SGXP Sgx Pharmaceuticals (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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TABLE OF CONTENTS

 

SGX PHARMACEUTICALS, INC.
10505 Roselle Street
San Diego, CA 92121

 

NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

To Be Held On June 5, 2008

 

Dear Stockholder:

 

You are cordially invited to attend the 2008 Annual Meeting of Stockholders of SGX Pharmaceuticals, Inc., a Delaware corporation (the “Company”). The meeting will be held on Thursday, June 5, 2008 at 9:00 a.m. local time at the Company’s corporate headquarters located at 10505 Roselle Street, San Diego, California 92121 for the following purposes:

 

 

These items of business are more fully described in the Proxy Statement accompanying this Notice.

 

The record date for our Annual Meeting is April 14, 2008. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

 

By Order of the Board of Directors

 

 

Michael Grey

President and Chief Executive Officer

 

San Diego, California

April 28, 2008

 

 

 

 

SGX Pharmaceuticals, Inc.
10505 Roselle Street
San Diego, CA 92121

 

PROXY STATEMENT

 

FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS

 

June 5, 2008

 

QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING

 

Why am I receiving these materials?

 

We sent you this proxy statement and the enclosed proxy card because the Board of Directors of SGX Pharmaceuticals, Inc. (sometimes referred to as the “Company” or “SGX”) is soliciting your proxy to vote at the 2008 Annual Meeting of Stockholders. You are invited to attend the annual meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

 

The Company intends to mail this proxy statement and accompanying proxy card on or about April 28, 2008 to all stockholders of record entitled to vote at the annual meeting.

 

Who can vote at the annual meeting?

 

Only stockholders of record at the close of business on April 14, 2008, will be entitled to vote at the annual meeting. At the close of business on this record date, there were 20,645,878 shares of common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares Registered in Your Name

 

If at the close of business on April 14, 2008 your shares were registered directly in your name with our transfer agent, Computershare, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.

 

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

 

If at the close of business on April 14, 2008 your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the annual meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

 

What am I voting on?

 

There are two matters scheduled for a vote:

 

 

How do I vote?

 

You may either vote “For” the nominee to the Board of Directors or you may “Withhold” your vote for the nominee. You cannot vote for a greater number of persons than the number of named nominees to the Board of Directors. For the other matters to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are fairly simple:

 

Stockholder of Record: Shares Registered in Your Name

 

If you are a stockholder of record, you may vote in person at the annual meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.

 

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the annual meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

 

How many votes do I have?

 

On each matter to be voted upon, you have one vote for each share of common stock you own as of the close of business on April 14, 2008.

 

What if I return a proxy card but do not make specific choices?

 

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “For” the election of the nominee for director, and “For” the ratification of the selection by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2008. If any other matter is properly presented at the meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

 

Who is paying for this proxy solicitation?

 

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

What does it mean if I receive more than one proxy card?

 

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

Can I change my vote after submitting my proxy?

 

Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:

 

 

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

 

How are votes counted?

 

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For” and “Withhold” and, with respect to proposals other than the election of directors, “Against” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “Against” votes. Broker non-votes have no effect and will not be counted towards the vote total for any proposal.

 

What are “broker non-votes”?

 

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the New York Stock Exchange (“NYSE”), “non-routine” matters are generally those involving a contest or a matter that may substantially affect the rights or privileges of shareholders, such as mergers or shareholder proposals.

 

How many votes are needed to approve each proposal?

 

 

What is the quorum requirement?

 

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by stockholders present at the annual meeting or by proxy. At the close of business on the record date, there were 20,645,878 outstanding and entitled to vote. Thus 10,322,940 must be represented by stockholders present at the meeting or by proxy to have a quorum.

 

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the annual meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.

How can I find out the results of the voting at the annual meeting?

 

Preliminary voting results will be announced at the annual meeting. Final voting results will be published in our quarterly report on Form 10-Q for the second quarter of 2008.

 

When are stockholder proposals due for next year’s annual meeting?

 

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 17, 2008, to Annette North, Esq.; 10505 Roselle Street, San Diego, CA 92121. If you wish to submit a proposal that is not be included in next year’s proxy materials or nominate a director, you must do so by February 5, 2009. Stockholders are advised to review our Bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. Our current Bylaws are available at the SEC’s website, www.sec.gov , or upon written request to Investor Relations, SGX Pharmaceuticals, Inc., at 10505 Roselle Street, San Diego, CA 92121.

 

Proposal 1

 

Election Of Directors

 

Classified Board

 

Our Board of Directors is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy in a class shall serve for the remainder of the full term of that class, and until the director’s successor is elected and qualified. This includes vacancies created by an increase in the number of directors.

 

The Board of Directors presently has six members. The authorized size of our Board of Directors is seven members. We currently have one vacancy in the class whose term of office expires in 2010 and following the annual meeting, will also have one vacancy in the class whose term of office expires in 2011. Despite these vacancies, you cannot vote for a greater number of persons than the number of named nominees. There are two directors in the class whose term of office expires in 2008: Dr. Formela and Ms. Eastham. On April 10, 2008 Dr. Formela informed the Board that he has elected not to stand for re-election at the annual meeting. Ms. Eastham is the sole nominee for election to the Board of Directors at the annual meeting. We are in the process of identifying suitable director candidates to fill the current vacancy on the Board and the additional vacancy left by the expiration of Dr. Formela’s term as a director at the annual meeting. If elected at the annual meeting, Ms. Eastham would serve until the 2011 annual meeting and until her successor is elected and has qualified, or, if sooner, until the director’s death, resignation or removal. It is the Company’s policy to encourage directors and director nominees to attend the annual meeting.

 

Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote on the election of directors. The one nominee receiving the highest number of affirmative votes will be elected. Shares represented by executive proxies will be voted, if authority to do so is not withheld, for the election of the nominee named below. If the nominee becomes unavailable for election as a result of an unexpected occurrence, your shares will be voted for the election of such substitute nominee as the Nominating and Corporate Governance Committee may propose. The person nominated for election has agreed to serve if elected. Our management has no reason to believe that the nominee will be unable to serve.

 

The following is a brief biography of the nominee and each director whose term will continue after the annual meeting.

 

Nominee for Election for a Three-year Term Expiring at the 2011 Annual Meeting

 

Karin Eastham, C.P.A.

 

Ms. Eastham, 58, has served as a member of our board of directors since August 2005. Since May 2004, Ms. Eastham has been Executive Vice President, Chief Operating Officer and a member of the board of trustees of the Burnham Institute for Medical Research, an independent not-for-profit biomedical research institute. Prior to joining the Burnham Institute for Medical Research, Ms. Eastham was Senior Vice President, Finance, Chief Financial Officer and Secretary of Diversa Corporation from April 1999 to May 2004. She previously held similar positions with CombiChem, Inc. and Cytel Corporation. Ms. Eastham also held several positions, including Vice President, Finance, at Boehringer Mannheim Corporation. She serves as a director of Illumina, Inc., Tercica, Inc. and Amylin Pharmaceuticals, Inc., all public biotechnology companies. Ms. Eastham received B.S. and M.B.A. degrees from Indiana University and is a Certified Public Accountant and a Certified Director.

 

The Board Of Directors Recommends
A Vote In Favor Of The Named Nominee.

 

Directors Continuing in Office Until the 2009 Annual Meeting

 

Christopher S. Henney, Ph.D., D.Sc.

