def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
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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 Pursuant to §240.14a-12 |
CRITICAL THERAPEUTICS, INC.
(Name of Registrant as Specified in Its Charter)
Not applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Date Filed: |
CRITICAL
THERAPEUTICS, INC.
60 WESTVIEW STREET
LEXINGTON, MASSACHUSETTS 02421
March 28,
2007
Dear Fellow Stockholders:
I am pleased to invite you to join us for the Critical
Therapeutics, Inc. 2007 Annual Meeting of Stockholders to be
held on May 2, 2007 at 10:00 a.m., local time, at the
offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State
Street, Boston, MA 02109. Details about the meeting, nominees
for the Board of Directors and other matters to be acted on are
presented in the Notice of 2007 Annual Meeting of Stockholders
and Proxy Statement that follow.
In addition to Annual Meeting formalities, we will report to
stockholders generally on Critical Therapeutics business,
and will be pleased to answer stockholders questions
relating to Critical Therapeutics.
We hope you plan to attend the Annual Meeting. Please exercise
your right to vote by signing, dating and returning the enclosed
proxy card as described in the Proxy Statement, even if you plan
to attend the meeting. You may also vote by proxy over the
Internet or by telephone.
On behalf of Critical Therapeutics Board of Directors and
management, it is my pleasure to express our appreciation for
your continued support.
Yours sincerely,
Frank E. Thomas
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE TAKE TIME TO VOTE AS SOON AS POSSIBLE. BY DOING SO,
YOU MAY SAVE CRITICAL THERAPEUTICS THE EXPENSE OF ADDITIONAL
SOLICITATION.
TABLE OF CONTENTS
CRITICAL
THERAPEUTICS, INC.
60 WESTVIEW STREET
LEXINGTON, MASSACHUSETTS 02421
NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 2,
2007
To our stockholders:
NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of
Stockholders of Critical Therapeutics, Inc. will be held on
May 2, 2007 at 10:00 a.m., local time, at the offices
of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street,
Boston, MA 02109. At the annual meeting, stockholders will
consider and vote on the following matters:
1. The election of two (2) members to our board of
directors to serve as Class III directors, each for a term
of three years.
2. The ratification of the selection by the Audit Committee
of Deloitte & Touche LLP as our independent registered
public accounting firm for the fiscal year ending
December 31, 2007.
Stockholders also will consider and vote on any other matters as
may properly come before the annual meeting or any adjournment
thereof. Our board of directors has no knowledge of any other
matters which may come before the meeting.
Stockholders of record at the close of business on March 5,
2007 are entitled to notice of, and to vote at, the annual
meeting or any adjournment thereof. Your vote is important
regardless of the number of shares you own. Our stock transfer
books will remain open for the purchase and sale of our common
stock.
We hope that all stockholders will be able to attend the annual
meeting in person. However, in order to ensure that a quorum is
present at the meeting, please complete, date, sign and promptly
return the enclosed proxy card whether or not you expect to
attend the annual meeting. A postage-prepaid envelope, addressed
to Mellon Investor Services LLC, our transfer agent and
registrar, has been enclosed for your convenience. You may also
vote by proxy over the Internet or by telephone. If you attend
the meeting, your proxy will, upon your written request, be
returned to you and you may vote your shares in person.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors,
Scott B. Townsend, Esq.
Secretary
Lexington, Massachusetts
March 28, 2007
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOUR VOTE IS
IMPORTANT. IN ORDER TO ASSURE THE REPRESENTATION OF YOUR
SHARES AT THE ANNUAL MEETING, PLEASE VOTE AS SOON AS
POSSIBLE OVER THE INTERNET, BY TELEPHONE OR BY MAIL.
CRITICAL
THERAPEUTICS, INC.
60 WESTVIEW STREET
LEXINGTON, MASSACHUSETTS 02421
PROXY
STATEMENT
For the 2007 Annual Meeting of
Stockholders
To Be Held On May 2,
2007
This proxy statement and the enclosed proxy card are being
furnished in connection with the solicitation of proxies by the
board of directors of Critical Therapeutics, Inc. for use at the
2007 Annual Meeting of Stockholders to be held on May 2,
2007 at 10:00 a.m., local time, at the offices of Wilmer
Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, MA
02109, and of any adjournment thereof.
All proxies will be voted in accordance with your instructions.
If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any
proxy may be revoked by a stockholder at any time before it is
exercised by delivery of written revocation to our Secretary or
by appearing at the meeting and voting in person.
Our Annual Report to Stockholders for the fiscal year ended
December 31, 2006 is being mailed to stockholders with the
mailing of these proxy materials on or about March 28, 2007.
A copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 as filed with
the Securities and Exchange Commission, or SEC, except for
exhibits, will be furnished without charge to any stockholder
upon written or oral request to Critical Therapeutics, Inc.,
Attention of Linda S. Lennox, Vice President,
Investor & Media Relations, 60 Westview Street,
Lexington, Massachusetts 02421; telephone:
(781) 402-5700.
This proxy statement and our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 are also
available on the SECs website at www.sec.gov.
Voting
Securities and Votes Required
Stockholders of record at the close of business on March 5,
2007 will be entitled to notice of and to vote at the annual
meeting. On that date, 43,066,165 shares of our common
stock were issued and outstanding. Each share of common stock
entitles the holder to one vote with respect to all matters
submitted to stockholders at the meeting. We have no other
securities entitled to vote at the meeting.
The representation in person or by proxy of at least a majority
of the shares of common stock issued, outstanding and entitled
to vote at the annual meeting is necessary to establish a quorum
for the transaction of business. If a quorum is not present, the
meeting will be adjourned until a quorum is obtained.
Directors are elected by a plurality of votes cast by
stockholders entitled to vote at the meeting. To be approved,
any other matter submitted to our stockholders, including the
ratification of Deloitte & Touche LLP as our
independent registered public accounting firm, requires the
affirmative vote of the majority of shares present in person or
represented by proxy and voting on such matter at the annual
meeting. The votes will be counted, tabulated and certified by a
representative of Mellon Investor Services LLC, who will serve
as the inspector of elections at the annual meeting.
Shares which abstain from voting as to a particular matter, and
shares held in street name by banks, brokers or
other nominees who indicate on their proxy cards that they do
not have discretionary authority to vote such shares as to a
particular matter, which we refer to as broker
non-votes, will be counted for the purpose of determining
whether a quorum exists but will not have any effect upon the
outcome of voting with respect to any matters voted on at the
annual meeting.
Stockholders may vote in person or by proxy. Voting by proxy
will not in any way affect a stockholders right to attend
the meeting and vote in person. Any stockholder voting by proxy
has the right to revoke the proxy at any time before the polls
close at the annual meeting by giving our Secretary a duly
executed proxy card bearing a later date than the proxy being
revoked at any time before that proxy is voted, by voting again
over the Internet or by telephone or by appearing at the meeting
and voting in person. The shares represented by all properly
executed proxies received in time for the meeting or voted by
proxy over the Internet or by telephone will be voted as
specified. If the shares you own are held in your name and you
do not specify in the proxy card how your shares are to be
voted, they will be voted in favor of the election as directors
of those persons named as nominees in this proxy statement and
in favor of the ratification of Deloitte & Touche LLP
as our independent registered public accounting firm. If any
other matters properly come before the meeting, the persons
named in the accompanying proxy intend to vote, or otherwise
act, in accordance with their judgment. If the shares you own
are held in street name, the bank, broker or other
nominee, as the record holder of your shares, is required to
vote your shares in accordance with your instructions. In order
to vote your shares held in street name, you will
need to follow the directions your bank, broker or other nominee
provides you.
If your shares are registered directly in your name, you may
vote:
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Over the Internet. Go to the web site of our tabulator,
Mellon Investor Services, at
http://www.proxyvoting.com/crtx
and follow the instructions you will find there. You must
specify how you want your shares voted or your Internet vote
cannot be completed and you will receive an error message. Your
shares will be voted according to your instructions.
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By Telephone. Call
(866) 540-5760
toll-free from the United States or Canada and follow the
instructions. You must specify how you want your shares voted
and confirm your vote at the end of the call or your telephone
vote cannot be completed. Your shares will be voted according to
your instructions.
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By Mail. Complete, date and sign the enclosed proxy card
and mail it in the enclosed postage-paid envelope to Mellon
Investor Services. Your proxy will be voted according to your
instructions. If you do not specify how you want your shares
voted, they will be voted as recommended by our board of
directors.
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In Person at the Meeting. If you attend the meeting, you
may deliver your completed proxy card in person or you may vote
by completing a ballot, which will be available at the meeting.
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If your shares are held in street name for your
account by a bank, broker or other nominee, you may vote:
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Over the Internet or By Telephone. You will receive
instructions from your broker or other nominee if you are
permitted to vote over the Internet or by telephone.
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By Mail. You will receive instructions from your broker
or other nominee explaining how to vote your shares.
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In Person at the Meeting. Contact the broker or other
nominee that holds your shares to obtain a brokers proxy
card and bring it with you to the meeting. A brokers
proxy is not the form of proxy enclosed with this proxy
statement. You will not be able to vote shares you hold in
street name at the meeting unless you have a proxy from your
broker issued in your name giving you the right to vote the
shares.
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Householding
of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be
participating in the practice of householding proxy
statements and annual reports. This means that only one copy of
our proxy statement and Annual Report to Stockholders may have
been sent to multiple stockholders in your household. We will
promptly deliver a separate copy of either document to you upon
written or oral request to Critical Therapeutics, Inc.,
Attention of Linda S. Lennox, Vice President,
Investor & Media Relations, 60 Westview Street,
Lexington, Massachusetts 02421; telephone:
(781) 402-5700.
If you want to receive separate copies of the proxy statement or
Annual Report to Stockholders in the future, or if you are
receiving multiple copies and would like to receive only one
copy per household, you should contact your bank, broker or
other nominee record holder, or you may contact us at the above
address and phone number.
2
STOCK
OWNERSHIP INFORMATION
The following table sets forth information regarding beneficial
ownership of our common stock as of February 28, 2007 by:
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each person, entity or group of affiliated persons or entities
known to us to be the beneficial owner of more than 5% of the
outstanding shares of our common stock;
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each of our directors and nominees for director;
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our President and Chief Executive Officer, who functions as both
our principal executive officer and our principal financial
officer, our three other most highly compensated executive
officers who were serving as executive officers on
December 31, 2006, our former President and Chief Executive
Officer and two additional former executive officers who would
have been among our most highly compensated executive officers
if they had been serving as executive officers on
December 31, 2006; and
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all of our directors and executive officers as a group.
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Beneficial ownership is determined in accordance with the
applicable rules of the SEC and includes voting or investment
power with respect to shares of our common stock. Shares of
common stock issuable under stock options and warrants that are
currently exercisable or exercisable within 60 days of
February 28, 2007 are deemed to be beneficially owned by
the person holding the option or warrant for purposes of
calculating the percentage ownership of that person but are not
deemed outstanding for purposes of calculating the percentage
ownership of any other person. The information set forth below
is not necessarily indicative of beneficial ownership for any
other purpose, and the inclusion of any shares deemed
beneficially owned in this table does not constitute an
admission of beneficial ownership of those shares. Unless
otherwise indicated, to our knowledge, all persons named in the
table have sole voting and investment power with respect to the
shares of common stock beneficially owned by them, except, where
applicable, to the extent authority is shared by spouses under
community property laws.
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Number of
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Shares
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Shares
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Outstanding
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Underlying
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Underlying
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Total Number of
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Percentage of
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Shares
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Warrants
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Options
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Shares
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Common Stock
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Name and Address of
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Beneficially
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Currently
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Exercisable
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Beneficially
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Beneficially
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Beneficial Owner(1)
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Owned
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Exercisable(2)
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within 60 Days
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Owned
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Owned
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5% Stockholders
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Funds managed by Healthcare
Ventures(3)
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5,153,323
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383,212
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5,536,535
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12.74
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%
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44 Nassau Street, Second Floor
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Princeton, NJ 08542
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Funds managed by MPM Asset
Management
II LLC(4)
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3,845,876
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191,606
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4,037,482
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9.33
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%
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200 Clarendon Street, 54(th) Floor
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Boston, MA 02116
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Funds managed by Advanced
Technology
Ventures(5)
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3,182,132
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447,081
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3,629,213
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8.34
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%
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Bay Colony Corporate Center
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1000 Winter Street, Suite 3700
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Waltham, MA 02541
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Prospect Venture Partners III,
L.P
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2,281,022
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798,358
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3,079,380
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7.02
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%
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435 Tasso Street, Suite 200
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Palo Alto, CA 94301
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MedImmune Ventures, Inc.
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2,857,142
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2,857,142
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6.63
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%
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One MedImmune Way
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Gaithersburg, MD 20878
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Sectoral Asset Management(6)
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2,603,004
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2,603,004
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6.04
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%
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2120-1000
Sherbrooke St.
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West Montreal PQ H3A 3G4
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Canada
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3
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Number of
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Shares
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Shares
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Outstanding
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Underlying
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Underlying
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Total Number of
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Percentage of
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Shares
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Warrants
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Options
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Shares
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Common Stock
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Name and Address of
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Beneficially
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Currently
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Exercisable
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Beneficially
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Beneficially
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Beneficial Owner(1)
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Owned
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Exercisable(2)
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within 60 Days
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Owned
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Owned
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Directors and Named Executive
Officers
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Frank E. Thomas(7)
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59,885
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208,399
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268,284
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*
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Christopher Mirabelli, Ph.D.(8)
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5,153,323
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383,212
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5,536,535
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12.74
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%
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Nicholas Galakatos, Ph.D.(9)
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3,846,839
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191,606
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14,166
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4,052,611
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9.37
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%
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Jean George(10)
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3,182,132
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447,081
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14,166
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3,643,379
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8.37
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%
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James B. Tananbaum, M.D.(11)
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2,281,022
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798,358
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17,639
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3,097,019
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7.06
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%
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Christopher Walsh, Ph.D.
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10,991
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28,332
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39,323
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*
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Richard W. Dugan
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37,777
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37,777
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*
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Robert H. Zeiger
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25,833
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25,833
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*
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M. Cory Zwerling
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37,500
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37,500
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*
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Dana Hilt, M.D.(12)
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26,700
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25,000
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51,700
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*
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Trevor Phillips, Ph.D.(13)
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40,033
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253,472
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293,505
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*
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Scott B. Townsend, Esq.(14)
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27,700
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67,436
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95,136
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*
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Paul D. Rubin, M.D.(15)
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195,000
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|
|
|
|
|
|
|
|
|
195,000
|
|
|
|
*
|
|
Frederick Finnegan(16)
|
|
|
16,237
|
|
|
|
|
|
|
|
|
|
|
|
16,237
|
|
|
|
*
|
|
Walter Newman, Ph.D.(17)
|
|
|
345,099
|
|
|
|
|
|
|
|
|
|
|
|
345,099
|
|
|
|
*
|
|
All executive officers and
directors as a group (13 persons, consisting of 5 officers
and 8 non-employee directors)
|
|
|
14,657,235
|
|
|
|
1,820,257
|
|
|
|
759,406
|
|
|
|
17,236,988
|
|
|
|
37.76
|
%
|
|
|
|
* |
|
Represents beneficial ownership of less than one percent of
common stock. |
|
(1) |
|
Unless otherwise indicated, the address of each beneficial owner
is care of Critical Therapeutics, Inc., 60 Westview Street,
Lexington, MA 02421. |
|
(2) |
|
Consists of shares underlying warrants to purchase our common
stock at $6.58 per share issued in connection with our
private placement of common stock and warrants in June 2005. |
|
(3) |
|
Consists of 4,058,432 shares of common stock held by
HealthCare Ventures VI, L.P. and 1,094,891 shares of common
stock and warrants to purchase 383,212 shares of common
stock held by HealthCare Ventures VII, L.P. Christopher
Mirabelli, a member of our board of directors, is a General
Partner of HealthCare Partners VI, L.P., the general partner of
HealthCare Ventures VI, L.P., and a General Partner of
HealthCare Partners VII, L.P., the general partner of HealthCare
Ventures VII, L.P. Dr. Mirabelli disclaims beneficial
ownership of the shares held by the funds managed by HealthCare
Ventures, except to the extent of his pecuniary interest therein. |
|
(4) |
|
Consists of 286,133 shares of common stock and warrants to
purchase 14,256 shares of common stock held by MPM
BioVentures II, L.P.; 2,592,891 shares of common stock
and warrants to purchase 129,181 shares of common stock
held by MPM BioVentures II-QP, L.P.; 913,011 shares of
common stock and warrants to purchase 45,487 shares of
common stock held by MPM BioVentures GmbH & Co.
