MBRK Middlebrook Pharmaceuticals (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

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MIDDLEBROOK PHARMACEUTICALS, INC.

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Dear Stockholder:

 

You are cordially invited to attend our Annual Meeting of Stockholders on Tuesday, June 23, 2009 at 8:30 a.m., local time, at our headquarters located at 7 Village Circle, Suite 100, Westlake, Texas 76262.

 

The annual meeting notice and proxy statement on the following pages cover the formal business of the annual meeting, which includes proposals to:

 

1. elect three director nominees named in the attached proxy statement for a term ending in 2012;

 

2. amend MiddleBrook’s certificate of incorporation and bylaws to declassify our board of directors;

 

3. amend MiddleBrook’s Stock Incentive Plan to increase the number of shares reserved for issuance thereunder by 3,500,000 shares; and

 

4. ratify the selection of PricewaterhouseCoopers LLP, as MiddleBrook’s independent registered public accounting firm.

 

Your vote is important. Whether or not you are able to attend, it is important that your shares be represented at the annual meeting. We ask that you promptly mark, sign, date and return the enclosed proxy card in the envelope provided, or instruct us by telephone or via the Internet as to how you would like to vote your shares. Returning your proxy card will not prevent you from voting in person at the annual meeting if you are present and choose to do so. We urge you to participate in electing directors and deciding the other matters described in more detail in the attached annual meeting notice and proxy statement that follow.

 

Thank you for your continued support of MiddleBrook Pharmaceuticals and we look forward to your attendance at the annual meeting.

 

Sincerely yours

 

John Thievon
President and Chief Executive Officer

 

This proxy statement is dated April 30, 2009 and is first being mailed to stockholders on or about May 18, 2009

 

 

7 Village Circle, Suite 100, Westlake, Texas 76262 • (817) 837-1200 • (817) 582-0400 (Fax)

TABLE OF CONTENTS

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on June 23, 2009

 

The 2009 Annual Meeting of Stockholders of MiddleBrook Pharmaceuticals, Inc., a Delaware corporation, will be held at our headquarters located at 7 Village Circle, Suite 100, Westlake, Texas 76262 on Tuesday, June 23, 2009 at 8:30 am, local time, for the following purposes:

 

1. to elect three director nominees named in the attached proxy statement for a term ending in 2012;

 

2. to amend MiddleBrook’s Certificate of Incorporation and Bylaws to declassify our board of directors;

 

3. to amend the MiddleBrook Pharmaceuticals, Inc. Stock Incentive Plan to increase the number of shares of common stock reserved for issuance thereunder by 3,500,000 shares from 16,348,182 shares to 19,848,182 shares;

 

4. to ratify the selection of PricewaterhouseCoopers LLP as MiddleBrook’s independent registered public accounting firm; and

 

5. to conduct such other business as may properly come before the meeting or any adjournment or adjournments thereof.

 

Your attention is directed to the proxy statement accompanying this notice for a more complete description of the matters to be acted on at the meeting. The board of directors has fixed the close of business on Tuesday, April 28, 2009, as the record date for determining stockholders entitled to notice of, and to vote at, the annual meeting. Each outstanding share of common stock is entitled one vote on all matters to be voted on at the meeting. A list of the stockholders as of the record date will be available for inspection by stockholders at our offices during normal business hours for a period of 10 days prior to the annual meeting.

 

All stockholders are cordially invited to attend the annual meeting. It is important that your shares be represented and voted at the meeting. Please note that attendance at the meeting will be limited to stockholders of record as of the record date (or their duly authorized representatives). If you wish to attend the meeting and your shares are held by a bank or broker, please bring to the meeting your bank or brokerage statement evidencing your beneficial ownership of our stock and a form of government issued photo identification.

 

You can vote your shares by proxy by using one of the following methods: mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope furnished for that purpose, or vote by telephone or the Internet using the instructions on the enclosed proxy card. Any proxy may be revoked in the manner described in the accompanying proxy statement at any time prior to its exercise at the annual meeting of stockholders. Any stockholder present at the meeting may withdraw his or her proxy and vote personally on any matter brought before the meeting.

 

If your shares are held in street name by a brokerage firm, your broker will supply you with a proxy to be returned to the brokerage firm. It is important that you return the form to the brokerage firm as quickly as possible so that the brokerage firm may vote your shares. Please note, however, that if your shares are held of record by a broker, bank or other nominee, you may not vote your shares in person at the meeting unless you obtain a power of attorney or legal proxy from your broker authorizing you to vote the shares, and you present this power of attorney or proxy at the meeting.

 

By Order of the Board of Directors,

 

Brad Cole
Secretary

 

Westlake, Texas

April 30, 2009

 

 

 

 

MIDDLEBROOK PHARMACEUTICALS, INC.
7 Village Circle, Suite 100
Westlake, Texas 76262

 

PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
to be held on June 23, 2009

 

This Proxy Statement is first being mailed on or about May 18, 2009, to the stockholders of MiddleBrook Pharmaceuticals, Inc., a Delaware corporation, which we refer to as “MiddleBrook,” “we,” “us,” “our,” or the “Company,” in connection with the solicitation of proxies by our board of directors for use at the 2009 Annual Meeting of Stockholders and at any adjournment or postponement thereof. Our meeting will be held on Tuesday, June 23, 2009, at 8:30 a.m. local time, at our headquarters located at 7 Village Circle, Suite 100, Westlake, Texas 76262.

 

Our executive offices are located at 7 Village Circle, Suite 100, Westlake, Texas 76262, and our telephone number is (817) 837-1200. A list of stockholders entitled to vote at the annual meeting will be available for examination by any stockholder at our offices for a period of ten days prior to the annual meeting and at the annual meeting itself.

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

What is the purpose of the annual meeting?

 

At the annual meeting, our stockholders will be asked to:

 

1. Elect three director nominees named below for a term ending in 2012;

 

2. Amend MiddleBrook’s certificate of incorporation and bylaws to declassify our board of directors;

 

3. Amend the MiddleBrook Stock Incentive Plan to increase the number of shares reserved for issuance thereunder by 3,500,000 shares; and

 

4. Ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm.

 

Stockholders will also transact any other business that may properly come before the meeting. Members of our board of directors and management, and representatives of PricewaterhouseCoopers LLP, our independent registered public accounting firm, will be present at the meeting to respond to appropriate questions from stockholders.

 

Why am I receiving this proxy statement and proxy card?

 

You are receiving this proxy statement and proxy card because you own shares of MiddleBrook common stock. This proxy statement describes matters on which we would like you to vote at the annual meeting. It also provides information to you regarding these matters so that you can make an informed decision.

 

What is a proxy?

 

A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of stock. The written document providing notice of the annual meeting and describing the matters to be considered and voted on is called a “proxy statement.” The document used to designate a proxy to vote your shares of stock is called a “proxy card.” Our board of directors has designated two of our officers, David Becker, our Executive Vice President, Chief Financial Officer, and Brad Cole, our Senior Vice President, General Counsel and Secretary, as proxies for the annual meeting.

Who can attend the annual meeting?

 

All holders of shares of stock of MiddleBrook Pharmaceuticals, as of the record date, Tuesday, April 28, 2009, may attend the annual meeting.

 

How many shares must be present to hold the meeting?

 

A quorum must be present at the annual meeting for any business to be conducted. The presence at the annual meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum. Proxies received but marked as abstentions or treated as broker non-votes will be included in the calculation of the number of shares considered to be present at the annual meeting.

 

What if a quorum is not present at the meeting?

 

If a quorum is not present at the scheduled time of the annual meeting, the stockholders who are represented may adjourn the annual meeting until a quorum is present. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given.

 

Who is entitled to vote?

 

The record date for the annual meeting is Tuesday, April 28, 2009. Only stockholders of record at the close of business on that date are entitled to vote at the annual meeting. The only class of stock entitled to be voted at the annual meeting is our common stock. Each outstanding share of common stock is entitled to one vote for all matters before the annual meeting. At the close of business on the record date, there were [          ] shares of our common stock outstanding.

 

Am I entitled to vote if my shares are held in “street name”?

 

If your shares are held by a bank or brokerage firm, you are considered the “beneficial owner” of shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) forwarded these proxy materials, along with a voting instruction card, to you. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your bank or brokerage firm, it will nevertheless be entitled to vote your shares with respect to “discretionary” items ( i.e. , Proposal 1. Election of Directors and Proposal 4. Ratification of PricewaterhouseCoopers LLP), but it will not be permitted to vote your shares with respect to “non-discretionary” items ( i.e. , Proposal 2. Declassifying the Board of Directors and Proposal 3. Amending the Stock Incentive Plan). In the case of a non-discretionary item, your shares will be considered “broker non-votes” on that proposal.

 

As the beneficial owner of shares, you are invited to attend the annual meeting. However, if you wish to attend the annual meeting, please bring to the meeting your bank or brokerage statement evidencing your beneficial ownership of our stock and a form of government issued photo identification. If you are a beneficial owner, you may not vote your shares in person at the meeting unless you obtain a power of attorney or proxy form from the record holder of your shares.

 

How do I vote?

 

If you are a registered stockholder, meaning that you hold your shares in certificate form or through an account with our transfer agent, American Stock Transfer & Trust Company, and you wish to vote prior to the annual meeting, you have three options. You may vote:

 

 

If your shares are held in street name, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares.

 

If you are a registered stockholder and you attend the meeting, you may deliver your completed proxy card in person. Additionally, we will pass out written ballots to registered stockholders who wish to vote in person at the meeting. Beneficial owners of shares held in street name who wish to vote at the meeting will need to obtain a power of attorney or proxy form from their record holder to do so. Directions to the meeting can be obtained by writing to our Investor Relations department at 7 Village Circle, Suite 100, Westlake, Texas 76262.

 

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

 

If you receive more than one proxy card, it means that your shares are held in more than one account at our transfer agent and/or with banks or brokers. Please vote all of your shares.

 

The Securities and Exchange Commission, or the SEC, has also adopted rules that permit companies and intermediaries, such as brokers, to deliver a single proxy statement to two or more stockholders that share the same address. This process, commonly referred to as “householding,” may provide an extra convenience for stockholders and cost savings for companies. We endeavor to household our proxy materials to the extent that we deliver them in paper. Accordingly, stockholders who share the same address may receive only one copy of this proxy statement, unless a stockholder at that address delivers contrary instructions to us.

 

If you prefer to receive multiple copies of the proxy statement at the same address, you may receive additional copies promptly upon request. If you are a stockholder of record, you may obtain additional copies by writing to our secretary at our principal executive offices at 7 Village Circle, Suite 100, Westlake, Texas 76262, or calling us at (817) 837-1200. Eligible stockholders of record who receive multiple copies of the proxy statement can request householding by contacting us in the same manner. If you are a beneficial owner but not a stockholder of record (for example, you hold your shares in a brokerage or custody account), you can request additional copies of the proxy statement or you can request householding by notifying your broker, bank, or other intermediary.

 

What if I do not specify how my shares are to be voted?

 

If you are a registered stockholder and you submit a proxy but do not provide any voting instructions, your shares will be voted in accordance with our board of director’s recommendations:

 

 

If you hold your shares in street name and do not instruct your bank or brokerage firm how to vote your shares, it may vote your shares as it chooses with respect to discretionary items, including the election of directors and the ratification of the appointment of our independent registered public accounting firm. It will not be able to vote your shares with respect to non-discretionary items, and your shares will be considered broker non-votes on non-discretionary proposals, including the declassification of our board of directors and the increase in shares reserved for issuance under our Stock Incentive Plan.

 

Can I change my vote after I submit my proxy?

 

Yes, you may revoke your proxy and change your vote:

 

 

 

Your attendance at the meeting itself will not revoke your proxy unless you give written notice of revocation to the Secretary before your proxy is voted or you vote in person at the meeting.

 

Who will count the votes?

