SEC Filing Excerpt
For complete filing click here

 
 

 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Schedule 14D-9

 

SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

PRAECIS PHARMACEUTICALS INCORPORATED

(Name of Subject Company)

PRAECIS PHARMACEUTICALS INCORPORATED

(Name of Person(s) Filing Statement)

 

Common Stock, par value $0.01 per share

(including the associated Preferred Stock Purchase Rights)

(Title of Class of Securities)

 

739421402

(CUSIP Number of Class of Securities)

 

Kevin F. McLaughlin
President and Chief Executive Officer
PRAECIS PHARMACEUTICALS INCORPORATED
830 Winter Street
Waltham, Massachusetts 02451
(781) 795-4100

(Name, address and telephone number of person authorized to receive

notice and communications on behalf of the person(s) filing statement)

 

With copies to:

Kent A. Coit, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-4800

 

   
[ ]   Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

 

SEC Filing Excerpt
For complete filing click here

DIRECTOR COMPENSATION

We pay all non-employee directors an annual retainer of $15,000, plus $1,500 for each regularly scheduled Board meeting they attend in person or participate in by telephone. We also pay each non-employee director a fee of $1,000 for each regularly scheduled committee meeting that he attends in person or participates in by telephone and $500 for any other special telephonic Board or committee meeting in which he participates. Mr. Bohlin receives a per-meeting fee of $1,000 for his attendance and participation in, on behalf of the Audit Committee and in his capacity as the Chairman of that Committee, meetings with the Company’s management and Ernst & Young LLP regarding the Company’s financial results and other financial and accounting matters. In addition, we reimburse our directors for reasonable expenses in connection with attending board and committee meetings.

Directors are eligible to receive stock options under the Stock Plan. In connection with their initial election to the Board, non-employee directors receive an option grant to purchase 4,000 shares of Common Stock. Each initial option grant vests and becomes exercisable in equal monthly installments over a three-year period from the date of grant so long as the individual continues to be a member of the Board. In addition, non-employee directors generally receive an annual option grant, normally in November. The Company’s non-employee directors did not receive an annual option grant in 2006 given the status in November 2006 of the Company’s evaluation of strategic alternatives. In March 2006, Dr. Gefter, the Company’s non-executive Chairman and Chief Scientific Officer, was granted an option to purchase 8,000 shares of Common Stock at an exercise price of $5.99 per share primarily in connection with his service on the Board. The March 2006 grant to Dr. Gefter was due, in part, to the fact that Dr. Gefter did not receive any option grant during 2005 in respect of his service as a director or as an employee of the Company. This grant vests and becomes exercisable in equal monthly installments over a twelve-month period.

DIRECTOR COMPENSATION TABLE

The following table sets forth the director compensation (other than for Kevin F. McLaughlin, the compensation of whom is described below) for the fiscal year ended December 31, 2006 of all non-employee directors of the Company and for Dr. Gefter.

                         

Name

  Fees Earned or Paid in Cash     Option Awards (1)(2)(3)     Total  
 

G. Leonard Baker, Jr

  $ 35,000       $9,314     $ 44,314  

Garen G. Bohlin

    33,000       22,698       55,698  

Henry F. McCance

    36,000       9,314       45,314  

Leonard E. Post, Ph.D. 

    36,500       33,240       69,740  

David B. Sharrock

    36,000       9,314       45,314  

Patrick J. Zenner

    32,000       9,314       41,314  

Malcolm L. Gefter, Ph.D. 

    —  (4)     24,081       24,081 (4)

(1) During 2006, no stock options or other equity-based awards were granted to the Company’s directors listed above other than Dr. Gefter, who received an award with a grant date fair value of $28,995, of which $24,081 represents the compensation cost recognized during 2006, as described in footnote (2).
 