Parallel Beteiligungs KG; and 53,841 shares of
common stock and warrants to purchase 2,682 shares of
common stock held by MPM Asset Management Investors 2001 LLC.
MPM BioVentures II, L.P., MPM BioVentures II-QP, L.P., MPM
BioVentures GmbH & Co. Parallel
Beteiligungs KG and MPM Asset Management Investors 2001 LLC are
affiliates of MPM Asset Management II LLC. Nicholas
Galakatos, a member of our board of directors, is an investment
manager of each of the funds managed by MPM Asset
Management II LLC. Dr. Galakatos disclaims beneficial
ownership of the shares held by the funds managed by MPM Asset
Management II LLC, except to the extent of his pecuniary
interest therein. |
|
(5) |
|
Consists of 2,554,802 shares of common stock and warrants
to purchase 359,696 shares of common stock held by Advanced
Technology Ventures VII, L.P.; 102,522 shares of common
stock and warrants to purchase 14,434 shares of common
stock held by Advanced Technology Ventures VII (B), L.P.;
49,279 shares of common stock and warrants to purchase
6,938 shares of common stock held by |
4
|
|
|
|
|
Advanced Technology Ventures VII (C), L.P.; 15,225 shares
of common stock and warrants to purchase 2,144 shares of
common stock held by ATV Entrepreneurs VII, L.P.;
5,714 shares of common stock held by ATV Alliance 2003,
L.P.; 427,315 shares of common stock and warrants to
purchase 60,037 shares of common stock held by Advanced
Technology Ventures VI, L.P.; and 27,275 shares of common
stock and warrants to purchase 3,832 shares of common stock
held by ATV Entrepreneurs VI, L.P. Jean George, a member of our
board of directors, is a Managing Director of the general
partner of certain of the funds managed by Advanced Technology
Ventures. Ms. George disclaims beneficial ownership of the
shares held by the funds managed by Advanced Technology
Ventures, except to the extent of her pecuniary interest therein. |
|
(6) |
|
According to a Schedule 13G filed jointly with the SEC on
February 13, 2007, Sectoral Asset Management Inc.,
Jérôme G. Pfund and Michael L. Sjöström each
reports as of December 31, 2006 having sole voting power
over 813,004 shares of common stock, shared voting power over
1,093,000 shares of common stock and sole dispositive power over
2,603,004 shares of common stock. |
|
(7) |
|
Includes 40,000 shares of restricted stock issued to
Mr. Thomas in December 2006 that will vest in equal
installments in December 2007 and December 2008. |
|
(8) |
|
Consists of 5,153,323 shares of common stock and warrants
to purchase 383,212 shares of common stock held by funds
managed by HealthCare Ventures. Dr. Mirabelli is a general
partner of HealthCare Partners VI, L.P., the general partner of
HealthCare Ventures VI, L.P., and a General Partner of
HealthCare Partners VII, L.P., the general partner of HealthCare
Ventures VII, L.P. Dr. Mirabelli disclaims beneficial
ownership of the shares held by the funds managed by HealthCare
Ventures, except to the extent of his pecuniary interest therein. |
|
(9) |
|
Includes 674 shares of common stock held by
Dr. Galakatos, 3,845,876 shares of common stock and
warrants to purchase 191,606 shares of common stock held by
funds managed by MPM Asset Management LLC and 289 shares of
common stock held by AAG Peakham LLC. Dr. Galakatos is a
general partner of MPM Capital, LP, which is affiliated with
each of the funds managed by MPM Asset Management, LLC.
Dr. Galakatos is a member of AAG Peakham LLC.
Dr. Galakatos disclaims beneficial ownership of the shares
held by the funds managed by MPM Asset Management LLC and the
shares held by AAG Peakham LLC, except to the extent of his
pecuniary interest therein. |
|
(10) |
|
Includes 3,182,132 shares of common stock and warrants to
purchase 447,081 shares of common stock held by funds
managed by Advanced Technology Ventures. Ms. George is a
Managing Director of the general partner of certain of the funds
managed by Advanced Technology Ventures. Ms. George
disclaims beneficial ownership of the shares held by the funds
managed by Advanced Technology Ventures, except to the extent of
her pecuniary interest therein. |
|
(11) |
|
Includes 2,281,022 shares of common stock and warrants to
purchase 798,358 shares of common stock held by Prospect
Venture Partners III, L.P. Dr. Tananbaum is a Managing
Member of Prospect Management Co. III, L.L.C., the general
partner of Prospect Venture Partners III, L.P. |
|
(12) |
|
Includes 26,700 shares of restricted stock issued to
Dr. Hilt in December 2006 that will vest in equal
installments in December 2007 and December 2008. |
|
(13) |
|
Includes 35,000 shares of restricted stock issued to
Dr. Phillips in December 2006 that will vest in equal
installments in December 2007 and December 2008. In addition,
includes 3,200 shares of common stock held by
Dr. Phillips children. Dr. Phillips disclaims
beneficial ownership of the foregoing 3,200 shares held by his
children except to the extent of his pecuniary interest therein. |
|
(14) |
|
Includes 26,700 shares of restricted stock issued to
Mr. Townsend in December 2006 that will vest in equal
installments in December 2007 and December 2008. |
|
(15) |
|
Includes 9,866 shares held by Dr. Rubins
daughter, as to which Dr. Rubin disclaims beneficial
ownership except to the extent of his pecuniary interest
therein. Dr. Rubin resigned as our President and Chief
Executive Officer and as a member of our board of directors in
June 2006. |
|
(16) |
|
Mr. Finnegan resigned as our Senior Vice President of Sales
and Marketing in June 2006. |
5
|
|
|
(17) |
|
Includes 171,999 shares held by Seahorse Investments, LLC,
of which Dr. Newman is a managing member. Dr. Newman
resigned as our Senior Vice President of Research and
Development and Chief Scientific Officer in October 2006. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers and the holders of
more than 10% of our common stock to file with the SEC initial
reports of ownership of our common stock and other equity
securities on a Form 3 and reports of changes in such
ownership on a Form 4 or Form 5. Officers, directors
and 10% stockholders are required by SEC regulations to furnish
us with copies of all Section 16(a) forms they file. To our
knowledge, based solely upon a review of the copies of such
forms furnished to us for the year ended December 31, 2006,
and the information provided to us by those persons required to
file such reports, no such person failed to file the forms
required by Section 16(a) of the Exchange Act on a timely
basis, except as follows:
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|
|
|
|
on April 10, 2006, H. Shaw Warren, a member of our board of
directors at that time, filed a late Form 4 relating to the
exercise of a non-statutory stock option on April 6,
2006; and
|
|
|
|
on October 18, 2006, M. Cory Zwerling, a member of our
board of directors, filed a late Form 4 relating to, among
other transactions, the grant of a non-statutory stock option on
October 9, 2006.
|
PROPOSAL ONE
ELECTION OF DIRECTORS
Our board of directors is divided into three classes, with one
class being elected each year and members of each class holding
office for a three-year term. The number of members of our board
of directors is determined from time to time by the board of
directors. Our board of directors currently consists of nine
members, three of whom are Class III directors (with terms
expiring at the 2007 annual meeting), three of whom are
Class I directors (with terms expiring at the 2008 annual
meeting) and three of whom are Class II directors (with
terms expiring at the 2009 annual meeting). Nicholas
Galakatos, Ph.D., who currently serves as a Class III
director, has decided not to seek reelection for another term.
Our board of directors has determined that, effective upon the
expiration of Dr. Galakatoss term and the election of
two Class III directors at the 2007 annual meeting, our
board of directors will consist of eight members.
At the 2007 annual meeting, stockholders will have an
opportunity to vote for the nominees for Class III
directors, Jean George and Frank E. Thomas. Ms. George is
currently serving as a Class III director and has been a
director since October 2003. Mr. Thomas is currently
serving as a Class III director and has been a director
since June 2006.
Mr. Thomas has been nominated for election as a director
for the first time. In June 2006, following the resignation of
Paul D. Rubin, M.D. as President and Chief Executive
Officer and as a member of our board of directors, and in
connection with the appointment of Mr. Thomas as President,
our board of directors elected Mr. Thomas to the board to
fill the vacancy created by Dr. Rubins resignation.
The persons named in the enclosed proxy card will vote to elect
these two nominees as Class III directors, unless you
withhold authority to vote for the election of either or both
nominees by marking the proxy card to that effect. Each of the
nominees has indicated his or her willingness to serve, if
elected. However, if either or both of the nominees should be
unable or unwilling to serve, the proxies may be voted for a
substitute nominee designated by our board of directors, or our
board of directors may reduce the number of directors.
Board
Recommendation
The board of directors recommends a vote FOR the
election of each of these Class III director nominees.
The following paragraphs provide information as of the date of
this proxy statement about each Class III director nominee
and each member of our board of directors whose term continues
after the 2007 annual
6
meeting. The information presented includes information about
each such director, including his or her age, all positions and
offices he or she holds with us, his or her length of service as
a director, his or her principal occupation and employment for
the past five years and the names of other publicly-held
companies of which he or she serves as a director. For
information about the number of shares of common stock
beneficially owned by our directors as of February 28,
2007, see Stock Ownership Information.
No director or executive officer is related by blood, marriage
or adoption to any other director or executive officer. No
arrangements or understandings exist between any director or
person nominated for election as a director and any other person
pursuant to which such person is to be selected as a director or
nominee for election as a director.
Class III
Director Nominees (Terms to Expire at the 2007 Annual
Meeting)
Jean
George, age 49, became a director in 2003.
Jean George has served as a member of our board of
directors since October 2003. From January 2004 to the present,
Ms. George has served as a General Partner, and from
February 2002 to December 2003, she served as a Partner, with
Advanced Technology Ventures, a venture capital firm. From
September 1998 to January 2002, Ms. George served as a
Director for BancBoston Ventures, a venture capital firm. From
1988 to July 1998, Ms. George served in a variety of roles,
including most recently as Vice President of Sales and
Marketing, at Genzyme Corporation, a biotechnology company.
Ms. George holds a B.S. in Biology from the University of
Maine and an M.B.A. from Simmons College Graduate School of
Management.
Frank
E. Thomas., age 37, became a director in June
2006.
Frank Thomas has served as our President since June 2006,
as our Chief Executive Officer since December 2006 and as a
member of our board of directors since June 2006.
Mr. Thomas functions as both our principal executive
officer and our principal financial officer. Mr. Thomas
served as our Chief Financial Officer from April 2004 to June
2006, as our Treasurer from May 2004 to June 2006, as our Senior
Vice President of Finance from December 2004 to June 2006 and as
our Vice President of Finance from June 2004 to December 2004.
From February 2000 to April 2004, Mr. Thomas served in a
variety of finance positions with Esperion Therapeutics, Inc., a
biopharmaceutical company, including most recently as Chief
Financial Officer. Esperion was acquired by Pfizer Inc. in
February 2004. From September 1997 to March 2000,
Mr. Thomas served as Director of Finance and Corporate
Controller for Mechanical Dynamics, Inc., a publicly-held
software company. Prior to that, Mr. Thomas was a manager
with Arthur Andersen LLP where he was a certified public
accountant. Mr. Thomas holds a Bachelor in Business
Administration from the University of Michigan.
Class I
Directors (Terms to Expire at the 2008 Annual Meeting)
Christopher
Walsh, Ph.D., age 63, became a director in
2001.
Christopher Walsh, Ph.D. has served as a member of
our board of directors since July 2001. From June 1987 to the
present, Dr. Walsh has served as the Hamilton Kuhn
Professor of Biological Chemistry and Molecular Pharmacology at
Harvard Medical School, where he also served as Chair,
Biological Chemistry & Molecular Pharmacology.
Dr. Walsh holds a B.A. in Biology from Harvard College and
a Ph.D. in Life Sciences from Rockefeller University.
Dr. Walsh currently serves on the board of directors of
Kosan Biosciences, Inc., a biotechnology company.
Robert
H. Zeiger, age 63, became a director in 2004.
Robert H. Zeiger has served as a member of our board of
directors since October 2004. Mr. Zeiger served as our lead
independent director from February 2005 to June 2006. From June
2006 to October 2006, Mr. Zeiger served as our Executive
Chairman on an interim basis. From October 2000 to the present,
Mr. Zeiger has served as a marketing consultant for a
number of privately-held pharmaceutical companies. From May 1995
to October 2000, Mr. Zeiger served in a variety of
positions for Viragen, Inc., a
7
biopharmaceutical company. Mr. Zeiger served as Chief
Executive Officer and Chief Operating Officer of Viragen from
May 1995 to September 1998 and Vice Chairman of the Board of
Directors from October 1998 to October 2000. From 1985 to 1994,
Mr. Zeiger served in a variety of positions for Glaxo,
Inc., a pharmaceutical company, including Vice President and
General Manager of Glaxo Dermatology, Allen & Hanbury
and Glaxo Pharmaceuticals. From 1979 to 1985, Mr. Zeiger
served as Vice President of Marketing and Sales of Stiefel
Laboratories, an international dermatology company. From 1971 to
1979, Mr. Zeiger served as National Sales Manager for Knoll
Pharmaceutical, a pharmaceutical company. Mr. Zeiger holds
a B.S. in marketing from Loyola University.
M.
Cory Zwerling, age 47, became a director in October
2006.
M. Cory Zwerling has served as a member of our board
of directors since October 2006. From 1987 to July 2006,
Mr. Zwerling served in a variety of roles for Bristol-Myers
Squibb, a pharmaceutical company, including President of
Bristol-Myers Squibb Medical Imaging from April 2002 to July
2006 and Vice President, Global Marketing of the Worldwide
Medicines Group from June 2001 to April 2002. During his time
with Bristol-Myers Squibb, Mr. Zwerling also served as Area
Vice President U.S. Sales, General Manager of Worldwide
Medicines in Thailand and a variety of other sales, marketing
and commercial roles. From 1986 to 1987, Mr. Zwerling
served as a management consultant with Touche Ross &
Co. Mr. Zwerling holds a B.A. in Economics from Cornell
University and an M.S. from the Sloan School of Management at
the Massachusetts Institute of Technology.
Class II
Directors (Terms to Expire at the 2009 Annual Meeting)
Richard
W. Dugan, age 65, became a director in 2004.
Richard W. Dugan has served as a member of our board of
directors since April 2004 and as our lead independent director
since October 2006. From 1976 to September 2002, Mr. Dugan
was a partner with Ernst & Young, LLP, where he served
in a variety of managing and senior partner positions, including
Mid-Atlantic Area Senior Partner from 2001 to 2002, Mid-Atlantic
Area Managing Partner from 1989 to 2001 and Pittsburgh Office
Managing Partner from 1981 to 1989. Mr. Dugan retired from
Ernst & Young LLP in September 2002. Mr. Dugan
currently serves on the board of directors of Advancis
Pharmaceutical Corporation, a biopharmaceutical company, and
Vanda Pharmaceuticals Inc., a biopharmaceutical company.
Mr. Dugan holds a B.S. in Business Administration from
Pennsylvania State University.
Christopher
Mirabelli, Ph.D., age 52, became a director in
2001.
Christopher Mirabelli, Ph.D. has served as a member
of our board of directors since July 2001. From July 2001 to
August 2002, Dr. Mirabelli served as our acting
non-employee president. From August 2000 to the present,
Dr. Mirabelli has served as a General Partner of HealthCare
Ventures, a venture capital firm. From December 1999 to July
2000, Dr. Mirabelli served as President of Pharmaceutical
Research and Development and a member of the board of directors
of Millennium Pharmaceuticals, Inc., a biopharmaceutical
company. From July 1993 to December 1999, Dr. Mirabelli
served as Chairman of the Board, President and Chief Executive
Officer of LeukoSite, Inc., a biotechnology company. In 1988,
Dr. Mirabelli was a founder of Isis Pharmaceuticals, Inc.,
where he served until July 1993 in several positions, including
Executive Vice President. Dr. Mirabelli holds a B.S. in
Biology from SUNY-Fredonia and a Ph.D. in Molecular Pharmacology
from Baylor College of Medicine.
