PROPOSAL 3

APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY’S 2000 EMPLOYEE

STOCK PURCHASE PLAN

The Company’s 2000 Employee Stock Purchase Plan, as amended (the “ESPP”), was adopted by the Board of Directors in March 2000 and approved by the stockholders in May 2000. The Board of Directors subsequently amended the ESPP, by means of a First Amendment, effective May 31, 2000, a Second Amendment, effective June 1, 2001 and a Third Amendment, effective May 31, 2003 (the “Prior Amendments”). The ESPP provides employees of the Company an opportunity to acquire a proprietary interest in the Company through purchases of Common Stock. Under the ESPP, each participant is deemed to have been granted an option to purchase as many shares of Common Stock as can be purchased with the payroll deductions that are credited to his or her account during each six-month offering period. The option is deemed to have been exercised automatically at the end of each offering period, unless the participant gives written notice of withdrawal to the Company or his or her employment with the Company terminates before then. A total of 1,000,000 shares of Common Stock have been authorized for issuance under the ESPP.

Proposed Amendment and Restatement of ESPP

On February 14, 2007, the Board of Directors approved the amendment and restatement of the ESPP to reflect the Prior Amendments and to increase the aggregate number of shares authorized for issuance thereunder by 500,000 shares, bringing the total number of shares authorized for issuance under the ESPP to 1,500,000 shares. Proposal 3 seeks stockholder approval of this amendment and restatement of the ESPP.

The Board considers the increase in shares necessary to meet the Company’s current needs. As of March 29, 2007, 918,558 shares of Common Stock had been issued under the ESPP, leaving only 81,442 shares of Common Stock available for future purchases under the ESPP. The Board believes that the ESPP is an important component of the Company’s benefits program that is intended to provide a broad base of employees with an incentive to work for the success of the Company and to participate in that success through the acquisition of the Company’s Common Stock. As of March 29, 2007, approximately 215, or 33%, of the Company’s eligible employees were participating in the ESPP.

Vote Required

Under the ESPP, the affirmative vote of a majority of the shares of Common Stock issued, outstanding, and entitled to vote will be required to approve the amendment and restatement of the ESPP. Abstentions and broker non-votes will have the same effect as votes against the proposed amendment and restatement of the ESPP.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3 TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE COMPANY’S 2000 EMPLOYEE STOCK PURCHASE PLAN.

The material features of the ESPP are described below. Refer to the complete text of the proposed Amended and Restated ESPP included as Appendix B to this proxy statement.

Administration

The ESPP is administered by the Company’s President or the President’s designee (the “Administrator”).

Eligibility

Only employees may participate in the ESPP. No employee will be eligible to participate in the ESPP if (i) immediately after the grant of an option, the employee would own stock or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company, or (ii) the grant of the option would permit the participant’s rights to purchase stock under all

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employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 of the fair market value of the stock (determined at the time the option is granted) for each calendar year in which such option is outstanding at any time. As of December 1, 2006 (the last enrollment date), there were approximately 689 employees eligible to participate in the ESPP, of whom approximately 230 were participants.

Offering Periods

There is generally one offering under the ESPP during each six month period. Currently, offering periods are June 1 through November 30 and December 1 through May 31. The current offering will end on May 31, 2007. The offering periods will continue until the ESPP is terminated. The first day of an offering period is referred to as the “Offering Commencement Date.” The last day of an offering period is referred to as the “Offering Termination Date.”

Purchase Price

The purchase price per share at which shares will be sold in any offering under the ESPP is the lower of 85% of the last sale price of Common Stock on the Nasdaq Global Market on (i) the day immediately prior to the Offering Commencement Date or (ii) the day immediately prior to the Offering Termination Date or, in either case, if no trading occurred in the Common Stock on the Nasdaq Global Market on such date, then the next prior business day on which trading occurred in the Common Stock on the Nasdaq Global Market.

Payment of Purchase Price

The purchase price of the shares is accumulated by payroll deductions over the offering period. The ESPP provides that the aggregate of all payroll deductions made with respect to a single offering period for an eligible employee shall not be less than $5 or more than 10% of the employee’s base pay earned during the offering period. Such restrictions will apply until the Administrator takes action to amend these restrictions. A participant may discontinue his or her participation in the ESPP during the offering period, and he or she may alter the rate of payroll deductions one time during the offering period.

