(10) Stockholders’ Equity

Stock Issuances

Reverse Stock Split

On February 24, 2014, shareholders of the Company approved, through a shareholder vote, an amendment to the Company’s Amended and Restated Certificate of Incorporation authorizing the Board of Directors to effect a reverse stock split of Delcath’s common stock. The reverse stock split became effective on April 8, 2014 at which time Delcath’s common stock began trading on the NASDAQ Stock Exchange on a one-for-sixteen (1:16) split-adjusted basis. All owners of record as of the close of the NASDAQ market on April 8, 2014 received one issued and outstanding share of Delcath common stock in exchange for sixteen issued and outstanding shares of Delcath common stock. No fractional shares were issued in connection with the reverse stock split. All fractional shares created by the one-for-sixteen exchange were rounded up to the next whole share. The reverse stock split had no impact on the number of common shares authorized or the par value per share of Delcath common stock, which remain 170,000,000 and $0.01, respectively. All current and prior period amounts related to shares, share prices and earnings per share, presented in these Consolidated Financial Statements and the accompanying Notes have been restated to give retrospective presentation for the reverse stock split.

At-the-Market (“ATM”) Programs

In December 2011, the Company entered into an agreement with Cowen and Company, LLC (“Cowen”) to sell shares of its common stock, par value $.01 per share, from time to time, through an ATM equity offering program having aggregate sales proceeds of $39.8 million, under which Cowen would act as sales agent. During the first quarter of 2013, the Company sold approximately 0.9 million shares of its common stock under this ATM program for proceeds of approximately $20.9 million, with net cash proceeds after related expenses of approximately $20.8 million, and successfully completed the program. As of March 31, 2013, there were no shares of common stock of the Company remaining for sale under this ATM program.

In March 2013, the Company entered into a new agreement with Cowen to sell shares of the Company’s common stock, par value $.01 per share, from time to time, through an ATM equity offering program having aggregate sales proceeds of $50.0 million, under which Cowen will act as sales agent. During the year ended December 31, 2013, the Company sold approximately 1.0 million shares of its common stock under this ATM program for proceeds of approximately $5.0 million, with net cash proceeds after related expenses of approximately $4.8 million. During the year ended December 31, 2014 the Company sold an additional 1.0 million shares of its common stock under this ATM program for proceeds of approximately $4.8 million, with net cash proceeds after related expenses of approximately $4.7 million. The shares were issued pursuant to an effective registration statement on Form S-3 (333-187230). The net proceeds will be used for general corporate purposes, including, but not limited to, commercialization of its products, obtaining regulatory approvals, funding of clinical trials, capital expenditures and working capital. As of December 31, 2014, the Company has approximately $39.9 million available under the program subject to market conditions and certain limitations.

Committed Equity Financing Facility (“CEFF”) Program

In December 2012, the Company entered into a two-year agreement with Terrapin Opportunity, L.P. (“Terrapin”) for a CEFF program. Under the agreement Terrapin committed to purchase up to $35.0 million of Delcath common stock over a 24-month term. Since inception, the Company has sold approximately 0.5 million shares of its common stock through the program for total proceeds of approximately $11.1 million, with net cash proceeds after related expenses of approximately $10.8 million. The shares were issued pursuant to an effective registration statement on Form S-3 (333-183675). The net proceeds have been used for general corporate purposes including, but not limited to, commercialization of its products, funding of clinical trials, obtaining regulatory approvals, capital expenditures and general working capital needs. The agreement expired in December 2014.

The Company currently has two active registration statements on Forms S-3. Form S-3 limits the aggregate market value of securities that Delcath is permitted to offer in any 12 month-period under Form S-3 to one-third of its public float. Given the Company’s offering in February 2015, other sales under the market equity offering program during the relevant 12 month-period, and Delcath’s current aggregate market value of securities, the Company is at the applicable limit under Form S-3. As a result, unless the market value of Delcath’s securities increases the Company’s ability to raise capital may be impaired and Delcath is currently unable to utilize the Form S-3 or access its at the market equity offering program.

Stock Incentive Plans

The Company established the 2004 Stock Incentive Plan and the 2009 Stock Incentive Plan (collectively, the “Plans”) under which 187,500, and 406,250 shares, respectively, were reserved for the issuance of stock options, stock appreciation rights, restricted stock, stock grants and other equity awards. A stock option grant allows the holder of the option to purchase a share of the Company’s common stock in the future at a stated price. The Plans are administered by the Compensation and Stock Option Committee of the board of directors which determines the individuals to whom awards shall be granted as well as the type, terms and conditions of each award, the option price and the duration of each award.