James
B. Tananbaum, M.D., age 43, became a director in
2005.
James B. Tananbaum, M.D. has served as a member of
our board of directors since June 2005. From September 2000 to
the present, Dr. Tananbaum has served as a Managing
Director of Prospect Venture Partners, a venture capital firm.
Since November 30, 2004, Dr. Tananbaum has also served
as a Managing Member of Prospect Management Co. III,
L.L.C., which is the general partner of Prospect Venture
Partners III, L.P. From January 1997 to July 2000,
Dr. Tananbaum served as Chief Executive Officer of
Theravance, Inc., a biopharmaceutical company. From December
1993 to January 1997, Dr. Tananbaum served as a venture
8
partner of Sierra Ventures, a venture capital firm.
Dr. Tananbaum currently serves on the boards of directors
of Vanda Pharmaceuticals Inc., a biopharmaceutical company, and
Infinity Pharmaceuticals, Inc., a biopharmaceutical company.
Dr. Tananbaum holds a B.S.E.E. from Yale University and an
M.D. and an M.B.A. from Harvard University.
CORPORATE
GOVERNANCE
General
We believe that good corporate governance is important to ensure
that Critical Therapeutics, Inc. is managed for the long-term
benefit of our stockholders. This section describes key
corporate governance practices that we have adopted.
Board
Determination of Independence
Under applicable rules of the NASDAQ Stock Market, a director
will only qualify as an independent director if, in
the opinion of our board of directors, that person does not have
a relationship which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director. Our board of directors has determined that none of
Drs. Galakatos, Mirabelli, Tananbaum and Walsh,
Ms. George, Mr. Dugan and Mr. Zeiger has a
relationship which would interfere with the exercise of his or
her independent judgment in carrying out the responsibilities of
a director and, therefore, that each of these directors is an
independent director as defined under NASDAQ
Rule 4200(a)(15).
In determining the independence of the directors listed above,
our board of directors considered Mr. Zeigers service
as our Executive Chairman on an interim basis from June 2006 to
October 2006 and his receipt of cash and equity compensation for
such service pursuant to the terms of an offer letter that we
entered into with Mr. Zeiger. For more information
regarding the terms of this offer letter with Mr. Zeiger,
see Transactions with Related
Persons Offer Letter with Robert H. Zeiger.
Board of
Directors Meetings and Attendance
The board of directors has responsibility for establishing broad
corporate policies and reviewing our overall performance rather
than
day-to-day
operations. The primary responsibility of our board of directors
is to oversee the management of our company and, in doing so,
serve the best interests of the company and our stockholders.
The board of directors selects, evaluates and provides for the
succession of executive officers and, subject to stockholder
election, directors. It reviews and approves corporate
objectives and strategies, and evaluates significant policies
and proposed major commitments of corporate resources. Our board
of directors also participates in decisions that have a
potential major economic impact on our company. Management keeps
the directors informed of company activity through regular
communication, including written reports and presentations at
board of directors and committee meetings.
Our board of directors met fifteen times during the fiscal year
ended December 31, 2006, either in person or by
teleconference. During 2006, each of our directors attended at
least 75% of the aggregate of the total number of board meetings
held during the period each has been a director and the total
number of meetings held by all committees on which each director
then served.
We have no formal policy regarding director attendance at the
annual meeting of stockholders, although all directors are
expected to attend the annual meeting of stockholders if they
are able to do so. All of our then-serving directors attended
our 2006 annual meeting of stockholders.
Lead
Independent Director
On October 9, 2006, a majority of the independent directors
of our board of directors appointed Mr. Dugan as the lead
independent director. The lead independent directors consults
with our President and Chief Executive Officer and the
Nominating and Corporate Governance Committee on matters
relating to corporate governance and the performance of our
board of directors. In addition, the lead independent director
9
provides assistance to the President and Chief Executive Officer
and Corporate Secretary in planning board agendas, acts as the
leader of the independent directors and acts as the chair of the
independent directors in meetings of the independent directors.
Mr. Zeiger previously served as our lead independent
director from February 2005 to June 2006.
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee. The members of each committee are appointed by our
board of directors, upon recommendation of the nominating and
corporate governance committee, and serve one-year terms. Each
of these committees operates under a charter that has been
approved by the board of directors. We have posted current
copies of each committees charter on the Corporate
Governance section of our website, which can be found at
www.crtx.com.
The board of directors has determined that all of the members of
each of the boards three standing committees are
independent as defined under the rules of the NASDAQ Stock
Market, and, in the case of all members of the Audit Committee,
that they meet the additional independence requirements of
Rule 10A-3
under the Securities Exchange Act of 1934.
Audit
Committee
The Audit Committees responsibilities include:
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appointing, approving the compensation of, and assessing the
independence of our registered public accounting firm;
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overseeing the work of our independent registered public
accounting firm, including through the receipt and consideration
of reports from the independent registered public accounting
firm;
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reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct
and ethics;
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establishing policies regarding hiring employees from the
independent registered public accounting firm and procedures for
the receipt and retention of accounting-related complaints and
concerns;
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meeting independently with our independent registered public
accounting firm and management to discuss our financial
statements, and other financial reporting and audit matters;
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preparing the audit committee report required by SEC rules,
which is included on page 13 of this proxy
statement; and
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reviewing and approving or ratifying related person transactions.
|
The members of the Audit Committee are Mr. Dugan,
Ms. George and Dr. Walsh. Mr. Dugan serves as
chair of the Audit Committee. The board of directors has
determined that Mr. Dugan is an audit committee
financial expert as defined by applicable SEC rules. The
Audit Committee met thirteen times in 2006.
Compensation
Committee
The Compensation Committees responsibilities include:
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reviewing and making recommendations to the board of directors
regarding the compensation of our executive officers;
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overseeing the evaluation of our senior executives;
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reviewing and making recommendations to the board of directors
regarding incentive compensation and equity-based plans;
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10
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administering our stock incentive plans;
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reviewing and making recommendations to the board of directors
regarding director compensation;
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reviewing and discussing with management our Compensation
Discussion and Analysis, which is included on page 19 of
this proxy statement; and
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preparing the compensation committee report required by SEC
rules, which is included on page 36 of this proxy statement.
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For information about the processes and procedures followed by
the Compensation Committee in considering and making
recommendations regarding executive and director compensation,
see Executive and Director Compensation
Process.
The members of the Compensation Committee are
Dr. Galakatos, Ms. George and Dr. Mirabelli.
Dr. Galakatos serves as chair of the Compensation
Committee. The Compensation Committee met seven times during
2006.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committees
responsibilities include:
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identifying individuals qualified to become board members;
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recommending to the board the persons to be nominated for
election as directors and to each of the boards committees;
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reviewing and making recommendations to the board with respect
to management succession planning;
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developing and recommending to the board corporate governance
principles; and
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overseeing an annual evaluation of the board.
|
The members of the Nominating and Corporate Governance Committee
are Dr. Mirabelli, Dr. Galakatos and
Dr. Tananbaum. Dr. Mirabelli serves as chair of the
Nominating and Corporate Governance Committee. The Nominating
and Corporate Governance Committee met four times in 2006.
Executive
and Director Compensation Process
The Compensation Committee has implemented an annual performance
review program for our executive officers, under which annual
performance goals are determined and set forth in writing at the
beginning of each calendar year for the company as a whole and
each executive officer. Annual corporate goals are proposed by
management and approved by the independent directors of our
board of directors. These corporate goals target the achievement
of specific commercialization, research, clinical, regulatory,
financial and operational milestones. Annual individual goals
focus on contributions that facilitate the achievement of the
corporate goals and are set during the first quarter of each
calendar year. Individual goals are proposed by each executive
officer and approved by our President and Chief Executive
Officer. Annual salary increases, annual bonuses and annual
stock option and restricted stock awards granted to our
executives are based on actual corporate and individual
performance compared to these corporate and individual
performance goals and various subjective performance criteria.
We evaluate individual and corporate performance against the
goals for each completed year. Each executives evaluation
begins with a written self-assessment, which is submitted to our
President and Chief Executive Officer. Our President and Chief
Executive Officer then prepares a written evaluation based on
the executive officers self-assessment, the President and
Chief Executive Officers own evaluation and input from
others within our company. This process leads to a
recommendation by our President and Chief Executive Officer for
annual executive salary increases, annual stock option and
restricted stock awards and bonuses, if any. The Compensation
Committee then reviews and makes a recommendation to the
independent directors. In the case of our President and Chief
Executive Officer, his individual performance evaluation is
conducted by
11
the Compensation Committee, which then recommends his
compensation changes and awards to the independent directors.
The Compensation Committee periodically reviews and makes
recommendations to the board of directors regarding director
compensation. Currently, each non-employee member of our board
of directors is compensated pursuant to our compensation and
reimbursement policy that became effective January 1, 2006.
For more information regarding this policy, see
Information About Executive and Director
Compensation Compensation of Directors.
The Compensation Committee may delegate its authority to the
chair of the Compensation Committee to the extent it deems
necessary to finalize matters as to which the Compensation
Committee has given its general approval. In April 2004, our
board of directors delegated to our Chief Executive Officer the
authority to make stock option grants under our 2004 Stock
Incentive Plan, as amended, to new employees, upon hiring,
consistent with guidelines to be established from time to time
by the Compensation Committee. Our Chief Executive Officer was
not authorized to grant options to himself, or to any other
executive officer, to any person that reports directly to the
Chief Executive Officer or to any person that our board of
directors or the Compensation Committee may from time to time
designate in writing. In addition, our Chief Executive Officer
was not authorized to grant, in the aggregate, options with
respect to more than 533,333 shares of common stock to new
employees or grant to any employee, in any one calendar year,
options with respect to more than 133,333 shares of common
stock, except as may be approved by the Compensation Committee.
In March 2006, the Compensation Committee delegated to each of
our Chief Executive Officer, Chief Financial Officer and Chief
Operating Officer the authority to make stock option grants
under our 2004 Stock Incentive Plan, as amended, to our existing
employees. Our Chief Executive Officer, Chief Financial Officer
and Chief Operating Officer were not authorized to grant options
to any executive officer or other officer subject to
Section 16(a) of the Securities Exchange Act of 1934 or to
any person designated by the Compensation Committee. In
addition, our Chief Executive Officer, Chief Financial Officer
and Chief Operating Officer were not authorized to grant, in the
aggregate, options with respect to more than 120,000 shares
of common stock to existing employees or grant to any existing
employee, in any one calendar year, options with respect to more
than 5,000 shares of common stock, except as may be
approved by the Compensation Committee.
The Compensation Committee has the authority to retain
compensation consultants and other outside advisors to assist in
the evaluation of executive officer compensation. During 2006,
the Compensation Committee retained Nancy Arnosti and Pearl
Meyer & Partners as compensation consultants. For more
information regarding the nature and scope of the work performed
by these consultants to the Compensation Committee, see
Information About Executive and Director
Compensation Compensation Discussion and
Analysis.
Director
Nomination Process
The Nominating and Corporate Governance Committee is responsible
for identifying individuals qualified to become board members,
consistent with criteria approved by the board, and recommending
the persons to be nominated for election as directors, except
where we are legally required by contract, bylaw or otherwise to
provide third parties with the right to nominate directors. The
process followed by the Nominating and Corporate Governance
Committee to identify and evaluate director candidates includes
requests to board members and others for recommendations,
meetings from time to time to evaluate biographical information
and background material relating to potential candidates and
interviews of selected candidates by members of the Committee
and the board, with direct input from our chief executive
officer and the lead independent director. In addition, during
2007, the Nominating and Corporate Governance Committee retained
the services of an executive search firm to help identify and
evaluate potential director candidates.
In considering whether to recommend any particular candidate for
inclusion in the boards slate of recommended director
nominees, the Nominating and Corporate Governance Committee
applies certain criteria, including the candidates
reputation for integrity, honesty and adherence to high ethical
standards, business acumen, experience and judgment,
understanding of our business and industry, diligence, conflicts
of interest or the appearance thereof, other directorships and
their impact on the ability of the candidate to devote
12
adequate time to service on our board, the ability to act in the
interests of all stockholders and willingness to serve for at
least three years on the board. The Committee does not assign
specific weights to particular criteria and no particular
criterion is a prerequisite for each prospective nominee. We
believe that the backgrounds and qualifications of our
directors, considered as a group, should provide a significant
breadth of experience, knowledge and abilities that will assist
our board in fulfilling its responsibilities.
Stockholders may recommend individuals to the Nominating and
Corporate Governance Committee for consideration as potential
director candidates by submitting their names, together with
appropriate biographical information and background materials
and a statement as to whether the stockholder or group of
stockholders making the recommendation has beneficially owned
more than 5% of our common stock for at least a year as of the
date such recommendation is made, to the Nominating and
Corporate Governance Committee, c/o Corporate Secretary,
Critical Therapeutics, Inc., 60 Westview Street, Lexington,
Massachusetts 02421. Assuming that appropriate biographical and
background material has been provided on a timely basis, the
Committee will evaluate stockholder recommended candidates by
following substantially the same process, and applying
substantially the same criteria, as it follows for candidates
submitted by others. Stockholders also have the right under our
by-laws to directly nominate director candidates, without any
action or recommendation on the part of the Committee or the
board, by following the procedures set forth under
Stockholder Proposals.
At the 2007 annual meeting, stockholders will be asked to
consider the election of Mr. Thomas for the first time. In
June 2006, following the resignation of Paul D. Rubin, M.D.
as President and Chief Executive Officer and as a member of our
board of directors, and in connection with the appointment of
Mr. Thomas as President, our board of directors, based on
the recommendation of the Nominating and Corporate Governance
Committee, elected Mr. Thomas to the board to fill the
vacancy created by Dr. Rubins resignation.
Communicating
with the Independent Directors
The board will give appropriate attention to written
communications that are submitted by stockholders, and will
respond if and as appropriate. The lead independent director, or
otherwise the chairman of the Nominating and Corporate
Governance Committee, with the assistance of our General
Counsel, is primarily responsible for monitoring communications
from stockholders and for providing copies or summaries to the
other directors as he considers appropriate.
Communications are forwarded to all directors if they relate to
important substantive matters and include suggestions or
comments that the lead independent director, or otherwise the
chairman of the Nominating and Corporate Governance Committee,
considers to be important for the directors to know. In general,
communications relating to corporate governance and corporate
strategy are more likely to be forwarded than communications
relating to ordinary business affairs, personal grievances and
matters as to which we tend to receive repetitive or duplicative
communications.
Stockholders who wish to send communications on any topic to the
board should address such communications to the Board of
Directors, c/o Corporate Secretary, Critical Therapeutics,
Inc., 60 Westview Street, Lexington, Massachusetts 02421.
You should indicate on your correspondence that you are a
Critical Therapeutics stockholder.
Anyone may express concerns regarding questionable accounting or
auditing matters or complaints regarding accounting, internal
accounting controls or auditing matters to the Audit Committee
by calling the voicemail box at
(800) 799-6158.
Messages to the Audit Committee will be received by the members
of the Audit Committee and our Corporate Secretary. You may
report your concern anonymously or confidentially.
Audit
Committee Report
The Audit Committee consists of the following members of the
Board of Directors of Critical Therapeutics, Inc. (the
Company): Richard W. Dugan (Chair), Jean George and
Christopher Walsh, Ph.D. The Audit Committee is responsible
for assisting the Board of Directors in fulfilling its oversight
responsibilities pertaining to the accounting, auditing and
financial reporting processes of the Company.
13
Management is responsible for establishing and maintaining the
Companys internal control over financial reporting and for
preparing financial statements in accordance with accounting
principles generally accepted in the United States of America.
The Audit Committee is directly responsible for the appointment,
oversight, compensation and retention of Deloitte &
Touche LLP, the independent registered public accounting firm
for the Company. Deloitte & Touche LLP is responsible
for performing an independent audit of the Companys annual
financial statements and expressing an opinion on:
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the conformity of the Companys financial statements with
accounting principles generally accepted in the United States of
America,
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managements assessment of the effectiveness of internal
control over financial reporting, and
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the effectiveness of internal control over financial reporting.