All payroll deductions made for a participant are credited to the participant’s account under the ESPP and are included with the general funds of the Company. Funds received upon sales of stock under the ESPP are used for general corporate purposes.

Withdrawal

A participant may terminate his or her interest in a given offering by giving written notice to the Company at any time up to a date prior to the Offering Termination Date designated by the Administrator. Upon notice of withdrawal, all of the participant’s payroll deductions for the offering will be paid promptly without interest, and no further payroll deductions will be made. A participant who withdraws from an offering cannot participate again in that offering, but can participate in any other offering for which he or she is eligible.

Termination of Employment

Termination of a participant’s employment for any reason other than death cancels his or her participation in the ESPP immediately. In such event, the payroll deductions credited to the participant’s account will be returned to the participant without interest.

Upon termination of a participant’s employment because of death, the participant’s beneficiary will have the right to elect, by written notice given to the Company within the 30-day period commencing with the date of the death of the participant, either (i) to withdraw all of the payroll deductions credited to the participant’s account under the ESPP or (ii) to exercise the participant’s option on the Offering Termination Date for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in his or her account will purchase at the applicable option price. In the event that no written notice of election is received by the

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Company, the beneficiary will be deemed to have elected to withdraw the accumulated payroll deductions credited to the participant’s account at the date of the participant’s death and such amount will be paid promptly to the beneficiary without interest.

Capital Changes

If the Company subdivides or reclassifies Common Stock which has been or may be optioned under the ESPP, or declares any dividend payable in shares of Common Stock, or takes any other action of a similar nature affecting such stock, then the number and class of shares of Common Stock which may thereafter be optioned (in the aggregate and with respect to any individual participant) will be adjusted accordingly and, in the case of each option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to the option and the option price per share shall be adjusted to the extent determined by the Board of Directors, upon the recommendation of the Administrator, to be necessary to preserve unimpaired and undiluted the rights of the holder of such option.

Effect of Merger, Consolidation, Sale, or Transfer

In the event of a merger or consolidation to which the Company is a party (other than a merger or consolidation in which stockholders of the Company immediately prior to the merger or consolidation shall immediately following the merger or consolidation own securities in the surviving or resulting corporation having the right to cast more than 50% of the votes necessary to elect a majority of the directors of the surviving or resulting corporation), or in the event of a sale or transfer of all or substantially all of the Company’s assets, the ESPP shall terminate and the date of such merger, consolidation, sale or transfer shall be the Offering Termination Date for the offering period within which such event occurs. To the extent of payroll deductions credited to each participant’s account on the Offering Termination Date, the holder of each option then outstanding shall be deemed to have exercised the option and shall be entitled to receive, as nearly as reasonably may be determined, the securities or property to which a holder of Common Stock was entitled immediately prior to the merger, consolidation, sale or transfer.

Amendment and Termination of ESPP

The Board of Directors or the Company’s Chief Executive Officer may at any time amend the ESPP; provided, however, that neither the Board nor the Chief Executive Officer may make any change in any option previously granted which would adversely affect the rights of any participant. No amendment may be made without prior approval of the holders of a majority of the shares of Common Stock issued, outstanding, and entitled to vote if such amendment would (i) require the sale of more shares of Common Stock than are authorized under the ESPP, or (ii) permit payroll deductions at a rate in excess of 10% of a participant’s base pay.

The ESPP shall terminate on the Offering Termination Date on which the number of shares for which options are exercised exceeds the number of shares available for the offering. The Board of Directors may at any other time terminate the ESPP.

Tax Information

The ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, a participant will not be deemed to have income subject to taxation as a result of the receipt of the shares purchased under the ESPP until such shares are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the Offering Commencement Date, the participant will recognize, for the taxable year in which such sale or disposition occurs, ordinary income measured as the lesser of (i) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (ii) the excess of the fair market value of the shares as of the Offering Commencement Date over the option price. Any

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additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. A limited exception to the holding period treatment applies in the event of the participant’s death prior to the end of the holding period. The Company generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant, except to the extent of ordinary income recognized by the participants upon a sale or disposition of shares prior to the expiration of the holding period described above and subject to the limitation on deductibility set forth in Section 162(m) of the Code.