Options granted under the Plans vest as determined by the Company’s Compensation and Stock Option Committee and expire over varying terms, but not more than ten years from the date of grant. Stock option activity for 2014, 2013, and 2012 is as follows:

	Number of Options			Exercise Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)


Outstanding at January 1, 2012		258,069		$	19.68-248.64	$	81.45		6.38
Granted		75,437			22.88-73.60		60.80
Expired		(26,251	)		30.08-72.32		76.90
Forfeited		(8,013	)		36.16-146.88		80.87
Outstanding at December 31, 2012		299,242		$	19.68-248.64	$	76.66		6.88
Granted		130,328			4.80-34.08		17.41
Expired		(16,874	)		6.08-197.44		63.50
Forfeited		(160,538	)		19.68-29.92		24.47
Outstanding at December 31, 2013		252,158		$	4.80 – 248.64	$	57.90		7.36
Granted		165,000			1.24 – 2.42		1.78
Expired		(45,666	)		4.80 – 110.40		47.54
Forfeited		(89,757	)		4.80 – 248.64		67.58
Outstanding at December 31, 2014		281,735		$	1.24 – 245.12	$	23.63		8.83
Exercisable at December 31, 2014		55,634		$	21.12 – 245.12	$	99.23		6.08

For the years ended December 31, 2014, 2013 and 2012 the Company recognized compensation expense related to stock option grants of approximately $0.4 million, $0.2 million and $2.8 million, respectively.

The estimated fair value of each option award granted was determined on the date of grant using an option pricing model with the following assumptions for option grants during the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
	2014			2013			2012
Weighted average risk-free interest rate		1.53	%		1.30	%		1.11	%
Weighted average expected volatility		96.68	%		92.31	%		79.89	%
Expected volatility		95.47%-98.14	%		86.16%-97.21	%		77.37%-84.81	%
Dividend yield		0.00	%		0.00	%		0.00	%
Weighted average expected option term (in years)		4.5			5.66			6.17
Weighted average grant date fair value	$	1.78		$	17.41		$	60.80

No dividend yield was assumed because the Company has never paid a cash dividend on its common stock and does not expect to pay dividends in the foreseeable future. Volatilities were developed using the Company’s historical volatility. The risk-free interest rate was developed using the U.S. Treasury yield for periods equal to the expected life of the stock options on the grant date. The expected option term for grants made during 2014, 2013 and the second half of 2012 is based on actual historical results. The expected option term for grants made prior to that was developed based on the mid-point between the vesting date and the expiration date of each respective grant as permitted under ASC 718. This method of determining the expected holding period was utilized because the Company did not have sufficient historical experience from which to estimate the period.

A summary of the Company’s non-vested options to purchase shares as of December 31, 2014 and changes during the year ended December 31, 2014 and December 31, 2013 are presented below:

	Non-Vested Options
	Number of Options			Weighted Average Exercise Price

Non-vested at January 1, 2013		105,143		$	74.85
Granted		130,328			17.41
Vested		(42,893	)		85.99
Forfeited		(73,968	)		53.93
Non-vested at December 31, 2013		118,610		$	20.76
Granted		165,000			1.78
Vested		(46,737	)		26.35
Forfeited		(10,772	)		35.92
Non-vested at December 31, 2014		226,101		$	5.03

Additional compensation expense of $0.2 million, relating to the unvested portion of stock options granted, is expected to be recognized over a remaining average period of 0.89 years.

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2014 is $0. The aggregate intrinsic value represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s closing stock price of $1.21 as of December 31, 2014, which would have been received by the option holders had those option holders exercised their options as of that date.

A summary of the Company’s restricted stock activity as of December 31, 2014 and changes during the year ended December 31, 2014 and December 31, 2013 are presented below:

	Restricted Stock Activity
	Number of Shares			Weighted Average Grant Date Fair Value

Non-vested at January 1, 2013		31,267		$	52.02
Granted		17,258			6.73
Vested		(19,582	)		41.14
Forfeited		(8,596	)		69.16
Non-vested at December 31, 2013		20,347		$	16.84
Granted		62,504			2.60
Vested		(18,815	)		13.60
Forfeited		(34,237	)		3.40
Non-vested at December 31, 2014		29,799		$	4.46

For the years ended December 31, 2014, 2013 and 2012 the Company recognized compensation expense related to restricted stock grants of approximately $0.01 million, $0.01 million and $1.0 million, respectively. Additional compensation expense of $0.04 million relating to the unvested portion of restricted stock granted is expected to be recognized over a remaining average period of 0.5 years.

Warrants

The Company allocated part of the proceeds of public offerings in 2009, 2012 and 2013 of the Company’s common stock to warrants issued in connection with those transactions. A summary of warrant activity is as follows:

	Warrants			Exercise Price per Share		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)

Outstanding at January 1, 2012		157,063		$	55.04 – 57.60	$	56.10		1.45
Issued		407,695					26.40
Exercised		(185,967	)				23.84
Expired		(26,127	)				23.84
Outstanding at December 31, 2012		352,664		$	19.20	$	19.20		2.24
Issued		589,500					7.04
Exercised		(12,669	)				19.20
Expired		–					–
Outstanding at December 31, 2013		929,495		$	2.56 – 7.04	$	5.40		3.51
Issued		–					–
Exercised		(49,139	)				2.56
Expired		(30,218	)				2.56
Outstanding at December 31, 2014		850,138		$	1.75 – 7.04	$	5.42		2.78