 

Our transfer agent will tabulate and certify the votes. A representative of the transfer agent will serve as an inspector of election.

 

How does the board of directors recommend I vote on the proposals?

 

Our board of directors recommends that you vote:

 

 

Will any other business be conducted at the meeting?

 

We know of no other business that will be presented at the meeting. However, if any other matter properly comes before the stockholders for a vote at the meeting, the proxy holders will vote your shares in accordance with their best judgment.

 

What votes are necessary to approve each of the proposals?

 

Election of Directors.   The affirmative vote of a plurality of the votes cast at the meeting is required to elect the three nominees for director. This means that the three nominees will be elected if they receive more affirmative votes than any other person. If you vote “Abstain” with respect to one or more nominees, your shares will not be voted with respect to the person or persons indicated, although they will be counted for purposes of determining whether there is a quorum.

 

Approval of the Declassification of our Board of Directors.   This proposal requires the affirmative vote of 66 2 / 3 % of the shares outstanding and entitled to vote generally in the election of directors. For this vote, abstentions and broker non-votes have the effect of a vote against this proposal.

 

Approval of the Amendment to the Stock Incentive Plan.   This proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote. For this vote, abstentions have the effect of a vote against this proposal and broker non-votes will be disregarded and will have no impact on the vote.

 

Ratification of Appointment of PricewaterhouseCoopers LLP.   This proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote. For this vote, abstentions have the effect of a vote against this proposal and broker non-votes will be disregarded and will have no impact on the vote.

 

What happens if a nominee is unable to stand for election?

 

If a nominee is unable to stand for election, the board of directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have voted “Withheld” with respect to the original nominee.

Where can I find the voting results of the annual meeting?

 

We plan to announce preliminary voting results at the annual meeting and to publish final results in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, which we will file with the SEC.

 

Will I receive a copy of the annual report?

 

With this proxy statement, we have mailed you our Annual Report on Form 10-K for the year ended December 31, 2008. Copies of our annual report, this proxy statement and proxy card will be available at http://proxy.middlebrookpharma.com. You may also obtain a copy by writing to our Investor Relations department at 7 Village Circle, Suite 100, Westlake, Texas 76262, by accessing the investor relations section of our website at http://ir.middlebrookpharma.com or by accessing the SEC’s EDGAR database at www.sec.gov . Our Annual Report on Form 10-K for the year ended December 31, 2008, is not incorporated into this proxy statement and is not considered proxy soliciting material.

 

Who pays for solicitation of the proxy?

 

The expense of soliciting proxies, including the cost of preparing, assembling and mailing the material submitted with this proxy statement, will be paid for by us. In addition to solicitations by mail, our directors, officers and regular employees may solicit proxies personally or by telephone, mail or other means, for which no compensation will be paid other than their regular salary or other usual compensation. Arrangements also will be made as appropriate with banks and brokerage houses and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the common stock held of record by such persons; we will, upon request, also reimburse such persons for their reasonable expenses in forwarding the solicitation materials.

 

CORPORATE GOVERNANCE AND RELATED MATTERS

 

Corporate Governance Guidelines

 

Our board of directors acts as the ultimate decision-making body for MiddleBrook, and advises and oversees management, who are responsible for the day-to-day operations and management of MiddleBrook. In carrying out its responsibilities, the board reviews and assesses our long-term strategy and our strategic, competitive and financial performance. The board has adopted Corporate Governance Guidelines which are available on the investor relations section of our website at http://ir.middlebrookpharma.com. We regularly monitor our corporate governance guidelines in order to comply with rules adopted by Delaware General Corporation Law, Nasdaq, the SEC and industry practices.

 

Meetings of the Board of Directors

 

The Board of Directors held 18 meetings during 2008. Each director attended 75% or more of the aggregate of all board and committee meetings on which such director served during 2008, except for Lord James Blyth and Mark Sotir who joined our board of directors late in the 2008. Dr. Rudnic represented the board at our 2008 Annual Meeting. It is our policy to have each director attend, either in person or by telephone, the 2009 annual meeting and all future meetings of stockholders.

 

Director Independence

 

Under our Corporate Governance Guidelines, a majority of the board of directors must be comprised of directors who meet the independence requirements set forth in the Nasdaq Marketplace Rules applicable to listed companies and SEC Rules. The Nominating and Governance Committee undertook its annual review of director independence in December 2008, and determined that each member of the board of directors who will continue to be a member following the 2009 annual meeting, other than Lord Blyth and Mr. Thievon, is independent in accordance with applicable rules. Mr. Thievon is considered an insider director because of his current employment as president and chief executive officer. Lord Blyth is deemed to be an insider director because of the terms of his consulting agreement. For additional information regarding Lord Blyth’s consulting agreement, see “Certain

Relationships and Related Transactions — Blyth Consulting Agreement.” Dr. Rudnic, who resigned from our board on September 4, 2008, was not considered an independent director because of his concurrent employment as our president and chief executive officer.

 

Committees of the Board

 

Audit Committee

 

Richard W. Dugan, Chair

Wayne T. Hockmeyer, Ph.D. (thru December 10, 2008)

R. Gordon Douglas

William C. Pate (beginning December 10, 2008)

 

The board of directors has determined that each of the members of the Audit Committee is financially literate and independent in accordance with applicable Nasdaq Marketplace rules and SEC rules. The board of directors has determined that Mr. Dugan is an “audit committee financial expert” as that term is defined under the applicable rules established by Nasdaq Marketplace Rules and Item 407(d)(5) of Regulations S-K. The Audit Committee held six meetings during 2008. The Audit Committee also approved the Audit Committee Report that is found on Page 25 of this proxy statement.

 

A copy of the current Audit Committee charter is available on our website at http://ir.middlebrookpharma.com. Pursuant to the Audit Committee charter, the committee assists the board in fulfilling its oversight responsibilities with respect to the following:

 

 

Compensation Committee

 

Wayne T. Hockmeyer, Ph.D., Chair

R. Gordon Douglas, M.D. (thru December 10, 2008)

Lord James Blyth (beginning December 10, 2008)

Mark R. Sotir (beginning December 10, 2008)

 

The board of directors has determined that each of the committee members is independent in accordance with applicable Nasdaq Marketplace Rules, except for Lord Blyth. Lord Blyth is deemed to be an insider director because of the terms of his consulting agreement. The Board has determined that it is in the best interest of the Company for Lord Blyth to serve on the Compensation Committee. For additional information regarding Lord Blyth’s consulting agreement, see “Certain Relationships and Related Transactions — Blyth Consulting Agreement.” The committee held seven meetings during 2008. The committee approved the Compensation Committee Report that is found on Page 41 of this proxy statement. A copy of the current committee charter is available on our website at http://ir.middlebrookpharma.com. Pursuant to its charter the Compensation Committee is authorized to:

 

 

 

Nominating and Governance Committee

 

Lord James Blyth, Chair (beginning December 10, 2008)

James H. Cavanaugh, Ph.D. (beginning December 10, 2008)

Wayne T. Hockmeyer, Ph.D. (thru December 10, 2008)

Harold R. Werner

 

The board of directors has determined that each of the committee members is independent in accordance with applicable Nasdaq Marketplace Rules, except for Lord Blyth. Lord Blyth is deemed to be an insider director because of the terms of his consulting agreement. For additional information regarding Lord Blyth’s consulting agreement, see “Certain Relationships and Related Transactions — Blyth Consulting Agreement.” The committee held two meetings during 2008. A copy of the current Nominating and Governance Committee charter is available on our website at http://ir.middlebrookpharma.com. Pursuant to its charter, the committee is authorized to:

 

 

Executive Committee

 

The executive committee consisted of Drs. Edward M. Rudnic, James H. Cavanaugh, R. Gordon Douglas and Wayne T. Hockmeyer. Subject to applicable law, the Executive Committee was authorized to exercise all power and authority of the board of directors in the oversight of the management of MiddleBrook’s business and affairs. This committee did not meet during 2008, and was terminated by the board of directors at the recommendation of the Nominating and Governance Committee.

 

Nominations Process

 

The Nominating and Governance Committee uses a variety of criteria to evaluate the qualifications and skills necessary for members of the board of directors. Under these criteria, members of the board of directors should have the highest professional and personal ethics and values, consistent with longstanding values and standards of MiddleBrook. Members of the board of directors should have broad experience at the policy-making level in business, government, medicine, education, technology and/or public interest. They should be committed to enhancing stockholder value, and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. In identifying candidates for membership on the board of directors, the Nominating and Governance Committee takes into account all factors it considers appropriate, which may include, but is not limited to, strength of character, maturity of judgment, career specialization, relevant skills, diversity and the extent to which a particular candidate would fill a present need on the board of directors. At a minimum, director candidates must have unimpeachable character and integrity, sufficient time to carry out their duties, the ability to

read and understand financial statements, experience at senior levels in areas relevant to MiddleBrook. Furthermore, consistent with the objective of having a diverse and experienced board, candidates should have the ability and willingness to exercise sound business judgment, the ability to work well with others and the willingness to assume the responsibilities required of a MiddleBrook director. Each member of the board must represent the interests of our stockholders.

 

Our Nominating and Governance Committee also reviews and determines whether existing members of the board of directors should stand for re-election, taking into consideration matters relating to the number of terms served by individual directors and changes in the needs of the board. The independent directors have nominated for re-election Lord James Blyth, James H. Cavanaugh, Ph.D., and John Thievon with a term of office expiring at the 2012 Annual Meeting.

 

The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee regularly assesses the appropriate size of the board of directors, and whether any vacancies on the board of directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current members of the board of directors, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any point during the year. The committee considers stockholder recommendations for candidates for the board of directors that are properly submitted in accordance with MiddleBrook’s bylaws and SEC rules. In evaluating such recommendations, the committee uses the qualifications standards described above and seeks to achieve a balance of knowledge, experience and capability on the board of directors.

 

Any stockholder wishing to have a candidate considered by the Nominating and Governance Committee should submit the following written information to our corporate secretary:

 

 

Stockholder Communications with the Board of Directors

 

Stockholders may send communications to the board of directors or any of its members by sending such communications to MiddleBrook Pharmaceuticals, Inc., c/o Nominating and Governance Committee Chairperson, 7 Village Circle, Suite 100, Westlake, Texas 76262. These communications will not be screened by management prior to receipt by the Nominating and Governance Committee Chairperson.

 

Compensation Committee Interlocks and Insider Participation

 

During 2008, Wayne T. Hockmeyer, Ph.D., R. Gordon Douglas, M.D., Lord James Blyth and Mark R. Sotir served on the Compensation Committee of the board of directors. None of the Compensation Committee members was formerly an officer or employed by us; however, we entered into a consulting agreement with Lord Blyth which is described in more detail in this proxy statement under the section title “Certain Relationships and Related

Transactions — Blyth Consulting Agreement.” No executive officer served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.

 

Code of Ethics and Business Conduct

 

The board of directors has adopted a written code of ethics and business conduct, a copy of which is available on our website at http://ir.middlebrookpharma.com, and will be provided to stockholders without charge upon request to our corporate secretary. We require all directors, officers and employees to adhere to this code in addressing the legal and ethical issues encountered in conducting their work.

 

The board of directors has also adopted a written code of ethics applicable to the chief executive officer and senior financial officers, a copy of which is available on the Company’s website at http://ir.middlebrookpharma.com, and will be provided to stockholders without charge upon request to our corporate secretary. We require our chief executive officer and senior financial officers to resolve ethically any actual or apparent conflicts of interest and to comply with all generally accepted accounting principles, laws and regulations designed to produce full, fair, accurate, timely and understandable disclosure in all our SEC filings.

 

We intend to post amendments to or waivers from our codes of conduct (to the extent applicable to our executive officers or directors) at the investor relations section of our website within the timeframe required by applicable SEC rules.

