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Directors´ Remuneration Report

INTRODUCTION

The report sets out the Group's remuneration policy and details of Directors' remuneration. A resolution to approve this report will be proposed to shareholders at the AGM, details of the resolution may be found in the notice of the meeting which is enclosed with this annual report. This report is unaudited other than the sections noted as audited..

REMUNERATION COMMITTEE

The Remuneration Committee (the 'Committee') is made up entirely of Independent Non-Executive Directors and is chaired by Ms P Freer. The other serving members of the Committee during the year were Mr G Cook, Mr RS Harris, who resigned from the committee on 19 December 2007 and was replaced by Mr J-C Tschudin. The Committee met twice during the year. Halliwell Consulting ('Halliwell'), who have considerable experience in executive remuneration and share schemes, were appointed by the Committee to provide independent advice and analysis on remuneration matters, including the provision of competitive market data. Halliwell assisted the Group on the implementation of the Committee's decisions and on the valuation of share-based payments under IFRS. Halliwell provides no other services to the Group.

None of the Committee has any conflicts of interest arising from cross-Directorships or day-to-day involvement in running the business The Committee makes recommendations to the board and no Director plays a part in any discussions about his own remuneration. A sub-group of the remuneration committee not comprising the Chairman assesses the Chairman's remuneration.

REMUNERATION POLICY

Executive remuneration packages are designed to attract, motivate and retain Directors and to reward them for enhancing value to shareholders. The performance measurement of the Executive Directors' and key members of senior management and the determination of their annual remuneration package is undertaken by the Remuneration Committee. The Board determines the remuneration of the Non-Executive Directors.

There are four main elements of the remuneration policy:

• basic salaries and benefits in kind;
• shares and share option schemes;
• bonus scheme; and
• pensions.

The Company's policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related. As described below, Executive Directors may earn annual incentive payments in the range between 20% and 80% of their basic salary, together with the benefits of participation in share option schemes. Executive Directors are entitled to accept appointments outside the Company, providing these are approved by the Committee, but cannot be involved with a competing business except with the written consent of the Board. The Executive Directors' external, remunerated, appointments are listed below.

Director	Company	Remuneration
Dr MJ Flynn	Axcan Pharma (Ireland) Limited	£11,221
Mr JAP Randall	Kinneir Dufort Limited	£15,200

The Executive Directors also have the following non remunerated appointments: Dr MJ Flynn; Maggiore Ventures Limited, Mr JAP Randall; Kinneir Dufort Design Limited, Maggiore Ventures Limited, Avantis UK Limited, Operation Smile UK Limited.

(i) Basic salaries and benefits in kind

The Remuneration Committee, prior to the beginning of each year when an individual may change position or responsibility, determines basic salaries. In deciding appropriate levels, the committee considers the Group as a whole and takes into account the performance of the individual and the rates for similar positions in comparable companies. Basic salaries were last reviewed in September 2006.

Benefits in kind are not pensionable. Directors are paid a car allowance commensurate with their position within the Company and are members of the Group´s health plan schemes covering certain medical, optical and dental procedures.

(ii) Share option schemes

a. Sinclair Pharma plc 2003 Enterprise Management Incentive Share Option Scheme

The Company operates an approved share option scheme, the Sinclair Pharma plc 2003 Enterprise Management Incentive Share Option Scheme (2003 EMI Scheme), pursuant to a resolution of the Board passed on 18 November 2003.

The Committee may grant options under the 2003 EMI Scheme to any number of employees. In order to be qualifying, an employee must:

• not own 30% or more of the issued share capital of the Company; and
• be employed by the Group for at least 25 hours a week, or, if less, for at least 75% of his working time.

Non-Executive Directors and/or consultants to the Group are not qualifying employees.

Performance Conditions

Pursuant to Rule 3.3 of the 2003 EMI Scheme, the exercisability of a Directors' share option is dependent upon the satisfaction of a performance condition. Set out in the table below is the performance conditions that apply to the options granted under the Scheme on 20 October 2004 and 4 October 2006.

Level of Performance vs. FTSE All Share Index	Percentage of options which become exercisable
Below 20% out-performance	0%
20% out-performance	20%
Between 21% and 49% out-performance	Pro-rata between 21% and 49% on a straight line basis
50% out-performance	50%
Between 51% and 124% out-performance	Pro-rata between 51% and 99% on a straight line basis
125% out-performance and above	100%

Options may be granted at any time other than during a close period or other than at any time when a grant would be in breach of any laws or regulations including the Model Code. No option may be granted after the tenth anniversary of the date of commencement of the 2003 EMI Scheme. No option may be assigned or transferred in any way, although the executors or personal representatives of a deceased option holder may in certain circumstances exercise options held by him. No consideration is payable for the grant of an option. The acquisition price payable for each ordinary share on exercise of an option will be determined by the Committee but will be an amount which is not less than the market value of an ordinary share at the date of grant. Performance conditions are measured over the three year vesting period. If performance conditions have been met, share options can be exercised over the next seven years.