(2) Amounts in this column represent the compensation cost of stock option awards recognized during 2006. These amounts have been calculated in accordance with SFAS No. 123R using the Black-Scholes option pricing model and the assumptions


B-8

outlined in the footnotes to the Company’s financial statements included in the Company’s Annual Report of Form 10-K for the year ended December 31, 2005 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2006 filed with the SEC (as modified by guidance provided by the SEC).
 
(3) As of December 31, 2006, the directors listed above had the following aggregate number of stock option awards outstanding: G. Leonard Baker, Jr., 16,000; Garen G. Bohlin, 12,000; Henry F. McCance, 16,000; Leonard E. Post, Ph.D., 10,000; David B. Sharrock, 18,250; Patrick J. Zenner, 16,000. Dr. Gefter holds 289,010 options, all but 8,000 of which (those described in the table above) were granted in connection with Dr. Gefter’s employment (rather than in connection with his service as a director).
 
(4) Dr. Gefter was paid a salary in the amount of $200,000 during 2006 in respect of his service as an employee of the Company. Dr. Gefter also has a Letter Agreement with the Company (described in the Schedule 14d-9 to which this Information Statement is Annex B, under Item 3(a) — “Severance Agreements with Certain Executive Officers and a Director”) and Dr. Gefter also exercised Company options during 2006 with a net value at exercise of $198,530.

SEC Filing Excerpt
For complete filing click here

EXECUTIVE COMPENSATION AND OTHER INFORMATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy

The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) is primarily responsible for reviewing, approving and overseeing the Company’s compensation plans and practices, and works with management and the Compensation Committee’s independent consultant to establish the Company’s executive compensation philosophy and programs. The general philosophy of the executive compensation program established by the Compensation Committee is to align compensation with the Company’s business objectives and to reward performance in the attainment of those objectives. In addition, the Company strives to provide compensation that is competitive with other biopharmaceutical and biotechnology companies with which the Company competes for executive talent. The Company pays particular attention to the compensation practices of biopharmaceutical and biotechnology companies in the greater Boston area where the Company is located and where there is intense competition for experienced senior management personnel. In general, the Compensation Committee has set total executive compensation at levels that are within the 50th to 60th percentile based upon industry data and independent surveys of local biopharmaceutical and biotechnology companies. The Compensation Committee also utilizes an independent compensation consultant as necessary to assist in evaluating the Company’s executive compensation programs and pay practices. The use of an independent consultant is intended to provide additional assurance that these programs and practices are reasonable and consistent with the Company’s objectives.


B-11

Components of Executive Compensation

The Company’s executive compensation program consists of three key components: base salary, annual bonus awards and equity-based incentives in the form of stock options.

Base Salary

The Compensation Committee reviews annually the Chief Executive Officer’s base salary and the Chief Executive Officer’s recommendation with regard to the base salaries of the Company’s other executive officers. When reviewing salaries, the Compensation Committee considers individual and corporate performance in the prior year, levels of responsibility, the importance of the individual to the execution of the Company’s strategic operating plan, prior experience, breadth of knowledge and competitive pay practices. As noted above, the Compensation Committee uses peer group and other market data to test for reasonableness and competitiveness of base salaries, but also exercises subjective judgment in view of its compensation objectives. In 2006, the Compensation Committee recommended to the Board, and the Board acted in accordance with such recommendation, to increase the rate of base salary paid to our executive officers. This decision was based on a determination that the increased rates of base salary were competitive with the levels paid by the Company’s competitors for executive talent and appropriate for executives with the level of responsibilities held by the Company’s executive officers. In particular, the Compensation Committee and the Board took note of the fact that the Company’s executive officers were responsible for implementing and completing the Company’s strategic restructuring initiated in May of 2005, moving forward with its strategic operating plan and attaining the Company’s ordinary business objectives. In addition, the Compensation Committee and the Board focused on the importance of retaining key management personnel critical to refocusing the Company and implementing the Company’s strategic operating plan.

