation, as amended, and By-laws,
as amended, provide for a Board of Directors that is divided into three
classes. The directors in Class I hold office until the 2003 Annual Meeting of
Stockholders, the directors in Class II hold office until the 2004 Annual
Meeting of Stockholders, and the directors in Class III hold office until the
2005 Annual Meeting of Stockholders (or, in each case, until their successors
are duly elected and qualified or their earlier resignation, removal from
office or death), and, after each such election, the directors in each such
case will then serve in succeeding terms of three years and until their
successors are duly elected and qualified.
Upon completion of Essential's acquisition of The Althexis Company, Inc. and
simultaneous closing of its Series B preferred stock financing in October 2001,
Drs. Keith A. Bostian, Daniel L. Kisner and Hugh Y. Rienhoff resigned from the
Board of Directors of Essential. The vacancies left by their resignations were
filled by representatives of several of the Series B preferred stockholders:
Kate Bingham, David Schnell and Charles Newhall. In addition, at the time of
the October 2001 transactions, Richard Aldrich was elected to the Board of
Directors.
The By-laws of Essential provide that the Board of Directors consist of
eight members. Essential currently has seven directors, including three Class I
directors, two Class II directors and two Class III directors. The terms of
office of the Class I directors, Richard H. Aldrich, Charles W. Newhall III and
David Schnell, M.D. expire at the 2003 Annual Meeting of Stockholders. The
terms of office of the Class II directors, Mark Skaletsky and John P. Walker,
expire at Essential's 2004 Annual Meeting of Stockholders. The terms of office
of the Class III directors, Kate Bingham and James E. Rurka, expire at the 2005
Annual Meeting of Stockholders. There is presently one vacancy in the Class II
director class.
Two Class III directors are to be elected at the 2002 Annual Meeting of
Stockholders. At this Annual Meeting, of the two Class III directors, the
holders of preferred stock, voting as a separate class are entitled to elect
one of the Class III directors, which director is referred to in this proxy
statement as the "preferred director." The holders of common stock and
preferred stock, voting together as a single class, are entitled to elect the
other Class III director, which director is referred to as the "combined
director." Essential's Board of Directors has nominated Kate Bingham for
election as the preferred director and James Rurka for election as the combined
director, each of whom is presently serving as a director.
Pursuant to voting agreements entered by Essential and each of the holders
of preferred stock in connection with Essential's Series B preferred stock
financing on October 24, 2001, the holders of preferred stock have granted the
Chairman of the Board of Directors of Essential an irrevocable proxy to vote
their shares in favor of each nominee of the Board of Directors for election by
the holders of common stock and preferred stock, voting together as a single
class. Accordingly at this Annual Meeting, Mark Skaletsky, the current Chairman
of the Board of Directors, will vote all of the shares of preferred stock for
the election of James Rurka as the combined director.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below. In the event that any nominee of
Essential is unable or declines to serve as a director at the time of the
Annual Meeting of Stockholders, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. It
is not expected that any nominee will be unable or will decline to serve as a
director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in
such a manner as will assure the election of as many of the nominees listed
below as possible, and in such event the specific nominees to be voted for will
be determined by the proxy holders.
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The nominees, and certain information about them as of March 31, 2002, are
set forth below:
Company Director
Name of Director Age Positions Since
- ---------------- --- --------- --------
Kate Bingham(1)......................................... 36 Director 2001
James E. Rurka.......................................... 56 Director 1994
- --------
(1) Member of Audit Committee.
Kate Bingham became a Director of Essential in October 2001. In 1991, she
joined Schroder Ventures, a venture capital firm, and is a General Partner of
Schroder Ventures Life Sciences. Prior to joining Schroder Ventures, Ms.
Bingham worked in business development at Vertex Pharmaceuticals, a
biotechnology company engaged in small molecule drug discovery, development and
commercialization. She currently serves on the boards of Affibody AB, Hexagen
plc, Ingenium AG, Lorantis Ltd., MedNova Ltd., Metris Therapeutics Ltd. and
Nexan plc. Ms. Bingham has a first class degree in Biochemistry from Oxford
University and an M.B.A. from Harvard University.
James E. Rurka served as President, Chief Executive Officer and a Director
since he joined Essential in February 1994. He resigned as President and Chief
Executive Officer upon completion of Essential's acquisition of Althexis in
October 2001 and remains as a Director. From 1983 to 1993, he was with Cetus
Corporation, subsequently acquired by Chiron Corporation, a major biotechnology
company, where he was most recently President of the Cetus Oncology Division.
Prior to joining Cetus Corporation, Mr. Rurka held Group Marketing and Product
Management positions at Bristol Myers Squibb, a diversified worldwide health
and personal care company, and Schering-Plough Corporation, a research-based
company engaged in the discovery, development, manufacturing and marketing of
pharmaceutical products worldwide. Mr. Rurka served on the Board of Directors
of Iconix Pharmaceuticals, Inc. (17% owned by Essential at February 28, 2002)
since its inception and resigned in 2001. He also serves on the Board of
Directors of the Biotechnology Industry Organization. Mr. Rurka has a B.A. in
English with a minor in Business from Seton Hall University, and he attended
Seton Hall University Graduate School of Business.
Vote Required
With respect to the director entitled to be elected by the holders of
preferred stock, voting as a separate class, the nominee receiving the greatest
number of votes of the preferred stock will be elected. With respect to the
director entitled to be elected by the holders of common stock and preferred
stock, voting together as a single class, the nominee receiving the greatest
number of votes of the common stock and preferred stock, voting together as a
single class, will be elected. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum, but have no legal
effect under Delaware law with respect to the vote.
Holders of common stock should complete the white proxy card accompanying
this Proxy Statement and holders of preferred stock should complete the
accompanying yellow proxy card accompanying this Proxy Statement. Unless
otherwise directed by a stockholder's proxy, it is intended that the votes cast
upon exercise of proxies in the form accompanying this statement will be in
favor of electing as directors the nominees set forth above.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE NOMINEES.
4
Incumbent Directors Whose Terms of Office Continue After the 2002 Annual Meeting
The names and certain other information about the Directors whose terms of
office continue after the 2002 Annual Meeting are set forth below:
Director
Name of Director Age Company Positions Since
- ---------------- --- ----------------- --------
Richard H. Aldrich(1)(2)..... 47 Director 2001
Charles W. Newhall III(1).... 57 Director 2001
David Schnell, M.D.(1)....... 41 Director 2001
Mark Skaletsky(3)............ 53 President, Chief Executive Officer and Director 2001
John P. Walker(2)............ 53 Director 1995
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Option Grant Committee.
Mr. Skaletsky's background is summarized under "Executive Officers" below.
Richard H. Aldrich became a Director of Essential in October 2001. Since
2001, Mr. Aldrich has headed RA Capital, Inc., a biotech business advisory and
investment firm. From 1989 to 2000, he served as the Senior Vice President and
Chief Business Officer at Vertex Pharmaceuticals, Inc., a biopharmaceutical
company engaged in small molecule drug discovery, development and
commercialization. Prior to joining Vertex, he headed business development at
Integrated Genetics, a biotechnology company, from 1988 to 1989. From 1982 to
1988, he held several managerial positions at Biogen, Inc., a biotechnology
company engaged in drug discovery and development through genetic engineering.
Mr. Aldrich currently serves on the Board of Directors for Ingenium
Pharmaceuticals, Inc. He also serves as a Director for Altus Biologics, Inc., a
company which he co-founded. Mr. Aldrich has a B.S. in Management from Boston
College and an M.B.A. from Dartmouth College Amos Tuck School of Business
Administration.
Charles W. Newhall III became a Director of Essential in October 2001.
Since 1978 he has been a General Partner and is a co-founder of New Enterprise
Associates, a venture capital firm. Prior to founding New Enterprise
Associates, he was a Vice President at T. Rowe Price Group, Inc., an asset
management firm. Mr. Newhall currently serves on the Board of Directors for
HealthSouth Corporation and Amerigroup Corporation. He also serves as Chairman
Emeritus of the Mid-Atlantic Venture Capital Association that he founded in
1986. Mr. Newhall has a B.A. in English Literature from the University of
Pennsylvania and an M.B.A. from Harvard University.