 

Compensation of Directors

 

We currently pay each of our non-employee directors an annual fee of $20,000 for serving on our board of directors. In addition, we currently pay our directors $2,500 for each meeting of the board attended in person, and $1,500 for each meeting of the board attended telephonically and for each meeting of a committee of the Board attended. At such times as we have a non-employee chairman of the board, we pay such individual an additional $10,000 annual fee. In 2008, each non-employee chairman of the Nominating and Governance Committee, Compensation Committee and Audit Committee was paid an additional annual fee of $3,000, $5,000 and $7,000, respectively. We also reimburse our non-employee directors for reasonable expenses incurred to attend board and committee meetings, as well as business meetings and functions attended on our behalf. Directors who are also employed by us do not receive any compensation for their services as a director, but we do have other compensatory arrangements with them for services other than as a director, which are described in the sections of this proxy statement captioned “Executive Compensation and Other Matters.”

 

In addition, our Stock Incentive Plan provides for the automatic grant of an option to purchase 20,000 shares of common stock to each of our non-employee directors, or an option to purchase 30,000 shares of common stock to the chairman of the board of directors if he or she is a non-employee director, on the date of each annual meeting of stockholders, provided the director continues to serve as a director following the meeting. Each annual stock option grant vests in equal monthly installments over a period of one year from the date of grant, except that in the event of a change of control the option will become fully vested. The plan also provides for the automatic grant of an option to purchase 30,000 shares of common stock to each non-employee director who is first elected or appointed as a director after September 2, 2003. The initial option vests in equal monthly installments over a period of three years from the date of grant, except that in the event of a change of control the option will become fully vested. All of these options have an exercise price equal to the fair market value of our common stock at the close of the market on the business day preceding the date of the grant and are exercisable on the grant date. Stock options exercised prior to vesting are restricted shares until vesting occurs.

 

DIRECTOR COMPENSATION TABLE

 

The following table shows the compensation earned by each of our non-employee directors for their service as directors at any time during the year ended December 31, 2008:

 

 

 

 

The following table provides additional information about equity awards granted to our non-employee directors during the year ended December 31, 2008:

 

 

 

 

The aggregate number of options awards outstanding and held by each non-employee director as December 31, 2008, is indicated in the table below:

 

 

 

 

PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

 

PROPOSAL 1.

 

ELECTION OF DIRECTORS

 

Our board of directors currently consists of ten directors, divided into two classes of three directors each and one class of four directors, with the directors in each class serving three-year terms and with the terms of office of one class expiring at each annual meeting of stockholders. Each director’s term is subject to the election and qualification of his respective successor, or such director’s earlier death, resignation or removal. The term of office of four of our current directors, Lord James Blyth, Vice Chairman, James H. Cavanaugh, Ph.D., Wayne T. Hockmeyer, Ph.D., and John Thievon, will expire at the annual meeting. Lord Blyth, Dr. Cavanaugh, and Mr. Thievon are nominees for re-election to our board of directors. In accordance with the recommendation of the nominating and corporate governance committee, the board of directors recommends that Lord Blyth, Dr. Cavanaugh and Mr. Thievon be elected as directors at the annual meeting. Each of the nominees has consented to being named in this proxy statement and to serve if elected. If elected by the stockholders, these nominees will hold office until our annual meeting of stockholders in 2012 and until their successors are duly elected and qualified or until their earlier death, resignation or removal.

 

Dr. Hockmeyer recently informed the board that he does not intend to stand for re-election when his current term expires at the annual meeting. Dr. Hockmeyer will continue to serve as a director until the annual meeting. The board of directors authorized the amendment of Dr. Hockmeyer’s stock option grant agreements to provide that Dr. Hockmeyer’s right to exercise vested stock options shall continue for a period of 12-months following his termination of his service as a director rather than six-months following termination of his service as a director (as currently provided).

 

Directors are elected by a plurality of the votes cast. Shares may not be voted cumulatively, and proxies cannot be voted for a greater number of persons than the number of nominees named. Shares voted prior to the annual meeting by the accompanying proxy card will be voted for the election of the three nominees recommended by the board of directors, unless the proxy card is marked in such a manner as to withhold authority to vote or as to vote for one or more alternate candidates. Votes withheld will not affect the outcome of the election. If any nominee for any reason is unable to serve or will not serve, the persons named as proxies may vote for such substitute nominee as the proxyholders may determine. We are not aware of any nominee who will be unable to, or for good cause will not, serve as a director.

 

The board of directors has proposed an amendment to our certificate of incorporation and bylaws (See Proposal 2 below) that would declassify our board of directors and provide for the annual election of directors. If Proposal 2 is approved by our stockholders, as recommended by our board of directors, the board of directors will implement a staggered annual election of all directors over a three-year period ending at the 2012 annual stockholders meeting and all directors will then serve one-year terms rather than three-year terms.

 

Regardless of the stockholders vote on Proposal 2, at this annual meeting, stockholders will vote on the election of the three director nominees described below.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” PROPOSAL 1, THE ELECTION OF LORD JAMES BLYTH, JAMES H. CAVANAUGH, PH.D., AND JOHN THIEVON, THE THREE NOMINEES FOR DIRECTOR.

 

Information Concerning Director Nominees:

 

 

Lord James Blyth joined our board as vice chairman in October 2008. Lord Blyth was chairman of Diageo plc, a global premium beverage company, from July 2000 through June 2008. Previously, he served as a non-executive

director at Diageo plc since January 1999. He was formerly chief executive and then chairman of The Boots Company PLC, a UK-based retailer, drugstore chain and contract manufacturer. Lord Blyth has held several leadership roles, including chief executive of the Plessey Company, an electronics, defense, and telecommunications company, and head of defense sales at the United Kingdom Ministry of Defense. He is also a non-executive director of Anixter Inc., a communications supplier and distributer, in the U.S. and a senior adviser to Greenhill & Co., Inc., an investment banking firm, where he was previously a vice chairman.

 

James H. Cavanaugh, Ph.D. has been a director since our inception. Dr. Cavanaugh is a general partner of HealthCare Partners V, L.P., HealthCare Partners VI, L.P. and Healthcare Partners VII, L.P., which are the general partners of HealthCare Ventures V, L.P., HealthCare Ventures VI, L.P. and Healthcare Ventures VII, L.P., respectively. Dr. Cavanaugh was previously president of SmithKline and French Laboratories U.S., Inc., the pharmaceutical division of SmithKline Beckman Corporation, from 1985 to 1989 and president of SmithKline Clinical Laboratories, SmithKline Beckman’s clinical laboratories business, from 1981 to 1985. Dr. Cavanaugh serves as chairman of the Board of Directors of Verenium Corporation. Dr. Cavanaugh previously served on the Board of Directors of Shire Pharmaceuticals Group PLC, the National Venture Capital Association and as trustee emeritus of the California College of Medicine. Dr. Cavanaugh holds a Ph.D. and an M.S. from the University of Iowa and a B.S. from Fairleigh Dickinson University.

 

John Thievon has served as our President, Chief Executive Officer and a Director since September 2008. Prior to joining us, he held various positions at Adams Respiratory Therapeutics, Inc., a pharmaceutical company, from January 1999 to February 2008, including Executive Vice President, Sales and Corporate Accounts from July 2007 to February 2008; Executive Vice President, Sales and Business Development from October 2006 to June 2007; Executive Vice President, Commercial Operations from May 2005 to October 2006; Vice President, Sales and Professional Marketing from June 2000 to May 2005; and from January 1999 to May 2000, Mr. Thievon held various positions with Adams, including Northeast Regional Business Director and Director of Marketing. From January 1995 to December 1998, he held various positions with IMS Health Incorporated, a pharmaceutical consulting and data services company, including Account Manager, Account Director, and Director of Sales Training, and from 1990 to 1994, he served as a Sales Representative with Ortho Pharmaceuticals Inc., a healthcare company. Mr. Thievon has been a member of DaySpring Pharma, LLC’s Board of Directors since November 2007. DaySpring is a specialty pharmaceutical company focused on acquiring, developing and commercializing prescription and non-prescription products for specialty markets in women’s health and pediatrics. Mr. Thievon graduated from Pace University with a Bachelor of Business Administration degree, with a concentration in marketing.

 

Information Regarding Directors Continuing in Office

 

Directors Continuing in Office Whose Term Expires
at the Annual Meeting of Stockholders to be held in 2010

 

 

R. Gordon Douglas, M.D. has been a director since our inception and was appointed to be our Chairman in February 2006. Dr. Douglas currently serves as consultant to the Vaccine Research Center at the National Institute of Health. Dr. Douglas was president of Merck Vaccines, a pharmaceutical company, responsible for the research, development, manufacturing and marketing of Merck Vaccines’ vaccine products, from 1991 until 1999. From 1982 to 1990, he was a professor of medicine and Chairman, Department of Medicine, Cornell University Medical College and physician-in-chief at the New York Hospital. He also served as head of the infectious disease unit at the University of Rochester School of Medicine. Dr. Douglas serves on the Board of Directors of Elusys Therapeutics, Inc., the Aeras Global TB Vaccine Foundation (Chairman), VaxInnate, Inc. and Vical Incorporated (Chairman). Dr. Douglas is a graduate of Princeton University and Cornell University Medical College.

 

Martin A. Vogelbaum was appointed a director in April 2007. Mr. Vogelbaum is a partner with Rho Ventures. Prior to joining Rho, he spent five years as a general partner of Apple Tree Partners, a life sciences venture capital

firm. Previously, he was a general partner of Oxford Bioscience Partners, which he joined in 1993. Mr. Vogelbaum currently serves on the Board of Directors of several privately-held companies, including Gloucester Pharmaceuticals, and previously served as a member of the Board of Directors of Nuvelo, Inc., a publicly traded biopharmaceutical company. Mr. Vogelbaum received an A.B. in biology and history from Columbia University.

 

Harold R. Werner has been a director since our inception. Mr. Werner is a general partner of HealthCare Partners V, L.P., HealthCare Partners VI, L.P. and Healthcare Partners VII, L.P., which are the general partners of HealthCare Ventures V, L.P., HealthCare Ventures VI, L.P. and Healthcare Ventures VII, L.P., respectively. Mr. Werner has served as a director of over 30 public and private companies. Prior to the formation of HealthCare Ventures in 1985, Mr. Werner was Director of New Ventures for Johnson & Johnson Development Corporation. Before joining Johnson & Johnson in 1980, Mr. Werner was senior vice president of Robert S. First, Inc. and was responsible for managing its European and, later, U.S. health care management consulting business. Mr. Werner currently serves on the Board of Directors of TetraLogic Pharmaceutical Corporation, DecImmune Therapeutics, Inc., Aciex, Inc., InfaCare Pharmaceutical Corp., Oriel Therapeutics, Inc., Promedior, Inc., Xencor, Inc., and Stemgent, Inc. Mr. Werner received his B.S. and M.S. degrees from Princeton University and an M.B.A. from the Harvard Graduate School of Business Administration.

 

Directors Continuing in Office Whose Term Expires
at the Annual Meeting of Stockholders to be held in 2011

 

 

Richard W. Dugan joined our Board of Directors in September 2003. From 1976 to 2002, Mr. Dugan served as a partner for Ernst & Young LLP, where he served in various 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 in 2002. Mr. Dugan currently serves on the Board of Directors of Vanda Pharmaceuticals, Inc., a publicly-traded company. Mr. Dugan received a B.S.B.A. from Pennsylvania State University.

 

William C. Pate has been a member of our Board of Directors since September 2008. Mr. Pate currently is the Chief Investment Officer and a Managing Director of Equity Group Investments, L.L.C., or EGI, a privately-held investment firm, and serves as a member of the board of directors of certain private affiliates of EGI. He also serves as a director of the Tribune Company, a diversified media company, since December 2007. Prior to joining EGI in 1994, Mr. Pate was an associate with The Blackstone Group, a global asset management and advisory services firm, and served in the mergers and acquisitions group of Credit Suisse First Boston, a brokerage services and investment banking provider. Mr. Pate serves as a director of Covanta Holding Corporation, an owner and operator of energy-from-waste and power generation projects, and Exterran Holdings Inc., a provider of natural gas compression technology. He received a Juris Doctorate degree from the University of Chicago Law School and a Bachelors of Arts degree from Harvard College.

