RCPIQ Rock Creek Pharmaceuticals Inc (CE)

ITEM  11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our company’s Named Executive Officers are Michael John Mullan, MBBS (MD) PhD, our Chairman and Chief Executive Officer, or CEO, Park A. Dodd, III, our Chief Financial Officer, or CFO, Christopher J. Chapman, Jr., MD, our President, Paul L. Perito, our Vice President and Senior Counsel for Legal and Regulatory Affairs, David M. Dean, our Vice President for Sales and Marketing and Jonnie R. Williams, Sr., our founder and former CEO. We collectively refer to these executive officers as the “Named Executives.” The following discussion summarizes the compensation awarded to the Named Executives or other executive officers during 2013.

Overview

In our proxy statement filed on November 18, 2013 in connection with the holding of our Annual Meeting, we announced a transition of our Company’s activities to take advantage of the potential opportunities in the area of pharmaceutical products, including the development of products approved by the Food and Drug Administration. As part of that transition, at the Annual Meeting held on December 27, 2013, our stockholders elected a new Board of Directors that, except for Christopher C. Chapman, consisted of individuals who had not previously served on our Board of Directors. Immediately following the Annual Meeting, Michael J. Mullan, MBBS (MD) PhD was elected as our Chairman and CEO and Christopher C. Chapman, MD was elected as our President. We also entered into compensation arrangements with Drs. Mullan and Chapman at that time that had been previously summarized in our proxy statement. Also, immediately following our Annual Meeting our CEO, Jonnie R. Williams, Sr. and our Chairman, President and COO, Paul L. Perito, resigned from their prior positions but continued to serve as employees of our company, Mr. Perito as Vice President and Senior Counsel for Legal and Regulatory Affairs and Mr. Williams as a non-executive employee. The discussion and analysis that follows will address compensation matters for 2013 generally, as well as the changes that took place following our Annual Meeting on December 27, 2013 with respect to our Company’s ongoing transition to focus more directly on the drug development area.

Our mission over the past several years has been to move away from the production of tobacco products in favor of promoting the use of certain alkaloids found in tobacco that appear to be beneficial in assisting in maintaining a healthy metabolism and potentially in treating a range of neurological and other conditions. In this regard, we focused on the development of non-nicotine, non-tobacco dietary supplements that provide viable alternatives to tobacco products and anti-inflammatory support, related pharmaceutical products and the licensing of our company’s low tobacco specific nitrosamine, or low-TSNA, curing technology and our other technology. In particular, over the last several years we have been engaged in the production of several nutraceutical, dietary supplements that are marketed under the brand names Anatabloc ^® and CigRx ^® and the development of related pharmaceutical products that are designed to treat a range of conditions including Alzheimer’s disease, Parkinson’s disease, multiple sclerosis, osteoarthritis, dermatological conditions and tobacco dependence. With the change in structure put into place at our Annual meeting in December 2013, we are focusing on the new drug development aspects of our business and are transitioning our activities to meet that objective.

Currently, our revenues are being derived from the sale of our anatabine-based nutraceutical products and a cosmetic line of products that also utilizes our anatabine compound. As we have worked to achieve our corporate objectives over the years, we initially utilized our company’s technology in producing low-TSNA tobacco as a platform to provide a base of financial support for our intellectual property, licensing and development initiatives. However, since 2007, we shifted the focus of our efforts to nutraceuticals and the development of related pharmaceutical products. We ceased manufacturing and selling our low-TSNA, dissolvable tobacco products as of December 31, 2012.

Over the years we also have sought to develop a sophisticated structure for our innovative, technology-based company that could interact at all levels of the government, regulatory, medical and industrial sectors on a broad range of issues relating to the promotion of a healthy metabolism and lifestyle. To achieve this objective, our company sought to engage individuals as our Chief Executive Officer and President who could oversee our company’s existing business and promote a far-ranging approach to the issues facing our company, and be in a position to enlist other individuals as employees and consultants to assist in those initiatives. With the incorporation of our Rock Creek subsidiary in 2007, we also sought to spearhead our development of nutraceuticals and pharmaceuticals which had evolved from our prior investigation of certain alkaloids in tobacco. Further, we worked to staff key executive positions in sales and marketing, finance, legal, investor relations and medical research with individuals who would complement our company’s senior management and provide a level of expertise that would minimize the need to procure those services through external third parties.

Compensation Objectives

In establishing compensation for our company’s executive officers, including our current CEO and President, we have sought to:

Over the last eleven years our company has experienced operating losses on an annual basis. Accordingly since 2002, we had chosen to maintain our executive officers base salary at levels that existed at that time or at levels that were established when certain of our executive officers first joined our company (though see “Base Salary” below for a discussion of recent voluntary reductions in base salary levels for certain of our Named Executives, as well as the new salary information for our new executive officers appointed in December 2013 in connection with our corporate transition) and to limit the use of an incentive-based salary structure as a means of determining salary levels for our executive officers or other employees.

