form14a.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed by
the Registrant [ X ]
Filed by
a Party other than the Registrant [ ]
Check the
appropriate box:
[ X
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material under Rule 14a-12
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NEUROGEN
CORPORATION
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(Name
of Registrant as Specified in its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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Title
of each class of securities to which transaction
applies:
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Aggregate
number of securities to which transaction applies:
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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Proposed
maximum aggregate value of transaction:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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Form,
Schedule or Registration Statement No.:
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Filing
Party:
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NEUROGEN
CORPORATION
35
Northeast Industrial Road
Branford,
CT 06405
June
[17], 2008
To
the Stockholders of Neurogen Corporation:
On behalf
of the Board of Directors, we cordially invite you to attend the 2008 Annual
Meeting of Stockholders of Neurogen Corporation. The Annual Meeting will be held
on Friday, July 25, 2008, at 2:00 p.m., local time, at the Grand Hyatt New York,
109 East 42nd Street at Grand Central Station, New York, New York
10017.
A
description of business to be conducted at the Annual Meeting is set forth in
the attached Notice of Annual Meeting and Proxy Statement. Also enclosed is a
copy of our 2007 Annual Report to Stockholders.
It is
important that your views be represented whether or not you are able to be
present at the Annual Meeting. We urge you to vote on the internet, or by
telephone using the number shown on your proxy card, or to complete, sign, date,
and return the enclosed proxy card promptly in the accompanying postage-paid
envelope.
________________________________________________________________________________________
To
Vote by Internet and to Receive Materials Electronically
Read
the Proxy Statement
Go
to the website (www.proxyvote.com) that appears on your Proxy
Card.
Enter
the control number found in the shaded box on the front of
your
Proxy
Card and follow the simple instructions.
Choose
to receive an e-mail notice when proxy statements and annual
reports
are
available for viewing over the Internet. You will cut down on bulky paper
mailings,
help
the environment, and lower expenses paid by Neurogen Corporation, your
company.
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________________________________________________________________________________________
The
deadline for Internet and telephone voting is 11:59 p.m., Eastern Daylight
Savings Time, on July 24, 2008. I encourage you to vote via the Internet using
the control number that appears on the front of your Proxy Card and to choose to
view future mailings electronically rather than receiving them on
paper.
Sincerely,
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/s/
Stephen R. Davis
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Stephen
R. Davis
President
and Chief Executive Officer
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NEUROGEN
CORPORATION
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NOTICE
OF THE 2008 ANNUAL MEETING OF
STOCKHOLDERS
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To Be
Held on July 25, 2008
NOTICE IS
HEREBY GIVEN that the Annual Meeting of Stockholders of Neurogen Corporation
will be held on Friday, July 25, 2008, at 2:00 p.m., local time, at the Grand
Hyatt New York, 109 East 42nd Street at Grand Central Station, New York, New
York 10017, for the following purposes:
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1.
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To
elect the following seven nominees to the Board of Directors, each to hold
office until the 2009 Annual Meeting of Stockholders of the Company and
until such director’s respective successor shall have been duly elected
and qualified: Julian Baker, Eran Broshy, Stephen R. Davis, Steward Hen,
John L. LaMattina, Craig Saxton, and John
Simon.
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2.
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To
approve the issuance of shares of the Company’s common stock upon exchange
of shares of the Company’s Series A Exchangeable Preferred Stock sold in
the financing transaction described in the accompanying Proxy
Statement.
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3.
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To
approve an amendment to the Company’s Restated Certificate of
Incorporation, as amended, to increase the total number of shares of
common stock that the Company is authorized to issue from 75,000,000 to
150,000,000 and the total number of shares of preferred stock that the
Company is authorized to issue from 2,000,000 shares to 10,000,000
shares.
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4.
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To
approve an amendment to the Amended and Restated Neurogen Corporation 2001
Stock Option Plan, as amended, which would increase the number of shares
reserved for issuance under the plan from 5,250,000 to 6,250,000 and to
increase the number of shares available for grants of stock options to
individual participants in any calendar year from 500,000 to
1,000,000.
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5.
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To
ratify the appointment by the Board of Directors of PricewaterhouseCoopers
LLP as the independent registered public accountants for the Company for
the fiscal year ending December 31,
2008.
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6.
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To
transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement
thereof.
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This
Notice is accompanied by a form of proxy, a Proxy Statement and the Company’s
2007 Annual Report to Stockholders. The foregoing items of business are more
fully described in the Proxy Statement.
In
accordance with the Company’s By-laws, the close of business on June 13, 2008
has been fixed as the Record Date for the determination of the stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
By
Order of the Board of Directors,
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/s/
Stephen R. Davis
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Stephen
R. Davis, Secretary
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Branford,
Connecticut
June
[17], 2008
IMPORTANT
Most
stockholders have a choice of voting on the internet, by telephone, or by mail
using a traditional proxy card. Please refer to the proxy card or other voting
instructions included with these proxy materials for information on the voting
methods available to you. If you vote by telephone or on the internet, you do
not need to return your proxy card.
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TABLE OF
CONTENTS
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Page
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Information Concerning
Voting and Solicitation
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1
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Proposal No. 1: Election of
Directors
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4
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Proposal No. 2: Approval of
the issuance of shares of the Company’s Common Stock upon exchange of
shares of the Company’s Series A Exchangeable Preferred Stock sold in the
financing transaction described in this Proxy Statement
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9
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Proposal No. 3: Approval of
an Amendment to the Company’s Restated Certificate of Incorporation, as
amended, to Increase the Number of Authorized Shares of Common Stock and
Preferred Stock
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16
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Proposal No. 4: Approval of
an Amendment to the Amended and Restated Neurogen Corporation 2001 Stock
Option Plan, as amended, to Increase the Number of Shares of Common Stock
Available Under the Plan and to Increase the Number of Shares of Common
Stock Available for Grants of Stock Options to Individual Participants in
any Calendar Year
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18
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Proposal No. 5: Ratification
of Appointment of Independent Registered Public Accountants
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26
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Security Ownership of
Certain Beneficial Owners and Management
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27
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Executive
Officers
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30
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Compensation Committee
Report
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31
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Compensation Committee
Interlocks and Insider Participation
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31
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Compensation Discussion and
Analysis
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31
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Audit Committee
Report
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51
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Audit Fees and All Other
Fees
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52
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Certain Relationships and
Related Transactions
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52
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Section 16(a) Beneficial
Ownership Reporting Compliance
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54
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Forward Looking
Statements
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54
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Other Stockholder
Matters
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55
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Stockholders’ Proposals to
be Presented at the Company’s Next Annual Meeting of
Stockholders
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55
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Annual Report
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55
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Appendix A:
Certificate of Amendment of Restated Certificate of Incorporation, as
amended
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A-1
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Appendix B: Proposed
Amendment to Amended and Restated Neurogen Corporation 2001 Stock Option
Plan, as amended
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B-1
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Appendix C: Amended
and Restated Neurogen Corporation 2001 Stock Option Plan (as proposed to
be amended and restated)
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C-1
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NEUROGEN
CORPORATION
35
Northeast Industrial Road
Branford,
CT 06405
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PROXY
STATEMENT FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS
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General
The
enclosed proxy is solicited on behalf of the Board of Directors of Neurogen
Corporation (the “Company” or “Neurogen”) for use at the Annual Meeting of
Stockholders to be held on Friday, July 25, 2008, at 2:00 p.m., local time, or
at any adjournment thereof (the “Annual Meeting”). The Annual Meeting will be
held at the Grand Hyatt New York, 109 East 42nd Street at Grand Central Station,
New York, New York 10017. The purposes of the Annual Meeting are set forth in
the attached Notice of Annual Meeting of Stockholders.
This
Proxy Statement, the Notice of Annual Meeting of Stockholders, the form of proxy
and Neurogen’s Annual Report to Stockholders are being mailed to stockholders on
or about June [17], 2008.
Who
Can Vote
Stockholders
of record on the Company’s books at the close of business on June 13, 2008 (the
“Record Date”) are entitled to vote at the Annual Meeting. At the Record Date,
[42,162,296] shares of the Company’s common stock, par value $0.025 per share
(the “Common Stock”), were issued and outstanding. For information concerning
stock ownership by certain stockholders, see the section on “Security Ownership
of Certain Beneficial Owners and Management” that follows.
Voting
of Shares
You may
vote by attending the annual meeting and voting in person. You also may vote on
the Internet, by telephone or by completing and mailing the enclosed proxy or
voting instruction card as instructed on your proxy or voting instruction card.
The Internet and telephone voting facilities will close at 11:59 p.m.
E.D.T. on July 24, 2008. If you vote through the Internet, you should be aware
that you may incur costs to access the Internet, such as usage charges from
telephone companies or Internet service providers and that these costs must be
borne by you. If you vote by Internet or telephone, then you need not return a
proxy card by mail. If your shares are held by a bank, broker or other nominee,
please refer to the instructions they provide for voting your shares. All shares
entitled to vote and represented by properly executed proxies received before
the polls are closed at the annual meeting, and not revoked or superseded, will
be voted at the annual meeting in accordance with the instructions indicated on
those proxies. YOUR VOTE IS IMPORTANT.
The
method of voting by proxy differs for shares held as a record holder and shares
held in “street name.” If you hold your shares of Common Stock as a record
holder, you may vote by completing, dating and signing the enclosed proxy card
and promptly returning it in the enclosed, preaddressed, postage paid envelope
or otherwise mailing it to the Company, or by submitting a proxy over the
Internet or by telephone by following the instructions on the enclosed proxy
card. If you hold your shares of Common Stock in street name, which means your
shares are held of record by a broker, bank or nominee, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to vote your shares. Your broker, bank or nominee may allow you to deliver
your voting instructions over the Internet or by telephone. Please see the
voting instructions from your broker, bank or nominee that accompany this proxy
statement.
Your vote
is very important. Accordingly, please complete, sign and return the enclosed
proxy card or voting instruction card whether or not you plan to attend the
annual meeting in person. You should vote your proxy even if you plan to attend
the annual meeting. Voting instructions are included on your proxy card. If you
properly give your proxy and submit it to the Company in time to vote, one of
the individuals named as your proxy will vote your shares as you have
directed.
All
properly signed proxies that are received before the polls are closed at the
annual meeting and that are not revoked will be voted at the annual meeting
according to the instructions indicated on the proxies or, if no direction is
indicated, they will be voted “For” the election of each of
the seven nominees for director, “For” the approval of the
issuance of shares of the Common Stock upon exchange of shares of the Company’s
Series A Exchangeable Preferred Stock sold in the financing transaction
described in the accompanying Proxy Statement, “For” the approval of the
amendment to the Company’s Restated Certificate of Incorporation, as amended, to
increase the total number of shares of Common Stock that the Company is
authorized to issue from 75,000,000 to 150,000,000 and to increase the total
number of shares of Preferred Stock that the Company is authorized to issue from
2,000,000 to 10,000,000, “For” the approval of an
amendment to the Amended and Restated Neurogen Corporation 2001 Stock Option
Plan, as amended, to increase the number of shares of Common Stock available
under the plan and to increase the number of shares of Common Stock available
for grants of stock options to individual participants in any calendar year and
“For” the ratification
of the selection of the independent auditors.
Revocability
of Proxies
Any proxy
given by a stockholder of record may be revoked by the stockholder of record at
any time before its use by: (1) delivering to the Company’s corporate secretary
a written notice of revocation, bearing a date later than the date of the proxy
stating that the proxy is revoked, prior to the voting of the proxy, (2)
submitting a subsequent proxy by internet or telephone (your latest telephone or
Internet voting instructions are followed) or delivering to the Company a duly
executed proxy relating to the same shares and bearing a later date, or (3) if
you are a stockholder of record and your shares are held by American Stock
Transfer & Trust Company, by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, by itself, revoke a
proxy.
Written
notices of revocation and other communications with respect to the revocation of
Neurogen proxies should be addressed to:
Neurogen
Corporation
35
Northeast Industrial Road
Branford,
CT 06405
Attn:
Corporate Secretary
If your
shares are held in “street name,” you may change your vote by submitting new
voting instructions to your broker, bank or other nominee. You must contact your
broker, bank or other nominee to find out how to do so. See below regarding how
to vote in person if your shares are held in street name.
If you
plan to attend the annual meeting and wish to vote in person, you will be given
a ballot at the annual meeting. Please note, however, that if your shares are
held in “street name,” which means your shares are held of record by a broker,
bank or other nominee, and you wish to vote at the annual meeting, you must
bring to the annual meeting a legal proxy from the record holder of the shares,
which is the broker or other nominee, authorizing you to vote at the annual
meeting.
Vote
Required
Each
stockholder is entitled to one vote for each share of the Common Stock held of
record in his or her name on the Record Date on each matter submitted to a vote
at the Annual Meeting. Cumulative voting is not permitted with respect to any
proposal to be acted upon at the Annual Meeting. The Exchangeable
Preferred Stock (as defined in Proposal No. 2) is not entitled to vote on any of
the proposals in this Proxy Statement.
If
properly completed and received by the Company (whether by mail, telephone or
internet) before the Annual Meeting, any proxy representing shares of Common
Stock entitled to be voted at the Annual Meeting and specifying how it is to be
voted will be voted accordingly. Any such proxy, however, which fails to specify
how it is to be voted on a proposal for which a specification may be made, will
be voted on such proposal in accordance with the recommendation of the Board of
Directors.
A quorum
of stockholders is necessary to hold a valid Annual Meeting. The presence, in
person or by proxy, of the holders of a majority (i.e., [21,081,149]) of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
excluding any shares owned by the Company, is necessary to constitute a
quorum.
A “broker
non-vote” occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to the proposal and has not received instructions with
respect to that proposal from the beneficial owner (despite voting on at least
one other proposal for which it does have discretionary authority or for which
it has received instructions). Shares of Common Stock held by persons attending
the annual meeting but not voting, shares represented by proxies that reflect
abstentions as to a particular proposal and broker non-votes will be counted as
present for purposes of determining a quorum.
For
Proposal No. 1, the directors will be elected by a plurality of the votes cast
at the meeting. As a result, abstentions will not be counted in
determining which nominees received the largest number of votes
cast. This means that the seven nominees receiving the highest number
of votes will be elected as directors. Brokers generally have
discretionary authority to vote on the election of directors. Thus,
broker non-votes are not likely to result from the vote on the election of
directors. Any broker non-vote or abstention will not have an effect
on the election of directors.
For
Proposal No. 3, the affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote at the Annual Meeting is required to
approve the amendment of the Company’s Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common Stock and
Preferred Stock. Abstentions and broker non-votes will have the same
effect as voting against this proposal. Brokers generally have
discretionary authority to vote on an amendment of the Company’s Restated
Certificate of Incorporation, as amended. Thus, broker non-votes are
not likely to result from the vote on this amendment to the Company’s Restated
Certificate of Incorporation, as amended.
For
Proposal No. 4, the affirmative vote of a majority of the total votes cast by
holders of the outstanding shares of Common Stock entitled to vote and present
in person or represented by proxy at the Annual Meeting is required to approve
the amendment of the Amended and Restated Neurogen Corporation 2001 Stock Option
Plan, as amended (the “2001 Plan”), to increase the total number of shares of
Common Stock available under the 2001 Plan from 5,250,000 to 6,250,000 and to
increase the number of shares of Common Stock available for grants of stock
options to an individual participant in any calendar year from 500,000 to
1,000,000. Abstentions will not have an effect on this proposal as
they are not considered votes cast. Brokers do not have discretionary
authority to vote on this proposal and therefore broker non-votes may
result. Broker non-votes will not have an effect on this proposal as
they are not considered votes cast.
For
Proposal No. 5, the affirmative vote of a majority of the total votes cast by
holders of the outstanding shares of Common Stock entitled to vote and present
in person or represented by proxy at the Annual Meeting is required to ratify
the selection of PricewaterhouseCoopers LLP as the Company’s independent
auditors. Abstentions will not have an effect in the ratification of
PricewaterhouseCoopers LLP as the Company’s independent auditors. Brokers
generally have discretionary authority to vote on the ratification of the
Company’s independent auditors. Thus, broker non-votes are not likely
to result from the vote on the ratification of PricewaterhouseCoopers LLP as the
Company’s independent auditors. Any broker non-vote will not have an
effect in the ratification of PricewaterhouseCoopers LLP as the Company’s
independent auditors.
Solicitation
The cost
of soliciting proxies will be borne by the Company. In addition, the Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of Common Stock for their expenses in forwarding solicitation material to
such beneficial owners. Proxies may be solicited by mail and may be supplemented
by telephone or personal solicitation by certain of the directors, officers and
regular employees of the Company, or at the Company’s request, by a professional
proxy solicitor. No additional compensation will be paid to directors, officers
or regular employees for such services, but if professional proxy solicitors are
used, such solicitors will be paid their customary fees by the
Company.
Pursuant
to Delaware law, the Board of Directors has appointed an inspector of elections
to act at the Annual Meeting. The inspector shall carry out the duties imposed
pursuant to Section 231 of the Delaware General Corporation Law, including the
counting of votes.
Stockholder
List
A list of
stockholders entitled to vote at the Annual Meeting will be available for
examination by any stockholder for any purpose germane to the Annual Meeting
during ordinary business hours at the Company’s corporate headquarters at 35
Northeast Industrial Road, Branford, CT 06405 for the ten days prior to the
Annual Meeting, and also at the Annual Meeting.
Dissenters’
Right of Appraisal
Under
Delaware law, there are no statutory or contractual rights of appraisal or
similar remedies available to stockholders who dissent from any matter to be
acted upon at the Annual Meeting.
Seven
directors are nominated to be elected to the Board of Directors at the Annual
Meeting. In February 2008, the Board of Directors, upon the recommendation of
the Corporate Governance Committee appointed John L. LaMattina, Ph.D. as a
director of the Company. Dr. LaMattina was known to several members
of the Board of Directors, each of whom endorsed his candidacy. These
Board of Directors members included stockholders, non-management directors, the
Chief Executive Officer and the President and Chief Operating Officer. On
February 1, 2008, William H. Koster, Ph.D., the Company’s former
President and Chief Executive Officer, and a director, resigned from his role as
President and Chief Executive Officer and on May 15, 2008, he determined that he
will not stand for re-election as a director. On May 12, 2008, Felix J. Baker,
Ph.D. and Jonathan S. Leff determined that they will not stand for re-election
as directors. The Board of Directors has reduced the authorized number of
directors on the Board of Directors to seven effective as of the Annual
Meeting.
Based on
the recommendation of the Corporate Governance Committee, the Board of Directors
has nominated each of the current directors, other than Drs. Koster and Baker
and Mr. Leff who are not standing for re-election, for re-election to the Board
of Directors at the Annual Meeting. Unless otherwise instructed, the
proxy holders will vote the proxies received by them for the seven nominees of
the Board of Directors named below, all of whom have served as directors
continuously since the month and year indicated opposite each such director’s
name in the following table, each to hold office for a term expiring at the next
Annual Meeting of Stockholders of the Company and until such director’s
successor shall have been duly elected and qualified. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies voted for that nominee will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. The seven persons receiving the highest vote
totals shall be elected as directors of the Company.
Nominees
for the Board of Directors
The names
of the nominees for director, their ages as of June 13, 2008 and certain other
information about them are set forth below:
Name
of Nominees
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Age
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Principal
Occupation
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Director
Since
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Julian
C. Baker
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42
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Managing
Member, Baker Bros. Advisors, LLC
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May
1999
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Eran
Broshy
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49
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Chief
Executive Officer and Director of inVentiv Health, Inc.
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July
2003
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Stephen
R. Davis
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47
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President
and Chief Executive Officer, Neurogen Corporation
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September 2001
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Stewart
Hen
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41
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Managing
Director, Warburg Pincus LLC
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April
2004
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John
L. LaMattina, Ph.D.
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58
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Former
Head of Global Research and Development, Pfizer, Inc.
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February
2008
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Craig
Saxton, M.D.
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65
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Former
Executive Vice President, Pfizer Global Research and Development and Vice
President, Pfizer Inc
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January
2002
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John
Simon, Ph.D.
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65
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Managing
Director, Allen & Company LLC
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May
1989
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There is
no family relationship between any director, executive officer or person
nominated or chosen by the Company to become a director or executive officer of
the Company.
The
Company is not aware of any legal proceedings involving the directors listed
above.
Julian
C. Baker
Mr.
Julian C. Baker has served as a director of Neurogen Corporation since May 1999.
Mr. Baker is a Managing Member of Baker Bros. Advisors, LLC, which he and his
brother and a current director, Felix Baker, Ph.D., founded in 2000. Mr. Baker’s
firm manages Baker Brothers Investments, a family of long-term investment funds
for major university endowments and foundations, which are focused on
publicly-traded life sciences companies. Mr. Baker’s career as a fund-manager
began in 1994 when he co-founded a biotechnology investing partnership with the
Tisch Family. Previously, Mr. Baker was employed from 1988 to 1993 by the
private equity investment arm of Credit Suisse First Boston Corporation. Mr.
Baker holds an A.B. magna cum laude from Harvard University.
He is
also a director of Incyte Corporation, Trimeris, Inc., and Genomic Health,
Inc.
Eran
Broshy
Mr. Eran
Broshy has served as a director of Neurogen since July 2003. Mr. Broshy has been
Chief Executive Officer and Director of inVentiv Health Inc., a preferred
provider of comprehensive marketing and sales solutions for the pharmaceutical
and life sciences industries. Mr. Broshy is a widely recognized authority and
frequent speaker on strategic issues in pharmaceuticals and healthcare. Prior to
joining inVentiv Health Inc., he served as the partner responsible for the
healthcare practice of The Boston Consulting Group (BCG) across the Americas.
During his fourteen-year tenure at BCG, Mr. Broshy consulted widely with senior
executives from a number of the major global pharmaceutical manufacturers,
managed care organizations, and academic medical centers, and advised on a range
of strategic, organizational and operational issues. Mr. Broshy has also served
as President and Chief Executive Officer of Coelacanth Corporation, a
privately-held biotechnology company. Mr. Broshy holds a B.S. from
Massachusetts Institute of Technology, a M.S. from Stanford University, and an
M.B.A. from Harvard University.
Stephen
R. Davis
Mr.
Stephen R. Davis has served as a director of Neurogen since September 2001. Mr.
Davis has been Chief Executive Officer since February 2008 and President since
September 2007. Previously, he also served as Executive Vice President of
Neurogen from September 2001 and Chief Operating Officer from April 2005. Mr.
Davis joined Neurogen in 1994 as Vice President of Finance and Chief Financial
Officer. From 1990 through June 1994, Mr. Davis was employed by Milbank, Tweed,
Hadley & McCloy LLP as a corporate and securities attorney. Previously, Mr.
Davis practiced as a Certified Public Accountant with Arthur Andersen & Co.
Mr. Davis received his B.S. in Accounting from Southern Nazarene University and
a J.D. degree from Vanderbilt University. He is also a director of Trimeris,
Inc.
Stewart
Hen
Mr.
Stewart Hen has served as a director of Neurogen since April 2004. He joined
Warburg Pincus, a private equity firm managing approximately $10 billion in
private equity assets, in 2000 and has been a Managing Director focusing on
investments in biotechnology and pharmaceuticals. Prior to joining Warburg
Pincus, Mr. Hen was a consultant at McKinsey & Company. Previously, he held
positions at Merck & Co., Inc. in both research & development and
manufacturing. Mr. Hen holds an M.B.A. from The Wharton School, an M.S. in
chemical engineering from the Massachusetts Institute of Technology, and a B.S.
in chemical engineering from the University of Delaware. Mr. Hen is a director
of Alita Pharmaceuticals, Inc., Allos Therapeutics, Inc., Altus Pharmaceuticals,
Inc., Prestwick Pharmaceuticals and Rib-X Pharmaceuticals. He also serves on the
Health Care & Sciences Group of the New York City Investment
Fund.
John
L. LaMattina, Ph.D.
Dr. John
L. LaMattina was appointed to be a director of Neurogen in February 2008. For
approximately 30 years until his retirement in December 2007, Dr. LaMattina
worked for Pfizer, Inc. most recently as Senior Vice President, Pfizer, Inc. and
President, Pfizer Global Research and Development. In those roles, he oversaw
the drug discovery and development efforts of over 12,000 employees in the
United States, Europe, and Asia. He graduated cum laude from Boston College with
a B.S. in Chemistry, received a Ph.D. from the University of New Hampshire in
Organic Chemistry, and then was a National Institute of Health Post Doctorate
Fellow at Princeton University. Dr. LaMattina is the author of numerous
scientific publications and U.S. patents and serves on the Board of Trustees of
Boston College and Worcester Polytechnic Institute and as a director of the
Terri Brodeur Breast Cancer Foundation.
Craig
Saxton, M.D.
Dr. Craig
Saxton has served
as a director of Neurogen since January 2002 and as Chairman of the Board of
Directors of Neurogen since December 2004. From 1993 until his retirement in
2001, Dr. Saxton was Vice President of Pfizer Inc and Executive Vice President,
Pfizer Global Research and Development at Pfizer’s Research and Development
headquarters in Groton, Connecticut. He held a variety of executive and research
posts at Pfizer over a 25-year span. Dr. Saxton earned his B.S. in Anatomy and
his M.D. from Leeds University in the U.K. After internship and residency in
Medicine, he was a Research Fellow in Cardiovascular Research at the University
of Leeds and subsequently undertook research in Applied Physiology at the Royal
Air Force Institute of Aviation Medicine and Physiology in Farnborough, U.K. Dr.
Saxton serves as a director of Conjuchem Inc. of Montreal, Canada and is a
member of the compensation committee. He is also a director of inVentiv Health
Inc. of New Jersey and is chairman of the governance committee. Dr. Saxton is on
the Scientific Board of the African Medical and Research Foundation in New York
and is a member of the American Academy of Pharmaceutical Physicians and the
Connecticut Academy of Science and Engineering.
John
Simon, Ph.D.
Dr. John
Simon has served as a director of Neurogen since May 1989. Dr. Simon is a
Managing Director of the investment banking firm Allen & Company, LLC, where
he has been employed since 1972. He currently serves on the board of directors
for Cardica, Inc., as well as on the boards of several privately-held companies.
Dr. Simon holds a B.S. in Chemistry from The College of William & Mary, a
Ph.D. in Chemical Engineering from Rice University, and both an M.B.A. in
Finance and a J.D. from Columbia University.
The
Company’s Corporate Governance Committee Charter is designed to ensure that the
composition, practices and operations of the Board of Directors are structured
to effectively represent the Company’s stockholders. The Corporate Governance
Committee of the Board of Directors recommends and monitors compliance with
ethical standards affecting the Company. The Board of Directors expects all
directors, officers, and employees to act ethically at all times and to adhere
to the Neurogen Corporation Code of Business Conduct and Ethics.
Copies of
the Neurogen Corporation Corporate Governance Committee Charter and the Neurogen
Corporation Code of Business Conduct and Ethics are available on the Company’s
website at
www.neurogen.com.
Independence
of the Board of Directors
Rules
promulgated by the National Association of Securities Dealers, Inc. (“NASD”) for
companies listed on the NASDAQ Stock Market LLC (“NASDAQ”) require that a
majority of the members of a listed company’s board of directors qualify as
“independent,” as affirmatively determined by the board of directors. Upon
reviewing all relevant transactions or relationships between each director (and
his or her family members) and the Company, its senior management and its
independent registered public accountants, the Board of Directors has
affirmatively determined that eight of the Company’s nine directors currently
serving on the Board of Directors are “independent” within the meaning of the
applicable NASDAQ rules. Stephen R. Davis, the Company’s President and Chief
Executive Officer is not “independent” within the meaning of the NASDAQ
rules In making its independence determinations, the Board of
Directors considered all relationships between the Company and the director and
the director’s family members, including:
·
|
For
Felix Baker, Julian Baker, Steward Hen, Jonathan Leff and John Simon,
their direct or indirect interest in the Company’s recent PIPE financing
transaction as described under “Related Party
Transactions.” Each of these directors was determined to be
independent by the Board of
Directors.
|
BOARD
MEETINGS AND COMMITTEES
Meetings
of the Board of Directors
The Board
of Directors of the Company held eight meetings during the fiscal year ended
December 31, 2007. During the fiscal year ended December 31, 2007, each director
attended 75% or more of the aggregate of the meetings of the Board of Directors
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, respectively, with the
exception of Jonathan S. Leff who attended 55% of the meetings.
Annual
Meeting Attendance
Although
the Company does not have a formal policy regarding attendance by directors at
the Company’s annual meeting of stockholders, directors are encouraged to attend
annual meetings of Neurogen Corporation stockholders. Eight out of nine
directors attended the 2007 annual meeting of stockholders.
The
Company makes every effort to ensure that the views of stockholders are heard by
the Board of Directors or individual directors, as applicable. As a result, the
Company believes that there has not been a need to adopt a formal process for
stockholder communications with the Board of Directors. However, the Corporate
Governance Committee of the Board of Directors does consider, from time to time,
whether the adoption of a formal process of stockholder communications with the
Board of Directors has become necessary or appropriate.
Committees of the Board of
Directors
The Board
of Directors has an Audit Committee, a Compensation Committee, a Corporate
Governance Committee and a Science Committee. The Board of Directors has
determined that each member of the Audit, Compensation, and Corporate Governance
Committees meets the applicable rules and regulations regarding “independence”
and that each member of these Committees is free of any relationship that would
interfere with his or her individual exercise of independent judgment with
regard to the Company.
Audit
Committee
The Board
of Directors has determined that all members of the Audit Committee are
independent under the NASDAQ rules and the rules of the Securities and Exchange
Commission (the “SEC”) and that Dr. John Simon qualifies as an “audit committee
financial expert” under the SEC rules and meets the financial sophistication
requirements of the NASDAQ rules. The Audit Committee serves as an independent
and objective party to monitor the Company’s financial reporting processes and
systems. The Audit Committee is primarily responsible for approving the services
performed by the Company’s independent auditors and for reviewing and evaluating
the Company’s accounting principles and its system of internal accounting
controls. A copy of the Neurogen Corporation Audit Committee Charter is
available on the Company’s website at www.neurogen.com.
Compensation
Committee
On behalf
of the Board of Directors, the Compensation Committee administers the Company’s
executive compensation program. The Compensation Committee oversees the
Company’s executive and employee compensation and stock option policies, reviews
benefit
programs,
supervises the administration and operation of the Company’s stock option plans
(including the review and approval of equity grants), and determines titles,
salaries and other in-kind compensation for the executive officers of the
Company, including those for the Chief Executive Officer and the other named
executive officers listed in the Summary Compensation Table. There is currently no
charter for the Compensation Committee.
The
Compensation Committee has the authority to engage the services of outside
advisors, experts and others to assist the Compensation Committee. The
Compensation Committee has from time to time relied on information and advice
obtained from Frederic W. Cook & Co., an independent outside compensation
consultant regarding certain matters related to CEO and other executive
compensation. In 2007, Frederic W. Cook assisted in
analyzing the proposed additional stock option grants made by the
Compensation Committee in January 2007 and in determining the definition of
“good reason” under the Company’s Amendment and Restated Employment Agreements
that were entered into in May 2007. Frederic W. Cook worked directly with
management on these issues. The Compensation Committee also uses data from AON
Radford’s compensation surveys to which the Company subscribes.
The
Compensation Committee meets as needed throughout the year. A meeting early in
the year generally defines objectives and bonus targets for the year. A
meeting near the end of the year generally evaluates performance against
objectives for the year. The Compensation Committee invites management to
present any relevant information and meets without management. The
Compensation Committee reports on its recommendations and findings to
the Board of Directors.
The
members of the Compensation Committee are Mr. Julian C. Baker (Committee
Chairperson), Mr. Stewart Hen, Dr. Craig Saxton (Chairman of the Board), and Dr.
John Simon. All members of the Compensation Committee are “independent”, as that
term is defined under the NASDAQ rules. Compensation Committee membership is
determined by the Board of Directors. None of the Company’s executive officers
serves as a member of the Board of Directors or Compensation Committee of any
entity that has one or more of its executive officers serving as a member of the
Company’s Board of Directors or Compensation Committee.