David Schnell, M.D., a founder of Essential, served as a Director of
Essential from December 1992 to June 2001. In October 2001, Dr. Schnell was
re-appointed to the Board of Directors of Essential. Since 1997 he has been a
Managing Partner of Prospect Venture Partners, a venture capital firm. From
1994 to 1997, he was a Partner at Kleiner Perkins Caufield & Byers, a venture
capital firm. From 1987 to 1993, Dr. Schnell was a marketing and business
development executive at Sandoz Pharmaceuticals Corporation, a research-based
provider of life science products. During 1992 and 1993, he managed Sandoz's
venture capital activities and, with Avalon Medical Partners, a venture capital
firm, founded Essential. He currently serves on a number of private company
Boards of Directors. Dr. Schnell has a B.S. in Biological Sciences and an M.A.
in Health Services Research from Stanford University and an M.D. from Harvard
University.
John P. Walker has served as a Director of Essential since December 1995 and
served as Chairman of the Board from February 1999 until the completion of
Essential's acquisition of Althexis in October 2001. He was the Chairman of the
Board and Chief Executive Officer of Axys Pharmaceuticals, Inc., a drug
development and discovery company and its predecessor company, Arris
Pharmaceutical Corporation, from February 1993 until 2001. He continued as a
member of the Board of Axys until the company was merged with Celera, an Applera
5
Corporation Business in November 2001. Prior to joining Axys, Mr. Walker was
the Chairman and Chief Executive Officer of Vitaphore Corporation, a medical
device company which was sold to Union Carbide in 1990. Prior to that, Mr.
Walker spent 15 years as an executive of American Hospital Supply Corporation,
a broadbased healthcare product supplier, most recently serving as President of
its American Hospital Company. He currently serves on the Board of Directors of
Geron Corporation, Discovery Partners International, several private companies,
and is a Venture Partner with Morgan Stanley Venture Partners. Mr. Walker has a
B.A. from State University of New York at Buffalo and completed an Executive
Program at Kellogg School of Management of Northwestern University.
Compensation of Directors
In connection with the changes to the Board of Directors following
Essential's acquisition of The Althexis Company, Inc. in October 2001, the
Board of Directors suspended Essential's 1996 Director Option Plan pending a
review of its provisions. Prior to its suspension, under the 1996 Plan each
non-employee director, upon first becoming a director, would automatically be
granted an option to purchase 16,000 shares of common stock on the date of his
or her election or appointment to the Board of Directors, which options would
be exercisable at a price equal to the fair market value of our common stock on
the date the option was granted and would vest over a four-year period.
Thereafter, at each annual stockholders' meeting, each non-employee director
with at least six months of service on the Board of Directors would
automatically be granted an option to purchase 4,000 shares of common stock,
which would vest over a one-year period. In June 2001, Essential granted
4,000 options to purchase shares of common stock to each of Daniel L. Kisner,
M.D. and Hugh Y. Rienhoff, Jr., M.D. and 8,000 options to John P. Walker as
Chairman. Keith A. Bostian, Ph.D. did not receive directors' options in
conjunction with his consulting agreement with Essential, and did not receive
any other options pursuant to that agreement.
In connection with the suspension of the 1996 Plan following the October
2001 acquisition of Althexis, the Board of Directors has and intends to grant
stock options to its directors as follows:
. upon election to the Board of Directors, a new non-employee director
would be granted an option exercisable for 30,000 shares of common
stock, which option which would be exercisable at a price equal to the
fair market value of our common stock on the date the option is granted
and would vest over a three-year period; and
. upon each anniversary of the date a non-employee director first became a
director, he or she would be granted an option exercisable for 5,000
shares of common stock, which option which would be exercisable at a
price equal to the fair market value of our common stock on the date the
option is granted and would be fully exercisable at grant.
Consistent with the Board compensation structure outlined above, in November
2001, each of Mr. Aldrich, Ms. Bingham, Mr. Newhall and Dr. Schnell were
granted an option under Essential's 2001 Incentive Stock Plan for 30,000 shares
of common stock, which options bear an exercise price of $3.23 per share.
In addition to the stock option grant to each non-employee director, each
will also be paid $12,000 per annum for their services, payable quarterly.
Directors otherwise have received no other fees for services provided in that
capacity but have been reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' meetings. The previous non-employee directors
were compensated $10,000 per annum, payable quarterly. Directors receive no
compensation for meetings attended by telephone or for actions taken by written
consent.
Board Meetings and Committees
The Board of Directors held nine meetings and took action by written consent
twice during fiscal 2001. There were five Compensation Committee meetings and
four Audit Committee meetings held in 2001. No
6
incumbent director attended fewer than 75% of the aggregate of the total number
of meetings of the Board of Directors and the total number of meetings held by
all committees of the Board of Directors on which he or she served during
fiscal 2001.
The Board of Directors has three standing committees: the Compensation
Committee, the Audit Committee and the Option Grant Committee.
The members of the Compensation Committee are Richard Aldrich, Charles
Newhall and David Schnell. Prior to the October 2001 acquisition of Althexis,
the members of the Compensation Committee were Daniel Kisner, M.D., Dr. Schnell
and John Walker. The Compensation Committee sets guidelines for hiring,
salaries and incentive compensation for employees of Essential other than
executive officers, and makes recommendations to the Board of Directors with
regard to salaries and incentive compensation for executive officers of
Essential. Mr. Skaletsky, President and Chief Executive Officer of Essential,
participates in discussions and decisions regarding hiring, salaries and
incentive compensation for employees and consultants of Essential, except that
Mr. Skaletsky is excluded from discussions regarding his own salary and
incentive compensation. The Compensation Committee held five meetings during
fiscal 2001. Each committee member attended the meetings held during such
member's tenure on the committee.
Presently, the members of the Audit Committee are Richard Aldrich, Kate
Bingham and John Walker. For fiscal 2001, these members of the Audit Committee
were all independent, as defined in the National Association of Securities
Dealers' listing standards. By virtue of the consulting fees earned by Mr.
Walker in fiscal 2001, for the coming year, Mr. Walker will not be independent
as defined in the National Association of Securities Dealers' listing
standards. In light of the reduced consulting fees Mr. Walker will be receiving
in fiscal 2002, Mr. Walker will meet the NASD's definition of independent and
the Board believes that Essential is best served by Mr. Walker remaining on the
Audit Committee. The terms of Mr. Walker's consulting arrangements with
Essential are described in the section below captioned "Certain Relationships
and Related Transactions." Prior to the October 2001 acquisition of Althexis,
the members of the Audit Committee were Dr. Kisner, Mr. Rienhoff and Dr.
Schnell. The Audit Committee performs functions set forth by a written charter
approved by the Board of Directors. The Audit Committee held four meetings
during fiscal 2001. Each committee member attended the meetings held during
such member's tenure on the committee.
Mark Skaletsky is the only member of the Option Grant Committee. Prior to
the October 2001 acquisition of Althexis, Mr. Rurka was the only member of the
Option Grant Committee. The Option Grant Committee was established principally
to grant stock options to non-officer employees and consultants upon
commencement of employment with Essential in accordance with the guidelines
established by the Board of Directors and the Compensation Committee. The
Option Grant Committee took action by written consent.
7
REPORT OF THE AUDIT COMMITTEE
The material in this Report of the Audit Committee is not "soliciting
material," is not deemed "filed" with the Commission, and is not to be
incorporated by reference into any filing of Essential under the Securities Act
of 1933 or the Securities Exchange Act of 1934, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
Pursuant to the written charter adopted by the Board of Directors, the Audit
Committee oversees Essential's financial reporting process on behalf of the
Board of Directors of Essential. In February 2002, the written charter for the
Audit Committee that was adopted by the Board was amended and restated and such
amended and restated charter is included in this proxy statement as Appendix A.
Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. In fulfilling
its oversight responsibilities, the Committee reviewed the audited financial
statements for fiscal year 2001 with management, including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of Essential's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. The Audit Committee has also discussed
with the independent auditors the matters required to be discussed by Statement
of Auditing Standards No. 61 (Communication With Audit Committees). In
addition, the Committee has received the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), discussed with the independent auditors the
auditors' independence from management and Essential, and considered the
compatibility of nonaudit services with the auditors' independence.
The Committee discussed with Essential's independent auditors the overall
scope and plans for their audit. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examination, their evaluation of Essential's internal controls and the overall
quality of Essential's financial reporting. The Committee held four meetings
during fiscal 2001.
Based on discussions with Ernst and Young LLP concerning the above and other
such matters deemed relevant and appropriate by the Committee, the Committee
recommended (and the Board has approved) that the audited financial statements
be included in Essential's Annual Report on Form 10-K for the year ended
December 31, 2001. The Committee and the Board have also recommended, subject
to stockholder approval, the selection of Essential's independent auditors.
AUDIT COMMITTEE
Richard H. Aldrich (Chair)
Kate Bingham
John P. Walker
8
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Proposal
The Board of Directors has selected Ernst & Young LLP to audit the financial
statements of Essential for the year ending December 31, 2002, and recommends
that the stockholders ratify the selection. In the event of a negative vote,
the Board will reconsider its selection.
Ernst & Young LLP has audited Essential's financial statements since 1993.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they so desire, and
are expected to be available to respond to appropriate questions.
Audit Fees
During the fiscal year ended December 31, 2001, the aggregate fees billed by
Ernst & Young LLP for professional services rendered in connection with the
audit of Essential's annual financial statements and for reviews of Essential's
interim financial statements for such fiscal year were $159,000.
All Other Fees
During the fiscal year ended December 31, 2001, the aggregate fees billed by
Ernst & Young LLP for all other professional services were $201,000, consisting
of audit related and tax preparation services. Audit related services generally
include fees for accounting consultations, primarily merger-related issues, SEC
registration statements and the audit of Essential's 401(k) Plan.
The Audit Committee has determined that the rendering of all other non-audit
services by Ernst & Young LLP is compatible with maintaining such auditors'
independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS.
9
10
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to Essential with
respect to beneficial ownership of Essential's common stock as of April 10,
2002 by (i) each stockholder known by Essential to be the beneficial owner of
more than 5% of Essential's common stock, (ii) each current director, (iii)
each named executive officer listed in the Summary Compensation Table below,
and (iv) all executive officers and directors as a group.
Percent
Five Percent Stockholders, Beneficially
Directors and Executive Officers Number Owned(1)
- -------------------------------- --------- ------------
Mark Skaletsky(2)............................................... 509,435 2.7%
Donald D. Huffman(3)............................................ 119,117 *
Paul Mellett(4)................................................. 157,032 *
George H. Miller, Ph.D.(5)...................................... 168,526 *
Manuel Navia, Ph.D.............................................. 1,233,900 6.6%
Robert D. Testorff(6)........................................... 65,580 *
Richard H. Aldrich.............................................. -- *
Kate Bingham(7)................................................. 4,819,665 *
Charles W. Newhall III(8)....................................... 6,643,333 *
James E. Rurka(9)............................................... 457,782 2.4%
David Schnell, M.D.(10)......................................... 6,703,545 *
John P. Walker(11).............................................. 84,666 *
Mass Ventures LLC............................................... 991,690 5.3%
945 East Paces Ferry Road, Suite 2250
Atlanta, GA 30326
International Biotechnology Trust plc(12)....................... 2,500,000 11.8%
c/o Schroder Investment Management Limited
31 Gresham Street
London, EC2V 7QA, England
New Enterprise Associates 10, Limited Partnership(13)........... 6,643,333 26.1%
1119 St. Paul Street
Baltimore, MD 21202
Entities Affiliated with Prospect Venture Partners(14).......... 6,666,666 26.2%
435 Tasso Street, Suite 200
Palo Alto, CA 94301
Entities Affiliated with Schroder Venture Managers Limited(15).. 2,319,665 11.0%
22 Church Street
Hamilton, HM 11, Bermuda
All directors and executive officers as a group (12 persons)(16) 1,608,018 8.3%
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities, subject to community property laws, where
applicable. Applicable percentage ownership is based on 18,763,578 shares
of common stock outstanding as of April 10, 2002. Shares of common stock
subject to options or convertible securities, including the Series B
convertible redeemable preferred stock, currently exercisable or
convertible or exercisable or convertible within 60 days of April 10,
2002, are included in the number of
10
shares outstanding for computing the percentage of the person holding such
option or convertible security but are not included in the number of shares
outstanding for computing the percentage of any other person.
(2) Includes 503,185 shares held by Mr. Skaletsky, of which 284,856 shares are
subject to repurchase under the Restricted Stock Purchase Agreement, and
6,250 shares issuable to Mr. Skaletsky pursuant to options exercisable
within 60 days of April 10, 2002.
(3) Includes 4,117 shares held by Mr. Huffman and 115,000 shares issuable to
Mr. Huffman pursuant to options exercisable within 60 days of April 10,
2002.
(4) Includes 155,469 shares held by Mr. Mellett, of which 110,124 shares are
subject to repurchase under the Restricted Stock Purchase Agreement, and
1,563 shares issuable to Mr. Mellett pursuant to options exercisable
within 60 days of April 10, 2002.
(5) Includes 18,880 shares held by Dr. Miller, 1,000 shares held by Dr. Miller
as Custodian for his daughter, and 148,646 shares issuable to Dr. Miller
pursuant to options exercisable within 60 days of April 10, 2002.
(6) Includes 1,100 shares held by Mr. Testorff and 64,480 shares issuable to
Mr. Testorff pursuant to options exercisable within 60 days of April 10,
2002.
(7) Includes 4,819,665 shares Ms. Bingham may be deemed to beneficially own
due to her affiliation with International Biotechnology Trust plc and
Schroder Ventures as described in Notes 12 and 15 below. Ms. Bingham
disclaims beneficial ownership with respect to shares she may be deemed to
beneficially own due to her affiliation with International Biotechnology
Trust plc and Schroder Ventures, except to the extent of any pecuniary
interest therein.
(8) Includes 6,643,333 shares Mr. Newhall may be deemed to beneficially own
due to his affiliation with New Enterprise Associates 10, Limited
Partnership as described in Note 13 below. Mr. Newhall disclaims
beneficial ownership with respect to shares he may be deemed to
beneficially own due to his affiliation with New Enterprise Associates 10,
Limited Partnership and its affiliates, except to the extent of any
pecuniary interest therein.
(9) Includes 187,365 shares held by Mr. Rurka and 270,417 shares issuable to
Mr. Rurka pursuant to options exercisable within 60 days of April 10, 2002.
(10) Includes 36,879 shares held by Dr. Schnell. Also includes 6,666,666 shares
Dr. Schnell may be deemed to beneficially own due to his affiliation with
Prospect Venture Partners, Limited Partnership as described in Note 14
below. Dr. Schnell disclaims beneficial ownership with respect to shares
he may be deemed to beneficially own due to his affiliation with Prospect
Venture Partners, Limited Partnership and its affiliates, except to the
extent of any pecuniary interest therein.
(11) Includes 15,000 shares held by the Walker Living Trust of which Mr. Walker
is a Trustee and 69,666 shares issuable to Mr. Walker pursuant to options
exercisable within 60 days of April 10, 2002.
(12) Based upon a Schedule 13D filed by International Biotechnology Trust plc
("IBT") and others with the SEC on November 5, 2001. The number of shares
reported results from the assumed conversion of 7,500 shares of Series B
convertible redeemable preferred stock of Essential acquired by IBT.
Schroder Investment Management Limited ("SIML") is the discretionary
investment manager of IBT. SIML may be deemed to beneficially own the
shares as the discretionary investment manager of IBT and shares voting
and dispositive power with respect to such shares. Mr. Tom Daniel and Ms.