The foregoing is only a summary of the effect of federal income tax laws upon the participant and the Company with respect to the shares purchased under the ESPP. Reference should be made to the applicable provisions of the Code. In addition, the summary does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.

Participation in ESPP

Participation in the ESPP is voluntary and is dependent on each eligible employee’s election to participate and his or her respective determination as to the level of payroll deductions. Directors who are not employees are not eligible to participate in the ESPP.

New Plan Benefits

Because participation in the ESPP is voluntary, it is impossible to determine the amount and terms of future purchases under the plan. In 2006, Mr. McLain, and Drs. Fahim and Rasmussen purchased 6,418, 6,418 and 5,527 shares of Common Stock, respectively, under the ESPP. In 2006 current executive officers, as a group, purchased a total of 6,418 shares of Common Stock under the ESPP and non-executive officer employees, as a group, purchased a total of 205,990 shares of Common Stock, under the ESPP.

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Equity securities of the Company are authorized for issuance under the 1990 Equity Incentive Plan, the 1998 Employee Stock Plan, the 2000 Equity Plan (amended and restated as proposed for approval as the 2007 Omnibus Incentive Plan), the Stock Plan for Non-Employee Directors, the 2004 Directors Plan, and the 2000 Employee Stock Purchase Plan and the Jordan Siegel inducement equity award plan.

The following table provides information with respect to the Company’s equity compensation plans as of December 30, 2006.

The 7,943,962 shares of Common Stock that could be obtained under outstanding awards issued under the Company’s equity compensation plans as of December 30, 2006 had a weighted average exercise price of $9.03 and a weighted average term of 6.62 years and included 449,779 full value shares. As of December 30, 2006, there were 2,802,085 shares remaining to be awarded under the Company’s equity compensation plans other than the 2000 employee stock purchase plan.

1998 Employee Stock Plan

The Board has adopted the 1998 Employee Stock Plan, which provides for the award of up to 7,400,000 shares of Common Stock in the form of non-qualified stock options. The 1998 Employee Stock Plan has not been approved by the Company’s stockholders. At the Annual Meeting, the Company is seeking stockholder approval of the 2007 Omnibus Incentive Plan. Upon stockholder approval of the 2007 Omnibus Incentive Plan, the 1998 Employee Stock Plan will terminate (except with respect to currently outstanding awards) and the number shares remaining available to be issued under the 1998 Employee Stock Plan at the time of its termination will be available for awards under the 2007 Omnibus Incentive Plan.

Persons eligible to receive awards under the 1998 Employee Stock Plan include all employees, consultants, and advisors of the Company who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company and its subsidiaries. Directors and officers of the Company are not eligible to receive awards under the 1998 Employee Stock Plan.

The exercise price of options granted under the 1998 Employee Stock Plan may not be less than the par value of the Common Stock. The expiration date of options granted under the 1998 Employee Stock Plan may not be more than ten years after the date of grant.

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The number of shares to be issued upon exercise of outstanding options and available for future grants under the 1998 Employee Stock Plan is subject to adjustment in the event of a stock dividend, stock split or combination of shares, recapitalization, or other change in the Company’s capital stock, as described in the 1998 Employee Stock Plan.

Options granted under the 1998 Employee Stock Plan generally have an exercise price equal to the fair market value of the Common Stock on the date of grant. The options generally become exercisable in four equal annual installments beginning one year after the date of grant. In the event that an optionee’s employment or service with the Company terminates for any reason other than by death, options that are not then exercisable generally terminate immediately, but options that are exercisable on the date that employment or service terminates generally continue to be exercisable for a period of 90 days or such longer period as the Board may determine, but in no event beyond the option expiration date.

In the event of a consolidation or merger or sale of all or substantially all of the assets of the Company in which outstanding shares of the Common Stock are exchanged for securities, cash, or other property of any other business entity or in the event of a liquidation of the Company, then the Board may, in its discretion, (i) provide that outstanding options shall be assumed or replaced, (ii) provide that all unexercised options will terminate within a specified period, (iii) provide for a cash payment in exchange for the termination of outstanding options, or (iv) provide that outstanding options shall become exercisable in full immediately prior to such event.