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Each of Mr. Dugan, Ms. George and Dr. Walsh meets
the independence criteria prescribed by applicable law and the
rules of the Securities and Exchange Commission, or SEC, for
audit committee membership and is an independent
director as defined in NASDAQ rules and meets
NASDAQs financial knowledge and sophistication
requirements. The Board of Directors has determined that
Mr. Dugan is an audit committee financial
expert under SEC rules. The Audit Committee operates
pursuant to a written charter approved by the Board of
Directors, which complies with the applicable provisions of the
Sarbanes-Oxley Act of 2002 and related rules of the SEC and
NASDAQ. The charter is available on the Companys web site
at www.crtx.com by linking to the section titled
Investors and then Corporate Governance.
The Audit Committees responsibility is one of oversight.
The Audit Committees oversight responsibility relating to
the accounting, auditing and financial reporting processes of
the Company includes overseeing the Companys processes and
preparedness for the audit of internal control over financial
reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 conducted by the Companys
independent registered public accounting firm. The Company was
first subject to this audit requirement as of December 31,
2005.
Members of the Audit Committee rely on the information provided
and the representations made to them by:
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management, which has primary responsibility for the
Companys financial statements and reports and for
establishing and maintaining appropriate internal control over
financial reporting; and
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our independent registered public accounting firm, which is
responsible for performing an audit in accordance with Standards
of the Public Company Accounting Oversight Board
United States (PCAOB) and expressing an opinion on:
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the conformity of the Companys financial statements with
accounting principles generally accepted in the United States,
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managements assessment of the effectiveness of internal
control over financial reporting, and
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the effectiveness of internal control over financial reporting.
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In this context, we have reviewed and discussed with management
the Companys audited financial statements as of and for
the year ended December 31, 2006.
We have discussed with Deloitte & Touche LLP, the
independent registered public accounting firm for the Company,
the matters required to be discussed by Auditing Standards
No. 61, as amended, as adopted by the Public Company
Accounting Oversight Board in Rule 3200T.
We have received and reviewed the written disclosures and the
letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1, as adopted by
the Public Company Accounting Oversight Board in
Rule 3600T, and have discussed with them their
independence. We have concluded that Deloitte & Touche
LLPs provision of audit and non-audit services to the
Company is compatible with their independence.
14
Based on the reviews and discussions referred to above, and
exercising our business judgment, we recommended to the Board of
Directors that the financial statements referred to above be
included in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 for filing with
the Securities and Exchange Commission. We have selected
Deloitte & Touche LLP as Critical Therapeutics,
Inc.s independent registered public accounting firm for
the year ended December 31, 2007, and have approved
submitting the selection of the independent registered public
accounting firm for ratification by the stockholders.
By the Audit Committee of the Board of
Directors of Critical Therapeutics, Inc.
Richard W. Dugan, Chair
Jean George
Christopher Walsh, Ph.D.
Independent
Registered Public Accounting Firms Fees
The following table summarizes the fees of Deloitte &
Touche LLP, our independent registered public accounting firm,
billed to us for each of the last two fiscal years for audit and
other services. For 2006, audit fees include an estimate of
amounts not yet billed.
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Fee Category
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2006
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2005
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Audit Fees(1)
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$
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399,000
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$
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401,000
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Audit-Related Fees(2)
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Tax Fees(3)
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39,000
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32,000
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All Other Fees(4)
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Total Fees
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$
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438,000
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$
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433,000
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(1) |
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Audit fees consist of fees related to professional services
rendered in connection with the audit of our consolidated
financial statements, the audit of our internal control over
financial reporting, the reviews of the interim financial
statements included in our quarterly reports on
Form 10-Q
and other professional services provided in connection with
statutory and regulatory filings or engagements. |
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Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the
audit and the review of our financial statements and which are
not reported under Audit Fees. No fees for
audit-related services were incurred in 2005 or 2006. |
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Tax fees consist of fees for tax compliance, tax advice and tax
planning services. Tax compliance services, which relate to the
preparation of federal and state tax returns and quarterly
estimated tax payments, represented $35,000 of the total tax
fees in 2006 and $21,200 of the total tax fees in 2005. Tax
advice and tax planning services relate to miscellaneous items.
In 2006, fees for tax advice and tax planning services of $4,000
related to state tax maters. In 2005, fees for tax advice and
tax planning services of $10,800 related to various items,
including state tax matters and assessments of potential
limitations on net operating loss carryforwards. |
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No fees for other services were incurred in 2005 or 2006. |
Pre-Approval
Policy and Procedures
The Audit Committee has adopted policies and procedures relating
to the approval of all audit and non-audit services that are to
be performed by our independent registered public accounting
firm. This policy generally provides that we will not engage our
independent registered public accounting firm to render audit
15
or non-audit services unless the service is specifically
approved in advance by the Audit Committee or the engagement is
entered into pursuant to one of the pre-approval procedures
described below.
From time to time, the Audit Committee may pre-approve specified
types of services that are expected to be provided to us by our
independent registered public accounting firm during the next
12 months. Any such pre-approval is detailed as to the
particular service or type of services to be provided and is
also generally subject to a maximum dollar amount.
The Audit Committee has also delegated to the chair of the Audit
Committee the authority to approve any audit or non-audit
services to be provided to us by our independent registered
public accounting firm. Any approval of services by a member of
the Audit Committee pursuant to this delegated authority is
reported at the next meeting of the Audit Committee.
Transactions
with Related Persons
Agreements
with MedImmune
In July 2003, we entered into an exclusive license and
collaboration agreement with MedImmune to jointly develop
products directed towards high mobility group box
protein 1, or HMGB1. This agreement was amended in December
2005. Under the terms of the agreement, we granted MedImmune an
exclusive worldwide license, under patent rights and know-how
controlled by us, to make, use and sell products, including
small molecules and antibodies, that bind to, inhibit or
inactivate HMGB1 and are used in the treatment or prevention,
but not the diagnosis, of diseases, disorders and medical
conditions.
Under the collaboration, MedImmune paid us initial fees of
$12.5 million in 2003 and 2004 for the HMGB1 program. Under
the collaboration, MedImmune also agreed to make specified
research and development payments to us, including
$4.0 million of research and development payments through
the end of 2006, of which $4.0 million had been billed and
$3.8 million had been paid through December 31, 2006.
In addition, we may receive, subject to the terms and conditions
of the agreement, other payments upon the achievement of
research, development and commercialization milestones up to a
maximum of $124.0 million, after taking into account
payments that we are obligated to make to the Feinstein
Institute for Medical Research (formerly known as the North
Shore-Long Island Jewish Research Institute) on milestone
payments we receive from MedImmune. MedImmune also has agreed to
pay royalties to us based upon net sales by MedImmune of
licensed products resulting from the collaboration.
MedImmunes obligation to pay us royalties continues on a
product-by-product
and
country-by-country
basis until the later of ten years from the first commercial
sale of a licensed product in each country and the expiration of
the patent rights covering the product in that country. We are
obligated to pay a portion of any milestone payments or
royalties we receive from MedImmune to the Feinstein Institute,
which initially licensed to us patent rights and know-how
related to HMGB1.
In December 2005, MedImmune agreed that the collaboration
demonstrated
proof-of-concept
in two preclinical disease models with human HMGB1 monoclonal
antibodies. As a result, MedImmune made a $1.25 million
milestone payment to us. In addition, MedImmune agreed to fund
an additional $1.0 million of research work performed by
our full-time employees in 2006.
We have agreed to work exclusively with MedImmune in the
research and development of HMGB1-inhibiting products. Under the
terms of the agreement, MedImmunes license to
commercialize HMGB1-inhibiting products generally excludes us
from manufacturing, promoting or selling the licensed products.
However, we have the option to co-promote in the United States
the first product for the first indication approved in the
United States, for which we must pay a portion of the ongoing
development costs and will receive a proportion of the profits
in lieu of royalties that would otherwise be owed to us.
MedImmune has the right to terminate the agreement at any time
upon six months written notice. Each party has the right to
terminate the agreement upon the occurrence of a material
uncured breach by the other party. Under specified conditions,
we or MedImmune may have certain payment or royalty obligations
after the termination of the agreement.
16
MedImmune Ventures, Inc., an affiliate of MedImmune, is the
beneficial owner of more than 5% of our outstanding common
stock. For more information regarding MedImmunes stock
ownership, see Stock Ownership Information.
Consulting
Agreement with M. Cory Zwerling
On October 25, 2006, we entered into a consulting agreement
with M. Cory Zwerling, a member of our board of directors. This
agreement has an initial term expiring on October 25, 2007,
and thereafter automatically renews for successive one month
periods unless either party gives at least one month prior
notice of termination. Under this agreement, Mr. Zwerling
provides consulting services relating to our commercial sales,
marketing and business development initiatives and other such
related projects as are mutually agreed upon by us and
Mr. Zwerling. We pay Mr. Zwerling a rate of
$1,800 per day for these services during the consulting
period. In 2006, we paid Mr. Zwerling a total of $65,100
for these services and have accrued $8,300 to be paid in 2007.
On October 25, 2006, pursuant to the terms of the
consulting agreement, we granted Mr. Zwerling an option to
purchase 200,000 shares of our common stock at an exercise
price of $2.63 per share. This option has an exercise price
of $2.63 per share and vests in 36 equal monthly installments
commencing on November 25, 2006 for so long as
Mr. Zwerling remains a consultant. In addition, 50% of the
then unvested options will vest upon a change of control or
specified transactions as set forth in the consulting agreement.
We may terminate the consulting agreement upon three business
days prior written notice to Mr. Zwerling.
Mr. Zwerling may terminate the consulting agreement upon
thirty days prior written notice.
Offer
Letter with Robert H. Zeiger
On June 26, 2006, Robert H. Zeiger, a member of our board
of directors, was appointed as Executive Chairman of Critical
Therapeutics in connection with the resignation of
Dr. Rubin as President and Chief Executive Officer.
Mr. Zeiger served as Executive Chairman until
October 9, 2006. As Executive Chairman, Mr. Zeiger
served as the Chairman of the Board and the Chairman of a
Special Transition Committee comprised of Mr. Zeiger and
the chairs of the Audit, Compensation and Nominating and
Corporate Governance Committees. In addition, Mr. Zeiger
was responsible for executive leadership, with special attention
to our sales and marketing strategy and organization.
Mr. Zeiger continues to serve as a member of our board of
directors.
Mr. Zeiger served as Executive Chairman pursuant to the
terms of an offer letter that we entered into with
Mr. Zeiger. Under the offer letter, we paid Mr. Zeiger
a monthly base salary of $15,000 and granted to Mr. Zeiger
an option to purchase 140,000 shares of our common stock
under our 2004 Stock Incentive Plan, as amended. On
June 25, 2006, the Compensation Committee approved the
option grant at an exercise price of $3.80 per share, the
closing price per share of our common stock reported by NASDAQ
on June 23, 2006. Mr. Zeigers stock option
provided for vesting in 12 equal monthly installments beginning
on July 25, 2006, subject to his continued employment with
us. The stock option also was subject to acceleration in the
same manner and to the same extent as provided in the employment
agreements that we have entered into with our executive
officers. Accordingly, if we terminated Mr. Zeigers
employment other than for cause or if
Mr. Zeiger terminated his employment for good
reason, in each case as those terms are defined in the
executive employment agreements, then we were obligated to
accelerate the vesting of 50% of his outstanding unvested stock
options, provided that he executed a release of Critical
Therapeutics. Immediately upon a change of control
of Critical Therapeutics, as defined in the executive employment
agreements, Mr. Zeiger would have been entitled to
accelerated vesting of 50% of all his outstanding unvested stock
options. In addition, if we terminated Mr. Zeigers
employment other than for cause or if
Mr. Zeiger terminated his employment for good
reason during the period from three months before until
one year after the occurrence of a change of control, then we
were obligated to accelerate the vesting of 100% of his
outstanding unvested stock options, provided that he executed a
release of Critical Therapeutics. At the time Mr. Zeiger
stepped down as Executive Chairman, 34,999 shares subject
to this option had vested and the balance of 105,001 shares
subject to the option were cancelled. Mr. Zeiger had
90 days to exercise the vested stock options following the
end of his employment. On January 7, 2007, the 34,999
vested shares subject to the option were cancelled.
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Under the offer letter, Mr. Zeiger agreed to devote two
days per week to our business and to the performance of his
duties and responsibilities, either at our offices or at other
locations on our behalf. In connection with his role as
Executive Chairman, we reimbursed Mr. Zeiger for travel and
living expenses with regard to Mr. Zeigers commute
from his home in Florida as well as other travel and related
expenses incurred on our behalf. Either we or Mr. Zeiger
could terminate the employment relationship at any time.
We paid Mr. Zeiger a total of $50,646 in respect of his
employment pursuant to the terms of the offer letter. During the
time he was employed by us, Mr. Zeiger did not receive any
separate compensation in respect of his service as a director.
Consulting
Agreement with Founding Director
In January 2001, we entered into a consulting agreement with H.
Shaw Warren, M.D., one of our co-founders and a member of
our board of directors until October 2006. Under this agreement,
Dr. Warren provides consulting services relating to our
research and development activities. In 2006, we paid
Dr. Warren $86,735 for these services.
Employment
Agreements
We have entered into employment agreements with our executive
officers. For additional information regarding these agreements,
see Information About Executive and Director
Compensation Executive Compensation
Employment Agreements.
Policies
and Procedures Regarding Review, Approval or Ratification of
Related Person Transactions
In March 2007, our board of directors adopted written policies
and procedures for the review of any transaction, arrangement or
relationship in which we are a participant, the amount involved
exceeds $120,000 and one of our executive officers, directors,
director nominees or 5% stockholders (or their immediate family
members), each of whom we refer to as a related
person, has a direct or indirect material interest.
If a related person proposes to enter into such a transaction,
arrangement or relationship, which we refer to as a
related person transaction, the related person must
report the proposed related person transaction to our General
Counsel, who we refer to as our chief legal officer. The policy
calls for the proposed related person transaction to be reviewed
and, if deemed appropriate, approved by our Audit Committee.
Whenever practicable, the reporting, review and approval will
occur prior to entry into the transaction. If advance review and
approval is not practicable, the Audit Committee will review,
and, in its discretion, may ratify the related person
transaction. The policy also permits the chair of the Audit
Committee to review and, if deemed appropriate, approve proposed
related person transactions that arise between committee
meetings, subject to ratification by the Audit Committee at its
next meeting. Any related person transactions that are ongoing
in nature will be reviewed annually.
A related person transaction reviewed under the policy will be
considered approved or ratified if it is authorized by the Audit
Committee after full disclosure of the related persons
interest in the transaction. As appropriate for the
circumstances, the Audit Committee will review and consider:
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the related persons interest in the related person
transaction;
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the approximate dollar value of the amount involved in the
related person transaction;
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the approximate dollar value of the amount of the related
persons interest in the transaction without regard to the
amount of any profit or loss;
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whether the transaction was undertaken in the ordinary course of
our business;
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whether the terms of the transaction are no less favorable to us
than terms that could have been reached with an unrelated third
party;
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the purpose of, and the potential benefits to us of, the
transaction; and
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any other information regarding the related person transaction
or the related person in the context of the proposed transaction
that would be material to investors in light of the
circumstances of the particular transaction.
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The Audit Committee may approve or ratify the transaction only
if the committee determines that, under all of the
circumstances, the transaction is in, or is not in conflict
with, our best interests. The Audit Committee may impose any
conditions on the related person transaction that it deems
appropriate.
In addition to the transactions that are excluded by the
instructions to the SECs related person transaction
disclosure rule, our board of directors has determined that the
following transactions do not create a material direct or
indirect interest on behalf of related persons and, therefore,
are not related person transactions for purposes of this policy:
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interests arising solely from the related persons position
as an executive officer of another entity (whether or not the
person is also a director of such entity), that is a participant
in the transaction, where (a) the related person and all
other related persons own in the aggregate less than a 10%
equity interest in such entity, (b) the related person and
his or her immediate family members are not involved in the
negotiation of the terms of the transaction and do not receive
any special benefits as a result of the transaction, and
(c) the amount involved in the transaction equals less than
the greater of $200,000 or 5% of the annual gross revenues of
the company receiving payment under the transaction; and
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a transaction that is specifically contemplated by provisions of
our charter or bylaws.