Kate Bingham are members of the investment committee of Schroder Ventures
Life Sciences Advisers (UK) Limited which advises SIML. In such capacity,
Mr. Daniel and Ms. Bingham may be deemed to beneficially own the shares
and share voting power with respect to such shares. Ms. Bingham is a
member of the Board of Directors of Essential. Mr. Richard Colwell is the
fund manager of IBT. Mr. Colwell may be deemed to beneficially own the
shares as the fund manager of IBT and shares voting power with respect to
such shares. SIML, Ms. Bingham and Messrs. Colwell and Daniel disclaim the
beneficial ownership of any shares of common stock of Essential.
(13) Based upon a Schedule 13D filed by New Enterprise Associates 10, Limited
Partnership ("NEA 10") and others with the SEC on November 2, 2001. The
number of shares reported results from the assumed conversion of 19,930
shares of Series B convertible redeemable preferred stock of Essential
acquired by NEA 10 in a private transaction on October 24, 2001. NEA
Partners 10, Limited Partnership ("NEA Partners 10") is the sole general
partner of NEA 10. Messrs. Stewart Alsop, M. James Barrett, Peter J.
Barris, Robert T. Coneybeer, Nancy L. Dorman, Ronald H. Kase, C. Richard
Kramlich, Thomas C.
11
McConnell, Peter T. Morris, Charles W. Newhall III, Mark W. Perry and Scott
D. Sandell are the individual general partners of NEA Partners 10
(collectively, the "General Partners"). Mr. Newhall is a member of the
Board of Directors of Essential. NEA 10 is the record owner of the shares,
however NEA Partners 10 may be deemed to beneficially own the shares as the
sole general partner of NEA 10 and shares voting and dispositive power with
respect to the shares. The General Partners may also be deemed to
beneficially own the shares as the individual general partners of NEA
Partners 10 and share voting and dispositive power with respect to the
shares. NEA Partners 10 and the General Partners disclaim beneficial
ownership of the shares.
(14) Based upon a Schedule 13D filed by Prospect Venture Partners II, L.P.
("PVP II") and others with the SEC on November 5, 2001, as amended on
December 18, 2001. The number of shares reported results from the assumed
conversion of 20,000 shares of Series B convertible redeemable preferred
stock of Essential acquired by the reporting entities in a private
transaction on October 24, 2001, of which (a) 5,000,000 shares of common
stock are held of record by PVP II, and (b) 1,666,666 shares of common
stock are held of record by Prospect Venture Partners, L.P. ("PVP").
Prospect Management Co. II, L.L.C. ("PMC II") is the general partner of
PVP II. PMC II may be deemed to beneficially own 5,000,000 shares as the
general partner of PVP II and shares voting and dispositive power with
respect to such shares. Prospect Management Co., L.L.C. ("PMC") is the
general partner of PVP. PMC may be deemed to beneficially own 1,666,666
shares as the general partner of PVP and shares voting and dispositive
power with respect to such shares. Dr. David Schnell and Mr. Alexander E.
Barkas are managing members of both PMC and PMC II. Dr. Schnell and Mr.
Barkas may be deemed to beneficially own 6,666,666 shares of common stock
of Essential and shares voting and dispositive power. In addition, Dr.
Schnell directly owns 36,879 shares of common stock of Essential. Dr.
Schnell is a member of the Board of Directors of Essential. Mr. Russell C.
Hirsch and Mr. James B. Tananbaum are managing members of PMC II.
Mr. Hirsch and Mr. Tananbaum may each be deemed to beneficially own
5,000,000 shares of common stock of Essential and shares voting and
dispositive power. Other than with respect to 36,879 shares, Dr. Schnell
disclaims beneficial ownership with respect to any shares of Essential
except to the extent of any pecuniary interest therein. Mr. Barkas, Mr.
Hirsch and Mr. Tananbaum disclaim beneficial ownership with respect to any
shares of Essential except to the extent of any pecuniary interest therein.
(15) Based upon a Schedule 13D filed by Schroder Venture Managers Limited
("SVML") and others with the SEC on November 5, 2001. The number of shares
reported results from the assumed conversion of 6,959 shares of Series B
convertible redeemable preferred stock of Essential acquired by the
reporting entities in a private transaction on October 24, 2001, of which
(a) 2,107,665 shares of common stock are held of record by Schroder
Ventures International Life Sciences Fund II Strategic Partners L.P.
("Strategic Partners Plan"), and (b) 42,000 shares of common stock are
held of record by Schroder Ventures International Life Sciences Fund Group
Co-Investment Scheme ("Co-Invest Scheme"). SVML is the investment and fund
manager of Strategic Partners Plan and Co-Invest Scheme. SVML may be
deemed to beneficially own 2,319,665 shares of common stock of Essential
and shares voting and dispositive power with respect to such shares. SVML
disclaims beneficial ownership with respect to such shares. By virtue of
certain affiliate relationships, Strategic Partners Plan and Co-Invest
Scheme may be deemed to beneficially own 2,319,665 shares of common stock
of Essential and shares voting and dispositive power. Each of the
foregoing entities disclaims beneficial ownership of any shares of common
stock of Essential except in the case of Strategic Partners Plan for the
2,107,665 shares it holds of record and Co-Invest Scheme for the 42,000
shares it holds of record. Ms. Deborah Speight, Ms. Nicola Lawson and
Messrs. Peter Everson and Gary Carr are directors of SVML. Each of the
foregoing persons may each be deemed to beneficially own 2,319,665 shares
of common stock of Essential and shares voting and dispositive power. Each
of the foregoing persons disclaims beneficial ownership with respect to
such shares.
(16) Includes 676,022 shares issuable pursuant to options exercisable within 60
days of April 10, 2002.
12
EXECUTIVE COMPENSATION
Executive Officers
The following table sets forth our executive officers, their respective ages
and positions as of March 31, 2002:
Name Age Company Positions Since
- ---- --- ----------------- -----
Mark Skaletsky......... 53 Chairman, President and Chief Executive Officer 2001
George H. Miller, Ph.D. 63 Executive Vice President--Research and Development 1998
Paul Mellett........... 46 Senior Vice President, Chief Financial Officer and 2001
Assistant Secretary
Robert D. Testorff..... 55 Vice President--Human Resources and Administration 1997
Nancy Wetherbee........ 45 Vice President--Business Development 2002
Mark Skaletsky was appointed as President, Chief Executive Officer and
Chairman of the Board of Essential upon completion of the merger in October
2001. Prior to the merger, Mr. Skaletsky was the Chairman of the Board and
Chief Executive Officer of Althexis. He served as a Director of Essential from
April 1998 to March 2001. From 1993 to 2000, Mr. Skaletsky was the President
and Chief Executive Officer of GelTex Pharmaceuticals, Inc., a company which
researches and develops non-absorbed polymer drugs and was acquired by Genzyme
Corporation in December 2000. From 1988 to 1993, Mr. Skaletsky served as
Chairman and Chief Executive Officer of Enzytech, Inc., a biotechnology company
subsequently acquired by Alkermes, Inc., a pharmaceutical company applying the
tools of biotechnology to the development of proprietary drug delivery systems.
From 1981 to 1988, Mr. Skaletsky served as President and Chief Operating
Officer of Biogen, Inc., a biotechnology company focused on products for
multiple sclerosis, inflammatory, respiratory and kidney diseases, and certain
viruses and cancers. Mr. Skaletsky serves on the Board of Directors and is the
former Chairman of the Biotechnology Industry Organization. Mr. Skaletsky is a
member of the Board of Trustees of Bentley College and also serves on the Board
of Directors of Isis Pharmaceuticals, Inc., and several other private
biotechnology companies. Mr. Skaletsky has a B.S. in Finance from Bentley
College.
George H. Miller, Ph.D., Executive Vice President--Research and Development,
joined Essential in January 1998. Prior to joining Essential, Dr. Miller had
spent the previous 23 years at Schering-Plough Research Institute, a
research-based company engaged in the discovery and development of
pharmaceutical products worldwide. From 1986 to 1997, Dr. Miller served as
Presidential Fellow--Vice President--Infectious Disease and Microbial Products
Discovery. Dr. Miller also taught at the Virginia Commonwealth University and
is currently an adjunct faculty member in the School of Pharmacy at Rutgers
University. Dr. Miller has a B.S. and M.S. from Philadelphia College of
Pharmacy and Science, and a Ph.D. from the Virginia Commonwealth University.