As of December 30, 2006, 3,660,795 shares were subject to outstanding options granted under the 1998 Employee Stock Plan, and 918,529 shares were available for future grants under the 1998 Employee Stock Plan.

As permitted under the Nasdaq Marketplace Rules, as an inducement to Mr. Siegel to join the Company as its Senior Vice President, Finance, Chief Financial Officer and Treasurer, the Company awarded Mr. Siegel an option to purchase 40,000 shares of Common Stock and 60,000 shares of restricted stock outside the stockholder approved 2000 Equity Plan. The option and restricted stock were not granted under, but are nevertheless subject to, the terms and conditions of the 2000 Equity Plan. The exercise price of the option is the closing price per share on the grant date. The option will expire on the seventh anniversary of the grant date and become exercisable in four equal annual installments beginning on the first anniversary of the grant date, subject to Mr. Siegel’s continued employment. The restricted stock will vest in full on the third anniversary of the grant date, provided that Mr. Siegel is employed by the Company on that date.

COMPENSATION DISCUSSION AND ANALYSIS

The purpose of this Compensation Discussion and Analysis is to describe the Company’s compensation program provided to the executive officers named in the Summary Compensation Table (the “Named Executive Officers”) for the 2006 fiscal year.

During 2006, the executive compensation program consisted of the following forms of compensation:

Compensation Objectives and Philosophy

Nabi’s executive compensation program was designed with three main objectives in mind. First, the program should allow the Company to attract and retain individuals whose performance will enhance stockholder

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value. Second, the program should develop a strong link between compensation and the achievement of organizational and individual performance goals. Third, the program should provide total compensation opportunities that exceed the median for comparable companies when the Company achieves above-median performance and below the median for comparable companies when there is below-median performance.

The Company’s executive compensation program was developed by the Compensation Committee with the assistance of outside consultants and the Company’s human resources department. The Compensation Committee approves all compensation and benefit arrangements for executive officers, including the Named Executive Officers. In determining these arrangements, the Compensation Committee considers recommendations made by the Chief Executive Officer and other members of management, as well as recommendations made by the Compensation Committee’s outside consultant. The Compensation Committee, however, retains final authority to accept or reject these recommendations. The Compensation Committee also administers the Company’s equity incentive plans, and makes recommendations to the Board regarding outside director compensation and the Company’s overall compensation practices and programs, including retirement plans and material benefit plans.

For 2006, the Compensation Committee retained the services of Frederic W. Cook & Co., Inc. (“FWC”), an independent executive compensation consulting firm, to provide general advice and guidance on compensation-related issues. In this engagement, FWC performed no services on behalf of the Company’s management and reported solely to the Compensation Committee.

The Compensation Committee uses a comparator group of biotechnology companies and other relevant compensation survey data, including the Radford Biotechnology Survey, to determine appropriate levels of compensation provided to the Company’s Named Executive Officers. In 2006, FWC performed a custom study of executive compensation provided by 18 public companies comparable to Nabi. The public companies in the peer group all fall within Nabi’s Global Industrial Classification System industry code, and were selected by FWC and approved by the Compensation Committee. The factors used for selection of the peer group included market capitalization, number of employees, and business focus. The Compensation Committee intends to review the composition of the peer group annually and to make changes as appropriate. The peer group consisted of the following companies:

The Compensation Committee reviewed tally sheets for executive officers in 2006. These tally sheets affixed dollar amounts to elements of the executive officers’ compensation at the time of the review, including current base salary, bonus, outstanding equity awards, benefits, perquisites and benefits. The Compensation Committee intends to continue to review tally sheets at least on an annual basis.

Base Salary

Overview.     The Compensation Committee approves base salaries for the Chief Executive Officer and other executive officers of the Company after a structured annual review. The Chief Executive Officer provides information to the Compensation Committee regarding the performance of the other executive officers. This annual review includes an examination of salary levels from the peer group and from the Radford Biotechnology Survey to determine whether salary levels for the Company’s executive officers are commensurate with the

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salary levels of executives at relevant companies with comparable responsibilities. Final base salary decisions are made after a review of various criteria such as (i) position of the executive’s salary relative to market data, (ii) corporate performance, and (iii) individual attributes and relative importance to the Company’s future performance. After the annual base salary reviews, on May 10, 2006 and March 11, 2007, the Compensation Committee increased the base salaries of the Named Executive Officers to the salaries shown in the table below (2005 base salaries are shown for comparison purposes). The base salaries and the increases they reflect are consistent with the Compensation Committee’s objectives, including the need to keep the base salaries of the Named Executive Officers competitive and the desire to provide a cost of living increase.