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The policy provides that transactions involving compensation of
executive officers shall be reviewed and approved by the
Compensation Committee in the manner specified in its charter.
We did not have a written policy regarding the review and
approval of related person transactions during 2006.
Nevertheless, with respect to such transactions in 2006, it was
our policy for the Audit Committee or another committee of
independent directors to consider the nature of and business
reason for such transactions, how the terms of such transactions
compared to those which might be obtained from unaffiliated
third parties and whether such transactions were otherwise fair
to and in the best interests of, or not contrary to, our best
interests. In addition, all related person transactions required
prior approval, or later ratification, by the Audit Committee or
a committee of independent directors. There were no related
person transactions in 2006 with respect to which these policies
and procedures were not followed.
INFORMATION
ABOUT EXECUTIVE AND DIRECTOR COMPENSATION
Compensation
Discussion and Analysis
This compensation discussion describes the material elements of
compensation awarded to, earned by, or paid to each of our
executive officers identified in the Summary Compensation Table
below as our named executive officers for the fiscal year ending
December 31, 2006. This compensation discussion focuses on
the information contained in the following tables and related
footnotes and narrative for primarily the last completed fiscal
year, but we also describe compensation actions taken before or
after the last completed fiscal year to the extent it enhances
the understanding of our executive compensation disclosure.
The Compensation Committee of our board of directors oversees
our executive compensation program. In this role, the
Compensation Committee reviews and approves, or recommends for
approval, annually all compensation decisions relating to our
executive officers.
19
Objectives
and Philosophy of Our Executive Compensation
Program
The objectives of our executive compensation program are to
align the interests of management with the interests of
stockholders through a system that relates compensation to the
achievement of business objectives and individual performance.
Our executive compensation philosophy is based on the following
principles:
Competitive and Fair Compensation. We are
committed to providing an executive compensation program that
helps us to attract, motivate and retain highly qualified and
industrious executives. Our policy is to provide total
compensation that is competitive for comparable work and
comparable corporate performance. In addition to providing
competitive compensation packages, we also seek to achieve a
balance of the compensation paid to a particular individual and
the compensation paid to our other executives and employees.
Sustained Performance. Executive officers are
rewarded based upon an assessment of corporate, business group
and individual performance. Corporate performance and business
group performance are evaluated by reviewing the extent to which
strategic and business plan goals are met, including such
factors as achievement of operating budgets, establishment of
strategic development alliances with third parties and timely
accomplishment of strategic objectives. Individual performance
is evaluated by reviewing attainment of specified individual
objectives and the degree to which teamwork and our other values
are fostered.
Comparative
Compensation Review and Benchmarking
We do not believe that it is appropriate to establish
compensation levels primarily based on benchmarking. We believe
that information regarding pay practices at other companies is
useful in two respects, however. First, we recognize that our
compensation practices must be competitive in the marketplace.
Second, this marketplace information is one of the many factors
that we consider in assessing the reasonableness of
compensation. Accordingly, we regularly compare our compensation
packages with those of other companies in the biotechnology and
pharmaceutical industry, through reviews of survey data and
information gleaned from filings of publicly traded companies
and through information compiled and analyzed by our
compensation consultants. However, while such information may be
a useful guide for comparative purposes, we believe that a
successful compensation program also requires the application of
judgment and subjective determinations of individual
performance. Our review of this information and these factors
forms the basis of our compensation recommendations.
In making compensation decisions, the Compensation Committee
compares our executive compensation against that paid by a peer
group of publicly traded companies in the biotechnology and
pharmaceutical industry compiled by Nancy Arnosti, a
compensation consultant specializing in the recruiting and
compensation of senior executives retained by the Compensation
Committee. This peer group, which is periodically reviewed and
updated by the Compensation Committee with the assistance of
Ms. Arnosti, consists of companies the Compensation
Committee believes are generally comparable to our company at
the time and against which the committee believes we compete for
executive talent.
The Compensation Committees charter grants it the
authority to retain outside advisors, including compensation
consultants, and approve their compensation. Critical
Therapeutics is obligated to pay the Compensation
Committees advisors and consultants. These advisors and
consultants report directly to the Compensation Committee.
Pursuant to its authority, the Compensation Committee first
engaged Ms. Arnosti in late 2004 to assist the committee in
its review of our executive employment arrangements and in
formulating recommendations regarding such arrangements for
2005. The Compensation Committee instructed Ms. Arnosti to
conduct a review of survey data and information gleaned from
filings of publicly traded companies regarding executive officer
base salary, target bonus and equity ownership information. This
consultant produced a report for us regarding executive
employment arrangements at biotechnology and pharmaceutical
companies comparable to ours, and we discussed the results of
this report with the consultant in detail in arriving at our
recommendations regarding the employment agreements entered into
with our senior executives, which are described under
Executive Compensation Employment
Agreements and in setting the initial base salaries and
bonus opportunities reflected in such agreements. In addition,
this
20
consultant produced updated analyses of executive compensation
arrangements for us in October 2005 and December 2006, which we
considered in arriving at our recommendations for the market
adjustment and merit increases in executive base salaries and
bonus opportunities for 2006 and 2007 that are described in
Executive Compensation Employment
Agreements and mentioned below. Furthermore, information
provided by Ms. Arnosti in June 2006 was considered in
connection with setting the compensation for Mr. Zeiger, in
connection with his appointment as Executive Chairman, for
Mr. Thomas, in connection with his promotion to the
position of President, and for Jeffrey E. Young, in connection
with his promotion to Vice President of Finance, Chief
Accounting Officer and Treasurer, all of which occurred in June
2006. In December 2006, the Compensation Committee reviewed a
report from another compensation consultant, Pearl
Meyer & Partners, which had been retained by the
Compensation Committee to assist in the development of an
executive and key employee success bonus and retention program
for 2007. This report contained benchmarking and comparative
information with respect to various financial incentives that
can be used to retain employees, including equity retention
grants, success bonus pools and option restructuring.
Elements
of Executive Compensation
Compensation for our executives generally consists of the
following elements:
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salary;
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bonus;
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stock-based awards;
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health, dental, life and disability insurance and other
traditional employee benefits; and
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severance and
change-in-control
arrangements.
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We have not had any formal or informal policy or target for
allocating compensation between long-term and short-term
compensation, between cash and non-cash compensation or among
the different forms of non-cash compensation. Instead, the
Compensation Committee, after reviewing information provided by
its compensation consultants, determines subjectively what it
believes to be the appropriate level and mix of the various
compensation components. Ultimately, the Compensation
Committees objective in allocating between long-term and
currently paid compensation is to ensure adequate base
compensation to attract and retain personnel, while providing
incentives to maximize long-term value for our company and our
stockholders. Therefore, we provide cash compensation in the
form of base salary to meet competitive salary norms and reward
good performance on an annual basis and in the form of bonus
compensation to reward superior performance against specific
annual goals. We provide non-cash compensation to reward
superior performance against specific objectives and long-term
strategic goals.
Salary. Salary for our executives is generally
set by reviewing compensation for comparable positions in the
market, as described above, and the historical compensation
levels of our executives. Salaries are then adjusted from time
to time, but at least once annually, based upon market changes,
actual corporate and individual performance and promotions or
changes in responsibilities.
Bonuses. Bonuses, as well as annual increases
in salaries, generally are based on actual corporate and
individual performance compared to targeted performance criteria
and various subjective performance criteria. The Compensation
Committee works with our President and Chief Executive Officer
to develop corporate and individual goals that they believe can
be reasonably achieved with an appropriate level of effort over
the course of the year. Targeted performance criteria vary for
each executive based on his business group or area of
responsibility, and may include:
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achievement of the operating budget for Critical Therapeutics as
a whole and of the business group of Critical Therapeutics for
which the executive is responsible;
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continued innovation in development and commercialization of our
technology;
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timely development of new product candidates or processes;
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21
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development and implementation of successful marketing and
commercialization strategies; and
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implementation of financing strategies and establishment of
strategic development alliances with third parties.
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Subjective performance criteria include an executives
ability to motivate others, develop the skills necessary to grow
as we mature as a company, recognize and pursue new business
opportunities and initiate programs to enhance our growth and
success. The Compensation Committee does not rely on a formula
that assigns a pre-determined value to each of the criteria, but
instead evaluates an executive officers contribution in
light of all criteria. Based on the review of their performance,
particularly with regard to the company goals established for
2005, and the Compensation Committees recommendation to
the independent members of the board of directors, cash bonuses
totaling $356,000 were paid in January 2006 to our executive
officers at the time, Dr. Rubin, Mr. Thomas,
Dr. Newman, Dr. Phillips, Mr. Finnegan and
Mr. Townsend, in respect of their performance for the
fiscal year ended December 31, 2005.
In addition to targeted performance bonuses, we employ bonuses
designed to retain executives under certain circumstances. Such
bonuses are typically payable so long as the executive remains
employed as of a particular date. In that regard, in November
2006, the Compensation Committee determined that, in lieu of a
cash bonus for 2006 based on performance goals, our executive
officers and other employees, other than sales specialists and
sales managers, designated by our President and Chief Executive
Officer would be entitled to receive a bonus payment equal to
50% of their potential or target bonus for 2006 if they remained
employed by us as of January 15, 2007, and an additional
50% of their potential or target bonus for 2006 if they remain
employed by us on the date we receive an action letter from the
U.S. Food and Drug Administration, or FDA, on our New Drug
Application, or NDA, for the controlled-release formulation of
zileuton. In late January 2007, we paid cash bonuses totaling
$194,000 to our executive officers who remained employed by us
as of January 15, 2007, Mr. Thomas, Dr. Phillips,
Dr. Hilt, Mr. Townsend and Mr. Young.
Stock-Based Awards. Compensation for executive
officers also includes the long-term incentives afforded by
stock options and restricted stock awards. Our stock option and
restricted stock award program is designed to align the
long-term interests of our employees and our stockholders and
assist in the retention of executives. The size of stock-based
awards is generally intended to reflect the executives
position with us and his or her contributions to us, including
his or her success in achieving the individual performance
criteria described above and his or her contributions to our
corporate goals. We generally make stock-based awards on an
annual basis in connection with our annual reviews of executive
performance and compensation, but will also make such awards in
connection with appropriate events, such as the promotion of the
executive. We generally grant annual stock-based awards at the
last regularly scheduled meeting of the board of directors and
the Compensation Committee for each calendar year. The
Compensation Committee may consider the value of stock-based
awards or other long-term compensation arrangements previously
granted or entered into with the executive in making grants of
stock-based awards, but a significant amount of value
represented by previous awards will not necessarily cause the
committee to forego making, or reduce the size of, a future
award. We generally grant stock options with annual vesting
schedules over a four-year period to encourage key employees to
continue their employment with us.
Because of the direct relationship between the value of an
option and the market price of our common stock, the
Compensation Committee has always believed that granting stock
options is an effective method of motivating the executive
officers to manage our company in a manner that is consistent
with the interests of our company and our stockholders. However,
because of the evolution of regulatory, tax and accounting
treatment of equity incentive programs, and because it is
important to us to retain our executive officers and key
employees, the Compensation Committee realizes that it is
important that the company utilize other forms of equity awards
as and when we may deem necessary. In December 2006, we granted
restricted stock awards to all of our employees, including our
executives, as we believed that this was a more efficient way to
reward them for and motivate them toward superior performance.
These restricted stock awards vest as to 50% of the shares
subject to the awards on each of the first and second
anniversaries of the grant date.
Insurance and Other Employee Benefits. We
maintain broad-based benefits and perquisites that are provided
to all employees, including health insurance, life and
disability insurance, dental insurance and a
22
401(k) plan. In November 2005, our board of directors, based on
the recommendation of the Compensation Committee, approved,
effective as of January 1, 2006, a matching contribution
for each 401(k) plan participant of fifty percent (50%) of the
participants elective deferrals for a plan year up to six
percent (6%) of the participants salary. The
Companys matching contribution up to $3,000 per year
is fully and immediately vested. In particular circumstances, we
also utilize cash signing bonuses and pay relocation expenses
when executives join us. Such cash signing bonuses and
relocation expenses are typically repayable in full to us if the
executive voluntarily terminates employment with us, or we
terminate the executive for cause, prior to the first
anniversary of the date of hire. Whether a signing bonus and
relocation expenses are paid and the amount thereof is
determined on a
case-by-case
basis under the specific hiring circumstances. For example, we
will consider paying signing bonuses to compensate for amounts
forfeited by an executive upon terminating prior employment or
to create additional incentive for an executive to join our
company in a position for which there is high market demand. In
2006, we paid Dr. Hilt a signing bonus of $10,000 and
reimbursed Dr. Hilt for $100,000 in relocation expenses.
Severance and
Change-in-Control
Arrangements. Compensation for executive officers also
includes severance and
change-in-control
arrangements, which are generally reflected in the employment
agreements for such officers. These arrangements, like other
elements of executive compensation, are structured with regard
to practices at comparable companies for similarly-situated
officers and in a manner we believe is likely to attract and
retain high quality executive talent. Changes to existing
severance arrangements are also sometimes negotiated with
departing executives in exchange for transition services
and/or
general releases. The severance and
change-in-control
arrangements currently in place with our current executive
officers, and the severance arrangements entered into with
executive officers who departed in 2006, are described in
greater detail under Executive
Compensation Employment Agreements,
Severance Agreements and
Payments Upon Termination or Change of
Control.
Other
Corporate Policies Relating to Executive
Compensation
Role of Executive Officers in Determining or Recommending
Executive and Director Compensation. Management plays a
significant role in the process of setting executive
compensation. The most significant aspects of managements
role are:
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evaluating employee performance;
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establishing business performance targets and
objectives; and
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recommending salary levels and stock-based awards.
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Our President and Chief Executive Officer works with the chair
of the Compensation Committee in establishing the agenda for
committee meetings. Management also prepares meeting information
for each Compensation Committee meeting. Our President and Chief
Executive Officer also participates in Compensation Committee
meetings at the Committees request to provide:
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background information regarding our companys strategic
objectives and progress toward the attainment of those
objectives;
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his evaluation of the performance of the senior executive
officers; and
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compensation recommendations as to senior executive officers,
other than himself.
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Ultimately, however, all compensation decisions are made, or
recommended to the board of directors, by the Compensation
Committee, which makes such decisions and recommendations after
considering managements recommendations in light of those
made by its compensation consultant and engaging in
deliberations in executive session without the presence of any
members of management.
Management does not play any role in setting non-employee
director compensation. Decisions with respect to non-employee
director compensation are made by the Compensation Committee in
consultation with its compensation consultant.
23
Impact of Tax Treatment on Compensation Decisions.
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally disallows a tax deduction for compensation in
excess of $1.0 million paid to our chief executive officer
and our four other most highly paid executive officers.
Qualifying performance-based compensation is not subject to the
deduction limitation if specified requirements are met. We
periodically review the potential consequences of
Section 162(m) and we generally intend to structure the
performance-based portion of our executive compensation, where
feasible, to comply with exemptions in Section 162(m) so
that the compensation remains tax deductible to us. However, the
compensation committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes that such payments are
appropriate to attract and retain executive talent.
Security Ownership Requirements or
Guidelines. While we believe it is important for
our executives to have an equity stake in our company in order
to help align their interests with those of our stockholders, we
do not currently have any equity ownership guidelines for our
executive officers.
Executive
Compensation
Summary
Compensation
The following table sets forth information for the fiscal year
ended December 31, 2006 regarding the compensation of our
President and Chief Executive Officer, who functions as both our
principal executive officer and our principal financial officer,
our three other most highly compensated executive officers who
were serving as executive officers on December 31, 2006,
our former President and Chief Executive Officer and two
additional former executive officers who would have been among
our most highly compensated executive officers if they had been
serving as executive officers on December 31, 2006. We
refer to these individuals as our named executive officers.
Summary
Compensation Table
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Non-Equity
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Name and
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Stock
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Option
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Incentive Plan
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All Other
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Principal Position
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Year
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Salary(1)
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Bonus(2)
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Awards(3)
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Awards(4)
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Compensation
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Compensation(5)
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Total
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Frank E. Thomas(6)
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2006
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$
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288,800
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$
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113,750
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$158
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$556,770
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$3,000
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$ 962,478
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President and Chief Executive
Officer
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Trevor Phillips, Ph.D.