Paul Mellett was appointed as Senior Vice President and Chief Financial
Officer of Essential upon completion of the merger in October 2001. Prior to
the merger, Mr. Mellett had been Vice President and Chief Financial Officer of
Althexis since April 2001. From 1997 to 2000, Mr. Mellett was the Chief
Financial Officer and Vice President of Administration at GelTex
Pharmaceuticals, Inc., a company which researches and develops non-absorbed
polymer drugs and was acquired by Genzyme Corporation in December 2000. From
1994 to 1997, Mr. Mellett served as the Chief Financial Officer of Marshall
Contractors, a construction management firm specializing in the
pharmaceutical/biotechnology and semi-conductor industries, which was acquired
by Fluor Corporation in 1996. From 1977 to 1994, Mr. Mellett was employed with
Deloitte & Touche LLP, a public accounting firm, and was an Audit Partner since
1989. Mr. Mellett is a Director of Caritas Norwood Hospital. Mr. Mellett
received a B.S. in Business Administration from Boston College.
13
Robert D. Testorff, Vice President--Human Resources and Administration,
joined Essential in December 1997. Prior to joining Essential, from 1992 to
1997, Mr. Testorff was the Vice President of Human Resources for Biocircuits
Corporation, a biomedical diagnostics company. From 1984 to 1992, he was
employed as a human resources management consultant, affiliated for several
years with a major, multi-national consulting firm. Mr. Testorff's earlier
employment included Print Technology, where he was the Director of Human
Resources and Rockwell International, where he was the Group Director of Human
Resources for its Telecommunications Group. Mr. Testorff has a B.A. in History
and Political Science from Wichita State University and a J.D. from Southern
Methodist University, where he specialized in labor relations and employment
law.
Nancy Wetherbee, Vice President--Business Development, joined Essential in
March 2002. Prior to joining Essential, from 1999 to 2002, Ms. Wetherbee served
as the Vice President of Business Development at Phytera, Inc., a
biopharmaceutical company focused on applying novel technology platforms to the
identification of new lead structures and genes for pharmaceutical
applications. From 1995 to 1998, she was a sales and marketing, business
development and strategic planning executive at Oncormed, Inc., a genomics
company pioneering pharmaco-genomics to accelerate drug discovery and
development, which was acquired by Gene Logic, Inc. in September 1998. From
1989 to 1995, Ms. Wetherbee was the Director of Marketing at Athena Diagnostics
Corporation, a leading provider of proprietary and highly specialized
neurological diagnostic services. From 1981 to 1989, she held various positions
at Boehringer Mannheim Biochemicals, a leading provider of biotechnology
research products. Ms. Wetherbee has a B.A. in Biochemistry from Mount Holyoke
College and an M.B.A. from Simmons Graduate School of Management.
14
Compensation Tables
Summary Compensation Table.
The following table summarizes compensation information for our Chief
Executive Officer and the other most highly compensated executive officers of
Essential, its named executive officers, for the periods shown.
Annual Compensation Long-Term
----------------------------- Compensation All Other
Fiscal Bonus Other Annual Options/ Compensation
Name and Principal Position Year Salary (1) Compensation SARs (#) (2)
- --------------------------- ------ -------- ------- ------------ ------------ ------------
Mark Skaletsky........................ 2001 $ 61,875 $65,000 -- -- $ --
Chairman, President and
Chief Executive Officer(3)
George H. Miller, Ph.D................ 2001 262,500 49,220 -- 100,000 4,493
Executive Vice President-- 2000 249,375 18,750 -- 50,000 4,238
Research and Development 1999 234,270 44,063 -- 40,000 2,480
Paul Mellett.......................... 2001 39,375 29,530 -- -- --
Senior Vice President, Chief
Financial Officer and Assistant
Secretary(4)
Robert D. Testorff.................... 2001 178,500 33,470 -- 47,500 1,290
Vice President--Human Resources 2000 170,000 12,750 -- 25,000 690
and Administration(5) 1999 160,000 30,000 -- 30,000 1,027
James E. Rurka........................ 2001 266,667 84,000 -- -- 54,623
President, Chief Executive Officer 2000 319,167 33,600 -- 60,000 690
and Director(6) 1999 291,167 78,750 -- 50,000 432
Donald D. Huffman..................... 2001 175,000 39,375 50,000 36,290
Vice President--Finance and 2000 117,794 15,000 -- 65,000 27,684
Corporate Development and 1999 --
Chief Financial Officer(7)
- --------
(1) Represents bonuses earned by the named executive officer based upon his
performance in the year noted but paid in the subsequent year.
(2) Represents amounts paid by Essential on behalf of the officer for term life
insurance policies (the proceeds of which are payable to the officer's
beneficiaries); in the case of Messrs. Rurka and Huffman, also included in
2001 are two months of severance payments under their respective severance
agreements; and in the case of Mr. Huffman, also included are consulting
fees earned prior to joining Essential in May 2000 in the amount of $27,281.
(3) Mr. Skaletsky was appointed as President, Chief Executive Officer and
Chairman of the Board of Essential upon completion of the merger with
Althexis in October 2001.
(4) Mr. Mellett was appointed as Senior Vice President, Chief Financial Officer
and Assistant Secretary of Essential upon completion of Essential's
acquisition of Althexis in October 2001.
(5) Mr. Testorff joined Essential in December 1997. He became an executive
officer in November 2001.
(6) Mr. Rurka resigned on October 31, 2001 upon completion of Essential's
acquisition of Althexis and remains as a Director.
(7) Mr. Huffman joined Essential in May 2000. He resigned on October 31, 2001
upon completion of Essential's acquisition of Althexis.
Termination of Employment and Change of Control Arrangements. Essential has
entered into severance agreements with Dr. Miller and Messrs. Huffman, Mellett,
Rurka, Skaletsky and Testorff to provide severance benefits upon a termination
following a change of control. A summary of the terms of the agreements is
provided in the section entitled "Certain Relationships and Related
Transactions."
15
Stock Option Information
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of stock options to each of the named executive
officers during the fiscal year ended December 31, 2001. The table also sets
forth hypothetical gains or "option spreads" for the options at the end of
their respective ten-year terms. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the option
was granted over the full option term. Actual gains, if any, on option
exercises are dependent on the future performance of Essential's common stock
and overall market conditions.
Potential Realizable
% of Total Value at
Options Assumed Annual Rate
Granted to of Stock Appreciation
Employees Exercise for Option Terms(2)
Options in Fiscal Price per Expiration ---------------------
Name Granted(1) Year Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- -------- --------
Mark Skaletsky......................... -- -- $ -- -- $ -- $ --
Chairman, President and
Chief Executive Officer
George H. Miller, Ph.D................. 75,000 7.70% 7.625 1/24/11 359,649 911,421
Executive Vice President-- 25,000 2.57% 3.23 11/15/11 48,340 124,804
Research and Development
Paul Mellett........................... -- -- -- -- -- --
Senior Vice President, Chief Financial
Officer and Assistant Secretary
Robert D. Testorff..................... 35,000 3.59% 7.625 1/24/11 167,836 425,330
Vice President--Human Resources 12,500 1.28% 3.23 11/15/11 24,170 62,402
and Administration
James E. Rurka......................... -- -- -- -- -- --
President, Chief Executive Officer
and Director
Donald D. Huffman...................... 50,000 5.13% 7.625 1/24/11 239,766 607,614
Vice President--Finance and
Corporate Development and
Chief Financial Officer
- --------
(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. Essential's 1993
Amended Incentive Stock Plan and 2001 Incentive Stock Plan (Incentive
Plans) also provide for the grant of non-qualified stock options. Incentive
stock options may be granted under the Incentive Plans at an exercise price
no less than fair market value on the date of grant. For so long as
Essential's common stock is listed on the Nasdaq National Market, the fair
market value is the closing sale price for the common stock. Non-qualified
options may be granted at an exercise price of no less than 85% of fair
market value on the date of grant. The above-referenced options generally
become exercisable on a monthly basis over a four-year period after the
date of grant. Options generally terminate on the earlier of thirty days
after termination of the optionee's employment by or services to Essential,
or ten years after grant.