Corporate
Governance Committee
The
Corporate Governance Committee focuses on the broad range of issues surrounding
the composition and operation of the Board of Directors by providing assistance
in the recruitment and nomination for election of Board of Directors candidates,
committee selection and rotation practices, leading the Board of Directors’
periodic evaluation of its performance and overall effectiveness, and
recommending corporate governance standards to the Board of Directors. All
members of the Corporate Governance Committee are “independent”, as that term is
defined in the NASDAQ rules. A copy of the Neurogen Corporation Corporate
Governance Committee Charter is available on the Company’s website at www.neurogen.com.
The
Corporate Governance Committee has not established any specific minimum
qualifications for Board of Directors membership. Instead, in considering
candidates for directorships, the Corporate Governance Committee generally
considers all relevant factors, including the candidate’s relevant expertise and
demonstrated excellence in his or her field, the usefulness of such expertise to
the Company, the ability of the candidate to devote sufficient time and
attention to the affairs of the Company, the candidate’s reputation for personal
integrity and ethical standards and the candidate’s ability to exercise sound
business judgment. Other relevant factors, including diversity, age and skills
are also considered. Candidates for directorships are reviewed in the context of
the existing membership of the Board of Directors (including the qualities and
skills of the existing directors), the operating requirements of the Company and
the long-term interests of its stockholders. Candidates nominated by
stockholders are evaluated using the same process as candidates nominated by the
Corporate Governance Committee.
The
Corporate Governance Committee will consider stockholder recommendations of
candidates on the same basis as it considers all other candidates. Stockholder
recommendations should be submitted to the Company under the procedures
discussed in “Stockholders Proposals and Nominations” and should include the
candidate’s name, age, business address, residence address, principal occupation
or employment, the number of shares beneficially owned by the candidate and
information that would be required to solicit a proxy under federal securities
law. In addition, the notice must include the recommending stockholder’s name,
address, the number of shares beneficially owned and the time period those
shares have been held.
During
2007, the Corporate Governance Committee performed self-evaluations of the Board
of Directors.
Science
Committee
The
Science Committee consults with the management of the Company regarding
scientific, operational and strategic issues.
The
following table identifies committee memberships and chairs as of June 13,
2008:
|
Audit
Committee
|
|
Compensation
Committee
|
|
Corporate
Governance
Committee
|
|
Science
Committee
|
|
|
Meetings
Held(1)
|
4
|
|
1
|
|
3
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
Felix
J. Baker, Ph.D(3).
|
|
|
|
|
|
|
M
|
|
|
Julian
C. Baker
|
|
|
C
|
|
M
|
|
|
|
|
Eran
Broshy
|
M
|
|
|
|
C
|
|
|
|
|
Stewart
Hen
|
|
|
M
|
|
|
|
M
|
|
|
Jonathan
S. Leff (3)
|
|
|
|
|
M
|
|
|
|
|
Craig
Saxton, M.D., Chairman of the Board
|
M
|
|
M
|
|
M
|
|
C
|
|
|
John
Simon, Ph.D.
|
C,
F
|
|
M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M
= Member, C = Chairman, F = Financial
Expert
|
______________
Notes:
(1)
|
In
addition to the information provided in the table, the independent members
of the Board of Directors met separately without the two management
members on eight occasions in 2007.
|
(2)
|
Effective
after the 2007 Annual Shareholder’s Meeting, the Executive Committee
ceased to exist.
|
(3)
|
Felix
J. Baker and Jonathan S. Leff will not be standing for re-election at this
Annual Meeting.
|
PROPOSAL
NO. 2:
APPROVAL
OF THE ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK UPON EXCHANGE OF
SHARES OF THE COMPANY’S SERIES A PREFERRED STOCK SOLD IN THE FINANCING
TRANSACTION DESCRIBED IN THIS PROXY
STATEMENT
|
The
Company is seeking stockholder approval for the issuance of shares of the
Company’s Common Stock upon the exchange of shares of exchangeable preferred
stock sold in the financing transaction described below, as required by the
Nasdaq Marketplace Rules (the “Exchange”). If Proposal No. 2 is
approved at the Annual Meeting, and subject to certain conditions, each share of
exchangeable preferred stock will be automatically exchanged for 26 shares of
Common Stock, as more fully described below.
If the
Exchange is not approved at the Annual Meeting, or at a subsequent meeting prior
to April 11, 2009, the exchangeable preferred stock will remain outstanding,
will continue to accrue cumulative dividends at an annual rate of 20% of the
$31.20 per share purchase price (i.e., $6.24) compounded monthly, will retain a
senior liquidation preference over shares of Common Stock, and holders will be
able to call their shares for redemption at any time beginning on April 11,
2009, all of which could materially and adversely affect the Company and its
stockholders.
Background
of the Financing Transaction
On April
7, 2008, the Company entered into a financing transaction (the “Financing
Transaction”) pursuant to a Securities Purchase Agreement (the “Securities
Purchase Agreement”) among the Company and selected institutional investors (the
“Purchasers”). Under the Securities Purchase Agreement, the Company
agreed to issue and sell to the Purchasers (i) an aggregate of 981,411 shares of
its non-voting Series A Exchangeable Preferred Stock, par value $0.025 per share
(the “Series A Exchangeable Preferred Stock”) and (ii) warrants (the “Warrants”)
exerciseable to acquire a number of shares of Common Stock equal to 50% of the
number of shares of Common Stock into which the Series A Exchangeable Preferred
Stock may be exchanged. The sale was completed by way of a private
placement transaction pursuant to the Securities Act of 1933, as
amended. The total purchase price paid by the Purchasers was
$30,620,023, resulting in net proceeds to the Company of approximately
$28,433,980, after deducting placement agent fees and other offering expenses
paid by the Company. Based on the closing price of the Common Stock
on April 7, 2008 of $2.26 per share, the market value of the shares issuable
upon exchange of the Series A Exchangeable Preferred Stock was
$57,667,710. The Warrants have an exercise price of $2.30 per share,
which was slightly above the closing price of the Common Stock on that
date.
Prior to
completing the Financing Transaction, the Company needed additional capital to
fund its clinical development objectives in its insomnia, anxiety, restless leg
syndrome and Parkinson’s disease programs and to fund its general corporate
operations beyond 2008. After considering numerous potential
financing alternatives, the Company’s Board of Directors determined that the
Financing Transaction was an appropriate financing alternative for the Company
because it would provide capital to enable the Company to continue its
development objectives and would provide greater financial flexibility than
other alternatives.
Requirement
for Stockholder Approval
Because
the Company’s Common Stock is listed on the Nasdaq Global Market, the Company is
subject to the Nasdaq Marketplace Rules. Rule 4350 of the Nasdaq
Marketplace Rules requires stockholder approval for any issuance of stock, other
than a public offering for cash, at a price below the greater of book or market
value of the stock, where the amount of stock being issued would equal 20% or
more of the total number of shares of common stock outstanding immediately prior
to such issuance or 20% or more of the total voting power outstanding
immediately prior to the issuance. Additionally, Rule 4350 requires
stockholder approval prior to any issuance or sale of voting stock that will
result in a change of control of an applicable listed company. This
rule does not specifically define when a change of control is deemed to
occur. However, Nasdaq suggests in its guidance that a change of
control would occur, subject to certain exceptions, if after a transaction a
person or an acquiring entity holds 20% or more of the voting power of the
outstanding capital stock of an applicable listed company. Also,
because the Common Stock issuable upon the Exchange of the Series A Exchangeable
Preferred Stock will be issued at a discount to the market price of the Common
Stock on the date of the Securities Purchase Agreement, the issuance of such
shares to John Simon, who is a member of the Company’s Board of Directors, and
to Warburg (as defined below), with whom the Company’s directors Jonathan Leff
and Stewart Hen are affiliated, could be deemed to be equity compensation within
the meaning of Rule 4350, thereby requiring stockholder approval.
The
purchase price for the Series A Exchangeable Preferred Stock, on an as-exchanged
for Common Stock basis, represented a 48% discount to the closing price of the
Company’s Common Stock on the Nasdaq Global Market for the trading day ending
immediately prior to the execution of the Securities Purchase
Agreement. In addition, if the Exchange is approved, the number of
shares of Common Stock issuable upon the Exchange will exceed 20% of the
Company’s outstanding Common Stock, not including the impact of the
Warrants. Finally, upon consummation of the Exchange the beneficial
ownership of the Company’s Common Stock by Warburg Pincus Private Equity VIII,
L.P. (“Warburg”), Baker Brothers Investments and affiliated entities (“Baker
Bros.”) and persons and entities affiliated with the Tisch family will remain at
20%, 13% and 10%, respectively.
As a
result of these factors, the Securities Purchase Agreement and the other
documents relating to the Financing Transaction were structured to require
stockholder approval for the Exchange and, accordingly, the Company is now
requesting such stockholder approval.
Reasons
for Stockholder Approval
Pursuant
to the Securities Purchase Agreement, the Company agreed to hold a meeting of
its stockholders on or prior to the 120th day
following the April 11, 2008 closing of the Financing Transaction to obtain
approval for the Exchange. If stockholder approval for the Exchange
is not obtained at this meeting or at another meeting on or prior to April 11,
2009, the holders of the Series A Exchangeable Preferred Stock will not have the
option to exchange the Series A Exchangeable Preferred Stock for Common Stock
and the Series A Exchangeable Preferred Stock will remain outstanding pursuant
to its terms. If the Series A Exchangeable Preferred Stock remains
outstanding, it will continue to accrue cumulative dividends at an annual rate
of 20% of the $31.20 per share purchase price (i.e., $6.24 per share),
compounded monthly, will retain a senior liquidation preference over shares of
the Company’s Common Stock, and its holders will be entitled to call their
shares for redemption any time on or after April 11, 2009. However,
if the Company’s stockholders approve the Exchange pursuant to this proposal,
the Series A Exchangeable Preferred Stock will, automatically and without
further action on the part of the holders thereof, be exchanged for shares of
Common Stock, and, accordingly, the dividend, liquidation and redemption rights
of the Series A Exchangeable Preferred Stock will be eliminated.
Interests
of Certain Persons in the Financing Transaction
The
following directors of the Company are members or directors of the Purchasers
and therefore are considered related parties in the Financing Transaction: (i)
Felix J. Baker, Ph.D., Managing Member, Baker Bros. Advisors, LLC; (ii) Julian
C. Baker, Managing Member, Baker Bros. Advisors, LLC; (iii) Stewart Hen,
Managing Director, Warburg Pincus LCC; and (iv) Jonathan S. Leff, Managing
Director, Warburg Pincus LLC. Each of Baker Bros. Advisors LLC and
Warburg Pincus LLC, and their affiliated entities, are greater than 5% holders
of the Company’s Common Stock. In addition, entities affiliated with
the Tisch family members, who collectively hold greater than 5% if the Company’s
Common Stock, also participated in the Financing Transaction. See
“Security Ownership of Certain Beneficial Owners And Management” in this proxy
statement. In addition, John Simon, Ph.D., a director of the Company, was a
Purchaser in the Financing Transaction.
The names
of the Purchasers affiliated with the related parties and the number of shares
of Common Stock issuable upon exchange of the Series A Exchangeable Preferred
Stock and exercise of the Warrants held by such Purchasers are presented in the
table below.
Name of Investor
|
Shares
of Common Stock Issuable Upon Exchange of Series A Exchangeable Preferred
Stock
|
Shares
of Common Stock Issuable Upon Exercise of
Warrants
|
Baker
Bros. Advisors, LLC
|
3,058,328
|
1,529,164
|
Warburg
Pincus LLC
|
4,999,982
|
2,499,991
|
Four-Fourteen
Partners, L.L.C. (1)
|
2,500,004
|
1,250,002
|
John
Simon, Ph.D.
|
249,990
|
124,995
|
______________
Notes:
(1)
Entity affiliated with the Tisch family members, who hold shares of the
Company’s Common Stock.
The Board
of Directors considered the material facts as to the related parties’
relationships with the investors and as to the related party nature of the
Financing Transaction. Taking these facts into account, the Board of
Directors determined the Financing Transaction to be in the Company’s best
interest and approved the general terms of the Financing
Transaction. In addition, the Board of Directors authorized an ad hoc
Finance Committee, comprised of Eran Broshy, Stephen R. Davis, Craig Saxton and
John Simon to determine and approve the specific terms of the Financing
Transaction. All of the disinterested directors on the Finance
Committee approved the specific terms of the Financing Transaction and John
Simon recused himself from the vote. Additionally, the Company’s
Audit Committee met to consider the related-party nature of the transaction and
approved the Financing Transaction. The Company believes that the
terms of the Financing Transaction were at least as favorable to the Company as
could have been obtained through arm’s-length negotiations with unaffiliated
third parties.
The
holders of Series A Exchangeable Preferred Stock are not entitled to vote their
shares of Series A Exchangeable Preferred Stock on this proposal.
Summary
of the Financing Transaction, the Series A Exchangeable Preferred Stock and the
Warrants
The terms
of the Financing Transaction, the Series A Exchangeable Preferred Stock and the
Warrants are complex and are only summarized below. Although this
Proxy Statement contains a summary of the material terms of the Financing
Transaction, the Series
A
Exchangeable Preferred Stock and the Warrants, stockholders can find further
information in the current report on Form 8-K filed by the Company with the
Securities and Exchange Commission (the “SEC”) on April 11, 2008 and in the
registration statement on Form S-3 filed with the SEC on May 1, 2008, and the
Financing Transaction documents filed as exhibits to such current report and
registration statement. The Company electronically files annual,
quarterly and current reports, proxy statements and other information with the
SEC. The SEC maintains a website that contains reports, proxy and
information statements and other information regarding the Company and other
issuers that file electronically with the SEC at www.sec.gov. The Company’s
annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, as well as any amendments to those reports,
are available free of charge through the SEC’s website. Stockholders
may also read and copy materials that the Company files with the SEC at the
SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. Stockholders may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
Terms
of the Series A Exchangeable Preferred Stock
General. The
Company’s Restated Certificate of Incorporation, as amended, authorizes the
Board of Directors to issue up to 2,000,000 shares of preferred stock, par value
$0.025 per share. Subject to the limitations prescribed by the
Restated Certificate of Incorporation, as amended, the Board of Directors is
authorized to provide for the issuance of shares of preferred stock in one or
more series, to establish the number of shares to be included in each series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof, all
without further vote or action by the Company’s stockholders. The
Series A Exchangeable Preferred Stock is a series of preferred
stock. The rights, preferences and privileges of the Series A
Exchangeable Preferred Stock are set forth in the Certificate of Designations,
Number, Voting Powers, Preferences and Rights of Series A Exchangeable Preferred
Stock of Neurogen Corporation filed with the Secretary of State of the State of
Delaware on April 10, 2008 (the “Certificate of
Designations”). Pursuant to the Certificate of Designations,
1,500,000 of the 2,000,000 authorized shares of preferred stock were designated
as Series A Exchangeable Preferred Stock. An aggregate of 981,411
shares of Series A Exchangeable Preferred Stock were issued and sold in the
Financing Transaction.
Rank and
Voting. Pursuant to the Certificate of Designations, the
Series A Exchangeable Preferred Stock ranks senior to the Company’s Common Stock
and each other class or series of shares of the Company with respect to dividend
rights and rights upon liquidation, winding up or dissolution, and is non-voting
stock, except as otherwise required by Delaware law, subject to the rights of
the holders to consent to any amendment of the terms of the Series A
Exchangeable Preferred Stock.
For so
long as the Series A Exchangeable Preferred Stock remains outstanding, the
Company shall not amend, alter or repeal the preferences, special rights or
other powers of the Series A Exchangeable Preferred Stock without the written
consent or affirmative vote of the holders of at least a majority of the then
outstanding shares of the Series A Exchangeable Preferred Stock. In
addition, without the written consent or affirmative vote of the holders of at
least a majority of the Series A Exchangeable Preferred Stock and subject to
limited exceptions, the Company shall not create, issue or approve any series or
class of capital stock or debt security of the Company that is convertible or
exchangeable into any capital stock of the Company or that has preference or
priority over or is on par with the Series A Exchangeable Preferred
Stock.
Dividends. Dividends
on the Series A Exchangeable Preferred Stock are cumulative and began to accrue
daily at an annual rate of 20% of the $31.20 purchase price per share (i.e.,
$6.24), compounded monthly from and including April 11,
2008. Dividends are payable until the Series A Exchangeable Preferred
Stock is exchanged for Common Stock, is redeemed by the Company upon a
liquidation, dissolution or change in control of the Company, or is otherwise
acquired by the Company. Dividends shall be paid by the Company on
the last day of each calendar month beginning August 2008; provided, however,
that no dividends shall be payable if the Exchange has occurred prior to August
11, 2008. Dividends will be paid in cash (provided the Company may
lawfully do so) or additional shares of Series A Exchangeable Preferred Stock at
the election of each holder of Series A Exchangeable Preferred Stock (which
additional shares of Series A Exchangeable Preferred Stock shall be deemed to
accrue and accumulate dividends (whether or not declared) as otherwise set forth
in the Certificate of Designations in respect of which such dividends are
paid). In the event that the Company fails for any reason to pay
dividends on the Series A Exchangeable Preferred Stock when it is lawfully
permitted to do so or fails to redeem all shares of the Series A Exchangeable
Preferred Stock within 30 days after receipt of a redemption demand notice, the
dividend rate on the Series A Exchangeable Preferred Stock will be increased to
30% per annum. For so long as any shares of Series A
Exchangeable Preferred Stock remain outstanding, the Company shall not, without
the prior consent of the holders of a majority of the outstanding shares of
Series A Exchangeable Preferred Stock, pay any dividend upon any other class or
series of equity securities of the Company (“Junior Stock”), whether in cash or
other property (other than shares of Junior Stock), or purchase, redeem or
otherwise acquire any Junior Stock. In addition, if the Company does
declare, set aside for or pay any dividends or make any distributions on shares
of Junior Stock, the holders of the Series A Exchangeable Preferred Stock then
outstanding will be entitled to simultaneously receive such dividend or
distribution on a pro rata basis as if the shares of Series A Exchangeable
Preferred Stock then outstanding had been exchanged into the greatest number of
shares of Common Stock into which such shares of Series A Exchangeable Preferred
Stock could be exchanged.
Share
Exchange. Upon the later to occur of (i) the approval by the
holders of the Common Stock of the Exchange as required by the applicable rules
of The Nasdaq Stock Market and (ii) the expiration or termination of any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the “HSR Act”), each share of Series A Exchangeable Preferred Stock
will be
automatically
exchanged for a number of shares of Common Stock determined by dividing (i) the
stated value for the Series A Exchangeable Preferred Stock of $31.20 by (ii) the
exchange price of the Series A Exchangeable Preferred Stock then in
effect. The initial exchange price of the Series A Exchangeable
Preferred Stock shall be $1.20 per share, resulting in an initial exchange rate
of 26 shares of Common Stock for each share of Series A Exchangeable Preferred
Stock. The exchange price is subject to appropriate adjustment in the
event of any stock dividend, stock split, stock distribution or combination,
subdivision, reclassification or other corporate action having the similar
effect with respect to the Common Stock. Upon any such exchange, all
accrued but unpaid dividends (whether or not declared) on the Series A
Exchangeable Preferred Stock, if any, shall be paid in shares of Common
Stock. If stockholder approval of the exchange is not obtained on or
prior to April 11, 2009, the holders of the Series A Exchangeable Preferred
Stock will not have the option to exchange the Series A Exchangeable Preferred
Stock for Common Stock, in which case the Series A Exchangeable Preferred Stock
shall remain outstanding pursuant to its terms.
If
stockholder approval has been obtained prior to April 11, 2009 and prior to the
expiration or termination of any waiting period under the HSR Act (the “HSR
Approval”), then all outstanding shares of Series A Exchangeable Preferred Stock
(whether or not held by a stockholder required to file for such HSR Approval)
will not be exchanged for shares of Common Stock until receipt of such HSR
Approval or until such time as no HSR Approval is required or the exchange of
the Series A Exchangeable Preferred Stock is not otherwise prohibited by the
provisions of the HSR Act, including, but not limited to, in the event of a
transfer by a holder of Series A Exchangeable Preferred Stock to any other
person, whether or not such person is an affiliate of the holder, the result of
which is that the exchange of such shares would not violate the HSR
Act. The holder shall deliver written notice to the Company at least
five days prior to the date on which such holder plans to take any action which
such holder intends to result in the removal of any restriction on the exchange
of the Series A Exchangeable Preferred Stock under the HSR Act. On
the date of exchange, all rights with respect to the Series A Exchangeable
Preferred Stock so exchanged will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series A Exchangeable Preferred Stock and any accrued but unpaid dividends
thereon (whether or not declared) have been exchanged.
Liquidation
Preference. If the Company experiences a voluntary or
involuntary liquidation, dissolution or winding up, holders of any Series A
Exchangeable Preferred Stock that remains outstanding at the time will have the
right to receive the greater of: (i) the sum of 120% of the then current stated
value of a share of Series A Exchangeable Preferred Stock plus all accrued but
unpaid dividends thereon (whether or not declared) through the date of such
distribution and (ii) an amount equal to the average of the closing prices for
the Common Stock on the Nasdaq Global Market for the 20 trading days immediately
preceding the date which the Company or the holders of the outstanding Series A
Exchangeable Preferred Stock exercise the liquidation preference right
multiplied by the then current exchange rate for the Series A Exchangeable
Preferred Stock. If the assets of the Company are insufficient to
make payment of the liquidation distributions, the holders of Series A
Exchangeable Preferred Stock shall share equally and ratably in any distribution
in proportion to the full payment to which each holder would otherwise be
entitled. After payment of the full amount of the liquidation
distributions to which they are entitled, the holders of Series A Exchangeable
Preferred Stock will have no further rights in respect of such shares of Series
A Exchangeable Preferred Stock and shall not be entitled to participate in any
further distributions of the Company’s assets.
Change in
Control. If the Company consummates a “change in control,” as
defined in the Certificate of Designations, holders of any Series A Exchangeable
Preferred Stock that remains outstanding at that time will have the right to
receive the greater of: (i) the sum of 120% of the then current stated value of
a share of Series A Exchangeable Preferred Stock plus all accrued but unpaid
dividends thereon (whether or not declared) through the date of such change in
control and (ii) the consideration per share of Common Stock received by the
holders thereof in a change in control, provided, that, if the consideration is
other than cash, its value will be deemed its fair market value as determined in
good faith by the Company’s Board of Directors and the holders of at least a
majority of the outstanding shares of Series A Exchangeable Preferred
Stock. If the assets of the Company are insufficient to make payment
of the distributions upon a change of control, the holders of Series A
Exchangeable Preferred Stock shall share equally and ratably in any distribution
in proportion to the full payment to which each holder would otherwise be
entitled. After payment of the full amount of the distributions to
which they are entitled upon a change of control, the holders of Series A
Exchangeable Preferred Stock shall have no further rights in respect of such
shares of Series A Exchangeable Preferred Stock and shall not be entitled to
participate in any further distributions of the Company’s assets.
Redemption. If the
Series A Exchangeable Preferred Stock remains outstanding on or following the
earlier of April 11, 2009 and the date on which the Company issues any capital
stock or debt securities (other than issuances pursuant to an equity incentive
plan), both the Company and the holders of at least a majority of the
outstanding shares of Series A Exchangeable Preferred Stock will have the option
to cause the Company, to the extent it may lawfully do so, to redeem, from time
to time, any or all of the outstanding shares of Series A Exchangeable Preferred
Stock for cash in a per share amount equal to the greater of: (i) the sum of
120% of the then current stated value of a share of Series A Exchangeable
Preferred Stock plus all accrued but unpaid dividends thereon (whether or not
declared) through the date of such redemption and (ii) an amount equal to the
average of the closing prices for the Common Stock on the Nasdaq Global Market
for the 20 trading days immediately preceding the date which the Company or the
holders of the outstanding Series A Exchangeable Preferred Stock exercise such
right multiplied by the then current exchange rate for the Series A Exchangeable
Preferred Stock (the “Redemption Price”).
The
Company cannot assure you that it will have sufficient financial resources to
redeem the Series A Exchangeable Preferred Stock if
required
to do so on or after April 11, 2008. If the Company is required to
redeem the Series A Exchangeable Preferred Stock, the ongoing business and
operations of the Company could be significantly and materially
impacted.
Warrants
The
Warrants issued to the Purchasers become exercisable on the earlier of (i) the
date the Company holds the meeting of stockholders to approve the exchange of
the Series A Exchangeable Preferred Stock into Common Stock, and (ii) one year
from the date of issuance of the Warrants. The Warrants are
exercisable for 50% of the shares of Common Stock into which a share of Series A
Exchangeable Preferred Stock is exchangeable at the time of
exercise. The Warrants have an exercise price of $2.30 per share and
will expire five years from the date of issuance. The exercise price
and the number of shares of Common Stock issuable upon exercise of the Warrants
may be adjusted in certain circumstances, including subdivisions and stock
splits, stock dividends, combinations, reorganizations, reclassifications,
consolidations, mergers or sales of properties and assets and upon the issuance
of certain assets or securities to holders of Common Stock, as
applicable.
Registration
Rights
Pursuant
to a Registration Rights Agreement dated April 7, 2008 between the Company and
the Purchasers entered into in connection with the Financing Transaction (the
“Registration Rights Agreement”), certain holders of the Series A Exchangeable
Preferred Stock were entitled to registration rights with respect to the shares
of Common Stock, if any, issued upon exchange of the Series A Exchangeable
Preferred Stock and upon exercise of the Warrants. Additionally,
Purchasers that held shares of Common Stock acquired prior to the Financing
Transaction that were not otherwise freely tradeable were also entitled to
registration rights in respect of those shares. On May 1, 2008, the
Company filed a registration statement to register the shares of Common Stock
issuable upon exchange of the Series A Exchangeable Preferred Stock and upon
exercise of the Warrants, as well as the shares of Common Stock acquired by
Purchasers prior to the Financing Transaction. The Company has agreed
to use its reasonable best efforts to cause the registration statement to be
declared effective as soon as practicable but in any event no later than the
earlier of (i) 15 days after the meeting of stockholders to approve the Exchange
and (ii) April 11, 2009. If the registration statement is not declared effective
by or becomes unavailable following this deadline, the Company will make pro
rata liquidated damages payments to each Purchaser who continues to hold shares
of Common Stock acquired in the Financing Transaction in an amount equal to 1.5%
of the aggregate purchase price paid by the Purchaser to acquire such shares for
each 30 calendar day period or pro rata portion thereof following the deadline
that the registration statement is not effective or not available. If
any of the Series A Exchangeable Preferred Stock has not been exchanged for
Common Stock prior to April 11, 2009, the Company has agreed to use its
reasonable best efforts to cause to be declared effective, and to keep
continuously effective, a registration statement to register the Series A
Exchangeable Preferred Stock. The Company has agreed to pay all of
its fees and expenses related to the filing of the registration statements under
the Registration Rights Agreement. The Company has also agreed to
reimburse the Purchasers for the reasonable fees and disbursements of one
counsel chosen by the Purchasers, not to exceed $25,000.
The
Company has agreed to indemnify and hold harmless the holders of the Series A
Exchangeable Preferred Stock and the Common Stock received upon the Exchange,
and the directors, officers, employees, affiliates and agents of each such
holder, and each person who controls any such holder from any losses, claims,
damages, liabilities, joint or several, or any actions in respect thereof to
which each holder may become subject under the Securities Act, the Exchange Act
or otherwise. However, the Company is not required to indemnify such
holders to the extent that such loss, claim, damage or liability arises out of
or is based upon any untrue statement or omission made in a registration
statement or prospectus or in any amendment thereof or supplement thereto in
reliance upon and in conformity with written information pertaining to such
holder and furnished to the Company by or on behalf of such holder specifically
for inclusion therein.
Consequences
if Exchange is Approved
Equal Rights. If the Exchange is
approved, the rights and privileges associated with the Common Stock issued in
the exchange will be identical to the rights and privileges associated with the
Common Stock held by the Company’s existing common stockholders, except that
holders of the Common Stock issued in the exchange for the Series A Exchangeable
Preferred Stock will have the registration rights described above under
“Registration Rights.”
Dilution. If the
Exchange is approved, the Company will issue a total of 25,516,686 shares of
Common Stock in the exchange, which will represent approximately 38% of the
total number of shares of Common Stock outstanding immediately after giving
effect to the exchange. As a result, the Company’s existing
stockholders will incur substantial dilution to their voting interests and will
own a significantly smaller percentage of the Company’s outstanding Common
Stock.
Concentration of Ownership and Board
Membership of Purchasers. If the issuance of Common Stock upon
the exchange of the Series A Exchangeable Preferred Stock is approved, the
Purchasers will own an aggregate of approximately 67% of the total number of
shares of Common Stock outstanding immediately after giving effect to the
Exchange. As a result, the Purchasers will be able to exercise
substantial influence over any future actions requiring stockholder approval. In
addition, if the nominees for director set forth in Proposal No. 1 are approved,
three of the seven members of the Company’s Board of Directors will be
affiliated with the
Purchasers.
Elimination of Dividend, Liquidation
and Redemption Rights of Series A Exchangeable Preferred
Stock. If the Exchange is approved, all rights with respect to
the Series A Exchangeable Preferred Stock will terminate, and all shares of
Series A Exchangeable Preferred Stock will be cancelled. If the
Exchange is approved at this Annual Meeting, no dividends will be issued in
connection with the Exchange because no dividends are payable on the Series A
Exchangeable Preferred Stock if the Exchange occurs before August 11,
2008. In addition, approval of the Exchange will result in the
elimination of the liquidation preference and redemption rights existing in
favor of the Series A Exchangeable Preferred Stock. The Board of
Directors believes that the elimination of the requirement to pay dividends on
the Series A Exchangeable Preferred Stock and the elimination of the liquidation
preference and redemption rights existing in favor of the Series A Exchangeable
Preferred Stock would be in the best interests of the Company and its
stockholders.
Resale. The
Company intends to register the resale of the shares of Common Stock issuable
upon the Exchange, together with any shares of Common Stock acquired by the
Purchasers prior to the Financing Transaction and not otherwise freely
tradeable, with the SEC under a registration statement on Form
S-3. Once the registration statement is declared effective, such
shares will be freely tradeable. The market price of the Company’s
Common Stock could be materially and adversely affected if a sufficient number
of such shares are sold into the market.
Consequences
if Issuance of Common Stock Upon the Exchange of Series A Exchangeable Preferred
Stock is Not Approved
If the
issuance of Common Stock upon the exchange of the Series A Exchangeable
Preferred Stock is not approved prior to April 11, 2009, then the Series A
Exchangeable Preferred Stock will remain outstanding in accordance with its
terms. If the Series A Exchangeable Preferred Stock remains
outstanding, it will continue to accrue cumulative dividends at an annual rate
of 20% of the $31.20 per share purchase price (i.e., $6.24) compounded monthly,
will retain a senior liquidation preference over shares of the Company’s Common
Stock, and holders of Series A Exchangeable Preferred Stock will be entitled to
call their shares of Series A Exchangeable Preferred Stock for redemption in the
future.