 

Dr. Henney, 67, became our Chairman in December 2003 and has served as a member of our board of directors since May 2000. From 1995 to January 2003, he served as the Chairman and Chief Executive Officer of Dendreon Corporation, a publicly held biotechnology company. Dr. Henney co-founded ICOS Corporation, another publicly held biotechnology company, where he served as Executive Vice President, Scientific Director and a director from 1989 to 1995. He also co-founded Immunex Corporation, which was a publicly held biotechnology company until its acquisition by Amgen Corporation in May 2002, where he held various positions, including Director, Vice Chairman and Scientific Director from 1981 to 1989. Dr. Henney is also a former academic immunologist. He currently serves as Vice-Chairman of Cyclacel Pharmaceuticals, Inc., and as Chairman of Oncothyreon (formerly Biomira), Inc. Dr. Henney received a D.Sc. for his contributions to Immunology, a Ph.D. in Experimental Pathology and a B.Sc. with Honors, from the University of Birmingham, United Kingdom.

 

Joseph Turner

 

Mr. Turner, 56, joined our Board of Directors in December 2007. From December 1999 to November 2006, Mr. Turner served in various capacities at Myogen, Inc., a publicly held biopharmaceutical company, which was acquired by Gilead Sciences, Inc., or Gilead, in November 2006. From November 2006, to January 2007, Mr. Turner served in a transition capacity at Myogen following Myogen’s acquisition by Gilead. Prior to Myogen’s acquisition by Gilead, from December 1999 to November 2006, Mr. Turner served initially as Myogen’s acting Chief Financial Officer in a part-time capacity, and, from September 2000, as the Chief Financial Officer of Myogen. Mr. Turner also served as Senior Vice President of Finance and Administration of Myogen from December 2003 to November 2006, and as Vice President of Finance and Administration from September 2000 to November 2003. From July 1999 to May 2000, Mr. Turner was an independent strategic consultant to emerging companies. From November 1997 to June 1999, Mr. Turner worked at Centaur Pharmaceuticals, a biopharmaceutical company, where he served in several positions, including Vice President of Finance and Chief Financial Officer. From March 1992 to October 1997, Mr. Turner served as Vice President, Finance and Chief Financial Officer of Cortech, Inc., a biopharmaceutical company. Previously, Mr. Turner spent 12 years with Eli Lilly and Company, where he held a variety of financial management positions both within the United States and abroad. He currently serves on the Board of Directors of Sequel Pharmaceuticals and Kythera Biopharmaceuticals. Mr. Turner holds an M.A. in molecular, cellular and developmental biology from the University of Colorado and an M.B.A. from the University of North Carolina at Chapel Hill and a B.A. in chemistry from Swarthmore College.

 

Directors Continuing in Office Until the 2010 Annual Meeting

 

Louis C. Bock

 

Mr. Bock, 43, has served as a member of our board of directors since September 2000. Mr. Bock is a Managing Director of Scale Venture Partners. Mr. Bock joined Scale Venture Partners (formerly BA Venture Partners) in September 1997 from Gilead Sciences, Inc., a biopharmaceutical company, where he held positions in research, project management, business development and sales from September 1989 to September 1997. Prior to Gilead, Mr. Bock was a research associate at Genentech, Inc. from November 1987 to September 1989. He currently serves on the Board of Directors of Ascenta Therapeutics, Inc., diaDexus Inc., Horizon Therapeutics, Inc., Orexigen Therapeutics, Inc., and Zogenix Inc. Mr. Bock received his B.S. in Biology from California State University, Chico and an M.B.A. from California State University, San Francisco.

 

Michael Grey

 

Mr. Grey’s biography is included under “Executive Officers” below.

 

EXECUTIVE OFFICERS

 

The following table sets forth information regarding our executive officers as of December 31, 2007:

 

 

Executive Officers and Directors

 

Michael Grey , joined us in September 2001 as our Executive Vice President and Chief Business Officer and as a member of our board of directors. He became our President in June 2003 and our Chief Executive Officer in January 2005. Prior to joining us, Mr. Grey served as a director of Trega Biosciences, Inc., a biopharmaceutical company acquired by Lion bioscience AG in 2001, from December 1998 to March 2001. He was also the President and Chief Executive Officer of Trega Biosciences, Inc. from January 1999 to March 2001. Prior to joining Trega, Mr. Grey was the President of BioChem Therapeutic, Inc., the pharmaceutical operating division of BioChem Pharma Inc., from 1994 to 1998. In that role, he was responsible for all company operations including research, development, sales and marketing, finance and human resources. During 1994, Mr. Grey was the President and Chief Operating Officer for Ansan, Inc. From 1974 to 1993, Mr. Grey served in various roles with Glaxo Inc. and Glaxo Holdings, plc, culminating in his position as Vice President, Corporate Development. Mr. Grey serves as a director of Achillion Pharmaceuticals, Inc., and BioMarin Pharmaceutical, Inc., and Non-Executive Chairman of IDM Pharma, Inc. (formerly known as Epimmune Inc.). Mr. Grey received a B.Sc. in Chemistry from the University of Nottingham, United Kingdom.

 

Stephen K. Burley, M.D., D.Phil. , joined us in January 2002 as our Chief Scientific Officer and Senior Vice President, Research and presently serves as our Chief Scientific Officer and Senior Vice President. Dr. Burley has been an Adjunct Professor at The Rockefeller University since February 2002, where he was also the Richard M. and Isabel P. Furlaud Professor from June 1997 to January 2002. He was an Investigator at the Howard Hughes Medical Institute from September 1994 to January 2002. He was previously the Principal Investigator of the New York Structural Genomics Research Consortium. Dr. Burley is a Fellow of the Royal Society of Canada and of the New York Academy of Sciences. His research focused on the macromolecular machines responsible for mRNA transcription, splicing and translation in eukaryotes and on the problem of antibiotic resistance. Dr. Burley received an M.D. degree from Harvard Medical School and, as a Rhodes Scholar, he received a D.Phil. in Molecular Biophysics from Oxford University. His clinical training combined a residency in Internal Medicine at the Brigham and Women’s Hospital with postdoctoral work in protein crystallography under the direction of William N. Lipscomb at Harvard University. He received a B.Sc. in Physics from the University of Western Ontario. In 1999, Dr. Burley co-founded Prospect Genomics, Inc., a San Francisco-based drug discovery company that we acquired in May 2001.

 

W. Todd Myers, C.P.A. , joined us as our Chief Financial Officer in December 2005. Prior to joining us, Mr. Myers provided senior-level financial consulting services to publicly traded and privately held life science companies from October 2004 to December 2005. From March 2000 to June 2004, Mr. Myers was Chief Financial Officer, Secretary and Treasurer of FeRx Incorporated, a clinical development stage company dedicated to the development of oncology products based on a patented drug-delivery technology. In June 2004, FeRx Incorporated filed for protection under Chapter 7 of the bankruptcy code. From June 1997 to February 2000, he was Director of Finance at CombiChem, Inc., a publicly traded computational drug discovery company that was acquired by DuPont in 1999. Mr. Myers has also held positions with Premier Inc., a national consortium of health care providers, and with Ernst & Young LLP. Mr. Myers received his B.S. in Accounting from the University of Illinois.

 

Annette North, Esq. , joined us in November 2000 as our Corporate Counsel, was appointed Vice President, Legal Affairs in January 2004 and currently serves as our General Counsel. Prior to joining us, she was Senior

Director of Operations and Legal at Axys Pharmaceuticals, Inc., a small molecule drug discovery company, from 1998 to 1999 and Legal Counsel and Director of Legal Affairs at Sequana Therapeutics, Inc., a biotechnology company, from 1995 to 1998. From 1991 to 1994, Ms. North was employed by Nabarro Nathanson plc, a national law firm in London, England, with her practice focusing primarily on commercial litigation, and from 1989 to 1990 she worked at Corrs, Chambers, Westgarth, a national law firm in Melbourne, Australia. She is a member of the State Bar of California, a Solicitor of the Supreme Court of England and Wales and a Barrister and Solicitor of the Supreme Court of Victoria, Australia. Ms. North currently serves on the board of Villa Musica, a not-for-profit entity. Ms. North received both her Bachelor of Commerce and her Bachelor of Laws from the University of Melbourne, Australia.