(2) The 5% and 10% assumed annualized rates of compound stock price
appreciation are based on the exercise prices shown in the table, are
mandated by the rules of the Securities and Exchange Commission, and do not
represent Essential's estimate or a projection by Essential of future
common stock prices.
16
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table sets forth certain information concerning the
number of options exercised by the named executive officers during the fiscal
year ended December 31, 2001, and the number of shares covered by both
exercisable and unexercisable stock options held by the named executive
officers as of December 31, 2001. Also reported are values for "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding options and the fair market value of Essential's common
stock as of December 31, 2001 ($4.30 per share).
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 2001 December 31, 2001
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
Mark Skaletsky............. 0 $0 0 0 $ 0 $ 0
George H. Miller, Ph.D..... 0 0 127,188 122,812 1,417 27,333
Paul Mellett............... 0 0 0 0 0 0
Robert D. Testorff......... 0 0 53,229 61,771 688 13,813
James E. Rurka............. 0 0 256,355 48,645 372,271 729
Donald D. Huffman.......... 0 0 115,000 0 0 0
17
REPORT OF THE COMPENSATION COMMITTEE
The material in this Report of the Compensation Committee is not "soliciting
material," is not deemed "filed" with the Commission, and is not to be
incorporated by reference into any filing of Essential under the Securities Act
of 1933 or the Securities Exchange Act of 1934, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
The Compensation Committee of the Board of Directors reviews and recommends
to the Board of Directors for approval Essential's executive compensation
policies. Prior to the October 2001 acquisition of Althexis, the Committee
consisted of directors Daniel Kisner, M.D., David Schnell, M.D. and John
Walker. The Committee currently consists of directors Richard Aldrich, Charles
Newhall and David Schnell. The following is the report of the Committee
describing the compensation policies and rationale applicable to Essential's
executive officers with regard to the compensation payable to such executive
officers for the fiscal year ended December 31, 2001.
Compensation Philosophy
The goal of Essential's compensation policies is to align executive
compensation with business objectives and corporate performance, and to attract
and retain executives who contribute to the long-term success and value of
Essential. Compensation for Essential's executive officers consists of a base
salary and potential cash bonus, as well as potential incentive compensation
through stock options and stock ownership. The Committee considers the total
current and potential long-term compensation of each executive officer in
establishing each element of compensation.
Base Salary
The base salary component is designed to compensate executive officers
competitively at levels necessary to attract and retain qualified executives in
the pharmaceutical and biotechnology industry. The base salary for each officer
is set on the basis of personal performance, the salary levels in effect for
comparable positions within Essential's principal competitors, and internal
comparability considerations. As a general matter, the base salary for each
executive officer is initially established through negotiation at the time the
officer is hired, taking into account the officer's qualifications, experience,
prior salary, and competitive salary information. Year-to-year adjustments to
each executive officer's base salary are based upon personal performance for
the year and changes in the general level of base salaries of persons in
comparable positions within the industry.
Incentive Bonuses
Essential implemented a formal incentive bonus plan in 1997 pursuant to
which the executive officers of Essential are eligible to receive incentive
cash compensation based upon achievement of corporate goals approved by the
Board of Directors. The amounts of such cash bonuses for executive officers
other than the Chief Executive Officer are based upon the recommendation of the
Chief Executive Officer, subject to review and approval of the Compensation
Committee and the Board of Directors. The amount of any cash bonus for the
Chief Executive Officer is determined by the Compensation Committee subject to
the review and approval of the Board of Directors.
Long-Term Incentives
The Committee provides Essential's executive officers with long-term
incentive compensation through grants of stock options under Essential's 1993
Amended Incentive Stock Plan and 2001 Stock Incentive Plan and the opportunity
to purchase stock under the 1996 Amended Employee Stock Purchase Plan (the
"Purchase Plan"). The Committee believes that stock options provide Essential's
executive officers with the opportunity to purchase and maintain an equity
interest in Essential and to share in the appreciation of the value of
Essential's common stock. The Committee believes that stock options directly
motivate an executive to maximize long-term
18
stockholder value. The options also utilize vesting periods (generally four
years) that encourage key executives to continue in the employ of Essential.
All options granted to executive officers to date have been granted at the fair
market value of Essential's common stock on the date of grant. The Committee
considers the grant of each option subjectively, considering factors such as
the individual performance of the executive officer and the past and
anticipated future contribution of the executive officer to the attainment of
Essential's long-term strategic performance goals. Long-term incentives granted
in prior years are also taken into consideration.
Essential established the Purchase Plan both to encourage employees to
continue in the employ of Essential and to motivate employees through ownership
interest in Essential. Under the Purchase Plan, employees may purchase common
stock through payroll deductions in semi-annual offerings at a price equal to
the lower of 85% of the closing price on the applicable offering commencement
date or 85% of the closing price on the applicable offering termination date.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is reviewed annually on the
same basis as discussed above for all executive officers. In November 2001,
Mark Skaletsky's base salary was set at $330,000, an increase of 3% over that
paid to Essential's former Chief Executive Officer, James E. Rurka. Subsequent
to the fiscal year end, in January 2002, Mr. Skaletsky's base salary was
increased to $346,000. Mr. Skaletsky also received a $65,000 bonus in 2002
relative to his 2001 performance goals. Prior to Mr. Skaletsky joining
Essential, Mr. Rurka had been paid an annual salary of $320,000. Mr. Rurka
received a $33,600 bonus in 2001 relative to 2000 performance and an $84,000
pro rata bonus in 2002 relative to 2001 performance, the latter of which was in
conjunction with Mr. Rurka's Severance Agreement. Given Mr. Rurka's decision in
the first quarter of 2001 to step down as Chief Executive Officer, the
Committee had not increased Mr. Rurka's salary or granted him any additional
stock options in 2001. As it does with other executive officers, the Committee
continues to base Mr. Skaletsky's total compensation on Essential's
accomplishments and his contribution thereto.
Section 162(m)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to Essential's executive
officers. Section 162(m) disallows a tax deduction for any publicly held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the Proxy Statement, unless
compensation is performance-based. Essential has adopted a policy that, where
reasonably practicable, Essential will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
In approving the amount and form of compensation for Essential's executive
officers, the Committee will continue to consider all elements of the cost to
Essential of providing such compensation, including the potential impact of
Section 162(m).
COMPENSATION COMMITTEE
Richard H. Aldrich (Chair)
Charles W. Newhall III
David Schnell, M.D.
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Iconix
Under the terms of the Series A Preferred Stock Purchase Agreement between
Essential and EpiGenix, Inc., a Delaware corporation, now named Iconix
Pharmaceuticals, Inc., dated January 14, 1998, the Core Technology Development
and License Agreement between Essential and Iconix dated January 14, 1998 and
the Antiviral and Surrogate Genetics Research and Collaboration Agreement
between Essential and Iconix dated January 14, 1998, Essential purchased
8,750,000 shares of Series A preferred stock of Iconix in exchange for the
assignment and license of certain technology from Essential to Iconix pursuant
to the terms of the Core Technology Agreement. Although this transaction was
cashless, the shares of Series A preferred stock were deemed to have a value of
$0.75 per share based upon the $0.75 price per share paid by the investors
purchasing Series B preferred stock of Iconix, which is substantially similar
in rights, preferences, and privileges to the Series A preferred stock, as part
of the same transaction. As of February 28, 2002, Essential held approximately
a 17% ownership interest in Iconix, on a fully diluted basis. Essential
accounts for its investment using the equity method of accounting and since
Essential's investment has a zero book basis, the losses of Iconix do not
impact Essential's statement of operations. Essential, by the terms of its
agreements with Iconix, is entitled to designate one director affiliated with
Essential to the Iconix Board of Directors. John Walker, a consultant to
Essential and a member of Essential's Board of Directors, currently serves on
the Board of Directors of Iconix.