Dividends. Dividends
on each share of Series A Exchangeable Preferred Stock are cumulative and began
to accrue on April 11, 2008 at an annual rate of 20% of the $31.20 per share
purchase price (i.e., $6.24), compounded monthly. Dividends are
payable until the Series A Exchangeable Preferred Stock is exchanged for Common
Stock, is redeemed by the Company upon a liquidation, dissolution or change in
control of the Company, or is otherwise acquired by the
Company. Dividends will be paid by the Company on the last day of
each calendar month beginning August 2008; provided, however, that no dividends
shall be payable if the Exchange has occurred prior to August 11,
2008. Dividends will be paid in cash (provided the Company may
lawfully do so) or additional shares of Series A Exchangeable Preferred Stock at
the election of each holder of Series A Exchangeable Preferred Stock (which
additional shares of Series A Exchangeable Preferred Stock shall be deemed to
accrue and accumulate dividends (whether or not declared) as otherwise set forth
in the Certificate of Designations in respect of which such dividends are
paid). In the event that the Company fails for any reason to pay
dividends on the Series A Exchangeable Preferred Stock when it is lawfully
permitted to do so or fails to redeem all shares of the Series A Exchangeable
Preferred Stock within 30 days after receipt of a redemption demand notice, the
dividend rate on the Series A Exchangeable Preferred Stock will be increased to
30% per annum. For so long as any shares of Series A
Exchangeable Preferred Stock remain outstanding, the Company shall not, without
the prior consent of the holders of a majority of the outstanding shares of
Series A Exchangeable Preferred Stock, pay any dividend upon any Junior Stock,
whether in cash or other property (other than shares of Junior Stock), or
purchase, redeem or otherwise acquire any Junior Stock. In addition,
if the Company does declare, set aside for or pay any dividends or make any
distributions on shares of Junior Stock, the holders of the Series A
Exchangeable Preferred Stock then outstanding will be entitled to simultaneously
receive such dividend or distribution on a pro rata basis as if the shares of
Series A Exchangeable Preferred Stock then outstanding had been exchanged into
the greatest number of shares of Common Stock into which such shares of Series A
Exchangeable Preferred Stock could be exchanged.
Liquidation
Preference. For so long as the Series A Exchangeable Preferred
Stock remains outstanding, it will retain a senior liquidation preference over
shares of Common Stock in connection with any liquidation or change of control
of the Company. The senior liquidation preference will represent a
minimum of approximately $36,744,027, plus all accrued and unpaid dividends, but
may be significantly higher if the trading price of the Common Stock increases
between the date of the closing of the Financing Transaction and the date of any
liquidation or change of control transaction that triggers payment of the
liquidation preference. This payment would be made to the holders of
the Series A Exchangeable Preferred Stock prior to any payments to the holders
of Common Stock.
Redemption. If the
Series A Exchangeable Preferred Stock remains outstanding as of the earlier of
April 11, 2009 and the date the Company issues any capital stock or debt
securities (other than issuances of Common Stock pursuant to the Company’s
equity incentive plans or other permitted issuances), the holders of a majority
of the outstanding shares of Series A Exchangeable Preferred Stock may cause the
Company, at any time thereafter, to redeem any or all of the outstanding shares
of Series A Exchangeable Preferred Stock for the Redemption Price. If
the holders of Series A Exchangeable Preferred Stock redeem their shares, the
Company would be required to expend substantial cash resources, which the
Company may not have at that time, or the Company could be forced to divert its
working capital, requiring the Company to significantly reduce or even cease its
operations. The Company could also be forced to seek additional
financing on unfavorable terms, which could materially and adversely affect the
interests of the
Company’s
stockholders at that time. In addition, the Company’s cash reserves
may be insufficient to redeem such shares, in which case the Company may not be
able to continue as a going concern if the Company is unable to support its
operations or cannot otherwise raise the necessary funds to support its
operations. Such redemption would require the Company to expend a
minimum of approximately $36,744,027, including accrued dividends through the
date of redemption, and could require a much larger cash expenditure if the
trading price of the Common Stock increases between the date of the closing of
the Financing Transaction and the redemption date.
The
Board of Directors recommends a vote FOR Proposal No. 2.
|
PROPOSAL
NO. 3:
APPROVAL
OF AN AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OF INCORPORATION, AS
AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK AND PREFERRED STOCK
|
The
Company’s Board of Directors has determined that it is in the Company’s and its
stockholders’ best interests to amend the Company’s Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to increase the
total number of authorized shares of Common Stock from 75,000,000 to 150,000,000
and of Preferred Stock from 2,000,000 to 10,000,000. The Board of
Directors unanimously approved the proposed amendment to the Certificate of
Incorporation in substantially the form attached hereto as Appendix A (the
“Amendment”). The Board of Directors seeks the approval of the
Amendment by the Company’s stockholders.
If the
Amendment is approved by the Company’s stockholders, the Amendment will become
effective upon the filing of a certificate of amendment with the Delaware
Secretary of State, which filing is expected to occur promptly after the Annual
Meeting.
The
principal features of the Amendment provisions to increase the authorized shares
of Common Stock and Preferred Stock are summarized below, but the summary is
qualified in its entirety by reference to Article FOURTH of the Amendment
attached hereto as Appendix A. We encourage you to read the Amendment
carefully.
Purpose
of the Amendment
The
purpose of the Amendment is to increase the total number of authorized shares of
Common Stock from 75,000,000 to 150,000,000 and to increase the total number of
authorized shares of Preferred Stock from 2,000,000 to 10,000,000. In
April 2007, the Company entered into the Financing Transaction discussed in
Proposal No. 2 and the Company plans to use 25,516,686 of the additional shares
of Common Stock for issuance upon the exchange of the Series A Exchangeable
Preferred Stock into Common Stock and the conversion of the Warrants pursuant to
the Financing Transaction. The Company is seeking to increase the
number of authorized shares of Preferred Stock to provide flexibility to issue
such Preferred Stock in connection with potential financings in a timely
fashion.
As of the
Record Date, there were [42,162,296] shares of Common Stock outstanding and held
by the Company’s stockholders. In addition to these shares, as of the
Record Date, there were 6,872,520 shares of Common Stock reserved for issuance
under the Company’s equity compensation plans. The Company has
reserved 25,516,686 shares of Common Stock for issuance upon the exchange of the
Series Exchangeable Preferred Stock and the conversion of the Warrants, and the
Company intends to apply for listing of these shares on the
NASDAQ. Other than the 981,411 shares of Series A Exchangeable
Preferred Stock issued pursuant to the Financing Transaction discussed in
Proposal No. 2, there are no shares of Preferred Stock outstanding as of the
Record Date.
Other
possible business and financial uses for the additional shares of Common Stock
include, without limitation, stock splits, raising capital through the sale of
Common Stock, acquiring other companies, businesses or products in exchange for
shares of Common Stock, attracting and retaining employees by the issuance of
additional securities under equity compensation plans, and other transactions
and corporate purposes that the Board of Directors deems are in the Company’s
best interest. The additional authorized shares would enable the
Company to act quickly in response to opportunities that may arise for these
types of transactions, in most cases without the necessity of obtaining further
stockholder approval and holding a special stockholders’ meeting before such
issuance(s) could proceed, except as provided under Delaware law or under the
NASDAQ Marketplace Rules. Other than issuances of Common Stock upon
the exchange of the Series A Exchangeable Preferred Stock and the conversion of
the Warrants, as of the date of this proxy statement the Company has no current
plans, arrangements or understandings regarding the additional shares that would
be authorized pursuant to this proposal. However, the Company reviews and
evaluates potential capital raising activities, transactions and other corporate
actions on an on-going basis to determine if such actions would be in the best
interests of the Company and its stockholders.
Possible
Effects of the Amendment
Upon
issuance, the additional shares of authorized Common Stock would have rights
identical to the currently outstanding shares of Common Stock. Subject to the
provisions of the Company’s Certificate of Incorporation and the limitations
prescribed by applicable law or the rules of any stock exchange on which the
Company’s securities may then be listed, the Board of Directors would be
authorized to provide for the issuance of shares of Preferred Stock in one or
more series, to establish the number of shares to be included in each such
series, and to fix the designation, powers, prefers, rights, qualifications,
limitations and restrictions of such shares.
Adoption
of the Amendment would not have any immediate dilutive effect on the
proportionate voting power or other rights of existing stockholders. However, to
the extent that the additional authorized shares of Common Stock are issued in
the future, including pursuant to the exchange of the Series A Exchangeable
Preferred Stock and the conversion of the Warrants, they may decrease existing
stockholders’ percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the voting rights of existing stockholders
and have a negative effect on the market price of the Common Stock. Current
stockholders have no preemptive or similar rights which means that current
stockholders do not have a prior right to purchase any new issue of Common Stock
in order to maintain their proportionate ownership thereof.
The
Company has not proposed the increase in the number of authorized shares with
the intention of using the additional authorized shares for anti-takeover
purposes, but the Company would be able to use the additional shares to oppose a
hostile takeover attempt or delay or prevent changes in control or management of
the Company. For example, without further stockholder approval, the Board of
Directors could sell shares in a private transaction to purchasers who would
oppose a takeover or favor the current Board of Directors. Although this
proposal to increase the authorized number of shares has been prompted by
business and financial considerations and not by the threat of any known or
threatened hostile takeover attempt, stockholders should be aware that approval
of this proposal could facilitate future efforts by the Company to oppose
changes in control of the Company and perpetuate the Company’s management,
including transactions in which the stockholders might otherwise receive a
premium for their shares over then-current market prices.
The
Company could also use the additional shares for potential strategic
transactions including, among other things, acquisitions, spin-offs, strategic
partnerships, joint ventures, restructurings, divestitures, business
combinations and investments, although the Company has no present plans to do
so. The Company cannot provide assurances that any such transactions will be
consummated on favorable terms or at all, that they will enhance stockholder
value or that they will not adversely affect the Company’s business or the
trading price of the Common Stock. Any such transactions may require the Company
to incur non-recurring or other charges and may pose significant integration
challenges and/or management and business disruptions, any of which could
materially and adversely affect the Company’s business and financial
results.
The
Board of Directors recommends a vote FOR Proposal No. 3.
|
PROPOSAL
NO. 4:
ADOPTION
OF AN AMENDMENT TO THE AMENDED AND RESTATED NEUROGEN CORPORATION 2001
STOCK OPTION PLAN, AS AMENDED
|
The
Company’s stockholders are requested to approve an amendment to the Amended and
Restated Neurogen Corporation 2001 Stock Option Plan (as amended and restated
effective September 4, 2001, July 26, 2004, June 9, 2005, June 9, 2006 and June
7, 2007) (the “2001 Plan”) to increase the maximum number of shares of Common
Stock available for issuance pursuant to awards under the 2001 Plan by 1,000,000
shares from 5,250,000 to 6,250,000 and to increase the maximum number of shares
of Common Stock available for grants of stock options to an individual
participant in any calendar year by 500,000 from 500,000 to
1,000,000.
The Board
of Directors approved the proposed amendment to the 2001 Plan on April 22, 2008,
subject to approval of the Company’s stockholders. Pursuant to
Section 10 of the 2001 Plan, stockholder approval is required for any amendment
to the 2001 Plan that would increase the total number of shares of Common Stock
available for grants of stock options or restricted shares under Section 4.2 of
the 2001 Plan or increase the number of shares available for stock options to an
individual participant in any calendar year under Section 6.6 of the 2001
Plan. The Company’s stockholders are now requested to approve the
proposed amendment to the 2001 Plan.
If the
stockholders approve the proposed amendment to the 2001 Plan, such approval will
be considered approval of the 2001 Plan, as amended by the proposed amendment,
for purposes of Section 162(m) and Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”). If the proposed amendment to the 2001
Plan is not approved by the stockholders, the 2001 Plan, as in effect
immediately prior to the adoption of the proposed amendment by the Board of
Directors, will remain in full force and effect.
A copy of
the text of the proposed amendment is set forth in Appendix B to this
proxy statement and a copy of the entire 2001 Plan as amended and restated to
include the proposed amendment is set forth in Appendix C to this
proxy statement. The principal features of the 2001 Plan, as proposed to be
amended, are summarized below for the convenience and information of the
Company’s stockholders. This summary is qualified in its entirety by
reference to the proposed amendment set forth in Appendix B and the amended and
restated 2001 Plan set forth in Appendix C. Capitalized terms used and not
otherwise defined in this summary shall have the meanings set forth in the 2001
Plan. Stockholders are encouraged to read the 2001 Plan and the
proposed amendment carefully.
Purpose
The
purpose of the proposed amendment is to increase the number of shares that may
be issued pursuant to awards under the 2001 Plan, and to increase the maximum
number of shares that may be issued to any individual participant in any
calendar year in respect of stock options, in order to attract and retain the
best available personnel and to provide additional incentive for directors,
employees and consultants to promote the Company’s success and enhance its value
by linking their personal interests to those of the Company’s stockholders. The
Company has recently undergone a significant restructuring and the Board of
Directors believes that making certain stock option grants would increase
employee retention. On April 24, 2008, the Compensation Committee
awarded 2,252,000 options to employees, however, only 1,531,360 shares were
available for issuance under the 2001 Plan at that time. Thus, 720,640 option
grants made on April 24, 2008 were made subject to stockholder approval of the
proposed amendment at this Annual Meeting. In connection with our
previously announced restructuring that will result in termination of
approximately 115 employees, we anticipate that approximately 1,347,537
underwater or unvested options will be cancelled and returned to the pool of
available shares under the 2001 Plan.
Number
of Shares
Currently,
the maximum aggregate number of shares of Common Stock that could be issued or
transferred under the 2001 Plan may not exceed five million two hundred and
fifty thousand (5,250,000) shares; provided, however, that no more than fifty
percent (50%) of that total may be issued in the form of restricted shares. Upon
stockholder approval of the proposed amendment to the 2001 Plan, the maximum
aggregate number of shares of Common Stock that could be issued or transferred
under the 2001 Plan will be six million two hundred and fifty thousand
(6,250,000) shares; provided, however, that no more than fifty percent (50%) of
that total may be issued in the form of restricted shares. Of the
proposed 1,000,000 share increase, 720,640 options were granted on April 24,
2008 subject to approval of the proposed amendment.
Currently,
no participant may receive stock options to purchase more than five hundred
thousand (500,000) shares of Common Stock during any calendar year. Upon
stockholder approval of the proposed amendment to the 2001 Plan, no participant
may receive stock options to purchase more than one million (1,000,000) shares
of Common Stock during any calendar year.
Currently,
in the case of any individual participant in the 2001 Plan, the maximum number
of shares of Common Stock that could be issued in the form of restricted shares
in any calendar year may not exceed two hundred fifty thousand (250,000) shares
of Common Stock. Under the proposed amendment to the 2001 Plan, this amount will
remain unchanged.
The
limits on the numbers of shares described in this section and the number of
shares subject to any award under the 2001 Plan are subject to proportional
adjustment as determined by the Board of Directors to reflect certain stock
changes such as stock dividends and
stock
splits (see “Adjustments for Changes in Capital Structure” below).
If any
stock options expire unexercised or any stock options or grants of restricted
stock are forfeited, surrendered, canceled, terminated or settled in cash in
lieu of common stock, any shares subject to the award at such time will be
available for future grants under the 2001 Plan.
The
shares of common stock which may be issued under the 2001 Plan, may be either
authorized and unissued shares or shares which have been reacquired by the
Company and are being held as treasury shares.
Administration
The
administration, interpretation and operation of the 2001 Plan is vested in the
Compensation Committee of the Board of Directors (the “Compensation Committee”).
The Compensation Committee may designate persons other than members of the
Compensation Committee to carry out the day-to-day administration of the 2001
Plan. The Compensation Committee may also (i) delegate to the Company’s
President and Chief Executive Officer and to a Vice President of the Company (as
designated by the Compensation Committee), acting together, the authority to
grant stock options or restricted shares to those eligible directors, employees
and consultants who are not subject to Section 16 of the Exchange Act or (ii)
adopt a resolution to automatically provide to a director, employee or
consultant, upon the initial employment of such person or performance of
services by such person, a grant of stock options or restricted shares;
provided, however, that such delegation or adoption will not be effective if it
would disqualify the 2001 Plan, or any other plan of the Company (or of any
subsidiary) intended to be so qualified, from (i) the exemption provided by the
Securities and Exchange Commission’s (the “SEC”) Rule 16b-3, (ii) the benefits
provided under Section 422 of the Code, or any successor provisions thereto or
(iii) entitlement to deductions under Code Section 162(m), or any successor
provision thereto.
Subject
to the terms and conditions of the 2001 Plan, the administrator has the
authority to select the persons to whom awards are to be made, to determine the
number of shares to be subject to awards and the terms and conditions of awards,
to revise awards and to make all other determinations and take all other actions
necessary or advisable for the administration of the 2001 Plan. The
administrator is also authorized to adopt, amend or rescind rules relating to
administration of the 2001 Plan.
Eligibility
Employees,
non-employee directors and consultants of the Company and/or its subsidiaries
are eligible to receive awards under the 2001 Plan. As of the record date, 8
non-employee directors and approximately 33 employees were eligible to
participate in the 2001 Plan. The Compensation Committee determines which of our
employees, consultants and directors will be granted awards. No employee,
non-employee director or consultant is entitled to participate in the 2001 Plan
as a matter of right, nor does any such participation constitute assurance of
continued employment or service with us. Only those employees, non-employee
directors and consultants who are selected to receive grants by the
administrator may participate in the 2001 Plan.
Awards
under the 2001 Plan
Introduction. Awards under
the 2001 Plan may consist of stock options or restricted shares, each of which
is described below. All awards will be evidenced by an award agreement between
the Company and the individual grantee or such alternative arrangements as the
Compensation Committee may determine from time to time. In the discretion of the
Compensation Committee, an eligible employee may receive awards from one or both
of the categories described below, and more than one award may be granted to an
eligible employee.
Stock Options. A stock option
is an award that entitles an optionee to purchase shares of Common Stock at a
price fixed at the time the option is granted. Upon stockholder approval of the
proposed amendment to the 2001 Plan, in the case of any individual participant
in the 2001 Plan, the maximum amount payable in respect of stock options in any
calendar year may not exceed one million (1,000,000) shares of Common
Stock.
Stock
options granted under the 2001 Plan may be in the form of incentive stock
options (which qualify for special tax treatment) or non-qualified stock
options, and may be granted alone or in addition to other awards under the 2001
Plan. The exercise price and other terms and conditions of stock options will be
determined by the Compensation Committee at the time of grant.
Non-qualified
stock options provide for the right to purchase shares of Common Stock at a
specified price, and usually become exercisable (in the discretion of the
administrator) in one or more installments after the grant date, subject to the
participant’s continued employment or service with us during the applicable
vesting period. Unless otherwise determined by the Compensation Committee (in
its sole discretion) at or prior to the time of grant of a stock option, or
unless otherwise provided in the award agreement or in the optionee’s
employment, severance or consulting agreement in respect of any such stock
option, the term of each non-qualified stock option will be ten
years.
Incentive
stock options are designed to comply with the applicable provisions of the Code,
and are subject to certain restrictions contained in the Code. Among such
restrictions, incentive stock options must have an exercise price not less than
the fair market value of a share of Common Stock on the date of grant, may only
be granted to employees, and must not be exercisable after a period of ten years
measured from the date of grant. Incentive stock options, however, may be
subsequently modified to disqualify them from
treatment
as incentive stock options. The total fair market value of shares (determined as
of the respective date or dates of grant) for which one or more options granted
to any employee by us (including all options granted under the 2001 Plan and all
of our other option plans or option plans of our parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options during any one calendar year cannot exceed the sum of $100,000. To the
extent this limit is exceeded, the options granted will be treated as
non-qualified stock options. In the case of an incentive stock option granted to
an individual who owns (or is deemed to own) more than 10% of the total combined
voting power of all classes of our stock or the stock of our parent or any of
our subsidiary corporations, which we sometimes refer to as a 10% Owner, the
2001 Plan provides that the exercise price of an incentive stock option must be
at least 110% of the fair market value of a share of Common Stock on the date of
grant and the incentive stock option must not be exercisable after a period of
five years measured from the date of grant.
For
purposes of the 2001 Plan, “fair market value” of a share of Common Stock as of
any given date is the closing price for a share of Common Stock on the NASDAQ
Stock Market on that date or, if the Common Stock was not traded on such date,
the immediately preceding date on which the Common Stock was
traded. If at any time the Common Stock is not traded on the NASDAQ
Stock Market, the fair market value of a share of Common Stock will be
determined in good faith by the Compensation Committee. The closing
price for a share of Common Stock on the NASDAQ Stock Market on the record date
was $[_____].
Like
non-qualified stock options, incentive stock options usually become exercisable
(in the discretion of the administrator) in one or more installments after the
grant date, subject to the participant’s continued employment or service with us
during the applicable vesting period.
An option
under the 2001 Plan does not provide an optionee any rights as a stockholder and
such rights will accrue only as to shares actually purchased through the
exercise of an option.
Restricted Share Awards.
Restricted share awards are grants of Common Stock made to a participant
at such price, if any, and subject to conditions established by the Compensation
Committee in the relevant award agreement on the date of grant. In the case of
any individual participant in the 2001 Plan, the maximum amount payable in
respect of restricted shares in any calendar year may not exceed two hundred
fifty thousand (250,000) shares of Common Stock. The restricted shares only
become unrestricted in accordance with the conditions and vesting schedule, if
any, provided in the relevant award agreement. A participant may not sell or
otherwise dispose of restricted shares until the conditions imposed by the
Compensation Committee with respect to such shares have been satisfied.
Restricted stock typically may be repurchased by us at the original purchase
price, if any, or forfeited, if the vesting conditions and other restrictions
are not met. Restricted share awards under the 2001 Plan may be granted alone or
in addition to any other awards under the 2001 Plan. Restricted shares which
vest will be reissued as unrestricted shares of Common Stock.
Each
participant in the 2001 Plan who receives a grant of restricted shares will
generally have the right to receive all dividends and vote or execute proxies
for such shares. Any stock dividends granted with respect to such restricted
shares will be treated as additional restricted shares.
Vesting
and Exercise of Awards
The
applicable award agreements contain the period during which the right to
exercise the award in whole or in part vests, in addition to any other
conditions required for vesting. At any time after the grant of an award, the
administrator may accelerate the period during which such award vests, subject
to certain limitations. No portion of an award which is not vested at a
participant’s termination of employment, termination of board service, or
termination of consulting relationship will subsequently become vested, except
as may be otherwise provided by the administrator either in the agreement
relating to the award or by action following the grant of the
award.
Unless
otherwise determined by the Compensation Committee (in its sole discretion) at
any time and from time to time in respect of any stock option, or unless
otherwise provided in the award agreement or in the Optionee’s employment,
severance or consulting agreement in respect of any such stock option, a stock
option shall become exercisable as to its aggregate number of underlying shares
of Common Stock, as determined on the date of grant, as follows:
|
·
|
20%
on the first anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the
Company and/or a subsidiary;
|
|
·
|
40%
on the second anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary;
|
|
·
|
60%
on the third anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary;
|
|
·
|
80%
on the fourth anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary; and
|
|
·
|
100%
on the fifth anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary.
|
An award
may be exercised for any vested portion of the shares subject to such award
until the award expires. Any unvested portion of
an award
generally will expire and be cancelled as of the date of a participant’s
termination of employment or service. Notwithstanding the foregoing, a stock
option will become 100% exercisable as to its aggregate number of underlying
shares of Common Stock upon the death of the optionee, or upon the optionee’s
disability or retirement (as defined in the 2001 Plan).
A stock
option may be exercised, in whole or in part, by giving written notice of
exercise to the Secretary of the Company (or to the Secretary’s designee)
specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the exercise price in cash, or by certified or
personal check, bank draft, money order or wire transfer to the Company, or, if
permitted by the Compensation Committee (in its sole discretion) and by
applicable law, by delivery of, alone or in conjunction with a partial cash or
instrument payment, (a) a fully-secured promissory note or notes, (b) shares of
Common Stock already owned by the optionee for at least six (6) months or (c)
any other form of payment acceptable to the Compensation Committee.
We have
the right to deduct or withhold, or require the participant to remit to us, an
amount sufficient to satisfy federal, state, local and foreign taxes required by
law to be withheld with respect to the issuance, vesting, payment, exercise or
any other taxable event relating to an award.
Transferability
of Awards
Stock
options and unvested restricted shares awarded under the 2001 Plan generally may
not be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise
transferred in any manner other than by will or by the laws of intestate
succession. Stock options generally may be exercised by the holder
only during the lifetime of the holder.
Equity
Awards Granted Under the 2001 Plan as of June 13, 2008
The
following table sets forth summary information concerning the number of shares
of Common Stock subject to stock option and restricted share grants made under
the 2001 Plan to the Company’s named executive officers and directors as of June
13, 2008. No shares of Common Stock were subject to restricted share grants made
under the 2001 Plan to the Company’s named executive officers and directors as
of June 13, 2008. The following information does not give effect to
option cancellations or forfeitures. As of June 13, 2008, 6,509,360
options and 25,000 shares of unvested restricted stock were outstanding under
the 2001 Plan.
Equity
Awards Transactions
Name
|
|
Number
of
Options Granted
|
|
|
Weighted
Average Exercise Price
($)
|
|
|
Number
of Restricted Stock
Grants
|
|
Named
Executive Officers
|
|
|
|
|
|
|
|
|
|
William
H. Koster (1)
Chief
Executive Officer
|
|
|
830,620 |
|
|
|
13,25 |
|
|
|
100,000 |
|
Stephen
R. Davis
President,
Executive Vice President, Interim Chief Financial Officer and Chief
Operating Officer
|
|
|
828,370 |
|
|
|
3.69 |
|
|
|
50,000 |
|
Alan
J. Hutchison
Executive
Vice President, Discovery Research
|
|
|
313,945 |
|
|
|
8.56 |
|
|
|
100,000 |
|
James
E. Krause
Senior
Vice President, Biology
|
|
|
272,310 |
|
|
|
8.40 |
|
|
|
15,000 |
|
Bertrand
L. Chenard
Senior
Vice President, Chemistry
|
|
|
240,810 |
|
|
|
7.38 |
|
|
|
- |
|
Stephen
Uden (2)
Executive
Vice President and Head of Research and Development
|
|
|
342,240 |
|
|
|
6.70 |
|
|
|
- |
|
Other
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Srdjan
Stankovic
Executive
Vice President and Chief Development Officer
|
|
|
204,000 |
|
|
|
1.20 |
|
|
|
- |
|
Thomas
Pitler
Senior
Vice President and Chief Business and Financial Officer
|
|
|
354,757 |
|
|
|
4.54 |
|
|
|
- |
|
Other
directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Felix
J. Baker, Ph.D.
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Julian
C. Baker
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Eran
Broshy
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stewart
Hen
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Jonathan
S. Leff
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Craig
Saxton, M.D.
Director
|
|
|
75,000 |
|
|
|
9.05 |
|
|
|
25,000 |
|
John
Simon, Ph.D.
Director
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
All
current executive officers as a group (8) persons
|
|
|
3,381,020 |
|
|
|
7.38 |
|
|
|
265,000 |
|
All
current non-employee directors as a group (7) persons
|
|
|
75,000 |
|
|
|
9.05 |
|
|
|
25,000 |
|
All
employees, including current officers who are not executive officers, as a
group
|
|
|
3,165,614 |
|
|
|
7.04 |
|
|
|
80,000 |
|
|
(1) Dr.
Koster retired as President and Chief Executive Officer of Neurogen in
February 2008.
|
|
(2) Dr.
Uden’s employment terminated on September 13,
2007.
|
New
Plan Benefits
Awards
may be granted under the 2001 Plan prior to the time the proposed amendment to
the 2001 Plan is approved by the Company’s stockholders; except that these
awards will not be exercisable and will not vest prior to the time when the
proposed amendment to the 2001 Plan is approved by our
stockholders.
On April
24, 2008, the Compensation Committee awarded 2,252,000 options to employees,
however, only 1,531,360 shares were available for issuance under the 2001 Plan
at that time. Thus, 720,640 option grants made on April 24, 2008 were made
subject to stockholder approval of the proposed amendment at this Annual
Meeting. As to each employee granted options on April 24, 2008, 32%
of the options granted were made subject to stockholder approval of the proposed
amendment to the 2001 Plan. The options were granted with an exercise
price equal to $1.20, the closing price of our common stock on the date of
grant. If the Company’s
stockholders
do not approve the proposed amendment, the following equity awards will not be
made effective. In addition, if the stockholders do not approve the
proposed amendment to the 2001 Plan within twelve months following approval of
the 2001 Plan by the Board of Directors, any other awards granted under the 2001
Plan prior to receipt of stockholder approval of the proposed amendment to the
2001 Plan will be cancelled. The Company has not made any other
awards under the 2001 Plan that are subject to stockholder
approval.
Stock
Options Granted Made on April 24, 2008 Subject to Stockholder Approval of the
Proposed Amendment
Name
|
|
Number
of Stock Options
|
|
|
|
|
|
Current
Officers
|
|
|
|
|
|
|
|
Stephen
R. Davis
|
|
|
224,000 |
|
Srdjan
Stankovic
|
|
|
96,000 |
|
Thomas
Pitler
|
|
|
80,000 |
|
Alan
J. Hutchison(1)
|
|
|
0 |
|
James
E. Krause(1)
|
|
|
0 |
|
Bertrand
L. Chenard(1)
|
|
|
0 |
|
All Current
Executive Officers as a Group(2)
|
|
|
400,000 |
|
All
Current Non-Employee Directors as a Group
|
|
|
0 |
|
All
Non-Executive Employees as a Group
|
|
|
320,640 |
|
All
Stock Option Grants made on April 24,
|
|
|
720,640 |
|
(1)
|
Drs.
Chenard, Hutchison and Krause did not receive option grants on April 24,
2008 due to the termination of their employment anticipated to occur June
14, 2008, as part of the restructuring plan that the Company announced in
April 2008.
|
(2)
|
Dr.
Srdjan Stankovic, Executive Vice President and Chief Development Officer
was hired on April 14, 2008, and Dr. Thomas Pitler was appointed Senior
Vice President and Chief Business and Financial Officer on April 17,
2008.
|
Adjustments
for Changes in Capital Structure
Stock
options and restricted shares granted under the 2001 Plan and under any award
agreements evidencing such stock options or restricted shares, the maximum
number of shares of Common Stock that may be granted under the 2001 Plan, and
the maximum number of shares subject to stock options or represented by grants
of restricted shares that a participant can receive in any calendar year under
the 2001 Plan, will be subject to adjustment or substitution, as determined by
the Compensation Committee in its sole discretion, as to the number, price or
kind of a share of stock or other consideration subject to stock options or
grants of restricted shares or as otherwise determined by the Compensation
Committee to be equitable under the circumstances described in the 2001 Plan.
The Company will give each participant notice of an adjustment to be made
pursuant to a change in capital structure and, upon notice, such adjustment
shall be conclusive and binding for all purposes.
Change
of Control
If a
Change of Control (as defined in the 2001 Plan) occurs and outstanding stock
options under the 2001 Plan are converted, assumed, replaced or continued by the
Company, a successor or an acquirer, then, in the case and only in the case of a
participant whose employment or consulting relationship with the Company and its
subsidiaries is terminated by the Company and its subsidiaries (or any
successor(s) thereto) without Cause (as defined in the 2001 Plan) prior to the
second anniversary of such Change of Control (i) any outstanding stock options
then held by such participant which are unexercisable or otherwise unvested will
automatically be deemed to be exercisable or otherwise vested, as the case may
be, as of the date immediately prior to the date of such termination of
employment or cessation of services and (ii) all restrictions, terms and
conditions applicable to all restricted shares then outstanding and held by such
participant will lapse and be deemed to be satisfied as of the date immediately
prior to the date of such termination of employment or cessation of
services.
If a
Change of Control occurs and the stock options outstanding under the 2001 Plan
are not converted, assumed, replaced or continued by the Company, a successor or
an acquirer, then (i) all outstanding stock options will automatically be deemed
to be exercisable or otherwise vested immediately prior to the consummation of
the Change of Control and all participants will be permitted to exercise their
stock options immediately prior to or concurrent with the consummation of the
Change of Control and (ii) all restrictions, terms and conditions applicable to
outstanding restricted shares will lapse and be deemed to be satisfied
immediately prior to the consummation of the Change of Control.
Upon
entering into an agreement to effect a Change of Control, referred to in Section
9.3(b) of the 2001 Plan, the Compensation Committee may, subject to the
consummation of the Change of Control, cause all outstanding stock options to
terminate upon the consummation of the Change of Control. If the Compensation
Committee acts pursuant to the preceding sentence, each affected participant
shall have the right to exercise his or her outstanding stock options during a
period of time determined by the Compensation Committee in its sole
discretion.