 

Siegfried Reich, Ph.D. , joined us in January 2006 as Vice President of Drug Discovery. Prior to joining us, from 2001 to December 2005, Dr. Reich was Vice President, Head of Viral and Ophthalmic Diseases Therapeutic Zone in Discovery at Pfizer, Inc. (Global Research and Development, La Jolla), overseeing the development of multiple clinical candidates in antivirals and ophthalmology. Prior to that, Dr. Reich held the position of Director, Head of Medicinal Chemistry at Agouron Pharmaceuticals, Inc., from 1997 to 2001 (through its acquisitions by Warner Lambert and Warner Lambert’s subsequent acquisition by Pfizer, Inc.). He began work at Agouron as a research scientist in 1988, and served as a project chemist and co-project leader of the HIV Protease Project, which identified Viracept ^® , Agouron’s first approved drug for the treatment of AIDS, for which he is also an inventor. Dr. Reich received his B.S. in Chemistry in 1982 from San Diego State University and his Ph.D. in Chemistry in 1986 from the University of California, Irvine.

 

Terry Rugg, M.D. , joined us in August 2006 as Chief Medical Officer and Vice President of Development. Prior to joining us, from 2004 to 2006, Dr. Rugg was Head of Oncology, U.S. Medical Affairs at Sanofi-Aventis, leading a department of approximately 60 Regional and National Liaisons and MDs. Prior to that, from 2002 to 2004, he held the position of Vice President, Head of Oncology, Global Medical Affairs at Aventis. Dr. Rugg served in senior roles in several biotechnology and pharmaceutical companies, including Ilex Oncology, Inc., from 1999 to 2002, Eli Lilly and Company, Zeneca Pharmaceuticals, Inc., and British Biotech Ltd. Dr. Rugg has broad oncology drug development experience involving over 30 compounds, including at least 10 different classes of anti-cancer agents. He played a key role in the development of Gemzar ^® (gemcitabine) while at Eli Lilly and Campath ^® and Clolar ^® (clofarabine), while at Ilex Oncology. Dr. Rugg received his M.D. from the University of Rhodesia, Godfrey Higgins School of Medicine and Surgery.

 

INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

 

Independence of The Board of Directors

 

As required under the Nasdaq Stock Market (“Nasdaq”) listing standards, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Board of Directors. The Board consults with the Company’s counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in effect time to time.

 

Consistent with these considerations, after review of all relevant transactions or relationships between each current director and each director that served during 2007, or any of his or her family members, and the Company, its senior management and its independent registered public accounting firm, the Board affirmatively has determined that five of our six directors, Drs. Henney and Formela, Messrs. Bock and Turner, and Ms. Eastham are independent directors, as defined by Rule 4200(a)(15) of the National Association of Securities Dealers. In making this determination, the Board found that none of the directors or nominees for director have a material or other disqualifying relationship with the Company. Mr. Grey, our Chief Executive Officer, is not an independent director by virtue of his employment with us.

 

Meetings of the board of directors

 

The Board of Directors met 14 times during the last fiscal year either in person or over the telephone. Each Board member attended 75% or more of the aggregate of the meetings of the Board and of the committees on which

he or she served, held during the period for which he or she was a director or committee member, other than Dr. Formela who attended less than 75% of the meetings of the Board and less than 75% of the meetings of the Compensation Committee in 2007 and Mr. Lathi who attended less than 75% of the meetings of the Audit Committee in 2007.

 

As required under applicable Nasdaq listing standards, in fiscal 2007, the Company’s independent directors met four times in regularly scheduled executive sessions at which only independent directors were present.

 

Information Regarding the Board of Directors and its Committees

 

The Board has three committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The following table provides current membership and meeting information for fiscal 2007 for each of the Board committees:

 

 

 

 

Below is a description of each committee of the Board of Directors. The Board of Directors has determined that each member of each committee meets the applicable NASDAQ rules and regulations regarding “independence” and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to us.

 

Audit Committee

 

The Audit Committee of our Board of Directors was established by our Board in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), to oversee our corporate accounting and financial reporting processes and audits of our financial statements. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of our independent auditors; reviews and approves the engagement of our independent auditors; determines whether to retain or terminate our existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of our independent auditors on our audit engagement team as required by law; review and approves or rejects transactions between the company and its officers and directors and significant stockholders and any related persons in accordance with our Related-Persons Transactions Policy; reviews our investment policy; reviews with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls; confers with management and the independent auditors regarding the scope, adequacy and effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews and evaluates, at least annually, the performance of the audit committee and its members, including compliance of the audit committee with its charter and meets to review and discuss our annual audited financial statements, quarterly financial statements and periodic reports and related earnings releases with management and the independent auditor, including reviewing our disclosures under “Management’s Discussion and Analysis of

Financial Condition and Results of Operations.” The Audit Committee is composed of three directors: Messrs. Henney and Turner and Ms. Eastham. Mr. Turner joined the Audit Committee in January 2008 following the resignation of Mr. Lathi in December 2007. The Audit Committee met 6 times during 2007. The Audit Committee has adopted a written charter that is available to stockholders in the Corporate Governance section under “Investors” on our website at www.sgxpharma.com.

 

The Board of Directors reviews the Nasdaq listing standards definition of independence for Audit Committee members on an annual basis and has determined that all current members of our Audit Committee are (and each member who served on such committee in 2007 was) independent (as independence is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing standards). Our board of directors has determined that Ms. Eastham and Mr. Turner each qualify as an “audit committee financial expert,” as defined in applicable Securities and Exchange Commission (“SEC”) rules. The Board of Directors made a qualitative assessment of both Ms. Eastham’s and Mr. Turner’s respective level of knowledge and experience based on a number of factors, including their respective formal education, experience in public accounting and experience serving as a chief financial officers for public reporting companies.

 

Report of the Audit Committee of the Board of Directors ¹

 

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year end December 31, 2007 with management of the Company. The Audit Committee has discussed with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards , Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. The Audit Committee has also received the written disclosures and the letter from the independent accountants required by the Independence Standards Board Standard No. 1, ( Independence Discussions with Audit Committees ), as adopted by the PCAOB in Rule 3600T and has discussed with the independent accountants the independent accountant’s independence. Based on the foregoing, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report in Form 10-K for the fiscal year ended December 31, 2007.

 

Ms. Karin Eastham, C.P.A.
Dr. Christopher S. Henney, Ph.D., D.Sc.
Mr. Joseph Turner

 

 

¹  “The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (“Securities Act”) or Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.”

Compensation Committee

 

The Compensation Committee is currently composed of three directors: Mr. Bock, Dr. Formela and Ms. Eastham. However, Dr. Formela is not standing for re-election and his term as director and a member of our Compensation Committee will expire at the annual meeting. All current members of our Compensation Committee are (and each member who served on such Committee in 2007 was) independent (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards). The Compensation Committee met 5 times during 2007. The Compensation Committee has adopted a written charter that is available to stockholders in the Corporate Governance section under “Investors” on our website at www.sgxpharma.com.

 

The functions of the Compensation Committee of the Board of Directors include, among other things: evaluating and approving the compensation and other terms of employment of our executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation; evaluating and recommending to our board of directors the type and amount of compensation to be paid or awarded to board members; evaluating and approving the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs; administering our equity incentive plans; establishing policies with respect to equity compensation arrangements; reviewing and approving the terms of any employment agreements, severance arrangements, change-in-control protections and any other compensatory arrangements for our executive officers; and reviewing and evaluating the performance of the Compensation Committee.

 

Commencing in 2007, the Compensation Committee also began to review our Compensation Discussion and Analysis and to consider whether to recommend that it be included in our proxy statements and other filings.