The total salary budget approved by the Board for executive officers for 2006 was an increase of 5.3% over the total salary paid for 2005, which percentage increase was consistent with the market data and with surveys of local competitors. The base salary paid to the Chief Executive Officer and the Chief Financial Officer for 2006 were each increased 5.3% over such salaries paid in 2005. The base salary paid to the Company’s Executive Vice President, Discovery Research, for 2006 was increased 6.5% over such salary paid in 2005, in part as an acknowledgement of his central role in executing on the Company’s refocused strategic operating plan and in part to bring his salary to a level commensurate with other comparably situated executives at competitive companies. The base salary paid to the Executive Vice President and Chief Medical and Regulatory Officer for 2006 was increased 2.9% over such salary paid in 2005 due to the existing competitive level of his compensation and due to the diminished role of the Company’s lead clinical program (Plenaxis®) in the refocused strategic operating plan of the Company.

Executive Management Bonus Plan

The Company’s business objectives are reflected in specific goals, both corporate and individual, that are applicable to the Company’s executive officers. The Company established the Executive Management Bonus Plan to reward participants, currently limited to the Company’s Chief Executive Officer, Chief Financial Officer and Executive Vice President, Discovery Research, for their contributions to the achievement of corporate performance goals, as well as for their achievement of individual goals. Each year the Board, upon recommendation of the Compensation Committee, approves the corporate performance measures selected and the individual performance goals for the Chief Executive Officer and each of the Company’s other executive officers, as well as the target award values, as a percentage of base salary, under the Executive Management Bonus Plan. The Compensation Committee believes these corporate and individual goals will drive the future success of the Company’s business and thus enhance stockholder value. The Executive Management Bonus Plan provides for payment in cash of 100% of each award granted. The Executive Management Bonus Plan also provides that the Compensation Committee, in its sole discretion, may recommend that a participant be granted an award in an amount up to 1.5 times the participant’s target award value, as a percentage of base salary, multiplied by the participant’s base salary. Historically, the amount of each award has been primarily related to corporate performance, including the progress of the Company’s commercialization efforts, clinical programs and research and development efforts.

The target award value for 2006 for each executive officer under the Executive Management Bonus Plan as a percentage of base salary was 50% for the Chief Executive Officer, 25% for the Chief Financial Officer and 30% for the Executive Vice President, Discovery Research. The Executive Vice President and Chief Medical and Regulatory Officer was not eligible for a bonus under the Executive Management Bonus Plan or any other bonus plan or program for fiscal 2006.


B-12

In January 2006, the Board, upon recommendation of the Compensation Committee, approved the fiscal 2006 performance measures for the executive officers under the Executive Management Bonus Plan. These performance measures included technology development milestones and other measures of the overall progress of the Company’s DirectSelecttm drug discovery technology, clinical and preclinical development milestones for the Company’s PPI-2458 program, business development goals relating to DirectSelecttm and the license or sale of the Company’s Plenaxis®-related assets, targets for annual cash utilization and other strategic business goals.

In an effort to accomplish the disposition of its Plenaxis®-related assets, the Company engaged an investment banking firm and during the first half of 2006, the Company had discussions and preliminary negotiations with a number of parties regarding such a possible transaction. However, the Company was unable to conclude within its previously announced expected time frame an agreement for the license or sale of its Plenaxis® and, accordingly, in June 2006 the Company announced that it would cease actively seeking such a transaction and that it would discontinue any remaining Plenaxis®-related activities except as necessary to support the wind down of product distribution in the United States. At this time, the Company also announced that, in an effort to ensure that it would have available resources to pursue its operations beyond 2007, it intended to actively explore financing alternatives, as well as other strategic options, which may be available to achieve and enhance stockholder value. While the executive officers continued to focus on certain elements of the 2006 performance measures established in January 2006, in particular the business development objectives for DirectSelecttm, a primary focus of the executive officers from late June 2006 through year-end was to identify and complete either a financing or other strategic transaction.