Notwithstanding
the above, in the event of a Change of Control, the Compensation Committee may
(in its discretion) cancel any or all outstanding stock options and cause the
holders thereof to be paid, in cash or stock (including any stock of a successor
or acquirer) or any combination thereof, the value of such stock options,
including any unvested portion thereof, based upon the excess of the value, as
determined by the Compensation Committee in good faith, of a share of Common
Stock over the exercise price.
Amendment,
Suspension or Termination of the 2001 Plan
Unless
earlier terminated by the Board of Directors, the 2001 Plan will terminate on
June 29, 2011. The Board of Directors may amend, suspend or terminate the 2001
Plan (or any portion thereof) at any time. However, no amendment may (a)
materially adversely affect the rights of any participant under any outstanding
award, without the consent of that participant, or (b) increase the maximum
number of shares available for awards under the 2001 Plan, or the maximum
allowable grants of shares subject to stock options or of restricted shares to
any single participant in any calendar year, without majority stockholder
approval.
Federal
Tax Consequences Associated with the 2001 Plan
The
following is a general summary under current law of the material federal income
tax consequences to participants in the 2001 Plan. This summary deals with the
general federal income tax principles that apply and is provided only for
general information. Some kinds of taxes, such as state, local and foreign
income taxes and employment taxes, are not discussed. Tax laws are complex and
subject to change and may vary depending on individual circumstances and from
locality to locality. The summary does not discuss all aspects of federal income
taxation that may be relevant in light of a holder’s personal circumstances.
This summarized tax information is not tax advice and a holder of an award
should rely on the advice of his or her legal and tax advisors.
Non-Qualified Stock
Options. If an optionee is granted a non-qualified stock
option under the 2001 Plan, the optionee should not have taxable income on the
grant of the option. Generally, the optionee will recognize ordinary income at
the time of exercise in an amount equal to the difference between the option
exercise price and the fair market value of a share of Common Stock at such
time, multiplied by the number of shares for which the non-qualified stock
option is exercised. The optionee’s basis in the stock for purposes of
determining gain or loss on subsequent disposition of such shares will be equal
to the fair market value of the Common Stock on the date the optionee exercises
such option. Any subsequent gain or loss should be taxable as long-term or
short-term capital gain or loss, depending on how long the optionee has held the
shares at the time of disposition.
Incentive Stock
Options. No taxable income should be recognized by the
optionee at the time of the grant of an incentive stock option, and no taxable
income should be recognized for regular tax purposes at the time the option is
exercised; however, the excess of the fair market value of the shares of Common
Stock received over the option exercise price paid will be an “item of
adjustment” for alternative minimum tax purposes. The optionee should recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For federal income tax purposes,
dispositions are divided into two categories: qualifying and disqualifying. A
qualifying disposition generally occurs if the sale or other disposition is made
more than two years after the date the option for the shares involved in such
sale or disposition is granted and more than one year after the date the shares
are transferred upon exercise. If the sale or disposition occurs before these
two periods are satisfied, then a disqualifying disposition generally will
result.
Upon a
qualifying disposition, the optionee should recognize long-term capital gain in
an amount equal to the excess of the amount realized upon the sale or other
disposition of the purchased shares over the exercise price paid for the shares.
If there is a disqualifying disposition of the shares, then the excess of the
fair market value of those shares on the exercise date (or, if less, the price
at which the shares are sold) over the exercise price paid for the shares should
be taxable to the optionee as ordinary income. Any additional gain or loss
recognized upon the disposition should be taxable as long-term or short-term
capital gain or loss, depending on how long the optionee has held the shares at
the time of disposition.
An option
will only qualify as an incentive stock option to the extent that the aggregate
fair market value of the shares with respect to which the option first becomes
exercisable in any calendar year is equal to or less than $100,000. For purposes
of this rule, the fair market value of the shares is determined as of the date
the incentive stock option is granted. To the extent a stock option intended to
qualify as an incentive stock option under Section 422 of the Code is
exercisable for shares in excess of this $100,000 limitation, the excess portion
of the stock option will be taxable as a non-qualified stock option. In
addition, an incentive stock option exercised more than three months after an
optionee terminates employment, other than by reason of death or disability,
generally will be taxable as a non-qualified stock option.
We will
not be entitled to any federal income tax deduction if the optionee makes a
qualifying disposition of the shares. If the optionee makes a disqualifying
disposition of the shares, then generally, we will be entitled to a federal
income tax deduction for the taxable year in which such disposition occurs,
equal to the ordinary income recognized by the optionee.
Restricted
Stock. In general, a participant should not be taxed upon the
grant or purchase of restricted stock that is subject to a “substantial risk of
forfeiture,” within the meaning of Section 83 of the Code. However, at the
time the restricted stock is no longer subject to the substantial risk of
forfeiture (e.g., when
the restrictions lapse on a vesting date or the vesting conditions are
satisfied) or the shares become transferable, the participant should recognize
ordinary income on the difference, if any, between the fair market
value of
the shares of restricted stock (disregarding any restrictions which may lapse,
such as vesting restrictions) on the date the restrictions lapsed or the shares
become transferable and the amount the participant paid, if any, for such
restricted stock. Recipients of restricted stock under the 2001 Plan may,
however, make an election under Section 83(b) of the Code to be taxed at
the time the restricted stock is transferred to the recipient in an amount equal
to the difference, if any, between the fair market value of the restricted stock
(disregarding any restrictions which may lapse, such as vesting restrictions) on
the date of transfer and the amount the participant paid, if any, for such
restricted stock. If a timely Section 83(b) election is made, the
participant should not recognize any additional income as and when the
restrictions applicable to the restricted stock lapses.
Section 409A of the
Code. Certain awards under the 2001 Plan may be considered
“non-qualified deferred compensation” for purposes of Section 409A of the
Code, which imposes additional requirements on the payment of deferred
compensation. Generally, if at any time during a taxable year a non-qualified
deferred compensation plan fails to meet the requirements of Section 409A,
or is not operated in accordance with those requirements, all amounts deferred
under the non-qualified deferred compensation plan for the current taxable year
and all preceding taxable years, by or for any participant with respect to whom
the failure relates, are includible in the gross income of the participant for
the taxable year to the extent not subject to a substantial risk of forfeiture
and not previously included in gross income. If a deferred amount is required to
be included in income under Section 409A, the amount also is subject to
interest and an additional income tax. The interest imposed is equal to the
interest at the underpayment rate plus one percentage point, imposed on the
underpayments that would have occurred had the compensation been includible in
income for the taxable year when first deferred, or if later, when not subject
to a substantial risk of forfeiture. The additional income tax is equal to 20%
of the compensation required to be included in gross income.
Tax Deductions and
Section 162(m) of the Code. Except as otherwise described
above with respect to incentive stock options, we generally should be entitled
to a federal income tax deduction at the same time and for the same amount as
the recipient recognizes ordinary income, subject to the limitations of
Section 162(m) of the Code with respect to compensation paid to certain
“covered employees.” Under Section 162(m), income tax deductions of
publicly-held corporations may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits paid) for certain executive officers exceeds $1 million in any one
year. The Section 162(m) deduction limit, however, does not apply to
certain “performance-based compensation” as provided for by the Code and
established by an independent compensation committee. In particular, stock
options will satisfy the “performance-based compensation” exception if the
awards are made by a qualifying compensation committee, the underlying plan sets
the maximum number of shares that can be granted to any person within a
specified period and the compensation is based solely on an increase in the
stock price after the grant date (i.e., the exercise price or
base price is greater than or equal to the fair market value of the stock
subject to the award on the grant date).
The 2001
Plan is structured in a manner that is intended to provide the compensation
committee with the ability to provide options that satisfy the requirements for
qualified “performance-based compensation” under Section 162(m) of the
Code. We have not, however, requested a ruling from the Internal Revenue Service
or an opinion of counsel regarding this issue. This discussion will neither bind
the Internal Revenue Service nor preclude the Internal Revenue Service from
adopting a contrary position.
Effective
Date
The
proposed amendment to the 2001 Plan was effective on the date of the Board’s
approval of the amendment (i.e., April 22, 2008), subject to stockholder
approval.
The
Board of Directors recommends a vote FOR Proposal No. 2.
|
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS
|
|
The Audit
Committee has selected PricewaterhouseCoopers LLP, independent registered public
accountants, as the independent registered public accountants to audit the
financial statements of the Company for the year ending December 31, 2008 and
recommends that the stockholders ratify such selection. PricewaterhouseCoopers
LLP audited the Company’s annual financial statements for the fiscal years ended
December 31, 2000 through 2007.
Stockholder
ratification of the selection of PricewaterhouseCoopers LLP as the Company’s
independent registered public accountants is not required by the Company’s
By-laws or otherwise. However, the Board of Directors is submitting the
selection of PricewaterhouseCoopers LLP to the stockholders for ratification as
a matter of good corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee will reconsider whether or not to retain the
firm. Even if the selection is ratified, the Audit Committee in its discretion
may direct the appointment of different independent registered public
accountants at any time if the Audit Committee determines that such a change
would be in the best interests of the Company and its stockholders.
Representatives
of PricewaterhouseCoopers LLP are expected to be present at the 2008 Annual
Meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
The
Board of Directors recommends a vote FOR approval of Proposal No. 5.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table
below reflects the number of shares beneficially owned by (a) each director of
the Company and each nominee; (b) each executive officer of the Company named in
the Summary Compensation Table; (c) all current directors and executive officers
as a group; and (d) each person or group known to the Company to own more than
5% of the outstanding shares of the Company’s Common Stock. Unless otherwise
noted the information is stated as May 27, 2008 and the beneficial owners
exercise sole voting and investment power over the shares. Shares of the
Company’s Common Stock outstanding on May 27, 2008 were 42,162,296.
Name
and Address of Beneficial Owner
|
|
Shares
Owned
including
Options
Exercisable
within
60
days of June 13, 2008(1)
|
|
|
Right
to Acquire
Beneficial
Ownership
under
Options Exercisable
within
60 days of
June
13, 2008
|
|
|
Percent
of
Common
Stock
owned
|
|
Warburg
Pincus & Co.
(2)
|
|
|
8,571,429 |
|
|
|
|
- |
|
|
20.3 |
% |
466
Lexington Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
H. Tisch (3)
|
|
|
947,108 |
|
|
|
|
- |
|
|
2.2 |
|
Daniel
R. Tisch (3)
|
|
|
947,108 |
|
|
|
|
- |
|
|
2.2 |
|
James
S. Tisch (3)
|
|
|
947,108 |
|
|
|
|
- |
|
|
2.2 |
|
Thomas
J. Tisch (3)
|
|
|
1,247,108 |
|
|
|
|
- |
|
|
3.0 |
|
Joan
H. Tisch (3)
|
|
|
24,100 |
|
|
|
|
- |
|
|
0.1 |
|
OrbiMed
Advisors LLC (4)
|
|
|
5,720,996 |
|
|
|
|
|
|
|
13.6 |
|
767
Third Ave., 30th
Floor
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia
Wanger Asset Management, L.P. (5)
|
|
|
3,235,000 |
|
|
|
|
- |
|
|
7.7 |
|
227
W. Monroe Street, Suite 3000
Chicago,
IL 60606
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington
Management Company, LLP (6)
|
|
|
3,529,343 |
|
|
|
|
- |
|
|
8.4 |
|
75
State Street
Boston,
MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
Pfizer
Inc. (7)
|
|
|
2,846,000 |
|
|
|
|
- |
|
|
6.8 |
|
235
East 42nd Street
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
All
current officers and directors as a group (13 persons) (9)
|
|
|
7,607,489 |
|
|
|
2,061,213 |
|
|
|
18.1 |
|
William
H. Koster, Ph.D.
|
|
|
773,026 |
|
|
|
652,660 |
|
|
|
1.8 |
|
Stephen
R. Davis
|
|
|
225,588 |
|
|
|
162,710 |
|
|
|
* |
|
Alan
J. Hutchison, Ph.D.
|
|
|
186,052 |
|
|
|
174,323 |
|
|
|
* |
|
Bertrand
L. Chenard, Ph.D.
|
|
|
174,973 |
|
|
|
167,955 |
|
|
|
* |
|
Stephen
Uden
|
|
|
0 |
|
|
|
0 |
|
|
|
* |
|
James
E. Krause, Ph.D.
|
|
|
182,031 |
|
|
|
154,955 |
|
|
|
* |
|
Felix
J. Baker, Ph.D. (8)
|
|
|
5,310,305 |
|
|
|
100,035 |
|
|
|
12.6 |
|
Julian
C. Baker (8)
|
|
|
5,330,813 |
|
|
|
109,035 |
|
|
|
12.7 |
|
Thomas
A. Pitler, Ph.D.
|
|
|
89,433 |
|
|
|
82,198 |
|
|
|
* |
|
Srdjan
Stankovich, M.D., MSPH
|
|
|
0 |
|
|
|
0 |
|
|
|
* |
|
Eran
Broshy
|
|
|
76,309 |
|
|
|
76,309 |
|
|
|
* |
|
Stewart
Hen
|
|
|
71,042 |
|
|
|
71,042 |
|
|
|
* |
|
John
L. LaMattina, Ph.D.
|
|
|
824 |
|
|
|
824 |
|
|
|
* |
|
Jonathan
S. Leff
|
|
|
63,542 |
|
|
|
63,542 |
|
|
|
* |
|
Craig
Saxton, M.D. (9)
|
|
|
176,871 |
|
|
|
151,871 |
|
|
|
* |
|
John
Simon, Ph.D.
|
|
|
152,258 |
|
|
|
93,754 |
|
|
|
* |
|
Notes:
*
|
Less
than 1% of the outstanding shares of Common Stock.
|
(1)
|
The
holders of Series A Exchangeable Preferred Stock do not have any voting
rights with respect to such shares or the associated warrants and thus
such shares and warrants are not reflected in the above table. See
“Related Party Transactions” and Proposal 2. “Approval Of The Issuance Of
Shares Of The Company’s Common Stock Upon Exchange Of Shares Of The
Company’s Series A Exchangeable Preferred Stock Sold In The Financing
Transaction” for more detail regarding these holdings.
|
(2)
|
Based
on a Schedule 13D/A filed with the SEC on April 14 2008, reporting
beneficial ownership as of April 11, 2008, by Warburg Pincus Private
Equity VIII, L.P., (“WP VII LP”), Warburg Pincus LLC, the manager of each
Investor defined below (“WP LLC”), Warburg Pincus Partners LLC, (WP
Partners LLC”) , Warburg Pincus & Co., the sole general partner
of WP VIII and the managing member of WP Partners (“WP”) and Messrs.
Charles R. Kaye and Joseph P. Landy, each a Managing General Partner of WP
and Co-President and Managing Member of WP LLC. Due to their
respective relationships with Warburg and each other, each of WP IX LLC,
WP LLC, WPP LLC, WP, Mr. Kaye and Mr. Landy may be deemed to
beneficially own, and each report shared voting and shared
dispositive power with respect to, an aggregate of 8,571,429 shares of
Common Stock (the “WP Shares”), excluding 7,499,973 shares of Common Stock
issuable upon the exchange of the 192,307 shares of Series A Exchangeable
Preferred Stock and exercise of Warrants to purchase Common Stock
beneficially owned by Warburg Pincus Private Equity VIII, L.P. reported as
beneficially owned in the Schedule 13D/A, The WP Shares include the
holdings of Warburg Pincus Netherlands Private Equity VIII C.V. I
(“WPNPE”) and WP-WPVIII Investors L.P. (WPVIII). Each of WP VII
LP, WP LLC, WP, WP Partners LLC, Mr. Kaye and Mr. Landy disclaim
beneficial ownership of all shares of the Common Stock except to the
extent of any indirect pecuniary interest therein.
|
(3)
|
Based on
Schedule 13G/A with the SEC on February 13, 2007, reporting beneficial
ownership as of December 31, 2006, by Andrew H. Tisch, Daniel R. Tisch,
James H. Tisch, Thomas J. Tisch and Joan H. Tisch. The shares
held by Andrew H. Tisch include 532,094 shares held directly by Andrew H.
Tisch, 126,153 shares held by Andrew H. Tisch 1995 Issue Trust 1, 126,152
shares held by Andrew H. Tisch 1995 Issue Trust 2 and 162,709 shares held
by the Andrew H. Tisch 2005 Annuity Trust II as to which Andrew H. Tisch
has sole voting and sole dispositive power. The shares held by
Daniel R. Tisch include 532,094 shares held directly by Daniel R. Tisch,
252,305 shares held by the Daniel R. Tisch 1999 Issue Trust and 162,709
shares held by the Daniel R. Tisch 2005 Annuity Trust II as to which
Daniel R. Tisch has sole voting and sole dispositive power. The
shares held by James H. Tisch include 532,094 held directly by James H.
Tisch, 252,305 shares held by the James S. Tisch 1995 Issue
Trust and 162,709 shares held by the James S. Tisch 2005 Annuity Trust II
as to which James S. Tisch has sole voting and sole dispositive
power. Joan H. Tisch holds 24,100 shares as to which she has
sole voting and dispositive power. The shares held by Thomas J.
Tisch include 532,094 held directly by Thomas J. Tisch, 252,305 shares
held by the Thomas J. Tisch 1994 Issue Trust, 162,709 shares held by the
Thomas J. Tisch 2004 Annuity Trust II and 300,000 shares held by
Four-Fourteen Partners, LLC as to which Thomas J. Tisch has sole voting
and sole dispositive power. By virtue of their status as
trustees of the respective Annuity Trusts and Issue Trusts referred to
above, each of Andrew H. Tisch, Daniel R. Tisch, James S. Tisch and Thomas
J. Tisch may be deemed to be the beneficial owner of securities held by
those trusts. By virtue of his status as manager of
Four-Fourteen Partners, LLC, Thomas J. Tisch may be deemed to be the
beneficial owner of securities owned by Four-Fourteen Partners,
LLC. Each of Andrew H. Tisch, Daniel R. Tisch, James S.
Tisch, Joan H. Tisch and Thomas J. Tisch disclaims that he or she and any
other person or persons in fact constitute a “group” for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, or
Rule 13d-5 thereunder or that he is the beneficial owner of, or has a
pecuniary interest in, any securities owned by any other
person. The address of each
person is 667 Madison Ave.,
7th Floor, New York, NY 10021,
except for Daniel R. Tisch, whose address is 500 Park Ave., New York, NY
10022.
|
(4)
|
Based
on a Schedule 13G filed with the SEC on May 21, 2008 reporting beneficial
ownership as of April 8, 2008 by OrbiMed Advisors LLC, OrbiMed Capital LLC
and Samuel D. Isaly. OrbiMed Advisors LLC and OrbiMed Capital
LLC each act as an investment advisor and Mr. Isaly acts as a control
person. Includes 3,131,984 shares beneficially owned by OrbiMed
Advisors LLC as to which OrbiMed Advisors LLC has shared voting power and
shared dispositive power. Includes 2,589,012 shares
beneficially owned by OrbiMed Capital LLC as to which OrbiMed Capital LLC
has shared voting power and shared dispositive power. Includes
5,720,996 shares beneficially owned by Samuel D. Isaly as to which he has
shared voting power and shared dispositive power. OrbiMed
Advisors LLC and OrbiMed Capital LLC hold shares and share equivalents
issuable from the conversion of warrants on behalf of Caduceus Capital
Master Fund Limited (1,547,020 shares and 400,010 warrants), Caduceus
Capital II, L.P. (1,374,016 shares and 450,008 warrants), UBS Eucalyptus
Fund, LLC (946,982 shares and 224,991 warrants), PW Eucalyptus Fund, Ltd.
(110,988 shares and 24,999 warrants) and Summer Street Life Sciences Hedge
Fund Investors LLC (491,988 shares and 149,994
warrants).
|
(5)
|
Based
on a Schedule 13G filed with the SEC on January 23, 2008 reporting
beneficial ownership as of December 31, 2007 by Columbia Wanger Asset
Management, L.P., which acts as an investment adviser and is
deemed to have sole voting and sole dispositive power with respect to
these shares. Includes shares held by Columbia Acorn Trust
(CAT), a Massachusetts business trust that is advised by the reporting
person. CAT is deemed to own 6.43% of the Common
Stock.
|
(6)
|
Based
on a Schedule 13G filed with the SEC on February 14, 2008 reporting
beneficial ownership as of December 31, 2007 by Wellington Management
Company, LLP (“Wellington Management”). In its capacity as an
investment advisor, Wellington Management may be deemed to beneficially
own 3,240,018 shares of the Company which are held of record by clients of
Wellington Management and includes 2,472,400 shares which Wellington is
deemed to have shared power to vote or direct the vote and 3,184,318
shares which Wellington Management is deemed to have shared power to
disposed or direct the disposition.
|
(7)
|
Based
on a Schedule 13D/A filed with the SEC on February 14, 2005 which reported
beneficial ownership as of December 13, 2005 by Pfizer Inc., is deemed to
have sole voting power and sole dispositive power with respect to these
shares.
|
(8)
|
Based
on a Schedule 13D/A filed with the SEC on April 15, 2008, reporting
beneficial ownership as of April 11, 2008 by Julian C. Baker (“J. Baker”)
and Felix J. Baker (“F. Baker”). Includes 16,200 shares held
directly by J. Baker as to which he has sole voting as dispositive power,
4,692 shares held directly by F. Baker as to which he has sole voting and
dispositive power and 210,556 shares held by Baker/Tisch Investments,
L.P., 230,162 shares held by Baker Bros. Investments, L.P., 203,190 shares
held by Baker Bros. Investments II, L.P., 2,195,509 shares held by Baker
Biotech Fund I, L.P., 2,307,661 shares held by Baker Brothers Life
Sciences, L.P., 58,500 shares held by FBB Associates as to which J. Baker
and F. Baker have shared voting and shared dispositive
power. Excluding 1,956,825 held by Baker Biotech Fund I, L.P.,
181,116 shares held by Baker Bros Investments II, L.P., 205,140 shares
held by Baker Bros Investments, L.P., 2,056,743 shares held by Baker
Brothers Life Sciences, L.P. and 187,668 shares held by Baker Tisch
Investments, L.P. issuable upon the exchange of shares of Series A
Exchangeable Preferred Stock and exercise of Warrants to purchase Common
Stock reported as beneficially owned in the Schedule 13D/A. By
virtue of their ownership of entities that have power to control the
investment decisions of the limited partnerships listed above, J. Baker
and F. Baker may each be deemed to be the beneficial owners of the shares
owned by such entities. J. Baker and F. Baker are also sole
partners of FBB Associates, a general partnership and as such may be
deemed to be beneficial owners of shares owned by FBB
Associates. The address for J. Baker, F. Baker and each entity
listed above is 667 Madison Avenue, 17th
Floor, New York, NY 10065.
|
(9)
|
Includes
25,000 shares of unvested restricted stock. Excludes shares
beneficially owned by Stephen Uden who is no longer employed by the
Company.
|
EXECUTIVE
OFFICERS
The
names, ages, and certain other information pertaining to the Executive Officers
of the Company as of June 13, 2008 are as follows:
Name
|
|
Age
|
|
Company Position
|
|
Officer Since
|
Stephen
R. Davis
|
|
47
|
|
President
and Chief Executive Officer
|
|
September
2001
|
Bertrand
L. Chenard, Ph.D.
|
|
52
|
|
Senior
Vice President, Chemistry
|
|
January
2005
|
Alan
J. Hutchison, Ph.D.
|
|
55
|
|
Executive
Vice President, Discovery Research
|
|
June
1994
|
James
E. Krause, Ph.D.
|
|
56
|
|
Senior
Vice President, Biology
|
|
May
2002
|
Thomas
A. Pitler, Ph.D.
|
|
49
|
|
Senior
Vice President and Chief Business and Financial Officer
|
|
April
2008
|
Srdjan
Stankovic, M.D., MSPH
|
|
51
|
|
Executive
Vice President and Chief Development Officer
|
|
April
2008
|
|
|
|
|
|
|
|
As part
of the restructuring plan that the Company announced in April 2008, the
employment of Drs. Chenard, Hutchison and Krause will terminate on June 14,
2008.
Stephen
R. Davis
Biographical
information for Stephen R. Davis, the Company’s President and Chief Executive
Officer, is provided above under “Proposal No. 1: Election of
Directors.”
Bertrand L. Chenard,
Ph.D.
Dr.
Bertrand L. Chenard joined Neurogen as Vice
President of Chemistry in 2001 and has been Senior Vice President of Chemistry
and Process Research since January 2005. Before joining Neurogen, Dr. Chenard
was employed at Pfizer Inc for 15 years where he was a research advisor and
project coordinator. He began his career in DuPont’s Central Research Department
as a research scientist in exploratory organic chemistry. Dr. Chenard holds a
B.A. in Chemistry from Central Connecticut State University and a Ph.D. in
organic chemistry from Ohio State University.
Alan
J. Hutchison, Ph.D.
Dr. Alan
J. Hutchison has
been Executive Vice President of Discovery Research of Neurogen since April
2002. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry and became
a Vice President in 1992 and a Senior Vice President in 1997. From 1981 through
1989, Dr. Hutchison was employed by Ciba Giegy, most recently as a Distinguished
Research Fellow. Dr. Hutchison received a B.S. in Chemistry from Stevens
Institute of Technology and received a Ph.D. from Harvard
University.
James
E. Krause, Ph.D.
Dr. James
E. Krause joined
Neurogen as Vice President of Biochemistry in 1997 and has been Senior Vice
President of Biology since July 2001. From 1984 to 1997, Dr. Krause was
Professor of Neurobiology and Director of the Medical Scientist Training Program
at Washington University School of Medicine in St. Louis. Dr. Krause received a
B.S. in Biology from the University of Wisconsin at Stevens Point and a Ph.D. in
Physiological Chemistry & Endocrinology from the University of Wisconsin at
Madison.
Thomas
A. Pitler, Ph. D.
Dr.
Thomas Pitler has served as Neurogen’s Senior Vice President and Chief Business
and Financial Officer since April 17, 2008. Dr. Pitler joined
Neurogen in 1995, with responsibilities for supervising Neurogen’s
electrophysiology laboratory and evaluating drug targets. He joined the business
group at Neurogen and was promoted to Director, Business Development in 1999,
Senior Director, Business Development in 2001, and Vice President, Business
Development in 2004. Prior to Neurogen, he was on the faculty of the
University of Maryland, School of Medicine. Dr. Pitler holds a B.A.
in Biology from Wake Forest University, Winston-Salem, North Carolina and a Ph.D
in Physiology from the Wake Forest University School of Medicine.
Srdjan
Stankovic, M.D., MSPH
Dr. Srdjan
Stankovic joined
Neurogen as Executive Vice President and Chief Development Officer on April 14,
2008. Prior to joining Neurogen, Dr. Stankovic served as Vice
President, Worldwide Clinical Research at Cephalon, Inc., a biopharmaceutical
company, since 2005. Prior to that, starting in 1997, he held various clinical
positions at UCB Pharma, Inc., a biopharmaceutical company, including Vice
President, U.S. Clinical Development and also at Johnson & Johnson
Pharmaceutical R&D, LLC, a pharmaceutical research and development company
within Johnson & Johnson, as Senior Director and Compound Development Team
Leader. Dr. Stankovic earned his Doctor of Medicine degree from the University
of Belgrade in Serbia and Master of Science in Public Heath (Epidemiology)
degree from the University of Alabama at Birmingham.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management, and based on the review and discussions, the
Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the Company’s 2007 Annual
Report on Form 10-K and in this proxy statement for the 2008 annual meeting
of stockholders.
|
Compensation
Committee
|
|
|
|
|
|
Julian
Baker, Chair
|
|
|
|
|
Stewart
Hen
|
Craig
Saxton
|
John
Simon
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs.
Julian C. Baker and Stewart Hen and Drs. Craig Saxton and John Simon, all
non-employee directors, constitute the Company’s Compensation
Committee. No executive officer of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company’s Board of Directors
or Compensation Committee.
COMPENSATION
DISCUSSION AND ANALYSIS
Introduction
The
Company believes that compensation paid to executive officers should be closely
aligned with the performance of the Company on both a short-term and long-term
basis and that such compensation should assist the Company in attracting and
retaining key executives critical to its long-term success. The Compensation
Committee structures compensation to ensure that a significant portion of
compensation opportunity will be directly linked to Company stock performance
and other factors that directly and indirectly influence stockholder
value.
The
Compensation Committee’s policies and programs are designed to further the
Company’s goal of increasing stockholder value by appropriately motivating and
retaining executive officers. These policies include the following
objectives:
·
|
Providing
a portion of management’s compensation in the form of base salaries. The
Compensation Committee takes into consideration executive compensation
paid by other similar biotechnology companies and individual experience
and capabilities.
|
·
|
Providing
a portion of management’s compensation in the form of annual cash bonus
awards for the accomplishment of predetermined corporate and individual
goals.
|
·
|
Providing
equity participation for the purpose of aligning executive officers’
longer term interests with those of the stockholders. The size and nature
of equity-based compensation grants are based primarily upon the
Company’s performance in meeting the pre-determined corporate goals under
the annual cash incentive plan.
|
Total
Compensation Objective
The
Company’s total compensation program for executives is designed to meet the
following objectives:
·
|
Attract,
motivate and retain qualified executives to lead Neurogen in a competitive
environment.
|
·
|
Align
the executive officers with specific goals by basing a significant
percentage of their overall compensation on achievement of corporate and
individual goals.
|
·
|
Include
equity compensation as part of the overall compensation package to align
the interests of the Company’s executive officers with those of the
Company’s stockholders.
|
·
|
Ensure
that executive compensation is comparable based on competitors in the
industry and the Company’s geographic area.
|
·
|
Ensure
that executives focus on deal creation and are provided protections in the
event of certain severances.
|
The
proportions of the different elements of the total executive compensation
program are chosen based on comparison with others in the industry and the
Company’s cost structure. The Compensation Committee recognizes the importance
of maintaining sound principles for the development and administration of
compensation and benefit programs, and has taken steps to ensure its ability to
effectively carry out its responsibilities as well as ensure that the Company
maintains strong links between executive pay and performance. Examples of
actions that the Committee has taken include:
·
|
Initiated
a practice of holding executive sessions (without Company management
present) at Committee meetings;
|
·
|
Utilized
data from independent compensation surveys and consultants on executive
compensation issues;
|
·
|
Ensured
the transparency of compensation policy and actions;
|
·
|
Aligned
compensation structures based on targeting competitive pay;
and
|
·
|
Strengthened
the link between CEO annual pay and shareholder value through specific
objectives.
|
Compensation
Committee Process
Compensation
paid by the Company to its executive officers is designed to be competitive with
compensation paid to the management of comparable companies in the biotechnology
industry. Toward that end, the Compensation Committee generally reviews
independent survey data. For 2007 compensation, the Compensation
Committee reviewed data generated by the AON Radford Global Life Sciences
Compensation Survey, which includes companies in the biotechnology industry with
150-499 employees (the “Radford Study”). This data is collated by
management and presented to the Compensation Committee. It is the
intent of the Compensation Committee that midpoint salary, target bonus levels
and target annual long-term incentive award values are set at levels that
are competitive with other companies in the biotech industry based upon the
annual surveys to which the Company subscribes.
In
addition to reviewing executive officers’ compensation against industry
surveys, the Compensation Committee also considers recommendations from the
chief executive officer regarding compensation for those executives reporting to
him. Senior management also provides to the Compensation Committee historical
and prospective breakdowns of the three elements comprising the Company’s
compensation program, base salary and bonus and equity incentives. Senior
management monitors the compensation programs and changes in those of the
Company’s competitors, and reports any relevant changes to the Compensation
Committee.
On an
annual basis at the end of each year, the Compensation Committee evaluates
the performance of management and determines the bonus and equity awards for
that year, as well as the salary increases and incentive plan parameters for the
upcoming year. At the beginning of each year, each executive officer establishes
with his or her direct supervisor individual goals for the upcoming year for the
area of responsibility for such executive officer. The Compensation
Committee, in consultation with management, establishes corporate
objectives for the senior management team for the upcoming year, reviews
the proposed personal goals, and assigns relative weights to each objective with
emphasis on those which create long-term value. At year-end, the chief executive
officer prepares reports for the Compensation Committee outlining the extent to
which the corporate and personal goals have been achieved and the areas for
further development. The Compensation Committee evaluates the
performance of management against the predetermined goals and these results
determine the cash bonuses and equity incentive compensation for the Company’s
executive officers. In many instances, however, the qualitative factors by
which the Compensation Committee judges corporate and individual performance
necessarily involve a subjective assessment of management’s
performance.