 

Compensation Committee Processes and Procedures

 

Typically, the Compensation Committee meets at least 3 times annually and with greater frequency if necessary.The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with our Chief Executive Officer. The Compensation Committee meets in executive session when appropriate. However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice or otherwise participate in Compensation Committee meetings. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives. The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and personnel of the Company, as well as authority to obtain, at the expense of the Company, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

 

Under its charter, the Compensation Committee may form, and delegate authority to, subcommittees, as appropriate. In 2001, the Compensation Committee formed a Non-Officer Stock Option Committee, currently composed of Mr. Grey, our Chief Executive Officer, to which it has delegated authority to grant, without any further action required by the Compensation Committee, stock options to employees who are not officers of the Company. In 2007 the Charter of the Non-Officer Stock Option Committee was modified to provide the Non-Officer Stock Option Committee with authority to grant stock options pursuant to pre-established guidelines to employees who are not officers of the Company. The purpose of this delegation of authority is to enhance the flexibility of option administration within the Company and to facilitate the timely grant of options to non-management employees, particularly new employees, within specified limits approved by the Compensation Committee. On an annual basis, as part of its oversight function, the Committee reviews grants made by the Non-Officer Stock Option Committee. During the most recent fiscal year, this subcommittee exercised its authority to grant options to purchase an aggregate of 250,460 shares to non-officer employees.

Historically, the Compensation Committee has made most significant adjustments to annual compensation, determined bonus and equity awards and established new performance objectives at one or more meetings held during the first quarter of the year. However, the Compensation Committee also considers matters related to individual compensation, such as compensation for new executive hires, as well as high-level strategic issues, such as the efficacy of the Company’s compensation strategy, potential modifications to that strategy and new trends, plans or approaches to compensation, at various meetings throughout the year. For executives other than the Chief Executive Officer, the Compensation Committee solicits and considers evaluations and recommendations submitted to the Committee by the Chief Executive Officer. In the case of the Chief Executive Officer, the evaluation of his performance is conducted by the Compensation Committee, which determines any adjustments to his compensation as well as awards to be granted. For all executives and directors, as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials prepared by third party compensation consultants as well as materials such as financial reports and projections, operational data, tax and accounting information, tally sheets that set forth the total compensation that may become payable to executives in various hypothetical scenarios, executive and director stock ownership information, analyses of historical executive compensation levels and current Company-wide compensation levels, and analyses of executive and director compensation paid at other comparable companies. The specific determinations of the Compensation Committee with respect to executive compensation for fiscal 2007 are described in greater detail in the Compensation Discussion and Analysis section of this proxy statement.

 

Compensation Committee Interlocks and Insider Participation

 

As noted above, our Compensation Committee consists of Mr. Bock, Dr. Formela and Ms. Eastham.

 

No member of our Compensation Committee has ever been an officer or employee of ours. None of our executive officers currently serves or served at any time during the last completed fiscal year on the Board of Directors or Compensation Committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee. Prior to establishing the Compensation Committee, our full Board of Directors made decisions relating to the compensation of our executive officers.

 

Compensation Committee Report ²

 

The Compensation Committee has reviewed and discussed with management, the Compensation Discussion and Analysis (“CD&A”) contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of directors that the CD&A be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

 

Mr. Louis C. Bock
Ms. Karin Eastham, C.P.A.
Dr. Jean-Francois Formela

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee of the Board of Directors acts on behalf of the Board to identify, review and evaluate candidates to serve as directors of the Company (consistent with criteria approved by the Board). Additionally, the functions of the Nominating and Corporate Governance Committee include, among other things: developing and maintaining a current list of the functional needs and qualifications of members of our board of directors; evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate; interviewing, evaluating, nominating and recommending individuals for membership on our board of directors; evaluating nominations by stockholders of candidates for election to our board; developing, reviewing and amending a set of corporate governance policies and principles, including a code of ethics; considering questions of possible conflicts of interest of directors as such

 

 

²  “The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act or Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.

questions arise; recommending to our board of directors the establishment of such special committees as may be desirable or necessary from time to time in order to address ethical, legal, business or other matters that may arise; and evaluating at least annually, the performance of the nominating and corporate governance committee.

 

The Nominating and Corporate Governance Committee is currently composed of three directors: Dr. Henney, Dr. Formela and Mr. Bock. All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards). The Nominating and Corporate Governance Committee met 3 times in 2007. The Nominating and Corporate Governance Committee has adopted a written charter that is available to stockholders in the Corporate Governance section under “Investors” on our website at www.sgxpharma.com.

 

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s stockholders. However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair the directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee intends to determine whether the nominee is independent for Nasdaq purposes, which determination will be based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee would then use its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee would conduct any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. The Nominating and Corporate Governance Committee would meet to discuss and consider the candidates’ qualifications and then select a nominee for recommendation to the Board by majority vote.

 

Stockholder Communications With The Board Of Directors

 

Our Board of Directors has adopted a formal process by which stockholders may communicate with the Board or an individual director. This information is available in the Corporate Governance section under “Investors” on our website at www.sgxpharma.com . Stockholders of SGX wishing to communicate with our Board or an individual director may send a written communication to the Board or such director c/o SGX Pharmaceuticals, Inc., 10505 Roselle Street, San Diego, California 92121, Attn: Corporate Secretary. Each communications set forth should include the name and address of the SGX stockholder on whose behalf the communication is sent and the number of SGX shares that are owned beneficially by such stockholder as of the date of the communication. Each communication will be reviewed by SGX’s Corporate Secretary to determine whether it is appropriate for presentation to the Board or such director. Communications determined by the Corporate Secretary to be appropriate for presentation to the Board or such director, will be submitted to the Board or such director on a periodic basis.

Code Of Ethics

 

We have adopted the SGX Pharmaceuticals, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available in the Corporate Governance section under “Investors” on our website at www.sgxpharma.com . If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver.

 

Proposal 2

 

Ratification Of Selection Of Independent Registered Public Accounting Firm

 

The Audit Committee of our Board of Directors has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008 and has further directed that management submit the selection of our independent registered public accounting firm for ratification by the stockholders at the annual meeting. Ernst & Young LLP has audited the Company’s financial statements since 1998. Representatives of Ernst & Young LLP are expected to be present at the annual meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Neither the Company’s Bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm. However, our Audit Committee is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, our Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, our Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in our best interests or in the best interests of our stockholders.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to ratify the selection of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this proposal has been approved.

 

Principal Accountant Fees and Services

 

The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 2006 and December 31, 2007 by Ernst & Young LLP, our principal independent registered public accounting firm.

 

 

The audit-related fees incurred in 2006 were related to services rendered in connection with a review of the accounting treatment for a license and collaboration agreement, a review of our implementation of SFAS 123R, and a review of our Company’s interpretation and application of certain SEC staff accounting bulletins. The audit-related fees in 2007 were related to services rendered in connection with the registration of shares to be issued under our equity compensation plans, a review of a portion of the documentation prepared in connection with our SOX 404 activities, and a review of the registration statement prepared on Form S-3 in connection with a private placement transaction. The tax fees for 2007 and 2006 relate to professional services rendered in connection with tax compliance and tax advice. All fees described above were pre-approved by our Audit Committee.

 

During the fiscal year ended December 31, 2007, no hours expended on our financial audit by Ernst & Young LLP were provided by persons other than Ernst & Young LLP full-time permanent employees.

 

Pre-Approval Policies and Procedures

 

Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm, Ernst & Young LLP. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of our Audit Committee’s approval of the scope of the

engagement of the independent auditor or on an individual explicit case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of our Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. The Audit Committee has delegated this pre-approval authority to the Chair of the Audit Committee and the Chairperson’s decisions are reported to the Audit Committee at the next scheduled meeting.

 

Our Audit Committee has determined that the rendering of the services other than audit services by Ernst & Young LLP is compatible with maintaining the principal accountant’s independence.

