ESSENTIAL THERAPEUTICS INC
SEVERANCE AGREEMENT W/ MARTHA J. CARTER
<DOCUMENT>
<TYPE>EX-10.64
<SEQUENCE>5
<FILENAME>dex1064.txt
<DESCRIPTION>SEVERANCE AGREEMENT W/ MARTHA J. CARTER
<TEXT>
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                                                                   Exhibit 10.64

                               SEVERANCE AGREEMENT

THIS AGREEMENT is entered into as of January 2, 2003, by and between Martha J.
Carter (the "Employee") and Essential Therapeutics, Inc., a Delaware corporation
(the "Company").

1.    Term of Agreement.

      This Agreement shall remain in effect from the date hereof until the
      earlier of:

      a)  The date when the Employee's employment with the Company terminates
          for any reason not described in Section 6; or
      b)  The date when the Company has met all of its obligations under this
          Agreement following a Termination event as defined in Section 6 below.

2.    Definition of Change in Control.

      For all purposes under this Agreement, "Change in Control" shall mean (i)
      a merger, reorganization or other transaction or series of related
      transactions (other than financings) following which the shareholders of
      the Company do not own a majority of the capital stock of the surviving
      corporation or (ii) the sale of all or substantially all of the assets of
      the Company.

3.    Definition of Good Reason.

      For all purposes under this Agreement, "Good Reason" shall mean that the
      Employee:
      a)  Has been demoted or has incurred a material reduction in his authority
          or responsibility as an employee of the Company, including (without
          limitation) a reduction or elimination of his authority to approve
          expenditures or to hire, promote, demote or terminate subordinates;
      b)  Has incurred a reduction in his total compensation (including
          benefits) as an employee of the Company, other than pursuant to a
          Company-wide reduction of total compensation (including benefits) for
          employees of the Company generally; or
      c)  Has been notified that his principal place of work as an employee of
          the Company will be relocated by a distance of 50 miles or more.

4.    Definition of Cause.

      For all purposes under this Agreement, "Cause" shall mean:
      a)  A willful act by the Employee which constitutes misconduct or fraud
          and which is injurious to the Company; provided, however, that no act,
          or failure to act, by the Employee shall be considered "willful"
          unless committed

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          without good faith and without a reasonable belief that the act or
          omission was in the Company's best interest; or
      b)  Conviction of, or a plea of "guilty" or "no contest" to, a felony.

      The Board of Directors of the Company shall have sole discretion with
      respect to whether any act or failure to act constitutes "Cause" for
      purposes of this Agreement.

5.    Definition of Continuation Period.

      For all purposes under this Agreement, "Continuation Period" shall mean
      the period commencing on the date when the termination of the Employee's
      employment under Section 6 is effective and ending on the earlier of:
      a)  The date twelve (12) months after the date when the employment
          termination was effective; or
      b)  The date of the Employee's death.

6.    Entitlement to Severance Pay and Benefits.

      The employee shall be entitled to receive the severance pay described in
      Section 7 (the "Severance Pay") and the benefits described in Section 8
      from the Company if, and only if, one of the following events occurs (each
      a "Termination Event"):
      a)  Within the first 12-month period after the occurrence of a Change in
          Control, the Employee voluntarily resigns his employment for Good
          Reason; or
      b)  Within the first 12-month period after the occurrence of a Change in
          Control, the Company terminates the Employee's employment for any
          reason other than Cause.

7.    Amount of Severance Pay.

      During the Continuation Period, the Company shall pay the Employee
      Severance Pay at an annual rate equal to the Employee's base compensation
      at the annual rate in effect on the date when the termination of his
      employment with the Company is effective. Such amount shall be paid
      pro-rata at periodic intervals in accordance with the Company's standard
      procedures.

8.    Other Benefits

      a)  Stock options and Restricted Stock. All unvested stock options and
          shares of restricted stock granted to Employee by the Company shall
          vest immediately upon the occurrence of a Termination Event. The
          post-termination exercise grace period under the Employee's stock
          options shall commence at the end of the Continuation Period. The
          Employee represents that he has consulted or will consult a tax
          advisor regarding the impact of this Subsection a) on the tax
          treatment of incentive stock options and shares of restricted stock.