Traditional
measures of corporate performance, such as current earnings per share or sales
growth, do not, as in the case of most biotechnology companies, readily apply to
the Company as it is heavily focused on research and development activities
designed to produce future earnings. In determining the compensation of the
Company’s executives, the Compensation Committee looks to other criteria to
measure the Company’s progress, including:
|
·
|
a
advancing drug candidates into and through clinical trials designed
to determine the commercial potential of the
candidates;
|
|
·
|
discovering
drug candidates that qualify for pre-clinical
development;
|
|
·
|
identifying
new drug targets and discovering potential drug leads for these
targets;
|
|
·
|
establishing
and executing valuable strategic collaborations with pharmaceutical
companies;
|
|
·
|
securing
capital sufficient to advance the Company’s drug development and discovery
programs; and
|
|
·
|
stock
price performance.
|
The
Compensation Committee believes that management’s performance in these areas
will directly impact the Company’s long-term success and the growth of
stockholder value. However, the Compensation Committee recognizes that the
biotechnology industry is characterized by long product lead times, the
iterative trial and error nature of drug development, sporadic availability of
capital and highly volatile stock prices, which may be affected by industry and
market conditions that are transient in nature and beyond the control of
management. Accordingly, the Compensation Committee attempts to appropriately
motivate the Company’s executives by balancing the consideration of shorter term
objectives with longer term strategic goals.
On
occasion, the Company has used and will continue to use the services of a
compensation consultant. During 2007, at the direction of the
Compensation Committee, management worked with Frederick W. Cook
who assisted in analyzing the proposed additional stock option grants
made by the Compensation Committee in January 2007 and in determining the
definition of “good reason” under the Company’s Amendment and Restated
Employment Agreements that were entered into in May 2007.
A
description of the objectives of each element of the Company’s executive
compensation program is set forth below. The actual amounts paid under each
program to each of the named executive officers are found in the Summary
Compensation table at the end of this section.
Elements
of Compensation
Neurogen’s Compensation
Program
As
discussed in greater detail below, total compensation for the
Company’s named executive officers consists of four primary elements each
of which are discussed below:
·
|
|
Base
salary;
|
·
|
|
Annual
cash incentive awards;
|
·
|
|
Long-term
incentive compensation; and
|
·
|
|
Severance
and change of control benefits.
|
Base
Salary
Base
salary is an integral component of overall total compensation. The primary
purpose of base salary is to recognize an employee’s level of responsibility,
immediate contributions, knowledge, skills, experience and abilities. Base
salary is also designed to attract top candidates and provide a stable form of
compensation.
The
methodology used to determine the base salaries for the Company’s named
executive officers generally is the same as that which is used for all of the
Company’s employees in terms of reviewing the Company’s compensation practices
in comparison to industry surveys and internal equity values based on
position and level of responsibilities. The Company considers the employee’s
value, immediate contributions, knowledge, and skill set when looking at the
total compensation package of which base salary is a key component in attracting
and retaining key employees. The Company also considers the changes in the
consumer price index (CPI) and the cost of living allowance used for social
security benefits (COLA) in determining salary increases, which increases are
referred to by the Company as merit increases. The salaries of the
named executive officers are reviewed on an annual basis, as well as at the time
of a promotion or other change in responsibilities. In making its salary
determinations, the Compensation Committee annually reviews past merit increases
for each executive officer and vice president over each of the last ten
years. Merit increases normally take effect on January 1st of each
year. For the merit increases that went into effect on January 1, 2007, the
Compensation Committee approved an approximate 3% increase for each named
executive officer, other than Mr. Davis, who received a 10% increase. The 3%
increase was based upon the Committee’s review of cost of living increases
together with a review of competitive compensation. The higher merit
increase for Mr. Davis was intended to raise his salary to competitive levels as
Chief Operating Officer per the Radford survey data. For fiscal 2007,
the Compensation Committee reviewed the existing salaries in comparison to the
Average Base Salary and Salary at the 60th
Percentile of the Radford Surveys. In general, the salary of the
Company’s chief executive officer was below these measures, while the salaries
of the Company’s other executive officers were generally at or above these
measures.
Annual Cash Incentive
Awards
Annual
cash incentives are awarded under the Company’s annual cash incentive plan to
reward employees for individual and company performance on an annual basis while
ensuring that the Company’s compensation practices remain competitive based on
industry surveys. The Company’s cash incentive awards serve to reinforce pay for
performance and individual accountability for optimizing operating results
throughout the year and driving stockholder value. For fiscal 2007,
approximately 155 employees participated in the Company’s annual cash incentive
plan.
Target
annual cash incentive awards are determined as a percentage of each named
executive officer’s base salary. For executives with employment agreements,
these percentages were established pursuant to such agreements. The
target bonus amount was established through an analysis of compensation for
comparable positions in industry surveys, is reviewed annually and is
intended to provide a competitive level of compensation when the named executive
officers achieve their performance objectives as approved by the Compensation
Committee. The 2007 Radford survey demonstrated that the Company’s
target bonuses, expressed as a percentage of base salary, were roughly
equivalent to the average target bonus, expressed as a percentage of salary, in
the Radford Survey. The bonus that a participant may receive under
the Company’s annual cash incentive plan is based in part, which varies by
position, on the Company’s corporate performance against pre-established
objectives, and the remainder of the bonus on individual performance based on
objectives established for the individual and his area of
responsibility.
The
target annual cash incentive awards, as a percentage of salary, and the
weighting between corporate and individual objectives, for the Company’s named
executive officers for 2007, were as follows:
Named
Executive Officer
|
Bonus
Target Expressed as a Percentage of Base Salary
|
Ratio
of Bonus Based on
Corporate/Individual Performance
|
William
H. Koster
|
50%
|
80/20
|
Stephen
R. Davis(1)
|
35-40%(1)
|
70/30
|
Alan
J. Hutchison
|
30%
|
60/40
|
James
E. Krause
|
25%
|
60/40
|
Bertrand
L. Chenard
|
25%
|
60/40
|
Stephen Uden
(2)
|
25%
|
60/40
|
|
|
|
______________
Notes:
(1)
|
Upon
Mr. Davis’ promotion to President on September 12, 2007, the Compensation
Committee determined that Mr. Davis’ bonus would be pro-rated between his
time as chief operating officer (8 months at 35% target) and as president
(4 months at 40% target).
|
(2)
|
Dr.
Uden’s employment terminated on September 14, 2007, and as a result, Dr.
Uden was not eligible to receive a bonus for fiscal
2007.
|
The
Company’s new executive officers, Thomas Pitler, the Company’s Senior Vice
President and Chief Business and Financial Officer, and Srdjan Stankovic, the
Company’s Executive Vice President and Chief Development Officer will have
bonus targets equal to 25% and 30%, respectively, of their base salaries for
fiscal 2008. Prorated changes in the annual target bonus levels can occur
during the year if there are changes in the officer’s salary level that warrant
a target change.
In the
beginning of 2007, the Compensation Committee, after consultation with the chief
executive officer, set an aggressive agenda of 8 corporate objectives ranging
across the research & development spectrum from early discovery to late
development. The weighting of these objectives ranged from 2.5% to
35% and fell into the following types of categories:
·
|
|
Successful
start or completion of planned clinical studies. (aggregate
approximate weighting of 55%)
|
·
|
|
Advancement
of compounds within research programs to drug candidate status.
(aggregate approximate weighting of 7.5%)
|
·
|
|
The
identification and advancement of new discovery stage programs. (aggregate
approximate weighting of 2.5%)
|
·
|
|
Pursue
financing and strategic relationships, and out-licensing and potential
in-licensing of selected programs . (aggregate approximate weighting
of 35%)
|
The
individual objectives for each named executive officer is determined in advance
by the executive officer and his or her direct supervisor, and for the Company’s
chief executive officer, by the Compensation Committee in consultation with the
chief executive officer. The specific objectives are weighted
according to the extent to which the officer will be responsible for delivering
the results on the objectives. The individual objectives for the
Company’s chief executive officer were focused on maintaining stability and
motivation of key employees and maximizing the Company’s stock price relative to
the NASDAQ biotech index, each weighted 10%, for which the Compensation
Committee assessed accomplishment at 8% of the total 20%, noting the intensive
management development program and establishment of a succession plan during
2007. Some of the material individual goals for the other named
executive officers included the same factors, plus the advancement of clinical
development programs, establishing certain strategic partnering objectives and
achieving drug candidates for H-3 and VR1 programs. In assessing
achievement of goals and bonus determinations, the Compensation Committee noted
for Mr. Davis his intensive engagement in his new role as President, which was
not a pre-established objective, and his key role in helping maintain the
stability of management, yielding a 13.25% achievement of the total 30%
individual goals. Drs. Chenard, Hutchison and Krause achieved 35%,
22% and 40% of their respective total 40% individual goals. These
percentages are combined with the corporate goal achievement of 52.5% multiplied
by the weighting for the corporate goal for that person to yield the total bonus
payable, expressed as a percentage of salary. In finalizing the bonus
determinations, the Compensation Committee also reviews the history of bonuses
paid to each executive officer and member of management over the past ten years,
including the percentage change from year to year. The following
chart shows the percentage achievement for each of the named executive officers
for 2007, and the resulting actual bonus, expressed as a percentage of
salary.
Named
Executive Officer
|
Accomplishment
of Targeted Objectives
|
Actual
Bonus as a Percentage of Salary
|
William
H. Koster
|
50%
|
25%
|
Stephen
R. Davis
|
50%
|
20%
(4 months) 17.5% (8 months)
|
Alan
J. Hutchison
|
53.5%
|
18.725%
|
James
E. Krause
|
71%
|
17.75%
|
Bertrand
L. Chenard
|
66.5%
|
16.625%
|
Stephen Uden
(1)
|
n/a
|
n/a
|
______________
Notes:
(1)
|
Dr.
Uden’s employment terminated on September 14, 2007, and as a result, Dr.
Uden was not eligible to receive a bonus for fiscal
2007.
|
Long-Term Incentive
Compensation
The
Company’s executive officers, members of senior management and other employees
are eligible for equity grants, typically in the form of stock options, as an
important element of their total annual compensation. This component is intended
to motivate and retain executive officers to improve long-term stock
performance. The Compensation Committee believes that equity-based
compensation ensures that the Company’s executive officers have a continuing
stake in the long-term success of the Company. Such options also align the
interests of the Company’s executive officers with those of the stockholders by
presenting the executive officers with the opportunity to acquire Common
Stock.
Awards
are generally made on an annual basis at year end, or at the time of
hire. In addition, the Compensation Committee may make additional
awards throughout the year. The Compensation Committee granted stock
options to each executive officer in 2007 under the Company’s Amended and
Restated Neurogen 2001 Stock Option Plan. The annual awards were made
in December 2007. In addition, the Compensation Committee made
special grants to 18 employees in January 2007. The additional
retention grants made in January 2007 were made after review with the Company’s
compensation consultant regarding the shortfall over time created by the
Company’s annual stock option issuances being generally lower than the Company’s
industry and in light of the number of options that were
underwater. The Compensation Committee was concerned that the
outstanding options were not providing sufficient retentive incentive, which can
result in a greater risk of loss of key employees during unstable
times. The Compensation Committee was also concerned about the
disparity between longer-term employees and new hires, which underscored the
shortfall in value for the longer-term employees.
In
determining annual awards, the Compensation Committee uses its previously
established option grant guidelines that specify target number of options per
position, and then multiplies the targeted number by the actual percentage of
corporate goal achievement for the year under the Company’s annual cash
incentive plan, which for 2007 was 52.5% achievement. When making its
annual awards, the Compensation Committee also reviews the Company’s option
overhang, grant run rate and historical grant practices by executive and
company-wide. For the Company’s annual 2007 awards made in December
2007, the Compensation Committee reviewed data compiled from the Radford survey
that illustrated that the Company’s option grant practices, including the
average number of option shares granted and the average option values (using a
black scholes calculation), were markedly below the Company’s industry. The
Compensation Committee, however, determined to continue to apply the existing
grant guidelines and actual corporate performance for fiscal 2007 in determining
2007 option awards. The grant guidelines for 2007 and prior years are
as follows:
Executive
Officer Position
|
Target
Option Grant
|
Chief
Executive Officer
|
60,000
|
President
|
50,000
|
Executive
Vice President
|
35,000
|
Senior
Vice President
|
30,000
|
All stock
options are granted with an exercise price equal to the closing price of the
Company’s Common Stock on the date of grant. Accordingly, those stock
options will have value only if the market price of the common stock increases
after that date. Since 2003, the Company’s stock options vest in equal amounts
over four years and have a term of five years from each vesting
date. The Company believes this facilitates the retention value of
the stock options, minimizes option overhang and helps minimize the accounting
expenses associated with the options.
The
Compensation Committee in the past has also granted restricted stock awards on
occasion. No restricted stock awards were granted in 2007 and no
unvested shares of restricted stock were held by any of the Company’s executive
officers as of December 31, 2007.
For 2007,
the Compensation Committee delegated to management the authority to grant up to
100,000 options for option grants to new hires and individual grants that are
not to exceed 10,000 shares. The Chief Executive Officer granted a
total of 23,000 options during 2007 in accordance with this delegation of
authority.
Employment
Agreements - Severance and Change of Control Arrangements
In May
2007, the Company entered into amended and restated employment agreements with
Mr. Davis, the Company’s then Chief Operating Officer (now Chief Executive
Officer), Dr. Hutchison, the Company’s Executive Vice President, Discovery
Research, and Dr. Uden, the Company’s Executive Vice President and Head of
Research and Development, which amended the previously entered into employment
agreements dated December 1, 1997, and the Company entered into employment
agreements with Drs. Krause and Chenard, the Company’s Senior Vice
Presidents. The Company’s then Chief Executive Officer, Dr. Koster,
was party to an agreement entered into in 2001 that provided more favorable
benefits than provided to the other executive officers. The material
terms of the employment agreements for the Company’s executive officers, other
than Dr. Koster, are substantially similar. These agreements provide
severance payments and benefits to the Company’s named executive officers in the
event of termination of employment (a) by the executive for good reason, (b) by
the Company without cause, (c) following a change of control under certain
circumstances, (d) upon death or disability and (e) in the event of non-renewal
of the agreements.
The
Company amended and restated the employment agreements of Mr. Davis, Dr. Uden
and Dr. Hutchison to:
·
|
reflect
the target bonus, expressed as a percentage of salary, as then in
effect;
|
·
|
provide
for accelerated vesting of all outstanding options and equity on the first
anniversary of the change of control to the extent they have not already
vested;
|
·
|
provide
that in the event of termination without Cause for Good Reason (regardless
of whether in connection with a change of control) the portion of the
stock options and restricted stock that would vest within one year of the
date of such termination, shall be vested as of the date of
termination. This extends the date to one year following
termination from the previous date of the December 1 that follows the
termination; and
|
·
|
provide
that in the event of termination without Cause for Good Reason in
connection with a change of control shall each be entitled to an
additional lump sum payment in an amount equal to the greater of (i) their
then targeted annual bonus or (ii) their targeted annual bonus immediately
prior to the change of control.
|
The
above-described amendments were intended to provide closer parity
to the severance
benefits common in the industry based upon the advice of the Company’s
compensation consultant, Fredrick W. Cook.
The
severance and change of control provisions in the Company’s executive employment
agreements are designed to achieve the following objectives. In the normal
course of the Company’s business, the Company engages in discussions with other
organizations regarding possible collaborations or other business combinations
that may be in the best long-term interests of the Company’s stockholders. The
Company’s employment agreements provide for severance compensation if the
executive is terminated as result of such combination in order to provide
management with incentive for continuity during the transaction and to promote
the active consideration of such combinations. Termination of the executive
without cause or for good reason also triggers a severance payment due in part
to the non-compete and non-solicitation provisions in these employment
agreements. These terms are comparable to those offered by companies in industry
surveys and reduce management conflicts of interest where a change of control is
in the best interests of the Company’s stockholders.
Tax
Deductibility of Pay
Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Tax Code”), places
a limit of $1,000,000 on the amount of compensation that the Company may deduct
in any one year with respect to each of its five most highly paid executive
officers. There is an exception to the $1,000,000 limitation for
performance-based compensation meeting certain requirements. Annual cash
incentive compensation, stock option awards and other awards generally are
performance-based compensation meeting those requirements and, as such, are
fully deductible. The Company’s stock options are designed to be performance
based compensation. To maintain flexibility in compensating executive officers
in a manner designed to promote varying corporate goals, the Compensation
Committee has not adopted a policy requiring all compensation to be deductible.
This circumstance has not arisen in the company’s history and the Board of
Directors believes that any such circumstance would be handled on a case-by-case
basis.
Compensation
of Named Executive Officers
Summary
Compensation Table
|
The
following table sets forth information regarding compensation paid during 2007
and 2006 to the Company’s Chief Executive Officer, the Company’s Chief Financial
Officer, and each of the Company’s other three most highly compensated executive
officers for the year ended December 31, 2007 and to one additional
executive officer whose employment was terminated prior to December 31, 2007
(collectively the “named executive officers”). The Summary Compensation Table
and the Grants of Plan-Based Awards Table should be viewed together to best
understand the short and long-term incentive compensation elements of the
Company’s program.
For each
officer in the table below, the amounts shown in each column represent
compensation earned or accrued in 2007 and 2006, whether or not such
amounts were actually paid in 2007 and 2006.
Named
Executive Officer
and
Principal
Position
|
Year
|
|
Salary
($)
|
|
|
Option
Awards(1)
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation(2)
($)
|
|
|
All
Other
Compensation(3)
($)
|
|
|
Total
($)
|
|
(a)
|
(b)
|
|
(c)
|
|
|
(f)
|
|
|
(g)
|
|
|
(i)
|
|
|
(j)
|
|
William
H. Koster
Chief
Executive Officer(4)
|
2007
|
|
|
455,848 |
|
|
|
433,173 |
|
|
|
113,962 |
|
|
|
14,130 |
|
|
|
1,017,113 |
|
|
2006
|
|
|
442,571 |
|
|
|
199,629 |
|
|
|
179,020 |
|
|
|
16,294 |
|
|
|
837,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
R. Davis
President,
Executive Vice
President,
Interim Chief Financial Officer and Chief Operating
Officer
|
2007
|
|
|
353,145 |
|
|
|
544,460 |
|
|
|
65,091 |
|
|
|
15,222 |
|
|
|
977,918 |
|
|
2006
|
|
|
312,395 |
|
|
|
133,086 |
|
|
|
90,095 |
|
|
|
24,920 |
|
|
|
560,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Hutchison
Executive
Vice
President,
Discovery
Research
|
2007
|
|
|
323,355 |
|
|
|
405,587 |
|
|
|
61,599 |
|
|
|
15,222 |
|
|
|
805,763 |
|
|
2006
|
|
|
313,938 |
|
|
|
116,450 |
|
|
|
78,076 |
|
|
|
24,920 |
|
|
|
533,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
E. Krause
Senior
Vice President,
Biology
|
2007
|
|
|
270,842 |
|
|
|
338,908 |
|
|
|
48,074 |
|
|
|
15,161 |
|
|
|
672,985 |
|
|
2006
|
|
|
262,953 |
|
|
|
99,814 |
|
|
|
58,770 |
|
|
|
24,832 |
|
|
|
446,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bertrand
L. Chenard
Senior
Vice President,
Chemistry
|
2007
|
|
|
262,650 |
|
|
|
338,908 |
|
|
|
43,666 |
|
|
|
15,144 |
|
|
|
660,368 |
|
|
2006
|
|
|
255,000 |
|
|
|
99,814 |
|
|
|
55,718 |
|
|
|
62,470 |
|
|
|
473,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Uden
Executive
Vice
President
and Head
of
Research and
Development(5)
|
2007
|
|
|
246,855 |
|
|
|
366,966 |
|
|
|
0 |
|
|
|
15,143 |
|
|
|
628,964 |
|
|
2006
|
|
|
338,350 |
|
|
|
133,086 |
|
|
|
102,317 |
|
|
|
25,460 |
|
|
|
599,213 |
|
Notes:
(1)
|
Represents
the compensation expense of stock options granted in the current and prior
years for financial reporting purposes for the year ended December 31,
2007 under SFAS 123(R). See Note 7 to the Company’s consolidated financial
statements, as set forth in the
Company’s 2007 Form 10-K for the assumptions made in determining SFAS
123(R) values, except that for purposes of the amounts shown, no
forfeitures were assumed to take place.
|
(2)
|
The
amount reported in this column reflects the value of cash incentive
bonuses earned in the year reported but paid in the following year under
the Company’s Annual Cash Incentive Plan.
|
(3)
|
All
Other Compensation for fiscal 2007, as shown in column (i), is detailed in
the table below.
|
(4)
|
Dr.
Koster retired as President and Chief Executive Officer of Neurogen in
February 2008.
|
(5)
|
Dr.
Uden’s employment terminated on September 14, 2007, and as a result, Dr.
Uden was not eligible to receive a bonus for fiscal
2007.
|
All Other
Compensation
The table
below sets forth each element comprising each named executive officer’s “All
Other Compensation” for 2007 from the Summary Compensation Table,
above.
Named
Executive Officer
|
|
Life,
Accidental
Death
and Dismemberment Insurance Premiums ($)
|
|
|
401(k)
Match
($)
|
|
|
Total
($)
|
|
William
H. Koster
|
|
|
630 |
|
|
|
13,500 |
|
|
|
14,130 |
|
Stephen
R. Davis
|
|
|
1,722 |
|
|
|
13,500 |
|
|
|
15,222 |
|
Alan
J. Hutchison
|
|
|
1,722 |
|
|
|
13,500 |
|
|
|
15,222 |
|
James
E. Krause
|
|
|
1,661 |
|
|
|
13,500 |
|
|
|
15,161 |
|
Bertrand
L. Chenard
|
|
|
1,644 |
|
|
|
13,500 |
|
|
|
15,144 |
|
Stephen Uden
(1)
|
|
|
1,643 |
|
|
|
13,500 |
|
|
|
15,143 |
|
______________
Notes:
(1)
|
Dr.
Uden’s employment terminated on September 14,
2007.
|
Grants
of Plan-Based Awards as of December 31,
2007
|
The
following table shows the grants of awards made pursuant to the Amended and
Restated Neurogen Corporation 2001 Stock Option Plan, as amended, to each named
executive officer in 2007.
|
Estimated Future
Payouts
Under
Non-Equity Incentive
Plan
Awards
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
|
Exercise
Price
Of
Option
Awards
|
Grant
Date
Fair
Value
of
Stock
and
Options
|
|
|
|
|
|
|
Grant
|
Threshold(4)
|
Target(4)
|
Maximum(4)
|
Name
|
Date
|
($)
|
($)
|
($)
|
(#)(1)
|
($/Sh) (2)
|
($)(3)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
William H.
Koster
|
1/17/07
|
-
|
228,000
|
|
90,000
|
6.20
|
322,608
|
|
12/20/07
|
-
|
-
|
-
|
31,500
|
3.56
|
60,979
|
|
|
|
|
|
|
|
|
Stephen R.
Davis
|
1/17/07
|
-
|
122,850
|
-
|
120,000
|
6.20
|
430,141
|
|
12/20/07
|
-
|
-
|
-
|
26,250
|
3.56
|
50,818
|
|
|
|
|
|
|
|
|
Alan J.
Hutchison
|
1/17/07
|
-
|
96,900
|
-
|
90,000
|
6.20
|
322,608
|
|
12/20/07
|
-
|
-
|
-
|
18,375
|
3.56
|
35,571
|
|
|
|
|
|
|
|
|
James E.
Krause
|
1/17/07
|
-
|
67,750
|
-
|
75,000
|
6.20
|
268,835
|
|
12/20/07
|
-
|
-
|
-
|
15,750
|
3.56
|
30,491
|
|
|
|
|
|
|
|
|
Bertrand L.
Chenard
|
1/17/07
|
-
|
65,750
|
-
|
75,000
|
6.20
|
268,835
|
|
12/20/07
|
-
|
-
|
-
|
15,750
|
3.56
|
30,491
|
|
|
|
|
|
|
|
|
Stephen Uden
|
1/17/07
|
-
|
86,400
|
-
|
90,000
|
6.20
|
322,604
|
|
|
|
|
|
|
|
|
______________
Notes:
(1)
|
Stock
options granted in 2007 vest in 25% increments beginning on the first
anniversary of the grant and on each anniversary thereafter. They expire
in increments 5 years from each date of vesting.
|
(2)
|
The
exercise price is equal to the closing market price of the Company’s
Common Stock on the date of grant.
|
(3)
|
Represents
the grant date fair value of awards in accordance with SFAS
123(R).
|
(4)
|
Represents
potential payments made under the Company’s annual cash incentive plan for
fiscal 2007. The employment agreements of the Company’s
executive officers specify the target awards payable, as a percentage of
base salary, which range from 25% to 50% of base salary. There is no
threshold or minimum amount that may be awarded nor is there a maximum
amount that may be awarded. Awards are payable based on
achievement of corporate objectives and individual objectives, with
varying weighting based on position. The corporate objectives
can be assessed an achievement percentage from 1 to 150% by the
Compensation Committee. Actual awards made in 2007 are shown in
column (g) of the Summary Compensation Table. For a further
discussion of the Company’s annual cash incentive plan, see the
“Compensation Discussion and
Analysis.”
|
The
following table shows the number and value of stock options (exercisable and
not) held on December 31, 2007 by the named executive officers. There
were no vested restricted shares held on December 31, 2007 by any of the named
executive officers.
Name
|
|
|
Grant
Date
|
|
|
Number
of Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
|
Number
of Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Option
Vesting Date
|
|
(a)
|
|
|
|
|
|
(b)
|
|
|
(c)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
|
William
H. Koster
|
|
|
9/4/2001
|
|
|
|
400,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2011
|
|
|
|
|
(3) |
|
|
|
5/1/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
5/1/2008
|
|
|
5/1/2003
|
|
|
|
|
5/1/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
5/1/2009
|
|
|
5/1/2004
|
|
|
|
|
5/1/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
5/1/2010
|
|
|
5/1/2005
|
|
|
|
|
12/19/2002
|
|
|
|
10,500 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2008
|
|
|
12/19/2003
|
|
|
|
|
12/19/2002
|
|
|
|
10,500 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2009
|
|
|
12/19/2004
|
|
|
|
|
12/19/2002
|
|
|
|
10,500 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2010
|
|
|
12/19/2005
|
|
|
|
|
12/19/2002
|
|
|
|
10,500 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2011
|
|
|
12/19/2006
|
|
|
|
|
12/15/2003
|
|
|
|
13,500 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2008/2008
|
|
|
12/15/2004
|
|
|
|
|
12/15/2003
|
|
|
|
13,500 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2010
|
|
|
12/15/2005
|
|
|
|
|
12/15/2003
|
|
|
|
13,500 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2011
|
|
|
12/15/2006
|
|
|
|
|
12/15/2003
|
|
|
|
13,500 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
12/21/2004
|
|
|
|
30,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2010
|
|
|
12/21/2005
|
|
|
|
|
12/21/2004
|
|
|
|
30,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2011
|
|
|
12/21/2006
|
|
|
|
|
12/21/2004
|
|
|
|
30,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2012
|
|
|
12/21/2007
|
|
|
|
|
12/21/2004
|
|
|
|
- |
|
|
|
30,000 |
|
|
|
9.05 |
|
|
12/21/2013
|
|
|
12/21/2008
|
|
|
|
|
12/16/2005
|
|
|
|
11,880 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2011
|
|
|
12/16/2006
|
|
|
|
|
12/16/2005
|
|
|
|
11,880 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2012
|
|
|
12/16/2007
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
11,880 |
|
|
|
7.88 |
|
|
12/16/2013
|
|
|
12/16/2008
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
11,880 |
|
|
|
7.88 |
|
|
12/16/2014
|
|
|
12/16/2009
|
|
|
|
|
12/15/2006
|
|
|
|
13,650 |
|
|
|
- |
|
|
|
5.78 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
13,650 |
|
|
|
5.78 |
|
|
12/15/2013
|
|
|
12/15/2008
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
13,650 |
|
|
|
5.78 |
|
|
12/15/2014
|
|
|
12/15/2009
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
13,650 |
|
|
|
5.78 |
|
|
12/15/2015
|
|
|
12/15/2010
|
|
|
|
|
1/17/2007
|
|
|
|
- |
|
|
|
90,000 |
|
|
|
6.20 |
|
|
1/17/2015
|
|
|
1/17/2010
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
7,875 |
|
|
|
3.56 |
|
|
12/20/2013
|
|
|
12/20/2008
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
7,875 |
|
|
|
3.56 |
|
|
12/20/2014
|
|
|
12/20/2009
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
7,875 |
|
|
|
3.56 |
|
|
12/20/2015
|
|
|
12/20/2010
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
7,876 |
|
|
|
3.56 |
|
|
12/20/2016
|
|
|
12/20/2011
|
|
Stephen R.