 

The Board Of Directors Recommends
A Vote In Favor Of Proposal 2 .

 

Security Ownership Of

 

Certain Beneficial Owners And Management

 

The following table sets forth certain information regarding the ownership of our common stock as of April 4, 2008 by: (i) each director and director nominee; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all our executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock.

 

 

 

 

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth certain information with respect to all of our equity compensation plans in effect as of December 31, 2007:

 

Equity Compensation Plan Information

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

 

To our knowledge, based solely on a 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, 2007, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

 

Executive Compensation

 

Compensation Discussion and Analysis

 

Overview of Compensation Program

 

The primary goals of our executive compensation and benefits programs are to attract and retain highly talented individuals to executive management positions to lead the company and to motivate and encourage our executive management team to pursue and execute on strategic opportunities while effectively managing the risks and challenges inherent in a development stage biopharmaceutical company. Specifically, we have developed a compensation package that combines short and long-term components, cash and equity, and fixed and contingent payments, including severance and change of control benefits, in the proportions that we believe are most appropriate to incentivize our executive management to achieve, and to reward them for achieving, our strategic and operational goals. These strategic and operational goals include discovery and development of pharmaceutical products, entering into strategic transactions or relationships and attaining revenue, cash burn and other financial objectives. These goals are intended to be stretch goals to motivate management to execute and perform against these goals for the benefit of the company and our stockholders.

 

Our executive compensation structure aims to be competitive in our industry, and to be fair, relative to compensation paid to other professionals within our organization, relative to our short and long-term performance and relative to the value we deliver to our stockholders. Our Compensation Committee evaluates our overall company performance in achieving corporate goals and objectives and evaluates and rewards individual executive performance based on each individual’s contribution to the achievement of those goals and objectives. Our compensation programs aim to ensure that successful, high-achieving employees will remain motivated and committed to our company. Our compensation programs are designed to foster the long-term focus required for success in the biopharmaceutical industry despite the volatility, uncertainty and potential set-backs involved in the discovery and development of pharmaceutical products.

 

Benchmarking

 

We conduct an annual benchmark review of the total compensation of each of our executive officers, as well as the individual components of base salary, incentive compensation and equity compensation. This review is based on a survey of executive compensation paid by approximately 475 life sciences companies conducted by an independent third party, Aon Consulting, Inc., in which we participate (“Radford Survey”). We benchmark our executive compensation against the compensation paid by a peer group of public and private life sciences companies who participate in the Radford Survey. Our Compensation Committee selected the companies within the peer group based on company size, annual revenues and market capitalization. The peer group consists of companies with which we believe we compete for talent and stockholder investment, and many of which are located in our geographical area. The companies in our peer group for 2007 are: Acadia Pharmaceuticals, Inc., Achillion Pharmaceuticals, Inc., Anadys Pharmaceuticals, Inc., Anesiva, Inc., Antigenics, Inc., Aradigm, Inc., Atherogenics, Inc., Avalon Pharmaceuticals, Inc., Curagen Inc., Cytogen Inc., Cytori Therapeutics, Inc., Dusa Pharmaceuticals, Inc., Dynavax Technologies, Inc., Entremed, Inc., Favrille, Inc., Genelabs Technologies, Inc., Insmed, Inc., Kosan Biosciences, Inc., La Jolla Pharmaceuticals, Inc., Memory Pharmaceuticals, Inc., Metabasis Pharmaceuticals, Inc., Middlebrook Pharmaceuticals, Inc., Neose Technologies, Inc., Nitromed, Inc., Novacea, Inc., Nuvelo, Inc., Ore Pharmaceuticals, Inc., Peregrine Pharmaceuticals, Inc., Pharmacyclics, Inc., Questcor Pharmaceuticals, Inc., Renovis, Inc., Replidyne, Inc., Sequenom, Inc., Stem Cells, Inc., Sunesis Pharmaceuticals, Inc., Targeted Genetics, Inc., and Threshold Pharmaceuticals, Inc.

 

Generally, as we compete with many larger companies for top executive level talent, we believe that our executive compensation should be targeted at or above the median of compensation paid to executives of the companies comprising our peer group. We may deviate from these general target levels to reflect the experience level of the executive and market factors. We have no pre-established target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the Compensation Committee reviews the information prepared by management from our peer group and the Radford Survey, considers an individual’s

contribution to the achievement of strategic goals and objectives, the individual’s overall compensation and other factors, to determine the appropriate level and mix of incentive compensation.

 

Total Compensation Summaries

 

Our Compensation Committee periodically reviews total compensation summaries for our executive officers and utilizes them, along with peer group analyses, in making its compensation decisions. These total compensation summaries affix dollar amounts to each component of compensation for our executive officers, including current pay (salary and cash and equity incentive bonuses), and outstanding equity awards and other benefits. These total compensation summaries are one tool used by our Compensation Committee in its deliberative process of evaluating the amount and levels of compensation provided to each executive officer and the impact that any adjustment to the various elements of each officer’s current compensation will have on total compensation. They are also used to compare each executive officer’s compensation against the 50% percentile data derived from the companies in our peer group. Total compensation summaries are not used in any formulaic manner to dictate pay decisions.

 

Role of our Compensation Committee

 

Louis Bock, Karin Eastham and Dr. Formela are the members of our Compensation Committee. Mr. Bock was appointed as the Committee Chairman in February 2008, replacing Dr. Formela. Dr. Formela served as a member of our Compensation Committee during 2007 and will serve until the expiration of his term as a director at the annual meeting. Our Board of Directors has determined that each member of the Compensation Committee is an independent director as defined by Rule 4200(a)(15) of the National Association of Securities Dealers. The Compensation Committee functions under a written charter (“Charter”) which was adopted by our Board of Directors. A copy of the Charter is available in our Corporate Governance section under “Investors” on our website at www.sgxpharma.com .

 

We revised the charter of our Compensation Committee in January 2007 to authorize the Compensation Committee to make all compensation decisions for our executive officers. Decisions regarding executive compensation in 2007 were made by our Compensation Committee. Decisions regarding executive compensation paid in 2006 were made by our Board of Directors, following a recommendation by the Compensation Committee. Compensation decisions for our executives, other than the Chief Executive Officer, are generally based on recommendations made by the Chief Executive Officer.

 

Our Compensation Committee meets as often as is necessary to perform its duties and responsibilities. To assist the Compensation Committee with its responsibilities, in 2007 the Committee retained Radford Surveys & Consulting, a division of Aon Consulting, Inc., (“Radford”), an independent compensation consulting firm. Radford reports directly to the Compensation Committee. The Chairman of the Committee works with the Chief Executive Officer to establish the meeting agenda in advance of each meeting. Our Compensation Committee typically meets with our Chief Executive Officer, our General Counsel and with our external counsel. When appropriate, such as when the Committee is discussing or evaluating compensation for our Chief Executive Officer, our Compensation Committee meets in executive session without management. The Compensation Committee receives and reviews materials in advance of each meeting. These materials include information provided by Radford and information that management believes will be helpful to the Committee, as well as materials that the Committee has specifically requested, including benchmark information prepared by Radford, historical compensation data, performance metrics and criteria, the Board’s assessment of the Company’s performance against its goals and our Chief Executive Officer’s assessment of each executive’s (other than his own) performance against pre-determined objectives.

 

Elements of Executive Compensation

 

Our executive compensation consists of the following components.

