Abraxis BioScience (ABII)

Equity-Based Compensation

We account for stock-based compensation in accordance with FAS 123(R), which requires the recognition of compensation cost for all share-based payments (including employee stock options) at fair value. FAS 123(R) was adopted on January 1, 2006 using a modified version of the retrospective application. As a result, the fair value of stock-based employee compensation was recorded as an expense in the current year. In addition, prior year results were restated as if the fair value method had been used during previous periods. We use the straight-line attribution method to recognize share-based compensation expense over the vesting period of the award. Options currently granted generally expire ten years from the grant date and vest ratably over a four-year period, while restricted stock units currently granted generally vest ratably over a four-year period. Awards currently granted under the RSU Plan II generally vest with respect to one half of the units on the second anniversary of the 2006 Merger and with respect to the remaining one half of the units on the fourth anniversary of the 2006 Merger.

Stock-based compensation recognized under FAS 123(R), as well as expense associated with the retrospective application, uses the Black-Scholes option pricing model to estimate the fair value of options granted under equity incentive plans and rights to acquire stock granted under a stock participation plan. Compensation expense related to equity awards of restricted stock units is based upon the market price on the date of grant. Additionally, expense related to the RSU Plan II awards is based on the lower of the market price or $66.63 and is expensed under the liability method in accordance with FAS 123(R) over the applicable vesting period. Pre-tax equity-based compensation costs for the years ended December 31, 2007, 2006 and 2005, is $22.3 million, $26.2 million and $6.3 million, respectively. Refer to “Note 10— Stock Compensation” for a more detailed discussion.

Equity-Based Compensation

Equity-Based Compensation

Certain of Abraxis BioScience’s employees who will be employees of New Abraxis following the separation hold equity compensation awards. Stock-based compensation expense for New Abraxis is allocated based on the Abraxis BioScience consolidated expense for these employees. Such expense is accounted for in accordance with FAS 123(R), which requires the recognition of compensation cost for all share-based payments (including employee stock options) at fair value. FAS 123(R) was adopted on January 1, 2006 using a modified version of the retrospective application. As a result, the fair value of stock-based employee compensation was recorded as an expense in the current year. In addition, prior year results were restated as if the fair value method had been used during previous periods. New Abraxis uses the straight-line attribution method to recognize share-based compensation expense over the vesting period of the award. Options currently granted generally expire ten years from the grant date and vest ratably over a four-year period, while awards under the RSU Plan II generally vest with respect to one half of the units on the second anniversary of the 2006 Merger and with respect to the remaining one half of the units on the fourth anniversary of the 2006 Merger.

Stock-based compensation recognized uses the Black-Scholes option pricing model to estimate the fair value of options granted under equity incentive plans and rights to acquire stock granted under a stock participation plan. Additionally, expense related to the RSU plans is based on the lower of the market price or $28.27 and is expensed on a straight-line basis over the applicable vesting period. Pre-tax stock-based employee compensation costs for the year ended December 31, 2006, is $26.2 million, including $19.1 million relating to the RSU plans. Pre-tax stock-based employee compensation costs for the years ended December 31, 2005 and 2004 were $6.3 million and $3.2 million, respectively. Refer to “Note 11, Stock Compensation” for a more detailed discussion.