Davis
|
|
|
12/31/1998
|
|
|
|
15,750 |
|
|
|
- |
|
|
|
17.50 |
|
|
12/31/2008
|
|
|
|
|
(2) |
|
|
|
12/19/2002
|
|
|
|
8,750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2010
|
|
|
12/19/2005
|
|
|
|
|
12/19/2002
|
|
|
|
8750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2011
|
|
|
12/19/2006
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2009
|
|
|
12/15/2004
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2010
|
|
|
12/15/2005
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2011
|
|
|
12/15/2006
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
|
|
|
|
8.79 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
12/21/2004
|
|
|
|
25,000 |
|
|
|
|
|
|
|
9.05 |
|
|
12/21/2010
|
|
|
12/21/2005
|
|
|
|
|
12/21/2004
|
|
|
|
25,000 |
|
|
|
|
|
|
|
9.05 |
|
|
12/21/2011
|
|
|
12/21/2006
|
|
|
|
|
12/21/2004
|
|
|
|
25,000 |
|
|
|
|
|
|
|
9.05 |
|
|
12/21/2012
|
|
|
12/21/2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
12/16/2005
|
|
|
|
6,930 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2011
|
|
|
12/16/2006
|
|
|
|
|
|
12/16/2005
|
|
|
|
6,930 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2012
|
|
|
12/16/2007
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
6,930 |
|
|
|
7.88 |
|
|
12/16/2013
|
|
|
12/16/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
6,930 |
|
|
|
7.88 |
|
|
12/16/2014
|
|
|
12/16/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
9,100 |
|
|
|
- |
|
|
|
5.78 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
9,100 |
|
|
|
5.78 |
|
|
12/15/2013
|
|
|
12/15/2008
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
9,100 |
|
|
|
5.78 |
|
|
12/15/2014
|
|
|
12/15/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
9,100 |
|
|
|
5.78 |
|
|
12/15/2015
|
|
|
12/15/2010
|
|
|
|
|
|
1/17/2007
|
|
|
|
- |
|
|
|
120,000 |
|
|
|
6.20 |
|
|
1/17/2015
|
|
|
1/17/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
6,563 |
|
|
|
3.56 |
|
|
12/20/2013
|
|
|
12/20/2008
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
6,563 |
|
|
|
3.56 |
|
|
12/20/2014
|
|
|
12/20/2009
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
6,562 |
|
|
|
3.56 |
|
|
12/20/2015
|
|
|
12/20/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
6,562 |
|
|
|
3.56 |
|
|
12/20/2016
|
|
|
12/20/2011
|
|
Stephen Uden(3)
|
|
|
6/27/2005
|
|
|
|
40,000 |
|
|
|
- |
|
|
|
7.00 |
|
|
3/14/2008
|
|
|
6/27/2006
|
|
|
|
|
|
6/27/2005
|
|
|
|
40,000 |
|
|
|
- |
|
|
|
7.00 |
|
|
3/14/2008
|
|
|
6/27/2007
|
|
|
|
|
|
12/16/2005
|
|
|
|
3,960 |
|
|
|
- |
|
|
|
7.88 |
|
|
3/14/2008
|
|
|
12/16/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Hutchison
|
|
|
12/31/1998
|
|
|
|
18,750 |
|
|
|
- |
|
|
|
17.50 |
|
|
12/31/2008
|
|
|
|
|
(2) |
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2008
|
|
|
9/4/2003
|
|
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2009
|
|
|
9/4/2004
|
|
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.30 |
|
|
9/4/2010
|
|
|
9/4/2005
|
|
|
|
|
|
12/31/2001
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2008
|
|
|
12/31/2003
|
|
|
|
|
|
12/31/2001
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2009
|
|
|
12/31/2004
|
|
|
|
|
|
12/31/2001
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2010
|
|
|
12/31/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2008
|
|
|
12/19/2003
|
|
|
|
|
|
12/19/2002
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2009
|
|
|
12/19/2004
|
|
|
|
|
|
12/19/2002
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2010
|
|
|
12/19/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2011
|
|
|
12/19/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2009
|
|
|
12/15/2004
|
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2010
|
|
|
12/15/2005
|
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2011
|
|
|
12/15/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
7,875 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2010
|
|
|
5/21/2005
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2011
|
|
|
5/21/2006
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2012
|
|
|
5/21/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
- |
|
|
|
12,500 |
|
|
|
9.50 |
|
|
5/21/2013
|
|
|
5/21/2008
|
|
|
|
|
|
12/21/2004
|
|
|
|
7,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2010
|
|
|
12/21/2005
|
|
|
|
|
|
12/21/2004
|
|
|
|
7,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2011
|
|
|
12/21/2006
|
|
|
|
|
|
12/21/2004
|
|
|
|
7,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2012
|
|
|
12/21/2007
|
|
|
|
|
|
12/21/2004
|
|
|
|
- |
|
|
|
7,000 |
|
|
|
9.05 |
|
|
12/21/2013
|
|
|
12/21/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
6,930 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2011
|
|
|
12/16/2006
|
|
|
|
|
|
12/16/2005
|
|
|
|
6,930 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2012
|
|
|
12/16/2007
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
6,930 |
|
|
|
7.88 |
|
|
12/16/2013
|
|
|
12/16/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
6,930 |
|
|
|
7.88 |
|
|
12/16/2014
|
|
|
12/16/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
7,963 |
|
|
|
- |
|
|
|
5.78 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
7,963 |
|
|
|
5.78 |
|
|
12/15/2013
|
|
|
12/15/2008
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
7,962 |
|
|
|
5.78 |
|
|
12/15/2014
|
|
|
12/15/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
7,962 |
|
|
|
5.78 |
|
|
12/15/2015
|
|
|
12/15/20010
|
|
|
|
|
|
1/17/2007
|
|
|
|
- |
|
|
|
90,000 |
|
|
|
6.20 |
|
|
1/17/2015
|
|
|
1/17/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
4,594 |
|
|
|
3.56 |
|
|
12/20/2013
|
|
|
12/20/2008
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
4,594 |
|
|
|
3.56 |
|
|
12/20/2014
|
|
|
12/20/2009
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
4,594 |
|
|
|
3.56 |
|
|
12/20/2015
|
|
|
12/20/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
4,593 |
|
|
|
3.56 |
|
|
12/20/2016
|
|
|
12/20/2011
|
|
James E.
Krause
|
|
|
12/31/1998
|
|
|
|
7,500 |
|
|
|
- |
|
|
|
17.50 |
|
|
12/31/2008
|
|
|
|
|
(2) |
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2008
|
|
|
9/4/2003
|
|
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2009
|
|
|
9/4/2004
|
|
|
|
|
|
9/4/2001
|
|
|
|
5,000 |
|
|
|
- |
|
|
|
19.39 |
|
|
9/4/2010
|
|
|
9/4/2005
|
|
|
|
|
|
12/31/2001
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2008
|
|
|
12/31/2003
|
|
|
|
|
|
12/31/2001
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2009
|
|
|
12/31/2004
|
|
|
|
|
|
12/31/2001
|
|
|
|
1,250 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2010
|
|
|
12/31/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2008
|
|
|
12/19/2003
|
|
|
|
|
|
12/19/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2009
|
|
|
12/19/2004
|
|
|
|
|
|
12/19/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2010
|
|
|
12/19/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
3,750 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2011
|
|
|
12/19/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
6,750 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2009
|
|
|
12/15/2004
|
|
|
|
|
|
12/15/2003
|
|
|
|
6,750 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2010
|
|
|
12/15/2005
|
|
|
|
|
|
12/15/2003
|
|
|
|
6,750 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2011
|
|
|
12/15/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
6,750 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2010
|
|
|
5/21/2005
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2011
|
|
|
5/21/2006
|
|
|
|
|
|
5/21/2004
|
|
|
|
12,500 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2012
|
|
|
5/21/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
- |
|
|
|
12,500 |
|
|
|
9.50 |
|
|
5/21/2013
|
|
|
5/21/2008
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2010
|
|
|
12/21/2005
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2011
|
|
|
12/21/2006
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2012
|
|
|
12/21/2007
|
|
|
|
|
|
12/21/2004
|
|
|
|
- |
|
|
|
6,000 |
|
|
|
9.05 |
|
|
12/21/2013
|
|
|
12/21/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
5,940 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2011
|
|
|
12/16/2006
|
|
|
|
|
|
12/16/2005
|
|
|
|
5,940 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2012
|
|
|
12/16/2007
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
5,940 |
|
|
|
7.88 |
|
|
12/16/2013
|
|
|
12/16/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
5,940 |
|
|
|
7.88 |
|
|
12/16/2014
|
|
|
12/16/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
6,825 |
|
|
|
- |
|
|
|
5.78 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2013
|
|
|
12/15/2008
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2014
|
|
|
12/15/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2015
|
|
|
12/15/2010
|
|
|
|
|
|
1/17/2007
|
|
|
|
- |
|
|
|
75,000
,96 |
|
|
|
6.20 |
|
|
1/17/2015
|
|
|
01/17/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,938 |
|
|
|
3.56 |
|
|
12/20/2013
|
|
|
12/20/2008
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,938 |
|
|
|
3.56 |
|
|
12/20/2014
|
|
|
12/20/2009
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,937 |
|
|
|
3.56 |
|
|
12/20/2015
|
|
|
12/20/20010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,937 |
|
|
|
3.56 |
|
|
12/20/2016
|
|
|
12/20/2011
|
|
Bertrand
L. Chenard
|
|
|
9/24/2001
|
|
|
|
40,000 |
|
|
|
- |
|
|
|
15.25 |
|
|
9/24/2011
|
|
|
|
|
(4) |
|
|
|
|
12/31/2001
|
|
|
|
1,000 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/200812
|
|
|
12/31/2003
|
|
|
|
|
|
12/31/2001
|
|
|
|
1,000 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2009
|
|
|
12/31/2004
|
|
|
|
|
|
12/31/2001
|
|
|
|
1,000 |
|
|
|
- |
|
|
|
17.48 |
|
|
12/31/2010
|
|
|
12/31/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
6,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2008
|
|
|
12/19/2003
|
|
|
|
|
|
12/19/2002
|
|
|
|
6,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2009
|
|
|
12/19/2004
|
|
|
|
|
|
12/19/2002
|
|
|
|
6,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2010
|
|
|
12/19/2005
|
|
|
|
|
|
12/19/2002
|
|
|
|
6,250 |
|
|
|
- |
|
|
|
3.87 |
|
|
12/19/2011
|
|
|
12/19/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
5,625 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2009
|
|
|
12/15/2004
|
|
|
|
|
|
12/15/2003
|
|
|
|
5,625 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2010
|
|
|
12/15/2005
|
|
|
|
|
|
12/15/2003
|
|
|
|
5,625 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2011
|
|
|
12/15/2006
|
|
|
|
|
|
12/15/2003
|
|
|
|
5,625 |
|
|
|
- |
|
|
|
8.79 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
10,000 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2010
|
|
|
5/21/2005
|
|
|
|
|
|
5/21/2004
|
|
|
|
10,000 |
|
|
|
- |
|
|
|
9.50 |
|
|
5/21/2011
|
|
|
5/21/2006
|
|
|
|
|
|
5/21/2004
|
|
|
|
10,000 |
|
|
|
|
|
|
|
9.50 |
|
|
5/21/2012
|
|
|
5/21/2007
|
|
|
|
|
|
5/21/2004
|
|
|
|
- |
|
|
|
10,000 |
|
|
|
9.50 |
|
|
5/21/2013
|
|
|
5/21/2008
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2010
|
|
|
12/21/2005
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2011
|
|
|
12/21/2006
|
|
|
|
|
|
12/21/2004
|
|
|
|
6,000 |
|
|
|
- |
|
|
|
9.05 |
|
|
12/21/2012
|
|
|
12/21/2007
|
|
|
|
|
|
12/21/2004
|
|
|
|
- |
|
|
|
6,000 |
|
|
|
9.05 |
|
|
12/21/2013
|
|
|
12/21/2008
|
|
|
|
|
|
12/16/2005
|
|
|
|
5,940 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2011
|
|
|
12/16/2005
|
|
|
|
|
|
12/16/2005
|
|
|
|
5,940 |
|
|
|
- |
|
|
|
7.88 |
|
|
12/16/2012
|
|
|
12/16/2006
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
5,940 |
|
|
|
7.88 |
|
|
12/16/2013
|
|
|
12/16/2007
|
|
|
|
|
|
12/16/2005
|
|
|
|
- |
|
|
|
5,940 |
|
|
|
7.88 |
|
|
12/16/2014
|
|
|
12/16/2008
|
|
|
|
|
|
12/15/2006
|
|
|
|
6,825 |
|
|
|
- |
|
|
|
5.78 |
|
|
12/15/2012
|
|
|
12/15/2007
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2013
|
|
|
12/15/2008
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2014
|
|
|
12/15/2009
|
|
|
|
|
|
12/15/2006
|
|
|
|
- |
|
|
|
6,825 |
|
|
|
5.78 |
|
|
12/15/2015
|
|
|
12/15/2010
|
|
|
|
|
|
1/17/2007
|
|
|
|
- |
|
|
|
75,000 |
|
|
|
6.20 |
|
|
1/17/2015
|
|
|
1/17/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,938 |
|
|
|
3.56 |
|
|
12/20/2013
|
|
|
12/20/2008
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,938 |
|
|
|
3.56 |
|
|
12/20/2014
|
|
|
12/20/2009
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,937 |
|
|
|
3.56 |
|
|
12/20/2015
|
|
|
12/20/2010
|
|
|
|
|
|
12/20/2007
|
|
|
|
- |
|
|
|
3,937 |
|
|
|
3.56 |
|
|
12/20/2016
|
|
|
12/20/2011
|
|
______________
Notes:
(1)
|
Original
grant vested in 5 equal installments on 9/4/2002, 9/4/2003, 9/4/2004,
9/4/2005 and 9/4/2006.
|
(2)
|
Original
grant vested in 5 equal installments on 12/31/1999, 12/31/2000,
12/31/2001, 12/31/2002 and 12/31/2003.
|
(3)
|
Dr.
Uden’s employment terminated on 9/14/2007.
|
(4)
|
Original
grant vested in 5 equal installments on 9/24/2002, 9/24/2003, 9/24/2004,
9/24/2005 and 9/24/2006.
|
This
table provides information regarding outstanding equity awards that have been
granted but the ultimate outcomes of which have not yet been
realized.
Option
Exercises and Stock Vested as of December 31, 2007
The
following table shows information concerning the value realized by each
named executive officer upon the exercise of stock options and the vesting
of restricted shares during 2007.
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of Shares
Acquired
on Exercise
(#)
|
|
|
Value
Realized
on Exercise(1)
($)
|
|
|
Number
of Shares
Acquired
on Vesting
(#)
|
|
|
Value
Realized
on Vesting(2)
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
William
H. Koster
|
|
|
- |
|
|
|
- |
|
|
|
0 |
|
|
|
0 |
|
Stephen
R. Davis
|
|
|
6,250 |
|
|
|
21,563 |
|
|
|
0 |
|
|
|
0 |
|
Alan
J. Hutchison
|
|
|
12,500 |
|
|
|
43,125 |
|
|
|
25,000 |
|
|
|
174,000 |
|
James
E. Krause
|
|
|
- |
|
|
|
- |
|
|
|
7,500 |
|
|
|
23,213 |
|
Bertrand
L. Chenard
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
______________
Notes:
(1)
|
The
value realized upon the exercise of stock options is based on the
difference between the exercise price per share paid by the named
executive officer and the closing market price of the Company’s Common
Stock on the exercise date.
|
(2)
|
The
value realized upon the vesting of restricted shares is based on the
number of shares to be vested and the average of the high and low market
price of the Company’s Common Stock on the vesting
date.
|
Terms
and Conditions of Certain Employment and Severance Agreements; Change of
Control
Employment
Agreements
The
Company has entered into employment agreements with each of its executive
officers that provide certain payments and benefits in the event that the
executive is terminated without cause or disability (as defined below) or the
executive terminates his employment for good reason (as defined
below).
Mr. Stephen Davis and Drs. Alan
Hutchison, Bertrand Chenard, James Krause and Stephen Uden. In May 2007,
the Company entered into amended and restated employment agreements with
Mr. Davis, the Company’s Chief Executive Officer, Dr. Hutchison, the
Company’s Executive Vice President, Discovery Research and Dr. Uden, the
Company’s former Executive Vice President and Head of Research and Development,
which amended the previously entered into employment agreements dated December
1, 1997, and the Company entered into employment agreements with Drs.
Krause and Chenard, the Company’s Senior Vice Presidents. All of
these agreements are on substantially similar terms.
Each of
the executive employment agreements are one-year renewable employment agreements
(other than Mr. Davis and Dr. Hutchison, whose agreements are for two year
terms). The employment agreements provide for additional payments to be made to
the executive upon the termination of his employment for any of the following
reasons:
·
|
If
the executive is terminated without cause, or if the executive terminates
his employment for good reason not in connection with a change of control,
he will be entitled to: (i) a lump sum payment in an amount equal to his
base salary, (ii) continuation of the health and welfare benefits (or the
economic equivalent thereof) for one year after the termination and (iii)
the right to exercise immediately any stock options and to freely trade
any restricted stock that, but for such termination, would have become
exercisable or tradable, as the case may be, within one year of the date
of such termination.
|
·
|
In
addition to the foregoing, if the executive (other than Dr. Uden) is
terminated without cause or terminates his employment for good reason as a
result of a change of control (including without limitation any
termination within two years of a change of control) then he shall also be
entitled to a lump sum payment in an amount equal to the greater of: (i)
his then targeted annual bonus or (ii) his annual bonus immediately prior
to the change of control. Dr. Uden’s and Mr. Davis’s employment
agreements further provide that in the event of a change of control, on
the first annual anniversary of the effective date of such change of
control, all stock options granted to Dr. Uden or Mr. Davis prior to the
effective date of the change of control that have not otherwise vested or
expired shall automatically vest and be exercisable by Dr. Uden or Mr.
Davis, as applicable.
|
·
|
If
the executive’s employment is terminated due to disability, the executive
will be entitled to: (i) continuation of payment of his base salary until
he commences to receive payments under the Company’s long-term disability
plan, (ii) continuation of the health and welfare benefits (or the
economic equivalent thereof) for one year after the date of termination
and (iii) the right to exercise immediately that proportion of the stock
options which would become exercisable on or before the December 1
immediately following the date of termination equal to the number of days
worked by the executive since the preceding December 1 to the termination
date, divided by 365 days.
|
·
|
If
the Company provides the executive with a notice of non-renewal for the
employment agreement in accordance with the notice provisions of the
agreement, the executive will be entitled to: (i) continuation of payment
of his base salary for a period equal to one year less the number of days
notice given by the Company to the executive that it does not wish to
extend or further extend the employment agreement, (ii) continuation of
the health and welfare benefits (or the economic equivalent) for one year
after such termination and (iii) the right to exercise immediately any
stock options and to trade freely any restricted stock granted to the
executive which, but for such termination, would have become exercisable
or freely tradable, as the case may be, on or before the December 1
immediately following the date on which the continuation of his base
salary ends; provided, however, that the amounts paid to the executive in
the form of continued base salary payments shall be offset on a dollar for
dollar basis by any cash, or the fair market value of any non-cash,
remuneration, benefit or other entitlement earned, received or receivable
by him in connection with the employment of him in any capacity, other
than dividends, interest income or other passive investment income earned
as a result of an interest in a business or entity of which he owns less
than 2% of the beneficial
ownership.
|
The
employment agreements restrict the executives from competing with the Company
for the term of the agreement and for a period of one year after the termination
of the employment. The agreements automatically renew every year for
an additional one-year term (other than Mr. Davis and Dr. Hutchison, whose
agreements are for two year terms), unless either party gives notice of
termination at least three months prior to the anniversary of the
agreement.
Dr. William H.
Koster
In
February 2008, the Company announced that Dr. Koster, consistent with previously
announced succession planning, retired as the Company’s President and Chief
Executive Officer. Dr. Koster will remain a member of the Company’s Board of
Directors until the Company’s 2008 annual meeting of stockholders on July 25,
2008. Dr. Koster was not entitled to any payments or benefits under his
agreement in connection with his termination.
The
employment agreement provided for payments to be made to Dr. Koster upon the
termination of his employment for any of the following reasons:
·
|
If
Dr. Koster was terminated without cause (as defined below), or if he
terminated his employment for good reason (as defined below), he was
entitled to: (i) a lump sum payment in an amount equal to the sum of (A)
his base salary through the end of the employment period plus (B) two
times his mean average annual bonus during his employment (provided that,
if he had not earned an annual bonus prior to termination, the average
annual bonus would be treated as $200,000), (ii) continuation of the
health and welfare benefits (or the economic equivalent thereof) for one
year after the date of termination, (iii) the right to immediately
exercise that proportion of the stock options which would become
exercisable on or before the December 1 immediately following the date of
termination equal to the number of days worked by him since the preceding
December 1 to the termination date, divided by 365 days, (iv) an
additional portion of the stock options granted to him upon execution of
the employment agreement (the “Upfront Stock Options”) would vest equal to
the amount of vesting that would have occurred if he had continued working
for the Company for two additional years and an additional portion of the
restricted stock granted to him upon execution of the employment agreement
(the “Upfront Restricted Stock”) would vest equal to the greater of (A)
the amount of vesting that would have occurred if he had continued working
for the Company for two additional years and (B) 25% of the aggregate of
the award and (v) any other compensation and benefits he would have been
entitled to under the Company’s benefit plans and programs;
provided that any cash severance payment made to him as a result of his
termination would be reduced.
|
·
|
In
the event Dr. Koster was terminated due to disability, he was entitled to:
(i) a lump sum payment in the amount of the product of (A) his mean
average annual bonus during his employment (provided that, if he had
not earned an annual bonus prior to termination, the average annual bonus
would be treated as $200,000) and (B) a fraction, the numerator of which
is the number of days in the fiscal year that had elapsed prior to the
termination date and the denominator of which is 365, (ii) an
additional portion of his Upfront Stock Options would vest
equal to the amount of vesting that would have occurred if he had
continued working for the Company for two additional years and an
additional portion of the his Upfront Restricted Stock would vest equal to
the greater of (A) the amount of vesting that would have occurred if he
had continued working for the Company for
two additional years and (B) 25% of the aggregate of
such award and (iii) any other compensation and benefits he
would have been entitled to under the Company’s benefit plans and
programs.
|
·
|
If
either Dr. Koster or the Company provided notice of non-renewal, in
accordance with the notice provisions of the agreement, he was entitled
to: (i) a lump sum payment in an amount equal to one times the sum of (A)
his base salary and (B) the mean average annual bonus he earned during his
employment; provided that such lump sum payment would decrease any other
severance payment that he would have been entitled to from the
Company.
|
·
|
In
addition, if Dr. Koster was terminated without cause or terminated his
employment for good reason as a result of a change of control (including
without limitation any termination within two years of a change of
control) then he was also entitled to
a
|
·
|
lump
sum payment in an amount equal to: (i) three times the sum of (A) his base
salary and (B) the mean average annual bonus he earned during his
employment (provided that, if he had not earned an annual bonus prior to
termination, the average annual bonus would be treated as $200,000), (ii)
continuation of his health and welfare benefits for 18 months, (iii) 100%
vesting in his Upfront Stock Options and any other annual stock option
grants which were made under the Amended and Restated Neurogen 2001 Stock
Option Plan, as amended (iv) an additional portion of his Upfront
Restricted Stock would vest equal to the greater of (A) the amount of
vesting that would have occurred he had continued working for the Company
for two additional years or (B) 50% of such award, (v) any other
compensation and benefits he would have been entitled to under the
Company’s benefit plans and programs; provided that any cash
severance payment made to him as a result of his termination would be
reduced and (vii) an excise tax gross-up not to exceed
$5,000,000.
|
The
employment agreement restricts Dr. Koster from competing with the Company for
the term of the agreement and for a two year period after termination of his
employment. The agreement with Dr. Koster provided for automatic renewal
for additional one-year terms, unless either party gave notice of termination at
least three months prior to the anniversary of the agreement.
In
connection with the Company’s succession plan, Dr. Koster retired from
employment in February 2008. Dr. Koster was not entitled to any
payments or benefits under his employment agreement in connection with his
retirement.
Definitions. For
purposes of the agreements with the Company’s executives:
“Cause”
is generally defined as one of the following: (i) the executive’s conviction for
commission of a felony, (ii) any willful act or omission by the executive which
constitutes gross misconduct or gross negligence and which results in economic
harm to the Company, (iii) the executive’s habitual drug or alcohol abuse, (iv)
the executive’s willful failure to perform his duties after notice by the
Company, (v) the executive’s participation in any act of dishonesty intended to
result in his material personal enrichment at the expense of the Company or (vi)
the executive’s failure to substantially comply with the terms of the
Proprietary Information and Inventions Agreement between the employee and the
Company.
“Good
Reason” is generally defined for the executive officers (other than Dr. Koster)
as one of the following: (i) the Company permanently relocates its office more
than 50 miles, (ii) the executive’s base salary is materially decreased by
the Company, (iii) the Company fails to obtain the full assumption of the
executive’s employment agreement by a successor entity in the event of an
acquisition of the Company or (iv) the Company liquidates or dissolves or
sells substantially all of its assets. “Good Reason” is generally
defined for Dr. Koster as one of the following: (i) as a result of any
action or inaction by the Company, Dr. Koster suffers a material reduction in
his duties, responsibilities or authority, (ii) his base salary or target annual
bonus is decreased by the Company, (iii) his primary location for rendering
services to the Company is in any state other than Connecticut, Rhode Island,
Massachusetts, Vermont, New Hampshire or Maine, (iv) the Company gives notice of
non-renewal within one year following a change of control and (v) the Company
fails to pay him any amount owed for compensation when due, or provide any
benefits he is entitled to, and the breach is not cured within ten
days.
“Change
of control” is generally defined (i) when any person or persons
acting in concert becomes the beneficial owner of securities of the
Company having more than fifty percent of the voting power of the Company’s
then-outstanding securities, (ii) upon the
consummation of any merger or other business combination of the
Company (a “Transaction”), other than a Transaction immediately following which
those persons who were shareholders of the Company and any trustee or fiduciary
of any Company employee benefit plan immediately prior to the Transaction own
more than fifty percent of the voting power, directly or
indirectly, of the surviving corporation in any such merger or other business
combination, (iii) when, within any twelve month
period, the persons who were directors immediately before
the beginning of such period shall cease (for any reason other than
death) to constitute at least a majority of the Board of Directors of a
successor to the Company or (iv) when a plan of complete liquidation
of the Company shall have been adopted or the holders of voting securities of
the Company shall have approved an agreement for the sale or disposition by the
Company (in one transaction or through a series of transactions) of all or
substantially all of the Company’s assets.
Dr. Uden
In
September 2007, Dr. Uden’s employment was terminated. Dr. Uden was
not entitled to any payments or benefits under his agreement in connection with
his termination. Since his employment terminated prior to fiscal year
end, he is not included in the chart below that quantifies severance and change
of control payments and benefits. The employment agreement with Dr. Uden
restricts him from competing with the Company for the term of the agreement and
for a one year period after termination of his employment.
Drs. Chenard, Hutchison and
Krause
As part
of the restructuring plan that the Company announced in April 2008, the
employment of Drs. Chenard, Hutchison and Krause will terminate in June
2008. Each will be entitled to payments and benefits in connection
with such termination as a “termination without cause” under their employment
agreements.
Equity
Awards
The Company’s equity incentive plans and award
agreements evidencing options and shares of restricted stock granted to its
employees, including the named executive officers, provide that all such options
and shares of restricted stock shall vest in full upon a change of control (as
defined above).
Quantified
Payouts
In
accordance with the requirements of the rules of the SEC, the following table
presents the Company’s reasonable estimate of the benefits payable to the
executive officers under their employment agreements. The payments were
determined presuming that the following events each occurred on
December 31, 2007, the last business day of fiscal 2007: (a) a without
cause/good reason termination, (b) disability, (c) notice of non-renewal, (d) a
change of control termination and (d) a change in control. Excluded are
benefits provided to all employees, such as accrued vacation, and benefits
payable by third parties under the Company’s life and disability insurance
policies. While the table has been prepared using the Company’s reasonable
assumptions regarding the amounts payable, there can be no assurance that in the
event of a termination of employment the named executive officers will receive
the amounts reflected below:
Name/
Trigger
|
Cash
Severance
Amount
|
Accelerated
Vesting
of
Stock
Options(9)
|
Continuation
of
Health
&
Welfare
Benefits(10)
|
Total
|
William
H. Koster(12)
Termination
without Cause/Good Reason.......
Disability..........................................................
Notice
of Non-Renewal.....................................
Change
of Control Termination.......................
Change
of Control...........................................
|
$720,650(1)132,401(2)
$588,249(3)
$ 1,764,747(4)
$0
|
$0
$0
$0
$0
$0
|
$1,274
$1,274
$1,274
$1,911
$0
|
$721,921
$133,675
$589,523
$6,766,658(11)
$0
|
Stephen
R. Davis
Termination
without Cause/Good Reason ......
Disability..........................................................
Notice
of Non-Renewal.....................................
Change
of Control Termination.......................
Change
of Control...........................................
|
$375,000(5)
$187,500(6)
$281,250(7)
$525,000(8)
$0
|
$0
$0
$0
$0
$0
|
$12,052
$12,052
$12,052
$12,052
$0
|
$387,052
$199,552
$293,302
$537,052
$0
|
Alan
J. Hutchison
Termination
without Cause/Good Reason.......
Disability..........................................................
Notice
of Non-Renewal.....................................
Change
of Control Termination.......................
Change
of Control...........................................
|
$323,355(5)
$161,678(6)
$242,516(7)
$420,361(8)
$0
|
$0
$0
$0
$0
$0
|
$12,052
$12,052
$12,052
$12,052
$0
|
$335,407
$173,730
$254,568
$432,413
$0
|
James
E. Krause
Termination
without Cause/Good Reason.......
Disability..........................................................
Notice
of Non-Renewal.....................................
Change
of Control Termination.......................
Change
of Control...........................................
|
$270,842(5)
$135,421(6)
$203,132(7)
$338,553(8)
$0
|
$0
$0
$0
$0
$0
|
$11,991
$11,991
$11,991
$11,991
$0
|
$282,833
$147,412
$215,123
$350,544
$0
|
Bertrand
L. Chenard
Termination
without Cause/Good Reason.......
Disability..........................................................
Notice
of Non-Renewal.....................................
Change
of Control Termination......................
Change
of Control...........................................
|
$262,650(5)
$131,325(6)
$196,988(7)
$328,312(8)
$0
|
$0
$0
$0
$0
$0
|
$1,644
$1,644
$1,644
$1,644
$0
|
$264,294
$132,969
$198,632
$329,956
$0
|
______________
Notes:
(1)
|
Represents
sum of (i) base salary remaining in his employment term (assuming
employment term was to expire on December 31, 2008), (ii) two times his
average annual bonus of $132,401. Assumes no other benefits received from
the Company’s
|
|
benefit
plans which would reduce the payment and (iii) six months base
salary.
|
(2)
|
Represents
the product of (i) his average annual bonus of $132,401 and (ii) 365/365
(assuming termination occurred December 31, 2007, the last day of the
fiscal year). Assumes no other benefits received from the Company’s
benefit plans.
|
(3)
|
Represents
the sum of (i) his base salary and (ii) his average annual bonus of
$132,401.
|
(4)
|
Represents
three times the sum of (i) his base salary and (ii) his average annual
bonus of $132,401. Assumes no other benefits received from the Company’s
benefit plans which would reduce the
payment.
|
(5)
|
Represents
a lump sum payment equal to one year base
salary.
|
(6)
|
Represents
six months salary as after six months the Company’s disability plan starts
to provide payments.
|
(7)
|
Represents
a continued salary payments for one year, less three months (the minimum
notice requirement of non-renewal). Assumes no reduction due to the
executive receiving other income.
|
(8)
|
Represents
an amount equal to the current targeted bonus, which is expressed as a
percentage of base salary. For Mr. Davis, the target bonus
percentage based on his position as president was
used.
|
(9)
|
Represents
the aggregate value of the acceleration of vesting of the executive’s
unvested stock options, based on the spread between the closing price of
the Company’s Common Stock ($3.30) on December 31, 2007 and the stock
options’ exercise prices. Since all of the outstanding options
held by the named executive offices have an exercise price in excess of
$3.30, the value of the appreciation of the stock options is
zero.
|
(10)
|
The
amounts reported in this column for each officer reflect premiums that
would be paid by the Company for group health and welfare benefits for
twelve months after termination of
employment.
|
(11)
|
Includes
an excise tax “gross-up” payment of $5,000,000, which is the maximum
gross-up payment that may be made under Dr. Koster’s
agreement.
|
(12)
|
Dr.
Koster’s employment terminated in February 2008, and Dr. Koster was not
entitled to any payments or benefits under his employment
agreement.
|
The value
of the other benefits discussed below is included in column (g) of the Summary
Compensation Table and detailed in the All Other Compensation table. The Company
provides the Neurogen Corporation 401(k) Retirement Plan. The Company also
provides benefits such as medical, dental and life insurance and disability
coverage in a flexible benefits plan, which is provided to each named executive
officer as well as all other eligible Company employees. Under the flexible
benefits plan, eligible employees, including the named executive officers, have
the option of contributing pre-tax dollars into the plan for medical and/or
dependent care expenses.
401(k)
Plan
Under the
Neurogen Corporation 401(k) Retirement Plan (the “401(k) Plan”), which is a
tax-qualified retirement savings plan, participating employees may contribute up
to 100% of their compensation on a before-tax basis into their 401(k) Plan
account in an amount up to the applicable IRS maximum limit for the year. In
addition, under the 401(k) Plan, the Company matches 100% of all employee
contributions up to 6%. The Company’s matching contributions are generally
invested exclusively in its Common Stock. However, participants may diversify
varying portions of their matching contributions based on their years of
service.
The
current maximum before-tax contribution limit is $15,500 per year (or $20,500
per year for participants age 50 and over). In addition, no more than $230,000
of an employee’s annual compensation may be taken into account in computing
benefits under the 401(k) Plan.
Medical,
Dental, Life Insurance and Disability
Insurance
Medical,
dental, life insurance and disability coverage are available to all full-time
employees through the Company’s active employee flexible benefits plan. The
Company provides up to three times the amount of an employee’s annual salary or
a maximum of $1,000,000, in life insurance coverage and up to a maximum of
$15,000 per month in long-term disability coverage. The value of these benefits
is not required to be included in the Summary Compensation Table since they are
made available to all employees on a Company-wide basis.
Other Paid Time-Off
Benefits
The
Company provides paid vacation as well as certain paid holidays to all
employees, including the named executive officers, and subscribes to industry
surveys to use as a benchmark for these benefits.