 

Mark R. Sotir has been a member of our Board of Directors since September 2008. Mr. Sotir has served as a Managing Director of EGI since November 2006. He currently manages a number of EGI’s investments, including Starwood Hotels; and serves as a member of the board of directors of certain private affiliates of EGI, including SIRVA, a moving and relocation company, WRS Holding Company, an environmental remediation company, VIA Wines Group, a Chilean wine producer and marketer, and Rewards Network, Inc., an operator of dining rewards programs. He recently served as the interim President of Tribune Interactive, a division of the Tribune Company, a diversified media company. Prior to joining EGI, he was the Chief Executive Officer of Sunburst Technology Corporation, a leading independent distributor of educational software to public schools in the United States, from August 2003 to November 2006. Prior to joining Sunburst, Mr. Sotir held various positions with the Budget Group, Inc., a $3 billion car and truck rental business with more than 13,000 employees, from 1995 to February 2003, including President and Chief Operating Officer from 2000 to 2003. Mr. Sotir received a Bachelor’s Degree in Economics from Amherst College and holds a Master’s Degree from Harvard Business School.

PROPOSAL 2.

 

TO AMEND THE ARTICLES OF INCORPORATION AND BYLAWS TO DECLASSIFY

THE BOARD OF DIRECTORS

 

As part of the EGI-MBRK, L.L.C. financing that closed September 4, 2008, or the Closing, we agreed that, at the first annual meeting of our stockholders following the Closing, we would take all lawful action to solicit stockholder approval to adopt amendments to our certificate of incorporation and bylaws providing for the declassification of our board of directors and the annual election of all directors. The board of directors recommends approval of an amendment to Article VI(A) of our seventh restated certificate of incorporation, or the Certificate of Incorporation, and Article III (3.3) of our bylaws, or the Bylaws, that would declassify the board and cause each director to be elected annually for a one-year term.

 

Article VI(A) of our Certificate of Incorporation and Article III (3.3) of our Bylaws currently provide that our board is divided into three classes as nearly equal in number as possible, with each class being elected every three years and with the term of one class expiring at each annual meeting of stockholders. If the proposed amendments are approved by the requisite vote of our stockholders, the classification of the board of directors will be phased out as follows:

 

 

If our stockholders do not approve these amendments, the board will remain classified and the directors will continue to be elected to serve three-year terms, subject to their earlier death, resignation or removal. If approved, this proposal will become effective upon the filing of restated certificate of incorporation containing the amendment to the Certificate of Incorporation with the Delaware Secretary of State, which we intend to do promptly after the Annual Meeting, if stockholder approval is obtained.

 

The board is committed to good corporate governance and has periodically considered the advantages and disadvantages of maintaining a classified board. In the past, the board has concluded that a classified board structure was in the best interests of MiddleBrook and its stockholders. A classified board generally provides for continuity and stability, promotes a long-term focus and may assist in the event of an unsolicited takeover attempt because the acquirer, being unable to unilaterally replace the entire board in a single election, may be more likely to negotiate with the board on pricing and other acquisition terms. As a part of the EGI transaction, we agreed to solicit stockholder approval to adopt amendments to our Certificate of Incorporation and Bylaws to provide for the declassification of the board of directors and the annual election of all directors. In this regard, the board recognizes that many investors and commentators believe that the election of directors is the primary means for stockholders to influence corporate governance policies and hold management accountable for implementing those policies. The board also takes note of the fact that annual elections of directors are in line with emerging corporate governance practices, providing stockholders with the opportunity to register their views on the performance of the entire board each year.

 

The board has unanimously approved the amendments and determined to recommend that stockholders approve the amendment to Article VI(A) of our Certificate of Incorporation and Article III (3.3) of our Bylaws to provide for the declassification of the board of directors. Copies of these proposed amendments are attached to this Proxy Statement as Appendix A. This proposal requires the affirmative vote of 66 2 / 3 % of the shares outstanding and entitled to vote generally in the election of directors. For this vote, abstentions and broker non-votes have the effect of a vote against this proposal.

 

The Board of Directors recommends a vote FOR Proposal 2.

PROPOSAL 3.

 

APPROVAL OF THE AMENDMENT TO THE MIDDLEBROOK PHARMACEUTICALS, INC.

STOCK INCENTIVE PLAN

 

The board of directors adopted an amendment to the MiddleBrook Pharmaceuticals, Inc. Stock Incentive Plan, or the Plan, on February 11, 2009, subject to stockholder approval, to increase the number of shares reserved for issuance thereunder by 3,500,000 shares of our common stock, which would increase the maximum number of shares of common stock reserved for issuance under the Plan from 16,348,182 shares to 19,848,182 shares, or the Plan Amendment. We believe that our ability to award incentive compensation based on equity in MiddleBrook is critical to our continued success in attracting, motivating and retaining key personnel and remaining competitive.

 

Our Board of Directors has unanimously approved the Plan Amendment and has determined that it is advisable and in the best interest of the stockholders and recommends that you vote FOR Proposal 3.

 

The following is a summary of the material provisions of the Plan. This summary is qualified in its entirety by reference by the specific language of the Plan as proposed to be amended, which is annexed to this Proxy Statement as Appendix B.

 

General

 

Shares Available under the Plan.   The number of shares of common stock currently reserved for issuance under the Plan is 16,348,182 shares. The Plan Amendment will, if approved, increase the maximum number of shares of common stock reserved for issuance under the Plan by 3,500,000 shares to 19,848,182 shares. If any award, or portion of an award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of common stock are repurchased at or below cost by us or surrendered to us in connection with any award (whether or not such surrendered shares were acquired pursuant to any award), or if any shares are withheld by us, the shares subject to such award and the repurchased, surrendered or withheld shares will thereafter be available for further awards under the Plan. As of April 25, 2009 the fair market value of a share of common stock, determined by the closing bid price per share of common stock on such date as quoted on the Nasdaq Global Market, was $[     ].

 

The maximum number of shares of common stock currently subject to awards of any combination that may be granted under the Plan during any one fiscal year of the Company to any one individual is limited to 3,000,000 shares.

 

Administration.   The Plan is administered by the board of directors or the Compensation Committee of the board of directors, but may be administered by a committee or committees as the board of directors may appoint from time to time. The administrator has full power and authority to take all actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (1) determine who is eligible for awards, and when such awards will be granted; (2) determine the types of awards to be granted; (3) except for automatic grants to non-employee directors, determine the number of shares covered by or used for reference purposes for each award; (4) impose such terms, limitations, restrictions and conditions upon any award as the administrator deems appropriate; (5) modify, amend, extend, renew or reprice outstanding awards, or accept the surrender of outstanding awards and substitute new awards; (6) accelerate or otherwise change the time in which an award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to an award, including, but not limited to, any restriction or condition on the vesting or exercisability of an award following termination of any grantee’s employment or other relationship with the Company; (7) establish objectives and conditions, if any, for earning awards and determining whether awards will be paid after the end of a performance period; and (8) establish, amend modify, administer or terminate sub-plans, and prescribe, amend and rescind rules and regulations relating to such sub-plans.

 

In the event of a stock dividend, stock split or reverse stock split affecting the common stock: (1) the maximum number of shares as to which we may grant awards under the Plan and the maximum number of shares with respect to which we may grant awards during any one fiscal year to any individual, (2) the number of shares subject to automatic director grants, and (3) the number of shares covered by and the exercise price and other terms of

outstanding awards, will be adjusted to reflect such event unless the board of directors determines that no such adjustment will be made.

 

Except as provided above, in the event of any change affecting us or our common stock, or our capitalization, by reason of a spin-off, split-up, dividend, recapitalization, merger, consolidation business combination or exchange of shares and the like, the administrator, in its discretion and without the consent of the holders of the awards, will make: (1) appropriate adjustments to the maximum number and kind of shares reserved for issuance or with respect to which awards may be granted under the Plan (in the aggregate and with respect to any individual during any one fiscal year of the Company), and to the number, kind and price of shares covered by outstanding awards; and (2) any other adjustments in outstanding awards, including but not limited to reducing the number of shares subject to awards or providing or mandating alternative settlement methods such as settlement of the awards in cash or in shares of common stock or other securities of the Company or of any other entity, or in any other matters which relate to awards as the administrator determines in its discretion to be necessary or appropriate.

 

Without the consent of award holders, the administrator may make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events affecting us, or our financial statements or any affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan and outstanding awards.

 

Participation.   Participation in the Plan is open to all of our employees, officers, directors and other individuals providing bona fide services to us or any of our affiliates, as the administrator may select from time to time. In addition, the administrator may also grant awards to individuals in connection with hiring, retention, or otherwise prior to the date the individual first performs services for the us or an affiliate, provided that such awards will not become vested or exercisable before the date the individual first begins working. As of April 15, 2009, we had approximately 375 eligible participants under the Plan.

 

Transferability.   Except as otherwise determined by the administrator, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to an incentive stock option, no award granted under the Plan will be transferable by a grantee otherwise than by will or the laws of descent and distribution.

 

Type of Awards

 

The Plan allows for the grant of stock options, stock appreciation rights, stock awards, phantom stock awards, performance awards, performance-based stock awards and other stock-based awards. The administrator may grant these awards separately or in tandem with other awards. The administrator will also determine the prices, expiration dates and other material conditions governing the exercise of the awards, other than automatic option grants to non-employee directors, which are described below.

 

Stock Options.   The Plan allows the administrator to grant either awards of incentive stock options, as that term is defined in section 422 of the Internal Revenue Code, or nonqualified stock options; provided, however, that only our employees or employees of our subsidiaries may receive incentive stock option awards. All incentive stock options and nonqualified stock options granted will have an exercise price at least equal to fair market value on the date of grant. The option holder may pay the exercise price in cash, by tendering shares of our common stock, by a combination of cash and shares, a broker-assisted cashless exercise, or by any other means the administrator approves.

 

Option Grants to Non-Employee Directors.   Automatic option grants are made under the Plan to non-employee directors as follows: (1) each person who first becomes a non-employee director after September 2, 2003 will be granted an option to purchase 30,000 shares of common stock on the date on which he or she is initially elected or appointed to the board, and such option will vest in 36 equal, monthly installments, in arrears, beginning immediately following the grant date, and (2) each non-employee director will be granted an additional option to purchase 20,000 shares of common stock, or an option to purchase 30,000 shares of common stock to the chairman of the board of directors if he or she is a non-employee director, on the date of each annual general stockholders’

meeting at which members of the board are elected or re-elected; provided, however, that he or she continues to serve as a non-employee director immediately following the meeting. Such option will vest in 12 equal, monthly installments, in arrears, beginning immediately following the grant date.

 

The exercise price per share for each such option will be the common stock’s fair market value on the date of grant of the option. None of these options will become vested with respect to any shares of common stock after the date on which the non-employee director ceases to serve as a member of the board. The options may be exercised from time to time, in whole or in part, prior to the earlier of: (1) 180 days after a grantee ceases to serve as a director (one year if the grantee ceases to serve because of his or her death or permanent and total disability); or (2) the tenth anniversary of the date of grant. In the event of a change in control of MiddleBrook (as defined in the Plan), any outstanding options that were granted pursuant to these provisions prior to the date of such change in control will be 100% vested and exercisable on the date of, and immediately before, such change in control.

 

The options may be exercised by notice to us at our principal executive offices. Payment of the exercise price may be made by delivery of cash or check to the order MiddleBrook in an amount equal to the exercise price, or to the extent permitted by the us, by delivery to us of shares of our common stock already owned that are “mature” shares under Generally Accepted Accounting Principles of the United States and having a fair market value equal in amount to the exercise price of the option being exercised, or a combination thereof.