2006 and 2007 base salaries are not shown for executives who left the Company before such salaries were established. Mr. McLain resigned as Chairman, Chief Executive Officer and President on February 15, 2007; Dr. Rasmussen resigned as Senior Vice President, Clinical, Medical and Regulatory on March 2, 2007; Mr. Smith resigned as Senior Vice President, Finance, Chief Financial Officer, Chief Accounting Officer and Treasurer on March 6, 2006; Mr. Johnson resigned as Senior Vice President, People Process and Technology on June 13, 2006; and Mr. Logal served as interim Chief Financial Officer, Chief Accounting Officer and Treasurer from March 6, 2006 to June 12, 2006 and left the Company on March 15, 2007. Mr. Siegel became Senior Vice President of Finance, Chief Financial Officer and Treasurer on June 12, 2006.

Annual Cash Incentive Compensation

Overview.     The Company also provides each executive with the opportunity to earn an annual cash award based on Company and individual performance under the VIP Management Incentive Plan. The objective of the VIP Management Incentive Plan is to motivate each executive’s performance in order to advance the Company’s defined strategy by aligning measurement and accountability with rewards. The Compensation Committee positioned target awards under the 2006 VIP Management Incentive Plan so that superior Company and individual performance resulted in above-median, total-cash compensation relative to competitive market data and below-median total cash-compensation for inferior performance.

2006 Plan Structure and Performance Measures.     For the 2006 fiscal year, awards under the VIP Management Incentive Plan were based on performance as measured by two balanced scorecards, the corporate scorecard and an individual scorecard for each participant’s functional area (except the Chief Executive Officer, who was measured against the corporate scorecard only). Both scorecards viewed performance from four equally-weighted perspectives: financial, customer, internal, and employee learning and growth. Each

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perspective was also divided into strategic objectives and corresponding measures, which were organized and weighted differently on each scorecard. The weightings varied significantly between the corporate and individual scorecards, with greater emphasis on individual objectives reflected in the individual scorecards.

There are three performance levels under each scorecard: threshold, target and maximum, with increasing payouts for higher levels of performance. If only the threshold performance level is achieved, the payout for the performance objective is reduced by 50% of its target value. If the target performance level is achieved, the payout for the performance objective is maintained at 100% of the target value, and if the maximum level is achieved, the payout for the performance objective is increased to 150% of the target value. To determine the amount of annual awards under the VIP Management Incentive Plan, percentage scores from each of the corporate and individual scorecards (which ranged from a possible score of 0% to 150% in the aggregate) are multiplied by the target bonus percentage for each participant. Performance under the corporate balanced scorecard and actual payments are subject to final approval by the Compensation Committee, and the Compensation Committee retains the right make discretionary adjustments.

The Compensation Committee determined that overall corporate performance under 2006 VIP Management Incentive Plan was achieved at 54% of the target level. In making this determination, the Compensation Committee reduced the overall corporate performance percentage from the percentage recommended by management, but did not make discretionary adjustments in any individual awards.

The table below lists the cash bonuses paid to the Named Executive Officers under the 2006 VIP Management Incentive Plan. These awards also are shown in the Summary Compensation Table for 2006 under the heading “Non-Equity Incentive Plan Compensation.” Also shown are the Named Executive Officers’ 2006 target bonus percentages as a percentage of base salary, corporate/individual scorecard weighting, and target and maximum bonus potential.

Changes for 2007.     In late 2006, the Compensation Committee commenced a review of the balanced scorecard approach for determining annual incentive payments under the VIP Management Incentive Plan. As a result of this review, the Compensation Committee concluded that the VIP Management Incentive Plan should be streamlined by establishing a payout matrix based on a smaller number of key corporate performance measures. The review has not been completed and the final terms of the 2007 VIP Management Incentive Plan have not been determined.