During the year to 30 June 2007, Dr MJ Flynn and Mr JAP Randall were granted 299,149 and 297,030 unapproved share options respectively from the 2003 EMI Scheme. No options were granted to the Directors during the year to 30 June 2008.

b. Sinclair Pharma plc 2003 Executive Incentive Plan

The Company also established the Sinclair Pharma plc 2003 Executive Incentive Plan (EIP) pursuant to a resolution of the Board passed on 18 November 2003. The EIP is intended to allow the Company to make performance share awards and grant options, make restricted share awards, award stock appreciation rights and cash based long-term incentives, or a combination thereof to senior executives and key employees.

The Committee granted the performance share awards over the following number of shares to Directors in the year ended 30 June 2008, Dr MJ Flynn: 223,252 shares, Mr JAP Randall: 179,444 shares. No awards were made under the EIP in the year ended 30 June 2007.

A performance share award is a promise to deliver ordinary shares at the end of the performance period subject to the satisfaction of the performance conditions. The right will vest automatically and does not require any action by the award holder.

An option right is a right to acquire ordinary shares, which is exercisable at the end of the performance period subject to the satisfaction of the performance conditions.

A restricted share award is a transfer of ownership of ordinary shares made on terms that the legal title of those ordinary shares is conditional upon the satisfaction of the performance conditions at the end of the performance period.

A stock appreciation right is a right to receive a cash award that is calculated based upon a formula linked to the price of ordinary shares and which will vest automatically at the end of the performance period subject to the satisfaction of the performance conditions.

A cash based long-term incentive is a right to receive a cash amount at the end of the performance period subject to the satisfaction of the performance conditions.

Awards made under EIP are not granted under an HMRC approved share scheme.

At the discretion of the Committee an award may be granted under the 2003 EIP to any Executive Director or employee of the Group who is required to devote the whole or substantially the whole of his working time to the Group.

Awards may be made at any time other than a close period or other than at any time when a grant would be in breach of any other applicable laws or regulations. No awards will be made more than ten years after the date of the adoption of the EIP. No award may be assigned or transferred in any way, although the executors or personal representatives of a deceased participant may in certain circumstances benefit from the award. No consideration is payable for the grant of an award.

The performance criteria period will, in the absence of any other period determined by the Committee, be the three consecutive financial years commencing with the financial year in which the award is made.

The Committee will set performance conditions that they consider to be both relevant, stretching and designed to enhance the business having regard to the Combined Code and the guidelines and standards of principles published from time to time by the Association of British Insurers relating to best practice on share incentive schemes. The performance conditions must be met at the end of the performance period for the award to vest. The performance conditions for the awards granted on 25 July 2007 are:

Company’s share price on 25 July 2010	Percentage of awards which will vest
Below 115p	0%
115p – 124p	25%
125p – 139p	50%
140p – 174p	75%
175p and above	100%

The Committee determines at the date of the award, the acquisition price payable for each ordinary share when the award vests under EIP.

c. Replacement and New warrants
Replacement Warrants

On 2 December 2003, the Company and holders of 4,350,000 warrants ('Old Warrants') agreed to the issue of Replacement Warrants ('Replacement Warrants') in exchange for the release of 4,350,000 Old Warrants.

The Replacement Warrants provide the holder with a right to acquire such number of ordinary shares as are equal in amount to 'target value'.Target value was calculated using the following formula:

Number of Old Warrants (or Unapproved Options) held by warrant holder multiplied by the IPO placing price per ordinary share.

Replacement Warrants are denominated in units. On the exercise of each unit of value a corresponding value of ordinary shares in the Company may be acquired. The maximum number of ordinary shares which can be acquired under the terms of the replacement, warrants shall not exceed the number of ordinary shares that may have been acquired under the terms of the Old Warrants. The acquisition price payable for ordinary shares shall be between £0.01 and £0.33 per unit and shall, in aggregate, be equal to the acquisition price payable for ordinary shares under the terms of the Old Warrants.

The Company and the holders of the warrants also entered into a joint election under section 4(4)(a) of the UK Social Security Contributions and Benefits Act 1992 to transfer legal responsibility for payment of the employers' national insurance contributions to the holders of the Replacement Warrants.

Replacement Warrants are not granted under an HMRC approved share scheme. There are no performance conditions relating to replacement warrants.

No further grants of Replacement Warrants have been made since 2 December 2003.

New Warrants

In consideration for the transfer of the employers' national insurance liability on the Replacement Warrants, a total of 784,875 New Warrants were granted on 2 December 2003 to the warrant holders (the 'New Warrants'). The New Warrants were granted under the same terms and the same exercise price as the Replacement Warrants to which they relate.