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2006
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279,000
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86,700
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138
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591,395
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27,730
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984,963
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Chief Operating Officer and Senior
Vice President of Operations
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Scott B. Townsend, Esq.
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2006
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225,000
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69,000
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105
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146,499
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3,000
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443,604
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Senior Vice President of Legal
Affairs, General Counsel and Secretary
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Dana Hilt, M.D.(7)
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2006
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189,898
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73,000
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105
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69,683
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100,000
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432,686
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Chief Medical Officer and Senior
Vice President of Clinical Development
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Paul D. Rubin, M.D.(8)
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2006
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176,678
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2,002,085
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685,438
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2,864,201
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Former President and Chief
Executive Officer
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Walter Newman, Ph.D.(9)
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2006
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224,583
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1,114,855
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354,133
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1,693,571
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Former Chief Scientific Officer and
Senior Vice President of Research and Development
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Frederick Finnegan(10)
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2006
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126,300
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738,018
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311,463
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1,175,781
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Former Senior Vice President of
Sales and Marketing
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(1) |
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Includes amounts deferred at the direction of the executive
officer pursuant to our 401(k) plan. |
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(2) |
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The amounts in the Bonus column represent retention
bonuses payable to our executive officers in lieu of cash
bonuses for 2006 based on performance goals. For more
information regarding these retention |
24
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bonuses, see Retention Bonus
Arrangements. In addition, Dr. Hilt received a
$10,000 sign-on bonus in 2006. |
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(3) |
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The amounts in the Stock Awards column reflect the
dollar amounts recognized as compensation expense for financial
statement reporting purposes for restricted stock awards for the
fiscal year ended December 31, 2006 in accordance with
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment, or SFAS 123(R).
The assumptions we used to calculate these amounts are discussed
in Note 2 to our consolidated financial statements included
in our Annual Report on
Form 10-K
for the year ended December 31, 2006. |
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(4) |
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The amounts in the Option Awards column reflect the
dollar amounts recognized as compensation expense for financial
statement reporting purposes for stock options for the fiscal
year ended December 31, 2006 in accordance with
SFAS 123(R). The assumptions we used to calculate these
amounts are discussed in Note 2 to our consolidated
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006. |
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(5) |
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The amounts in the All Other Compensation column
represent: |
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$3,000 matching contributions to our 401(k) plan that we paid on
behalf of Mr. Thomas, Dr. Phillips, Mr. Townsend,
Dr. Rubin, Dr. Newman and Mr. Finnegan;
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$24,730 that we paid on behalf of Dr. Phillips to obtain
green cards for Dr. Phillips and his family, comprised of
$21,797 for legal fees, $1,969 for travel expenses and $964 for
medical examination fees.
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(i) $18,800 for travel, hotel and related expenses for
Dr. Hilt and his wife paid by us, including $6,600 as a
gross-up for
the related tax liability, (ii) $55,400 for the selling
costs on Dr. Hilts former residence, including
$29,900 as a
gross-up for
the related tax liability, and (iii) $25,800 for additional
relocation expenses paid by us under Dr. Hilts
employment agreement in connection with his relocation to the
Boston area;
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$656,325 in cash severance and $26,113 for accrued vacation that
we paid to Dr. Rubin following his resignation;
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$336,875 in cash severance and $14,258 for accrued vacation that
we paid to Dr. Newman following his resignation; and
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$290,490 in cash severance and $17,973 for accrued vacation that
we paid to Mr. Finnegan following his resignation.
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(6) |
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Mr. Thomas served as our Chief Financial Officer until June
2006, when he was appointed as President following the
resignation of Dr. Rubin. Mr. Thomas was appointed as
Chief Executive Officer in December 2006. Mr. Thomas
continues to serve as our principal financial officer, as he did
throughout 2006. |
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(7) |
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Dr. Hilt joined Critical Therapeutics in April 2006.
Dr. Hilts annual base salary for 2006 was $280,000. |
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(8) |
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Dr. Rubin resigned from his employment with Critical
Therapeutics in June 2006. |
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(9) |
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Dr. Newman resigned from his employment with Critical
Therapeutics in October 2006. |
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(10) |
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Mr. Finnegan resigned from his employment with Critical
Therapeutics in June 2006. |
25
The following table sets forth information regarding each grant
of an award made to a named executive officer during the fiscal
year ended December 31, 2006 under any plan, contract,
authorization or arrangement pursuant to which cash, securities,
similar instruments or other property may be received.
Grants of
Plan-Based Awards
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
Estimated Future
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts Under
|
|
|
Payouts Under
|
|
|
Awards;
|
|
|
Awards;
|
|
|
Exercise
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Equity
|
|
|
Number
|
|
|
Number of
|
|
|
or Base
|
|
|
Fair Value
|
|
|
|
|
|
|
Date of
|
|
|
Incentive Plan
|
|
|
Incentive Plan
|
|
|
of Shares
|
|
|
Securities
|
|
|
Price of
|
|
|
of Stock
|
|
|
|
Grant
|
|
|
Corporate
|
|
|
Awards(1)
|
|
|
Awards
|
|
|
of Stock
|
|
|
Underlying
|
|
|
Option
|
|
|
and Option
|
|
Name
|
|
Date
|
|
|
Action
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
or Units
|
|
|
Options
|
|
|
Awards ($/sh)
|
|
|
Awards(2)
|
|
|
Frank E. Thomas
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
$7.12
|
|
|
|
$430,080
|
|
|
|
|
6/25/06
|
|
|
|
6/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000
|
|
|
|
3.80
|
|
|
|
1,003,620
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
1.88
|
|
|
|
598,750
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
28,772
|
|
|
|
|
12/19/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
$138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trevor Phillips, Ph.D.
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
7.12
|
|
|
|
430,080
|
|
|
|
|
6/25/06
|
|
|
|
6/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
3.80
|
|
|
|
140,040
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
1.88
|
|
|
|
119,750
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
25,176
|
|
|
|
|
12/19/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott B. Townsend, Esq.
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
7.12
|
|
|
|
172,032
|
|
|
|
|
6/25/06
|
|
|
|
6/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
3.80
|
|
|
|
116,700
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
1.88
|
|
|
|
29,938
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,700
|
|
|
|
|
|
|
|
|
|
|
|
19,205
|
|
|
|
|
12/19/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
73,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana Hilt, M.D.
|
|
|
4/26/06
|
|
|
|
4/26/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
4.93
|
|
|
|
300,301
|
|
|
|
|
6/25/06
|
|
|
|
6/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
3.80
|
|
|
|
116,700
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
1.88
|
|
|
|
29,938
|
|
|
|
|
12/27/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,700
|
|
|
|
|
|
|
|
|
|
|
|
19,205
|
|
|
|
|
12/19/06
|
|
|
|
12/19/06
|
|
|
|
|
|
|
|
87,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Rubin, M.D.
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
7.12
|
|
|
|
860,160
|
|
Walter Newman, Ph.D.
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
7.12
|
|
|
|
387,072
|
|
|
|
|
6/25/06
|
|
|
|
6/25/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
3.80
|
|
|
|
116,700
|
|
Frederick Finnegan
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
|
|
7.12
|
|
|
|
473,088
|
|
|
|
|
(1) |
|
The target amounts in the Estimated Future Payouts Under
Non-Equity Incentive Plan Awards column represent the
amount determined by our independent directors as the maximum
annual cash bonus payable to each named executive officer for
2007. Under the employment agreements that we have entered into
with our executive officers, each executive officer is eligible
for an annual cash bonus in an amount determined by the
Compensation Committee. On December 19, 2006, based on the
recommendation of the Compensation Committee, our independent
directors established the 2007 annual base salary and the
maximum annual cash bonus for 2007, as a percentage of annual
base salary, for each executive officer. The Compensation
Committee may make actual cash bonus awards that may be greater
or less than the maximum annual cash bonus based on overall
corporate performance and individual performance. None of the
executive officers is guaranteed any annual cash bonus. Company
goals approved by our board of directors in March 2007 will be
considered in determining actual bonus amounts for executive
officers in respect of the 2007 fiscal year. |
|
(2) |
|
The amounts in the Grant Date Fair Value of Stock and
Option Awards column reflect the grant date fair value of
each equity award calculated in accordance with SFAS 123(R). |
26
Employment
Agreements
On December 21, 2004, we entered into employment agreements
with each of the following executive officers: Dr. Rubin,
Dr. Newman, Dr. Phillips, Mr. Finnegan,
Mr. Thomas and Mr. Townsend. Dr. Rubin and
Mr. Finnegan each resigned from his employment in June
2006. Dr. Newman resigned from his employment in October
2006. On April 26, 2006, we entered into an employment
agreement with Dr. Hilt. On June 26, 2006, we entered
into an employment agreement with Jeffrey E. Young, our Vice
President of Finance, Chief Accounting Officer and Treasurer.
Each employment agreement with our current executive officers
has an initial term that extends through December 31, 2007
and automatically extends for an additional one-year term after
such time on each subsequent anniversary of the commencement
date unless either we or the executive officer gives
90-days
prior notice.
Each executive officer is paid a base salary and is eligible for
an annual cash bonus of a specified percentage of his annual
base salary and an annual equity award. The actual amount of any
cash bonus or equity award is determined by the Compensation
Committee. The Compensation Committee may make actual cash bonus
awards that may be greater or less than the maximum annual cash
bonus based on overall corporate performance and individual
performance. None of the executive officers is guaranteed either
an annual cash bonus or an annual equity award. We do not have
any formal or informal policy or target for the amount of
executive salary and bonus in proportion to total compensation.
For more information regarding our executive compensation
process and the elements of executive compensation, see
Corporate GovernanceExecutive and Director
Compensation Process and Information About Executive
and Director CompensationCompensation Discussion and
AnalysisElements of Executive Compensation.
On November 30, 2005, based on the recommendation of the
Compensation Committee, our independent directors established
2006 annual base salaries and maximum annual cash bonuses, as a
percentage of annual base salary, for 2006 for our then-serving
executive officers. The independent directors approved a 2006
annual base salary of $367,000 for Dr. Rubin, $269,500 for
Dr. Newman, $252,600 for Mr. Finnegan, $269,000 for
Dr. Phillips, $252,600 for Mr. Thomas and $220,000 for
Mr. Townsend. The independent directors approved a maximum
annual cash bonus for 2006 of 45% of annual base salary for
Dr. Rubin and 30% of annual base salary for each other
executive officer.
In connection with the promotion of Mr. Thomas to the
position of President as of June 26, 2006,
Mr. Thomass annual base salary increased to $325,000,
his maximum annual cash bonus increased to 35% of annual base
salary and the Compensation Committee approved the grant to
Mr. Thomas of an option to purchase 430,000 shares of
our common stock at an exercise price of $3.80 per share,
the closing price per share of our common stock reported by
NASDAQ on June 23, 2006. The Compensation Committee also
approved increased annual base salaries effective as of
June 26, 2006 for Dr. Phillips of $289,000 and
Mr. Townsend of $230,000.
Dr. Hilts employment agreement provides for an
initial annual base salary of $280,000, a sign-on bonus of
$10,000 and a maximum annual cash bonus of 30% of annual base
salary. We also granted Dr. Hilt an option to purchase
100,000 shares of our common stock at an exercise price of
$4.93 per share, the closing price per share of our common
stock reported by NASDAQ on April 26, 2006. Under the
employment agreement, we paid Dr. Hilt relocation expenses
of $100,000.
Mr. Youngs employment agreement provides for an
initial annual base salary of $185,000 and a maximum annual cash
bonus of 30% of annual base salary.
Each employment agreement with our current executive officers
provides that if we terminate the executive officers
employment other than for cause or if the executive
officer terminates his employment for good reason,
in each case as those terms are defined in his employment
agreement, then we are obligated to provide the following to the
executive officer, provided he executes and delivers to Critical
Therapeutics a severance agreement and release drafted by and
satisfactory to counsel to Critical Therapeutics:
|
|
|
|
|
a lump sum payment equal to his annual base salary in effect at
that time;
|
27
|
|
|
|
|
monthly payments in the amount of 80% of the monthly COBRA
premiums for continued health and dental coverage for the
executive officer and his dependents and 100% of the amount of
the monthly premiums paid by us for life insurance and
disability insurance for the executive officer until the earlier
of one year after termination or the last day of the first month
when such officer is eligible for benefits through other
employment;
|
|
|
|
a pro rata payment of his target cash bonus in effect in the
year of termination; and
|
|
|
|
accelerated vesting of 50% of his outstanding unvested stock
options and restricted stock.
|
Immediately upon a change of control of Critical
Therapeutics, as defined in his employment agreement, each
executive officer is entitled to accelerated vesting of 50% of
all his outstanding unvested stock options and restricted stock.
In addition, if we terminate the executive officers
employment other than for cause or if the executive
officer terminates his employment for good reason
during the period from three months before until one year after
the occurrence of a change of control, then we are obligated to
provide the following to the executive officer, provided he
executes and delivers to Critical Therapeutics a severance
agreement and release drafted by and satisfactory to counsel to
Critical Therapeutics:
|
|
|
|
|
a lump sum payment equal to his annual base salary in effect at
that time;
|
|
|
|
monthly payments in the amount of 80% of the monthly COBRA
premiums for continued health and dental coverage for the
executive officer and his dependents and 100% of the amount of
the monthly premiums paid by us for life insurance and
disability insurance for the executive officer until the earlier
of one year after termination or the last day of the first month
when such officer is eligible for benefits through other
employment;
|
|
|
|
a pro rata payment of his target cash bonus in effect in the
year of termination;
|
|
|
|
accelerated vesting of 100% of his outstanding unvested stock
options and restricted stock; and
|
|
|
|
up to three months of outplacement services.
|
Upon voluntary resignation, each executive officer is entitled
to a pro rata payment of his annual bonus from the previous year
provided that the executive officer gives 90 days
prior written notice of resignation and executes a release of
Critical Therapeutics.
Each executive officer has agreed not to compete with us during
his employment with us and for a one-year period after
termination of employment by us for any reason or after a
change of control of Critical Therapeutics. In the
event of a breach of this non-competition obligation, Critical
Therapeutics will be entitled to injunctive relief in addition
to any other remedies it might have, and the executive will
continue to be held to the obligation until the requisite time
period has passed without any violation. Each executive officer
has also agreed not to disclose any confidential information
obtained during his employment. The severance agreements and
releases used by Critical Therapeutics typically contain
provisions, whereby a departing executive reaffirms these
obligations, and non-disparagement clauses of perpetual
duration, compliance with which is a condition to the receipt of
payments.
Separation
Agreements
Dr. Rubin. In connection with
Dr. Rubins resignation as our President and Chief
Executive Officer, we entered into a letter agreement with
Dr. Rubin on July 10, 2006. Under this agreement, we
paid Dr. Rubin the following lump sum amounts in December
2006 pursuant to Dr. Rubins employment agreement:
|
|
|
|
|
$458,750, representing 1.25 times Dr. Rubins annual
base salary;
|
|
|
|
$55,000, representing 50% of Dr. Rubins highest bonus
payment in 2003, 2004 or 2005; and
|
|
|
|
$82,575, representing 50% of Dr. Rubins maximum cash
bonus for 2006.
|
We also paid Dr. Rubin an additional lump sum amount of
$60,000 in December 2006. For a period of up to fifteen months,
we also agreed to reimburse Dr. Rubin for 80% of the
monthly COBRA premiums for
28
continued health coverage for Dr. Rubin and his dependents
and 100% of any premiums that Dr. Rubin pays to continue
coverage provided by us for life and disability insurance for a
period of up to fifteen months. Under the agreement, 50% of
Dr. Rubins unvested stock options as of June 23,
2006 became exercisable, and the exercise period on these vested
options was extended until December 23, 2006.