In connection with the recent change in our board and management, we negotiated employment agreements with Drs. Mullan and Chapman in 2013 that contain a combination of base salary, a potential performance cash award during their first year of employment ($150,000 and $75,000 in the case of Drs. Mullan and Chapman, respectively) based on the completion of pre-market testing of a time-released version of Anatabloc ^® and performance based stock options and stock awards. Consistent with our prior practice, those agreements were structured to minimize cash payments and to focus incentive awards on issuance of stock options and stock grants. In 2013 we did not make cash incentive payments to any of our employees, beyond the commission to David Dean on Anatabloc ^® sales discussed below. In April 2012 our Board of Directors, did, upon recommendation of the Compensation Committee, approve the payment of cash bonuses in an aggregate amount of $270,000 to ten of our employees, including three of our executive officers and one of our named executives, in recognition of their efforts in connection with the successful introduction of our Anatabloc ^® dietary supplement. In 2012 the Board of Directors approved a discretionary incentive bonus plan for David Dean under which, beginning in March 2012, he is receiving a commission of one-half of one percent of gross sales of our Anatabloc ^® product and will be entitled to target bonuses of $10,000, $20,000, $50,000 and $100,000 when Anatabloc ^® sales reach gross revenues of $10.0 million, $20.0 million, $50.0 million and $100.0 million, respectively.

As part of the compensation arrangements entered into with Drs. Mullan and Chapman in December 2013, our Board of Directors, upon recommendation of the Compensation Committee, approved awards to Drs. Mullan and Chapman in the amounts of 6,000,000 and 3,000,000 stock options, respectively, and stock grants with a value of $2.5 million and $1.25 million, respectively. The stock options granted to Dr. Mullan were issued in two grants of 3,000,000 each on December 27, 2013 and January 2, 2014. 1,000,000 of the stock grant on December 27, 2013 vested immediately. The stock options granted to Dr. Chapman were issued on December 27, 2013 with 500,000 vesting immediately. The remainder of the stock option awards (5,000,000 for Mr. Mullan and 2,500,000 for Mr. Chapman) and stock grants are subject to performance based vesting criteria contained in Drs. Mullan’s and Chapman’s employment agreements. Between 2008 and 2012, we made stock option awards to certain of our executive officers and other employees in recognition of their continued contribution towards our company’s goals and objectives, particularly our product development initiates. Those grants were intended, in part, to recognize past performance and to provide incentives for future performance in a manner that would not result in immediate cash payments by our company.

In conducting our risk assessment analysis of employee compensation policies and practices, including those for our Named Executives, we have taken into account the fact that our compensation levels have traditionally been limited to base salary and benefits and have not been tied to additional compensation in the form of salary or cash bonus payments for meeting specific performance objectives. Since 2008 we have issued stock options to our Named Executives and other employees; however, most of those stock option grants have vested at the time of issuance and have not been tied to performance criteria. The stock options issued to Drs. Mullan and Chapman in December 2013 and Messrs. Perito and Williams in 2011 contained performance based vesting requirements, but those requirements have been tied to corporate objectives that are aligned to our company’s overall mission, as opposed to specific individual performance criteria. Further, the decision to issue performance based stock options and stock awards was based, in part, on our company’s determination that it would continue its previous policy of maintaining salary levels at prior year levels and, in the case of Drs. Mullan and Chapman, to incentivize their performance while limiting the level of cash payments required as part of their compensation packages. In the case of the incentive bonus plan established in April 2012 for David Dean, our Vice President of Sales and Marketing, that bonus plan is discretionary and may be terminated at any time by our Board of Directors. Also, these bonus payments are tied to sales of our Anatabloc ^® dietary supplement, which has been a principal focus of our company’s sales efforts since the introduction of Anatabloc ^® in 2011. Based on those considerations, we have concluded that our employee compensation policies and practices, including those applicable to our Named Executives, do not create risks that are reasonably likely to have a material adverse effect on us and do not result in an incentive for our Named Executives to take undue risk in order to increase their levels of compensation.

Our compensation determinations have been driven primarily by considerations relating to the ability to attract and retain individuals who could help our company carry out its long-term objectives to promote the maintenance of a healthy metabolism and lifestyle and, in the case of Drs. Mullan and Chapman, to expanded and expedite our efforts in the drug development area. The determinations also have involved an assessment of our company’s progress in obtaining and protecting the intellectual property to which we are the exclusive owner or licensee, and the licensing of that technology, our success in introducing to the market nutraceuticals and pharmaceuticals through Rock Creek, and our success in generating revenue from the licensing of our proprietary technology.

