10. Restructuring

In July 2012, the Company, at the direction of its Board of Directors, initiated a corporate restructuring under which the number of employees were significantly reduced, retaining only those employees necessary to continue the Company’s efforts to obtain marketing approval for Northera in the United States. This reduction in force primarily, but not exclusively, impacted those positions that had been filled in 2011 and 2012 to support the planned commercialization of Northera in the United States. In addition, the Company’s Chief Executive Officer, or CEO, and its Vice President of Sales and Marketing left the Company. The Company’s Vice President of Operations was appointed interim President and CEO and in January 2013 was named President and CEO and appointed to the Company’s Board of Directors. At the Board level, the Chairman of the Board stepped down, but remains a director while another existing director assumed the role of Chairman. The former CEO and two other directors also resigned from the Board.

As a result of the significant headcount reduction and given the increased workloads for those employees and directors that remain with the Company, the costs savings initiatives announced on June 7, 2012 involving a 25% reduction in pay for all corporate executive officers and a similar reduction in directors’ fees were terminated. Nearly all of the non-officers who were to have transitioned to part-time employment pursuant to that costs savings initiative have been terminated as part of the reduction in force. Those non-officers remaining with the Company that were to have transitioned to reduced schedules have been reinstated as full-time employees. The previously announced suspension of 2012 performance bonuses for all employees remains in effect. A performance bonus program is expected to be reestablished for 2014.

Other than severance payments that continue to be made to its former CEO per the terms of his severance agreement, the Company completed all other severance payments related to the reduction in force in early 2013. As a component of his departure, the Company accelerated the vesting of all unvested options that had been previously granted to its former CEO and extended the period in which those options could be exercised from 90 days from the date of termination to two years from that date. All options granted to the former CEO remain unexercised and outstanding at December 31, 2013. For the directors that resigned from the Board, the Company accelerated the vesting of all unvested options that had been previously granted and extended the period in which those options could be exercised from 180 days from the date of separation to one year from that date. Of those, options for the purchase of 100,210 shares were exercised in 2012 and 2013 while options for the purchase of 335,000 shares expired unexercised in July 2013. For the former Vice President of Sales and Marketing, the Company agreed that options would continue to vest and could be exercised until the end of his severance period plus 90 days. All such options expired unexercised in May 2013. Given that all of these options were out of the money as of the dates of the modifications, the impact of these exercise and vesting period modifications did not generate any incremental stock-based compensation expense. However, as such modifications are required to be treated as a cancellation of the original grants and the issuance of a new grant, adjustments were needed in order to true-up stock-based compensation expense recorded for those options in 2012 based upon their adjusted fair value.

To assist in retention, the Board granted the remaining executive officers options for the purchase of an aggregate of 350,000 shares of the common stock of the Company on July 9, 2012. On July 23 and July 30, 2012, additional options were issued to the remaining members of the Board of Directors for the purchase of an aggregate of 157,500 shares of the common stock of the Company. On August 15, 2012, options were granted to the remaining employees in the Company for the purchase of an aggregate of 319,500 shares of the common stock of the Company. In the aggregate, the Company issued options for the purchase of 827,000 shares of the common stock of the Company.

During 2012, the Company established a reserve related to the costs of the restructuring totaling approximately $ 2.5 million. As of December 31, 2013, the Company had made cash payments of approximately $ 2.1 million related to this reserve and had made other non-cash adjustments of approximately $ 0.1 million. The activity associated with the reserve established by the Company for restructuring charges associated with these actions for the year ended December 31, 2013 are as follows:

	Restructuring						Adjustments,		Restructuring
	Liabilities as of						Non-cash items		Liabilities as of
	December 31,		Charges to the		Cash		and Changes		December 31,
	2012		Reserve		Payments		to Estimates		2013
Employee related costs:
Severance and salary continuation	$	814,028	$	-	$	(543,396)	$	(11,493)	$	259,139
Related payroll taxes		19,926		-		(18,876)		10,230		11,280
Benefits		7,230		-		(8,493)		1,263		-
Other costs		-		-		-		-		-
Totals	$	841,184	$	-	$	(570,765)	$	-	$	270,419