Mr. Finnegan. In connection with
Mr. Finnegans resignation as our Senior Vice
President of Sales and Marketing, we entered into a separation
agreement with Mr. Finnegan on July 14, 2006. Under
this agreement, we paid Mr. Finnegan the following lump sum
amounts in December 2006 pursuant to Mr. Finnegans
employment agreement:
|
|
|
|
|
$252,600, representing Mr. Finnegans annual base
salary; and
|
|
|
|
$37,890, representing 50% of Mr. Finnegans maximum
cash bonus for 2006.
|
We also agreed to reimburse Mr. Finnegan for 80% of the
monthly COBRA premiums for continued health coverage for
Mr. Finnegan and his dependents and 100% of the cost of the
monthly premiums paid by us for life insurance and disability
insurance for Mr. Finnegan in the month preceding his
resignation for a period of twelve months. Under the agreement,
50% of Mr. Finnegans unvested stock options as of
June 29, 2006 became exercisable, and the exercise period
on these vested options was extended until December 29,
2006.
Dr. Newman. In connection with
Dr. Newmans resignation as our Chief Scientific
Officer and Senior Vice President of Research and Development,
we entered into a separation agreement with Dr. Newman on
October 25, 2006. Under this agreement, we paid
Dr. Newman the following lump sum amounts in November 2006
pursuant to Dr. Newmans employment agreement:
|
|
|
|
|
$269,500, representing Dr. Newmans annual base
salary; and
|
|
|
|
$67,375, representing
10/12 of
Dr. Newmans maximum cash bonus for 2006.
|
We also agreed to reimburse Dr. Newman for 80% of the
premiums for continued health coverage for Dr. Newman and
his dependents and 100% of the cost of the monthly premiums paid
by us for life insurance and disability insurance for
Dr. Newman in the month preceding his resignation for a
period of twelve months. Under the agreement, 50% of
Dr. Newmans unvested stock options as of
October 31, 2006 became exercisable.
Retention
Bonus Arrangements
On November 9, 2006, the Compensation Committee determined
that, in light of the restructuring announced in October 2006
and in lieu of cash bonuses based on performance goals, annual
cash bonuses to executive officers for 2006 would be paid as
flat sum retention bonus payments. Under this revised bonus
program, each executive officer employed by us as of
January 15, 2007 received a bonus payment equal to 50% of
his maximum annual cash bonus for 2006. In addition, under this
revised bonus program, each executive officer employed by us on
the date we receive an action letter from the FDA on our NDA for
the controlled-release formulation of zileuton will be entitled
to a bonus payment equal to the remaining 50% of his maximum
annual cash bonus for 2006.
As part of the revised bonus program for 2006, the Compensation
Committee determined that if we terminate the employment of any
executive officer without cause (as determined by us in good
faith) prior to either of the bonus payment dates, we will pay
such executive officer such retention bonuses as if such
executive officer continued to be employed on such dates. In
addition, the Compensation Committee determined that if a
change of control event (as defined in our 2004
Stock Incentive Plan, as amended) occurred prior to either of
the bonus payment dates, we will pay each executive officer that
continues to be employed by us, a bonus payment equal to 100% of
his maximum annual cash bonus for 2006 less any retention
payments previously made to such executive officer pursuant to
the retention bonus program.
29
2007
Salary Increases
On December 19, 2006, based on the recommendation of the
Compensation Committee, our independent directors approved
market adjustments and merit increases in the annual base
salaries for our executive officers effective as of
January 1, 2007. The independent directors approved a 2007
annual base salary of $345,000 for Mr. Thomas, $300,000 for
Dr. Phillips, $290,000 for Dr. Hilt, $245,000 for
Mr. Townsend and $195,000 for Mr. Young.
Future
Bonus Eligibility
On December 19, 2006, based on the recommendation of the
Compensation Committee, our independent directors established
maximum annual cash bonuses for executive officers for 2007. The
maximum annual cash bonus for 2007, as a percentage of 2007
annual base salary, is 40% for Mr. Thomas, 35% for
Dr. Phillips and 30% for each of Dr. Hilt,
Mr. Townsend and Mr. Young. The Compensation Committee
may make actual cash bonus awards that may be greater or less
than the maximum annual cash bonus based on overall corporate
performance and individual performance. None of the executive
officers is guaranteed any annual cash bonus.
Stock
Option Grants
As reported in the Grants of Plan Based-Awards table above, we
have granted stock options to our executive officers at various
times during 2006. All stock options granted during 2006 to our
executive officers vest as to 25% of the shares on the first
anniversary of the grant date and as to the remaining shares in
36 approximately equal monthly installments beginning one month
thereafter. Unless otherwise noted, all stock options are
granted with an exercise price equal to the closing price per
share of our common stock reported by NASDAQ on the grant date.
Restricted
Stock Awards
On December 19, 2006, based on the recommendation of the
Compensation Committee, our independent directors approved the
grant of restricted stock awards for shares of our common stock
under our 2004 Stock Incentive Plan, as amended, to our
executive officers for a purchase price of $0.001 per
share, subject to the terms of restricted stock agreements that
we entered into with our executive officers. We granted
40,000 shares of common stock to Mr. Thomas,
35,000 shares of common stock to Dr. Phillips and
26,700 shares of common stock to each of Dr. Hilt,
Mr. Townsend and Mr. Young. The restricted stock
awards were granted effective as of December 27, 2006. The
shares of common stock subject to the awards vest as to 50% of
the shares on each of the first and second anniversaries of the
grant date.
30
Information
Relating to Equity Awards and Holdings
The following table sets forth information regarding unexercised
stock options, stock that has not vested and equity incentive
plan awards for each of the named executive officers outstanding
as of December 31, 2006.
Outstanding
Equity Awards at Fiscal Year-End
|
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Option Awards
|
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Stock Awards
|
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Equity
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Incentive
|
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Plan
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Equity
|
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Awards:
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Incentive
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Market
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Plan
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or Payout
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Equity
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Awards:
|
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Value of
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Incentive Plan
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Market
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Number of
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Unearned
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Awards:
|
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Number
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Value of
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Unearned
|
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Shares,
|
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Number of
|
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Number of
|
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Number of
|
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|
of Shares
|
|
Shares or
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Shares,
|
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Units or
|
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|
Securities
|
|
Securities
|
|
Securities
|
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|
|
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or Units
|
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Units of
|
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Units or
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Other
|
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Underlying
|
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Underlying
|
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Underlying
|
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|
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of Stock
|
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Stock
|
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Other
|
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Rights
|
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Unexercised
|
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Unexercised
|
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Unexercised
|
|
Option
|
|
Option
|
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That
|
|
That
|
|
Rights
|
|
That
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
|
That Have
|
|
Have Not
|
Name
|
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Exercisable
|
|
Unexercisable(1)
|
|
Options
|
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Price
|
|
Date
|
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Vested(2)
|
|
Vested(3)
|
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Not Vested
|
|
Vested
|
|
Frank E. Thomas
|
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|
111,331
|
|
|
|
88,002
|
(4)
|
|
|
|
|
|
$
|
5.63
|
|
|
|
4/25/2014
|
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|
40,000
|
|
|
$
|
81,600
|
|
|
|
|
|
|
|
|
|
|
|
|
46,906
|
|
|
|
78,094
|
(5)
|
|
|
|
|
|
|
5.99
|
|
|
|
9/7/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
7.12
|
|
|
|
1/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
430,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
6/24/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
1.88
|
|
|
|
12/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Trevor Phillips, Ph.D.
|
|
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1,389
|
|
|
|
|
|
|
|
|
|
|
|
0.38
|
|
|
|
10/9/2012
|
|
|
|
35,000
|
|
|
|
71,400
|
|
|
|
|
|
|
|
|
|
|
|
|
120,222
|
|
|
|
38,704
|
(6)
|
|
|
|
|
|
|
1.05
|
|
|
|
12/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,431
|
|
|
|
140,569
|
(7)
|
|
|
|
|
|
|
5.99
|
|
|
|
9/7/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
7.12
|
|
|
|
1/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
6/24/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
100,000
|
|
|
|
|
|
|
|
1.88
|
|
|
|
12/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott B. Townsend, Esq.
|
|
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42,750
|
|
|
|
31,250
|
|
|
|
|
|
|
|
4.84
|
|
|
|
8/19/2014
|
|
|
|
26,700
|
|
|
|
54,468
|
|
|
|
|
|
|
|
|
|
|
|
|
7,187
|
|
|
|
7,813
|
|
|
|
|
|
|
|
7.75
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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40,000
|
|
|
|
|
|
|
|
7.12
|
|
|
|
1/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
6/24/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
1.88
|
|
|
|
12/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana Hilt, M.D.
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
4.93
|
|
|
|
4/25/2016
|
|
|
|
26,700
|
|
|
|
54,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
3.80
|
|
|
|
6/24/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
1.88
|
|
|
|
12/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Rubin, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Newman, Ph.D.
|
|
|
162,434
|
|
|
|
|
|
|
|
|
|
|
|
1.05
|
|
|
|
1/31/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,748
|
|
|
|
|
|
|
|
|
|
|
|
5.99
|
|
|
|
1/31/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
7.12
|
|
|
|
1/31/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
3.80
|
|
|
|
1/31/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick Finnegan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Except as otherwise noted, shares subject to the options
reflected in this column vest as to 25% of such shares on the
first anniversary of the date of grant and as to the remaining
shares in 36 approximately equal monthly installments beginning
one month thereafter. The date of grant for each of these
options is the date 10 years prior to the expiration date
reflected in this table. Share numbers in this column give
effect to shares already vested as of December 31, 2006,
which are reflected in the previous column. |
|
(2) |
|
The shares reflected in this column represent restricted stock
awards that vest as to 50% of the shares subject thereto on
December 27, 2007 and as to the remaining 50% of the shares
on December 27, 2008. |
|
(3) |
|
The amounts in this column are calculated based on a price per
share of $2.04, the closing market price per share of our common
stock on December 29, 2006, the last business day of the
year. |
31
|
|
|
(4) |
|
This option vests as to these shares in approximately equal
monthly installments through April 26, 2008. |
|
(5) |
|
This option vests as to these shares in approximately equal
monthly installments through September 8, 2010, provided
that 75% of the original number of shares subject to this option
become exercisable based upon the satisfaction of two corporate
objectives as determined by the Compensation Committee. |
|
(6) |
|
The remaining shares subject to this option vest as to one-third
of such shares in monthly installments through December 19,
2007, and the remaining two-thirds of such shares on
December 31, 2007. |
|
(7) |
|
This option vests as to these shares in approximately equal
monthly installments through September 8, 2010, provided
that 75% of the original number of shares subject to this option
become exercisable based upon the satisfaction of two corporate
objectives as determined by the Compensation Committee. |
The following table sets forth information regarding the
exercise of stock options and the vesting of restricted stock
during the fiscal year ended December 31, 2006 for each of
the named executive officers on an aggregated basis.
Option
Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
Name
|
|
Acquired on Exercise
|
|
|
Exercise(1)
|
|
|
Acquired on Vesting
|
|
|
Vesting(2)
|
|
|
Frank E. Thomas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trevor Phillips, Ph.D.
|
|
|
21,333
|
|
|
|
$89,349
|
|
|
|
|
|
|
|
|
|
Scott B. Townsend, Esq.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana Hilt, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Rubin, M.D.
|
|
|
656,285
|
|
|
|
1,046,842
|
|
|
|
|
|
|
|
|
|
Walter Newman, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
29,299
|
|
|
|
$59,770
|
|
Frederick Finnegan
|
|
|
34,695
|
|
|
|
89,651
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in the Value Realized on Exercise column
are calculated based on the difference between the closing
market price per share of our common stock on the date of
exercise and the exercise price per share of the options. |
|
(2) |
|
The amounts in the Value Realized on Vesting column
are calculated by multiplying the number of vested shares by the
closing market price per share of our common stock on the
vesting date or, if the vesting date is not a business day, on
the previous business day. |
Payments
Upon Termination or Change of Control
We have entered into employment agreements with each of the
named executive officers. These employment agreements provide
for payments and benefits to the executive officer upon
termination of employment or a change of control of Critical
Therapeutics under specified circumstances. For information
regarding the specific circumstances that would trigger payments
and the provision of benefits, the manner in which payments and
benefits would be provided and conditions applicable to the
receipt of payments and benefits, see
Employment Agreements. In addition, we
entered into separation agreements with Dr. Rubin,
Dr. Newman and Mr. Finnegan in connection with their
resignation from employment that provided for actual payments
and benefits to these executive officers. Dr. Rubin and
Mr. Finnegan resigned in June 2006 and Dr. Newman
resigned in October 2006. For more information regarding these
separation agreements, see Separation
Agreements.
32
The following tables set forth information regarding potential
payments and benefits that each named executive officer who was
serving as an executive officer on December 31, 2006 would
receive upon termination of employment or a change of control of
Critical Therapeutics under specified circumstances, assuming
that the triggering event in question occurred on
December 29, 2006, the last business day of the fiscal year.
Summary
of Potential Payments Upon Termination or Change of
Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without Cause or for Good Reason
|
|
|
Voluntary Resignation
|
|
|
|
|
|
|
|
|
|
Value of Options
|
|
|
Value of Stock
|
|
|
|
|
|
|
Cash
|
|
|
Value of
|
|
|
with Accelerated
|
|
|
with Accelerated
|
|
|
Cash
|
|
Name
|
|
Payments(1)
|
|
|
Benefits(5)
|
|
|
Vesting(2)
|
|
|
Vesting(3)
|
|
|
Payments(4)
|
|
|
Frank E. Thomas
|
|
|
$438,750
|
|
|
|
$14,194
|
|
|
|
$40,000
|
|
|
|
$40,780
|
|
|
|
$47,000
|
|
Trevor Phillips, Ph.D.
|
|
|
375,700
|
|
|
|
14,194
|
|
|
|
27,158
|
|
|
|
35,683
|
|
|
|
49,000
|
|
Scott B. Townsend, Esq.
|
|
|
299,000
|
|
|
|
14,104
|
|
|
|
2,000
|
|
|
|
27,221
|
|
|
|
43,000
|
|
Dana Hilt, M.D.
|
|
|
364,000
|
|
|
|
10,090
|
|
|
|
2,000
|
|
|
|
27,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediately upon a Change of Control
|
|
|
Termination in Connection with a Change of Control
|
|
|
|
Value of Options
|
|
|
Value of Stock
|
|
|
|
|
|
|
|
|
Value of Options
|
|
|
Value of Stock
|
|
|
|
with Accelerated
|
|
|
with Accelerated
|
|
|
Cash
|
|
|
Value of
|
|
|
with Accelerated
|
|
|
with Accelerated
|
|
Name
|
|
Vesting(2)
|
|
|
Vesting(3)
|
|
|
Payments(1)
|
|
|
Benefits(5)
|
|
|
Vesting(2)
|
|
|
Vesting(3)
|
|
|
Frank E. Thomas
|
|
|
$40,000
|
|
|
$
|
40,780
|
|
|
$
|
438,750
|
|
|
$
|
14,194
|
|
|
|
$80,000
|
|
|
|
$81,560
|
|
Trevor Phillips, Ph.D.
|
|
|
27,158
|
|
|
|
35,683
|
|
|
|
375,700
|
|
|
|
14,194
|
|
|
|
54,317
|
|
|
|
71,365
|
|
Scott B. Townsend, Esq.
|
|
|
2,000
|
|
|
|
27,221
|
|
|
|
299,000
|
|
|
|
14,104
|
|
|
|
4,000
|
|
|
|
54,441
|
|
Dana Hilt, M.D.
|
|
|
2,000
|
|
|
|
27,221
|
|
|
|
364,000
|
|
|
|
10,090
|
|
|
|
4,000
|
|
|
|
54,441
|
|
|
|
|
(1) |
|
The amounts in this column reflect a lump sum payment equal to
annual base salary in effect on December 29, 2006 and a pro
rata payment of the target cash bonus for 2006 for the named
executive officer. |
|
(2) |
|
The amounts in this column are calculated based on the
difference between $2.04, the closing market price per share of
our common stock on December 29, 2006, and the exercise
price per share of the options subject to accelerated vesting. |
|
(3) |
|
The amounts in this column are calculated by multiplying the
number of shares subject to accelerated vesting by $2.04, the
closing market price per share of our common stock on
December 29, 2006. |
|
(4) |
|
The amounts in this column reflect a lump sum pro rata payment
of the actual annual cash bonus paid to the named executive
officer in the previous year. |
|
(5) |
|
The amounts in this column reflect 12 monthly payments in the
amount of (i) 80% of the monthly COBRA premiums for
continued health and dental coverage for the executive officer
and his dependents and (ii) 100% of the amount of life
insurance and disability insurance for the executive officer in
month prior to termination. |
The following table set forth for each named executive officer
whose employment with us terminated during the last fiscal year
information regarding actual payments and benefits received by
such named
33
executive officer pursuant to the separation agreement we
entered into with such executive officer in connection with
termination of employment.