Our Board of Directors has provided its Compensation Committee the primary authority to determine the compensation awards available to our company’s executive officers and the Compensation Committee, in turn, makes recommendations on compensation levels to the Board for its approval after undertaking an analysis of appropriate levels of compensation for our executive officers. To aid the Compensation Committee in making its determinations, on a yearly basis the Compensation Committee is provided an analysis of the compensation levels of our executive officers based on the review of job functions and job responsibilities that have been assumed by particular executive officers and compensation ranges available in comparable positions for individuals with like training and experience. The analysis has been prepared by our company’s General Counsel working with our COO and with input from outside counsel. Our CEO and COO also have provided recommendations, as appropriate, regarding compensation for all executive officers, including themselves. Our company has not engaged a compensation consultant to undertake this analysis. Given our company’s unique position in the area of developing nutraceuticals and pharmaceuticals based on our experience in dealing with non-nicotine alkaloids, the Compensation Committee has considered general market information for similar senior level executives in setting base compensation as opposed to specific industry data, including an analysis of salary levels and benefits for executives in the manufacturing sector in the relevant geographic markets (Richmond, Virginia, Washington, DC and Boston, Massachusetts) where we have had our principal offices. In connection with the consideration of employment contracts for Drs. Mullan and Chapman, the Board, at the request of our Compensation Committee, retained CompensationGPS to provide the Compensation Committee with compensation data and other information as related to the proposed terms of Drs. Mullan’s and Chapman’s employment arrangements, including comparing such terms to both public and private companies in industries similar to the Company, and to advise the Compensation Committee as to the reasonableness of such terms.

In August 2010 through our Rock Creek subsidiary, we introduced our non-nicotine, non-tobacco nutraceutical (CigRx ^® ) and in August 2011 introduced another non-nicotine nutraceutical for anti-inflammatory support (Anatabloc ^® ). We also introduced an Anatabloc ^® cosmetic line in 2012 and 2013. Given the current focus of our company on the drug development area, going forward we expect we will consider the appropriate industry comparison based on the mix of products being sold and developed by our company. In the case of our company’s Vice President and Senior Counsel for Legal and Regulatory Affairs and General Counsel, the Compensation Committee also has undertaken an analysis of compensation for senior partners at major law firms in the Washington, DC area, given the background of our COO and General Counsel in the litigation, regulatory and legislative areas and their active involvement in implementing and coordinating our company’s activities in these areas. The general market information that we have used previously is publicly available aggregated pooled data and, while the Compensation Committee reviews the general market information, it does not see the identity of any of the surveyed companies. Further, the analysis has focused on the extent to which executive officers have assumed multiple functions relating to various aspects of our company’s mission and long-term objectives that in different circumstances likely would have been assumed by other employees. Also, the Compensation Committee considers other factors such as the seniority of our senior executives, and for newer hires, the executive’s base salary at his/her prior place of employment, the duties and responsibilities that the individual will be assuming, the availability of other well-qualified candidates that would be available to carry out our company’s goals and objectives, and the compensation level a potential executive would be able to demand in a similar position with another company or institution. The Compensation Committee reviews the information provided by management and makes its recommendation to the Board of Directors with respect to appropriate compensation levels.

Base Salary

In 2013, the base salary for each of our executive officers, except for Drs. Mullan and Chapman, were set in accordance with the terms of contracts that were entered into prior to 2012 and have been continued without any change in base salary on a month-to-month basis. In November, 2012, Mr. Williams voluntarily agreed to reduce his salary to $1.00 per month beginning in January 2013 until our company becomes profitable and in February 2013, Mr. Perito voluntarily reduced his salary by $500,000 until our company becomes profitable. Also, in February 2013, our General Counsel, Mr. Pokusa, and our CFO, Mr. Dodd, voluntarily agreed to reduce their salaries by $100,000 and $50,000, respectively, until our company becomes profitable. Those decisions were ratified by the Compensation Committee and our Board in December 2012, as to Mr. Williams, and in February 2013, as to Mr. Perito, our General Counsel and our CFO . Further, Messrs. Williams and Perito agreed to maintain the same reduced salary levels in the positions they assumed following our Annual Meeting.

Ancillary Bonuses

As part of the employment agreements entered into with Drs. Mullan and Chapman in December 2013, they are entitled to an ancillary cash bonus of $150,000 and $75,000, respectively, in 2014 if our company introduces a time-release version of Anatabloc ^® . In addition, as part of their employment agreements, they are entitled to stock options and stock grants if certain performance targets identified in their employment agreements are met. In April 2012, two of our Named Executives, David Dean and Park A. Dodd, III, received cash bonuses of $75,000 and $5,000, respectively, as part of a one-time award of an aggregate of $270,000 in cash bonuses paid to a total of ten of our employees in recognition of their efforts in connection with the successful introduction of our Anatabloc ^® dietary supplement.