Director
Compensation
The
Company does not pay directors who are also the Company’s employees any
additional compensation for their service as directors. Accordingly, for their
service as directors, Dr. Koster and Mr. Davis do not receive any additional
compensation.
The Compensation
Committee reviews the compensation the Company pays to its non-employee
directors. The Committee compares the Board of Directors’ compensation to
compensation paid to non-employee directors by similarly sized public companies
in similar businesses. The Committee also considers the responsibilities
that the Company asks the Board of Directors members to assume and the amount of
time required to perform those responsibilities. Directors of the Company are
also reimbursed for out-of-pocket travel expenses incurred in connection with
their attendance at Board of Directors meetings and other activities on behalf
of the Company.
The
following table lists the compensation structure for chairing and serving on the
Board of Directors and committees of the Board of Directors during
2007.
|
|
|
|
Annual
Retainer
Fees
|
|
|
Annual
Option
Awards
|
|
Chairman
of the
Board
|
|
$ |
100,000 |
|
|
|
|
(3) |
|
|
- |
|
|
|
- |
|
Chairman
of the Audit
Committee
|
|
$ |
25,000 |
|
|
|
|
(2)(3) |
|
|
2,500 |
|
|
|
|
(4) |
Chairman
of the Compensation, Governance, or Science Committee
|
|
$ |
5,000 |
|
|
|
|
(3) |
|
|
2,500 |
|
|
|
|
(4)(5) |
Member
of the Board of
Directors
|
|
$ |
25,000 |
|
|
|
|
(3) |
|
|
10,000 |
|
|
|
|
(1) |
Members
of Audit, Governance, Compensation, or Science Committee
|
|
|
- |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
(4)(5) |
______________
Notes:
(1)
|
Granted
in quarterly increments of 2,500 options.
|
(2)
|
Annual
maximum of $5,000 to a director if a director chairs more than one
committee with the exception of the chair of the Audit Committee, who
receives $25,000 annually for that position.
|
(3)
|
All
annual retainers are paid in quarterly installments.
|
(4)
|
Granted
annually upon appointment to each committee.
|
(5)
|
Annual
maximum of 5,000 options to a director for committee
service.
|
All
options are granted from the 2000 Non-Employee Directors Stock Option Plan at
the closing price of the Company’s Common Stock on the date of grant. Annual
grants vest in twelve equal installments over one year and expire 10 years from
the date of grant. Committee grants vest in three equal installments over three
months and expire 10 years from date of grant.
The
following table summarizes the compensation of the Company’s directors for the
year ended December 31, 2007.
Director
Compensation as of December 31, 2007
|
|
|
Name
|
|
Fees
Earned or
Paid
in Cash ($)
|
|
|
Option
Awards
($)
(1)
(2) (3)
|
|
|
Total
($)
|
(a)
|
|
(b)
|
|
|
(d)
|
|
|
(h)
|
Felix
J. Baker, Ph.D.
|
|
|
25,000 |
|
|
|
46,019 |
|
|
|
71,019 |
|
Julian
C. Baker
|
|
|
30,000 |
|
|
|
59,023 |
|
|
|
89,023 |
|
Eran
Broshy
|
|
|
30,000 |
|
|
|
59,023 |
|
|
|
89,023 |
|
Stewart
Hen
|
|
|
25,000 |
|
|
|
53,822 |
|
|
|
78,822 |
|
Jonathan
S. Leff
|
|
|
25,000 |
|
|
|
46,019 |
|
|
|
71,019 |
|
Craig
Saxton, M.D.
|
|
|
130,000 |
|
|
|
64,225 |
|
|
|
194,225 |
|
John
Simon, Ph.D.
|
|
|
50,000 |
|
|
|
59,023 |
|
|
|
109,023 |
|
Notes:
(1)
|
Represents
the compensation costs for financial reporting purposes for the year ended
December 31, 2007 under SFAS 123(R). See Note 7 Stock Options and
Restricted Stock in the Company’s consolidated financial
statements as set forth in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007, for the assumptions made in
determining SFAS 123(R) values, except that for purposes of the amounts
shown, no forfeitures were assumed to take place. Based upon
the retirement provisions of the plan documents the full compensation
expense is recorded as of the date of grant. There can be no
assurance that the SFAS 123(R) amounts will ever be realized. The
maximum amount of options granted to a single director is 15,000 per
year.
|
(2)
|
At
December 31, 2007, the aggregate number of option awards outstanding was:
Dr. Felix J. Baker – 97,535 shares; Mr. Julian C. Baker – 106,535 shares;
Mr. Eran Broshy – 73,809 shares; Mr. Stewart Hen – 68,542 shares; Mr.
Jonathan S. Leff – 61,042 shares; Dr. Craig Saxton – 158,747 shares
and Dr. John. Simon – 91,254 shares. Dr. Craig Saxton additionally
held 25,000 shares of restricted stock at December 31,
2007.
|
(3)
|
The
SFAS 123(R) aggregate grant date value for all options granted to
non-employee directors in the year ended December 31, 2007, was
$387,155. The grant date fair value for the total 11,500,
14,000, 14,000, 13,000, 15,000 and 14,000 options granted to Dr. Felix J.
Baker, Mr. Julian C. Baker; Mr. Eran Broshy; Mr. Stewart Hen; Mr. Jonathan
S. Leff, Dr. Craig Saxton and Dr. John. Simon, respectively, is equal
to the compensation expense reported in the table above for such persons
as a result of the retirement provisions of the plan documents applicable
to these options.
|
Compensation
information for the Company’s employee directors, Dr. William H. Koster and Mr.
Stephen R. Davis, is included in the Summary Compensation Table.
|
|
|
The
following table sets forth, for the Company’s equity compensation plans,
the number of options outstanding under such plans, the weighted-average
exercise price of outstanding options, and the number of shares that
remain available for issuance under such plans, as of December 31,
2007.
|
|
|
Total
securities to be issued upon
exercise
of outstanding options
|
|
Securities
remaining available for future issuance under equity compensation plans
(excluding securities reflected in column a)
|
Plan
category
|
|
Number
|
|
Weighted-average
exercise
price
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity
compensation plans approved by security holders
|
|
5,731,294
|
|
$10.42
|
|
1,220,304
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders(1)
|
|
7,500
|
|
33.38
|
|
-
|
|
|
|
|
|
|
|
Total
|
|
5,738,794
|
|
$10.45
|
|
1,220,304
|
______________
Notes:
(1)
|
Does
not give effect to the 1,000,000 additional shares the stockholders are
being asked to approve for issuance under the Amended and Restated
Neurogen 2001 Stock Option Plan, as amended. See “Proposal No.
4”.
|
(2)
|
Represents
3,000, 3,000 and 1,500 options originally granted to three of the
Company’s directors, Dr. Felix J. Baker, Mr. Julian C. Baker and Dr.
John Simon, respectively, on September 25, 2000. The options
are fully vested and expire on September 25,
2010.
|
AUDIT
COMMITTEE REPORT1
Neurogen
has a separately designated standing Audit Committee, established in accordance
with section 3(a)(58)(A) of the Exchange Act, that is comprised of three
non-employee directors: Dr. John Simon, Dr. Craig Saxton and Mr. Eran Broshy.
Each Audit Committee member qualifies as an “independent” director as defined in
NASDAQ Rule 4200(a)(15).
The Board
of Directors has adopted a written charter for the Audit Committee. A copy of
the Audit Committee Charter, as amended on April 5, 2006, is posted on the
Company’s web site at www.neurogen.com. In
accordance with the written charter, the Audit Committee assists the Board of
Directors in fulfilling its responsibility for oversight of the quality and
integrity of the accounting, auditing and financial reporting practices of the
Company. In this context, management and the Company’s independent registered
public accountants review with the Audit Committee the Company’s annual and
quarterly financial results prior to publication as well as the adequacy and
effectiveness of the accounting and financial controls of the Company. The Audit
Committee conducted its review with management and the Company’s independent
registered public accountants prior to the publication the Company’s financial
condition and results of operations for the year ended December 31, 2007. The
Audit Committee also has discussed matters required by Statement of Auditing
Standards No. 61 (Codification of Statements on Auditing Standards AU §380), as
may be modified or supplemented, with the Company’s independent registered
public accountants. The Audit Committee has received the written disclosures and
the letter from the Company’s independent registered public accountants required
by Independence Standards Board Standard No. 1, as may be modified or
supplemented, and has discussed with the Company’s independent registered public
accountants the independent registered accountant’s independence from the
Company. Based on such review and discussions, the
1 This Section is not "soliciting
material," is not deemed "filed" with the SEC and is not to be incorporated by
reference in any filing of the Company under the Securities Act or the Exchange
Act, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company’s Annual Report on Form 10-K filing with
the SEC for the fiscal year ended December 31, 2007.
|
Audit
Committee
|
|
|
John
Simon
Chairman
|
|
Craig
Saxton
|
|
Eran
Broshy
|
AUDIT
FEES AND ALL OTHER FEES
The
aggregate fees billed for professional services rendered by the Company’s
independent registered public accountants, PricewaterhouseCoopers, LLP for 2007
and 2006 were as follows:
Audit
Fees
The
aggregate fees for the audit of the Company’s annual consolidated financial
statements and its internal controls over financial reporting, reviews of the
quarterly consolidated financial statements included in Forms 10-Q filed with
the SEC, and services provided in connection with regulatory filings were
$365,430 and $450,700 for 2007 and 2006, respectively.
Audit
Related Fees
The
aggregate fees related to the performance of the audits and reviews of the
Company’s employee benefit plans and consultation concerning financial
accounting and reporting standards were $56,536 and $40,855 for 2007 and 2006,
respectively.
Tax
Fees
The
aggregate fees related to professional services rendered for tax compliance were
$58,700 and $44,100 for 2007 and 2006, respectively. The 2007 and 2006 fees
included $20,000 and $8,500, respectively for services related to the review of
ownership change under section 382 of the Tax Code.
All
Other Fees
No fees
were billed by PricewaterhouseCoopers LLP during 2007 or 2006 other than fees
for professional services reported above as audit fees, audit-related fees and
tax fees.
Pre-Approval
Policies and Procedures
The Audit
Committee pre-approves audit and other permitted non-audit services provided by
the Company’s independent registered public accountants. Pre-approval is
generally provided for up to one year, is detailed as to the particular category
of services and is based on estimated fees and billable services. The Audit
Committee may also pre-approve particular services on a case-by-case basis. The
Company’s independent registered public accountants and senior management
periodically report to the Audit Committee the extent of services provided by
the independent registered public accountants in accordance with pre-approval,
and the fees for the services performed to such date. In 2007, all of the fees
for audit-related and tax fees were pre-approved by the Audit
Committee.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related
Person Transactions Policy and Procedures
Under the
Company’s Bylaws, as amended (the “Bylaws”), a transaction is not void or
voidable solely for being a related party transaction (as defined below) if: (i)
the material facts as to the related party’s relationship and as to the related
party transaction are disclosed or are known to the Board of Directors or the
committee approving the related party transaction, and the Board of Directors or
committee in good faith authorizes the related party transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors comprise less than a quorum; or (ii) the material facts
as to the related party’s relationship or interest and as to the related party
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Company as of the time it is authorized, approved or ratified by the Board
of Directors, a committee thereof or the stockholders.
A
“related party” is any of the Company’s directors or officers, or corporation,
partnership, association or other organization in which one or more of the
Company’s directors or officers are directors or officers or have a financial
interest. A “related party transaction” is a contract or transaction
between the Company and one or more related parties.
In
addition, the Company has adopted a written Code of Business Conduct and Ethics
pursuant to which the Audit Committee must approve all material related-party
transactions involving an executive officer or director. The Code of
Business Conduct and Ethics requires all such transactions to be publicly
disclosed as required by applicable laws and regulations. A copy of
the Code of Business Conduct and Ethics is available on the Company’s website at
www.neurogen.com.
Related
Person Transactions
As
discussed in Proposal No. 2 above, on April 7, 2008, the Company entered into
the Financing Transaction with selected
institutional
investors pursuant to which the Company agreed to issue and sell up to an
aggregate of 981,411 shares of the Company’s non-voting Series A Exchangeable
Preferred Stock and Warrants to purchase the Company’s Common Stock at an
aggregate price of $31.20 for one share of Series A Exchangeable Preferred Stock
and one Warrant. For descriptive purposes, the Series A Exchangeable
Preferred Stock and Warrants may be denominated in Units, with each Unit
consisting of one share of Series A Exchangeable Preferred Stock and one Warrant
exercisable for a number of shares of Common Stock equal to 50% of the number of
shares of Common Stock into which one share of Series A Exchangeable Preferred
Stock is exchangeable. The aggregate proceeds from the Financing
Transaction were $30,620,023. The transaction closed on April 11,
2008.
The
following directors of the Company were members or directors of the investors in
the Financing Transaction and therefore were considered related parties: (i)
Felix J. Baker, Ph.D., Managing Member, Baker Bros. Advisors, LLC; (ii) Julian
C. Baker, Managing Member, Baker Bros. Advisors LLC; (iii) Stewart Hen, Managing
Director, Warburg Pincus LCC; and (iv) Jonathan S. Leff, Managing Director,
Warburg Pincus LLC. Each of Baker Bros. Advisors LLC and Warburg
Pincus LLC, and their affiliated entities, are greater than 5% holders of the
Company’s Common Stock. In addition, entities affiliated with the
Tisch family members, who collectively hold greater than 5% if the Company’s
Common Stock, also participated in the Financing Transaction. See
“Security Ownership of Certain Beneficial Owners And Management.” In
addition, John Simon, Ph.D., a director of the Company, purchased Units in the
Financing Transaction. The names of the investors affiliated with the
related parties, the number of Units purchased by each such investor in the
Financing Transaction and the number of shares of Common Stock into which such
Units may be converted are presented in the table below.
Name
of Investor
|
|
Number
of Units Purchased
|
|
|
Shares
of Common Stock Issuable Upon Exchange of Series A Exchangeable Preferred
Stock
|
|
|
Shares
of Common Stock Issuable Upon Exercise of Warrants
|
|
Baker
Bros. Advisors, LLC
|
|
|
117,628 |
|
|
|
3,058,328 |
|
|
|
1,529,164 |
|
Warburg
Pincus LLC
|
|
|
192,307 |
|
|
|
4,999,982 |
|
|
|
2,499,991 |
|
Four-Fourteen
Partners, L.L.C. (1)
|
|
|
96,154 |
|
|
|
2,500,004 |
|
|
|
1,250,002 |
|
John
Simon, Ph.D.
|
|
|
9,615 |
|
|
|
249,990 |
|
|
|
124,995 |
|
______________
Notes:
(1)
Entity affiliated with the Tisch family members, who hold shares of the
Company’s Common Stock.
The Board
of Directors considered the material facts as to the related parties’
relationships with the investors and as to the related party nature of the
Financing Transaction. Taking these facts into account, the Board of
Directors determined the Financing Transaction to be the Company’s best interest
and approved the general terms of the Financing Transaction. In
addition, the Board of Directors authorized an ad hoc Finance Committee,
comprised of Eran Broshy, Stephen R. Davis, Craig Saxton and John Simon to
determine and approve the specific terms of the Financing
Transaction. A majority of the disinterested directors on the Finance
Committee approved the specific terms of the Financing Transaction and John
Simon recused himself from the vote. The Company believes that the
terms of the Financing Transaction were at least as favorable to the Company as
could have been obtained through arm’s-length negotiations with unaffiliated
third parties.
The
Company inquired of related party transactions through the annual director and
officer questionnaires and determined that, other than the Financing
Transaction, there were no related party transactions as defined under Item 404
of Regulation S-K of the Securities Exchange Act of 1934, as
amended.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under
Section 16(a) of the Securities Exchange Act of 1934, directors and certain
officers, and beneficial owners of 10% or more of the Company’s Common Stock are
required from time to time to file with the SEC reports on Forms 3, 4 or 5
relating principally to holdings of and transactions in the Company’s securities
by such persons. Based solely upon a review of such Forms furnished to it during
2006 and thereafter, and any written representations received by it from a
director, officer, or beneficial owner of 10% or more of the Company’s Common
Stock stating that no Form 4 or 5 is required, the Company believes that all
reporting persons filed on a timely basis the reports required by Section 16(a)
of the Securities Exchange Act of 1934 during 2007.
FORWARD
LOOKING STATEMENTS
These
Proxy Materials contains certain forward-looking statements, made pursuant to
applicable securities laws, which involve risks and uncertainties as detailed
from time to time in Neurogen’s SEC filings, including its most recent 10-K.
Such forward-looking statements relate to activities, events or developments
that Neurogen believes, expects or anticipates will occur in the future and
include, but are not limited to, earnings estimates, statements that are not
historical facts relating to Neurogen’s future financial performance, its growth
and business expansion, its financing plans, the timing and occurrence of
anticipated clinical trials, and potential collaborations or extensions of
existing collaborations. These statements are based on certain assumptions made
by Neurogen based on its experience and perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate under the circumstances. Actual results may differ materially from
those expressed or implied by such forward-looking statements as a result of
various factors, including, but not limited to, risks associated with the
inherent uncertainty of drug research and development, difficulties or delays in
development, testing, regulatory approval, production and marketing of any of
Neurogen’s drug candidates, adverse side effects or inadequate therapeutic
efficacy or pharmacokinetic properties of Neurogen’s drug candidates or other
properties of drug candidates which could make them unattractive for
commercialization, advancement of competitive products, dependence on corporate
partners, Neurogen’s ability to retain key employees, sufficiency of cash to
fund Neurogen’s planned operations and patent, product liability and third party
reimbursement risks associated with the pharmaceutical industry. Although
Neurogen believes that its expectations are based on reasonable assumptions, it
can give no assurance that the anticipated results will occur. For such
statements, Neurogen claims the protection of applicable laws. Future results
may also differ from previously reported results. For example, positive results
or safety and tolerability in one clinical study provide no assurance that this
will be true in future studies. Forward-looking statements represent the
judgment of Neurogen’s management as of the date of this release and Neurogen
disclaims any intent and does not assume any obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required under applicable law.
The Board
of Directors knows of no other matters to be submitted at the Annual Meeting.
If, however, any other business should properly come before the Annual Meeting,
the persons named in the accompanying proxy will vote proxies as in their
discretion they may deem appropriate, unless they are directed by proxy to do
otherwise.
STOCKHOLDERS'
PROPOSALS TO BE PRESENTED AT THE COMPANY'S NEXT ANNUAL MEETING OF
STOCKHOLDERS
Pursuant
to Rule 14a-8 under the Exchange Act, stockholders may present proper
proposals for inclusion in the Company’s proxy statement and for consideration
at the next annual meeting of stockholders. To be eligible for inclusion in the
Company’s 2009 proxy statement, stockholder proposals must be received by the
Company at its principal executive offices not later than [February 17,] 2009
and must otherwise comply with Rule 14a-8. While the Board of Directors will
consider stockholder proposals, the Company reserves the right to omit from its
proxy statement stockholder proposals that it is not required to include under
the Exchange Act, including Rule 14a-8. You may write to the Company’s
Secretary at its principal executive office, 35 Northeast Industrial Road,
Branford, CT 06450 to deliver the notices discussed above.
In
addition, the proxy solicited by the Board of Directors for the 2009 Annual
Meeting of Stockholders will confer discretionary authority to vote on any
stockholder proposal presented at that meeting, unless we are provided with
notice of such proposal no later than May 4, 2009.
ANNUAL
REPORT
The
Company will mail without charge to each stockholder entitled to vote at the
Annual Meeting, upon written request, a copy of the Company’s Annual Report on
Form 10-K, including the financial statements, schedules and a list of exhibits,
as filed with the Securities and Exchange Commission. Written
requests should be sent to: Corporate Secretary, Neurogen Corporation, 35
Northeast Industrial Road, Branford, CT 06405.
NEUROGEN
CORPORATION
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By:
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/s/ |
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Stephen
R. Davis |
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Secretary |
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June
[17], 2008
APPENDIX
A
Certificate
of Amendment to Restated Certificate of Incorporation, As Amended
Neurogen
Corporation, a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the “Corporation”), DOES
HEREBY CERTIFY:
1. The
Board of Directors of the Corporation has duly adopted a resolution setting
forth an amendment to the Corporation’s Restated Certificate of Incorporation,
as amended, in accordance with the provisions of Section 141 of the Delaware
General Corporation Law. The resolution setting forth the amendment
is as follows:
RESOLVED,
subject to stockholder approval, the following amendment (the “Amendment”) to
paragraph (a) of Article FOURTH of the Charter is hereby authorized and
approved:
“FOURTH: (a) The total number of shares
of stock which the Corporation shall have authority to issue is one hundred and
sixty million (160,000,000) shares, consisting of one hundred and fifty million
(150,000,000) shares of Common Stock having a par value of two and one-half
cents ($0.025) per share (hereinafter the “Common Stock”) and
ten million (10,000,000) shares of Preferred Stock having a par value of two and
one-half cents ($0.025) per share (hereinafter the “Preferred
Stock”).”
2. This
Certificate of Amendment of Restated Certificate of Incorporation was duly
adopted and approved by the stockholders of the Corporation in accordance with
the provisions of Section 242 of the Delaware General Corporation
Law.
APPENDIX
B
Proposed
Fifth Amendment to Amended and Restated Neurogen Corporation 2001 Stock Option
Plan
WHEREAS,
pursuant to Section 10 of the Amended and Restated Neurogen Corporation 2001
Stock Option Plan (as amended and restated effective September 4, 2001, July 26,
2004, June 9, 2005, June 9, 2006 and June 7, 2007) (the “Plan”), the Neurogen
Corporation (“Neurogen” or the “Company”) Board of Directors (the “Board”) has
the authority to amend the Plan in certain respects, subject to stockholder
approval; and
WHEREAS,
the Board has approved the following amendment (the “Amendment”) to the Plan and
the presentation of such Amendment to the Company’s stockholders for their
approval at the 2008 Annual Meeting scheduled to be held on July 25,
2008
NOW
THEREFORE, subject to the approval of the Company’s stockholders, the Plan shall
be amended as follows:
1. The
Plan shall be amended by restating Section 4.2 as follows:
“4.2
Common Stock. The maximum number of shares of Common Stock in respect of which
Stock Options and Restricted Shares may be granted under the Plan, subject to
adjustment as provided in Section 9.2 of the Plan, shall not exceed six million
two hundred and fifty thousand (6,250,000) shares of Common Stock; provided, however, that no more
than fifty percent (50%) of that total may be issued in the form of Restricted
Shares pursuant to the provisions of Section 7 of the Plan. Common Stock which
may be issued under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company and which are being held
as treasury shares. No fractional shares of Common Stock shall be issued under
the Plan. If any Stock Options expire unexercised or if any Stock Options or
grants of Restricted Shares are forfeited, surrendered, canceled, terminated or
settled in cash in lieu of Common Stock, the shares of Common Stock which were
theretofore subject (or potentially subject) to such Stock Options or to such
grants of Restricted Shares shall again be available for grants of Stock Options
or of Restricted Shares under the Plan to the extent of such expiration,
forfeiture, surrender, cancellation, termination or settlement.”
2. The
Plan shall be amended by restating Section 6.6 as follows:
“6.6
Maximum Grant. During any calendar year, no Participant may receive Stock
Options to purchase more than one million (1,000,000) shares of Common Stock
under the Plan.”
3. Effective
Date. This Fifth Amendment shall become effective immediately upon
approval by the Company’s stockholders.
APPENDIX
C
Amended
and Restated Neurogen Corporation 2001 Stock Option Plan
(as
proposed to be amended and restated)
1.
Purpose. The purpose of the Amended and Restated Neurogen Corporation 2001 Stock
Option Plan (as amended and restated effective September 4, 2001, July 26, 2004,
June 9, 2005, June 9, 2006 and June 7, 2007) (the “Plan”) is to attract and
retain the best available personnel, to provide additional incentive to
directors, employees and consultants, and to promote the success of the business
of Neurogen Corporation (the “Company”) and its Subsidiaries (as defined
below).
2.
Certain Definitions. For purposes of the Plan, the following terms shall have
the meanings set forth below:
2.1
“Award Agreement” shall mean the agreement executed by a Participant pursuant to
the provisions of Sections 3.2 and 12.4 of the Plan in connection with the
granting of a Stock Option or of Restricted Shares or such other alternative
arrangements reflecting the terms and conditions of the Stock Option or the
Restricted Shares as the Committee may determine from time to time.
2.2
“Board” shall mean the Board of Directors of the Company, as constituted from
time to time.
2.3
“Cause” shall mean, for purposes of this Plan, either of the following: (a) if a
Participant is a party to an employment or consulting agreement with the Company
or with any Subsidiary, the meaning as defined in such agreement; or (b) if the
Participant is not party to such an agreement, (i) commission of a felony or
misdemeanor; (ii) failure to abide by any material Company policy; (iii) gross
negligence or willful misconduct in connection with job duties; or (iv)
continuing refusal to perform job duties after written notice of such failure
and an opportunity to cure such non-performance. In the event that a Participant
is party to an employment or consulting agreement with the Company or with any
Subsidiary, and such employment or consulting agreement permits the Participant
to terminate his or her employment for “good reason” (as defined in such
agreement) or under any constructive termination provision permitting the
employee to terminate his or her employment and receive severance benefits, then
if the Participant terminates his or her employment or consulting relationship
with the Company or with any Subsidiary for “good reason” or under any such
constructive termination provision, he or she shall be deemed to have been
terminated by the Company or its Subsidiary without Cause for purposes of this
Plan. Any determination of Cause by the Compensation Committee or its designee
shall be conclusive, final and binding on the Participant, and on all persons
claiming under or through such Participant, for purposes of this
Plan.
2.4 “Change of Control” shall, for purposes of this Plan, be deemed to have
occurred (i) when any person or persons acting in concert (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding Company benefit
plans, becomes the beneficial owner of securities of the Company having more
than fifty percent (50%) of the voting power of the Company’s then-outstanding
securities; (ii) upon the consummation of any merger or other business
combination of the Company (a “Transaction”), other than a Transaction
immediately following which those persons who were stockholders of the Company
and any trustee or fiduciary of any Company employee benefit plan immediately
prior to the Transaction own more than fifty percent (50%) of the voting power,
directly or indirectly, of the surviving corporation in any such merger or other
business combination; (iii) when, within any twelve (12) month period, the
persons who were directors immediately before the beginning of such period (the
“Incumbent Directors”) shall cease (for any reason other than death) to
constitute at least a majority of the Board or the board of directors of a
successor to the Company. For this purpose, any director who was not a director
at the beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors (so long as such director was not nominated by a person who
has expressed an intent to effect a Change of Control or engage in a proxy or
other control contest); or (iv) when a plan of complete liquidation of the
Company shall have been adopted or the holders of voting securities of the
Company shall have approved an agreement for the sale or disposition by the
Company (in one transaction or through series of transactions) of all or
substantially all of the Company’s assets.
2.5
“Code” shall mean the Internal Revenue Code of 1986, as in effect and as amended
from time to time, or any successor statute thereto, together with any rules,
regulations and interpretations promulgated thereunder or with respect
thereto.
2.6
“Committee” shall mean the committee established from time to time in the sole
discretion of the Board to administer the Plan, as described in Section 3 of the
Plan, and consisting solely of two or more directors who are non-employee
directors for purposes of SEC Rule 16b-3, and who are outside directors for
purposes of Section 162(m) of the Code and the regulations promulgated
thereunder.
2.7
“Common Stock” shall mean the common stock, par value $0.025 per share, of the
Company or any security of the Company issued by the Company in substitution or
exchange therefore.
2.8
“Company” shall mean Neurogen Corporation, a Delaware corporation, or any
successor corporation to Neurogen Corporation.
2.9
“Disability” shall mean disability as defined in the Participant’s
then-effective employment or consulting agreement. If the participant is not
then a party to an effective employment or consulting agreement with the Company
which defines disability,
“Disability”
shall mean disability as determined by the Committee in accordance with
standards and procedures similar to those under the Company’s long-term
disability plan, if any. Subject to the first sentence of this Section 2.9, at
any time that the Company does not maintain a long-term disability plan,
“Disability” shall mean any physical or mental disability which is determined to
be total and permanent by a physician selected in good faith by the
Company.
2.10
“Exchange Act” shall mean the Securities Exchange Act of 1934, as in effect and
as amended from time to time, or any successor statute thereto, together with
any rules, regulations and interpretations promulgated thereunder or with
respect thereto.
2.11
“Fair Market Value” shall mean, on or with respect to any given date(s), the
closing price for the Common Stock, as reported on the NASDAQ Stock Market for
such date(s) or, if the Common Stock was not traded on such date(s), on the
immediately preceding day (or days) on which the Common Stock was traded. If at
any time the Common Stock is not traded on the NASDAQ Stock Market, the Fair
Market Value of a share of Common Stock shall be determined in good faith by the
Committee.
2.12
“Incentive Stock Option” means any Stock Option granted pursuant to the
provisions of Section 6 of the Plan (and the relevant Award Agreement) that is
intended to be (and is specifically designated as) an “incentive stock option”
within the meaning of Section 422 of the Code.
2.13
“Non-Qualified Stock Option” means any Stock Option granted pursuant to the
provisions of Section 6 of the Plan (and the relevant Award Agreement) that is
not (and is specifically designated as not being) an Incentive Stock Option.
2.14
“Participant” shall mean any individual who is selected from time to time under
Section 5 to receive a Stock Option or a grant of Restricted Shares under the
Plan.
2.15
“Plan” shall mean the Neurogen Corporation 2001 Stock Option Plan, as set forth
herein and as in effect and as amended from time to time (together with any
rules and regulations promulgated by the Committee with respect
thereto).
2.16
“Restricted Shares” shall mean the restricted shares of Common Stock granted
pursuant to the provisions of Section 7 of the Plan and the relevant Award
Agreement.
2.17
“Retirement” shall mean the voluntary retirement by the Participant from active
employment with the Company and its Subsidiaries on or after the attainment of
age sixty-five (65).
2.18
“SEC” shall mean the Securities and Exchange Commission, or any successor
governmental agency.
2.19 “SEC
Rule 16b-3” shall mean Rule 16b-3, as promulgated by the SEC under Section 16(b)
of the Exchange Act, or any successor rule or regulation thereto, as such Rule
is amended or applied from time to time.
2.20
“Stock Option” shall mean an award granted to a Participant pursuant to the
provisions of Section 6 of the Plan.
2.21
“Subsidiary(ies)” shall mean any corporation (other than the Company),
partnership or limited liability company in an unbroken chain of entities,
including and beginning with the Company, if each of such entities, other than
the last entity in the unbroken chain, owns, directly or indirectly, more than
fifty percent (50%) of the voting stock, partnership or membership interests in
one of the other entities in such chain.
3.
Administration.
3.1
General. The Plan shall be administered by the Committee.
3.2 Plan
Administration and Plan Rules. The Committee is authorized to construe and
interpret the Plan and to promulgate, amend and rescind rules and regulations
relating to the implementation and administration of the Plan. Subject to the
terms and conditions of the Plan, the Committee shall make all determinations
necessary or advisable for the implementation and administration of the Plan
including, without limitation, (a) selecting the Plan’s Participants, (b)
granting Stock Options and making grants of Restricted Shares in such amounts
and form as the Committee shall determine, (c) imposing such restrictions, terms
and conditions upon such Stock Options and upon grants of Restricted Shares as
the Committee shall deem appropriate, and (d) correcting any technical defect(s)
or technical omission(s), or reconciling any technical inconsistency(ies), in
the Plan and any Award Agreement. The Committee may designate persons other than
members of the Committee to carry out the day-to-day ministerial administration
of the Plan under such conditions and limitations as it may prescribe. The
Committee may (i) delegate to the Company’s President and Chief Executive
Officer and to a Vice President of the Company (as designated by the Committee),
acting together, the authority to grant Stock Options or Restricted Shares to
those eligible directors, employees and consultants who are not subject to
Section 16 of the Exchange Act or (ii) adopt a resolution to automatically
provide to an employee or consultant, upon the initial employment of such person
or performance of services by such person, a grant of Stock Options or
Restricted Shares: provided, however, that such
delegation or adoption will not be effective if it would disqualify the Plan, or
any other plan of the Company (or of any Subsidiary) intended to
be
so
qualified, from (i) the exemption provided by SEC Rule 16b-3, (ii) the benefits
provided under Section 422 of the Code, or any successor provisions thereto or
(iii) entitlement to deductions under Code Section 162(m), or any successor
provision thereto. The Committee’s determinations under the Plan need not be
uniform and may be made selectively among Participants, whether or not such
Participants are similarly situated. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration, or implementation of the Plan shall be final, conclusive and
binding upon all Participants and any person(s) claiming under or through any
Participants. The Company shall effect the granting of Stock Options and
Restricted Shares under the Plan, in accordance with the determinations made by
the Committee, by execution of written agreements and/or other instruments in
such form as is approved by the Committee.