 

Stock Appreciation Rights.   The Plan allows the administrator to grant awards of stock appreciation rights (“SARs”) which entitle the holder to receive a payment in cash, in shares of common stock, or in a combination of both, having an aggregate value equal to the spread on the date of exercise between the fair market value of the underlying shares on that date and the base price of the shares specified in the grant agreement.

 

Stock and Phantom Stock Awards.   The Plan allows the administrator to grant restricted or unrestricted stock awards, or awards denominated in stock-equivalent units to eligible participants with or without payment of consideration by the grantee. Stock awards and phantom stock awards may be paid in cash, in shares of common stock, or in a combination of both.

 

Performance-Based Stock Awards.   The administrator may grant stock awards in a manner constituting “qualified performance-based compensation” within the meaning of Internal Revenue Code Section 162(m), to preserve the tax-deductibility of such awards. The grant of, or lapse of restrictions with respect to, performance-based stock awards will be based upon one or more performance measures and objective performance targets to be attained relative to those performance measures, all as determined by the administrator. Performance targets may include minimum, maximum and target levels of performance, with the size of the performance-based stock award or the lapse of restrictions with respect thereto based on the level attained. “Performance measures” means the criteria established by the administrator relating to any of the following, as it may apply to an individual, one or more business units, divisions or subsidiaries, or on a Company-wide basis, and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies: revenue; earnings before interest, taxes, depreciation and amortization (EBITDA); income before income taxes and minority interests; current value shareholders’ equity; corporate liquidity; financing activities; licensing transactions; joint ventures; co-promotional partnerships; operating income; pre- or after-tax income; cash flow; cash flow per share; net earnings; earnings per share; return on equity; share price performance; total stockholder return; relative performance to a group of companies or relevant market indices comparable to the Company, and strategic business criteria consisting of one or more objectives based on the Company meeting specified goals relating to revenue, market penetration, business expansion, costs or acquisitions or divestitures. In addition, Internal Revenue Code Section 162(m) requires that the material terms of the performance criteria of the Plan be disclosed to and re-approved by the Company’s stockholders at least every five years that the Plan continues in effect. The performance criteria under the Plan would normally be resubmitted to the Company’s stockholders in 2012 because they were last approved by the Company’s stockholders in 2007. However, given that the above-noted amendment to the Plan is being submitted for stockholder approval, the board of directors has deemed it advisable to submit the performance criteria under the Plan to the Company’s stockholders for re-approval now, rather than waiting until 2012. The board of directors is not proposing that any of the performance criteria under the Plan be modified.

 

Performance Awards.   In addition to “qualified performance-based stock awards,” the Plan allows the administrator to grant performance awards which become payable in cash, in shares of common stock, or in a

combination of both, on account of attainment of one or more performance goals established by the administrator. The administrator may establish performance goals based on our operating income, or that of our affiliates, or one or more other business criteria the administrator may select that applies to an individual or group of individuals, a business unit, or the Company or its affiliate as a whole, over such performance period as the administrator may designate.

 

Other Stock-Based Awards.   The Plan allows the administrator to grant stock-based awards which may be denominated in cash, common stock, or other securities, stock equivalent units, stock appreciation units, securities or debentures convertible into common stock, or any combination of the foregoing. These awards may be paid in common stock or other securities, in cash, or in a combination of common stock, other securities and cash.

 

Awards Under the Plan

 

Because participation and the types of awards available for grant under the Plan, except the automatic grants to non-employee directors as described above, are subject to the discretion of the administrator, the benefits or amounts that any participant or groups of participants may receive if the Plan Amendment is approved are not currently determinable.

 

The following table contains the number of awards made under the Plan to the individuals and groups listed below during the year ended December 31, 2008.

 

MiddleBrook Pharmaceuticals, Inc. Stock Incentive Plan

 

 

 

 

Amendment and Termination

 

The board of directors may terminate, amend or modify the Plan or any portion thereof at any time.

 

Duration

 

The plan will remain in effect unless earlier terminated. No award will be granted under the Plan after October 6, 2013.

 

Federal Income Tax Consequences

 

The following is a general summary of the current federal income tax treatment of stock options, which would be authorized for grants under the Plan as proposed, based upon the current provisions of the Internal Revenue Code and regulations promulgated thereunder.

 

Incentive Stock Options.   Incentive stock options under the Plan are intended to meet the requirements of Section 422 of the Internal Revenue Code. Generally, an employee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise. The option exercise, however, may be subject to alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. If these holding periods are not satisfied, however, the option holder will recognize ordinary income at the time of disposition equal to the lesser of (1) the excess of the fair market value of the shares on the date of exercise over the purchase price, or (2) the excess of the amount realized over the adjusted tax basis of the shares. Any gain or loss recognized on such premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Any ordinary income recognized by the option holder due to option exercise is subject to tax withholding by the Company. The Company is entitled to a deduction in the same amount as the ordinary income recognized by the option holder.

 

Nonqualified Stock Options.   In general, a grantee does not recognize any taxable income at the time the grantee is granted a nonqualified stock option. Upon exercise, the option holder recognizes taxable ordinary income generally equal to the excess of the fair market value of the shares at exercise over the purchase price. Any gain or loss recognized upon disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Any ordinary income recognized by the option holder due to option exercise is subject to tax withholding by the Company. The Company is entitled to a deduction in the same amount as the ordinary income recognized by the option holder.

 

Stock Appreciation Rights.   In general, a grantee does not recognize any taxable income at the time the grantee is granted SARs. Upon exercise, the grantee recognizes ordinary income in an amount equal to the amount of any cash received and the fair market value of any shares received. For any shares received, any gain or loss

recognized upon disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Any ordinary income recognized by the grantee due to the exercise is subject to tax withholding by the Company. The Company is entitled to a deduction in the same amount as the ordinary income recognized by the grantee.

 

Restricted Stock.   In general, a grantee does not recognize any taxable income at the time the grantee is granted restricted stock assuming the shares are granted subject to restrictions resulting in a substantial risk of forfeiture. If the restricted stock vests, the grantee recognizes ordinary income in an amount equal to the fair market value of the shares less the amount paid, if any, for the shares. Any gain or loss recognized upon disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Any ordinary income recognized by the grantee is subject to tax withholding by the Company. The Company is entitled to a deduction in the same amount as the ordinary income recognized by the grantee. If the grantee is granted restricted stock, the grantee may make an election under Section 83(b) of the Internal Revenue Code, to recognize as ordinary income in the year that such restricted stock is granted, an amount equal to the spread between the amount paid for such shares, if any, and the fair market value on the date the restricted stock is granted. The election must be made within 30 days from the time the restricted stock is granted. If the election is made, the grantee recognizes no further income upon the vesting of the restricted stock and any gain or loss recognized upon disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period.

 

Stock and Phantom Stock Awards, Performance Awards, Other Stock-Based Awards.   In general, a grantee does not recognize any taxable income at the time of grant of stock and phantom stock awards, performance awards and other stock-based awards assuming the awards are granted subject to restrictions resulting in a substantial risk of forfeiture. The grantee recognizes ordinary income at the time, and to the extent, cash or shares are delivered at the end of the period of restriction or performance period, as the case may be, in an amount equal to the amount of cash or fair market value of shares earned. Any gain or loss recognized upon disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. Any ordinary income recognized by the grantee is subject to tax withholding by the Company. The Company is entitled to a deduction in the same amount as the ordinary income recognized by the grantee.

 

Disallowance of Deductions.   The Section 162(m) of the Internal Revenue Code disallows deductions by publicly held corporations for compensation in excess of $1,000,000 paid to the corporation’s chief executive officer and its four other most highly compensated officers. However, compensation payable solely on account of attainment of one or more performance goals is not subject to this deduction limitation if the performance goals are objective, pre-established and determined by a Compensation Committee comprised solely of two or more outside directors, the material terms under which the compensation is to be paid are disclosed to the stockholders and approved by a majority vote, and the Compensation Committee certifies that the performance goals and other material terms were in fact satisfied before the compensation is paid. Under this exception, the deduction limitation does not apply to compensation otherwise deductible on account of stock options and stock appreciation rights granted at fair market value under a plan that limits the number of shares that may be issued to any individual and which is approved by the corporation’s stockholders. The Company may approve compensation that will not meet these requirements. To the extent compensation under the plan does not qualify as performance-based compensation, it will be subject to the deduction limit under Section 162(m).

 

Section 409A of the Internal Revenue Code.   To the extent applicable, it is intended that the Plan and any awards granted under the Plan comply with the requirements of section 409A of the Internal Revenue Code and any related regulations or other guidance promulgated by the U.S. Department of Treasury or the Internal Revenue Service.

New Hire Stock Incentive Plan

 

In September 2008, our board of directors approved the New Hire Stock Incentive Plan, or the New Hire Incentive Plan, for use in making inducement grants of stock options to new employees pursuant to the NASDAQ Marketplace Rule 4350(i)(1)(A)(iv) as a material inducement for them to join MiddleBrook. The New Hire Incentive Plan was based upon and is substantially similar to the Plan as approved by stockholders, except that eligible recipients are limited to prospective employees of MiddleBrook, consistent with its purpose as an employment inducement tool. The board of directors initially authorized 4,500,000 shares under the New Hire Incentive Plan, and as of December 31, 2008, we had issued options to purchase 2,396,600 shares of our common stock pursuant to this plan. Accordingly, as of January 1, 2009, 2,103,400 shares remained available under the New Hire Incentive Plan. The board of directors may increase shares available under the New Hire Incentive Plan in its discretion.

 

This proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote. For this vote, abstentions have the effect of a vote against this proposal and broker non-votes will be disregarded and will have no impact on the vote.

 

The Board of Directors recommends a vote FOR approval of Proposal 3.

PROPOSAL 4.

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

 

The Audit Committee has selected the firm of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2009. PricewaterhouseCoopers LLP has audited our financial statements for the fiscal years ended December 31, 2008 and 2007. A representative of PricewaterhouseCoopers LLP is expected to be present at the annual meeting and will have an opportunity to make a statement if he or she desires to do so. The representative is expected to be available to respond to appropriate questions from stockholders. PricewaterhouseCoopers LLP currently serves as our independent registered public accounting firm.

 

We are asking our stockholders to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm. Although ratification is not required by our by-laws or otherwise, the board of directors is submitting the selection of PricewaterhouseCoopers LLP to our stockholders for ratification as a matter of good corporate practice. In the event our stockholders fail to ratify the appointment, the Audit Committee may reconsider this appointment. Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of MiddleBrook and its stockholders.

 

The affirmative vote of the majority of the shares present in person or by proxy at the meeting and entitled to vote is necessary for ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm. Broker non-votes are not considered shares entitled to vote on the matter and therefore will not be taken into account in determining the outcome of the vote on the matter. Abstentions are considered shares entitled to vote on the matter and therefore will have the effect of a vote against the matter.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” PROPOSAL 4, THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP, AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2009.

 

AUDIT AND NON-AUDIT FEES

 

Independent Registered Public Accounting Firm Fees

 

The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for years ended December 31, 2008 and 2007, and the fees for other services rendered by PricewaterhouseCoopers LLP during those periods.

 

 

 

 

The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the independence of our registered public accounting firm and has concluded that the non-audit services provided by PricewaterhouseCoopers LLP are compatible with maintaining PricewaterhouseCoopers LLP’s independence.

 

Pre-Approval of Non-Audit Services

 

The Audit Committee has established a policy governing our use of PricewaterhouseCoopers LLP for non-audit services. Under the policy, management may use PricewaterhouseCoopers LLP for non-audit services that are permitted under SEC rules and regulations, provided that management obtains the Audit Committee’s approval before such services are rendered. During 2008 and 2007, all non-audit services were pre-approved in accordance with this policy.