The Replacement Warrants and new warrants are exercisable in whole or in part at any time.

These warrants shall lapse on the earlier of:

• the tenth anniversary of the date of grant; or
• the bankruptcy of the warrant holder.

There are no performance conditions relating to new warrants. No further grants of new warrants have been made since 2 December 2003.

c. Replacement, New and Consultant warrants continued
The Sinclair Pharma plc Employee Share Trust (ESOT)

The ESOT has been established to provide a vehicle through which share incentives and other benefits may be provided to past, present or future employees of the Company. The ESOT may for example gift, sell or grant options or warrants over shares to employees of the Company.

On 3 December 2003, the trustees of the ESOT subscribed for 6,034,875 ordinary shares for the aggregate sum of £913,853. The trustees have agreed to use these ordinary shares to settle the Replacement Warrants and New Warrants over, in aggregate up to 6,034,875 ordinary shares held by Dr MJ Flynn, Mr JAP Randall, Mr ADS Prenn and Mr RS Harris. The trustees have allocated the ordinary shares to individual sub-funds in proportion to the warrants in issue for each holder. Further, the trustees have appointed an interest in these ordinary shares to the holders of the warrants such that following the exercise of all Replacement and New Warrants by a warrant holder; the assets in their sub-funds shall vest in their names absolutely.

Awards granted through ESOT are not granted under an HMRC approved share scheme. The performance conditions relating to awards granted through ESOT are listed above in paragraph (ii) (a) Share Option Schemes.

The interests appointed in these sub-funds to individual Directors can be summarised as follows:

	Number of
	ordinary shares
Dr MJ Flynn	3,448,500
Mr JAP Randall	1,379,400
Mr RS Harris	86,214
	4,914,114

At 30 June 2008 the market value of the ordinary shares held within the Sinclair Pharma plc employee share trust (ESOT) on behalf of Directors was £1,781,000.

The interest in trust property shall lapse on the earlier of:

• the tenth anniversary of the date of appointment;
• the date of cessation of the beneficiary's employment or Directorship with the Company; or
• the bankruptcy of the beneficiary.

The Committee has responsibility for supervising the schemes and the grant of options to Executive Directors under its terms.

d. Interest in Shares

In addition, on 3 December 2003, the trustees subscribed for 1,431,129 ordinary shares in the Company. The trustees appointed an interest in these ordinary shares to the following Directors at an exercise price of £1.15.

	Number of
	ordinary shares
Mr JAP Randall	1,172,490
Mr RS Harris	172,425
	1,344,915

At 30 June 2008 the market value of the interests in ordinary shares held within the Sinclair Pharma plc employee share trust (ESOT) was £488,000.

The relevant trust property will vest absolutely to the above beneficiaries after the earliest of the following events:

• the day prior to the tenth anniversary of the date of appointment of the interest; or
• as notified to the trustees at the discretion of the Committee, or on any take over, reconstruction, or passing of a resolution for the voluntary winding up of the Company.

The trustees may resolve that the interest in the trust property should vest absolutely to the beneficiary prior to the day prior to the tenth anniversary of the date of appointment.

The interest in trust property shall lapse on the earlier of:

• the tenth anniversary of the date of appointment.
• the date of cessation of the beneficiaries or Directorship with the Company (unless such cessation is by reason of (a) injury, disability, retirement or redundancy or (b) be as notified to the trustees at the discretion of the Committee) for any reason, in which case the interest will lapse 40 days after such cessation; or
• the bankruptcy of the beneficiary.

There are no performance conditions relating to interests in shares.

(iii) Bonus Scheme

The Committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid. Account is taken of the relative success of the different parts of the business for which the Executive Directors are responsible and the extent to which the strategic objectives are being met. The Directors' bonus is based upon profitability and share performance subject to targets being achieved.

(iv) Pensions

The Group operates a defined contribution scheme for the benefit of the Executive Directors and the employees. Both Dr MJ Flynn and Mr JAP Randall are members of the Sinclair Pharma plc retirement plan, which is a money purchase scheme. The Group contributed 20% of their pensionable pay into the scheme during the year. Their dependants are eligible for a lump sum in the event of death in service. The assets of the pension scheme are held separately from those of the Group.

PERFORMANCE GRAPH

The following graph shows the Company's performance, measured by total shareholder return (TSR), compared with the performance of the FTSE Pharma and Biotech Index also measured by TSR. TSR is defined as share price growth and reinvested dividend. The FTSE Pharma and Biotech Index has been selected for this comparison because it was deemed to be the most appropriate.

The graph below shows the percentage change in total shareholder return (with dividends reinvested) from 10 December 2003 (the date of Company's flotation on AIM) to 30 June 2008.

