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Employee Stock Compensation Plans
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Employee Stock Compensation Plans

9. Employee stock compensation plans:

 

a.)     The 2006 Plan

 

On June 27, 2006, Solitario's shareholders approved the 2006 Stock Option Incentive Plan (the "2006 Plan"). Under the terms of the 2006 Plan, the Board of Directors may grant up to 2,800,000 options to Directors, officers and employees with exercise prices equal to the market price of Solitario's common stock at the date of grant.

 

Solitario accounts for its stock options under the provisions of ASC 718 “Compensation – Stock Compensation.” Pursuant to ASC 718, as of January 1, 2011, Solitario classifies its stock options as equity options in accordance with ASU 2010-13. Previously, Solitario had classified its stock options as liabilities as they are priced in Canadian dollars and Solitario’s functional currency is United States dollars and Solitario’s common stock trades on both the NYSE Amex Equities (“NYSE-Amex”) and the Toronto Stock Exchange (“TSX”). Prior to January 1, 2011, Solitario recorded a liability for the fair value of the vested portion of outstanding options based upon a Black-Scholes option pricing model.

 

During the year ended December 31, 2011, options for 150,600 shares were exercised at prices between Cdn$1.55 and Cdn$2.40 per share for cash proceeds of $247,000. There were no options exercised during 2010 or 2009. There were no options forfeited during 2011 or 2010.

 

During 2009, Solitario attempted to acquire Metallic Ventures, Inc. (“Metallic Ventures”). On October 13, 2009, concurrent with the signing of an amendment to an agreement with Metallic Ventures, Inc., certain holders of 1,935,000 options agreed to voluntarily cancel the options listed below. None of the cancelled options had any intrinsic value on the date of cancellation. The cancellations of the options were effected to allow Solitario to have enough authorized and unissued shares of its common stock to increase the share consideration offered to Metallic Ventures pursuant to the Amendment. No consideration was paid or received for the cancellation of the options. The following table details the options cancelled on October 13, 2009:

 

         
Option Price Cdn$2.77 Cdn$4.38 Cdn$4.53 Cdn$5.12
Option expiration date 06/27/2011 02/08/2012 09/07/2012 06/14/2012
Cancelled options 1,388,000 5,000 442,000 100,000

 

b.)     Stock option compensation

 

Solitario’s outstanding options on the date of grant have a five-year term, and vest 25% on date of grant and 25% on each of the next three anniversary dates. Solitario recognizes stock option compensation expense on the date of grant for 25% of the grant date fair value, and subsequently, based upon a straight line amortization of the unvested grant date fair value of each of its outstanding options. Solitario granted 2,065,000 options on May 5, 2010, with a grant date fair value of $2,449,000, based upon a Black-Scholes option pricing model resulting in a weighted average fair value of $1.19 per share. Solitario granted 519,000 options on May 19, 2009, with a grant date fair value of $339,000, based upon a Black-Scholes pricing model resulting in a weighted average grant date fair value of $0.65 per share. Solitario recorded $697,000 of stock option expense during 2011 for the amortization of grant date fair value with a credit to additional paid-in capital.

 

Prior to January 1, 2011, Solitario recorded a stock option liability for the vested fair value of each option grant on the measurement date by multiplying the estimated fair value determined using the Black-Scholes model by the percent vested of the option on the measurement date. Solitario recognized $2,513,000 in stock option compensation expense during 2010 and Solitario recognized a $269,000 stock option compensation benefit during 2009 for the change in the estimated fair value of outstanding options. At December 31, 2010, the fair value of outstanding options granted under the 2006 Plan was determined utilizing the following assumptions and a Canadian dollar to United States dollar exchange rate of 0.99994.

 

Fair Value at December 31, 2010

Grant Date 5/5/10 5/19/09
Plan 2006 Plan 2006 Plan
Option price (Cdn$) $2.40 $1.55
Options outstanding 2,065,000 519,000
Expected life 4.4 yrs 3.4 yrs
Expected volatility 62% 66%
Risk free interest rate 1.6% 1.1%
Weighted average fair value $2.24 $2.54
Portion of vesting at measurement date 41.6% 64.6%
Fair value of outstanding vested options $1,924,000 $851,000

 

c.)      Stock option compensation

 

The following table summarizes the activity for stock options outstanding under the 2006 Plan as of December 31, 2011, with exercise prices equal to the stock price, as defined, on the date of grant and no restrictions on exercisability after vesting:

 

  Shares issuable on
outstanding
Options		 Weighted average
 exercise Price
(Cdn$)		 Weighted
average
remaining
contractual term
 in years		 Aggregate
intrinsic
value(1)
2006 Plan        
  Outstanding, beginning of year     2,584,000 $2.23    
    Granted -        
    Exercised (150,600) $1.60    
    Forfeited -        
  Outstanding at December 31, 2011 2,433,400 $2.27 3.2 $ -    
  Exercisable at December 31, 2011 1,271,150 $2.24 3.1 $ -    

(1)The intrinsic value at December 31, 2011 based upon the quoted market price of Cdn$1.36 per share for our common stock on the TSX and an exchange ratio of 0.9804 Canadian dollars per United States dollar.

 

The activity in the 2006 Plan for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

                     2011                                   2010                                    2009          
  Options Weighted
Average
Exercise
Price(Cdn$)		 Options Weighted
Average
Exercise
Price(Cdn$)		 Options Weighted
Average
Exercise
Price(Cdn$)
2006 Plan            
Outstanding, beginning of year 2,584,000  $2.23  519,000  $1.55  2,135,000  $3.28 
Granted                  -     2,065,000  $2.40  519,000  $1.55 
Exercised  (150,600) $1.60                   -     -    
Cancelled                  -                    -     (1,935,000) $3.30 
Forfeited              -                  -     (200,000) $3.12 
Outstanding, end of year 2,433,400 $2.27  2,584,000 $2.23  519,000  $1.55 
Exercisable, end of year 1,271,150 $2.24  775,750 $2.12  129,750  $1.55 

 

d.)     Stock option compensation – Change in Accounting Principle

 

On January 1, 2011, Solitario changed its accounting for stock options to equity accounting from liability accounting in accordance with ASU 2010-13. In accordance with ASU 2010-13, this change in accounting principle has been made on a prospective basis as of January 1, 2011 with a reduction to stock option liability of $2,775,000, an increase to additional paid-in capital of $1,240,000 and a reduction in accumulated deficit of $992,000, net of deferred taxes of $543,000. The newly adopted accounting principle is preferable because it improves consistency in financial reporting by eliminating diversity in accounting practice.

 

Solitario has estimated that if it had not adopted the change in accounting principle it would have recorded a reduction in stock option compensation expense of $835,000 and would have reduced net loss by $524,000 or $0.02 per share for the year ended December 31, 2011.