 

Base Salary.   The base salaries for our executives are established based on the scope of their responsibilities and the level of their experience, taking into account competitive market data on compensation within our peer group for similar positions. The base salaries for our executives are reviewed on an annual basis by the

Compensation Committee in connection with our annual company-wide performance evaluation process. Salaries may be adjusted as appropriate to realign salaries with market levels after taking into account individual responsibilities, performance and experience. Increases are considered in the context of the general trends in compensation practices in our industry (including as compared against the companies in our peer group), our overall annual merit budget, which is approved by our Board of Directors, and in the context of the overall compensation payable to an individual. In connection with its annual compensation review in February 2008, based on an evaluation of our executive officers’ base salaries against those of companies in our peer group, the Compensation Committee adjusted the base salaries of Messrs. Grey and Myers to bring them to the 50th percentile of base salaries for comparable positions within companies in our peer group. For newly hired personnel, we considered the base salary of the individual at his or her prior employment, any unique personal circumstances that motivated the executive to leave that prior position and join us, the competitive market and compensation for corresponding positions within comparable geographic areas and industries, the level of experience of the individual and the urgency of the need for this particular skill set within our Company.

 

Annual Bonus.   The Compensation Committee has the authority to award annual bonuses to our executive officers. Our annual incentive bonus program covers all of our employees. The program is intended to reward our employees, including our executive officers for achieving our annual corporate goals. Our annual incentive bonus plan provides for a cash bonus, dependent upon the level of achievement of the stated corporate goals and the individual’s performance rating, calculated as a percentage of the executive officer’s base salary, with the higher ranked executive officers being compensated at a higher percentage of base salary. In April 2008, the Compensation Committee agreed to modify the bonus plan for our executive officers for 2008. Under the new plan, the target bonus potential for Mr. Grey is equal to 50% of his base salary; the target bonus potential for Dr. Burley and Mr. Myers is equal to 35% of their base salaries and the target bonus potential for Drs. Reich and Rugg is equal to 30% of their base salaries. For Mr. Grey, achievement of a bonus award is based entirely upon achievement of the corporate objectives. For the other Named Executive Officers, 80% of the bonus award is based on the achievement of the corporate objectives and 20% is based on individual performance. This revision to the plan reflects the goal of the Committee to shift the balance between fixed and contingent payments and reinforce the Committee’s pay-for-performance philosophy. Under our plan, a cash bonus may be payable to an executive officer at the discretion of the Compensation Committee, if at least 50% of our corporate goals have been achieved. The Compensation Committee exercises discretion and may adjust awards based on individual performance for each executive officer other than the Chief Executive Officer, based on a review of such executives’ performance as communicated to the Compensation Committee by the Chief Executive Officer. As our Company is still in its early stages of development, and has no long term recurring source of revenue and no product sales, our Compensation Committee may in its discretion, determine not to award cash bonuses to the executives notwithstanding that at least 50% of the corporate goals may have been met in a particular year, in order to preserve cash for other corporate purposes.

 

At the meeting of our Compensation Committee on January 26, 2007, the Committee approved the payment of cash bonuses to our Named Executive Officers for achievement of certain strategic and financial objectives and the executive’s performance in 2006, including completion of the collaboration and license agreement with Novartis Institutes of Biomedical Research, our performance in connection with certain of our research programs and our performance against a defined financial target. The amount of the cash bonus payable to each named executive officer was calculated based upon the overall performance of the Company against its specified strategic and financial milestones, the target bonus percentage for each individual executive, and the performance rating achieved by each executive in connection with the our annual performance management review, as determined by our Compensation Committee.

In connection with its annual compensation review in January 2007, our Compensation Committee established the 2007 performance bonus award program for executive officers. The bonus award program provided that the Company must meet at least 50% of its overall corporate goals for the year (as determined by our Board of Directors) for any bonus compensation to be paid and that executive officers and employees must be rated as an “Achieves expected levels of performance” or higher in their annual performance review in order to be eligible for a bonus payout. The ratings and bonus opportunity as a percentage of base salary for the Named Executive Officers (as defined below) are listed in the table below.

 

 

 

 

For the 2007 bonus plan, our Board of Directors established certain strategic and financial objectives for the Company, directed at progressing certain of our kinase inhibitor research programs, including MET and BCR-ABL, towards clinical development, entering into a significant strategic transaction and achieving a specific cash balance at year end. The goals for bonuses were established so that target attainment is not assured and attainment would require a high level of persistence, effort and execution on the part of our executive officers. Even if the requisite strategic and financial objectives are satisfied, our Compensation Committee has full discretion to determine the actual amount, if any, of the bonus awarded to any individual under our bonus award program. In determining the bonus awards for 2007 for our executive officers, the Compensation Committee recognized the importance of weighting the goals to reflect the relative contribution of each goal to the overall company performance and overall shareholder value. While our 2007 bonus plan does not explicitly refer to weightings being applied to each corporate objective, the Compensation Committee discussed and considered the appropriate weightings for each corporate objective, and determined that the goals related to the progress in the kinase inhibitor research programs should have the greatest weighting. The Committee also recognized that while the Company had not entered into a significant strategic transaction in 2007, such as a strategic collaboration on its MET program, the Company’s management continued to evaluate partnering opportunities in 2007 with the overall objective from such a partnership being to maximize the value of the program to the Company and its shareholders, not just to enter into any transaction. In consideration of these matters, progress in the Company’s other research and drug discovery programs, and the achievement of the Company’s financial objectives, the Compensation Committee and the Board determined that in 2007 the Company had achieved 70% of its corporate objectives.

 

Following a review of the individual performance of each of our Named Executive Officers in 2007 by the Compensation Committee at its meeting held in February 2008, and based on the determination by our Compensation Committee and our Board that the Company had achieved 70% of its corporate objectives, the Committee awarded the following cash bonuses to our Named Executive Officers: Mr. Grey was awarded $119,248, which represented 31% of his 2007 base salary; Mr. Myers was awarded $52,500, which represented 21% of his base salary; Dr. Burley was awarded $85,984, which represented 24% of his base salary; Dr. Reich was awarded $60,060, which represented 21% of his base salary and Dr. Rugg was awarded $54,600, which represented 18% of his base salary.

 

For the 2008 bonus plan, our Board of Directors established certain strategic and financial objectives for the Company, directed at progressing our MET clinical program and BCR-ABL kinase pre-clinical program, progressing our drug discovery and research programs, entering into a significant strategic transaction and achieving a specific cash balance at year end. As with the goals for 2007, the goals for bonuses were established so that target attainment is not assured and attainment would require a high level of persistence, effort and execution on the part of our executive officers. Even if the requisite strategic and financial objectives are satisfied, our Compensation Committee has full discretion to determine the actual amount, if any, of the bonus awarded to any individual under

our bonus award program. The Compensation Committee has determined the relative weighting of each of the enumerated corporate goals to reflect the relative contribution of each goal to the overall company performance and overall shareholder value. If all corporate goals are achieved, depending on the employee’s individual performance, an employee would be entitled to receive up to 125% of his or her bonus target. For our chief executive officer, the bonus payment will be entirely based on the achievement of corporate goals and for our other Named Executive Officers, 80% of the bonus award will be based on the achievement of the corporate objectives and 20% will be based on individual performance.

 

Long Term Incentive Program.   At present, our long-term compensation consists solely of stock options and restricted stock awards. We believe that long term performance is achieved through an ownership culture that encourages long-term performance by our executive officers through the use of stock-based awards. Our stock compensation plans have been established to provide all employees, including our executive officers, with incentives to help align the employees’ interests with those of our stockholders, enabling our executive officers to participate in the long-term appreciation of our stockholder value, while personally experiencing the impact of any business setbacks, whether company specific or industry based. Additionally, stock options provide a means of promoting retention of key executives, in as much as they are typically subject to vesting over an extended period of time. Most options vest 25% per year over four years, with no vesting from the date of grant until the first anniversary, and thereafter vesting ratably at the end of each month.

 

The initial option or restricted stock grant made to each executive officer upon joining us is primarily based on competitive conditions applicable to the executive officer’s specific position. In addition, our Compensation Committee considers the number of options and the value of the options owned by other executive officers in comparable positions within our Company as well as within our peer group. Subsequent grants to executive officers are generally considered and, if appropriate, awarded in connection with the annual company-wide compensation review during the first quarter of the fiscal year. Such subsequent grants serve to maintain a competitive position for our Company relative to new opportunities that may become available to our executive officers.