Equity Incentive Compensation

Overview.     The Chief Executive Officer and other Named Executive Officers receive long-term equity incentive compensation in the form of stock options and restricted stock. The Compensation Committee believes that equity-based compensation motivates the Company’s executive officers to have an interest in the long-term success of the Company.

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The Compensation Committee considers a number of factors, including competitive data from the peer group, management and outside consultant recommendations, and the number of equity awards already held by each executive when setting annual grant amounts. In general, for 2006 the Compensation Committee established annual grant amounts for each named executive officer which approximate the median awarded to comparable executives of the peer group companies, subject to adjustments for individual performance and relative importance to future performance of the Company.

Annual Awards.     In 2006, the Company made annual equity awards to the Named Executive Officers following action by the Compensation Committee after the Company’s annual meeting of stockholders.

Stock Options.     Traditionally, the Company has made annual long-term equity incentive awards in the form of stock options. The Compensation Committee believes that stock options provide executives with incentive to increase long-term stockholder value, because stock options only have value to the recipient when the Company’s share price exceeds the share price on the date of grant. The Compensation Committee’s policy is to grant non-qualified stock options (as opposed to incentive stock options) to preserve a greater potential tax benefit for the Company. Option awards made in 2006 to the Named Executive Officers, other than in connection with the retention program discussed below, had an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant, a term of seven years, and vest in equal annual installments over four years from the date of grant. The Compensation Committee anticipates that future option awards will have the same terms. The Chief Executive Officer and other Named Executive Officers received annual grants of stock options in 2006 as reflected in the table below.

Restricted Stock.     In 2006 in connection with the annual award of options, the Compensation Committee granted awards of restricted stock to certain executive officers in order to provide additional incentive compensation in a manner that conserves shares of the Company’s Common Stock and minimizes dilution to the Company’s existing stockholders. These restricted stock awards to the Named Executive Officers in 2006 provided for vesting in equal annual installments over three years (except for Mr. McLain, whose award provided for vesting over four years). The Chief Executive Officer and other Named Executive Officers received grants of restricted stock in 2006 in connection with the annual award of options as reflected in the table below.

Commencement of Employment Awards .    As an inducement to Mr. Siegel to join the Company as its Senior Vice President, Finance, Chief Financial Officer and Treasurer, in June 2006 Compensation Committee awarded Mr. Siegel an option to purchase 40,000 shares of Common Stock and 60,000 shares of restricted stock. The option will expire on the seventh anniversary of the grant date and becomes exercisable in four equal annual installments beginning on the first anniversary of the grant date, subject to Mr. Siegel’s continued employment. The restricted stock will vest in full on the third anniversary of the grant date, provided that Mr. Siegel is employed by the Company on that date. Also as an inducement to join the Company, Mr. Siegel received a cash sign-on bonus of $50,000. Mr. Siegel agreed that if he voluntarily terminates his employment with the Company or is terminated for cause during the first year of his employment he would repay a portion of his sign-on bonus equal to a percentage of the bonus that declines monthly from 92% of the bonus in the first month of his employment to 4% of the bonus in the twelfth month of his employment depending upon when termination of employment occurs.

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Retention Program

Overview.     The Company experienced a significant decline in the price of its Common Stock in November 2005 following the negative outcome of the Company’s Phase III clinical trial for StaphVAX ^® [Staphylococcus aureus Polysacharide Conjugate Vaccine]. Following extensive discussions and upon receiving the advice of FWC, the Compensation Committee adopted a key employee retention program on February 24, 2006. The retention program was intended to help retain the services of key employees who are critical to the Company’s success during a period of financial difficulty and uncertainty. Under the retention program, the Compensation Committee granted to each key employee identified an award of restricted stock, options to purchase shares of the Company’s Common Stock, and an opportunity to receive a cash bonus on March 1, 2007, subject to continued employment with the Company. The restricted stock and options awarded as part of the retention program will vest in full on March 1, 2009, provided that the participant is employed by the Company on that date. These awards also vest in the event that a participant’s employment is terminated without cause by the Company or by the participant for good reason after March 1, 2008 or upon a change in control of the Company. Named Executive Officers received the following awards under the retention program in 2006 (the cash bonuses were paid in March 2007 to all the listed Named Executive Officers except Mr. Johnson).