To date, the aggregate bonus pool and the individual bonus amounts to be paid to the Company’s executive officers under the Executive Management Bonus Plan in respect of fiscal 2006 have not been determined. However, based on a preliminary performance review conducted by the Company’s Chief Executive Officer, the Chief Executive Officer expects to recommend to the Compensation Committee for its approval the payment of bonuses to the Company’s executive officers in respect of fiscal 2006 of approximately 100% of the target amounts set forth above. This preliminary expectation reflects the significant advances made in 2006 with respect to the Company’s DirectSelecttm technology, particularly the progress made under the Company’s pilot study agreement with GSK, as well as the progress made in the Company’s Phase 1 clinical study of PPI-2458 and in its preclinical S1P-1 program, despite limited funding for such program. This preliminary expectation also reflects the substantial efforts by the Company’s executive officers in 2006 in connection with, and the successful outcome of, the Company’s process of exploring strategic alternatives which culminated in the execution of the Merger Agreement, and the fact that gross cash utilization during 2006 was consistent with the targets established in January 2006.

Management Incentive Program

The Company also has a Management Incentive Program to provide annual bonus opportunities for participants (which may include executive officers who are not eligible to participate in the Executive Management Bonus Plan) based on the achievement of corporate and individual goals. The Compensation Committee oversees the administration of the Management Incentive Program. Each year the participants in the Management Incentive Program, together with their supervisors, establish individual goals under the program. Members of senior management set the corporate goals under the Management Incentive Program and establish the target award value, as a percentage of base salary, for each participant. Based on senior management’s assessment of the achievement of corporate goals, the Chief Executive Officer proposes an aggregate bonus pool amount. The Compensation Committee reviews this assessment and aggregate amount, makes adjustments thereto as it deems appropriate and approves an aggregate bonus pool amount. Individual payment amounts from the aggregate bonus pool approved by the Compensation Committee are then proposed by the Chief Executive Officer, in consultation with the Vice President, Human Resources and each participant’s supervisor, based on the participant’s achievement of individual goals, and final individual bonus payment amounts will then be approved by the Compensation Committee.

To date, the aggregate bonus pool under, and the individual bonus amounts to be paid to participants in, the Management Incentive Program in respect of fiscal 2006 have not been determined. However, based on a preliminary performance review conducted by the Company’s Chief Executive Officer, the Chief Executive Officer expects to recommend to the Compensation Committee for approval an aggregate bonus pool under the Management Incentive Program for 2006 of approximately $635,000. This preliminary expectation reflects the key role that each of the participants in the Management Incentive Program played in executing on the Company’s key corporate objectives in 2006 described in the immediately preceding section entitled “Executive Management Bonus Plan.”


B-13

Stock Options

It is part of the Company’s compensation philosophy to provide equity-based incentives for executive officers and other employees to ensure that they are motivated over the long-term to respond to the Company’s business challenges and opportunities as owners and not just as employees. The Company’s Stock Plan was established to provide the Company’s employees with an opportunity to share, along with the Company’s stockholders, in the long-term performance of the Company. Stock options only have a realizable value to the employee if the market price of the Company’s shares appreciates in value from the date the stock options are granted. Historically, the Company has granted stock options which vest based upon continued employment with the Company, typically over a three to five year period. All options are granted with maximum terms that expire ten years after the date of grant (or earlier upon a termination of the option holder’s employment).

The Compensation Committee reviews annually the vesting status and number of options held by the Company’s executive officers to determine if additional grants are appropriate to maintain long-term incentives. This review typically takes place in November, with the exception of the 2005 review, which was done in May immediately following the Company’s strategic restructuring. In fiscal 2006, the Compensation Committee met in November and determined, after extensive discussion and review with the full Board, that option grants would not be appropriate for the Company’s executive officers given the status of the Company’s evaluation of strategic alternatives at such time.

The specifics of option grants to our executive officers are set forth in the tables below.