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      b)  Group Insurance. At the commencement of the Continuation Period, the
          Employee (and, where applicable, his dependents) shall be entitled to
          convert his key employee long-term disability policy and group life
          insurance policy into individual policies pursuant to the terms of
          such policies. Should the Employee elect to convert either or both of
          such policies, the Company will pay the premiums for such policy or
          policies during the Continuation Period. At the commencement of the
          Continuation Period, the Employee shall be eligible to continue his
          group health continuation coverage under the Consolidated Omnibus
          Budget Reconciliation Act of 1986, and the Company will pay the
          premiums for such coverage during the Continuation Period. The
          foregoing notwithstanding, in the event that the Employee becomes
          eligible for comparable group insurance coverage in connection with
          new employment, the premium payments by the Company under this
          Subsection b) shall terminate immediately.

      c)  Outplacement Services. Upon the occurrence of a Termination Event, the
          Employee shall be entitled to reasonable outplacement services at the
          Company's expense. Such services shall be provided by a firm selected
          by the Employee from a list compiled by the Company and shall be
          limited to a period of six consecutive months.

9.    Limitation on Payments.

      a)  Basic Rule. Any other provision of this Agreement notwithstanding, the
          Company shall not be required to make any payment or property transfer
          to, or for the benefit of, the Employee (under this Agreement or
          otherwise) that would be nondeductible by the company by reason of
          Section 20G of the Internal Revenue Code of 1986, as amended (the
          "Code"), or that would subject the Employee to the excise tax
          described in Section 4999 of the Code. All calculations required by
          this Section 9 shall be performed by the independent auditors retained
          by the Company most recently prior to the Change in Control (the
          "Auditors"), based on information supplied by the Company and the
          Employee, and shall be binding on the Company and the Employee. All
          fees and expenses of the Auditors shall be paid by the Company.

      b)  Reductions. If the amount of the aggregate payments or property
          transfers to the Employee must be reduced under this Section 9, then
          the Employee shall direct in which order the payments or transfers are
          to be reduced, but no change in the timing of any payment or transfer
          shall be made without the Company's consent. As a result of
          uncertainty in the application of sections 280G and 4999 of the Code
          at the time of an initial determination by the Auditors hereunder, it
          is possible that a payment will have been made by the Company that
          should not have been made (an "Overpayment"), or that an additional
          payment that will not have been made by the Company could have been
          made (an "Underpayment"). IN the event that the Auditors, based upon

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          the assertion of a deficiency by the Internal Revenue Service against
          the Company or the Employee that the Auditors believe has a high
          probability of success, determine that an Overpayment has been made,
          such Overpayment shall be treated for all purposes as a loan to the
          Employee that he shall repay to the Company, together with interest at
          the applicable federal rate specified in section 7872(f)(2) of the
          Code; provided, however, that no amount shall be payable by the
          Employee to the company if and to the extent that such payment would
          not reduce the amount that is nondeductible under section 280G of the
          Code or is subject to an excise tax under section 4999 of the Code. In
          the event that the Auditors determine that an Underpayment has
          occurred, such Underpayment shall promptly be paid or transferred by
          the Company to, or for the benefit of, the Employee, together with
          interest at the applicable federal rate specified in section
          7872(f)(2) of the Code.

10.   Non-solicitation.

          After the occurrence of a Termination Event, the Employee agrees that
          for a period of two years from the date of the Termination Event (the
          "Non-Solicitation Term") he will not directly or indirectly solicit
          for employment any employee of the Company who was employed by the
          Company at the time of the Occurrence of Termination Event and remains
          in the employment of the Company during the Non-Solicitation Term.