 

AUDIT COMMITTEE REPORT

 

The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference in such filing.

 

Management is responsible for the Company’s financial statements and the financial reporting process, including internal control over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s financial statements and of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board, or PCAOB, and for issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

 

In this context, the Audit Committee has met and held discussions with management and PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm. The Audit Committee has reviewed and discussed with management our audited financial statements for the year ended December 31, 2008, and the notes thereto. Management represented to the Audit Committee that the Company’s financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Audit Committee discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended and as adopted by the PCAOB in Rule 3200T. At regularly scheduled and special meetings during 2008, the Audit Committee also reviewed and discussed with both management and PricewaterhouseCoopers LLP their reports and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act of 2002.

 

The Audit Committee received the written disclosures and the letter from PricewaterhouseCoopers LLP pursuant to the applicable requirements of the PCAOB regarding PricewaterhouseCoopers LLP’s communications with the Audit Committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from the Company.

 

Based upon the Audit Committee’s discussion with management and the independent registered public accounting firm and the Audit Committee’s review of the representations of management and the disclosures by the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, for filing with the Securities and Exchange Commission. The Audit Committee selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2009.

 

Audit Committee

 

Richard W. Dugan, Chairman
R. Gordon Douglas, M.D.
William C. Pate

 

MANAGEMENT

 

Our current executive officers are as follows:

 

 

John Thievon has served as our President, Chief Executive Officer and a Director since September 2008. Please refer to the biography of Mr. Thievon provided under “Proposal 1. Election of Directors — Information Concerning Director Nominees,” above.

 

David Becker has been our Executive Vice President, Chief Financial Officer since September 2008. Prior to joining us, Mr. Becker served as an independent consultant to various healthcare companies from March 2007 to June 2008, providing them with chief financial officer and/or chief executive officer services. In addition, Mr. Becker sat on the board of directors of several of these healthcare companies. From 2000 to 2007, he served as the Chief Financial Officer and Treasurer of Adams Respiratory Therapeutics, Inc., a pharmaceutical company, and served in various other capacities with Adams over that period including Chief Financial and Administrative Officer from October 2006 to February 2007, and interim Chief Operating Officer from May 2003 to April 2004. Prior to joining Adams, Mr. Becker was a Senior Manager in the merger and acquisitions practice of Ernst & Young LLP from November 1997 to September 2000. From January 1996 to November 1997, Mr. Becker served as Controller for the Salt Lake City-based start-up company RxAmerica LLC, a pharmacy benefit management and mail-service pharmacy operation. From 1991 to 1995, he served as a financial auditor with Ernst & Young LLP. Mr. Becker began his professional career in 1990 as an audit and tax accountant for the southern California-based accounting firm of Glenn M. Gelman & Associates. Mr. Becker earned a bachelor’s degree in accounting in 1990 from the University of Southern Mississippi and is a certified public accountant and certified treasury professional.

 

Beth A. Burnside, Ph.D. has served as our Senior Vice President, Regulatory Affairs, Compliance & Strategic Planning since May 2008. Dr. Burnside joined us in August 2002 as Senior Director, Formulation Development, and she was promoted to Vice President, Pharmaceutical Research in August 2003 and Senior Vice President, Pharmaceutical Research in October 2007. From 1993 to 2002, Dr. Burnside was employed by Shire Laboratories Inc., a biopharmaceutical company. While at Shire she held management positions with increasing responsibilities in the pharmaceutics, pharmaceutical development and the advanced drug delivery organizations. As Vice President of the Advanced Drug Delivery division of Shire, Dr. Burnside managed the development of the division’s specialized controlled release and enhanced bioavailability oral delivery formulation and product strategy. Prior to working at Shire, Dr. Burnside gained additional experience at Johnson & Johnson from 1991 to 1992 and at Schering-Plough Research from 1989 to 1991. She received a B.S. in chemistry/mathematics from Muhlenberg College in Allentown, Pennsylvania and an M.S. in organic chemistry and a Ph.D. in physical-organic chemistry from Drexel University.

 

Susan P. Clausen, Ph.D. has served as our Senior Vice President, Clinical Research and Medical Affairs since September 2008. Dr. Clausen joined us as Senior Director, Clinical Research in September 2003 and was promoted to Vice President, Clinical Research and Regulatory Affairs in December 2004. From 1994 to 2003, Dr. Clausen

was employed at Shire Pharmaceutical Development, a biopharmaceutical company. While at Shire, she held management positions with increasing responsibilities in the biopharmaceutical and clinical research organizations. As the senior director of clinical research, Dr. Clausen was responsible for clinical development programs in various therapeutic areas including central nervous system, oncology, virology and gastrointestinal disorders. Prior to working at Shire, Dr. Clausen gained additional experience at TSI/ Mason Research Laboratories and at Harvard Medical School as a post-doctoral research fellow. She received a B.S. (Hons) in Chemistry from University College, Dublin, Ireland, an M.S. in Forensic Science from Strathclyde University, Glasgow, Scotland and a Ph.D. in Forensic Toxicology from the University of Illinois at Chicago.

 

Brad Cole has served as our Senior Vice President, General Counsel and Secretary since September 2008. He was the Associate General Counsel and Assistant Secretary at Adams Respiratory Therapeutics, Inc., a pharmaceutical company, from August 2004 to July 2008. From August 1999 to July 2004, he was with the law firm of Holland & Knight LLP, in the firm’s Tampa office and focused on corporate, securities and M&A matters. He began his career in the financial services industry and worked at several financial institutions from 1991 to 1994. Mr. Cole earned a bachelor’s degree from the University of Miami in 1990; his Juris Doctorate, cum laude , from Thomas M. Cooley Law School in 1998; and a Masters of Laws in Securities and Financial Regulations, with honors, from the Georgetown University Law Center, in May 1999.

 

Frank L. Koos has served as our Senior Vice President, Sales, Marketing and Business Development since November 2008. Prior to joining us, Frank served as Vice President, Professional Sales for Reckitt Benckiser Group PLC (formerly Adams Respiratory Therapeutics, Inc.), a chemical and pharmaceutical company, from September 2004 to October 2008. From 1999 to 2004, he served as the Vice President Sales for PharMetrics, Inc., a pharmaceutical market research company, and from 1992 to 1999 Mr. Koos held various positions, including Group Director, Sales and Service at IMS Health Incorporated, a pharmaceutical market research company. Mr. Koos started his career as a Sales Representative and a Sales Trainer for the Ortho Pharmaceutical division of Johnson & Johnson, and he served as a Lieutenant in the United States Army. Mr. Koos received his Bachelor of Arts Degree from Lehigh University.

 

Timothy L. Miller has served as our Senior Vice President, Sales Operations and Administration since September 2008. Prior to joining us, Mr. Miller served as the Vice President Sales Operations & Training at Adams Respiratory Therapeutics, Inc., a pharmaceutical company, from September 2004 to July 2008. From 1986 to 2004, he held various positions at Aventis Pharmaceuticals, a pharmaceutical company, and its legacy companies, including Hoechst Marion Roussel, Marion Merrell Dow, and Marion Labs. Mr. Miller’s positions at Aventis and its legacy companies included Financial Analyst, Manager Commercial Financial Services, Regional Business Manager, Senior Manager Sales Information & Incentives, and Director Sales Operations. Mr. Miller graduated from Emporia State University in 1978 earning a Bachelor of Science in Business, with a concentration in accounting. He received his Master in Business Administration in 1983, with a concentration in finance, from Rockhurst University, a Jesuit institution in Kansas City.

 

Donald J. Treacy, Ph.D. has served as our Senior Vice President, Development and Manufacturing Operations since March 2008. Dr. Treacy joined us in March 2000 as Director of Analytical Research and Development, was promoted to senior director in March 2002, to Vice President, Analysis and Pharmaceutical Quality in January 2004, and to Senior Vice President, Pharmaceutical Development and Quality in October 2007. From 1993 to 2000, Dr. Treacy managed an analytical sciences group at Shire Laboratories Inc., a biopharmaceutical company. During his career, he held positions of increasing responsibility in the areas of analytical development, stability, preformulation, and chemistry portions of INDs, NDAs and NDA supplements, as well as FDA inspections. Prior to his career at Shire, Dr. Treacy was engaged in research at the National Cancer Institute. Dr. Treacy received a bachelor’s degree in chemistry from Roanoke College and his Ph.D. in analytical chemistry from the University of Maryland.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information, as of March 31, 2009, regarding the beneficial ownership of our common stock by:

 

 

Except as indicated by footnote, and except for community property laws where applicable, we believe, based on information provided to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 86,440,194 shares of common stock deemed outstanding as of March 31, 2009.

 

 

 

 

 

 

EXECUTIVE COMPENSATION AND OTHER MATTERS

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) describes how our compensation program is designed and how it operates with respect to the following individuals, whom we refer to as our named executive officers:

 

 

 

 

 

As a result of the closing of a significant financing in September 2008, our CD&A first describes the impact the transaction had on our management team and executive compensation. Our CD&A then describes our executive compensation philosophy and how we design our compensation program, with a discussion focusing on the main components of our compensation program. We then describe the process for the determination of the compensation of our named executive officers in 2008, our incentive compensation targets for 2009 and several of our key executive compensation policies. In a subsequent section, we set forth in a series of tables specific information about the compensation for our named executive officers in 2008.

 

EGI Transaction

 

On July 1, 2008, we entered into a securities purchase agreement with EGI-MBRK, L.L.C. (“EGI”), an affiliate of Equity Group Investments, L.L.C., pursuant to which we agreed to sell, and EGI agreed to purchase, 30,303,030 shares of our common stock, and a warrant to purchase an aggregate of 12,121,212 shares of our common stock for an aggregate purchase price of $100 million (the “EGI Transaction”). As a condition to the closing of the EGI Transaction on September 4, 2008, Mr. John Thievon replaced Dr. Edward M. Rudnic as the Company’s President and Chief Executive Officer and Mr. David Becker replaced Mr. Robert C. Low as the Company’s Chief Financial Officer.

 

Messrs. Thievon and Becker commenced full-time employment with the Company, and Dr. Rudnic and Mr. Low terminated employment with the Company, coincident with the completion of the EGI Transaction. Pursuant to the terms of their employment agreements, Dr. Rudnic and Mr. Low received severance payments in the amount of $1,056,785 and $326,598, respectively. In addition, two other members of our management team, Mr. Robert W. Bannon and Mr. Darren W. Buchwald, also terminated employment with the Company in connection with the EGI Transaction. Pursuant to the terms of their employment contracts, Mr. Bannon and Mr. Buchwald received severance payments of $288,414 and $270,486, respectively.

 

Upon the closing of the EGI transaction, we entered into a consulting agreement with each of Dr. Rudnic and Mr. Low. Under the terms of the consulting agreements, we agreed to pay Dr. Rudnic and Mr. Low for certain services to be provided to the Company over the term of the agreements. Dr. Rudnic was also granted an option to purchase 100,000 shares of our common stock pursuant to his consulting agreement. In addition, we agreed to extend the vesting of various stock options held by Dr. Rudnic and Mr. Low. For more information regarding the

terms of the consulting agreements, see “Certain Relationships and Related Transactions — Rudnic Consulting Agreement” and “Certain Relationships and Related Transactions — Low Consulting Agreement.”

 

We entered into employment agreements with Mr. Thievon and Mr. Becker on July 1, 2008, to become effective upon completion of the EGI Transaction. The terms of those agreements are described elsewhere in this proxy statement. In order to assist our Compensation Committee in determining appropriate compensation for Messrs. Thievon and Becker, the Compensation Committee retained Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”), an independent compensation consultant. In addition, in order to obtain the services of Messrs. Thievon and Becker while the EGI Transaction was pending, on July 1, 2008, we entered into a consulting agreement with each Mr. Thievon and Mr. Becker. The consulting agreements with Mr. Thievon and Mr. Becker terminated upon the completion of the EGI transaction on September 4, 2008.