Change of Control Arrangements

The Company has letter agreements, effective as of May 9, 2002, with Kevin F. McLaughlin, the Company’s President and Chief Executive Officer, and, effective as of September 16, 2004, with Edward C. English, the Company’s Vice President, Chief Financial Officer, Treasurer and Assistant Secretary and Richard W. Wagner, Ph.D., the Company’s Executive Vice President, Discovery Research (collectively, the “Letter Agreements”).

These Letter Agreements provide that in the event of a change of control of the Company, the officer will receive a lump sum severance payment in an amount described below if his employment is terminated within one year of such change of control, either by the Company without cause or voluntarily by him as a result of an adverse and material diminution in duties, a material reduction in annual compensation or an increase in his daily commute of more than 50 miles. The amount of the severance payment to each of Mr. McLaughlin, Mr. English and Dr. Wagner would be two times the sum of his annual salary and target bonus award under the Company’s Executive Management Bonus Plan for the year in which the change of control occurs. These Letter Agreements also provide for the continuation of certain insurance coverage, at no cost to the officer, for a period of two years following termination of employment (which would entitle the officer to a severance payment) within one year after a change of control. Under the Letter Agreements, each officer is also entitled to reimbursement of certain legal expenses. The Letter Agreements do not provide for a “gross up” if the officer becomes subject to golden parachute excise taxes; the officer’s benefit would be reduced if a reduction would put the officer in a better position after taxes. The approximate amounts of severance benefits which would be payable under the Letter Agreements (assuming such benefits were triggered as of the last business day of 2006) are set forth under “Employment Agreements/Change of Control Arrangements,” beginning on page B-19 of this information statement.

At the time these agreements were entered into, the Compensation Committee determined that the entry into these agreements with the executive officers was in the best interests of the Company, in order to help assure the continued service and attention of the executives in the event of a potential change of control of the Company.

Policy on Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1,000,000 on the amount of compensation that may be deducted by a public company in any tax year with respect to the company’s chief executive officer and each of its four next highest compensated executive officers. This limit does not apply, however, to performance-based compensation, as long as certain conditions are satisfied.

The Compensation Committee believes that stock options or other compensation granted under the Stock Plan satisfy the conditions necessary to qualify such compensation as performance-based compensation permitted to be excluded from the $1,000,000 compensation deduction limitation in accordance with the Internal Revenue Code and related regulations. The


B-14

Compensation Committee’s general policy is to take into account the deductibility of compensation in determining the type and amount of compensation payable to executive officers.

Other Information

The Company does not provide material perquisites to its executive officers as part of its compensation program. To date, the Company has not established policies regarding recovery of awards in the event of a restatement of earnings, required share ownership by executives or directors or hedging and pledging of the Company’s shares by the Company’s executives or directors. The Company does not provide defined benefit pension benefits to its employees, nor does it provide supplemental pensions or deferred compensation arrangements to its executives or other employees.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board is currently comprised of Leonard E. Post, Ph.D., David B. Sharrock and Patrick J. Zenner, each of whom is an “independent director” under the applicable rules of the NASD, a “Non-Employee Director” within the meaning of Section 16 of the Exchange Act and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Zenner is the Chairman of the Compensation Committee. The Compensation Committee is primarily responsible for reviewing, approving and overseeing the Company’s compensation plans and practices, and works with management to establish the Company’s executive compensation philosophy and programs. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management of the Company and based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Information Statement.

Respectfully submitted by the Compensation Committee:

Patrick J. Zenner, Chairman

Leonard E. Post, Ph.D.

David B. Sharrock


B-15

SUMMARY COMPENSATION TABLE

The following table sets forth a summary of the compensation earned during the fiscal year ended December 31, 2006 by Kevin F. McLaughlin, our Chief Executive Officer, Edward C. English, our Chief Financial Officer, our other most highly compensated executive officer as of December 31, 2006, and Marc B. Garnick, M.D., our former Executive Vice President and Chief Medical and Regulatory Officer, who would have been one of our most highly compensated executive officers (other than our CEO or CFO) at December 31, 2006 had he still been an executive officer of the Company at that time. We may refer to these officers as our “named executive officers” in other parts of this information statement.