Benefits and Perquisites

The Named Executive Officers are entitled to participate in the Company’s benefit programs which are available to all of the Company’s full-time employees. In addition, the Named Executive Officers received certain benefits and perquisites in 2006 not available to the Company’s general employee population. The Compensation Committee will continue to monitor these programs, including their costs, and believes that these programs help the Company in retaining and maintaining the services of the Named Executive Officers. The Compensation Committee is currently reviewing these programs for 2007.

In 2006, each of the Named Executive Officers participated in the Company’s Supplemental Executive Retirement Plan, under which the Company contributed $22,000 for the Chief Executive Officer and $12,000 for the other Named Executive Officers (except that $3,000 was contributed for Mr. Logal) to a self-directed insurance or annuity-based retirement plan. The only other retirement plan maintained by the Company is a 401(k) plan in which the Named Executive Officers and other employees generally can participate. The Company also generally pays premiums on behalf of the Named Executive Officers for life and disability insurance in addition to coverage provided for all other employees generally and pays associated tax gross-ups attributable to income tax on the increased premiums. In 2006, the Company provided each Named Executive Officer except Mr. Logal with an automobile allowance ($18,000 for the Chief Executive Officer and $14,400 for each of the other Named Executive Officers other than a contribution of $7,800 for Mr. Siegel), an allowance for financial planning services (up to $5,000 per year for the Chief Executive Officer and $3,000 for each of the other Named Executive Officers), and payment of certain social club dues. Further information on the aggregate cost of providing these and other additional benefits and perquisites can be found in the All Other Compensation column of the Summary Compensation Table.

Change in Control Severance Agreements and Severance Under Employment Agreements

Change in Control Agreements.     The Company has entered into change in control severance agreements with the former Chief Executive Officer and the Company’s Senior Vice Presidents (but not the current interim

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Chief Executive Officer). These agreements provide for the payment of severance benefits to the executives in the event of a qualifying termination of employment following a change in control of the Company. Under the agreements, each executive would be entitled to receive a lump sum payment equal to two times (or three times, in the case of the Chief Executive Officer, and one times in the case of Mr. Logal) the sum of annual base salary and target bonus for the year in which the change in control occurs. Each executive would also be entitled to receive the continuation of benefits under the Company’s employee benefit plans (including medical, dental, disability, and life insurance and car allowance programs for 24 months (36 months for the Chief Executive Officer and 12 months for Mr. Logal)). In addition, under the change in control agreements all outstanding equity awards would vest upon a change in control of the Company, and the Company would make gross-up payments on behalf of the executives for any excise taxes imposed on excess payments received by the executives under the agreements. Any severance benefit that is paid under the change in control agreements is paid in lieu of any severance benefits that might otherwise be payable under any employment agreement with the Company.

The Company has entered into these agreements in order to remove any personal financial concerns an executive may have when evaluating a potential transaction, and to allow him or her to focus on maximizing value for the Company’s stockholders. Other key employees of the Company also have change in control agreements. The Compensation Committee believes that these agreements are necessary given the volatility and uncertainty inherent in the Company’s line of business. Any new change in control agreement for any employee is subject to review and approval by the Compensation Committee.

Employment Agreements.     The Company agreed to provide severance benefits to certain Named Executive Officers under their employment agreements with the Company that were in effect during 2006. These employment agreements provided that if the employee was terminated other than for cause or disability during the employment period, or if, after the expiration of the employment period, the employee gives notice of termination and within 30 days prior to the expiration of the employment period the Company has not offered to renew the agreement on terms no less favorable to him than the terms then in effect and within 90 days following the expiration of the employment period the Company has not tendered the employee a new employment agreement executed on behalf of the Company and containing such no less favorable terms, then he is entitled to receive the following severance benefits: (i) severance pay equal to his base salary as in effect at the time of such termination for 18 months in the case of Messrs. Johnson, Siegel and Smith and Drs. Fahim and Rasmussen and 24 months in the case of Mr. McLain, (ii) pro rated bonus compensation, (iii) the continuation of certain fringe benefits for 18 months in the case of Messrs. Johnson, Siegel and Smith and Drs. Fahim and Rasmussen and 24 months in the case of Mr. McLain, and (iv) immediate vesting of any non-vested stock options or shares of restricted stock held by the employee (other than retention program awards made to any executive officer and any other awards made to Mr. Siegel if he is not employed by the Company for at least 12 months), which will be exercisable for 12 months in the case of Messrs. Johnson, Siegel and Smith and Drs. Fahim and Rasmussen and 24 months in the case of Mr. McLain after the termination date, but in no event later than the original option expiration date. The obligation of the Company to provide severance benefits is conditioned upon the executive’s execution of a termination agreement containing a release of claims against the Company.

