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Stock Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock Based Compensation [Abstract]  
Stock Based Compensation

12.    Stock Based Compensation

Options to Purchase Shares of Common Stock — The Company follows the provisions ASC 718 which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

For stock options granted as consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC Topic 505-50, Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, is being re-measured using the fair value of the Company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of all its option grants. For options grants issued for the year ended December 31, 2011 and 2010, the following assumptions were used:

 

         
    2011   2010

Weighted average risk free interest rate

   0.92% - 3.16%   1.88% - 3.28%

Weighted average volatility

   98.61% - 113.87%   118.3% - 133.62%

Expected lives (years)

   4.71 - 9.25   6 - 10

Expected dividend yield

   0%   0%

The weighted average fair value of options granted during the years ended December 31, 2011 and 2010 was $0.89 and $4.31 per share, respectively.

The Company’s expected common stock price volatility assumption is based upon the volatility of a basket of comparable companies. The expected life assumptions for employee grants were based upon the simplified method provided for under ASC 718-10, which averages the contractual term of the Company’s options of ten years with the average vesting term of four years for an average of six years. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption of zero is based upon the fact that Galena has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. The Company has estimated an annualized forfeiture rate of 15% for options granted to its employees, 8% for options granted to senior management and no forfeiture rate for the directors. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.

The Company recorded approximately $3,001,000 and $4,368,000 of stock-based compensation for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $1,012,000 of unrecognized compensation cost related to outstanding options that is expected to be recognized as a component of the Company’s operating expenses over a weighted average period of 3.3 years.

 

On November 4, 2009, as part of a plan succession in leadership, Tod Woolf, Ph.D., resigned as our President, Chief Executive Officer and a member of our Board of Directors. According to the Separation Agreement between Dr. Woolf and the Company, Dr. Woolf received in one lump sum payment his full severance equivalent to a six (6) month salary ($187,500), six (6) months acceleration of vesting of all of his outstanding unvested Stock Options as of November 4, 2009, and an offer to join the Company’s Scientific Advisory Board (SAB) for 3 years (the “New Position”). In addition, and as part of the Separation Agreement, the Company agreed to extend the exercise period for all of Dr. Woolf’s vested Stock Options as of November 4, 2009, to the later of: (i) a period of two (2) years from his resignation (until November 4, 2011), or (ii) ninety (90) days following the end of the term of the SAB Agreement (February 4, 2013) or such earlier date as the SAB Agreement may be terminated pursuant to the terms of the SAB Agreement provided Dr. Woolf has not violated the non-competition provisions of the SAB Agreement prior to the date of exercise (whether or not the SAB Agreement is still in effect at that time). Notwithstanding any provision of the Company’s 2007 Incentive Plan, the Company also agreed that Dr. Woolf’s previously awarded Stock Options shall continue to vest during his continuing role in the Company in the New Position. The total expense for 2011 and 2010 was $65,000 and $193,000, respectively.

During the fiscal year ended December 31, 2011, we granted to our President and Chief Executive Officer 300,000 stock options subject to performance-based vesting. The aggregate fair market value of the stock option grant was valued using the lattice model and is being amortized to compensation expense over the vesting period. Compensation expense recognized related to this grant was approximately $23,000 for the year ended December 31, 2011.

As of December 31, 2011, an aggregate of 8,750,000 shares of common stock were reserved for issuance under the Company’s 2007 Incentive Plan, including 6,163,137 shares subject to outstanding common stock options granted under this plan and 1,299,717 shares available for future grants. The administrator of the plan determines the times when an option may become exercisable. Vesting periods of options granted to date include vesting upon grant to vesting at the end of a four year period. The options will expire, unless previously exercised, no later than ten years from the grant date. The Company is using unissued shares for all shares issued for options, restricted share awards and ESPP issuances.

The following table summarizes the options’ activity of the Company’s stock option plan:

 

                 
    Stock
Options		     Weighted
Average
Exercise Price		  

Outstanding — January 1, 2010

     3,582,339     $ 5.16  

Granted

     926,768       4.81  

Exercised

     (53,500 )      4.75  

Forfeited

     (122,471 )      4.85  
   

 

 

          

Outstanding — December 31, 2010

     4,333,136       5.10  

Granted

     3,322,500       1.21  

Exercised

     —       —  

Forfeited

     (1,492,499 )      4.99  
   

 

 

          

Outstanding — December 31, 2011

     6,163,137       3.03  
   

 

 

          

Exercisable — December 31, 2010

     3,155,900       5.22  
   

 

 

          

Exercisable — December 31, 2011

     4,673,768       3.40  
   

 

 

          

The weighted average remaining contractual life of options outstanding and exercisable at December 31, 2011 was 7.87 years and 7.56 years, respectively. The weighted average remaining contractual life of options outstanding and exercisable at December 31, 2010 was 7.35 years and 7.09 years, respectively.

The aggregate intrinsic value of outstanding options as of December 31, 2011 and 2010 is $0 and $137,000, respectively. The aggregate intrinsic value of exercisable options as of December 31, 2011 and 2010 is $0 and $34,000, respectively. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.

The aggregate intrinsic value of options exercised during 2010 was approximately $164,000. There were no options exercised during 2011.

Employee Stock Purchase Plan — The Company also has an employee stock purchase plan (“ESPP”) which allows employees to contribute up to 15% of their cash earnings, subject to certain maximums, to be used to purchase shares of our common stock on each semi-annual purchase date. The purchase price is equal to 85% of the market value per share on either the first or last day of the semi-annual period, whichever is lower. Our ESPP is non-compensatory pursuant to the provisions of generally accepted accounting principles for share-based compensation expense. The ESPP contains an “evergreen provision” with annual increases in the number of shares available for issuance on the first day of each year through January 1, 2015 equal to the lesser of: (a) 250,000 shares increased on each anniversary of the adoption of the Plan by one percent (1%) of the total shares of stock then outstanding and (b) 1,000,000 shares. As of December 31, 2011, an aggregate of 231,176 shares of common stock were authorized and available for issuance under the ESPP. Under the evergreen provision, on January 1, 2012, an additional 250,000 shares were authorized under our ESPP. The Company has issued 18,824 shares under the ESPP through December 31, 2011.

Restricted Stock Units — In addition to options to purchase shares of common stock, the Company may grant restricted stock units (“RSU”) as part of its compensation package. Each RSU is granted at the fair market value based on the date of grant. Vesting is determined on a grant by grant basis.

In 2011 and 2010, the Company granted a total of 220,728 and 43,541 RSUs, respectively. The RSUs granted in 2011 and 2010 had an aggregate intrinsic value of $256,000 and $112,000. As of December 31, 2011 and 2010, all of the RSUs had vested in full.