On an annual-basis, we have paid an ancillary holiday bonus in the amount of $1,500 to executive officers, except for our company’s CEO, COO and at times our CFO. An identical bonus has been paid to our other employees. Such bonuses have been paid as part of a long-standing holiday bonus policy and are not based on executive officers meeting achievement or performance goals.

Equity Incentive Awards

While our Board of Directors believes compensating our executive officers with equity awards helps align the interests of our executive officers with that of our shareholders and enhances the incentive of our company’s executive officers to maximize shareholder value, our Board of Directors recognizes that the number of our shares owned by any director or executive is a personal decision and has not adopted a policy requiring ownership by directors or executives of a minimum number of our shares.

Our executive officers, along with our other employees, are eligible to participate in the award of stock options or restricted stock grants or stock appreciation rights under our 2000 Equity Incentive Plan, or 2000 Plan, and our 2008 Incentive Award Plan. However, to date we have only granted stock options and not shares of restricted stock or stock appreciation rights to our executive officers.

As part of the employment agreements entered into with Drs. Mullan and Chapman on December 27, 2013, our Board of Directors, upon recommendation of the Compensation Committee, granted awards of stock options to Drs. Mullan and Chapman in the amounts of 6,000,000 and 3,000,000, respectively, and stock awards with a value of $2.5 million and $1.25 million, respectively, and which in the case of the stock grants will be based on our company’s closing stock price on the day prior to the vesting of such awards. Of the stock options granted to Drs. Mullan and Chapman, 1,000,000 and 500,000, respectively, vested on the date of the grant and are not subject to any performance conditions. The employment agreements for Drs. Mullan and Chapman provide the following criteria for vesting upon the attainment of the performance goals for the remaining stock option and stock grant awards.

On March 14, 2011 our Board of Directors, upon recommendation of the Compensation Committee, approved an award of stock options to Messrs. Perito and Williams, our former Chairman of the Board and CEO, respectively, as part of new employment agreements entered into with these executive officers in the amount of 4,000,000 and 4,900,000 stock options, respectively. Each of the stock options granted to Messrs. Perito and Williams in 2011 was subject to performance based vesting criteria and stockholder approval. In 2011 sixty-five percent of the stock options granted to Messrs. Perito and Williams (3,185,000 and 2,600,000, respectively) vested based on their meeting two of the performance criteria in their employment agreements and upon stockholder approval of the stock option grants. On December 24, 2013, Mr. Williams forfeited his unvested stock options in the amount of 1,715,000 option shares. On the same date, 1,400,000 option shares, the remaining shares granted to Mr. Perito, vested, upon the determination by our company’s Compensation Committee that a performance criteria covering eighty percent of the stock options had been satisfied.

At December 31, 2013, there were 22,145,000 options issued and outstanding with a weighted average exercise price of $2.27 per share.

Benefits Plans

In order to attract and retain individuals who are capable of carrying out and enhancing our mission, we have provided certain benefits and perquisites to our senior executives that we believe are comparable to those generally available to senior management and were available to those executives in previous positions. In the case of our CEO, President and our former CEO and COO these benefits and perquisites have included the items listed below. Where noted, such benefits also have been provided to other executive officers:

Employment and Severance Arrangements

The executive employment agreements with Drs. Mullan and Chapman contain severance provisions that provide for continued payments of salary and benefits through the term if the agreements are terminated without “Cause” or if either Dr. Mullan or Dr. Chapman resigns for “Good Reason”. In addition, in those circumstances equity awards granted to either Dr. Mullan or Dr. Chapman would be retained with the possibility of vesting if the performance targets discussed above are met. Upon a termination of employment for death or disability, Dr. Mullan or Dr. Chapman, as applicable, would be entitled to continued salary and benefits for the one-year period following death or disability and all then-outstanding equity awards would become fully vested. Upon a change in control of our Company, Dr. Mullan and Dr. Chapman would be entitled to receive a lump sum payment of $2.5 million, respectively, and all then-outstanding equity awards would become fully vested and accelerate.

The executive employment agreements entered into with Messrs. Williams and Perito on March 14, 2011 continued through December 31, 2012 and contained identical severance provisions that provided for the payments of all salary, benefits, bonuses and other compensation that would be due through the term of the contract, if the contract were terminated without “Cause” or if either Mr. Perito or Mr. Williams resigned for “Good Reason”, as set forth in the employment agreements. Beginning in December 2012, the executive employment agreements were amended to continue on a month-to-month basis. Under the amendments the executive employment agreements may be terminated upon notice provided at least 15-days prior to the end of each monthly period. In the event of termination, Mr. Perito or Mr. Williams, as applicable, will be entitled to all salary, benefits, bonuses and other compensation that would be due thereunder through the end of the termination of his contract.