3.3
Liability Limitation. Neither the Board nor the Committee, nor any member of
either, shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with the Plan (or with any Award
Agreement), and the members of the Board and the Committee shall be entitled to
indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including, without limitation, attorneys’ fees) arising or
resulting therefrom to the fullest extent permitted by law, by the Company’s
Certificate of Incorporation, as amended, and/or under any directors’ and
officers’ liability insurance coverage which may be in effect from time to
time.
4. Term
of Plan/Common Stock Subject to Plan.
4.1 Term.
The Plan shall terminate on June 29, 2011, except with respect to Stock Options
and grants of Restricted Shares then outstanding. After such date no further
Stock Options or Restricted Shares shall be granted under the Plan.
4.2
Common Stock. The maximum number of shares of Common Stock in respect of which
Stock Options and Restricted Shares may be granted under the Plan, subject to
adjustment as provided in Section 9.2 of the Plan, shall not exceed six million
two hundred and fifty thousand (6,250,000) shares of Common Stock; provided, however, that no more
than fifty percent (50%) of that total may be issued in the form of Restricted
Shares pursuant to the provisions of Section 7 of the Plan. Common Stock which
may be issued under the Plan may be either authorized and unissued shares or
issued shares which have been reacquired by the Company and which are being held
as treasury shares. No fractional shares of Common Stock shall be issued under
the Plan. If any Stock Options expire unexercised or if any Stock Options or
grants of Restricted Shares are forfeited, surrendered, canceled, terminated or
settled in cash in lieu of Common Stock, the shares of Common Stock which were
theretofore subject (or potentially subject) to such Stock Options or to such
grants of Restricted Shares shall again be available for grants of Stock Options
or of Restricted Shares under the Plan to the extent of such expiration,
forfeiture, surrender, cancellation, termination or settlement.
5.
Eligibility. Individuals eligible for Stock Options and grants of Restricted
Shares under the Plan shall be determined by the Committee in its sole
discretion and shall be limited to members of the Board (“directors”) and
employees of and consultants to the Company and its Subsidiaries, and persons
who may become such directors, employees or consultants.
6. Stock
Options.
6.1 Terms
and Conditions. Stock Options granted under the Plan shall be in respect of
Common Stock and may be in the form of Incentive Stock Options or Non-Qualified
Stock Options (sometimes referred to collectively herein as “Stock Options”).
Such Stock Options shall be subject to the terms and conditions set forth in
this Section 6 and to any additional terms and conditions, not inconsistent with
the express terms and provisions of the Plan, as the Committee shall set forth
in the relevant Award Agreement.
6.2
Grant. Stock Options may be granted under the Plan in such form as the Committee
may from time to time approve. Special provisions shall apply to Incentive Stock
Options granted to any employee who owns (within the meaning of Section
422(b)(6) of the Code) more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or its parent corporation or any
Subsidiary of the Company, within the meaning of Section 424(e) and (f) of the
Code (a “10% Stockholder”).
6.3
Exercise Price. The exercise price per share of Common Stock subject to a Stock
Option shall be determined by the Committee, including, without limitation, a
determination based on a formula determined by the Committee at the time of
grant and indicated in the Participant’s Award Agreement; provided, however, that the
exercise price of an Incentive Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of the Common Stock on the date of the
grant of such Incentive Stock Option; provided, further, however, that in the
case of a 10% Stockholder, the exercise price of an Incentive Stock Option shall
not be less than one hundred ten percent (110%) of the Fair Market Value of the
Common Stock on the date of grant.
6.4 Term.
In respect of any Stock Option granted under the Plan, unless otherwise (a)
determined by the Committee (in its sole discretion) at or prior to the time of
grant of a Stock Option or (b) provided in the Award Agreement or in the
Participant’s employment, severance or consulting agreement in respect of any
such Stock Option, the term of each Stock Option shall be ten (10) years; provided, however, that the
term of any Incentive Stock Option shall not exceed ten (10) years (five (5)
years, in the case of a 10% Stockholder) after the date immediately preceding
the date on which the Incentive Stock Option is granted.
6.5
Method of Exercise. A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the
Secretary
of the Company (or to the Secretary’s designee) specifying the number of shares
to be purchased. Such notice shall be accompanied by payment in full of the
exercise price in cash, or by certified or personal check, bank draft, money
order or wire transfer to the Company or, if permitted by the Committee (in its
sole discretion) and by applicable law, by delivery of, alone or in conjunction
with a partial cash or instrument payment, (a) a fully-secured promissory note
or notes, (b) shares of Common Stock already owned by the Participant for at
least six (6) months or (c) any other form of payment acceptable to the
Committee. Payment instruments shall be received by the Company subject to
collection. The proceeds received by the Company upon exercise of any Stock
Option may be used by the Company for general corporate purposes. Any portion of
a Stock Option that is exercised may not be exercised again.
6.6
Maximum Grant. During any calendar year, no Participant may receive Stock
Options to purchase more than one million (1,000,000) shares of Common Stock
under the Plan.
6.7
Exercisability. In respect of any Stock Option granted under the Plan, unless
otherwise (a) determined by the Committee (in its sole discretion) at any time
and from time to time in respect of any such Stock Option or (b) provided in the
Award Agreement or in the Participant’s employment, severance or consulting
agreement in respect of any such Stock Option, such Stock Option shall become
exercisable as to the aggregate number of shares of Common Stock underlying such
Stock Option, as determined on the date of grant, as follows:
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twenty
percent (20%) on the first anniversary of the date of grant of the Stock
Option, provided the Participant is then employed by or providing
consulting services for the Company and/or one of its
Subsidiaries;
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forty
percent (40%) on the second anniversary of the date of grant of the Stock
Option, provided the Participant is then employed by or providing
consulting services for the Company and/or one of its
Subsidiaries;
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sixty
percent (60%) on the third anniversary of the date of grant of the Stock
Option, provided the Participant is then employed by or providing
consulting services for the Company and/or one of its
Subsidiaries;
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eighty
percent (80%) on the fourth anniversary of the date of grant of the Stock
Option, provided the Participant is then employed by or providing
consulting services for the Company and/or one of its Subsidiaries;
and
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one
hundred percent (100%) on the fifth anniversary of the date of grant of
the Stock Option, provided the Participant is then employed by or
providing consulting services for the Company and/or one of its
Subsidiaries.
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Notwithstanding
anything to the contrary contained in this Section 6.7, unless otherwise
provided in the Award Agreement or in the Participant’s employment, severance or
consulting agreement in respect of such Stock Option, such Stock Option shall
become one hundred percent (100%) exercisable as to the aggregate number of
shares of Common Stock underlying such Stock Option upon the death, Disability
or Retirement of the Participant.
7.
Restricted Shares.
7.1 Terms
and Conditions. Awards of Restricted Shares shall be subject to the terms and
conditions set forth in this Section 7 and any additional terms and conditions,
not inconsistent with the express terms and provisions of the Plan, as the
Committee shall set forth in the relevant Award Agreement. Subject to the terms
of the Plan, the Committee shall determine the number of Restricted Shares to be
granted to a Participant and the Committee may provide or impose different terms
and conditions on any particular Restricted Share grant made to any Participant.
With respect to each Participant receiving an award of Restricted Shares, there
shall be issued a stock certificate (or certificates) in respect of such
Restricted Shares. Such stock certificate(s) shall be registered in the name of
such Participant, shall be accompanied by a stock power duly executed by such
Participant, and shall bear, among other required legends, the following
legend:
“THE
TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY
ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING, WITHOUT LIMITATION,
FORFEITURE EVENTS) CONTAINED IN THE NEUROGEN CORPORATION 2001 STOCK OPTION PLAN
AND AN AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER HEREOF AND
NEUROGEN CORPORATION. COPIES OF SUCH PLAN AND AWARD AGREEMENT ARE ON FILE IN THE
OFFICE OF THE SECRETARY OF NEUROGEN CORPORATION, BRANFORD, CT. NEUROGEN
CORPORATION WILL FURNISH TO THE RECORDHOLDER OF THE CERTIFICATE, WITHOUT CHARGE
AND UPON WRITTEN REQUEST AT ITS PRINCIPAL PLACE OF BUSINESS, A COPY OF SUCH PLAN
AND AWARD AGREEMENT. NEUROGEN CORPORATION RESERVES THE RIGHT TO REFUSE TO RECORD
THE TRANSFER OF THIS CERTIFICATE UNTIL ALL SUCH RESTRICTIONS ARE SATISFIED, ALL
SUCH TERMS ARE COMPLIED WITH AND ALL SUCH CONDITIONS ARE
SATISFIED.”
Such
stock certificate evidencing such shares shall, in the sole discretion of the
Committee, be deposited with and held in custody by the Company until the
restrictions thereon shall have lapsed and all of the terms and conditions
applicable to such grant shall have een satisfied.
7.2
Restricted Share Grants. A grant of Restricted Shares is an award of shares of
Common Stock granted to a Participant, subject to such restrictions, terms and
conditions, if any, as the Committee deems appropriate, including, without
limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or
other disposition of such shares, (b) the requirement that the Participant
deposit such shares with the Company while such shares are subject to such
restrictions, and (c) the requirement that such shares be forfeited upon
termination of employment or service for any reason or for specified reasons
within a specified period of time (including, without limitation, the failure to
achieve designated performance goals).
7.3
Restriction Period. In accordance with the provisions of Sections 7.1 and 7.2 of
the Plan and unless otherwise determined by the Committee in its sole discretion
(subject to the provisions of Section 10.2 of the Plan) at any time and from
time to time, Restricted Shares shall only become unrestricted and vested in the
Participant in accordance with such vesting schedule and any other applicable
restrictions, terms and conditions relating to such Restricted Shares, if any,
as the Committee may establish in the relevant Award Agreement (the “Restriction
Period”). During the Restriction Period, such stock shall be and remain unvested
and a Participant may not sell, assign, transfer, pledge, encumber or otherwise
dispose of or hypothecate such stock. Upon satisfaction of the vesting schedule
and any other applicable restrictions, terms and conditions, the Participant
shall be entitled to receive the Restricted Shares or a portion thereof, as the
case may be, as provided in Section 7.4 of the Plan.
7.4
Payment of Restricted Share Grants. After the satisfaction and/or lapse of the
restrictions, terms and conditions established by the Committee in respect of a
grant of Restricted Shares, a new certificate, without the legend set forth in
Section 7.1 of the Plan, for the number of shares of Common Stock which are no
longer subject to such restrictions, terms and conditions shall, as soon as
practicable thereafter, be delivered to the Participant.
7.5
Stockholder Rights. A Participant shall have, with respect to the shares of
Common Stock underlying a grant of Restricted Shares, all of the rights of a
stockholder of such stock (except as such rights are limited or restricted under
the Plan or in the relevant Award Agreement). Any stock dividends paid in
respect of unvested Restricted Shares shall be treated as additional Restricted
Shares and shall be subject to the same restrictions and other terms and
conditions that apply to the unvested Restricted Shares in respect of which such
stock dividends are issued.
7.6
Maximum Grant. During any calendar year, no Participant may receive grants of
Restricted Shares awarding more than two hundred fifty thousand (250,000) shares
of Common Stock under the Plan.
8.
Non-transferability. Unless otherwise provided in a Participant’s Award
Agreement, no Stock Option or unvested Restricted Shares under the Plan or any
Award Agreement, and no rights or interests herein or therein, shall or may be
assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise
hypothecated or disposed of by a Participant or any beneficiary(ies) of any
Participant, except by testamentary disposition by a Participant or pursuant to
the laws of intestate succession. No such interest shall be subject to
execution, attachment or similar legal process, including, without limitation,
seizure for the payment of a Participant’s debts, judgments, alimony, or
separate maintenance. Any attempt to sell, exchange, transfer, assign, pledge,
encumber or otherwise dispose of or hypothecate in any way any such awards,
rights or interests or the levy of any execution, attachment or similar legal
process thereon, contrary to the terms of this Plan, shall be null and void and
without legal force or effect. Unless otherwise provided in a Participant’s
Award Agreement, Stock Options are exercisable only by the Participant during
the lifetime of the Participant.
9.
Changes in Capitalization and Other Matters.
9.1 No
Corporate Action Restriction. The existence of the Plan, any Award Agreement
and/or the Stock Options or Restricted Shares granted hereunder or thereunder
shall not limit, affect or restrict in any way the right or power of the Board
to make or authorize (a) any adjustment, recapitalization, reorganization or
other change in the Company’s or any Subsidiary’s capital structure or its
business, (b) any merger, consolidation or change in the ownership of the
Company or any Subsidiary, (c) any issue of bonds, debentures, capital,
preferred or prior preference stocks ahead of or affecting the Company’s or any
Subsidiary’s capital stock or the rights thereof, (d) any dissolution or
liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or
any part of the Company’s or any Subsidiary’s assets or business, or (f) any
other corporate act or proceeding by the Company or any Subsidiary. No
Participant, beneficiary or any other person shall have any claim against any
member of the Board, the Committee, the Company or any Subsidiary, or any
employees, officers, stockholders or agents of the Company or any Subsidiary, as
a result of any such action.
9.2
Changes in Capital Structure. Stock Options and Restricted Shares granted under
the Plan and under any Award Agreements evidencing such Stock Options or
Restricted Shares, the maximum number of shares of Common Stock subject to all
Stock Options and grants of Restricted Shares stated in Section 4.2, and the
maximum number of shares subject to Stock Options or represented by grants of
Restricted Shares that a Participant can receive in any calendar year pursuant
to the provisions of Section 6.6 or Section 7.6, as applicable, shall be subject
to adjustment or substitution, as determined by the
Committee in its sole discretion,
as to the number, price or kind of a share of stock or other consideration
subject to such Stock Options or grants of Restricted Shares or as otherwise
determined by the Committee to be equitable (i) in the event of changes in the
outstanding stock or in the capital structure of the Company by reason of stock
or extraordinary cash dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the date of grant of any such Stock Option or
Restricted Shares or (ii) in the event of any change in applicable laws or any
change in circumstances which results in or would result in any substantial
dilution or enlargement of the rights granted to, or available for,
Participants, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan, in either case where such
adjustment shall substantially preserve the value, rights and benefits of any
affected Stock Options or Restricted Shares. The Company shall give each
Participant notice of an adjustment hereunder and, upon notice, such adjustment
shall be conclusive and binding for all purposes.
9.3
Change of Control.
(a) If a
Change of Control occurs and outstanding Stock Options under the Plan are
converted, assumed, replaced or continued by the Company, a successor or an
acquirer, then, in the case and only in the case of a Participant whose
membership on the Board, employment or consulting relationship with the Company
and its Subsidiaries is terminated by the Company and its Subsidiaries (or any
successors thereto) without Cause prior to the second anniversary of such Change
of Control
(i) any
outstanding Stock Options then held by such Participant which are unexercisable
or otherwise unvested shall automatically be deemed to be exercisable or
otherwise vested, as the case may be, as of the date immediately prior to the
date of such termination of employment or cessation of services and
(ii)
unless otherwise provided in the Award Agreement or in the Participant’s
employment, severance or consulting agreement in respect of such Participant’s
Restricted Shares, all restrictions, terms and conditions applicable to all
Restricted Shares then outstanding and held by such Participant shall lapse and
be deemed to be satisfied as of the date immediately prior to the date of such
termination of employment or cessation of services.
(b) If a
Change of Control occurs and the Stock Options outstanding under the Plan are
not converted, assumed, replaced or continued by the Company, a successor or an
acquirer, then
(i) all outstanding Stock Options shall automatically be deemed to be
exercisable or otherwise vested immediately prior to the consummation of the
Change of Control and all Participants shall be permitted to exercise their
Stock Options immediately prior to or concurrent with the consummation of the
Change of Control, and
(ii) all
restrictions, terms and conditions applicable to outstanding Restricted Shares
shall lapse and be deemed to be satisfied immediately prior to the consummation
of the Change of Control.
(c) To
the extent that the implementation of the terms of (a) or (b) above causes an
Incentive Stock Option to exceed the dollar limitation set forth in Section
422(d) of the Code, or any successor provision thereto, the excess Stock Options
shall be deemed to be Non-Qualified Stock Options.
(d) Upon
entering into an agreement to effect a Change of Control, referred to in Section
9.3(b), the Committee may, subject to the consummation of the Change of Control,
cause all outstanding Stock Options to terminate upon the consummation of the
Change of Control. If the Committee acts pursuant to the preceding sentence,
each affected Participant shall have the right to exercise his or her
outstanding Stock Options during a period of time determined by the Committee in
its sole discretion. Notwithstanding the above, in the event of a Change of
Control, then the Committee may, in its discretion, cancel any or all
outstanding Stock Options and cause the holders thereof to be paid, in cash or
stock (including any stock of a successor or acquirer), or any combination
thereof, the value of such Stock Options, including any unvested portion
thereof, based upon the excess of the value, as determined by the Committee in
good faith, of a share of Common Stock over the exercise price.
10.
Amendment, Suspension and Termination.
10.1 In
General. The Board may suspend or terminate the Plan (or any portion thereof) at
any time and may amend the Plan at any time and from time to time in such
respects as the Board may deem advisable or in the best interests of the Company
or any Subsidiary; provided, however, that without
majority stockholder approval no such amendment may (i) increase the number of
shares of Common Stock available for Stock Options or grants of Restricted
Shares under Section 4.2, or (ii) increase the maximum annual grant under
Section 6.6 or Section 7.6, as applicable. In addition, no such amendment,
suspension or termination shall materially and adversely affect the rights of
any Participant under any outstanding Stock Options or grants of Restricted
Shares, without the consent of such Participant.
10.2
Award Agreement Modifications. The Committee may, in its sole discretion, amend
or modify at any time and from time to time the restrictions, terms and
conditions of any outstanding Stock Option or grant of Restricted Shares in any
manner to the extent that the Committee under the Plan or any Award Agreement
could have initially established the restrictions, terms and conditions of such
Stock Option or grant of Restricted Shares. No such amendment or modification
shall, however, materially and adversely affect the rights of any Participant
under any such Stock Option or grant of Restricted Shares without the consent of
such Participant.
Notwithstanding
anything to the contrary in this Section 10.2, no Stock Option may be repriced,
replaced, regranted through cancellation, or modified without stockholder
approval (except in connection with Section 9.2 herein, a change in the capital
structure of the Company), if the effect would be to reduce the exercise price
for the shares underlying such Stock Option.
11.
Termination of Employment or Services.
11.1 In
General. Except as is otherwise provided (a) in the relevant Award Agreement as
determined by the Committee (in its sole discretion) or (b) in the Participant’s
then-effective employment, severance or consulting agreement, if any, the
following terms and conditions shall apply as appropriate and as not
inconsistent with the terms and conditions, if any, contained in such Award
Agreement and/or such employment or consulting agreement.
11.2
Stock Options. Except as otherwise provided in the relevant Award Agreement or
in a Participant’s employment, severance or consulting agreement in respect of
such Stock Options, and subject to any determination of the Committee pursuant
to the provisions of Section 6.7 of the Plan, if a Participant’s employment with
or performance of services for the Company and its Subsidiaries including
services as a director terminates for
any reason, then (i) any then-unexercisable Stock Options shall be forfeited by
the Participant and canceled by the Company, and (ii) such Participant’s rights,
if any, to exercise any then-exercisable Stock Options, if any, shall terminate
six (6) months after the later of the date of such termination or the last day
on which services were performed (but not beyond the stated term of any such
Stock Option as determined under Section 6.4 of the Plan; provided, however, that if such
termination or cessation of service is due to death, Disability or Retirement,
the exercise period for any exercisable Stock Option shall in no case be less
than one (1) year after the date of such termination or cessation of service
(but not beyond the stated term of any such Stock Option as determined under
Section 6.4 of the Plan). Notwithstanding the above, the Committee, in its sole
discretion, may determine that any such Participant’s Stock Options may, to the
extent exercisable immediately prior to any termination of employment or
cessation of services, remain exercisable for an additional period of time after
any period set forth above expires (subject to any other applicable terms and
provisions of the Plan and the relevant Award Agreement), but not beyond the
stated term of any such Stock Option.
11.3
Restricted Shares. Subject to the provisions of Section 9.3 herein, if a
Participant’s employment with or performance of services for the Company and its
Subsidiaries including services as a director terminates for any reason
(other than due to death, Disability or Retirement) prior to the satisfaction
and/or lapse of the restrictions, terms and conditions applicable to a grant of
Restricted Shares, such Restricted Shares shall immediately be canceled and the
Participant (or such Participant’s estate, designated beneficiary or other legal
representative, as the case may be and as determined by the Committee) shall
forfeit any rights or interests in and with respect to any such Restricted
Shares. Notwithstanding anything to the contrary in this Section 11.3, the
Committee, in its sole discretion, may determine that all or a portion of any
such Participant’s Restricted Shares shall not be so canceled and forfeited. If
the Participant’s employment or performance of services terminates due to death,
Disability or Retirement, the Participant (and such Participant’s estate,
designated beneficiary or other legal representative, as the case may be and as
determined by the Committee) shall become one hundred percent (100%) vested in
any such Participant’s Restricted Shares as of the date of any such termination.
11.4
Leaves of Absence/Transfers. The Committee shall have the power to promulgate
rules and regulations and to make determinations under the Plan, as it deems
appropriate, in respect of any leave of absence from the Company or any
Subsidiary granted to a Participant. Without limiting the generality of the
foregoing, the Committee may determine whether any such leave of absence shall
be treated as if the Participant has been terminated by the Company or any such
Subsidiary. If a Participant transfers within the Company, or to or from any
Subsidiary, such Participant shall not be deemed to have been terminated as a
result of such transfers.
12.
Miscellaneous.
12.1 Tax
Withholding. The Company shall have the right to deduct from any payment or
settlement under the Plan, including, without limitation, the exercise of any
Stock Option or the vesting of any Restricted Shares, any federal, state, local,
foreign or other taxes of any kind which the Committee, in its sole discretion,
deems necessary to be withheld to comply with the Code and/or any other
applicable law, rule or regulation. In addition, the Company shall have the
right to require payment from a Participant to cover any applicable withholding
or other employment taxes due upon any payment or settlement under the
Plan.
12.2 No
Right to Continued Relationship. Neither the adoption of the Plan, the granting
of any Stock Option or Restricted Shares, nor the execution of an Award
Agreement, shall confer on any Participant any right to continued membership on
the Board, employment or
consulting relationship with the Company or any Subsidiary, as the case may be,
nor shall it interfere in any way with the right, if any, the Board, the Company
or any Subsidiary to remove a Director from the Board or terminate
the employment or consulting relationship of any Participant at any time for any
reason, even if such removal or termination adversely affects such
Participant’s Stock Options or grants of Restricted Shares.
12.3
Listing, Registration and Other Legal Compliance. No Stock Options, Restricted
Shares or shares of the Common Stock shall be required to be issued or granted
under the Plan or any Award Agreement unless legal counsel for the Company shall
be satisfied that such issuance or grant will be in compliance with all
applicable securities laws and regulations and any other
applicable
laws or
regulations. The Committee may require, as a condition of any payment or share
issuance, that certain agreements, undertakings, representations, certificates,
and/or information, as the Committee may deem necessary or advisable, be
executed or provided to the Company to assure compliance with all such
applicable laws or regulations. Certificates for shares of Common Stock
delivered under the Plan may bear appropriate legends and may be subject to such
stock-transfer orders and such other restrictions as the Committee may deem
advisable under the rules, regulations, or other requirements of the SEC, any
stock exchange upon which the Common Stock is listed, and any applicable
securities law. In addition, if, at any time specified herein (or in any Award
Agreement or otherwise) for (a) the granting of any Stock Option or Restricted
Shares or the making of any determination, (b) the issuance or other
distribution of Common Stock, or (c) the payment of amounts to or through a
Participant with respect to any Stock Option or grant of Restricted Shares, any
law, rule, regulation or other requirement of any governmental authority or
agency shall require either the Company, any Subsidiary or any Participant (or
any estate, designated beneficiary or other legal representative thereof) to
take any action in connection with any such determination, any such shares to be
issued or distributed, any such payment, or the making of any such
determination, as the case may be, shall be deferred until such required action
is taken.
12.4
Award Agreements. Each Participant receiving a Stock Option or grant of
Restricted Shares under the Plan shall enter into an Award Agreement with the
Company, or be subject to such alternative arrangements as the Committee may
determine from time to time, which shall cause the Participant to be subject to
the restrictions, terms and conditions of the Stock Option or Restricted Shares
awarded and the Plan.
12.5
Designation of Beneficiary. Each Participant to whom a Stock Option or
Restricted Share has been granted under the Plan may designate a beneficiary or
beneficiaries to exercise any Stock Option or to receive any payment which under
the terms of the Plan and the relevant Award Agreement may become exercisable or
payable on or after the Participant’s death. At any time, and from time to time,
any such designation may be changed or cancelled by the Participant without the
consent of any such beneficiary. Any such designation, change or cancellation
must be on a form provided for that purpose by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been designated
by a deceased Participant, or if the designated beneficiaries have predeceased
the Participant, the beneficiary shall be the Participant’s estate. If the
Participant designates more than one beneficiary, any payments under the Plan to
such beneficiaries shall be made in equal shares unless the Participant has
expressly designated otherwise, in which case the payments shall be made in the
shares designated by the Participant.
12.6
Governing Law. The Plan and all actions taken thereunder shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to the principles of conflict of laws thereof.
Any
titles and headings herein are for reference purposes only, and shall in no way
limit, define or otherwise affect the meaning, construction or interpretation of
any provisions of the Plan.
12.7 Effective Date. The Plan shall be effective as of the date of its approval
by the Board, subject to the approval of the Plan by the Company’s stockholders
in accordance with Sections 162(m) and 422 of the Code and the regulations
promulgated thereunder. If such approval is not obtained, this Plan and any
awards granted under the Plan shall be null and void and of no force and
effect.
NEUROGEN
CORPORATION
35
Northeast Industrial Road
Branford,
Connecticut 06405
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
The
undersigned hereby appoints and authorizes Stephen R. Davis and Thomas Pitler,
or each of them, with all powers of substitution and revocation as attorneys and
proxies to represent the undersigned, with all powers which the undersigned
would possess if personally present, and to vote the shares of Common Stock of
Neurogen Corporation held of record by the undersigned on June 13, 2008, at the
2008 Annual Meeting of Stockholders of Neurogen Corporation, which is being held
at the Grand Hyatt New York, 109 East 42nd Street at Grand Central Station, New
York, New York 10017, on Friday, July 25, 2008 at 2:00 p.m., local time, and at
any postponements or adjournments of that meeting, and, in their discretion,
upon any other business that may properly come before the meeting or any
adjournment thereof.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE:
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“FOR”
THE ELECTION OF DIRECTORS,
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“FOR”
THE APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK UPON
EXCHANGE OF SHARES OF THE COMPANY’S SERIES A EXCHANGEABLE PREFERRED STOCK
SOLD IN THE FINANCING TRANSACTION DESCRIBED IN THIS PROXY
STATEMENT,
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“FOR”
THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED, TO INCREASE THE TOTAL NUMBER OF
SHARES OF COMMON STOCK THAT THE COMPANY IS AUTHORIZED TO ISSUE FROM
75,000,000 TO 150,000,000 AND THE TOTAL NUMBER OF SHARES OF PREFERRED
STOCK THAT THE COMPANY IS AUTHORIZED TO ISSUE FROM 2,000,000 TO
10,000,000,
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·
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“FOR”
THE AMENDMENT TO THE AMENDED AND RESTATED NEUROGEN CORPORATION 2001 STOCK
OPTION PLAN, AS AMENDED, TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE UNDER THE PLAN FROM 5,250,000 TO 6,250,000 AND TO INCREASE THE
NUMBER OF SHARES AVAILABLE FOR GRANTS OF STOCK OPTIONS TO INDIVIDUAL
PARTICIPANTS IN ANY CALENDAR YEAR FROM 500,000 TO 1,000,000,
AND
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·
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“FOR”
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR NEUROGEN CORPORATION FOR THE
FISCAL YEAR ENDING DECEMBER 31,
2008.
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THIS
PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INCLUDED, WILL
BE VOTED “FOR” PROPOSALS 1, 2, 3, 4 AND 5.
Address
Changes/Comments:
(If you
noted any Address Changes/Comments above, please mark corresponding box on the
reverse side.)
(Continued and to be signed on the
reverse side)
VOTE
BY INTERNET -
www.proxyvote.com
Use the
Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic
voting instruction form.
ELECTRONIC
DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you
would like to reduce the costs incurred by Neurogen Corp. in mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the Internet. To sign up for
electronic delivery, please follow the instructions above to vote using the
Internet and, when prompted, indicate that you agree to receive or access
shareholder communications electronically in future years.
VOTE
BY PHONE - 1-800-690-6903
Use any
touch-tone telephone to transmit your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date. Have your proxy
card in hand when you call and then follow the instructions.
VOTE
BY MAIL
Mark,
sign and date your proxy card and return it in the postage-paid envelope we have
provided or return it to Neurogen Corporation, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
Please
vote, sign date and promptly return this proxy in the enclosed
envelope
which
is postage-prepaid if mailed in the United States.
To
vote, mark blocks below in blue or black ink as
follows:
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
NEUROGEN
CORPORATION
Vote
on Directors
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For
All
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Withhold
All
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For
All Except
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1.
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Election
of the following nominees to the Board of Directors:
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[
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[
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[
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a)
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Julian
C. Baker
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b)
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Eran
Broshy
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c)
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Stephen
R. Davis
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d)
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Stewart
Hen
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e)
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John
LaMattina
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f)
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Craig
Saxton
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g)
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John
Simon
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To
withhold authority to vote for any individual nominee(s), mark “For All
Except” and write the number(s) of the nominee(s) on the line
below.
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Vote
on Proposals
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For
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Against
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Abstain
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2.
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To
approve the issuance of shares of the Company’s Common Stock upon exchange
of shares of the Company’s Series A Exchangeable Preferred Stock sold in
the financing transaction described in the accompanying Proxy
Statement.
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[
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[
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[
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3.
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To
approve an amendment to the Company’s Restated Certificate of
Incorporation, as amended, to increase the total number of shares of
Common Stock that the Company is authorized to issue from 75,000,000 to
150,000,000 and the total number of shares of Preferred Stock that the
Company is authorized to issue from 2,000,000 to
10,000,000.
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[
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[
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[
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4.
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To
adopt an amendment to the Amended and Restated Neurogen Corporation 2001
Stock Option Plan, as amended which would increase the number of shares
reserved for issuance under the plan from 5,250,000 to 6,250,000 and to
increase the number of shares available for grants of stock options to
individual participants in any calendar year from 500,000 to
1,000,000
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5.
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To
ratify the appointment by the Board of Directors of PricewaterhouseCoopers
LLP as the independent registered public accountants for the Company for
the fiscal year ending December 31, 2008.
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[
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[
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[
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6.
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In
accordance with their discretion upon such other matters as may properly
come before the meeting or any adjournments thereof.
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[
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[
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[ ]
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For
address changes and/or comments, please check this box and write them on
the back where indicated.
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[
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Yes
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No
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Please
indicate if you plan to attend this meeting.
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[
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[
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Signature
[PLEASE
SIGN WITHIN BOX]
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Date
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Signature
(Joint Owners)
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Date
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