 

Awards to an executive officer are based upon his or her sustained performance over time, ability to impact results that drive our stockholder value, level of responsibility within the company, potential to take on roles of increasing responsibility in our company and competitive equity award levels for similar positions and responsibilities in our peer group. Equity awards are not granted automatically to our executive officers on an annual basis. We have not established any stock ownership guidelines for our executives but we believe that a meaningful equity stake in our company by our executive officers fosters alignment between the interests of our executive officers and those of our stockholders.

 

In 2007, our Compensation Committee approved the grant of stock options to purchase shares of our common stock to our Named Executive Officers, in recognition of the executive officer’s performance in 2006.

 

On February 21, 2008, the Compensation Committee approved the grant of stock options to purchase shares of our common stock to our Named Executive Officers, in recognition of their performance in 2007. When determining the number of options to be granted to our Named Executive Officers, the Compensation Committee considered:

 

 

We believe these comparisons provide an important context for comparing the competitive level of our equity based compensation practices to those of other companies in our peer group.

 

Following such consideration, the Committee granted Mr. Grey an option to purchase 133,000 shares of our common stock; Dr. Burley, an option to purchase 42,750 shares of our common stock; Mr. Myers, an option to

purchase 42,750 shares of our common stock; Dr. Reich, an option to purchase 33,250 shares of our common stock; and Dr. Rugg an option to purchase 26,150 shares of our common stock. All options were granted with an exercise price of $3.99 per share, the fair market value of our common stock on the date of grant, consistent with our granting policies.

 

Benefits.   We provide the following benefits to our executive officers on the same basis as the benefits provided to all employees (other than the disability program which has some enhancements for those of our employees, including our executive officers, who have a salary above a certain level):

 

 

These benefits are consistent with those offered by other companies in our industry and geographical location.

 

Change in Control and Severance Benefits.   We have entered into Change in Control and Severance Agreements with each of our Named Executive Officers as described under “ Post Termination Compensation and Benefits ” below.

 

Summary Compensation Table

 

The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2006 and December 31, 2007 by our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers during 2007 (collectively, the “Named Executive Officers”).

 

Summary Compensation Table

 

 

 

 

Grants of Plan Based Awards

 

The following table shows for the fiscal year ended December 31, 2007, certain information regarding grants of plan-based awards to the Named Executive Officers.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table shows for the fiscal year ended December 31, 2007, certain information regarding outstanding equity awards at fiscal year end for the Named Executive Officers.

 

 

 

 

Options Exercises and Stock Vested

 

The following table presents information regarding the vesting of stock awards during the fiscal year ended December 31, 2007. None of the Named Executive Officers exercised any stock options during the fiscal year ended December 31, 2007.

 

 

Post Termination Compensation and Benefits

 

In November 2006, our Board of Directors approved change of control and severance arrangements with each of our Named Executive Officers: Michael Grey, Stephen Burley, W. Todd Myers, Siegfried Reich and Terence Rugg.

 

Our Board of Directors determined that it was in our stockholders best interests to foster the retention of our Named Executive Officers and to create uniformity in the terms of conditions of the severance and other benefits to which our Named Executive Officers and other executive officers are entitled upon certain terminations of such executive’s employment or upon an acquisition transaction or other change in control of the Company. Additionally, our Board of Directors recognized that from time to time the Board may consider the possibility of an acquisition transaction or other change in control of the Company and that such events, and the uncertainties that such events may create among management, can be a distraction to our executives and can cause them to consider or pursue alternative employment opportunities. To assist our Board of Directors in determining the appropriate provisions to implement, our Board of Directors directed us to obtain the assistance of an outside compensation consultant. Our Board of Directors reviewed the materials prepared by us and Setren, Smallberg & Associates, Inc., the outside compensation consultant, and considered, among other things: (i) the purposes behind providing severance and change of control benefits to our Named Executive Officers and other executives, (ii) the specific circumstances that would trigger such severance and change of control benefits, (iii) each element of such severance and change of control benefits (i.e., lump sum payments, salary continuation, bonus, benefits, option or other equity award acceleration and exercise period extensions, etc.) in the context of all other current compensation and benefits provided by us to our Named Executive Officers and other executives and how each such element of such compensation arrangement fits into our overall compensation objectives, (iv) estimated payments and benefits provided in each termination circumstance, and (v) any material conditions or obligations for receiving such severance and change of control benefits and the other related terms and conditions.

 

The details of the potential payments payable to our Named Executive Officers upon termination of employment with or without a change of control, under severance and change in control agreements are set out below. Payments due by us to our Named Executive Officer pursuant to the agreements will not be “grossed up” to reduce or eliminate the effect of the “golden parachute” or other tax provisions of the Internal Revenue Code. Any obligation to pay taxes remains an obligation of the executive officer.

 

Michael Grey

 

Upon a change in control (as defined in the change in control severance agreement), the vesting of equity awards held by Mr. Grey will be accelerated by 12 months. In addition, if his employment is terminated without “Cause” (as defined in the change in control severance agreement) at any time, Mr. Grey will receive 12 months salary continuation and, other than in connection with a change of control, 12 months accelerated vesting of stock options or other equity awards. If Mr. Grey’s employment is terminated without “Cause” or he resigns for “Good

Reason” (as defined in the change in control severance agreement) within three months prior to or 12 months following a change of control, then he is entitled to the following benefits (in lieu of 12 months salary continuation):

 

 

Stephen Burley

 

Upon a change in control (as defined in the change in control severance agreement), the vesting of equity awards held by Dr. Burley will be accelerated by 12 months. In addition, if his employment is terminated without “Cause” (as defined in the change in control severance agreement) at any time, Dr. Burley will receive 12 months salary continuation and, other than in connection with a change of control, 12 months accelerated vesting of stock options or other equity awards. If Dr. Burley’s employment is terminated without “Cause” or he resigns for “Good Reason” (as defined in the change in control severance agreement) within three months prior to or 12 months following a change of control, then he is entitled to the following benefits (in lieu of 12 months salary continuation):

 

 

W. Todd Myers, Siegfried Reich and Terence Rugg

 

Upon a change in control (as defined in the change in control severance agreements), the vesting of equity awards held by each of Mr. Myers, Dr. Reich and Dr. Rugg will be accelerated by 12 months. In addition, if any of these executive officers’ employment is terminated without “Cause” (as defined in the change in control severance agreement) at any time, the executive will receive 12 months salary continuation. If the executive’s employment is terminated without “Cause” or the executive resigns for “Good Reason” (as defined in the change in control severance agreement) within three months prior to or 12 months following a change of control, then the executive is entitled to the following benefits (in lieu of 12 months salary continuation):

 

 

In addition, if Dr. Rugg resigns for Good Reason within three (3) months prior to or within twelve (12) months following the occurrence of the Change in Control, then Dr. Rugg will have no obligation to reimburse the Company for any relocation assistance provided to the Executive.

 

The Change of Control Severance Agreements for each of our Named Executive Officers were filed as Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

Potential Payments upon Termination or Change in Control

 

The following tables shows the potential payments to our Named Executive Officers upon termination or a change of control of the Company, assuming the events occur on December 31, 2007.

 

Potential Payments upon Termination without Cause or Resignation for Good Reason within 12 months of a Change in Control

 

 

 

 

Potential Payments upon Termination without Cause prior to or more than 12 months after a Change in Control

 

 

 

 

Potential Payments Upon Change in Control(1)

 

 

 

 

DIRECTOR COMPENSATION

 

The following table shows for the fiscal year ended December 31, 2007 certain information with respect to the compensation of all of our non-employee directors:

 

 

 

 

Non-Employee Director Compensation

 

We review the level of compensation for our non-employee directors on an annual basis, concurrent with the review of employee compensation. To determine how appropriate the current level of compensation for our non-employee directors is, we have historically obtained data from a number of sources including: publicly available data describing director compensation in peer companies, surveys obtained by our human resources department and information obtained directly from other companies. To assist the Board in our review in 2008 we retained the services of Radford Surveys and Consulting.

