TAKING STOCK

SYNERGEN INC. NEVER SUCCEEDED IN MAKING ANYTHING--EXCEPT ITS FORMER EXECUTIVES VERY RICH.

What had once been the twelfth-largest company in Boulder County tried to take care of its former employees. Synergen set up a recruitment center so that other biotech firms could hire its laid-off workers. It also allowed former employees free use of fax and copy machines and telephones for several months.

The company offered a decent severance package as well. Those who had worked at Synergen for less than a year received six weeks' pay with their pink slips. Others got more: up to sixteen weeks' worth of pay, depending on how long they'd worked for Synergen. And the company bought back stock options workers had earned through their time there and through performance bonuses.

Those measures don't begin to compare with the steps Synergen's executives took to cushion their fall, however. In fact, the company's top officers had begun packing their parachutes several months earlier.

In April and May of 1993, for instance, shortly after the company revealed the "disappointing" clinical results for Antril, Synergen's board of directors approved new employment contracts with the company's officers. According to disclosure documents on file with the SEC, the five top executives were to be paid anywhere from $150,000 (Soll) to $250,000 (CEO Abbott).

Because of the company's unfortunate performance and cash shortage, some volunteered to accept less. Instead of taking the $215,000 he was entitled to by contract, for example, research and clinical affairs director Robert Thompson agreed to be paid only $185,000.

Synergen's board helped soften the blow, though. All five men were promised severance packages of two years' salary (the full amount, not the voluntarily reduced amount) in the event of a "change of control" at Synergen.

Even more lucrative, however, was the board's vote to grant the company's top officers a controversial perk called stock-option repricing, which reduced the amount they would have to pay if they exercised their stock options.

Stock options are commonly used to compensate employees, particularly executives. They give the worker an opportunity to buy a piece of the company at a guaranteed price. If the value of a company's stock later goes up, the worker can then buy it at the lower price, sell it at the new, higher price and collect the difference.

For top officers, especially, stock options offer a powerful incentive. If an executive works hard and well, the thinking goes, the company's value will increase and his stock options will reward him proportionately.

Option repricing chips away at that incentive.
Bud Crystal, a professor at the University of California at Berkeley's Haas School of Business, specializes in studying executive compensation; he also helped the SEC write new disclosure rules on stock-option repricing.

He says the idea of revising executives' option prices downward after a company performs poorly is like a reverse high-jump competition. Instead of being eliminated when they miss a jump, the contestants--the executives--are given another chance at a lower target. "It's not an exciting sport for the crowd," says Crystal, "but it's terribly exciting for the participants."

Repricing, he concludes, "illustrates the perversity of executive compensation. It's not so much to give you pay for performance; it's just to give you pay."

According to SEC filings, in April 1993 the compensation committee of Synergen's board of directors voted to lower the price of its executives' stock options. In a report, the committee explained that it "approved this action because it believes retaining key employees is in the best interest of the stockholders and the company."

The report continued: "During the spring of 1993, following a decline in the stock price, and a major restructuring which included a significant number of employee terminations, key employees were being contacted by companies and agencies about employment opportunities elsewhere. The committee believes re-pricing of the options was the most effective employment retention device available."

Throughout 1993, several officers took ample advantage of the opportunity to reprice their stock options. Abbott, for instance, had 50,000 options repriced, from as high as $52.75 a share all the way down to $10.60 a share, according to SEC filings.

That November, despite Synergen's disappointing year, the board voted to award its executive officers still more stock options in lieu of a year-end bonus. Soll, Abbott, Thompson and vice presidents Mark Young and Ken Collins each received options to purchase 40,000 shares of stock for their roles in "keeping the company on target with its goals" and "setting clear priorities," according to a company disclosure filed with the SEC.

Those extra stock options came in handy the following summer. On August 25, 1994--three days after Amgen and Synergen signed their confidentiality agreement--Synergen's board of directors voted to reprice its employee stock options one more time. Although employees had to swap three shares to receive two, the good news was that any options they held to purchase stock at more than $7 were now reduced to $4.75.

Synergen's executives had their landing padded one final time. On October 26, 1994--two days after Amgen's and Synergen's top executives met in Boulder and three months after the company laid off most of its workers--the board amended the employment contracts of Synergen's five top executives. The new clauses were to be activated in the event of a change of control at Synergen.

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