 

Executive Compensation Philosophy

 

Our compensation philosophy is designed to:

 

 

Our executive compensation philosophy is based on two core elements: to pay for performance and to provide a competitive compensation package.

 

Pay for performance :   We structure our compensation program to align the interests of our executives with the interests of our stockholders. We believe that an employee’s compensation should be tied directly to helping us achieve our mission and deliver value to our stockholders. Therefore, a significant part of each executive’s pay depends on his or her individual performance against key objectives. The Compensation Committee (or the full Board in the case of our CEO) assesses the individual performance of each executive in making compensation decisions related to cash bonuses and equity awards. The assessment of individual performance is inherently subjective. Essentially, the Compensation Committee (or the Board in the case of our CEO) assesses how well an executive fulfilled his or her obligations in the past year. This assessment includes consideration of how well the operations or functions for which an executive is responsible performed during the year. One factor that the Compensation Committee (or the Board in the case of our CEO) evaluates in making assessments of individual performance is how well an executive performed against the performance goals set for such executive for the relevant year. Performance goals for each named executive officer typically include such areas as: financial performance, organizational development/human resources, corporate strategy/business development, innovation/R&D, quality/regulatory, operational excellence, board relations/governance, investor relations and leadership.

 

Competitive compensation :   We believe that a competitive compensation program is an important tool to help attract and retain talented employees capable of leading our business in the highly complex and competitive environment in which we operate. We aim to pay our executives at approximately the median level of pay of our peer group when targeted levels of performance are achieved. By providing compensation that is competitive with our peer companies, we believe we can reduce the risk that our executives will be successfully recruited by other companies.

 

Compensation Program Design and Process

 

This section describes how we determine the design of our executive compensation program. We believe our executive compensation program is reasonable and appropriate because it is aligned with our business goals to deliver value to our stockholders.

Compensation Committee

 

The Compensation Committee is responsible for providing oversight of our executive compensation program for the named executive officers as well as other members of our senior management. The Compensation Committee reviews and evaluates the executive compensation program on an annual basis to ensure that the program is aligned with our compensation philosophy.

 

Role of Compensation Consultant

 

The Compensation Committee periodically retains an independent compensation consulting firm to provide advisory services. Towers Perrin assisted the Compensation Committee by providing the following services in 2008:

 

 

Towers Perrin was also retained prior to the EGI Transaction to provide the Compensation Committee competitive benchmarking and market data analysis for assistance in determining the compensation of Messrs. Thievon and Becker.

 

The members of the Towers Perrin team providing advice to the Compensation Committee do not provide any other services to our Company. Towers Perrin follows internal guidelines and practices to guard against any conflict of interest and to ensure the objectivity of their advice.

 

Role of Company Management

 

The CEO makes recommendations to the Compensation Committee concerning the compensation of the other named executive officers and other senior management. In addition, the CEO is involved in setting the business goals that are used as the performance goals for the bonus incentive plan, subject to Compensation Committee approval. The CEO works closely with the Compensation Committee to ensure that the Compensation Committee is provided with the appropriate information to make its decisions, to propose recommendations for Compensation Committee consideration and to communicate those decisions to management for implementation.

 

Benchmarking and Use of Peer Group Data

 

Our executive compensation program seeks to provide total compensation at the median of the pay levels of executives with similar roles at comparable companies when targeted levels of performance are achieved. Use of survey data from MiddleBrook’s peers plays a significant role in the structure of the compensation program as it is a primary input in setting target levels for base salaries, cash bonuses and equity awards and helps us to ensure that the compensation is market competitive in order to retain and attract talent.

 

The Company participates in compensation surveys conducted by Radford Surveys (a part of Aon Consulting) each year. The Company has access to the resulting Radford reports, which are specific to the pharmaceutical and biotech industry, which provide data on salaries, bonuses, and option grants, for specific job positions. The Company utilizes this information when reviewing the salaries for all of its employees including the named executive officers.

 

As indicated above, the Compensation Committee has, in certain years, retained Towers Perrin, an independent consulting firm, to conduct a study of peer companies for the purpose of reviewing the compensation levels of our executive officers, including the named executive officers. We use data from companies that the Compensation Committee has selected as comparable companies to help identify a reasonable starting point for base salaries, cash bonuses and equity awards and then analyze company and individual performance to determine whether it is appropriate to move away from this baseline. Peer group data also plays a role in what non-cash compensation is

paid to the named executive officers as the market data we obtained regarding companies in our peer group helps determine what types and amounts of non-cash compensation are appropriate for competitive purposes. MiddleBrook’s use of peer group data is consistent among the named executive officers in that the baseline ( i.e. , percentile target) that is set for an element of compensation applies to all officers regardless of position.

 

Early in 2008, the Compensation Committee retained Towers Perrin to conduct a competitive benchmarking analysis on compensation for 2008. The report compared our executive compensation with that of a sample of biotech companies that generally meet some or all of the following criteria: market capitalization of $100 million to $250 million, with between 50 and 200 employees (including near-commercial and commercial companies), that have been public for more than two years. This group of peer companies (the “February Peer Group”) was composed of the following 27 companies:

 

 

The companies noted with a * were added in 2008 to the peer group used in 2007 to reflect the updated benchmark criteria. The following companies were removed in 2008 from the peer group used in 2007: Indevus Pharmaceuticals, Momenta Pharmaceuticals, CoTherix Inc., Idenix Pharmaceuticals, Durect Corporation, Renovis, Array BioPharma, Genta, Avant Immunotherapeutics, and Diversa.

 

When evaluating the compensation for the incoming CEO and CFO in connection with the EGI Transaction in the summer of 2008, the criteria for the peer group was updated to include commercial biotechnology companies that had a market capitalization between $200 million and $1 billion, with revenues between $25 million and $300 million, and at least one marketed product with a majority of revenues coming from the company’s own commercial organization. This group of peer companies (the “July Peer Group”) was composed of the following 12 companies:

 

 

Elements of Executive Compensation in 2008

 

The main components of our executive compensation program are:

 

 

We do not provide a retirement program to our employees. Below we explain how the amounts for each executive compensation element are determined.

 

Base Salaries

 

Base salaries are paid in order to provide a fixed component of compensation for the named executive officers. For 2008, base salary target levels for all named executive officers, except our current CFO, were set within a range that is competitive with the 50 th percentile of salaries paid to comparable officers at companies in our peer group. The Compensation Committee selected the 50 th percentile as the positioning for base salaries because, as they are the only fixed component of compensation, they are less appropriately used to motivate performance and thus, the Compensation Committee determined to set them at a reasonably competitive mid-point.

 

The Compensation Committee sets actual individual base salaries higher or lower than targeted base salaries for any reason that the Compensation Committee deems relevant. Factors that the Compensation Committee may

consider relevant for adjusting the targeted base salaries include how long an officer has been at the Company and in his or her current role, the impact of his or her position on the Company’s results and how such officer’s role fits within the hierarchy of the organization.

 

At the Compensation Committee meeting of February 13, 2008, the committee established the base salaries of the named executive officers (other than our current CEO and current CFO, who joined us later in the year, and our former CEO). For each of these officers, the Compensation Committee concluded that the existing base salary was generally in line with the 50 th percentile of salaries paid to comparable officers at companies in our February Peer Group, with the exception of an adjustment for inflation. Accordingly, base salaries for each of these officers were increased in 2008 by a cost of living adjustment, which was 4.0 percent. At the Board of Directors meeting held on February 13, 2008, the Board concluded that the existing base salary for our former CEO was generally in line with the 50 ^th  percentile of salaries paid to comparable officers at companies in our February Peer Group, and made a similar cost of living adjustment. The new salaries became effective March 1, 2008.

 

Pursuant to his employment agreement, Mr. Thievon’s base salary was set at an annual rate of $500,000. The Board of Directors concluded that this base salary was generally in line with the 50 ^th percentile of salaries paid to CEOs at companies in our July Peer Group. Pursuant to his employment agreement, Mr. Becker’s base salary was set at an annual rate of $400,000. The Compensation Committee concluded that while this base salary was higher than the salaries generally paid to CFOs at companies in the July Peer Group, it was appropriate in light of Mr. Becker’s background and experience.

 

In September 2008, Susan P. Clausen was promoted from Vice President — Clinical Research and Regulatory Affairs to Senior Vice President — Clinical Research and Medical Affairs. Dr. Clausen’s salary was modified so that it would be comparable to her peers within the Company.

 

Annual Cash Incentive Bonuses

 

Cash incentive bonuses are intended to reward Company and individual performance by providing officers with an opportunity to receive additional cash compensation based on both the Company’s performance relative to the financial targets described above and the Compensation Committee’s assessment of how well an officer performed his or her role during the applicable year.

 

Target Setting for 2008

 

Target bonus levels and benchmarking.   For 2008, cash bonus targets, expressed as a percentage of base salary, for all named executive officers were set within a range that is competitive with the 50 ^th percentile of cash bonuses paid to comparable officers at companies in the February Peer Group. The Compensation Committee has the discretion to adjust each officer’s target as it deems appropriate. Potential reasons for adjusting cash bonus targets include how long an officer has been in his or her current role, how the officer’s role fits within the hierarchy of the organization, the impact of his or her position on the Company’s results and how the officer’s base salary, upon which the bonus is based, has increased historically. The February Peer Group data suggested that the targets would maintain cash compensation within the broad middle range of expected competitive pay given median peer performance, so no adjustments were necessary. The 2008 targets for the positions held by the named executive officers were as follows:

 

Former CEO: 50% of base salary

Senior Vice Presidents: 30% of base salary

Vice Presidents: 25% of base salary

 

Pursuant to their employment agreements, the target amounts for our current CEO’s and current CFO’s annual cash bonuses were as follows:

 

Current CEO: 55% of base salary

Current CFO: 45% of base salary

 

The Board of Directors concluded based on the July Peer Group data that these bonus targets were generally in line with the 50 th percentile of bonus targets of comparable officers at companies in our July Peer Group.

Elements of Bonus.   Each cash bonus target consists of two elements: A Company performance element and an individual performance element. For the named executive officers, the weighting of these elements for each position is as follows:

 

CEO: 100% Company performance, zero percent individual performance

Senior Vice Presidents: 66% Company performance, 34% individual performance

Vice Presidents: 50% Company performance, 50% individual performance

 

Performance Goals for 2008.   The Company’s focus in early 2008 was to pursue a process to develop and evaluate various strategic alternatives to enhance stockholder value.

 

Determination of Actual Cash Bonus Payouts for 2008

 

Achievement of Performance Goals.   On September 4, 2008, the Company closed the EGI Transaction and completed its strategic process. As a result, the Company’s strategic focus shifted to developing its commercial operations, building a sales force and launching Moxatag. The Compensation Committee therefore determined to develop a new bonus plan with targets aligned with the Company’s new strategic focus and to cut off the performance period and pay out, on a pro rata basis, bonuses under the prior bonus plan, all effective September 30, 2008.

 

Actual Bonus Levels.   On September 30, 2008, the Company paid partial bonuses to certain members of our management based on the targets in the plan, pro rated for the nine-month rather than twelve-month performance period. Specifically, the cash bonuses for Dr. Burnside, Dr. Treacy, and Dr. Clausen were adjusted downward to 50% of target and pro rated for the nine-month period for which bonuses were being paid. Dr. Rudnic, Mr. Low, Mr. Bannon and Mr. Buchwald were paid 100% of their pro-rated bonuses at the time of their termination, as provided for in their employment agreements. In addition, no bonuses were paid to Mr. Thievon and Mr. Becker.

 

Target Setting for October 2008 through December 2009

 

As a result of the achievement of the Company’s corporate goal for 2008 through the EGI Transaction and the resulting shift in our strategic focus, the Compensation Committee determined that it was in the best interest of the Company to establish a new bonus program for the remainder of fiscal year 2008 through the end of fiscal year 2009.