Under the terms of Mr. Dodd’s employment agreement he is entitled to severance payments equal to six months base salary, based on his average salary over the past twelve months or lesser period as applicable, in the event the agreement is terminated without “Cause” or for “Good Reason”, as defined in the agreement. Any severance payments would be made at the same time and in the same manner as salary payments would have been paid to Mr. Dodd during the term of his agreement. The executive employment agreement with Mr. Dean was modified to eliminate any severance payments when his contract was continued on a month-to-month basis after expiration and in connection with the decision to limit Mr. Dean’s compensation at that time to his base salary payments and benefits.

The employment agreements with Drs. Mullan and Chapman and with Messrs. Dean, Dodd, Perito, and Williams each contain noncompetition covenants following the termination of employment as well as covenants relating to the treatment of confidential information disclosed to them during their employment with our company. The noncompetition covenants prohibit these individuals from owning a company or accepting employment with an entity that competes in the same field as our company or soliciting business of the same or similar type being carried on by our company for a period of one year following termination of employment.

We believe that written agreements are in the best interest of our company to retain our current executive officers, to attract prospective executive officers to our company and to provide such individuals with assurances of continued salary and benefits in the event of the termination of their employment relationship. Absent such provisions, we believe that we would have difficulty attracting and retaining the type of executive officers that we believe are critical to our mission and long-term objectives. In the future, it is expected that such contracts will be for multiple-year terms and will contain provisions for base salary, and provisions covering a combination of some or all of bonuses, equity incentive awards and severance provisions.

Taxation of Executive Compensation

We seek to compensate our executive officers in a manner that is tax effective for our company. As appropriate, we seek to structure these compensation arrangements, to the extent applicable, to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.

Consideration of “Say-on-Pay” Vote

Our Board of Directors recognizes the fundamental interest that our stockholders have in the compensation of our executive officers. At our 2013 annual meeting of stockholders, our stockholders approved, on an advisory basis, the compensation of our Named Executive Officers (a “say-on-pay proposal”) as disclosed in the proxy statement for such meeting. Our stockholders approved the say-on-pay proposal by the affirmative vote of 89.5% of the shares cast on that proposal. The Compensation Committee believes that this illustrates our stockholders’ support of our approach to executive compensation. The Compensation Committee will continue to consider the outcome of our company’s say-on-pay proposals when making future compensation decisions for our executive officers. In addition, as previously disclosed, our company’s Board of Directors has determined that it will hold an advisory vote on the compensation of our company’s named executive officers annually until the next required vote on the frequency of stockholder votes on executive compensation, which will occur no later than our annual meeting of stockholders in 2017.

Compensation Committee Report

Our company’s prior Compensation Committee, or Committee, held seven meetings during the fiscal year ended December 31, 2013. Prior to our company’s Annual Meeting, the Committee determined that our company’s current compensation levels were appropriate, as were the compensation arrangements for Drs. Mullan and Chapman. The Committee also ratified the voluntary action by the Company’s CEO, Chairman, President and COO, General Counsel and CFO to voluntarily reduce their salaries until our company is profitable. Based upon discussions with management, the review of the action of the Committee and the review of the Compensation Discussion and Analysis for the year ended December 31, 2013, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis section be included in this Report. Additionally, based on such review, the Compensation Committee has determined that the current levels of compensation of our executive officers are appropriate given their experience, job responsibilities and the diverse management roles that have been assumed by the executive officers.

Benjamin M. Dent

Scott P. Sensenbrenner

Thomas L. Wilson (Chairman)

The foregoing report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, as amended (together, the “Acts”), except to the extent that our company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Acts.

The following table summarizes the compensation paid to the Named Executives employed by our company during 2011, 2012 and 2013, for services rendered in all capacities to our company and its subsidiaries.

For the assumptions used in calculating the value of these awards, see Note 8 to our consolidated financial statements included in “Item 15. Exhibits, Financial Statement Schedules” of our 10-K for the year ended December 31, 2013.

These stock options are subject to performance based vesting criteria. For a description of the vesting schedule upon the attainment of the applicable performance goals, see “Compensation Discussion and Analysis - Discretionary Equity Incentive Awards.”

Option Exercises and Stock Vested During 2013

No stock options were exercised by our Named Executives during the year ended December 31, 2013. In 2011, the stockholders approved a grant of 4,900,000 and 4,000,000 stock options to Mr. Jonnie Williams, Sr, our Company’s former CEO and Paul L. Perito, our company’s Vice President and Senior Counsel for Legal and Regulatory Affairs, and former President and COO, which would vest based on stated performance criteria. In 2011 sixty-five percent of the stock options granted to Messrs. Perito and Williams (3,185,000 and 1,600,000 respectively) vested based on their meeting two of the performance criteria in their employment agreements and upon stockholder approval of the stock option grants. On December 24, 2013 Mr. William’s forfeited his unvested stock options in the amount of 1,715,000 option shares. On the same date, 1,400,000 option shares, the remaining shares granted to Mr. Perito, vested upon the determination by our company’s Compensation Committee that a performance criteria covering eighty percent of the stock options had been satisfied.