 

We compensate our non-employee directors for their service on the Board through a mixture of cash and equity-based compensation.

 

Cash Compensation

 

In March 2006, our Board of Directors, following the recommendation of our Compensation Committee, approved cash compensation in the form of annual retainer fees to be paid to our non-employee directors as follows:

 

 

These annual retainers are for the non-employee directors’ service on our Board of Directors and the committees of our board. Each non-employee director of the Board receives his or her respective cash compensation provided such director attends, in person or telephonically, 75% of the Board or committee meetings, as applicable, during any calendar year.

 

We have reimbursed and will continue to reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our Board of Directors and committees of the Board of Directors.

 

In June 2007, our Board of Directors, following the recommendation of the Compensation Committee, approved increasing the annual cash retainer paid to the Chairman of our Board, to $75,000. The Compensation Committee made this recommendation to the board following a review of competitive market data provided from a number of sources, including the Radford survey and consideration of the contributions made to the Company by the Chairman of the Board and by Dr. Henney as the Chairman.

 

In February 2008, based on input from Radford Consulting and data obtained from Radford with respect to director compensation for other companies in our peer group, our Board of Directors, following a recommendation from the Compensation Committee, approved the following cash compensation in the form of annual retainer fees to be paid to our non-employee directors:

 

 

These annual retainers are for the non-employee directors’ service on our Board of Directors and the committees of our Board. Dr. Henney receives an additional $50,000 annual retainer for his services as Chairman of the Board. Each non-employee director of the Board will receive his or her respective cash compensation provided such director attends, in person or telephonically, 75% of the Board or committee meetings, as applicable, during any calendar year. The Compensation Committee made these recommendations and the Board approved them, following a review by the Committee of competitive market data provided by Radford, with the goal of setting director compensation generally at the 50 ^th  percentile within our peer group.

 

Equity Compensation

 

Our 2005 non-employee directors’ stock option plan became effective on January 31, 2006. This plan provides for the automatic grant of options to purchase shares of common stock to our non-employee directors. In addition, all of our directors are eligible to participate in our 2005 equity incentive plan and our employee directors are eligible to participate in our 2005 employee stock purchase plan.

 

Following the Compensation Committee’s review in January 2007 of market data in peer companies, the Compensation Committee recommended to the Board and the Board approved at its meeting in March 2007, increasing the annual grants under the non-employee directors’ option plan to 10,000 shares and providing for accelerated vesting of options previously granted to non-employee directors under the 2000 and 2005 equity incentive plans so that such options have the same accelerated vesting provisions in the event of a change in control as those governing options under our non-employee directors’ stock option plan.

 

Our Board of Directors adopted the 2005 non-employee directors stock option plan in August 2005 in connection with our initial public offering, with the anticipation that our first annual meeting of stockholders as a public company would be held in 2006. Given the delay in, and eventual timing of the Company’s initial public offering, no annual meeting of stockholders was held in 2006 and our non-employee directors did not receive the anticipated automatic stock option grants under this plan in 2006. In May 2007, following a recommendation from our Compensation Committee, our Board granted additional discretionary options to Dr. Henney and Ms. Eastham from our 2005 equity incentive plan, in addition to the annual automatic grants, as compensation for the absence of any automatic grants in 2006. Dr. Henney was granted an option to purchase 15,000 shares and Ms. Eastham was granted an option to purchase 10,000 shares, with the shares under each of these options being fully vested as of the grant date.

 

In June 2007, our Board of Directors, following the recommendation of our Compensation Committee, approved the following equity compensation for the Chairman of our Board:

 

 

The Compensation Committee made this recommendation to the Board following a review of competitive market data provided from a number of sources including the Radford survey. The market data showed that typically the Chairman of a board receives greater equity compensation than the rest of the members of the board.. The Compensation Committee and the Board further considered the contributions made to the Company by the Chairman of the Board and by Dr. Henney as the Chairman and determined it was reasonable and appropriate to increase the Chairman’s initial and annual stock option grants. In granting the discretionary option of 30,000 shares, the Committee and the Board (other than Dr. Henney) considered that, because Dr. Henney had not received an initial stock option grant in connection with his change in status from chairman of a privately held company to chairman of a publicly traded company in 2006, and had received less than 20,000 for the annual stock option grants in 2006 and 2007, it would be reasonable and appropriate to grant Dr. Henney a one-time discretionary stock option of 30,000 shares.

 

Transactions With Related Persons

 

Related-Person Transactions policy and Procedures

 

In March, 2007, we adopted a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-persons transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or more than 5% stockholder of ours, including any of their immediate family members, and any entity owned or controlled by such persons.

 

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the board) for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, we rely on information supplied to us by our executive officers, directors and certain significant shareholders. In considering related-person transactions, the Committee takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to us, (b) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the Committee look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our and our stockholder’s best interests, as the Committee determines in the good faith exercise of its discretion.

 

Certain Related-Person Transactions

 

The Company has entered into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify to the full extent authorized by law any person made, or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the corporation or any predecessor of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation or any predecessor of the corporation.

 

Householding of Proxy Materials

 

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

 

This year, a number of brokers with account holders who are SGX stockholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker. Direct your written request to SGX Pharmaceuticals, Inc., Annette North, Secretary, 10505 Roselle Street,

San Diego, CA 92121 at (858)558-4850. Stockholders who currently receive multiple copies of the proxy statement at their addresses and would like to request “householding” of their communications should contact their brokers.

 

Other Matters

 

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

 

By Order of the Board of Directors

 

Michael Grey

President and Chief Executive Officer

 

April 28, 2008

 

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2007 is available without charge upon written request to: Corporate Secretary, SGX Pharmaceuticals, Inc., 10505 Roselle Street, San Diego, CA 92121.

	SGX PHARMACEUTICALS, INC.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.				x

▼ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.   ▼

		SGX PHARMACEUTICALS, INC.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.				x

Annual Meeting Proxy Card

▼  PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.   ▼

A   Proposals — The Board of Directors recommends a vote FOR the nominee listed and FOR Proposal 2.

1.

Election of Director:

For

Withhold

+

01 - Karin Eastham*

o

o

*To hold office until the 2011 Annual Meeting.

For

Against

Abstain

2.

To ratify the selection of Ernst & Young LLP as the independent registered public accounting firm of SGX for its fiscal year ending December 31, 2008.

o

o

o

B		Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below

Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.

Date (mm/dd/yyyy) — Please print date below.		Signature 1 — Please keep signature within the box.		Signature 2 — Please keep signature within the box.
/       /

n

+

 

▼  PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼

Proxy — SGX PHARMACEUTICALS, INC.

PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 5, 2008

The undersigned hereby appoints Michael Grey and W. Todd Myers, and each of them, as attorneys and proxies of the undersigned, with full power of substitution, to vote all of the shares of stock of SGX Pharmaceuticals, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Stockholders of SGX Pharmaceuticals, Inc. to be held at 10505 Roselle Street, San Diego, California 92121 on Thursday, June 5, 2008 at 9:00 a.m. (Pacific time), and at any and all postponements, continuations and adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the matters stated on the reverse side and in accordance with the instructions stated on the reverse side, and with discretionary authority as to any and all other matters that may properly come before the meeting.

Unless a contrary direction is indicated, this Proxy will be voted for the nominee listed in Proposal 1 and for Proposal 2, as more specifically described in the Proxy Statement. If specific instructions are indicated, this Proxy will be voted in accordance therewith.

Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States.

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