 

Target bonus levels and benchmarking.   For the period from October 2008 through December 2009, cash bonus targets, expressed as a percentage of base salary, for all named executive officers (except our current CEO and current CFO) were set to remain in line with the cash bonus targets of the previous year. For the same period, the cash bonus targets, expressed as a percentage of base salary, for our current CEO and CFO were set within a range that is competitive with the 50 ^th  percentile of cash bonuses paid to comparable officers at companies in the July Peer Group. The Compensation Committee has the discretion to adjust each officer’s target as it deems appropriate. Potential reasons for adjusting cash bonus targets include how long an officer has been in his or her current role, how the officer’s role fits within the hierarchy of the organization, the impact of his or her position on the Company’s results and how the officer’s base salary, upon which the bonus is based, has increased historically. The 2009 targets for the positions held by the named executive officers are as follows:

 

CEO: 55% of base salary

CFO: 45% of base salary

Senior Vice Presidents: 30% of base salary

 

Elements of Bonus.   Each cash bonus target consists of two elements, a Company performance element and an individual performance element. For the named executive officers, the weighting of these elements for each position is as follows:

 

CEO: 100% Company performance, zero percent individual performance

CFO: 100% Company performance, zero percent individual performance

Senior Vice Presidents: 85% Company performance, 15% individual performance

 

Performance Goals.   In December 2008, the Compensation Committee recommended and the board approved the following four corporate goals and the relative weighting of each goal for the purpose of awarding incentive compensation at the end of 2009 as indicated below.

 

 

The bonus program for October 2008 through December 2009 has various payout levels depending on our performance against the goals. If the corporate goals are achieved, the payout is based on a sliding scale. If we achieve 90% of our goal, 90% of the amount attributable to the goal will be funded. The amount funded increases proportionally up to a maximum of 200% of the amount associated with the goal, upon reaching 200% of target. The board has set a minimum achievement of 90% of the goal in order to fund any bonus amount for the performance goal, although it may, in its discretion, adjust the payout levels. We believe that in order to achieve an overall competitive pay program, including salary plus incentives, we need to allow for above target incentives for achieving our goals. We feel that this type of structure motivates executives to challenge their teams to not only meet but exceed goals that add value to our stockholders.

 

Long Term Incentives — Equity Awards

 

Equity awards have the potential to be a significant component of each named executive officer’s compensation package. We emphasize equity awards to motivate our named executive officers to drive the long-term performance of the Company and to align their interests with those of our stockholders. We believe this emphasis is appropriate as these officers have the greatest role in establishing the Company’s direction and should have a significant proportion of their compensation aligned with the long-term interests of stockholders.

 

Structure of Equity Compensation Program

 

The Compensation Committee utilizes stock options as an annual grant to recognize that it is in the best interest of the Company to provide a certain amount of equity to officers that will vest as long as the officer continues to serve at MiddleBrook, and will only have value as long as MiddleBrook’s market value increases from the date of grant. For 2008, stock option awards, expressed as a percentage of base salary, for our named executive officers, except for our current CEO and current CFO, were set within a range that is competitive with the 50th percentile of equity awards granted to comparable officers at companies in the February Peer Group. The annual stock option awards for our current CEO and current CFO, expressed as a percentage of common shares outstanding, were established by their employment agreements and set within a range that is competitive with the 50th to 75th percentile of equity awards granted to comparable officers at companies in the July Peer Group. The Compensation Committee has the discretion to adjust each officer’s award as it deems appropriate. Potential reasons for adjusting stock option awards include how long an officer has been in his or her current role, how the officer’s role fits within the hierarchy of the organization, the impact of his or her position on the Company’s results and how the officer’s stock options awards have increased historically.

 

2008 Equity Grants

 

In order to determine the size of equity grants to be awarded to each named executive officer during the 2008 annual grant process, the Compensation Committee reviewed market data on how much equity similarly situated officers were receiving at companies in the February Peer Group. This review focused on how much equity should be granted to each officer in order to be competitive with the 50th percentile of equity awards provided to officers at companies in the February Peer Group. The Compensation Committee approved stock option grants to the named

executive officers, other than our former CEO, our current CEO, and current CFO, on February 13, 2008, including 60,000 options to Mr. Low, 80,000 options to Dr. Burnside, 50,000 to Dr. Clausen, and 75,000 options to Dr. Treacy. On February 13, 2008, the Board of Directors approved, upon recommendation from the Compensation Committee, a grant of 200,000 options to Dr. Rudnic. In determining the actual amounts of the grants, the Compensation Committee (or the Board in the case of Dr. Rudnic) used its discretion to determine each named executive officer’s 2008 option grant.

 

As provided in the Company’s employment agreement with Mr. Thievon, on September 5, 2008, immediately following the commencement of his employment, the Company granted Mr. Thievon options to purchase 2,518,819 shares of common stock, an amount equal to 2.25% of all the then issued and outstanding common stock plus shares of common stock underlying all the then issued and outstanding warrants of the Company calculated immediately following the closing of the EGI transaction. The options vest over four years, with 25% of such options vesting at the first anniversary of the commencement of Mr. Thievon’s employment and an additional 2.0833% of such options vesting at the end of each month thereafter for a period of 36 months. Pursuant to his employment agreement, Mr. Thievon is also eligible to receive awards under the equity-based incentive compensation plans adopted by the Company for which senior executives are generally eligible. The specific amount, terms and conditions of any such future award, if any, shall be determined in the sole discretion of the Company, but with an annual target numbering between 0.2% and 0.3% of the common stock of the Company plus shares of common stock underlying issued and outstanding warrants calculated at the time of the award.

 

As provided in the Company’s employment agreement with Mr. Becker, on September 5, 2008, immediately following the commencement of his employment, the Company granted Mr. Becker options to purchase 1,959,082 shares of common stock, an amount equal to 1.75% of all issued and outstanding common stock plus shares of common stock underlying all issued and outstanding warrants of the Company calculated immediately following the closing of the EGI transaction. The options vest over four years, with 25% of such options vesting at the first anniversary of the commencement of Mr. Becker’s employment and an additional 2.0833% of such options vesting at the end of each month thereafter for a period of 36 months. Pursuant to his employment agreement, Mr. Becker is also eligible to receive awards under the equity-based incentive compensation plans adopted by the Company for which senior executives are generally eligible. The specific amount, terms and conditions of any such future award, if any, shall be determined in the sole discretion of the Company, but with an annual target numbering between 0.15% and 0.25% of the common stock of the Company plus shares of common stock underlying issued and outstanding warrants calculated at the time of the award.

 

On September 10, 2008, in recognition of the important role they are expected to play in connection with the future development of our product candidates, the Board of Directors approved the grant of an additional 216,000 stock options to each of Dr. Burnside, Dr. Clausen and Dr. Treacy.

 

Other Elements of Compensation

 

Severance and change in control benefits

 

The Company has adopted a change-in-control severance pay program for nearly all employees of the Company, including the named executive officers. The program is intended to preserve employee morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of the Company. In addition, for executives, the program is intended to align executive and stockholder interests by enabling executives to consider corporate transactions that are in the best interests of the stockholders and other constituents of the Company without undue concern over whether the transactions may jeopardize the executives’ own employment. Because this program is guided by different objectives than the regular compensation program, decisions made under this program do not affect the regular compensation program.

 

Although there are some differences in benefit levels depending on the employee’s job level and seniority, the basic elements of the program for severance benefits in connection with a change in control are comparable for all employees:

 

 

 

For further discussion of these agreements, including the estimated amounts that would be payable assuming a termination date of December 31, 2008, see the “Estimated Payments and Benefits Upon Termination or Change-in-Control” section of this Proxy Statement.

 

Other benefits

 

Our executives are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance and our 401(k) plan, in each case on the same basis as our other employees. There are no special benefits or perquisites provided to any executive officer in 2008.

 

Retirement and Other Benefits

 

The Company does not maintain a pension program or a deferred compensation plan for executives or for any other employees. MiddleBrook does offer a 401(k) Plan to any employee who wishes to participate. However, the Company has discretion in making an employer contribution to the 401(k) Plan and has never done so. The named executive officers participate in the same medical and dental benefit programs as other employees.

Corporate Policies Covering Executive Compensation

 

Share Ownership and Retention Guidelines

 

The Company does not have share ownership or retention guidelines for its named executive officers or other employees.

 

Equity Incentive Grant Mechanics and Timing

 

The Compensation Committee approves all grants for equity incentives, including grants to named executive officers. Awards granted to the CEO must be approved by the Compensation Committee and then recommended by the committee to the Board of Directors, which must have at least 75% of the independent (non-management) directors of the Board approve it.

 

For annual awards, the grant date is the date during the first calendar quarter when the Compensation Committee and the full Board of Directors meet. The Compensation Committee’s procedure for timing of equity grants assures that grant timing is not being manipulated for employee gain. This date, which is typically in late January or early to mid February, is established by the Compensation Committee well in advance. This first quarter grant date timing coincides with the Company’s calendar-year-based performance management cycle, allowing managers to deliver the equity awards close in time to performance appraisals, which increases the impact of the awards by strengthening the link between pay and performance. The Company has not made any annual equity grants during 2009 and currently does not intend to do so.

 

The Compensation Committee has pre-approved within certain parameters the grants by our current CEO of new hire equity awards and other off-cycle grants to employees below the assistant vice president level. These grants became effective at the end of the month during which the grant is made. The Compensation Committee approves any grants to those employees ranking above the assistant vice president level, including new hire grants. Grants approved by the Compensation Committee became effective on the date of such approval or at the end of the month that the grant is approved.

 

The grant price for all awards is the fair market value of the Company’s common stock on the effective date of the grant. The fair market value of the Company’s common stock as of any particular date is defined as the closing price of the Company’s common stock on the last trading day immediately preceding the date in question.

 

Policy Against Repricing Stock Options

 

The Company has a consistent policy against the repricing of stock options.

 

Executive Compensation Recovery Policy

 

An executive may be terminated for cause, due to dishonesty, embezzlement, theft or fraudulent misconduct or for other reasons. In such a case, any unpaid incentive awards as of the date of termination would be forfeited. The Compensation Committee has not adopted an executive compensation recovery policy that would address the potential recovery of incentive compensation (cash or equity) paid in previous periods that was based on intentional misconduct and the effect of the wrongdoing was to increase the amount of bonus or incentive compensation. However, each executive’s employment agreement includes a specific enforcement clause, in which an injunction or other relief in court may be sought by the Company, should the employee violate the confidentiality, work product, and non-compete provisions of the agreement. In addition, the Company could bring an action, either in law or equity, or seek arbitration, in order to obtain a remedy.

 

COMPENSATION COMMITTEE REPORT

 

We have reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, we recommended to the board of directors that the Compensation Discussion and Analysis be incorporated by reference into MiddleBrook’s annual report on Form 10-K and included in this proxy statement on Schedule 14A.

 

Compensation Committee

 

Wayne T. Hockmeyer, Ph.D. (Chair)

Lord James Blyth

Mark R. Sotir

 

COMPENSATION TABLES

 

Summary Compensation Table

 

The following table contains summary information concerning annual compensation for the fiscal years ended December 31, 2008, 2007 and 2006 for our named executive officers.

 

 

 

 

All Other Compensation — 2008

 

 

 

 

Grants of Plan-Based Awards Table

 

The following table sets forth each equity award granted to our named executive officers during the year ended December 31, 2008. No stock options were repriced or materially modified during the year.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth information regarding each unexercised stock option held by each of our named executive officers as of December 31, 2008.

 

 

 

 

Option Exercises and Stock Vested Table

 

The following table shows the number of shares acquired upon exercise of stock options by each named executive officer during the year ended December 31, 2008. We have not issued shares of restricted stock to the named executive officers.