                                         
                Option
 		    All Other
 		       

Name and Principal Position

  Salary     Bonus (2)     Awards (3)     Compensation     Total  
 

Kevin F. McLaughlin — President and Chief Executive Officer

  $ 368,907       —     $ 305,193       —     $ 674,100  

Edward C. English — Chief Financial Officer, Vice President, Treasurer and Assistant Secretary

    219,211       —       88,199       —       307,410  

Richard W. Wagner, Ph.D. — Executive Vice President, Discovery Research

    285,336       —       161,734       —       447,070  

Marc B. Garnick, Ph.D. — Former Executive Vice President and Chief Medical and Regulatory Officer (1)

    183,942       —       231,505  (4)   $ 104,035       519,482  

(1) Effective as of the close of business on June 19, 2006, Dr. Garnick’s employment as the Company’s Executive Vice President and Chief Medical and Regulatory Officer was terminated and Dr. Garnick became a part-time consultant to the Company through December 31, 2006, providing the equivalent of two days per week of consulting services to the Company in exchange for a monthly consulting fee of $16,100, for aggregate consideration (in addition to salary paid during his employment) of $104,035 through December 31, 2006 (as noted above under “All Other Compensation”). In consideration of the execution by Dr. Garnick of a release in favor of the Company, the Compensation Committee of the Board approved the acceleration of vesting of the unvested portions of two of Dr. Garnick’s outstanding option grants to purchase an aggregate of 33,998 shares of common stock at a weighted average exercise price of $5.80 per share, and also provided that such options would remain exercisable until December 31, 2006, resulting for accounting purposes in a modification of such options. The remainder of Dr. Garnick’s outstanding options ceased vesting as of June 19, 2006 and, to the extent such options were vested and exercisable as of such date, were exercisable for a period of 90 days thereafter in accordance with the terms of those options. Dr. Garnick forfeited an aggregate 211,063 options during fiscal 2006.
 
(2) To date, the aggregate bonus pool and the individual bonus amounts to be paid to the Company’s executive officers under the Company’s Executive Management Bonus Plan in respect of fiscal 2006 have not been determined. However, based on a preliminary performance review conducted by the Company’s Chief Executive Officer, the Chief Executive Officer expects to recommend to the Compensation Committee for approval the payment of bonuses to the Company’s executive officers in respect of fiscal 2006 of approximately 100% of the target amounts under the Executive Management Bonus Plan. The target award value for 2006 under the Executive Management Bonus Plan as a percentage of base salary was 50% for Mr. McLaughlin, 25% for Mr. English and 30% for Dr. Wagner. If the Compensation Committee recommends and the Board approves, such bonus awards at 100% of the target award amounts under the Executive Management Bonus Plan, the following payments would be made in February 2006: Mr. McLaughlin, $184,275; Mr. English, $54,750; Dr. Wagner, $85,500. Dr. Garnick is not eligible for a bonus under the Executive Management Bonus Plan or any other bonus plan or program of the Company for fiscal 2006.
 
(3) Amounts in this column represent the compensation cost of stock option awards recognized during 2006 and have been calculated in accordance with SFAS No. 123R using the Black-Scholes option pricing model and utilizing certain assumptions outlined in the footnotes to the Company’s financial statements included in the Company’s Annual Report of Form 10-K for the year ended December 31, 2005 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2006 and other periodic filings with the SEC (as modified by guidance provided by the SEC).
 
(4) Amount includes additional compensation costs of $77,749 recognized under SFAS No. 123(R) attributable to the modification of certain option grants described in footnote (1) above.


B-16

GRANTS OF PLAN-BASED AWARDS IN FISCAL 2006

The following table shows information regarding awards we granted to the named executive officers under the Executive Management Bonus Plan during the year ended December 31, 2006 and information regarding certain option grants of a named executive officer that were modified during such year.