Summary
of Actual Payments Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Options with
|
|
|
Stock with
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
|
Accelerated
|
|
Name
|
|
Cash Payments
|
|
|
Value of Benefits
|
|
|
Vesting(1)
|
|
|
Vesting(2)
|
|
|
Paul D. Rubin, M.D.
|
|
|
$656,325
|
|
|
|
$15,390
|
|
|
|
$259,284
|
|
|
|
|
|
Walter Newman, Ph.D.
|
|
|
336,875
|
|
|
|
14,328
|
|
|
|
47,888
|
|
|
|
$4,624
|
|
Frederick Finnegan
|
|
|
290,490
|
|
|
|
14,328
|
|
|
|
30,498
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column are calculated based on the
difference between the closing market price per share of our
common stock on the actual date of termination of employment and
the exercise price per share of the options subject to
accelerated vesting. |
|
(2) |
|
The amounts in this column are calculated by multiplying the
number of shares subject to accelerated vesting by the closing
market price per share of our common stock on the actual date of
termination of employment. |
Compensation
of Directors
The following table sets forth information for the fiscal year
ended December 31, 2006 regarding the compensation of our
directors who are not also named executive officers.
Director
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid
|
|
|
|
|
|
All Other
|
|
|
|
|
Name
|
|
in Cash
|
|
|
Option Awards(1)
|
|
|
Compensation
|
|
|
Total
|
|
|
Richard W. Dugan
|
|
|
$58,250
|
|
|
|
$64,820
|
|
|
|
|
|
|
|
$123,070
|
|
Nicholas
Galakatos, Ph.D.
|
|
|
47,750
|
|
|
|
23,726
|
|
|
|
|
|
|
|
71,476
|
|
Jean George(2)
|
|
|
|
|
|
|
23,726
|
|
|
|
|
|
|
|
23,726
|
|
Christopher
Mirabelli, Ph.D.(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James B. Tananbaum, M.D.(2)
|
|
|
|
|
|
|
32,947
|
|
|
|
|
|
|
|
32,947
|
|
Christopher Walsh, Ph.D.
|
|
|
35,500
|
|
|
|
48,030
|
|
|
|
|
|
|
|
83,530
|
|
H. Shaw Warren, M.D.(3)
|
|
|
18,000
|
|
|
|
16,356
|
|
|
|
$86,735
|
|
|
|
121,091
|
|
Robert H. Zeiger(4)
|
|
|
24,000
|
|
|
|
130,342
|
|
|
|
50,646
|
|
|
|
204,988
|
|
M. Cory Zwerling(5)
|
|
|
11,000
|
|
|
|
15,520
|
|
|
|
73,463
|
|
|
|
99,983
|
|
|
|
|
(1) |
|
The amounts in the Option Awards column reflect the
dollar amounts recognized as compensation expense for financial
statement reporting purposes for stock options for the fiscal
year ended December 31, 2006 in accordance with
SFAS 123(R). The assumptions we used to calculate these
amounts are discussed in Note 2 to our consolidated
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006. |
|
(2) |
|
Ms. George, Dr. Mirabelli and Dr. Tananbaum
waived annual fees and meeting fees for 2006. Dr. Mirabelli
also waived an option award. |
|
(3) |
|
Dr. Warren resigned from our board of directors on
October 7, 2006. The amount in the All Other
Compensation column for Dr. Warren consists of
consulting fees for Dr. Warren in 2006. For more
information, see Transactions with Related
Persons Consulting Agreement with Founding
Director. |
|
(4) |
|
The amount in the Option Awards column for
Mr. Zeiger includes the value of the portion of a stock
option granted to Mr. Zeiger in connection with his
employment on an interim basis in 2006 as Executive Chairman
that had vested at the time he stepped down as Executive
Chairman. The amount in the All |
34
|
|
|
|
|
Other Compensation column for Mr. Zeiger includes
$43,327 of salary and $7,319 of housing costs paid to
Mr. Zeiger during his employment as Executive Chairman in
2006. For more information, see Transactions with Related
Persons Offer Letter with Robert H. Zeiger. |
|
(5) |
|
The amount in the Option Awards column for
Mr. Zwerling includes the value of a stock option granted
to Mr. Zwerling in connection with his consulting
agreement. The amount in the All Other Compensation
column for Mr. Zwerling consists of consulting fees for
Mr. Zwerling in 2006. For more information, see
Transactions with Related Persons Consulting
Agreement with M. Cory Zwerling. |
Effective January 1, 2006, each non-employee member of our
board of directors is eligible to receive the following fees:
|
|
|
|
|
$3,000 for each meeting of the board, up to a maximum of five in
any calendar year, that the director attends in person;
|
|
|
|
$1,000 for each additional meeting of the board, in excess of
five in any calendar year, that the director attends in person;
|
|
|
|
$1,500 for each meeting of any committee of the board on which
the director serves that the director attends in person; and
|
|
|
|
$1,000 for each meeting of the board or any committee of the
board on which the director serves that the director attends by
teleconference.
|
The annual fee for the lead independent director is $7,000, the
annual fee for the chair of our Audit Committee is $6,500, the
annual fee for the chair of our Compensation Committee is
$6,000, and the annual fee for the chair of our Nominating and
Corporate Governance Committee is $5,000. We reimburse each
non-employee director for reasonable travel and other expenses
incurred in connection with attending meetings of the board of
directors and its committees. We pay all reasonable expenses
related to continuing director education. However, we pay only a
pro rata portion of those expenses for our non-employee
directors who serve on any additional public company boards.
Each non-employee director also receives an option to purchase
up to 25,000 shares of our common stock upon his or her
initial election to our board of directors and an option to
purchase up to 15,000 shares of our common stock at each
years annual meeting after which he or she continues to
serve as a director. Non-employee directors serving on the board
for less than a full year receive a pro rata portion of the
stock option grant that we make to non-employee directors
following our annual meeting each year. The shares subject to
these options become exercisable in 36 equal monthly
installments beginning one month from the date of grant. Our
directors are eligible to participate in our 2004 Stock
Incentive Plan, as amended.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2006 regarding securities authorized for
issuance under our equity compensation plans, consisting of our
2006 Employee Stock Purchase Plan, our 2004 Stock Incentive
Plan, as amended, our 2003 Stock Incentive Plan, as amended, and
our 2000 Equity
35
Incentive Plan, as amended. All of our equity compensation plans
were adopted with the approval of our stockholders.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (a))(1)
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved
by stockholders
|
|
|
5,714,770
|
|
|
|
$4.60
|
|
|
|
1,278,895
|
|
Equity compensation plans not
approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,714,770
|
|
|
|
$4.60
|
|
|
|
1,278,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to being available for future issuance upon exercise
of stock options that may be granted after December 31,
2006, our 2004 Stock Incentive Plan, as amended, provides for
the issuance of restricted stock awards and other stock-based
awards. |
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee during the fiscal year
ended December 31, 2006 were Drs. Galakatos and
Mirabelli and Ms. George. No member of the Compensation
Committee was at any time during the fiscal year ended
December 31, 2006, or formerly, an officer or employee of
Critical Therapeutics or any subsidiary of Critical
Therapeutics, except that Dr. Mirabelli served as our
acting non-employee president from July 2001 to August 2002, nor
has any member of the Compensation Committee had any
relationship with Critical Therapeutics during the fiscal year
ended December 31, 2006 requiring disclosure under
Item 404 of
Regulation S-K
under the Securities Exchange Act of 1934.
None of our executive officers has served as a director or
member of the compensation committee (or other committee serving
an equivalent function) of any other entity, one of whose
executive officers served as a director or member of the
Compensation Committee of Critical Therapeutics.
Compensation
Committee Report
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management. Based on this review and discussion, the
Compensation Committee has recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
this proxy statement and incorporated by reference in Critical
Therapeutics Annual Report on
Form 10-K
for the year ended December 31, 2006.
By the Compensation Committee of the Board
of Directors of
Critical Therapeutics, Inc.
Nicholas Galakatos, Ph.D., Chair
Jean George
Christopher Mirabelli, Ph.D.
36
PROPOSAL TWO
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has selected the firm of Deloitte &
Touche LLP as our independent registered public accounting firm
for the fiscal year ending December 31, 2007.
Although stockholder approval of the selection of
Deloitte & Touche LLP is not required by law, our board
of directors believes that it is advisable to give stockholders
an opportunity to ratify this selection. If this proposal is not
approved at the annual meeting, our board of directors will
reconsider its selection of Deloitte & Touche LLP.
Deloitte & Touche LLP also served as our independent
registered public accounting firm for the fiscal year ending
December 31, 2006. Representatives of Deloitte &
Touche LLP are expected to be present at the annual meeting and
will have the opportunity to make a statement, if they desire to
do so, and will be available to respond to appropriate questions
from our stockholders.
Board
Recommendation
The board of directors recommends a vote FOR the
ratification of the selection of Deloitte & Touche LLP
as Critical Therapeutics, Inc.s independent registered
public accounting firm for the fiscal year ending
December 31, 2007.
OTHER
MATTERS
Our board of directors has no knowledge of any other matters
which may come before the meeting. However, if any other matters
are properly presented to the meeting, it is the intention of
the persons named in the accompanying proxy card to vote, or
otherwise act, in accordance with their judgment on those
matters.
SOLICITATION
OF PROXIES
The cost of solicitation of proxies will be borne by Critical
Therapeutics. In addition to the solicitation of proxies by
mail, officers and employees of Critical Therapeutics may
solicit proxies in person or by telephone. We may reimburse
brokers or persons holding stock in their names, or in the names
of their nominees, for their expenses in sending proxies and
proxy material to beneficial owners.
REVOCATION
OF PROXY
Subject to the terms and conditions set forth in this proxy
statement, all proxies received by us will be effective,
notwithstanding any transfer of the shares to which those
proxies relate, unless prior to the closing of the polls at the
annual meeting, we receive a written notice of revocation signed
by the person who, as of the record date, was the registered
holder of those shares. The notice of revocation must indicate
the certificate number and numbers of shares to which the
revocation relates and the aggregate number of shares
represented by the certificate(s).
STOCKHOLDER
PROPOSALS
In order to be included in proxy material for our 2008 annual
meeting of stockholders, stockholders proposed resolutions
must be received by us at our principal executive offices,
Critical Therapeutics, Inc., Attn: Corporate Secretary,
60 Westview Street, Lexington, Massachusetts 02421 no later
than November 28, 2007. However, if the date of the 2008
annual meeting is changed by more than 30 days from the
date of the 2007 annual meeting, then the deadline is a
reasonable time before we begin to print and mail our proxy
statement for the 2008 annual meeting. We suggest that
proponents submit their proposals by certified mail, return
receipt requested, addressed to our Corporate Secretary.
37
In addition, our by-laws require that we be given advance notice
of stockholder nominations for election to the board of
directors and of other matters which stockholders wish to
present for action at an annual meeting of stockholders, other
than matters included in our proxy statement. The required
notice must be in writing and received by our corporate
secretary at our principal offices in the case of an election of
directors at an annual meeting of stockholders, not less than
90 days nor more than 120 days prior to the first
anniversary of the preceding years annual meeting;
provided, however, that in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by
more than 60 days, from the first anniversary of the
preceding years annual meeting, a stockholders
notice must be so received not earlier than the 120th day
prior to such annual meeting and not later than the close of
business on the later of (A) the 90th day prior to
such annual meeting and (B) the tenth day following the day
on which notice of the date of such annual meeting was mailed or
public disclosure of the date of such annual meeting was made,
whichever first occurs. The date of our 2008 annual meeting of
stockholders has not yet been established, but assuming it is
held on May 2, 2008, in order to comply with the time
periods set forth in our by-laws, appropriate notice for the
2008 annual meeting would need to be provided to our Corporate
Secretary no earlier than January 2, 2008 and no later than
February 1, 2008.
By order of the Board of Directors,
Scott B. Townsend, Esq.
Secretary
Lexington, Massachusetts
March 28, 2007
OUR BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND
THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE
URGED TO VOTE BY PROXY OVER THE INTERNET, BY TELEPHONE OR BY
MAIL. A PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR
THE MEETING AND YOUR COOPERATION WILL BE APPRECIATED.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXY CARDS OR
VOTED BY PROXY OVER THE INTERNET OR BY TELEPHONE.
38
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|
|
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
|
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Please |
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|
Mark Here |
|
o |
|
|
for Address
|
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Change or
Comments |
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SEE REVERSE SIDE |
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1. To elect the
following two (2)
nominees as Class
III Directors of the
Company:
|
|
FOR ALL
NOMINEES
|
|
WITHHOLD
AUTHORITY
FOR ALL
NOMINEES
|
|
FOR ALL
EXCEPT
(See instructions
below)
|
|
2. To ratify the selection by
the Audit Committee of
Deloitte & Touche LLP as
the Companys
independent registered
public accounting firm for
the fiscal year ending
December 31, 2007.
|
|
FOR
|
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AGAINST
|
|
ABSTAIN |
|
|
o
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o
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o
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o
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o
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|
o |
NOMINEES: |
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01 Jean George |
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02 Frank E. Thomas |
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INSTRUCTION: To withhold authority to vote for any individual
nominee(s), mark FOR ALL EXCEPT and write the name of the
nominee(s) on the line below:
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|
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS
SHOWN HERE þ |
In their discretion, the proxies are authorized to vote in accordance with their judgment on
any other matters which may properly come before the Annual Meeting or any adjournment thereof.
Signature
Signature
Date
, 2007
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full title as such. If the signer is a corporation, please sign full
corporate name by a duly authorized officer, giving title as such. If signer is a partnership,
please sign in partnership name by an authorized person.
5 FOLD AND DETACH HERE 5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, BOTH ARE AVAILABLE
24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
on May 1, 2007.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
|
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|
INTERNET
http://www.proxyvoting.com/crtx
Use the internet to vote your proxy. Have
your proxy card in hand when you access
the web site. |
|
OR
|
|
TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call. |
|
|
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|
|
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
PROXY
CRITICAL THERAPEUTICS, INC.
60 WESTVIEW STREET
LEXINGTON, MASSACHUSETTS 02421
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 2, 2007
The undersigned, revoking all prior proxies, hereby appoints Trevor Phillips, Ph.D. and Frank
E. Thomas, as proxies, each with the power to appoint his substitute, and hereby authorizes each of
them to represent and vote, as designated on the reverse side, all shares of common stock of
Critical Therapeutics, Inc. (the Company) held of record by the undersigned on March 5, 2007 at
the Annual Meeting of Stockholders to be held on May 2, 2007 at 10:00 a.m. and any adjournments
thereof. The undersigned hereby directs Trevor Phillips, Ph.D. and Frank E. Thomas to vote in
accordance with their judgment on any matters which may properly come before the Annual Meeting,
all as indicated in the Notice of Annual Meeting, receipt of which is hereby acknowledged, and to
act on the matters set forth in such Notice as specified by the undersigned.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN WITH
RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. ATTENDANCE OF THE
UNDERSIGNED AT THE ANNUAL MEETING OR AT ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO REVOKE THE
PROXY UNLESS THE UNDERSIGNED REVOKES THIS PROXY IN WRITING.
(Continued and to be signed, on the reverse side)
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Address
Change/Comments (Mark the corresponding box on the
reverse side) |
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Dear Stockholder:
Please take note of the important information enclosed with this proxy card. There are matters
related to the operation of the Company that require your prompt attention. Your vote counts, and
you are strongly encouraged to exercise your right to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be voted. Then sign and
date the card, detach it and return your proxy in the enclosed postage-paid envelope. Thank you in
advance for your prompt consideration of these matters.
Sincerely,
Critical Therapeutics, Inc.
Your vote is important. Please vote immediately.
ANNUAL MEETING OF STOCKHOLDERS OF
CRITICAL THERAPEUTICS, INC.
May 2, 2007
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.