Separation Agreement with Mr. Johnson

In connection with Mr. Johnson’s resignation in June 2006, he and the Company entered into a separation agreement. Under that agreement, notwithstanding any provision to the contrary in his employment agreement with the Company, Mr. Johnson was only entitled to receive severance benefits and compensation limited to seven months of his current base salary to be paid over time, with the final payment no later than January 31, 2007, and to continue receiving an automobile allowance and healthcare benefits during that period, provided that he complied with the terms and conditions of his separation agreement and the restrictive covenants in his employment agreement. Under the separation agreement, Mr. Johnson also forfeited all outstanding options and restricted stock awarded to him under the 2000 Equity Plan.

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Resignation of Chief Executive Officer

On February 14, 2007, the Board of Directors informed Mr. McLain that the Company would not renew his employment agreement with the Company. On February 15, 2007, Mr. McLain resigned as Chairman, Chief Executive Officer and President of the Company. If Mr. McLain timely executes a termination agreement including a release in favor of the Company, he will be entitled to receive the severance benefits under his employment agreement described above.

Appointment of Interim Chief Executive Officer

On February 15, 2007, Leslie Hudson, Ph.D., a director of the Company since 2005, was appointed to serve as interim President and Chief Executive Officer of the Company for a term of six months. During this period, the Company’s Board of Directors will seek to identify appropriate candidates, including Dr. Hudson, to assume the role of permanent President and Chief Executive Officer of the Company.

In connection with his appointment, Dr. Hudson and the Company entered into an employment agreement, the terms of which were approved by the Compensation Committee. During the six-month term of the employment agreement, Dr. Hudson will receive a base salary equal to $40,000 per month, which is comparable to Mr. McLain’s base salary, fringe benefits as are accorded generally to the Company’s executive officers, continuation of his current heath care benefits, a per diem fee of $180 to cover certain expenses while he is working in the Company’s Boca Raton, Florida headquarters, reimbursement for reasonable travel and lodging expenses incurred while traveling to and working at the Company’s headquarters (which reimbursement will be grossed up for applicable taxes), and reimbursement of up to $10,000 for legal fees incurred by him in connection with negotiation of all employment arrangements with the Company.

Under the terms of the employment agreement, the Company granted Dr. Hudson two awards of restricted stock under the 2000 Equity Plan. The first award of 4,355 shares of restricted stock will vest on August 15, 2007. The second award of 8,711 shares of restricted stock will vest in weighted percentages upon the achievement of certain performance targets, including (i) the advancement and implementation of a strategic action plan for the Company in coordination with the Strategic Action Committee of the Company’s Board of Directors and (ii) the definition and initiation of specified actions to support that plan. The restricted shares awarded to Dr. Hudson will vest if he is terminated by the Company without cause. If he dies or the Company terminates his employment for disability after the three-month anniversary of the effective date of the employment agreement, a pro rated portion of the restricted stock will vest based upon the number of days elapsed in the term of Dr. Hudson’s employment. In connection with the vesting of any of the shares of restricted stock awarded to him, Dr. Hudson will receive a cash bonus equal to the fair market value of the shares that vest, determined on the vesting date of those shares. The Compensation Committee awarded restricted stock to Dr. Hudson in lieu of his participation in the Company’s VIP Management Incentive Program or any other bonus program maintained by the Company

The term of employment under the employment agreement may be terminated by either party upon 30 days’ prior written notice. In the event that his employment is terminated by the Company without cause, Dr. Hudson will continue to receive his base salary for the remainder of the six-month term of the employment agreement. Dr. Hudson is not entitled to receive any other post-termination of employment benefit.

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