Potential Payments Upon Termination or Change of Control

As noted below, certain of our executive officers are entitled to severance upon a termination of employment but are not entitled to any payments solely as a result of agreements that were in effect as of December 31, 2013. The employment agreements are described above under “-Employment and Severance Arrangements”. The following chart sets forth the severance the executive officers would be entitled to receive upon certain terminations of employment, assuming the relevant event occurred on December 31, 2013.

Without Cause . Upon a termination without cause, Dr. Mullan shall be entitled to all salary, benefits, bonuses and other compensation that would be due to him had he served out the remainder of the term of his employment agreement. With respect to Dr. Mullan’s equity awards, such awards shall not vest and accelerate, but rather will continue to vest pursuant to the terms of his employment agreement. Therefore, amounts related to equity awards are not reflected in the table above for this termination event.

Good Reason . Upon a termination for good reason, Dr. Mullan shall be entitled to the same benefits as described above related to a termination without cause.

Change of Control . Upon a termination following a change of control of the company, Dr. Mullan shall be entitled to (i) a cash payment of $2.5 million, (ii) a payment related to any tax liability incurred by him under Section 280G of the Code (which such amounts are not reflected in the table above), and (iii) all outstanding equity awards would become fully vested and accelerate. “ Change in Control ” means: (a) a change in ownership or control of the company effected through a transaction or series of transactions whereby any person or persons acting in concert directly or indirectly acquires beneficial ownership of securities of the company possessing more than fifty present (50%) of the total combined voting power of the company’s securities outstanding immediately after such transaction, or (b) a sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the company to any person or persons acting in concert.

Death . Upon death, Dr. Mullan’s estate would be entitled to all salary and accrued benefits that would have been payable by us to him during the one year period immediately following death. In addition, all outstanding equity awards would become fully vested and accelerate.

Disability . Upon a termination for disability, Dr. Mullan shall be entitled to the same benefits as described above related to a termination upon death.

If Dr. Mullan terminated his employment without cause, or we terminated his employment for good reason, he would only be entitled to accrued and unpaid salary, and all unvested equity awards would be forfeited by him.

Without Cause . Upon a termination without cause, Dr. Chapman shall be entitled to all salary, benefits, bonuses and other compensation that would be due to him had he served out the remainder of the term of his employment agreement. With respect to Dr. Chapman’s equity awards, such awards shall not vest and accelerate, but rather will continue to vest pursuant to the terms of his employment agreement. Therefore, amounts related to equity awards are not reflected in the table above for this termination event.

Good Reason . Upon a termination for good reason, Dr. Chapman shall be entitled to the same benefits as described above related to a termination without cause.

Change of Control . Upon a termination following a change of control of the company, Dr. Chapman shall be entitled to (i) a cash payment of $2.5 million, (ii) a payment related to any tax liability incurred by him under Section 280G of the Code (which such amounts are not reflected in the table above), and (iii) all outstanding equity awards would become fully vested and accelerate. “ Change in Control ” means: (a) a change in ownership or control of the company effected through a transaction or series of transactions whereby any person or persons acting in concert directly or indirectly acquires beneficial ownership of securities of the company possessing more than fifty present (50%) of the total combined voting power of the company’s securities outstanding immediately after such transaction, or (b) a sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the company to any person or persons acting in concert.

Death . Upon death, Dr. Chapman’s estate would be entitled to all salary and accrued benefits that would have been payable by us to him during the one year period immediately following death. In addition, all outstanding equity awards would become fully vested and accelerate.

Disability . Upon a termination for disability, Dr. Chapman shall be entitled to the same benefits as described above related to a termination upon death.

If Dr. Chapman terminated his employment without cause, or we terminated his employment for good reason, he would only be entitled to accrued and unpaid salary, and all unvested equity awards would be forfeited by him.

Without Cause . Upon a termination without cause, Mr. Dodd shall be entitled to continued salary of $100,000.

Good Reason . Upon a termination for good reason, Mr. Dodd shall be entitled to continued salary of $100,000.

Without Cause . Upon a termination without cause, Mr. Perito shall be entitled to all salary, benefits, bonuses and other compensation that would be due to him had he served out the remainder of the term of his employment agreement — However, Mr. Perito’s employment agreement is currently on a month to month basis, and thus, amounts in this column reflect only one month of such salary, benefits, bonuses and other compensation. With respect to Mr. Perito’s equity awards, such awards shall not vest and accelerate, but rather will continue to vest pursuant to the terms of his employment agreement. However, as of the date hereof, all such equity awards are fully vested, and thus are not reflected in the table above for this termination event.