                                                         
                            All Other Option
 		    Closing
 		    Grant Date Fair
 		 
          Estimated Future Payouts Under
 		    Awards: Number
 		    Price on
 		    Value of Stock
 		 
    Grant
 		    Non-Equity Incentive Plan Awards (3)     of Securities
 		    Date of
 		    and Option
 		 

Name

  Date (2)     Threshold     Target     Maximum     Underlying Options     Grant     Awards  
 

Kevin F. McLaughlin

    —       N/A     $ 184,275     $ 276,413       —       —       —  

Edward C. English

    —       N/A       54,750       82,125       —       —       —  

Richard W. Wagner, Ph.D. 

    —       N/A       85,500       128,250       —       —       —  

Marc B. Garnick, M.D (1)

    6/19/06       —       —       —       33,998     $ 5.15     $ 77,749  

(1) Effective as of the close of business on June 19, 2006, Dr. Garnick’s employment as the Company’s Executive Vice President and Chief Medical and Regulatory Officer was terminated and Dr. Garnick became a part-time consultant to the Company through December 31, 2006. In consideration of the execution by Dr. Garnick of a release in favor of the Company, the Compensation Committee of the Board approved the acceleration of vesting of the unvested portions of two of Dr. Garnick’s outstanding option grants to purchase an aggregate of 33,998 shares of common stock at a weighted average exercise price of $5.80 per share, and also provided that such options would remain exercisable until December 31, 2006. The acceleration of such options resulted in the deemed cancellation of the old options and the grant of replacement options and for accounting purposes constituted a modification of the original options. These options were originally granted on November 11, 2004 and May 27, 2005 and vested over three and four years, respectively. The $5.15 closing price reflected in the table represents the closing price per share of the Common Stock on The Nasdaq Global Market on June 19, 2006 (the date the options were modified). In connection with the acceleration of Dr. Garnick’s stock options, the Company recorded a non-cash compensation charge during the second quarter of 2006 of $77,749, representing the incremental fair value attributable to the modification of these option grants in accordance with SFAS No. 123R. The remainder of Dr. Garnick’s outstanding options ceased vesting as of his termination date and, to the extent vested and exercisable as of his termination date, were terminated after a period of 90 days thereafter in accordance with the terms of those options.
 
(2) Messrs. McLaughlin and English and Drs. Garnick and Wagner did not receive any stock option awards or other equity-based awards during fiscal 2006.
 
(3) The target award value for 2006 under the Executive Management Bonus Plan as a percentage of base salary was 50% for Mr. McLaughlin, 25% for Mr. English and 30% for Dr. Wagner. The plan also provides that the Compensation Committee, in its sole discretion, may recommend that a participant be granted an award in an amount up to 1.5 times the participant’s target award percentage multiplied by the participant’s base salary. To date, the aggregate bonus pool, and the individual bonus amounts to be paid to the Company’s executive officers, under the Company’s Executive Management Bonus Plan in respect of fiscal 2006 have not been determined. However, based on a preliminary performance review conducted by the Company’s Chief Executive Officer, the Chief Executive Officer expects to recommend to the Compensation Committee for approval the payment of bonuses to the Company’s executive officers in respect of fiscal 2006 of approximately 100% of the target amounts under the Executive Management Bonus Plan. Dr. Garnick is not eligible for a bonus under the Executive Management Bonus Plan or any other bonus plan or program of the Company for fiscal 2006.


B-17

OUTSTANDING EQUITY AWARDS AT THE END OF FISCAL 2006

The following table provides information concerning the outstanding equity awards made to the named executive officers as of December 31, 2006. The Company has never granted equity-based awards to its executive officers other than stock options.