11.   Successors.

      a)  Company's Successors. The Company shall require any successor (whether
          direct or indirect and whether by purchase lease, merger,
          consolidation, liquidation or otherwise) to all or substantially all
          of the Company's business and/or assets, by an agreement in substance
          and form satisfactory to the Employee, to assume this Agreement and to
          agree expressly to perform this Agreement in the same manner and to
          the same extent as the Company would be required to perform it in the
          absence of a succession. For all purposes under this Agreement, the
          Term "Company" shall include any successor to the Company's business
          and/or assets which executes and delivers the assumption agreement
          described in this Subsection (a) or which becomes bound by this
          Agreement by operation of law.

      b)  Employee's Successors. This Agreement and all rights of the Employee
          hereunder shall inure to the benefit of, and be enforceable by, the
          Employee's personal or legal representatives, executors,
          administrators, successors, heirs, distributes, devisees and legatees.

12.   Miscellaneous Provisions.

      a)  Notice. Notices and all other communications contemplated by this
          Agreement shall be in writing and shall be deemed to have been duly
          given

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          when personally delivered or when mailed by U.S. registered or
          certified mail, return receipt requested and postage prepaid. In the
          case of the Employee, mailed notices shall be addressed to him at the
          home address, which he most recently communicated to the Company in
          writing. In the case of the company, mailed notices shall be addressed
          to its corporate headquarters, and all notices shall be directed to
          the attention of its Secretary.

      b)  Waiver. No provision of this Agreement shall be modified, waived or
          discharge unless the modification, waiver or discharge is agreed to in
          writing and signed by the Employee and by an authorized officer of the
          Company (other than the Employee). No waiver by either party of any
          breach of, or of compliance with, any condition or provision of this
          Agreement by the other party shall be considered a waiver of any other
          condition or provision or of the same condition or provision at
          another time.

      c)  Whole Agreement. No agreements, representations or understandings
          (whether oral or written and whether express or implied) which are not
          expressly set forth in this Agreement have been made or entered into
          by either party with respect to the subject matter hereof.

      d)  No Setoff; Withholding Taxes. There shall be no right of setoff or
          counterclaim, with respect to any claim, debt or obligation, against
          payments to the Employee under this Agreement. All payments made under
          this Agreement shall be subject to reduction to reflect taxes required
          to be withheld by law.

      e)  Choice of Law. The validity or unenforceability of any provision or
          provisions of the Agreement shall not affect the validity or
          enforceability of any other provision hereof, which shall remain in
          full force and effect.

      f)  Severability. The invalidity or unenforceability of any other
          provision hereof, which shall remain in full force and effect.

      g)  Potential Pooling Transactions. In the event the Board determines that
          the acceleration of options pursuant to Sections 8(a) above would
          preclude accounting for a proposed business transaction involving a
          Change in Control as a "Pooling of Interests" but the Board otherwise
          desires to approve and account for such transaction as a "Pooling of
          Interests," the acceleration of options described in Sections 8(a)
          above shall be null and void, and the Company shall enter into a
          consulting agreement with the employee covering services and
          compensation to be determined by the parties at that time. Such
          agreement shall be for a period of three years and shall not be
          subject to earlier termination unless by mutual consent of the
          parties.

      h)  Arbitration. Except as otherwise provided in Section 9, any dispute or
          controversy arising under or in connection with this Agreement shall
          be

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          settled exclusively by arbitration in San Jose, California, in
          accordance with the rules of the American Arbitration Association then
          in effect. Judgment may be entered on the arbitrator's award in any
          court having jurisdiction. Punitive damages shall not be awarded.

      i)  No Assignment of Benefits. The rights of any person to payments or
          benefits under this Agreement shall not be made subject to option or
          assignment, either by voluntary or involuntary assignment or by
          operation of law, including (without limitation) bankruptcy,
          garnishment, attachment or other creditor's process, and any action in
          violation of this subsection (i) shall be void.

      j)  Employment Taxes. All payments made pursuant to this Agreement will be
          subject to withholding of applicable income and employment taxes.

Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.

                                                  Essential Therapeutics, Inc.


                                                  _________________________
                                                  By:

                                                  Title:



                                                  Martha J. Carter

                                                  __________________________

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