Good Reason . Upon a termination for good reason, Mr. Perito shall be entitled to the same benefits as described above related to a termination without cause.

Change of Management . Termination by Mr. Perito upon Certain Change of Management. Thirty (30) days after delivery by Mr. Perito to the company of a written notice terminating his agreement upon (a) a change in the senior management of the company resulting from the death or disability of Mr. Williams Sr., or (b) a removal and replacement of a majority of the Board of Directors, including such other persons elected to serve as directors with the approval of the Board of Directors subsequent to the date of the employment agreement, by the stockholders of the company at a special meeting of the stockholders, held in accordance with the terms of the company’s Certificate of Incorporation and By-Laws and in accordance with all applicable laws, called by a stockholder or a group of stockholders of the company for such purpose, in which event the company shall, within thirty (30) days following the effective date of termination, pay Mr. Perito the sum of $2,500,000. The company shall also pay any tax due by Mr. Perito under Section 280G of the Code as a result of any payment to Mr. Perito under this termination event (and such amounts are not reflected in the table above).

Death . Upon death, Mr. Perito’s estate would be entitled to all salary and accrued benefits that would have been payable by us to him during the one year period immediately following death. In addition, all outstanding equity awards would become fully vested and accelerate. However, as of the date hereof, all such equity awards are fully vested, and thus are not reflected in the table above for this termination event.

Disability . Upon a termination for disability, Mr. Perito shall be entitled to the same benefits as described above related to a termination upon death.

Without Cause . Upon a termination without cause, Mr. Williams shall be entitled to all salary, benefits, bonuses and other compensation that would be due to him had he served out the remainder of the term of his employment agreement. However, Mr. Williams’s employment agreement is currently on a month to month basis, and thus, amounts in this column reflect only one month of such salary, benefits, bonuses and other compensation.With respect to Mr. William’s equity awards, such awards shall not vest and accelerate, but rather will continue to vest pursuant to the terms of his employment agreement. However, as of the date hereof, all such equity awards are fully vested, and thus are not reflected in the table above for this termination event.

Good Reason . Upon a termination for good reason, Mr. Williams shall be entitled to the same benefits as described above related to a termination without cause.

Change of Management . Termination by Mr. Williams upon Certain Change of Management. Thirty (30) days after delivery by Mr. Williams to the company of a written notice terminating his agreement upon (a) a change in the senior management of the company resulting from the death or disability of Mr. Perito, or (b) a removal and replacement of a majority of the Board of Directors, including such other persons elected to serve as directors with the approval of the Board of Directors subsequent to the date of the employment agreement, by the stockholders of the company at a special meeting of the stockholders, held in accordance with the terms of the company’s Certificate of Incorporation and By-Laws and in accordance with all applicable laws, called by a stockholder or a group of stockholders of the company for such purpose, in which event the company shall, within thirty (30) days following the effective date of termination, pay Mr. Williams the sum of $2,500,000. The company shall also pay any tax due by Mr. Williams under Section 280G of the Code as a result of any payment to Mr. Williams under this termination event (and such amounts are not reflected in the table above).

Death . Upon death, Mr. William’s estate would be entitled to all salary and accrued benefits that would have been payable by us to him during the one year period immediately following death. In addition, all outstanding equity awards would become fully vested and accelerate. However, as of the date hereof, all such equity awards are fully vested, and thus are not reflected in the table above for this termination event.

Disability . Upon a termination for disability, Mr. Williams shall be entitled to the same benefits as described above related to a termination upon death.

For purposes of Dr. Mullan’s and Chapman’s, and Messrs. Dodd’s, Perito’s and William’s agreements, the following terms are defined as set forth below:

“ Disability ” means: A physical or mental condition, verified by a physician designated by the company, which prevents executive from carrying out one or more of the material aspects or essential functions of his assigned duties for at least ninety (90) consecutive days, or for a total of ninety (90) days in any six (6) month period.

“ Cause ” means:

(a) Executive shall have committed an act of dishonesty, fraud, embezzlement or theft with respect to the property, business or affairs of the company, in any such event in such a manner as to cause material loss, damage or injury to the company;

(b) Executive shall have materially breached his employment agreement and such breach shall have continued for a period of twenty (20) days after receipt of written notice from the company specifying such breach;

(c) Executive shall have been grossly negligent in the performance of his duties under the employment agreement, intentionally not performed or misperformed any of such duties, or refused to abide by or comply with the directives of the company’s Board of Directors, which action shall have continued for a period of twenty (20) days after receipt of written notice from the company demanding such action cease or be cured;

(d) Executive shall have been found guilty of, or has plead nolo contendere to, the commission of a felony offense or other crime involving moral turpitude; or

(e) Executive shall have abused alcohol or drugs (legal or illegal) that, in the reasonable judgment of the company’s Board of Directors, materially impairs executive’s ability to perform his duties hereunder.