Sinclair Pharma Plc v FTSE Pharma and Biotech

EXECUTIVE DIRECTORS' CONTRACTS

It is the Group's policy that Executive Directors should have contracts with a rolling term of 12 months providing for a maximum of 12 months notice by either party. The current contracts for both Dr Flynn and Mr Randall were entered into on 18 November 2003.

In the event of early termination, the Directors' contracts provide for compensation up to a maximum of basic salary, employer's pension contributions and other benefits in kind for the notice period.

NON-EXECUTIVE DIRECTORS' CONTRACTS

All Non-Executive Directors have specific terms of engagement. Their remuneration is determined by the Board based upon surveys of fees paid to Non-Executive Directors of similar companies with similar responsibilities, undertaken by Halliwell. It is the Group's policy that Non-Executive Directors should have contracts with a fixed term of 12 months providing for a maximum of 3 months notice by either party.

A basic fee is set for normal duties. Non-Executive Directors are appointed for an initial period of 12 months and subject to continuation of satisfactory performance and re-election at the AGM, will be renewed for a further 12 months. Non-Executive Directors are not eligible for pensions, incentives or any similar payments other than normal out of pocket expenses incurred on behalf of the business. Compensation for loss of office is not payable to Non-Executive Directors.

			Notice period
	Date of contract	Initial period	(both parties)
Mr RS Harris	18 November 2003	12 months	3 months
Mr G Cook	12 July 2004	12 months	3 months
Ms P Freer	25 January 2006	12 months	3 months
Mr J-C Tschudin	8 November 2007	12 months	3 months

DIRECTORS´ EMOLUMENTS (AUDITED INFORMATION)

		Benefits		2008			2007
	Salary/Fees	in kind	Bonuses	Total	Pension		Total	Pension
	£’000	£’000	£’000	£’000	£’000		£’000	£’000
Executive
Dr MJ Flynn	265	19	—	284	53		334	53
Mr JAP Randall	214	18	—	232	42		273	43
Non-Executive
Mr RS Harris	60	—	—	60	—		51	—
Mr AJ Sinclair*	14	—	—	14	—		29	—
Mr G Cook	37	—	—	37	—		33	—
Ms P Freer	42	—	—	42	—		39	—
Mr J-C Tschudin**	21	—	—	21	—		—	—
	653	37	—	690	95		759	96

*Mr AJ Sinclair resigned on 3 December 2007

**Mr J-C Tschudin appointed on 8 November 2007

DIRECTORS' SHARE OPTIONS, WARRANTS AND INTERESTS IN SHARES (AUDITED INFORMATION)

Details of the options, warrants and interests in Sinclair Pharma plc ordinary 1p shares held by Directors are as follows:

	At	Granted/	At
	1 July	(lapsed)	30 June	Exercise		Exercisable
	2007	in the year	2008	Price (£)		from	to
Dr MJ Flynn
Replacement warrants	3,000,000	—	3,000,000	£0.01		3 December 2003	2 December 2013
New warrants	448,500	—	448,500	£0.01		3 December 2003	2 December 2013
EMI options	105,819	(105,819)	—	£0.945		20 October 2007	19 October 2014
Unapproved options	185,165	(185,165)	—	£0.945		20 October 2007	19 October 2014
Unapproved options	299,149	—	299,149	£1.01		4 October 2009	3 October 2016
Performance share awards	—	223,252	223,252	£0.01		25 July 2010	24 July 2017
Mr JAP Randall
Replacement warrants	1,200,000	—	1,200,000	£0.01		3 December 2003	2 December 2013
New warrants	179,400	—	179,400	£0.01		3 December 2003	2 December 2013
Interest in shares	1,172,490	—	1,172,490	£1.15		3 December 2003	2 December 2013
EMI options	105,819	(105,819)	—	£0.945		20 October 2007	19 October 2014
Unapproved options	69,311	(69,311)	—	£0.945		20 October 2007	19 October 2014
Unapproved options	297,030	—	297,030	£1.01		4 October 2009	3 October 2016
Performance share awards	—	179,444	179,444	£0.01		25 July 2010	24 July 2017
Mr RS Harris
Replacement warrants	75,000	—	75,000	£1.33		3 December 2003	2 December 2012
New warrants	11,214	—	11,214	£1.33		3 December 2003	2 December 2012
Interest in shares	172,425	—	172,425	£1.15		3 December 2003	2 December 2012
	7,321,322	(63,418)	7,257,904

The market price of the Company's ordinary shares to which the options relate fluctuated between 32.5p and 127.0p during the year. At 30 June 2008, the closing market price of the Company's ordinary 1p shares was 36.25p.

APPROVAL

This report was approved by the Board of Directors on 31 October 2008 and signed on its behalf:

Ms P FREER

Chairman Remuneration Committee

 

 

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