Under the terms of the three-year Core Technology Agreement, Essential
agreed to transfer or license specified technology to Iconix and to jointly
develop certain technologies for a specified period of time. Under the terms of
the three-year Collaboration Agreement, the parties agreed to collaborate to
discover and develop viral therapeutics, as well as to potentially utilize the
technologies which Iconix developed for antibacterial and antifungal
applications. The Core Technology Development and License Agreement was not
extended beyond the scheduled conclusion date of January 14, 2001. Under the
Core Technology Agreement, in 2001, there were no costs recognized by Essential
for projects jointly undertaken pursuant to this agreement. However,
approximately $238,000 and $515,000 were incurred for research services to
Iconix, offset by $4,000 and $130,000 for similar services charged back by
Iconix, for the years ended December 31, 2000 and 1999, respectively. Under the
Collaboration Agreement, Essential incurred antiviral research expenses of
approximately $44,000, $1,528,000 and $1,873,000 for the years ended December
31, 2001, 2000 and 1999, respectively.
Under the terms of a Support Service Agreement, Essential provided Iconix
with facilities and various business support services with reimbursement to
Essential. This agreement concluded in February 2002. For the years ended
December 31, 2001, 2000 and 1999, Essential received approximately $1,198,000,
$1,067,000 and $1,108,000, respectively, from Iconix pursuant to the Support
Services Agreement which it treated as a reduction of expenses.
Employment and Severance Arrangements
Dr. Keith Bostian, formerly Chief Operating Officer of Essential, is the
President and Chief Executive Officer of Iconix. Dr. Bostian resigned as a
member of Essential's Board of Directors in October 2001 in connection with the
acquisition of Althexis and Series B financing. He also served as a consultant
to Essential and was reimbursed as services were rendered. In connection with
his resignation, Essential agreed to amend the terms of his stock option
agreement to extend the period during which all vested options may be exercised
to eighteen months.
Dr. Hugh Y. Rienhoff currently serves as a director for Iconix. He resigned
as a member of Essential's Board of Directors in October 2001 in connection
with the acquisition of Althexis and Series B financing. In connection with his
resignation, Essential agreed to amend the terms of his stock option agreement
to extend the period during which all vested options may be exercised to
eighteen months.
20
Dr. Daniel L. Kisner resigned as a member of Essential's Board of Directors
in October 2001 in connection with the acquisition of Althexis and Series B
financing. In connection with his resignation, Essential agreed to amend the
terms of his stock option agreement to extend the period during which all
vested options may be exercised upon his resignation to eighteen months.
Effective January 1, 2001, Essential signed a consulting agreement with John
P. Walker, a member of the Board of Directors, to provide consulting services.
Under the original terms of the agreement, Mr. Walker was reimbursed at a rate
of $15,000 per month and was granted a non-qualified option to purchase 75,000
shares of Essential's common stock at a price of $7.625 per share. These
options were granted with a term of ten (10) years and vest monthly over
4 years. This consulting agreement was superseded with a new consulting
agreement that became effective November 1, 2001. Under the terms of the new
agreement, Mr. Walker will be reimbursed at a rate of $2,500 per fiscal
quarter. The amended agreement shall terminate on the earlier of the date that
Mr. Walker ceases to serve on Essential's Board of Directors or ceases to
provide consulting services to Essential under this agreement. In 2001, Mr.
Walker was appointed to serve as a director for Iconix.
Essential has a note receivable from George H. Miller, Ph.D., Executive Vice
President of Research and Development, dated February 26, 1998, in the
principal amount of $200,000. This note is secured by real property and due
within one year following termination of Dr. Miller's employment with
Essential. In November 2001, the terms of the loan arrangement were amended to
provide that the loan bear interest at a simple rate of 5% per annum, which
principal amount and accrued interest will be forgiven on December 31, 2004
contingent upon Dr. Miller's continued employment at Essential until that date.
The entire principal amount is outstanding as of April 23, 2002.
In connection with the acquisition of Althexis, in October 2001 Essential
issued 502,685 shares of its common stock to Mr. Skaletsky in exchange for
439,987 shares of Althexis restricted common stock. Essential also issued
155,469 shares of its common stock to Mr. Mellett in exchange for 136,078
shares of Althexis restricted common stock. Althexis sold the restricted common
stock in April 2001 to Mr. Skaletsky and Mr. Mellett in exchange for cash and
recourse promissory notes totaling $175,995 and $54,432, respectively, each
bearing interest at 6% per annum. The restricted common stock was issued
subject to a repurchase option that lapses generally over four years. The
promissory notes and related interest are secured by a pledge of the shares
issued and will be forgiven generally over four years so long as Mr. Skaletsky
and Mr. Mellett remain employed by Essential.
Essential has a note receivable from Robert D. Testorff, Vice
President--Human Resources and Administration, dated January 18, 2002, in the
principal amount of $150,000. This note is currently secured by stock options
and has a term of sixty days, subject to renewal every sixty days for up to one
hundred and eighty (180) days. The purpose of the note is to assist Mr.
Testorff with the purchase of real property. Upon such purchase, the note will
be amended and be secured by the property. The note will become due and payable
immediately if no real property is purchased within one hundred and eighty
(180) days from the date of the note or upon the termination of Mr. Testorff's
employment with Essential. The note bears interest at 5% per annum payable
bi-weekly.
Essential entered into severance agreements with each of George H. Miller,
Ph.D., Donald D. Huffman, Robert D. Testorff and Robert B. Kammer, M.D. in
March 2001, which were amended and restated in May 2001. Essential entered into
severance agreements with each of Mark Skaletsky and Paul Mellett in July 2001,
which became effective upon the closing of the acquisition of Althexis. Under
each of these agreements, if the individual's employment with Essential is
terminated without cause or the individual is constructively terminated, in
each case within twelve (12) months following a change of control of Essential,
the individual is entitled to receive, subject to the terms of the agreement,
the continued payment of the individual's base compensation at the annual rate
in effect on the date when the termination of employment with Essential is
effective for twelve (12) months following the termination.
21
Pursuant to the amended and restated severance agreement Essential entered
into with Mr. Huffman, Essential is paying Mr. Huffman his monthly salary and
medical benefits for twelve months commencing November 2001, at his annual rate
in effect at November 1, 2001. In addition, the vesting of Mr. Huffman's stock
options were accelerated to 100% on November 1, 2001, and the term in which he
can exercise his options was extended from thirty days to one year from the
date of termination.
Pursuant to a severance agreement Essential entered into with Mr. Rurka in
October 2001, Essential is paying Mr. Rurka his monthly salary and medical
benefits for eighteen months commencing November 2001, at his annual rate in
effect on October 24, 2001. Mr. Rurka's stock options will continue to vest
while he remains a director of Essential.
Essential believes that the transactions set forth above were made on terms
no less favorable to Essential than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between Essential and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors and will continue to be on
terms no less favorable to Essential than could be obtained from unaffiliated
third parties.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the October 2001 acquisition of Althexis, the Compensation
Committee consisted of directors Daniel L. Kisner, David Schnell and John P.
Walker, and presently the Committee consists of directors Richard Aldrich,
Charles Newhall and David Schnell. No member of the Compensation Committee, as
constituted during 2001, was a former or current officer or employee of
Essential. Essential and Mr. Walker entered into a consulting agreement, and a
summary of the terms of that agreement is provided in the section entitled
"Certain Relationships and Related Transactions."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Essential's officers and directors, and persons who own more than ten percent
of a registered class of Essential's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC.
Such officers, directors and 10% stockholders are also required by SEC rules to
furnish Essential with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, Essential believes
that, during the fiscal year ended December 31, 2001, all Section 16(a) filing
requirements applicable to its officers, directors and 10% stockholders were
complied with, except that a Form 3 was filed late by Richard Aldrich, a
director of Essential, in connection with his election to the Board of
Directors. The original Form 3 filed by Robert Testorff, an executive officer
of Essential, did not include 1,100 shares of common stock, which have
subsequently been reported.
LEGAL PROCEEDINGS
Essential is not a party to any legal proceeding.
22
CORPORATE PERFORMANCE GRAPH
Notwithstanding anything to the contrary set forth in any of Essential's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the Performance
Graph shall not be incorporated by reference into any such filings.