“ Good Reason ” means:

(a) The assignment of executive to any duties inconsistent with, or any adverse change in, executive's positions, duties, responsibilities, functions or status with the company, or the removal of executive from, or failure to reelect executive to, any of such positions; provided, however, that a change in executive's positions, duties, responsibilities, functions or status that executive shall agree to in writing shall not be an event of “Good Reason”;

(b) A reduction by the company of executive’s base salary without his written consent;

(c) The failure by the company to continue in effect for executive any material benefit provided under his employment agreement or otherwise available to any of the management executives of the company, including without limitation, any retirement, pension or incentive plans, life, accident, disability or health insurance plans, equity or cash bonus plans or savings and profit sharing plans, or any action by the company which would adversely affect executive's participation in or reduce executive's benefits under any of such plans or deprive executive of any fringe benefit enjoyed by Executive; or

(d) Any other material breach by the company of the employment agreement which is not cured within twenty (20) days of delivery of written notice thereof by executive to the company.

 Dual Position of CEO and Chairman

We previously separated the positions of Chairman of the Board and Chief Executive Officer.  However, in connection with the corporate transition effected by us in December 2013, these positions were combined to be held by Dr. Mullan.  We believe that this Board leadership structure is appropriate for our company at this time, in that the combined role of the Chairman of the Board and the Chief Executive Officer promotes unified leadership and direction for the company, allowing for a single, clear focus for management to execute the company’s strategy and business plan, while also providing for effective oversight by an independent Board. We believe the Chief Executive Officer is in the best position to focus the independent directors’ attention on the issues of greatest importance to the company and its stockholders.   We believe these factors are particularly important in light of the corporate transition, and the importance of Dr. Mullan being able to set the agenda for the company.  We believe that our overall corporate governance policies and practices combined with the strength of our independent directors minimize any potential conflicts that may result from combining the roles of our Chairman of the Board and our Chief Executive Officer. As part of its annual self-assessment, the Board will consider whether the current leadership structure continues to be optimal for the company and its stockholders.

Board of Director Compensation

In compensating directors, our company has sought to use a combination of payments for participation in director and committee meetings, initial anniversary stock option grants and periodic stock option grants. The combination of payments for meeting attendance and stock option grants is intended to motivate and align the interest of the directors with that of our company. Also, we have sought to use the combination of payments to directors for attendance at meetings and stock option grants to attract directors who have particular skills and expertise that would complement our company’s mission, particularly in the area of finance, new product development, medical research, and other health-related areas.

Each of our company’s independent directors, as so classified by our Board of Directors, or the Independent Directors, is granted a stock option to purchase up to 50,000 shares of our common stock on the date such Independent Director is first elected to the Board of Directors, vesting in equal installments on each of the first two anniversaries of the date of grant. As an annual retainer, each Independent Director additionally receives a stock option to purchase up to 50,000 shares of our common stock granted on each anniversary of such Independent Director’s initial election to the Board of Directors, exercisable immediately. Each Independent Director also receives a payment of $4,500 for participation in each meeting of the Board of Directors and any committee meeting attended personally and $3,500 for participation in each meeting of the Board of Directors and any committee meeting attended telephonically, subject to a cap of $6,000 for multiple in-person or telephonic meetings on the same day. Additionally, the chairman of the Audit Committee is to receive a separate fee of $20,000 per year for services in that capacity, although the fee has been waived at times in the past, and the chairman of the Compensation Committee is to receive a separate fee of $15,000 per year for services in that capacity.

Messrs. Dent, Sensenbrenner and Wilson have been designated as our current Independent Directors. This designation of independence is intended solely for the purpose of clarifying which directors are entitled to compensation for their services as directors. Directors not designated as Independent Directors generally are those who in the past have been employees of our company, or who have waived their right to receive director compensation. Directors who are employees of our company receive compensation in their capacity as employees but do not receive any compensation for board or committee meetings, nor do they receive the “options package” made available to individuals serving as Independent Directors.

The following table sets forth, for our company’s Independent Directors, certain information regarding fees earned and equity awards granted during the year ended December 31, 2013.

The following represents the number of options granted to each Independent Director in 2013 and the total number of options held by each Independent Director as of December 31, 2013.

Compensation Committee Interlocks and Insider Participation

No member of our Board of Director’s Compensation Committee, each of whom is listed under “-Compensation Committee Report,” has served as one of our officers or employees at any time. None of our executive officers served during 2013 as a member of the board of directors or as a member of a compensation committee of any other company that has an executive officer serving as a member of our Board of Directors or Compensation Committee.