                                 
    Option Awards  
    Number of
 		    Number of
             
    Securities
 		    Securities
 		             
    Underlying
 		    Underlying
 		             
    Unexercised
 		    Unexercised
    Option
    Option
 
    Options
 		    Options
 		    Exercise
 		    Expiration
 		 

Name

  (# Exercisable)     (# Unexercisable)     Price     Date  
 

Kevin F. McLaughlin

    12,000       —     $ 8.00       1/9/07  
      1,000       —       20.00       11/6/07  
      580       —       31.87       1/6/09  
      28,033       1,167 (2)     31.87       7/8/09  
      194       —       72.50       1/13/10  
      1,400       —       185.00       7/13/10  
      129       —       146.25       1/30/11  
      3,000       —       58.70       7/12/11  
      1,039       —       24.75       1/24/12  
      15,000       —       16.29       6/24/12  
      17,499       —       13.30       11/14/12  
      17,499       —       33.40       11/13/13  
      7,499       2,500 (3)     11.10       9/16/14  
      14,999       6,600 (4)     9.30       11/11/14  
      31,666       48,334 (5)     3.35       5/27/15  

Edward C. English

    8,500       —       20.00       2/26/07  
      2,000       —       31.87       5/6/09  
      4,410       190 (2)     31.87       7/8/09  
      300       —       185.00       7/13/10  
      800       —       58.70       7/12/11  
      3,600       400 (6)     16.29       6/24/12  
      1,366       634 (7)     24.50       7/1/13  
      773       827 (8)     17.80       7/8/14  
      966       1,034 (9)     12.25       7/30/14  
      3,749       1,251 (3)     11.10       9/16/14  
      7,499       3,301 (4)     9.30       11/11/14  
      7,916       12,083 (5)     3.35       5/27/15  

Richard W. Wagner, Ph.D. 

    24,000       6,000 (10)     16.10       1/23/13  
      1,195       554 (7)     24.50       7/1/13  
      4,499       1,501 (3)     11.10       9/16/14  
      10,832       4,768 (4)     9.30       11/11/14  
      19,791       30,208 (5)     3.35       5/27/15  

Marc B. Garnick, M.D (1)

    —       —       —       —  

(1) Effective as of the close of business on June 19, 2006, Dr. Garnick’s employment as the Company’s Executive Vice President and Chief Medical and Regulatory Officer was terminated and Dr. Garnick became a part-time consultant to the Company through December 31, 2006. In consideration of the execution by Dr. Garnick of a release in favor of the Company, the Compensation Committee of the Board approved the acceleration of vesting of the unvested portions of two of Dr. Garnick’s outstanding option grants to purchase an aggregate of 33,998 shares of common stock at a weighted average exercise price of $5.80 per share, and also provided that such options would remain exercisable until December 31, 2006. The acceleration of such options resulted in the deemed cancellation of the old options and the grant of replacement options. These options were originally granted on November 11, 2004 and May 27, 2005 and vested over three and four years, respectively. The remainder of Dr. Garnick’s outstanding options ceased vesting as of June 19, 2006 and, to the extent such options were vested and exercisable as of such date, were exercisable for a period of 90 days thereafter in accordance with the terms of those options. Dr. Garnick forfeited an aggregate 211,063 options during fiscal 2006.


B-18

(2) These options vest and become exercisable in equal monthly installments through July 1, 2007.
 
(3) These options vest and become exercisable in equal monthly installments through September 16, 2007. These options shall vest and become immediately exercisable under certain circumstances in connection with a change of control of the Company.
 
(4) These options vest and become exercisable in equal monthly installments through November 11, 2007. These options shall vest and become immediately exercisable under certain circumstances in connection with a change of control of the Company.
 
(5) These options vest and become exercisable in equal monthly installments through May 27, 2009. These options shall vest and become immediately exercisable under certain circumstances in connection with a change of control of the Company.
 
(6) These options vest and become exercisable in equal monthly installments through June 24, 2007.
 
(7) These options vest and become exercisable in equal monthly installments through July 1, 2008. These options shall vest and become immediately exercisable under certain circumstances in connection with a change of control of the Company.