The following graph shows a comparison of cumulative total stockholder
return on Essential's common stock for a period of five fiscal years ending on
December 31, 2001 for Essential, the Nasdaq National Market Index and the
Nasdaq Pharmaceutical Index. The Nasdaq Pharmaceutical Index represents all
companies trading on the Nasdaq National Market under the Standard Industrial
Code for pharmaceutical companies, including biotechnology companies. The graph
is presented pursuant to the rules of the Securities and Exchange Commission.
Essential believes that while total stockholder return can be an important
indicator of corporate performance, the stock prices of companies like
Essential are subject to a number of market-related factors other than company
performance, such as competitive announcements, mergers and acquisitions in the
industry, the general state of the economy and the prices of biopharmaceutical
stocks.
CUMULATIVE TOTAL RETURN*
AMONG ESSENTIAL THERAPEUTICS, INC., THE NASDAQ STOCK MARKET INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
[CHART]
Essential Nasdaq Nasdaq
Measurement Period Therapeutics, Stock Market Pharmaceutical
(Fiscal Year Covered) Inc. Index Index
- --------------------- ------------- ------------ --------------
December 31, 1996................... $100 $100 $100
December 31, 1997................... 89 123 103
December 31, 1998................... 39 172 132
December 31, 1999................... 89 312 245
December 31, 2000................... 41 193 308
December 31, 2001................... 43 153 263
- --------
* Assumes $100 invested on December 31, 1996. Assumes dividends reinvested.
Fiscal years ending December 31.
23
ANNUAL REPORT ON FORM 10-K
A copy of Essential's Annual Report on Form 10-K for the year ended December
31, 2001 is included in the annual report to stockholders being furnished
together with this Proxy Statement. Copies of the Annual Report on Form 10-K
are available without charge to each stockholder, upon written request sent our
office at 850 Maude Avenue, Mountain View, CA 94043, Attn: Investor Relations.
OTHER MATTERS
Essential knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Waltham, Massachusetts
Dated: April 23, 2002
24
APPENDIX A
ESSENTIAL THERAPEUTICS, INC.
AUDIT COMMITTEE CHARTER
OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
AS AMENDED AND RESTATED ON FEBRUARY 14, 2002
I. Purpose
The Audit Committee shall provide independent and objective oversight of the
financial reporting process at Essential Therapeutics, Inc. (Essential) and
serve as a mechanism for the Board of Directors to handle its fiduciary
responsibilities. In general, the Committee shall provide assurance of the
adequacy and accuracy of Essential's accounting and financial reporting,
internal controls, the annual independent audit of Essential's financial
statements and the compliance with legal requirements.
II. Membership
Audit Committee members shall be appointed by the Board of Directors and
shall be composed of at least three independent directors, each of whom are
independent of management and the Company. Members shall be considered
independent if they have no relationship that may interfere with the exercise
of their independence. All Committee members shall be financially literate or
become financially literate within a reasonable time after appointment to the
Committee and at least one member shall have accounting or financial management
expertise. The Chairman of the Committee shall be designated by the Board of
Directors. If the Board of Directors does not designate a Chairman, the members
may designate a Chairman by majority vote of the Committee's members.
III. Quorum and Meetings
The Committee shall meet on a regular basis. One meeting shall be held prior
to the financial year-end to discuss the scope and objectives of the year-end
audit and a second meeting shall be held after such audit to discuss the
findings of the audit. Other meetings will be held as the Committee deems
necessary.
A quorum of the Committee shall be declared when a majority of the appointed
members are in attendance. In the event that only one member can participate in
any meeting, the Committee can deem this to be a quorum. The Committee may ask
members of management or others to attend the meeting to provide pertinent
information as necessary.
IV. Minutes
Minutes of each meeting shall be prepared and circulated in draft form to
all Committee members. After approval at the next committee meeting, these
minutes shall be copied to the Corporate Secretary of Essential for permanent
filing.
V. Functions
In carrying out its responsibilities, the Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the Company's
accounting and reporting practices are in accordance with all requirements and
are of the highest quality.
A-1
In carrying out these responsibilities, the Committee will:
1. Annually review and recommend to the directors the independent auditors
to be selected to audit the financial statements of the Company, subject
to shareholders' approval.
2. Meet with the independent auditors and financial management of the
Company to review the scope, audit procedures and compensation of the
proposed audit for the current year, and at the conclusion thereof,
review any comments or recommendations of the independent auditors.
3. Review with the independent auditors and Essential financial and
accounting personnel, the adequacy and effectiveness of the accounting
and financial controls of the Company, the appropriateness and soundness
of accounting policies adopted by management and accepted by the
independent accountants and elicit any recommendations where new or more
detailed controls or procedures are desirable.
4. Meet separately with the Chief Executive Officer and with the Chief
Financial Officer at least annually to review the financial affairs of
the Company.
5. Provide sufficient opportunity for the independent auditors to meet with
the members of the Committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of Essential's financial and accounting personnel,
and the cooperation that the independent auditors received during the
course of the audit.
6. Review with management and the independent auditors Essential's interim
financial statements prior to the filing of Essential's quarterly
reports on Form 10-Q. Also, the Committee shall discuss the results of
the quarterly review and any other matters required to be communicated
to the Committee by the independent auditors under generally accepted
auditing standards. The Chairman of the Committee, or any member of the
Committee designated by the Chairman, may represent the entire Committee
for purposes of this review.
7. Review with management and the independent auditors the financial
statements to be included in Essential's Annual Report on Form 10-K and
the annual report to shareholders, including their judgment about the
quality, not just the acceptability, of accounting principles, the
reasonableness of significant judgments and the clarity of disclosures
in the financial statements. Also, the Committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the Committee by the independent auditors under
generally accepted auditing standards.
8. Review this Charter annually, assess its adequacy and propose
appropriate amendments to the Board.
VI. Reporting
The Committee shall report, at least once annually and as appropriate during
the year, all significant matters to the full Board of Directors. The
Committee's primary responsibility is to oversee the Company's financial
reporting process on behalf of the Board and report the results of those
activities. Management is responsible for preparing the Company's financial
statements and the independent auditors are responsible for auditing those
statements.
The Committee shall report to the shareholders in Essential's proxy
statement for its Annual Meeting whether the Committee has satisfied its
responsibilities under this Charter.
A-2
This Proxy is solicited on behalf of the Board of Directors.
ESSENTIAL THERAPEUTICS, INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD May 23, 2002
The undersigned stockholder of ESSENTIAL THERAPEUTICS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 23, 2002, and hereby appoints
Mark Skaletsky and Julio E. Vega, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2002 Annual Meeting
of Stockholders of ESSENTIAL THERAPEUTICS, INC. to be held on May 23, 2002, at
9:30 a.m. local time, at the Doubletree Guest Suites on 550 Winter Street in
Waltham, Massachusetts 02451, and at any adjournment thereof, and to vote all
shares of common stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD for all nominees listed below
(except as indicated)
If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list
below:
James E. Rurka
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL PERIOD ENDING
DECEMBER 31, 2002:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NAMED ABOVE AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF.
Dated: ________________, 2002
--------------------------------------------
Signature
--------------------------------------------
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
2
This Proxy is solicited on behalf of the Board of Directors.
ESSENTIAL THERAPEUTICS, INC.
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2002
The undersigned stockholder of ESSENTIAL THERAPEUTICS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 23, 2002, and hereby appoints
Mark Skaletsky and Julio E. Vega, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2002 Annual Meeting
of Stockholders of ESSENTIAL THERAPEUTICS, INC. to be held on May 23, 2002, at
9:30 a.m. local time, at the Doubletree Guest Suites on 550 Winter Street in
Waltham, Massachusetts 02451, and at any adjournment thereof, and to vote all
shares of common stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS BY HOLDERS OF PREFERRED STOCK:
[ ] FOR all nominees listed below [ ] WITHHOLD for all nominees listed below
(except as indicated)
If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list
below:
Kate Bingham
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL PERIOD ENDING
DECEMBER 31, 2002:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NAMED ABOVE AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF.
Dated: ________________, 2002
--------------------------------------------
Signature
--------------------------------------------
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)